<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 reports its transaction with four investors, pursuant to which such
     investors  purchased an aggregate of 776,827  shares of the common stock of
     ModaCAD  and,  subject to  shareholder  approval,  warrants  to purchase an
     aggregate of 919,245 shares of ModaCAD's  common stock.  Concurrently  with
     the investor  transaction,  ModaCAD  entered 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
     Securities  Purchase  Agreement  between  ModaCAD and the Purchasers  named
     therein, 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 9, 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>                                                                  

                         SECURITIES PURCHASE AGREEMENT


     This  SECURITIES  PURCHASE  AGREEMENT  ("Agreement")  is entered into as of
April 7, 1999,  by and between  ModaCAD,  Inc.,  a California  corporation  (the
"Company"),  with  headquarters  located  at  Culver  City,  California  and the
purchasers  (the  "Purchasers")  set forth on the execution  pages hereof,  with
regard to the following:
                                    RECITALS

     A. The Company and Purchasers  are executing and delivering  this Agreement
in reliance  upon the exemption  from  securities  registration  afforded by the
provisions of Regulation D ("Regulation D"), as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act").

     B. Purchasers  desire to purchase,  upon the terms and conditions stated in
this Agreement,  (i) shares of the Company's  Common Stock (the "Common Stock"),
(ii) Warrants in the form of Exhibit A-1 hereto (the "First Warrant")  entitling
the holder  thereof to purchase  shares of Common Stock,  (iii)  Warrants in the
form of Exhibit A-2 hereto  entitling the holder  thereof to purchase  shares of
Common Stock (the "Second Warrant") and (iv) Warrants in the form of Exhibit A-3
hereto  entitling  the holder  thereof to purchase  shares of Common  Stock (the
"Third  Warrant"  and,  taken  together  with the First  Warrant  and the Second
Warrant,  the "Warrants").  The shares of Common Stock being purchased hereunder
are  referred to herein as the  "Shares" or the "Stock" and the shares of Common
Stock  issuable  upon  exercise of the  Warrants  are  referred to herein as the
"Warrant  Shares".   The  Shares,  the  Warrants  and  the  Warrant  Shares  are
collectively referred to herein as the "Securities."

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

                                   AGREEMENTS

     NOW,  THEREFORE,  in consideration of their respective  promises  contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby  acknowledged,  the  Company  and  Purchasers  hereby  agree as
follows:

<PAGE>
                                    ARTICLE I
                         PURCHASE AND SALE OF SECURITIES


     I.1  Purchase  of  Shares  and  Warrants.  Subject  to the  terms  and  the
satisfaction  or  waiver of the  conditions  set  forth in this  Agreement,  the
issuance,  sale and purchase of the Shares and Warrants  shall be consummated in
one closing hereinafter referred to as the "Closing").

          a. [Intentionally deleted].

          b. On the date of the Closing, subject to the satisfaction (or waiver)
     of the applicable  conditions set forth in Articles VI and VII, the Company
     shall issue and sell to each  Purchaser,  and each Purchaser shall purchase
     from the Company  (i) the number of shares of Common  Stock set forth below
     such  Purchaser's  name  on the  signature  pages  hereof,  (ii) a  Warrant
     entitling  the holder  thereof to purchase the number of Warrant  Shares as
     set forth in such Warrant and (iii) the Second Warrant entitling the holder
     thereof  to  purchase  the  number of  Warrant  Shares as set forth in such
     Warrant.  The aggregate  purchase  price to be paid by  Purchasers  for the
     Common Stock and Warrants  being  purchased by Purchasers at the Closing is
     equal to eight million, five hundred and thirty two thousand,  four hundred
     seventy  three dollars  ($8,532,473),  which is one hundred and one percent
     (101%) of the closing sale price on April 6, 1999 (the "Per Share  Price"),
     times the  numbers  of shares  of Common  Stock set forth on the  signature
     pages  executed by each  Purchaser.  The purchase  price to be paid by each
     Purchaser  for the  Common  Stock  and  Warrants  being  purchased  by such
     Purchaser at the Closing is equal to one hundred and one percent  (101%) of
     the  closing  sale  price on April 6, 1999  times  the  number of shares of
     Common Stock set forth on the signature page executed by such Purchaser.

          c. [Intentionally deleted].

          d. Each  Purchaser  represents  that it and any person  trading on its
     behalf, has not engaged in any bids for or purchases or sales of the Common
     Stock  during the period  beginning  sixteen (16) trading days prior to the
     date of the Closing and ending on the trading day immediately preceding the
     date of the Closing.

     I.2  Form of  Payment.  At  each  Closing,  each  Purchaser  shall  pay the
applicable  Purchase Price for the Securities  being purchased by such Purchaser
at such  Closing  by wire  transfer  to the  Company,  in  accordance  with  the
Company's written wiring  instructions,  against delivery of duly executed stock
certificates and Warrants,  and the Company shall deliver to each Purchaser such
executed stock certificates and Warrants against delivery of such Purchase Price
from each  Purchaser.  The obligations in this Agreement of each Purchaser shall
be separate from the obligations of each other Purchaser and shall relate solely
to the Purchased  Securities to be purchased by such Purchaser.  The obligations
of the  Company  with  respect  to each  Purchaser  shall be  separate  from the
obligations of the Company to each other  Purchaser and shall not be conditioned
as to any  Purchaser  upon  the  performance  of the  obligations  of any  other
Purchaser.

<PAGE>
     I.3  Closing  Dates.  Subject  to  the  satisfaction  (or  waiver)  of  the
conditions  set forth in  Articles  VI and VII  below,  the date and time of the
issuance,  sale and purchase of the Securities  pursuant to this Agreement shall
be April 7, 1999  (the"Closing  Date").  The  Closing  shall occur at 10:00 a.m.
Chicago time,  at the offices of Altheimer & Gray, 10 S. Wacker Drive,  Chicago,
IL 60606.

     I.4 Limitation on Sales. Notwithstanding anything to the contrary contained
in this  Agreement,  the Company may not sell and any Purchaser may not purchase
any shares of Common  Stock  pursuant  to this  Agreement  and the  transactions
contemplated  hereby to the extent that such sale and  purchase  would result in
such  Purchaser  beneficially  owning in excess of 9.9% of the  shares of Common
Stock.  For  the  purposes  of  this  paragraph,  beneficial  ownership  and all
determinations and calculations,  including without limitation,  with respect to
calculations  of percentage  ownership,  shall be determined in accordance  with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D and G thereunder.  This Section 1.4(c) may not be waived by Purchaser unless
such waiver has been voted upon and approved by a majority of the holders of the
Common Stock.

                                   ARTICLE II
                   PURCHASER'S REPRESENTATIONS AND WARRANTIES

     Each Purchaser  represents and warrants,  solely with respect to itself and
its  purchase  hereunder  and not with  respect  to any other  Purchaser  or the
purchase  hereunder by any other  Purchaser (and no Purchaser shall be deemed to
make or have any liability for any  representation or warranty made by any other
Purchaser),  to the Company as set forth in this Article II. No Purchaser  makes
any other  representations or warranties,  express or implied, to the Company in
connection  with the  transactions  contemplated  hereby  and any and all  prior
representations and warranties,  if any, which may have been made by a Purchaser
to the Company in connection with the transactions  contemplated hereby shall be
deemed to have been merged in this Agreement and any such prior  representations
and  warranties,  if any,  shall not survive the  execution and delivery of this
Agreement.

<PAGE>
    II.1  Investment  Purpose.  Purchaser is purchasing the Shares and Warrants
for Purchaser's own account for investment only and not with a view toward or in
connection with the public re-sale or distribution  thereof,  except pursuant to
sales that are exempt from the  registration  requirements of the Securities Act
and/or sales registered under the Securities Act.  Purchaser will not resell any
of the Securities except pursuant to sales that are exempt from the registration
requirements of the Securities Act and/or sales  registered under the Securities
Act.  Purchaser  understands  that Purchaser must bear the economic risk of this
investment  indefinitely,   unless  the  applicable  Securities  are  registered
pursuant to the Securities Act and any applicable  state  securities  laws or an
exemption  from such  registration  is  available,  and that the  Company has no
present  intention of registering any such Securities other than as contemplated
by the Registration  Rights  Agreement.  By making the  representations  in this
Section 2.1, the Purchaser does not agree to hold any Securities for any minimum
or other  specific  term and  reserves the right to dispose of any or all of the
Securities  at any  time  in  accordance  with  or  pursuant  to a  registration
statement or an applicable exemption from registration under the Securities Act.

     II.2 Accredited Investor Status.  Purchaser is an "accredited  investor" as
that term is defined in Rule 501(a) of Regulation D.

     II.3  Reliance on  Exemptions.  Purchaser  understands  that the Shares and
Warrants  are being  offered and sold to  Purchaser  in reliance  upon  specific
exemptions from the  registration  requirements of the United States federal and
state  securities  laws and that the  Company  is  relying  upon the  truth  and
accuracy of the  representations and warranties of Purchaser set forth herein in
order to determine the  availability  of such  exemptions and the eligibility of
Purchaser to acquire the Securities.

     II.4  Information.  Purchaser  and its  counsel  have  been  furnished  all
materials  relating to the business,  finances and operations of the Company and
materials  relating to the offer and sale of the Shares and Warrants  which have
been  specifically  requested  by  Purchaser.  Purchaser  has been  afforded the
opportunity  to ask  questions  of the  Company,  and its  officers,  directors,
employees and agents,  and has received what  Purchaser  believes to be complete
and satisfactory  answers to any such inquiries.  Neither such inquiries nor any
other  due  diligence  investigation  conducted  by  Purchaser  or  any  of  its
representations  and warranties shall modify,  amend or affect Purchaser's right
to rely on the Company's  representations  and  warranties  contained in Article
III.  Purchaser  understands  that  Purchaser's  investment  in  the  Securities
involves a high degree of risk.

     II.5  Governmental  Review.  Purchaser  understands  that no United  States
federal  or state  agency or any other  government  or  governmental  agency has
passed upon or made any  recommendation  or  endorsement of the Securities or an
investment therein.

     II.6 Transfer or Resale.  Purchaser understands that (i) except as provided
in the Registration  Rights Agreement,  the Securities have not been and are not
being  registered under the Securities Act or any state securities laws, and may
not be transferred  unless  subsequently  registered  thereunder or an exemption
from such  registration  is available  (which  exemption  the Company  expressly
agrees may be established as  contemplated in clauses (b) and (c) of Section 5.1
hereof); (ii) any sale of such Securities made in reliance on Rule 144 under the
Securities Act (or a successor rule) ("Rule 144") may be made only in accordance
with the terms of said Rule and  further,  if said Rule is not  applicable,  any
resale of such  Securities  without  registration  under the  Securities Act may
require  compliance  with some other  exemption  under the Securities Act or the
rules and regulations of the SEC  thereunder;  and (iii) neither the Company nor
any other person is under any obligation to register such  Securities  under the
Securities  Act or any state  securities  laws or to  comply  with the terms and
conditions of any  exemption  thereunder  (in each case,  other than pursuant to
this Agreement or the Registration Rights Agreement).

<PAGE>
     II.7 Legends.  Purchaser understands that, subject to Article V hereof, the
certificates for the Warrants, and until such time as the Shares and the Warrant
Shares,  as  applicable,  have  been  registered  under  the  Securities  Act as
contemplated by the  Registration  Rights  Agreement or otherwise may be sold by
Purchaser  pursuant  to Rule 144,  the  certificates  for the Shares and Warrant
Shares will bear a restrictive legend (the "Legend") in the following form:

     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.

     II.8 Authorization; Enforcement. This Agreement and the Registration Rights
Agreement  have been duly and validly  authorized,  executed  and  delivered  on
behalf  of  Purchaser  and  are  valid  and  binding   agreements  of  Purchaser
enforceable against Purchaser in accordance with their terms.

     II.9 Residency. Purchaser is a resident of the jurisdiction set forth under
Purchaser's name on the signature page hereof executed by Purchaser.

                                   ARTICLE III
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company represents and warrants to each Purchaser that:

     III.1  Organization  and  Qualification.   The  Company  and  each  of  its
subsidiaries  is a corporation  duly  organized,  validity  existing and in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite  corporate  power and authority to own its properties and to carry
on its business as now being conducted. The Company and each of its subsidiaries
is  duly  qualified  as a  foreign  corporation  to do  business  and is in good
standing  in every  jurisdiction  where the  failure to so qualify  would have a
Material  Adverse Effect.  "Material  Adverse Effect" means any material adverse
effect  on  (i)  the  business,  operations,  properties,  financial  condition,
operating results or prospects of the Company and its  subsidiaries,  taken as a
whole on a consolidated basis, (ii) the transactions  contemplated hereby, (iii)
the ability of the Company to perform its obligations under this Agreement,  the
Warrants or the Registration  Rights Agreement  (collectively,  the "Transaction
Documents") or (iv) the Purchaser's interest in the Securities.

<PAGE>
    III.2  Authorization;  Enforcement.  (a)  The  Company  has  the  requisite
corporate  power and  authority  (i) to enter into and perform  its  obligations
under each of the Transaction Documents,  (ii) to issue and sell, and to perform
its obligations  with respect to, the Shares and the Warrants in accordance with
the terms hereof and thereof,  as applicable,  (iii) issue the Warrant Shares in
accordance  with the terms of the  Warrants;  (b) the  execution,  delivery  and
performance  of  each  of the  Transaction  Documents  by the  Company  and  the
consummation  by  it  of  the  transactions   contemplated  hereby  and  thereby
(including  without  limitation the issuance of the Warrants and the reservation
for issuance  and the  issuance of the Shares and the Warrant  Shares) have been
duly  authorized by all  necessary  corporate  action and no further  consent or
authorization of the Company, its board of directors, or its stockholders or any
other person, body or agency is required with respect to any of the transactions
contemplated  hereby or thereby  (whether  under  rules of The  Nasdaq  National
Market ("Nasdaq"), the National Association of Securities Dealers or otherwise),
other than the Nasdaq  Authorizations (as herein defined) and the declaration or
ordering of effectiveness by the SEC of the Registration Statement or Statements
as  contemplated  by  the  Registration  Rights  Agreement  (collectively,   the
"Consents");  (c) this  Agreement,  the  Registration  Rights  Agreement and the
Warrants have been duly  executed and delivered by the Company;  and (d) each of
the Transaction  Documents  constitutes a legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.

<PAGE>
     III.3  Capitalization.  The capitalization of the Company as of the date of
this  Agreement,  including the authorized  capital stock,  the number of shares
issued and outstanding,  the number of shares reserved for issuance  pursuant to
the  Company's  stock option plans,  the number of shares  reserved for issuance
pursuant to securities (other than the Warrants) exercisable for, or convertible
into or exchangeable  for any shares of Common Stock and the number of shares to
be initially reserved for issuance upon exercise of the Warrants is set forth on
Schedule 3.3. All of such outstanding shares of capital stock have been, or upon
issuance will be, validly issued,  fully paid and  non-assessable.  No shares of
capital stock of the Company  (including the Shares and the Warrant  Shares) are
subject to preemptive  rights or any other similar rights of the stockholders of
the Company or any liens or  encumbrances.  Except as disclosed in Schedule 3.3,
as of the  date  of  this  Agreement,  (i)  there  are no  outstanding  options,
warrants,  scrip, rights to subscribe for, calls or commitments of any character
whatsoever  relating to, or securities or rights convertible into or exercisable
or  exchangeable  for, any shares of capital  stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the  Company  or  any of  its  subsidiaries  is or may  become  bound  to  issue
additional  shares of capital  stock of the Company or any of its  subsidiaries,
and (ii) there are no agreements or arrangements  under which the Company or any
of its  subsidiaries  is  obligated  to register the sale of any of its or their
securities under the Securities Act (except the Registration  Rights Agreement).
The Company has furnished to Purchaser  true and correct copies of the Company's
Certificate  of   Incorporation   as  currently  in  effect   ("Certificate   of
Incorporation"),   and  the  Company's  By-laws  as  currently  in  effect  (the
"By-laws").  The  Company  has set forth on  Schedule  3.3 all  instruments  and
agreements (other than the Certificate of Incorporation  and By-laws)  governing
securities  convertible  into or exercisable or exchangeable for Common Stock of
the Company (and the Company shall provide to Purchaser  copies thereof upon the
request of  Purchaser).  Except as disclosed in Schedule 3.3, the Company has no
indebtedness for borrowed money and no agreement  providing for indebtedness for
borrowed  money.  Except as disclosed in Schedule  3.3 and this  Agreement,  the
Company has no share purchase agreements,  rights plans or agreements containing
similar provisions and no agreements  containing  anti-dilution  provisions.  No
anti-dilution  provisions  which have,  individually  or in the  aggregate,  any
dilutive  effect on  Purchaser's  investment are triggered as a result of any of
the transactions  contemplated hereby, including exercise of the Warrants. Intel
Corporation has  specifically  agreed that no  anti-dilution  provisions will be
triggered as a result of the  transactions  contemplated  hereby with respect to
Intel Corporation shares and warrants issued in connection herewith. The Company
shall provide Purchaser with a written update of this  representation  signed by
the Company's  Chief Executive  Officer or Chief Financial  Officer on behalf of
the  Company  as of the  date of the  Closing  and it shall  be a  condition  to
Purchaser's  obligations  at Closing that there are no material  changes in such
capitalization  since  the  Company's  representation  on the date  hereof.  The
Company  has no  subsidiaries,  except as provided  on  Schedule  3.3.  All such
subsidiaries  included on Schedule 3.3. are one hundred  percent (100%) owned by
the Company. Except as provided on Schedule 3.3, the Company has no investments,
either debt or equity, in any other entity.

     III.4  Issuance  of  Shares.  The Shares  and the  Warrant  Shares are duly
authorized and reserved for issuance,  and, upon issuance in accordance with the
terms hereof and exercise of the Warrants in accordance  with the terms thereof,
as applicable,  will be validly issued, fully paid and non-assessable,  and free
from all liens,  claims and  encumbrances  and will not be subject to preemptive
rights or other similar rights of stockholders of the Company.  The Warrants are
duly authorized and are validly issued, fully paid and non-assessable,  and free
from all liens,  claims and  encumbrances and are not and will not be subject to
preemptive  rights or other similar rights of stockholders  of the Company.  The
Board of  Directors  of the Company has  unanimously  approved  the  issuance of
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 in Section 4.13)
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.

<PAGE>
    III.5  No  Conflicts.  The  execution,  delivery  and  performance  of this
Agreement,  the Warrants and the  Registration  Rights Agreement by the Company,
and the  consummation  by the Company of  transactions  contemplated  hereby and
thereby  (including,  without  limitation,  the  issuance  and  reservation  for
issuance,  as applicable,  of the Shares and Warrant Shares and the  Purchaser's
purchase and acquisition of the Shares,  the Warrants and the Warrant Shares) do
not and will not (a) result in a violation of the  Certificate of  Incorporation
or By-laws,  (b) conflict  with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of  termination,  amendment,  acceleration  or  cancellation  of, any
agreement,  indenture  or  instrument  to  which  the  Company  or  any  of  its
subsidiaries  is a party  (except for such  conflicts,  defaults,  terminations,
amendments,  accelerations,  and cancellations as would not,  individually or in
the aggregate,  have a Material Adverse Effect), or (c) result in a violation of
any law,  rule,  regulation,  order,  judgment  or  decree  (including,  without
limitation,  U.S. federal and state securities laws and regulations)  applicable
to the Company or any of its subsidiaries,  or by which any property or asset of
the  Company  or any of its  subsidiaries,  is bound or  affected.  Neither  the
Company  nor any of its  subsidiaries  is in  violation  of its  Certificate  of
Incorporation,  by-laws  or other  organizational  documents,  and  neither  the
Company nor any of its  subsidiaries  is in default  (and no event has  occurred
which, with notice or lapse of time or both, would put the Company or any of its
subsidiaries in default)  under,  nor has there occurred any event giving others
(with  notice or lapse of time or both) any  rights of  termination,  amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party,  except for possible defaults
or  rights as would  not,  individually  or in the  aggregate,  have a  Material
Adverse  Effect.  The business of the Company and its  subsidiaries is not being
conducted,  and shall not be  conducted  so long as a Purchaser  owns any of the
Securities,  in  violation  of any  law,  ordinance,  rule,  regulation,  order,
judgment or decree of any  governmental  entity,  court or arbitration  tribunal
except for possible  violations  the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect.  The Company is not required
to  obtain  any  consent,  authorization  or order  of,  or make any  filing  or
registration  with,  any  court or  governmental  agency  or any  regulatory  or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations  under this  Agreement,  the  Warrants  or the  Registration  Rights
Agreement or to perform its  obligations in accordance  with the terms hereof or
thereof, other than the Consents. The purchase and acquisition of the Securities
by the Purchaser do not violate any law, rule,  regulation,  order,  judgment or
decree  applicable to the Company,  or require  further filing by the Company or
Purchaser under such law, rule, regulation, order, judgment or decree, by virtue
of the Company's business or assets, other than the Consents. The Company is not
in  violation  of the  listing  requirements  of Nasdaq and does not  reasonably
anticipate that the Common Stock will be de-listed by Nasdaq for the foreseeable
future,  and the Company has made all necessary filings and notifications  with,
and  obtained  all  necessary   approvals  from,  Nasdaq  with  respect  to  the
transactions contemplated hereby, including, without limitation, the issuance of
the  Securities  and the  listing of the Shares  and the  Warrant  Shares on the
Nasdaq.

<PAGE>
     III.6 Registration and SEC Documents.  The Common Stock is registered under
Section 12 of the  Securities  Exchange Act of 1934,  as amended (the  "Exchange
Act") and has been so  registered  since March 1, 1996.  Except as  disclosed in
Schedule 3.6,  since  February  1996,  the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting  requirements  of the Exchange Act (all of the
foregoing  filed after  February  1996,  and all exhibits  included  therein and
financial  statements  and  schedules  thereto  and  documents  incorporated  by
reference  therein,  being  referred to herein as the "SEC  Documents"  and such
documents filed prior to the date hereof, the "Filed SEC Documents"),  including
for  purposes  of  determining  the  availability  of Form S-3.  The Company has
delivered to each Purchaser true and complete  copies of the SEC Documents filed
since  December  31,  1997.  As of their  respective  dates,  the SEC  Documents
complied in all material  respects with the requirements of the Exchange Act and
the rules and  regulations of the SEC promulgated  thereunder  applicable to the
SEC Documents,  and none of the SEC Documents,  at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to state a
material  fact  required to be stated  therein or necessary in order to make the
statements  therein,  in light of the circumstances  under which they were made,
not  misleading.  None of the  statements  made in any such SEC Document is, or,
except  pursuant  to Filed SEC  Documents  has been,  required  to be updated or
amended under  applicable law. The financial  statements of the Company included
in the SEC Documents were prepared in accordance  with U.S.  generally  accepted
accounting  principles,  consistently  applied, and the rules and regulations of
the SEC during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they do not include footnotes or are condensed
or summary  statements) and present  accurately and completely the  consolidated
financial  position of the Company and its  consolidated  subsidiaries as of the
dates thereof and the  consolidated  results of their  operations and cash flows
for the periods then ended  (subject,  in the case of unaudited  statements,  to
normal,  immaterial  year-end  audit  adjustments).  Except  as set forth in the
financial  statements of the Company  included in the Filed SEC  Documents,  the
Company has no liabilities,  contingent or otherwise, other than (i) liabilities
incurred  subsequent  to the date of such  financial  statements in the ordinary
course of business  consistent  with past  practice and (ii)  obligations  under
contracts and  commitments  incurred in the ordinary  course of business and not
required under generally accepted accounting  principles to be reflected in such
financial  statements,  in each case of clause  (i) and (ii) next  above  which,
individually or in the aggregate,  are not material to the financial  condition,
business, operations,  properties, operating results or prospects of the Company
and its subsidiaries taken on a whole. The Filed SEC Documents,  as supplemented
by Schedule 3.6 hereto,  contain a complete  and  accurate  list of all material
undischarged written or oral contracts,  agreements, leases or other instruments
to which the Company or any subsidiary is a party or by which the Company or any
subsidiary  is bound or to which any of the  properties or assets of the Company
or any  subsidiary  is  subject  (each a  "Contract"),  except to the extent not
required to be filed  pursuant to the  applicable  Rules and  Regulations of the
SEC.  None of the Company,  its  subsidiaries  or, to the best  knowledge of the
Company,  any of the other  parties  thereto,  is in breach or  violation of any
Contract,  which breach or violation relates to indebtedness for borrowed money,
is with  respect to an  obligation  in excess of one  hundred  thousand  dollars
($100,000)  or would have a Material  Adverse  Effect.  No event,  occurrence or
condition exists which,  with the lapse of time, the giving of notice,  or both,
or the  happening of any further  event or  condition,  would become a breach or
default by the Company or its  subsidiaries  under any Contract  which breach or
default would have a Material Adverse Effect.

     III.7 Absence of Certain  Changes.  Since December 31, 1998, there has been
no material adverse change and no material adverse  development in the business,
properties,  operations, financial condition, results of operations or prospects
of the Company, except as disclosed in Schedule 3.7.

<PAGE>
    III.8 Absence of Litigation.  Except as disclosed in Schedule 3.8, there is
no action,  suit,  proceeding,  inquiry or investigation before or by any court,
public board, governmental agency or authority, or self-regulatory  organization
or body pending or, to the knowledge of the Company or any of its  subsidiaries,
threatened against or affecting the Company, any of its subsidiaries,  or any of
their respective  directors or officers in their capacities as such,  wherein an
unfavorable  decision,  ruling or finding could reasonably be expected to have a
Material Adverse Effect or would adversely affect the transactions  contemplated
by this  Agreement or any of the  documents  contemplated  hereby or which would
adversely affect the validity or enforceability  of, or the authority or ability
of the Company to perform its obligations  under,  this Agreement or any of such
other documents. To the Company's knowledge,  there are no facts which, if known
by a potential claimant or governmental agency or authority,  could give rise to
a claim or proceeding  which, if asserted or conducted with results  unfavorable
to the Company or any of its subsidiaries,  could reasonably be expected to have
a Material Adverse Effect.

     III.9 Disclosure.  No information relating to or concerning the Company set
forth  in this  Agreement  or  provided  to  Purchaser  in  connection  with the
transactions contemplated hereby contains an untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were made, not
misleading.  Except for the execution and  performance of this Agreement and the
transactions  contemplated  hereby,  no material fact (within the meaning of the
federal securities laws of the United States) exists with respect to the Company
or any of its subsidiaries which has not been publicly disclosed.

     III.10 Acknowledgment Regarding Purchaser's Purchase of the Securities. The
Company  acknowledges and agrees that each Purchaser is acting independently and
is not acting as a  financial  advisor or  fiduciary  of the  Company (or in any
similar   capacity)  with  respect  to  this   Agreement  or  the   transactions
contemplated  hereby,  that  this  Agreement  and the  transaction  contemplated
hereby,  and the  relationship  between  each  Purchaser  and the  Company,  are
"arms-length",  and  that any  statement  made by any  Purchaser,  or any of its
representatives or agents, in connection with this Agreement or the transactions
contemplated  hereby is not advice or a recommendation,  is merely incidental to
such Purchaser's  purchase of the Securities and has not been relied upon in any
way by the  Company,  its  officers,  directors  or other  representatives.  The
Company  further  represents to Purchaser  that the Company's  decision to enter
into this  Agreement  and the  transactions  contemplated  hereby has been based
solely on an independent evaluation by the Company and its representatives.

     III.11 Current  Public  Information.  The Company is currently  eligible to
register the resale of the Shares and the Warrant  Shares by the  Purchaser in a
secondary  offering  under  General  Instruction  B3  and  B4 of  Form  S-3 on a
registration statement on Form S-3 under the Securities Act, all as contemplated
by Section 2.1 of the Registration Rights Agreement.

     III.12 No General  Solicitation.  Neither the Company nor any person acting
on behalf of the Company has conducted any "general  solicitation," as described
in Rule 502(c) under  Regulation D, with respect to any of the Securities  being
offered hereby.

<PAGE>
     III.13  No  Integrated  Offering.  Neither  the  Company,  nor  any  of its
affiliates,  nor any person acting on their  behalf,  has directly or indirectly
made any  offers or sales of any  security  or  solicited  any offers to buy any
security  under  circumstances  that  would  prevent  the  parties  hereto  from
consummating the transactions  contemplated hereby pursuant to an exemption from
registration  under the  Securities Act pursuant to the provisions of Regulation
D. The  transactions  contemplated  hereby  are  exempt  from  the  registration
requirements of the Securities Act, assuming the accuracy of the representations
and warranties  herein  contained of each  Purchaser to the extent  relevant for
such determination.

     III.14 No Brokers. The Company has taken no action which would give rise to
any claim by any  person for  brokerage  commissions,  finder's  fees or similar
payments  by  Purchaser   relating  to  this   Agreement  or  the   transactions
contemplated hereby,  except for dealings with PaineWebber  Incorporated and ING
Baring Furman Selz LLC (the fees of which shall be paid in full by the Company).
The Company will indemnify each Purchaser from and against any fees and expenses
sought or other claims made by  PaineWebber  Incorporated  or ING Baring  Furman
Selz LLC.

     III.15  Acknowledgment  of Dilution.  The number of Warrant Shares issuable
upon   exercise  of  the  Warrants  may   increase   substantially   in  certain
circumstances.  The Company's  executive officers and directors have studied and
fully understand the terms of this Agreement and the  transactions  contemplated
hereby and the nature of the securities  being sold hereunder and recognize that
they have a potentially  dilutive effect.  The board of directors of the Company
has unanimously  concluded in its good faith business judgment that the issuance
of the Shares, the Warrants and the Warrant Shares as contemplated  hereby is in
the best interests of the Company.  The Company acknowledges that its obligation
to issue  Warrant  Shares upon  exercise of the  Warrants is binding upon it and
enforceable  regardless  of the  dilution  that  such  issuance  may have on the
ownership interests of other stockholders.

     III.16 Intellectual Property. Each of the Company and its subsidiaries owns
or  possesses  adequate  and  enforceable  rights  to use  all  patents,  patent
applications,  trademarks,  trademark applications,  trade names, service marks,
copyrights, copyright applications,  licenses, know-how (including trade secrets
and  other   unpatented   and/or   unpatentable   proprietary  or   confidential
information,  systems or procedures)  and other similar  rights and  proprietary
knowledge (collectively, "Intangibles") used or necessary for the conduct of its
business as now being  conducted  and as  previously  described in the Company's
Annual  Report on Form  10-K most  recently  filed  and any  subsequently  filed
reports on Form 10-Q and Form 8-K. Neither the Company nor any subsidiary of the
Company  infringes on or is in conflict  with any right of any other person with
respect  to any  Intangibles  nor is there any claim of  infringement  made by a
third party against or involving the Company or any of its  subsidiaries,  which
infringement,  conflict  or  claim,  individually  or in the  aggregate,  if the
subject of an  unfavorable  decision,  ruling or finding,  would have a Material
Adverse Effect.

<PAGE>
    III.17  Foreign  Corrupt  Practices.  Neither the  Company,  nor any of its
subsidiaries,  nor any director, officer, agent, employee or other person acting
on behalf of the  Company or any  subsidiary  has,  in the course of his actions
for, or on behalf of, the  Company,  used any  corporate  funds for any unlawful
contribution,  gift,  entertainment  or  other  unlawful  expenses  relating  to
political activity;  made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate,  payoff,  influence payment,  kickback or
other  unlawful  payment  to any  foreign or  domestic  government  official  or
employee.  Without limiting the generality of the foregoing, the Company and its
subsidiaries  have not directly or indirectly made or agreed to make (whether or
not said  payment is lawful) any payment to obtain,  or with  respect to,  sales
other than usual and regular  compensation  to its or their  employees and sales
representatives with respect to such sales.

     III.18 Key  Employees.  The Key  Employee  (as defined  below) is currently
serving the Company in the capacity disclosed in Schedule 3.18. No Key Employee,
to the best of the knowledge of the Company and its subsidiaries,  is, or is now
expected to be, in violation of any material  term of any  employment  contract,
confidentiality,    disclosure    or    proprietary    information    agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its  subsidiaries  to any liability with respect to any of the
foregoing  matters.  No Key  Employee  has, to the best of the  knowledge of the
Company and its subsidiaries, any intention to terminate or limit his employment
with,  or services to, the Company or any of its  subsidiaries,  nor is any such
Key Employee  subject to any constraints  (e.g.,  litigation)  which would cause
such  employee  to be  unable  to devote  his full  time and  attention  to such
employment or services. "Key Employee" means Maurizio Vecchione.

                                   ARTICLE IV
                                    COVENANTS

     IV.1 Best  Efforts.  The  parties  shall use their best  efforts  timely to
satisfy  each  of the  conditions  described  in  Articles  VI and  VII of  this
Agreement.

     IV.2  Securities  Laws. The Company agrees to file a Form D with respect to
the Securities with the SEC as required under Regulation D and to provide a copy
thereof to each Purchaser on or prior to the date of Closing. The Company agrees
to file a Form 8-K disclosing this Agreement and the  transactions  contemplated
hereby with the SEC within three (3) days  following  the date of Closing.  Such
Form  8-K  shall  contain  as  exhibits  this  Agreement,  the  Warrant  and the
Registration  Rights  Agreement.  The Company shall,  on or prior to the date of
Closing,  take  such  action  as is  necessary  to sell the  Securities  to each
Purchaser in accordance  with  applicable  securities  laws of the states of the
United  States,  and shall provide  evidence of any such action so taken to each
Purchaser  on or prior to the date of the Closing.  Without  limiting any of the
Company's obligations under this Agreement, the Registration Rights Agreement or
the  Warrant,  from and after the date of  Closing,  neither the Company nor any
person acting on its behalf shall take any action which would  adversely  affect
any exemptions  from  registration  under the Securities Act with respect to the
transactions contemplated hereby.

<PAGE>
     IV.3 Reporting  Status.  So long as any Purchaser  beneficially owns any of
the Securities,  the Company shall timely file all reports  required to be filed
with the SEC pursuant to the Exchange  Act, and the Company  shall not terminate
its status as an issuer  required to file reports under the Exchange Act even if
the  Exchange  Act or the rules and  regulations  thereunder  would  permit such
termination.

     IV.4 Use of Proceeds.  The Company  shall use the proceeds from the sale of
the Preferred Stock for working capital purposes.

     IV.5 Restriction on Below Market Issuance of Securities.(a) For a period of
one (1) year  following the date of the Closing,  the Company shall not issue or
agree to issue (except (i) to the Purchasers  pursuant to this  Agreement,  (ii)
pursuant to any employee stock option,  stock purchase or restricted  stock plan
of the  Company in effect on the date  hereof up to the  aggregate  amounts  set
forth on Schedule  4.5 hereto,  (iii)  pursuant to  strategic  investments  from
industry  participants,  the  primary  purpose  of each of which is not to raise
equity  capital)  any equity  securities  or any  equity-like  or  equity-linked
securities of the Company (or any security  convertible  into or  exercisable or
exchangeable,  directly or indirectly,  for equity, equity-like or equity-linked
securities of the Company) if such  securities  are issued at a price (or in the
case of securities convertible into or exercisable or exchangeable,  directly or
indirectly, for Common Stock such securities provide for a conversion,  exercise
or exchange  price)  which may be less than the then  current  market  price for
Common Stock on the date of issuance  (in the case of Common  Stock) or the date
of conversion,  exercise or exchange (in the case of securities convertible into
or exercisable or exchangeable, directly or indirectly, for Common Stock).

     IV.6 Further  Restriction  on Issuance of  Securities.  While any Purchaser
holds any  Shares,  Warrants  or Warrant  Shares,  the  Company  and each of its
subsidiaries  shall not issue, or authorize for issuance,  or otherwise transfer
or enter into any commitment to issue or otherwise transfer,  any debt or equity
security, bond, note or other security of any of the Company's subsidiaries.

     IV.7 Expenses.  The Company shall pay to Castle Creek  Technology  Partners
LLC ("CCTP"), or at its direction, at the Closing reimbursement for the expenses
incurred  by  it  and  its  affiliates  and  advisors  in  connection  with  the
negotiation,  preparation,  execution,  and delivery of this  Agreement  and the
other agreements and documents to be executed in connection herewith, including,
without  limitation,  due  diligence  and  attorneys'  fees  and  expenses  (the
"Expenses").  In addition,  from time to time  thereafter,  upon CCTP's  written
request,  the Company  shall pay to CCTP such  Expenses,  if any, not so paid at
Closing and/or covered by such payment,  in each case to the extent  incurred by
CCTP. The Company shall not be required to reimburse Expenses to the extent such
Expenses exceed fifty thousand dollars ($50,000) in the aggregate.

<PAGE>
    IV.8 Information.  The Company agrees to send the following reports to each
Purchaser  until the earlier of (i) such Purchaser  transfers,  assigns or sells
all of its  Securities;  or (ii) the 2nd  anniversary  of the Closing Date:  (a)
within three (3) days after the filing with the SEC, a copy of its Annual Report
on Form 10-K, its Quarterly  Reports on Form 10-Q, any proxy  statements and any
Current  Reports on Form 8-K; and (b) within two (2) days after release,  copies
of all press  releases  issued by the  Company or any of its  subsidiaries.  The
Company  further agrees to promptly  provide to each  Purchaser any  information
with respect to the Company, its properties, or its business or such Purchaser's
investment as such Purchaser may reasonably request; provided, however, that the
Company  shall not be  required to give any  Purchaser  any  material  nonpublic
information.  If any  information  requested  by a  Purchaser  from the  Company
contains material nonpublic information, the Company shall inform such Purchaser
in  writing  that  the  information   requested   contains  material   nonpublic
information  and shall in no event  provide such  information  to any  Purchaser
without the  express  prior  written  consent of such  Purchaser  after being so
informed.

     IV.9  Restriction on Each Purchaser.  Each Purchaser agrees (whether itself
or through agent on behalf of itself) not to engage in any purchases or sales of
the Common Stock (i) during the period beginning sixteen (16) trading days prior
to the date of the  Closing  and ending on the  trading day prior to the date of
the  Closing,  and (ii) if the  average of the  closing bid prices of the Common
Stock  for the  period  beginning  fifteen  (15) days  prior to the first  (1st)
anniversary of the Closing and ending on the 1st anniversary of the Closing (the
"Reset Period") is less than the Per Share Price, during the Reset Period.

     IV.10 Listing.  For a period of beginning on the Closing Date and ending on
the third (3rd)  anniversary of the Closing Date, the Company shall continue the
listing  and  trading of its Common  Stock on The Nasdaq  National  Market,  the
Nasdaq  SmallCap  Market,  the New York Stock  Exchange  or the  American  Stock
Exchange,  secure and  maintain  listing  and  trading of the Shares and Warrant
Shares  on  such  exchange,  and  comply  in all  respects  with  the  Company's
reporting,  filing  and other  obligations  under the  by-laws  or rules of such
exchange.  If the Company fails to maintain the listing or trading of the Common
Stock as required by this  Section  4.10,  then  beginning  on the tenth  (10th)
business day following such failure,  if the Common Stock is still not listed or
traded,  then the Company  shall pay to each  Purchaser  an amount  equal to one
percent (1%) of the fair market value of the Shares and Warrant Shares then held
by such Purchaser per day that such failure continues.  For purposes hereof, the
number of Warrant  Shares held by a Purchaser  shall be calculated as though all
Warrants held by such  Purchaser  were fully  exercised,  without  regard to any
limitations on the exercise thereof. If the Common Stock is not listed or traded
for an  aggregate  of thirty (30) days over any twelve (12) month  period,  each
Purchaser may, at its option, require the Company to purchase all or any portion
of the Shares and  Warrant  Shares held by such  Purchaser  at a price per share
equal to the greater of (i) one hundred  fifty  percent  (150%) of the Per Share
Price and (ii) the fair market value of such share.

     IV.11 Prospectus Delivery Requirement.  Each Purchaser understands that the
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof  pursuant to a registration  statement under
the  Securities  Act covering  the resale by such  Purchaser of the Common Stock
being sold.

     IV.12  Intentional Acts or Omissions.  The Company shall not  intentionally
perform any act which if  performed,  or  intentionally  omit to perform any act
which,  if omitted to be performed,  would prevent or excuse the  performance of
this Agreement or any of the transactions contemplated hereby.

<PAGE>
     IV.13 Share  Authorization.  The Company shall use its best efforts to have
Nasdaq confirm in writing that the 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 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 each  Purchaser  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 each Purchaser,  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,  each Purchaser may, at
its option,  (the "Exchange  Option") require the Company to purchase all or any
portion of the First  Warrant,  the Second Warrant and/or the Third Warrant held
by such  Purchaser for the Exchange  Price (as herein  defined),  subject to the
limitation on shares set forth below.  The "Exchange  Price" means a price equal
to the number of shares of Common Stock  Purchaser  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  average  closing  sale  price  during  the ten  (10)  trading  days
immediately  preceding  the  earlier  of (i) July 30,  1999 and (ii) the  annual
meeting  of  the  Company's   shareholders  at  which  Shareholder  Approval  is
considered over the Exercise Price. Such number of shares may include all shares
of Common Stock  Purchaser  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 such  Purchaser the Exchange 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 Exchange Price, in cash
(the "Cash Portion") to the extent that the Company has sufficient liquidity and
in a promissory  note (the  "Exchange  Note") to such  Purchaser with a one-year
term,  interest  equal to the  then-current  prime rate and in principal  amount
equal to the the difference between the Exchange Price and the Cash Portion.  If
the Company elects to deliver a Exchange Note,  then the Company shall repay the
outstanding  principal  and  interest  on the  Exchange  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  pre-payment  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  pre-payment.  If the  Company  delivers  a  Exchange  Note and  during the
one-year  term of such note,  obtains  Shareholder  Approval as required by this
Section 4.13, the Company may, at its election, require the holder of a Exchange
Note to exchange such Exchange  Note for a Warrant with  identical  terms to the
Warrant (or part  thereof)  which was  exchanged 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 Exchange Note divided by (III) the original  principal amount of
the Exchange  Note, at an exercise  price equal to (q) the closing sale price of
the Common Stock on the date the Company  elected to exchange the Exchange  Note
for a warrant  minus  (r) an  amount  equal to the  difference  between  (X) the
average of the highest "X" (as defined  below) closing sale prices of the Common
Stock during the period (the "Computation  Period")  beginning on the earlier of
(i)  July  30,  1999  and (ii)  the  date of the  Company's  annual  meeting  of
shareholders at which Shareholder Approval was considered and ending on the date
the Company  elects to exchange the Exchange Notes for a new warrant and (Y) the
exercise price of the Original Warrant at the time of exchange (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 exchange until
the date of exchange); provided the following conditions are then met:

          (i)  the  Company  has  delivered  to  the  Purchasers  notice  of its
     intention to exercise its right to exchange  within ten (10)  business days
     after obtaining Shareholder Approval;

          (ii) the  exercise  period  of the new  warrant  begins on the date of
     issuance thereof and ends on the date which is the number of days following
     the effectiveness of the resale Registration Statement required to be filed
     under Section  2.1(b) of the  Registration  Rights  Agreement  equal to the
     number of days remaining in the exercise period of the Original  Warrant at
     the time of the exchange of the Original Warrant;

          (iii) the Common Stock,  including all Warrant  Shares,  is listed and
     trading on the Nasdaq National Market or the New York Stock Exchange;

<PAGE>
         (iv) no breach of a material  agreement or  obligation  of the Company
     under this Agreement, the Registration Rights Agreement or the Warrants has
     occurred; and

          (v) within  sixty  (60) days after the  exchange,  the  Company  shall
     obtain the  effectiveness of a Registration  Statement on Form S-3 covering
     the  resale of the  Warrant  Shares on Form S-3;  the  Registration  Rights
     Agreement  shall  apply  to  this  obligation  as if this  obligation  were
     included in Section 2.1(a) of the Registration Rights Agreement.

     For  purposes of this  Section  4.13,  "X" shall mean:  if the  Computation
Period  is four (4)  months  or less,  ten (10);  if the  Computation  Period is
greater than four (4) months but less than six (6) months,  fifteen (15); if the
Computation Period is greater than or equal to six (6) months, twenty (20).

                                    ARTICLE V
                    LEGEND REMOVAL AND TRANSFER INSTRUCTIONS

     V.1 Removal of Legend.  The Legend  shall be removed and the Company  shall
issue a certificate  without any legend to the holder of any Security upon which
such Legend is stamped,  and a  certificate  for a Security  shall be originally
issued without any legend,  if, unless  otherwise  required by applicable  state
securities  laws,  (a)  the  sale of  such  Security  is  registered  under  the
Securities Act, (b) such holder provides the Company with an opinion of counsel,
in form,  substance  and scope  customary  for opinions of counsel in comparable
transactions,  and  reasonably  satisfactory  to the Company  (the cost of which
shall be borne by the  Holder),  to the effect that a public sale or transfer of
such Security may be made without  registration  under the Securities Act or (c)
such  Security can be sold  pursuant to Rule 144.  Purchaser  agrees to sell all
Securities,  including  those  represented  by a  certificate(s)  from which the
Legend has been removed, or which were originally issued without the Legend, (i)
pursuant to an effective  registration  statement and to deliver a prospectus in
connection  with  such sale or (ii) in  compliance  with an  exemption  from the
registration  requirements  of the  Securities  Act.  In the event the Legend is
removed  from any  Security  or any  Security  is issued  without the Legend and
thereafter the effectiveness of a registration  statement covering the resale of
such Security is suspended or a supplement  or amendment  thereto is required by
applicable  securities  laws, then upon  reasonable  advance notice to Purchaser
holding such Security,  the Company may require that the Legend be placed on any
such  Security  that cannot then be sold  pursuant to an effective  registration
statement or Rule 144 or with respect to which the opinion referred to in clause
(b) next above has not been  rendered,  which  Legend shall be removed when such
Security may be sold pursuant to an effective registration statement or Rule 144
or such holder provides the opinion with respect thereto described in clause (b)
next above.  Except for the Legend  required  pursuant to this  Section 5.1, the
Securities shall bear no legend.

<PAGE>
     V.2 Transfer  Agent  Instructions.  The Company shall instruct its transfer
agent to issue certificates, registered in the name of Purchaser or its nominee,
for the Shares and Warrant Shares in such amounts as specified from time to time
by Purchaser to the Company.  Such certificates  shall bear a legend only in the
form of the Legend and only to the extent  permitted  by Section 5.1 above.  The
Company warrants that no instruction other than such instructions referred to in
this  Article V, and no stop  transfer  instructions  other  than stop  transfer
instructions  to give effect to Section 2.6 hereof in the case of the Shares and
Warrant Shares prior to  registration  thereof under the Securities Act, will be
given by the  Company  to its  transfer  agent  and that  the  Securities  shall
otherwise  be  freely  transferable  on the books and  records  of the  Company.
Nothing in this Section  shall  affect in any way  Purchaser's  obligations  and
agreement set forth in Section 5.1 hereof to resell the  Securities  pursuant to
an effective  registration  statement  and to deliver a prospectus in connection
with  such  sale  or in  compliance  with an  exemption  from  the  registration
requirements of applicable securities laws. Without limiting any other rights of
Purchaser or obligations of the Company,  if (a) Purchaser  provides the Company
with an opinion of counsel, which opinion of counsel shall be in form, substance
and scope  customary  for opinions of counsel in  comparable  transactions  (the
reasonable cost of which shall be borne by the Company),  to the effect that the
Securities to be sold or transferred  may be sold or transferred  pursuant to an
exemption from registration or (b) a Purchaser transfers  Securities pursuant to
Rule 144, the Company  shall  permit the  transfer,  and  promptly  instruct its
transfer  agent  to  issue  one or more  certificates  in such  name and in such
denomination  as specified by such  Purchaser in order to effect such a transfer
or  sale.  The  Company  acknowledges  that a  breach  by it of its  obligations
hereunder will cause irreparable harm to a Purchaser by vitiating the intent and
purpose  of  the  transaction  contemplated  hereby.  Accordingly,  the  Company
acknowledges  that the remedy at law for a breach of its obligations  under this
Article V will be inadequate and agrees,  in the event of a breach or threatened
breach by the  Company of the  provisions  of this  Article V, that a  Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring  immediate  issuance and transfer,  without
the necessity of showing  economic  loss and without any bond or other  security
being required.

     V.3 Failure to Remove Legend.  If the Company fails to remove any legend as
required by this Article V (a "Legend Removal  Failure"),  then beginning on the
tenth (10th) day  following  such failure,  if the Company  continues to fail to
remove such  legend,  the Company  shall pay to each  Purchaser  holding  shares
subject to a Legend  Removal  Failure an amount equal to one percent (1%) of the
fair market value of the Shares and Warrant  Shares then held by such  Purchaser
per day that such failure continues.  For purposes hereof, the number of Warrant
Shares held by a Purchaser  shall be  calculated  as though all Warrants held by
such Purchaser were fully  exercised,  without regard to any  limitations on the
exercise thereof.  If during any twelve (12) month period,  the Company fails to
remove any legend as required by this  Article V for an aggregate of thirty (30)
days, each Purchaser  holding shares subject to a Legend Removal Failure may, at
its option, require the Company to purchase all or any portion of the Shares and
Warrant  Shares held by such Purchaser at a price per share equal to the greater
of (i) one hundred fifty percent (150%) of the Per Share Price and (ii) the fair
market value of such share.

                                   ARTICLE VI
                 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
<PAGE>

    VI.1 Conditions to the Company's  Obligation to Sell. The obligation of the
Company  hereunder  to issue and sell the Shares and  Warrants to a Purchaser at
the  Closing is subject to the  satisfaction,  as of the date of the Closing and
with respect to such  Purchaser,  of each of the following  conditions  thereto,
provided that these  conditions  are for the  Company's  sole benefit and may be
waived by the Company at any time in its sole discretion:

          (i) Such  Purchaser  shall have  executed the  signature  page to this
     Agreement and the  Registration  Rights Agreement and delivered the same to
     the Company.

          (ii) Such Purchaser  shall deliver the  applicable  Purchase Price for
     the Shares and Warrant Shares purchased at the Closing.

          (iii) The  representations  and warranties of such Purchaser  shall be
     true and  correct as of the date when made and as of the  Closing as though
     made at that time,  and  Purchaser  shall  have  performed,  satisfied  and
     complied  in all  material  respects  with  the  covenants  and  agreements
     required by this Agreement to be performed or complied with by Purchaser at
     or prior to the  Closing.  The Company  shall have  received a  certificate
     executed by the Chief Executive  Officer or Chief Financial Officer of such
     Purchaser  dated the Date of the Closing to the foregoing  effect and as to
     such other matters as may be reasonably requested by the Company.

          (iv) No statute, rule, regulation,  executive order, decree, ruling or
     injunction shall have been enacted, entered, promulgated or endorsed by any
     court  or   governmental   authority  of  competent   jurisdiction  or  any
     self-regulatory organization having authority over the matters contemplated
     hereby  which  restricts  or  prohibits  the  consummation  of  any  of the
     transactions contemplated by this Agreement.

                                   ARTICLE VII
              CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE

     VII.1 Conditions to the Closing. The obligation of each Purchaser hereunder
to purchase  the Shares and  Warrants to be  purchased  by it on the date of the
Closing is  subject to the  satisfaction  of each of the  following  conditions,
provided that these  conditions are for each Purchaser's sole benefit and may be
waived by such  Purchaser  (with respect to it) at any time in such  Purchaser's
sole discretion:

          (i)  The  Company  shall  have  executed  the  signature  page to this
     Agreement and the  Registration  Rights Agreement and delivered the same to
     such Purchaser.

          (ii) The Company shall have delivered duly executed  certificates  for
     the  Shares  (in such  denominations  as such  Purchaser  shall  reasonably
     request) and Warrant being so purchased by Purchaser at the Closing.

<PAGE>
          (iii) The Common Stock, including all Shares and Warrant Shares, shall
     be listed on the Nasdaq and trading in the Common Stock shall not have been
     suspended  by the  Nasdaq,  the SEC or other  regulatory  authority  and no
     de-listing or suspension  shall be  reasonably  likely for the  foreseeable
     future.

          (iv) The  representations  and warranties of the Company shall be true
     and  correct as of the date when made and as of the  Closing as though made
     at that time and the Company shall have  performed,  satisfied and complied
     with  the  covenants  and  agreements  required  by  this  Agreement  to be
     performed or complied with by the Company at or prior to the Closing.  Such
     Purchaser  shall  have  received  a  certificate,  executed  by  the  Chief
     Executive  Officer or Chief Financial  Officer of the Company,  dated as of
     the Closing to the foregoing  effect and as to such other matters as may be
     reasonably requested by such Purchaser.

          (v) No statute, rule,  regulation,  executive order, decree, ruling or
     injunction shall have been enacted, entered, promulgated or endorsed by any
     court  or   governmental   authority  of  competent   jurisdiction  or  any
     self-regulatory organization having authority over the matters contemplated
     hereby  which  prohibits  the  consummation  of  any  of  the  transactions
     contemplated by this Agreement.

          (vi) Such  Purchaser  shall have  received the  officer's  certificate
     described  in Section  3.3,  dated as of the  Closing and there shall be no
     material  changes from the date of signing of this Agreement to the date of
     the Closing other than as a result of issuance of Common Stock  pursuant to
     options, warrants and other obligations disclosed on Schedule 3.3 as of the
     date of this Agreement.

          (vii) Such  Purchaser  shall have  received  opinions of the Company's
     counsel, dated as of the Closing, in the form attached hereto as Exhibit C.

          (viii) The  Company's  transfer  agent has agreed to act in accordance
     with irrevocable instructions in the form attached hereto as Exhibit D.

          (ix) Intel Corporation ("Intel") has previously or simultaneously with
     the Closing  exchanged  all rights to Intel's  future  royalty  stream into
     warrants (on the same terms as the  Warrants,  including but not limited to
     with respect to exercise price) Common Stock at an exchange rate acceptable
     to the Company  which is not less than five million  dollars  ($5,000,000),
     pursuant to documents acceptable to such Purchaser.

          (x) The Company has filed a Form D with respect to the Securities with
     the SEC as required  under  Regulation D and has provided a copy thereof to
     each Purchaser.

<PAGE>
         (xi) The Company has filed an Additional  Listing  Application (and no
     additional time is required for the effectiveness  thereof) with respect to
     all Shares and Warrant  Shares with the National  Association of Securities
     Dealers and has provided a copy thereof to each Purchaser.

     VII.2 [Intentionally deleted].



                                  ARTICLE VIII
                          GOVERNING LAW; MISCELLANEOUS

     VIII.1 Governing Law; Jurisdiction. This Agreement 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  parties
hereto  irrevocably  consent to the  jurisdiction  of the United States  federal
courts  located in the State of California  and the state courts  located in the
County of Los Angeles in the State of California in any suit or proceeding based
on or arising under this Agreement or the transactions  contemplated  hereby and
irrevocably  agree 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
further  agrees that  service of process  upon the  Company  mailed by the first
class mail shall be deemed in every  respect  effective  service of process upon
the Company in any suit or proceeding  arising  hereunder.  Nothing herein shall
affect any Purchaser's  right to serve process in any other manner  permitted by
law. The parties hereto agree that a final  non-appealable  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.

<PAGE>
     VIII.2 Vecchione 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 later of (a) six (6) months
following the effectiveness of the Registration  Statement  required to be filed
pursuant to Section 2.1 of the  Registration  Rights Agreement and (b) the first
(1st) anniversary of the date of the Closing and (ii) the date on which Maurizio
Vecchione ceases to be President or CEO of the Company, the Company shall pay to
each  Purchaser an amount  equal to (x) the number of Shares and Warrant  Shares
(without  giving  effect to any exercise  thereof)  then held by such  Purchaser
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 (each a "Freedman")  dispose of any 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
effectiveness  of the  Registration  Statement  required to be filed pursuant to
Section 2.1 of the Registration Rights Agreement,  the Company shall pay to each
Purchaser  an  amount  equal to (x) the  number  of Shares  and  Warrant  Shares
(without  giving  effect to any exercise  thereof)  then held by such  Purchaser
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.

     VIII.3  Counterparts.  This  Agreement  may be  executed  in  two  or  more
counterparts,  including, without limitation, by facsimile transmission,  all of
which  counterparts  shall be  considered  one and the same  agreement and shall
become effective when  counterparts have been signed by each party and delivered
to the other party.  In the event any  signature  page is delivered by facsimile
transmission,  the party  using such means of delivery  shall  cause  additional
original executed signature pages to be promptly delivered to the other parties.

     VIII.4  Headings.  The headings of this  Agreement are for  convenience  of
reference  and shall not form part of, or affect  the  interpretation  of,  this
Agreement.

     VIII.5 Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or  enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

     VIII.6 Scope of Agreement; Amendments. This Agreement and the documents and
instruments  referenced  herein contain the entire  understanding of the parties
with  respect  to  the  matters  covered  herein  and  therein  and,  except  as
specifically set forth herein or therein, no Purchaser makes any representation,
warranty,  covenant or undertaking  with respect the  transactions  contemplated
hereby. No provision of this Agreement may be waived other than by an instrument
in writing signed by the party to be charged with  enforcement  and no provision
of this  Agreement may be amended other than by an instrument in writing  signed
by the Company and each Purchaser.

     VIII.7 Notice. Any notice herein required or permitted to be given shall be
in  writing  and  may  be  personally  served  or  delivered  by  courier  or by
facsimile-machine  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

<PAGE>
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

If to any Purchaser,  to such address set forth under such  Purchaser's  name on
the signature page hereto executed by such  Purchaser.  Each party shall provide
notice to the other parties of any change in address.

     VIII.8  Successors and Assigns.  This  Agreement  shall be binding upon and
inure to the benefit of the parties and their  successors  and assigns.  Neither
the Company nor any  Purchaser  shall  assign  this  Agreement  or any rights or
obligations   hereunder   without  the  prior  written  consent  of  the  other.
Notwithstanding  the  foregoing,  each  Purchaser  may  assign  its  rights  and
obligations  hereunder  and may transfer any or all of its  Securities to any of
its  "affiliates,"  as that term is defined under the Exchange Act,  without the
consent of the Company so long as such affiliate is an accredited investor. This
provision  shall not limit each  Purchaser's  right to transfer  the  Securities
pursuant  to the  terms of this  Agreement.  In  addition,  and  notwithstanding
anything  to the  contrary  contained  in this  Agreement,  the  Warrant  or the
Registration Rights Agreement,  the Securities may be pledged, and all rights of
Purchaser under this Agreement or any other agreement or document related to the
transaction contemplated hereby may be assigned,  without further consent of the
Company,  to a bona fide  pledgee in  connection  with a  Purchaser's  margin or
brokerage accounts.

     VIII.9  Third Party  Beneficiaries.  This  Agreement  is  intended  for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other person.

<PAGE>
     VIII.10 Survival. The representations, warranties, covenants and agreements
of the Company in this Agreement shall survive each and every Closing  hereunder
notwithstanding  any due  diligence  investigation  conducted by or on behalf of
Purchaser.  The Company agrees to indemnify and hold harmless each Purchaser and
each of each Purchaser's officers,  directors,  employees,  partners, agents and
affiliates for loss or damage to the extent arising as a result of or related to
(a) any breach by the Company of any of its  representations  or  covenants  set
forth herein or (b) any cause of action,  suit or claim  brought or made against
such indemnitee  (other than by the Company solely for breach of this Agreement,
the  Warrant  or the  Registration  Rights  Agreement  by the  indemnitee  or by
governmental or regulatory authorities) and arising out of or resulting from the
execution,  delivery,  performance or enforcement of this Agreement or any other
instrument,  document or  agreement  executed  pursuant  hereto or  contemplated
hereby, any transaction financed or to be financed in whole or in part, directly
or indirectly, with the proceeds of the issuance of the Securities or the status
of  Purchaser  as an  investor  in the  Company,  except to the extent that such
actual loss or damage arises out of or results from a breach by such  indemnitee
of this Agreement,  the Warrant or the  Registration  Rights Agreement or from a
Purchaser's  violation of law. The right to  indemnification  shall  include the
right to advancement of expenses as they are incurred.

     VIII.11 Public Filings; Publicity.  Immediately following execution of this
Agreement,  the  Company  shall  issue  a  press  release  with  respect  to the
transactions  contemplated hereby. The Company and each Purchaser shall have the
right to approve  before  issuance any press  releases  (including the foregoing
press  release),  SEC or other  filings,  or any other public  statements,  with
respect to the transactions  contemplated hereby;  provided,  however,  that the
Company shall be entitled,  without the prior approval of any Purchaser, to make
any press release or SEC, Nasdaq,  NASD or exchange filings with respect to such
transactions  as is required by applicable  law and  regulations  (although each
Purchaser  shall (to the extent  time  permits) be  consulted  by the Company in
connection  with any  such  press  release  prior to its  release  and  shall be
provided with a copy thereof).

     VIII.12 Further Assurances. Each party shall do and perform, or cause to be
done and  performed,  all such  further acts and things,  and shall  execute and
deliver all such other agreements,  certificates,  instruments and documents, as
the other  party may  reasonably  request  in order to carry out the  intent and
accomplish  the  purposes  of  this  Agreement  and  the   consummation  of  the
transactions contemplated hereby, including,  without limitation,  the filing of
all appropriate  documentation and notifications with Nasdaq with respect to the
Warrant  Shares  immediately  following  each  of  any  applicable   Shareholder
Approval,  any  applicable  Nasdaq  Approval and any  applicable  Second  Nasdaq
Approval.

     VIII.13 Remedies.  No provision of this Agreement  providing for any remedy
to a Purchaser shall limit any remedy which would otherwise be available to such
Purchaser at law or in equity.  Nothing in this Agreement shall limit any rights
a Purchaser may have with any applicable  federal or state  securities laws with
respect to the investment contemplated hereby.

     VIII.14  Directly or  Indirectly.  Where any  provision  in this  Agreement
refers to action to be taken by any  person or entity,  or which such  person or
entity is prohibited from taking, such provision shall be applicable whether the
action in question is taken directly or indirectly by such person or entity.


<PAGE>
    VIII.15  Remedies,  Characterizations,   Other  Obligations,  Breaches  and
Injunctive  Relief.  The remedies provided in this Agreement shall be cumulative
and in addition to all other remedies available under this Agreement,  at law or
in equity  (including a decree of specific  performance  and/or other injunctive
relief),  no remedy contained herein shall be deemed a waiver of compliance with
the  provisions  giving  rise to such remedy and  nothing  herein  shall limit a
Purchaser's  right to actual  damages  for any  failure by the Company to comply
with the terms of this Agreement.  The Company  covenants to each Purchaser that
there shall be no  characterization  concerning  this  instrument  other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments and the like (and the  computation  thereof) shall be the amounts to
be  received  by each  Purchaser  and shall not,  except as  expressly  provided
herein,  be subject to any other  obligation of the Company (or the  performance
thereof).  The  Company  acknowledges  that a  breach  by it of its  obligations
hereunder will cause  irreparable  harm to the Purchasers and that the remedy at
law for any such breach may be inadequate. The Company therefore agrees that, in
the event of any such  breach or  threatened  breach,  the  Purchasers  shall be
entitled,  in  addition  to  all  other  available  remedies,  to an  injunction
restraining  any breach,  without the  necessity  of showing  economic  loss and
without any bond or other security being required.

<PAGE>
     VIII.16 Payment of Cash; Defaults. Whenever the Company is required to make
any cash payment to a Purchaser under this Agreement, such cash payment shall be
due on the date (the  "Cash Due  Date")  that such  Purchaser  delivers  written
notice from the Purchaser to the Company. Such cash payment shall be made to the
Purchaser by the method (by  certified or  cashier's  check or wire  transfer of
immediately  available  funds)  elected by such  Holder.  If such payment is not
delivered  within  two (2) days of the  Cash  Due  Date,  such  Purchaser  shall
thereafter  be entitled  to  interest  on the unpaid  amount at a per annum rate
equal to the lower of  eighteen  percent  (18%) and the  highest  interest  rate
permitted by applicable law until such amount is paid in full to the Holder.

     VIII.17  Failure or Indulgence Not Waiver.  No failure or delay on the part
of a Purchaser in the exercise of any power, right or privilege  hereunder shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such power,  right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

     VIII.18 Termination.  In the event that the Closing shall not have occurred
on or before two (2) business days after the date of this agreement,  unless the
parties agree otherwise, this Agreement shall terminate at the close of business
on such date.

     VIII.19 Black-Scholes Amount. 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.

     VIII.20  Miscellaneous.  Notwithstanding  anything to the  contrary in this
Agreement  or the  Warrants,  to the extent that the consent or approval of each
Purchaser is required  under the documents,  with respect to a given matter,  no
Purchaser who  initially  puchases  less than one million  dollars  ($1,000,000)
shall have such consent or approval right.

                                      * * *

<PAGE>
    IN WITNESS WHEREOF, the undersigned  Purchasers and the Company have caused
this Agreement to be duly executed as of the date first above written.

PURCHASERS:

PURCHASER:

CASTLE CREEK TECHNOLOGY PARTNERS LLC

By: Castle Creek Partners, L.L.C.
Its: Investment Manager

By:                                                  
Name: John D. Ziegelman
Title: Managing Member

ADDRESS:77 W. Wacker Drive, Suite 4040   COPY TO: Altheimer & Gray
        Chicago, Illinois 60601                   10 S. Wacker Drive, Suite 4000
        Facsimile: (312) 499-6999                 Chicago, Illinois 60606
                                                  Attention: Peter H. Lieberman
                                                  Facsimile: (312) 715-4800

JURISDICTION: ILLINOIS

AGGREGATE NUMBER OF SHARES: 455,218
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-1: 159,326
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-2: 189,674
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-3: 189,674

<PAGE>
PURCHASER:


MARSHALL CAPITAL MANAGEMENT, INC.

By:                                                  
Name: Allan Weine
Title: President

ADDRESS:c/o Credit Suisse First Boston   COPY TO:c/o Credit Suisse First Boston
        11 Madison Ave., Third Floor            227 W. Monroe Street, 41st Floor
        New York, NY 10010                      Chicago, IL 60606
        Facsimile Number: (312) 750-1031

JURISDICTION: NEW YORK

AGGREGATE NUMBER OF SHARES: 227,609
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-1: 79,663
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-2: 94,837
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-3: 94,837

<PAGE>
PURCHASER:

WINFIELD CAPITAL CORP.

By:                                                  
Name:  Paul A. Perlin
Title: Chief Executive Officer

ADDRESS: 237 Mamaroneck Avenue              COPY TO:                            
         White Plains, New York 10605
         Facsimile Number: (914) 949-7195

JURISDICTION: New York

AGGREGATE NUMBER OF SHARES: 47,000
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-1: 16,450
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-2: 19,583
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-3: 19,583

<PAGE>
PURCHASER:

SPINNER ASSET MANAGEMENT CO.

By:                                                  
Name:                                                
Title:                                               

ADDRESS:                                             COPY TO:

Facsimile Number:                           

JURISDICTION:                       

AGGREGATE NUMBER OF SHARES: 47,000
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-1: 16,450
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-2: 19,583
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-3: 19,583

<PAGE>
COMPANY:

MODACAD, INC.

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

<PAGE>

                                  EXHIBIT A-1

VOID AFTER 5:00 P.M.
[EASTERN] TIME ON APRIL 7, 2004 [fifth anniversary of Closing]


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 ____ Shares of Common Stock

Date: April 7, 1999

                                  MODACAD, INC.
                             STOCK PURCHASE WARRANT


     THIS CERTIFIES THAT, for value received,  _______________ 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,  ______________  [0.35 times  (initial  tranche  funded amount
divided  by  initial   tranche   purchase  price  per  share)]  fully  paid  and
nonassessable  shares of the Company's common stock (the "Common Stock"),  at an
initial  exercise price of $13.72 per share (the  "Exercise  Price" [125% of Per
Share  Price (as  defined  in the  Securities  Purchase  Agreement  (as  defined
below)]),  subject to  adjustment  as contained  in Section  1(f)  hereof.  This
Warrant is being issued pursuant to that certain  Securities  Purchase Agreement
dated  April  7,  1999  between  the  Company  and the  signatory  thereto  (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.


<PAGE>                                                          

     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 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  or (ii) if the Holder  elects to effect a Cashless  Exercise (as
     defined in  Section  12(c)  below),  delivery  to the  Company of a written
     Exercise Agreement for a Cashless Exercise hereunder 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.

          (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.

<PAGE>
          (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  notice to exercise a Cashless  Exercise)  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
fifth (5th) anniversary of the date hereof (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 liens, claims and encumbrances.

<PAGE>
         (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 Section 4.10 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:

<PAGE>
     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:

<PAGE>
              (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").

<PAGE>
               (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.

<PAGE>
              (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.

<PAGE>
          (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,  at its  election,  either 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  of  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 that certain Registration Rights
     Agreement dated April 7, 1999 among the Company and the signatories thereto
     (the  "Registration  Rights  Agreement")  to  assume  all of the  Company's
     obligations  under the Registration  Rights  Agreement.  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.

<PAGE>
         (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;

<PAGE>
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 The
          Nasdaq National Market 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 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.

<PAGE>
              (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  First  Closing  and  ending on the
               earlier  of (i)  the  later  of (A)  six  (6)  months  after  the
               effectiveness of the Registration  Statement required to be filed
               by Section 2.1 of the  Registration  Rights Agreement and (B) the
               first (1st) anniversary of the date of the First Closing and (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   effectiveness  of  the  Registration   Statement
               required  to be filed by Section 2.1 of the  Registration  Rights
               Agreement,

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.

<PAGE>
     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, 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 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 Registration Rights 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.

<PAGE>
         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  Warrant,  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.  Additional  Restriction  on Exercise or Transfer.  Notwithstanding
     anything  to the  contrary  contained  herein,  the  Warrants  shall not be
     exercisable  by the Holder to the extent (but only to the extent)  that, if
     exercisable by Holder, Holder would beneficially own in excess of 9.9% (the
     "Applicable  Percentage")  of the shares of Common Stock. To the extent the
     above limitation  applies,  the determination of whether the Warrants shall
     be exercisable  (vis-a-vis  other  securities owned by Holder which contain
     similar   limitations  on  conversion)  and  of  which  Warrants  shall  be
     exercisable  (as among Warrants) shall be made on the basis of the earliest
     submission of the Warrants  (vis-a-vis other securities owned by the Holder
     which  contain  similar  limitations  on  conversion  and  vis a vis  other
     Warrants), in each case subject to such aggregate percentage limitation. No
     prior inability to exercise  Warrants pursuant to this paragraph shall have
     any effect on the  applicability  of the  provisions of this paragraph with
     respect to any subsequent determination of exercisability. For the purposes
     of  this  paragraph,   beneficial  ownership  and  all  determinations  and
     calculations, including without limitation, with respect to calculations of
     percentage ownership,  shall be determined in accordance with Section 13(d)
     of the Securities Exchange Act of 1934, as amended,  and Regulation 13D and
     G thereunder.  The  provisions of this  paragraph may be  implemented  in a
     manner  otherwise than in strict  conformity with the terms of this Section
     8(f) with the  approval  of the Board of  Directors  of the Company and the
     Holder:  (i) with respect to any matter to cure any  ambiguity  herein,  to
     correct this  paragraph  (or any portion  hereof) which may be defective or
     inconsistent with the intended Applicable  Percentage  beneficial ownership
     limitation herein contained or to make changes or supplements  necessary or
     desirable to properly give effect to such Applicable Percentage limitation;
     and (ii) with respect to any other matter (including  through any amendment
     of this Warrant),  with the further consent of the holders of a majority of
     the then  outstanding  shares of Common  Stock.  For  clarification,  it is
     expressly a term of this  security that the  limitations  contained in this
     Section shall apply to each successor Holder.

<PAGE>
    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 the  Registration  Rights
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
Los Angeles 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.

<PAGE>
          a.  Amendments.  This  Warrant  and any  provision  hereof may only be
     amended by an instrument  in writing  signed by the Company and the Holder,
     subject to the limitation contained in Section 8(f).

          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.

          di  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.

                                      * * *

<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

OID AFTER 5:00 P.M.
[EASTERN] TIME ON APRIL 7, 2000 [first anniversary of Closing]


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 ____ Shares of Common Stock

Date: April 7, 1999

                                  MODACAD, INC.
                             STOCK PURCHASE WARRANT


     THIS CERTIFIES THAT, for value received,  _______________ 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,  ______________  [Purchaser's portion of $5 million, allocated
pro rata based  upon  original  funding  amounts]  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"  [120% of Per Share
Price (as defined in the  Securities  Purchase  Agreement (as defined  below)]).
This  Warrant is being  issued  pursuant  to that  certain  Securities  Purchase
Agreement dated April 7, 1999 between the Company and the signatory thereto (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.

<PAGE>


     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 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.

          (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.

<PAGE>

         (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
first (1st) anniversary of the date hereof (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 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.

<PAGE>
          (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 Section 4.10 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
<PAGE>

     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.

<PAGE>

               (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.
<PAGE>

              (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.

<PAGE>
          (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.

<PAGE>
         (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,  at its  election,  to either (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  of  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 that certain Registration Rights
     Agreement dated April 7, 1999 among the Company and the signatories thereto
     (the  "Registration  Rights  Agreement")  to  assume  all of the  Company's
     obligations  under the Registration  Rights  Agreement.  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.

<PAGE>
          (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;

<PAGE>

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 The
          Nasdaq National Market 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 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:

<PAGE>

                    (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  First  Closing  and  ending on the
               earlier  of (i)  the  later  of (A)  six  (6)  months  after  the
               effectiveness of the Registration  Statement required to be filed
               by Section 2.1 of the  Registration  Rights Agreement and (B) the
               first (1st) anniversary of the date of the First Closing and (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   effectiveness  of  the  Registration   Statement
               required  to be filed by Section 2.1 of the  Registration  Rights
               Agreement,

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.

<PAGE>

         (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, 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 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 Registration Rights 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.

<PAGE>

         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  Warrant,  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.

<PAGE>
          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.  Additional  Restriction  on Exercise or Transfer.  Notwithstanding
     anything  to the  contrary  contained  herein,  the  Warrants  shall not be
     exercisable  by the Holder to the extent (but only to the extent)  that, if
     exercisable by Holder, Holder would beneficially own in excess of 9.9% (the
     "Applicable  Percentage")  of the shares of Common Stock. To the extent the
     above limitation  applies,  the determination of whether the Warrants shall
     be exercisable  (vis-a-vis  other  securities owned by Holder which contain
     similar   limitations  on  conversion)  and  of  which  Warrants  shall  be
     exercisable  (as among Warrants) shall be made on the basis of the earliest
     submission of the Warrants  (vis-a-vis other securities owned by the Holder
     which  contain  similar  limitations  on  conversion  and  vis a vis  other
     Warrants), in each case subject to such aggregate percentage limitation. No
     prior inability to exercise  Warrants pursuant to this paragraph shall have
     any effect on the  applicability  of the  provisions of this paragraph with
     respect to any subsequent determination of exercisability. For the purposes
     of  this  paragraph,   beneficial  ownership  and  all  determinations  and
     calculations, including without limitation, with respect to calculations of
     percentage ownership,  shall be determined in accordance with Section 13(d)
     of the Securities Exchange Act of 1934, as amended,  and Regulation 13D and
     G thereunder.  The  provisions of this  paragraph may be  implemented  in a
     manner  otherwise than in strict  conformity with the terms of this Section
     8(f) with the  approval  of the Board of  Directors  of the Company and the
     Holder:  (i) with respect to any matter to cure any  ambiguity  herein,  to
     correct this  paragraph  (or any portion  hereof) which may be defective or
     inconsistent with the intended Applicable  Percentage  beneficial ownership
     limitation herein contained or to make changes or supplements  necessary or
     desirable to properly give effect to such Applicable Percentage limitation;
     and (ii) with respect to any other matter (including  through any amendment
     of this Warrant),  with the further consent of the holders of a majority of
     the then  outstanding  shares of Common  Stock.  For  clarification,  it is
     expressly a term of this  security that the  limitations  contained in this
     Section shall apply to each successor Holder.

<PAGE>

    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 the  Registration  Rights
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
Los Angeles 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.


<PAGE>
          a.  Amendments.  This  Warrant  and any  provision  hereof may only be
     amended by an instrument  in writing  signed by the Company and the Holder,
     subject to the limitation contained in Section 8(f).

          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.

          ci [Intentionally deleted].

          di  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.

                                      * * *

<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

VOID AFTER 5:00 P.M.
[EASTERN] TIME ON JULY 7, 2000 [fifteen (15) months after Closing]


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 ____ Shares of
                                                                    Common Stock

Date: April 7, 1999

                                  MODACAD, INC.
                             STOCK PURCHASE WARRANT


     THIS CERTIFIES THAT, for value received,  _______________ 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,  ______________  [Purchaser's portion of $5 million, allocated
pro rata based  upon  original  funding  amounts]  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"  [120% of Per Share
Price (as defined in the  Securities  Purchase  Agreement (as defined  below)]).
This  Warrant is being  issued  pursuant  to that  certain  Securities  Purchase
Agreement dated April 7, 1999 between the Company and the signatory thereto (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.

<PAGE>
     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 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.

          (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.

<PAGE>
          (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").

          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 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.



<PAGE>
          (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 ("Nasdaq"), the Nasdaq SmallCap Market, the New York
     Stock Exchange or the American Stock Exchange,  as required by Section 4.10
     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.

<PAGE>

          (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.


<PAGE>
          (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.



<PAGE>

          (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.


<PAGE>

          (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,  at its  election,  either 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  of  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 that certain Registration Rights
     Agreement dated April 7, 1999 among the Company and the signatories thereto
     (the  "Registration  Rights  Agreement")  to  assume  all of the  Company's
     obligations  under the Registration  Rights  Agreement.  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.



<PAGE>

         (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;



<PAGE>

     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 for
     the trading day  immediately  preceding such date, or (ii) if Nasdaq 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 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:



<PAGE>

          (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 First  Closing and ending on the earlier of (i) the later of (A) six
     (6) months after the effectiveness of the Registration  Statement  required
     to be filed by Section 2.1 of the Registration Rights Agreement and (B) the
     first (1st)  anniversary of the date of the First Closing and (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   effectiveness  of  the
     Registration  Statement  required  to  be  filed  by  Section  2.1  of  the
     Registration Rights Agreement,

     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.



<PAGE>

          (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 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 Registration Rights 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.

<PAGE>

          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  Warrant,  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.  Additional  Restriction  on Exercise or Transfer.  Notwithstanding
     anything  to the  contrary  contained  herein,  the  Warrants  shall not be
     exercisable  by the Holder to the extent (but only to the extent)  that, if
     exercisable by Holder, Holder would beneficially own in excess of 9.9% (the
     "Applicable  Percentage")  of the shares of Common Stock. To the extent the
     above limitation  applies,  the determination of whether the Warrants shall
     be exercisable  (vis-a-vis  other  securities owned by Holder which contain
     similar   limitations  on  conversion)  and  of  which  Warrants  shall  be
     exercisable  (as among Warrants) shall be made on the basis of the earliest
     submission of the Warrants  (vis-a-vis other securities owned by the Holder
     which  contain  similar  limitations  on  conversion  and  vis a vis  other
     Warrants), in each case subject to such aggregate percentage limitation. No
     prior inability to exercise  Warrants pursuant to this paragraph shall have
     any effect on the  applicability  of the  provisions of this paragraph with
     respect to any subsequent determination of exercisability. For the purposes
     of  this  paragraph,   beneficial  ownership  and  all  determinations  and
     calculations, including without limitation, with respect to calculations of
     percentage ownership,  shall be determined in accordance with Section 13(d)
     of the Securities Exchange Act of 1934, as amended,  and Regulation 13D and
     G thereunder.  The  provisions of this  paragraph may be  implemented  in a
     manner  otherwise than in strict  conformity with the terms of this Section
     8(f) with the  approval  of the Board of  Directors  of the Company and the
     Holder:  (i) with respect to any matter to cure any  ambiguity  herein,  to
     correct this  paragraph  (or any portion  hereof) which may be defective or
     inconsistent with the intended Applicable  Percentage  beneficial ownership
     limitation herein contained or to make changes or supplements  necessary or
     desirable to properly give effect to such Applicable Percentage limitation;
     and (ii) with respect to any other matter (including  through any amendment
     of this Warrant),  with the further consent of the holders of a majority of
     the then  outstanding  shares of Common  Stock.  For  clarification,  it is
     expressly a term of this  security that the  limitations  contained in this
     Section shall apply to each successor Holder.

<PAGE>

          g. Redemption at Company's Option.

          1. On the first (1st)  anniversary of the date hereof and for ten (10)
     business  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
     representations,  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,  the Registration Rights Agreement and
     the  Warrants;   (b)  the   Registration   Statement  (as  defined  in  the
     Registration Rights Agreement) required to be filed by the Company pursuant
     to the Registration Rights Agreement covering the 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 Shares and Warrant  Shares,  is listed on the
     Nasdaq and trading in the Common Stock is not suspended by the Nasdaq,  the
     SEC or other  regulatory  authority  and, to the  Company's  knowledge,  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  reasonably  likely to cause a
     Material  Adverse  Effect,  and (e) the weighted  average sale price of the
     Common  Stock during any period of fifteen  (15)  consecutive  trading days
     during the twenty (20) trading days  immediately  preceding the first (1st)
     anniversary  is greater  than the  Exercise  Price.  For  purposes  of this
     Section  8(g),  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.

<PAGE>

          2. The Company shall effect the  Redemption at Company's  Option under
     this Section  8(g) by  delivering  written  notice  thereof (the  "Optional
     Redemption  Notice") on the first (1st)  anniversary  of the date hereof or
     within ten (10) business 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 the  Registration
     Rights 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:

<PAGE>

                          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 Los Angeles 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,
     subject to the limitation contained in Section 8(f).

          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].



<PAGE>

          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.

                                                        * * *

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



                                                           ModaCAD, Inc.

                                                   By:

                                                   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

                          REGISTRATION RIGHTS AGREEMENT

     THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"),  is made as of April
7, 1999, by and among ModaCAD,  Inc., a California  corporation (the "Company"),
with  headquarters  located at Culver City,  California and the undersigned (the
"Initial Purchasers").

                                    RECITALS

     A. In connection with the Securities  Purchase Agreement dated of even date
herewith by and between the Company and the Initial  Purchasers (the "Securities
Purchase Agreement"),  the Company has agreed, upon the terms and subject to the
conditions  contained  therein,  to issue and sell to the Initial  Purchaser (i)
shares of the  Company's  common  stock  (the  "Common  Stock"),  (ii)  warrants
exercisable  for shares of Common Stock,  in the form attached as Exhibit A-1 to
the Securities  Purchase  Agreement,  (iii) warrants  exercisable  for shares of
Common  Stock,  in the form attached as Exhibit A-2 to the  Securities  Purchase
Agreement and (iv) warrants  exercisable for shares of Common Stock, in the form
attached  as Exhibit A-3 to the  Securities  Purchase  Agreement  (each of (ii),
(iii) and (iv) a "Warrant" and taken  collectively,  the "Warrants").  Shares of
Common Stock issued and purchased pursuant to the Securities  Purchase Agreement
are herein  referred to as "Shares"  and shares of Common  Stock  issuable  upon
exercise of the Warrants are herein referred to as "Warrant Shares".

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

                                   AGREEMENTS

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

                                    ARTICLE I
                                   DEFINITIONS

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

<PAGE>                                                             

          (a) "Purchasers"  means the Initial  Purchasers and any transferees or
     assignees who agree to become bound by the  provisions of this Agreement in
     accordance with Article IX hereof.

          (b)  "register,"   "registered,"   and   "registration"   refer  to  a
     registration  effected by preparing and filing a Registration  Statement or
     Statements in compliance  with the  Securities Act and pursuant to Rule 415
     under the  Securities  Act or any  successor  rule  providing  for offering
     securities  on a continuous  basis ("Rule  415"),  and the  declaration  or
     ordering of  effectiveness  of such  Registration  Statement  by the United
     States Securities and Exchange Commission (the "SEC").

          (c) "Registrable  Securities"  means the Shares and the Warrant Shares
     and any shares of capital stock issued or issuable, from time to time (with
     any  adjustments),  on or in exchange for or otherwise  with respect to the
     Common Stock or any other Registrable Securities.

          (d)  "Registration  Statement"  means a registration  statement of the
     Company  under  the  Securities  Act  pursuant  to the  provisions  of this
     Agreement.

          (e) "Funded  Amount"  means eight  million,  five  hundred  thirty two
     thousand, four hundred seventy three dollars ($8,532,473).

     1.2  Capitalized  Terms.  Capitalized  terms used herein and not  otherwise
defined  herein shall have the  respective  meanings set forth in the Securities
Purchase Agreement.

                                   ARTICLE II
                                  REGISTRATION

     2.1 Mandatory Registration.

          (a) The Company shall prepare and file as soon as  practicable  but in
     any event on or prior to fifteen  (15) days  after the date of the  Closing
     (the "Filing Date") with the SEC a Registration Statement on Form S-3 (but,
     without limiting the Company's  obligation to file on Form S-3, if Form S-3
     is unavailable  to the Company,  on Form S-1) covering the resale of all of
     the Registrable Securities in a secondary offering by Purchasers,  provided
     that  each  Purchaser  shall  have  provided  timely  to  the  Company  all
     information needed for the Registration Statement regarding it and its plan
     of  distribution.   The  Registration  Statement  (and  each  amendment  or
     supplement  thereto,  and each request for  acceleration  of  effectiveness
     thereof)  shall be  provided  to (and  subject  to the  approval  of (which
     approval  shall not be  unreasonably  withheld  or  denied))  each  Initial
     Purchaser  and its counsel at least five (5) business days (or fewer to the
     extent provided herein) prior to its filing or other submission.

<PAGE>
          (b) If the Company fails to timely obtain Nasdaq  Approval (as defined
     in the Securities Purchase Agreement) or Second Nasdaq Approval (as defined
     in the Securities  Purchase  Agreement),  the Company shall (i) within five
     (5) days (also a "Filing Date") amend the Registration  Statement  required
     to be filed under  subsection (a) to cover the resale of as many of the the
     Shares and the Warrant Shares issuable upon exercise of the Warrants as are
     registrable  in a secondary  offering by  Purchasers  in such  Registration
     Statement and (ii) prepare and file as soon as practicable but in any event
     on or prior to five (5) days  after  the date of the  Shareholder  Approval
     (also a "Filing  Date") with the SEC a  Registration  Statement on Form S-3
     covering the resale of all of the Registrable Securities not covered by the
     Registration  Statement as described in clause (i) in a secondary  offering
     by Purchasers,  provided that each Purchaser  shall have provided timely to
     the Company all information needed for the Registration Statement regarding
     it and its plan of distribution. Each Registration Statement required to be
     filed hereunder (and each amendment or supplement thereto, and each request
     for  acceleration  of  effectiveness  thereof)  shall be  provided  to (and
     subject  to the  approval  of (which  approval  shall  not be  unreasonably
     withheld or denied))  each Initial  Purchaser and its counsel at least five
     (5) business  days (or fewer to the extent  provided  herein)  prior to its
     filing or other submission.

          (c) If the Company fails to cause the Registration  Statement required
     to filed under subsection (a) (as amended, if applicable, as required under
     clause (i) of subsection (b)) to become effective before one hundred eighty
     (180) days after the Closing,  then, as to the shares of Common Stock to be
     covered by such  Registration  Statement or Registration  Statements,  each
     Purchaser  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 such Common  Stock at a
     price per share  equal to the  greater  of (i) one  hundred  fifty  percent
     (150%)  of the Per Share  Price  (as  defined  in the  Securities  Purchase
     Agreement)  and (ii) the fair market  value for such Common  Stock.  If the
     Company  fails to cause the  Registration  Statement  required  to be filed
     under clause (ii) of subsection (b) to become  effective before one hundred
     eighty (180) days after the earlier (the "Second  Filing  Deadline") of (x)
     the date of filing thereof or (y) the fifth (5th) day after the date of the
     Shareholder  Approval,  then each Purchaser shall be entitled to sell (also
     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 part of the
     First  Warrant,  the Second  Warrant  and/or the Third Warrant held by such
     Purchaser  at a price  equal to one  hundred  fifty  percent  (150%) of the
     Black-Scholes  Amount (as defined in the Securities  Purchase Agreement) of
     the applicable  Warrant times the number of shares  underlying that portion
     of the Warrant as to which such  Purchaser has  exercised  such option (but
     only to the extent required to be covered by such Registration Statement).

          (d) After any Registration  Statement required to be filed pursuant to
     this  Section  2.1 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 Purchaser 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 Per Share Price (as defined in the  Securities
     Purchase Agreement) and (ii) the fair market value for the Common Stock.

<PAGE>
         (e) In order to effect an  Effectiveness  Failure Sale, a Purchaser (a
     "Selling Purchaser") 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  Purchaser,
     the Company shall  immediately  send, via facsimile,  a confirmation to the
     Selling Purchaser 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 and/or
     the Warrants, as applicable, to be sold hereunder, along with a copy of the
     Notice of Sale.  The Company shall  promptly pay the amount  required under
     subsection (c) upon delivery of such certificates.

     2.2  Underwritten  Offering.  If any  offering  pursuant to a  Registration
Statement  filed  pursuant  to  Section  2.1  hereof  involves  an  underwritten
offering,  the  Purchasers  who hold a majority in  interest of the  Registrable
Securities  subject  to such  underwritten  offering,  with the  consent of each
Initial  Purchaser,  shall have the right to select a total of one legal counsel
to represent the Purchasers  and an investment  banker or bankers and manager or
managers to  administer  the  offering,  which  investment  banker or bankers or
manager or managers  shall be reasonably  satisfactory  to the Company,  and all
fees and expenses of which shall be paid by the Purchasers.

<PAGE>
     2.3  Payments  by the  Company.  The Company  shall cause the  Registration
Statement  filed pursuant to Section 2.1(a) (or such  Registration  Statement as
amended  pursuant to Section  2.1(b)(i),  as applicable) 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").
The Company shall cause the  Registration  Statement  filed  pursuant to Section
2.1(b)(ii), if applicable, to become effective as soon as practicable, but in no
event later than the forty-fifth (45th) day following the applicable Filing Date
(also a "Registration  Deadline").  If any Registration Statement required to be
filed by the Company pursuant to Section 2.1 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  Purchasers)  (a  "Registration  Suspension"),  then the  Company  will make
payments  to the  Purchasers  in such  amounts  and at such  times  as  shall be
determined pursuant to this Section 2.3 as partial relief for the damages to the
Purchasers  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 Purchasers an amount equal to (A) .02 times (B) the
sum of the aggregate  Funded Amount plus the amount payable to the Company under
the  Warrants  times  (C) 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 2.1 is declared  effective  by the SEC. In
addition,  in the event of a Registration  Suspension,  the Company shall pay to
the Purchasers an amount equal to (D) .02 times (E) the Applicable Funded Amount
times (F) 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 2.3,  "Applicable  Funded  Amount" shall
mean (G) the sum of the Funded  Amount  plus the amount  payable to the  Company
under the Warrants  times (H) the number of Shares and Warrant Shares then owned
by the Purchasers (or issuable at that time as Warrant Shares upon full exercise
of the Warrant, without regard to any limitations on conversion thereof) divided
by (I) the number of Shares  originally  purchased and Warrant  Shares  issuable
upon full  exercise of the Warrant at the time of the  original  purchase of the
Warrants,  in each case without regard to any limitations on conversion thereof.
Amounts  to be paid  pursuant  to this  Section  2.3  shall  be paid pro rata to
Purchasers  based upon the number of Shares and Warrant Shares owned and Warrant
Shares issuable upon full conversion of the Warrant by each Purchaser, 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.

     2.4 Intentionally deleted

     2.5 Eligibility  for Form S-3. The Company  represents and warrants that it
meets the  requirements  for the use of Form S-3 for registration of the re-sale
by the Initial  Purchaser and any other Purchaser of the Registrable  Securities
and the Company shall file all reports  required to be filed by the Company with
the SEC in a timely  manner so as to maintain  such  eligibility  for the use of
Form S-3.

                                   ARTICLE III
                           OBLIGATIONS OF THE COMPANY

     In connection  with the  registration of the  Registrable  Securities,  the
Company shall have the following obligations:

     3.1 The  Company  shall  prepare  promptly  and  file  with  the  SEC  each
Registration Statement required by Section 2.1, and cause each such Registration
Statement  relating to  Registrable  Securities  to become  effective as soon as
practicable  after such filing,  and keep the Registration  Statement  effective
pursuant  to Rule 415 and  available  for use at all times until such date as is
the earlier of (i) the date on which all of the Registrable Securities have been
sold (and no further  Registrable  Securities  may be issued in the  future) and
(ii) the date on which  all of the  Registrable  Securities  (in the  reasonable
opinion of counsel to the Initial  Purchasers)  may be  immediately  sold to the
public  without  registration  and  without  restriction  as to  the  number  of
Registrable  Securities  to be sold,  whether  pursuant to Rule 144 or otherwise
(the "Registration  Period").  Each such Registration  Statement  (including any
amendments or supplements  thereto and  prospectuses  contained  therein and all
documents  incorporated  by  reference  therein)  shall not  contain  any untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated therein, or necessary to make the statements therein not misleading.

<PAGE>
    3.2 The  Company  shall  prepare  and file  with  the SEC  such  amendments
(including   post-effective   amendments)  and  supplements  to  a  Registration
Statement and the prospectus used in connection with each Registration Statement
as may be necessary to keep such Registration  Statement effective and available
for use at all times during the  Registration  Period,  and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all  Registrable  Securities  of the  Company  covered  by such  Registration
Statement until the termination of the Registration Period or, if earlier,  such
time as all of such  Registrable  Securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof as set
forth  in such  Registration  Statement.  In the  event  the  number  of  shares
available under a Registration  Statement filed pursuant to this Agreement is at
any time  insufficient  to cover all shares of Common  Stock  issued or issuable
pursuant to the Warrant or the Securities  Purchase Agreement (without regard to
any  limitations on exercise  contained  therein),  the Company shall amend,  if
permissible,  the Registration  Statement,  or file a new Registration Statement
(on the short form available therefor,  if applicable),  or both, so as to cover
all of the  Warrant  Shares  issued or  issuable  upon  exercise  of the Warrant
(without regard to any limitation on exercise contained therein),  in each case,
as soon as practicable, but in any event within five (5) days. The Company shall
cause such amendment  and/or new  Registration  Statement to become effective as
soon as practicable following the filing thereof.

     3.3  The  Company  shall  furnish  to  each  Purchaser  whose   Registrable
Securities are included in the Registration  Statement and its legal counsel (a)
promptly  after the same is prepared  and publicly  distributed,  filed with the
SEC, or received by the Company, one copy of the Registration  Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto,  and, in the case of the Registration  Statement referred
to in Section 2.1, each letter written by or on behalf of the Company to the SEC
or the  staff of the SEC,  and each item of  correspondence  from the SEC or the
staff of the SEC, in each case relating to such  Registration  Statement  (other
than any portion,  if any,  thereof  which  contains  information  for which the
Company has sought confidential  treatment),  and (b) such number of copies of a
prospectus,   including  a  preliminary  prospectus,   and  all  amendments  and
supplements  thereto and such other  documents as such  Purchaser may reasonably
request in order to facilitate  the  disposition of the  Registrable  Securities
owned (or to be owned) by such Purchaser.

<PAGE>
     3.4 The Company shall (a) register and qualify the  Registrable  Securities
covered  by  each   Registration   Statement  under   securities  laws  of  such
jurisdictions in the United States as each Purchaser who holds (or has the right
to hold) Registrable  Securities being offered reasonably requests,  (b) prepare
and  file in  those  jurisdictions  such  amendments  (including  post-effective
amendments) and supplements to such  registrations and  qualifications as may be
necessary to maintain the  effectiveness and availability for use thereof during
the  applicable  Registration  Period,  (c) take such  other  actions  as may be
necessary to maintain such  registrations  and  qualifications  in effect at all
times during the applicable  Registration Period, and (d) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for sale
in such jurisdictions; provided, however, that the Company shall not be required
in connection  therewith or as a condition thereto to (i) qualify to do business
in any jurisdiction  where it would not otherwise be required to qualify but for
this  Section  3.4,  (ii)  subject  itself  to  general  taxation  in  any  such
jurisdiction,  (iii)  file a general  consent  to service of process in any such
jurisdiction,  (iv)  provide any  undertakings  that cause the Company  material
expense or burden,  or (v) make any change in its charter or  by-laws,  which in
each case the board of directors of the Company determines to be contrary to the
best interests of the Company and its stockholders.

     3.5 In the event the  Purchasers  who hold a majority  in  interest  of the
Registrable  Securities being offered in an offering  pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof
select  underwriters for the offering,  the Company shall enter into and perform
its obligations  under an underwriting  agreement,  in usual and customary form,
including,  without  limitation,   customary  indemnification  and  contribution
obligations,  with the  underwriters  of such  offering,  but shall not bear any
costs or expenses of the underwriting.

     3.6 As soon as practicable  after becoming aware of such event, the Company
shall  notify  (by  telephone  and also by  facsimile  and  reputable  overnight
courier) each Purchaser of the happening of any event,  of which the Company has
knowledge,  as a result of which the  prospectus  included  in the  Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated  therein or necessary to
make the statements therein not misleading,  and use its best efforts as soon as
possible  (but in any event  within  five (5) days) to prepare a  supplement  or
amendment to the Registration  Statement (and make all required filings with the
SEC) to correct  such  untrue  statement  or  omission,  and the  Company  shall
simultaneously  (and  thereafter as requested)  deliver such number of copies of
such supplement or amendment to each Purchaser (or other applicable document) as
such  Purchaser  may  request  in  writing.  Unless  such an event  is  publicly
announced,  the Company shall not,  without the consent of the  Purchaser,  give
such  Purchaser  any  material  non-public  information,  but shall  inform  the
Purchasers that such prospectus  includes an untrue statement of a material fact
or omission to state a material fact required to be stated  therein or necessary
to make the statements therein not misleading.

     3.7 The Company  shall use its best  efforts to prevent the issuance of any
stop order or other  suspension of  effectiveness  of a Registration  Statement,
and, if such an order is issued,  to obtain the  withdrawal of such order at the
earliest  practicable time and the Company shall immediately notify by facsimile
each  Purchaser  (at the  facsimile  number for such  Purchaser set forth on the
signature page hereto) who holds Registrable  Securities (or, in the event of an
underwritten  offering, the managing underwriters) of the issuance of such order
and the resolution thereof.

     3.8 The Company shall permit counsel  designated by each Initial  Purchaser
to review the Registration  Statement and all amendments and supplements thereto
a reasonable period of time prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects.

     3.9 [Intentionally deleted].

<PAGE>
    3.10 At the request of any  Purchaser,  the Company shall  furnish,  on the
date of effectiveness of the Registration  Statement and thereafter from time to
time on such dates as a Purchaser may reasonably  request (a) an opinion,  dated
as of such applicable date, from counsel  representing the Company  addressed to
the Purchasers and in form,  scope and substances as is customarily  given in an
underwritten public offering and (b) a letter, dated as of such applicable date,
from the Company's  independent  certified public  accountants  addressed to the
Purchasers and in form, scope and substance as customarily given to underwriters
in an underwritten public offering.

     3.11 The Company shall make  available for inspection by (i) any Purchaser,
(ii)  any  underwriter   participating  in  any  disposition   pursuant  to  the
Registration  Statement,   (iii)  attorneys  and  accountants  retained  by  any
Purchaser, and (iv) attorneys retained by such underwriters  (collectively,  the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively,  the "Records"), as shall
be  reasonably  deemed  necessary  by each  Inspector  and cause  the  Company's
officers,  directors and employees to supply all information which any Inspector
may reasonably  request;  provided,  however,  that each Inspector shall hold in
confidence  and shall not make any  disclosure  (except to a  Purchaser)  of any
Record or other  information  which the Company  determines  in good faith to be
confidential,  and of which  determination  the  Inspectors  are so  notified in
writing,  unless (a) the  disclosure  of such  Records is  necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required to be disclosed in such  Registration  Statement to permit Purchaser to
sell under  such  Registration  Statement,  (b) the  release of such  Records is
ordered pursuant to a subpoena or other order from a court or government body of
competent  jurisdiction,  or is otherwise  required by  applicable  law or legal
process or (c) the information in such Records has been made generally available
to the  public  other  than by  disclosure  in  violation  of this or any  other
agreement (to the knowledge of the relevant Purchaser). The Company shall not be
required  to  disclose  any  confidential  information  in such  Records  to any
Inspector   until  and  unless   such   Inspector   shall  have   entered   into
confidentiality agreements (in form and reasonable substance satisfactory to the
Company)  with the Company with respect  thereto,  substantially  in the form of
this Section  3.11.  Each  Purchaser  agrees that it shall,  upon  learning that
disclosure  of such Records is sought in or by a court or  governmental  body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the  Company,  at its  expense,  to  undertake  appropriate  action to
prevent  disclosure of, or to obtain a protective  order for, the Records deemed
confidential.  Nothing herein shall be deemed to limit a Purchaser's  ability to
sell Registrable Securities in a manner which is consistent with applicable laws
and regulations.

<PAGE>
     3.12 The Company  shall hold in confidence  and not make any  disclosure of
information  concerning  a  Purchaser  provided  to the  Company  excluding  any
information   provided  by  Purchaser  for  use  in  or  in  connection  with  a
Registration Statement unless (a) disclosure of such information is necessary to
comply  with  federal  or state  securities  laws,  (b) the  disclosure  of such
information is necessary to avoid or correct a  misstatement  or omission in any
Registration Statement,  (c) the release of such information is ordered pursuant
to a subpoena  or other  order from a court or  governmental  body of  competent
jurisdiction  or is otherwise  required by applicable law or legal process,  (d)
such  information has been made generally  available to the public other than by
disclosure in violation of this or any other  agreement (to the knowledge of the
Company),  or (e) such  Purchaser  consents  to the form and content of any such
disclosure.  The Company agrees that it shall,  upon learning that disclosure of
such  information  concerning  a  Purchaser  is  sought  in  or  by a  court  or
governmental body of competent  jurisdiction or through other means, give prompt
notice  to such  Purchaser  prior to  making  such  disclosure,  and  allow  the
Purchaser, at its expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such information.

     3.13 From and after each  Closing,  the Company shall cause the listing and
the  continuation of listing of all the Registrable  Securities  related to such
Closing and  required to be covered by a  Registration  Statement  on The Nasdaq
National  Market or the New York  Stock  Exchange,  and  cause  the  Registrable
Securities  to be  quoted  or  listed  on each  additional  national  securities
exchange or quotation  system upon which the Class A Common Stock is then listed
or quoted.

     3.14 The Company shall provide a transfer agent and registrar, which may be
a single  entity,  for the  Registrable  Securities not later than the effective
date of the applicable Registration Statement.

     3.15 The Company shall  cooperate with the Purchasers who hold  Registrable
Securities being offered and the managing  underwriter or underwriters,  if any,
to facilitate the timely  preparation and delivery of certificates  (not bearing
any  restrictive  legends)  representing  Registrable  Securities  to be offered
pursuant to the  Registration  Statement and enable such  certificates  to be in
such denominations or amounts,  as the case may be, as the managing  underwriter
or underwriters, if any, or the Purchasers may reasonably request and registered
in such  names as the  managing  underwriter  or  underwriters,  if any,  or the
Purchasers may request,  and,  within two (2) business days after a Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall cause legal counsel selected by the Company to deliver, to the
transfer  agent for the  Registrable  Securities  (with copies to the Purchasers
whose  Registrable  Securities are included in such  Registration  Statement) an
opinion of such counsel in the form attached hereto as Exhibit 1.

     3.16 At the request of any Purchaser,  the Company shall  promptly  prepare
and file with the SEC such amendments (including post-effective  amendments) and
supplements  to a Registration  Statement and the prospectus  used in connection
with a Registration Statement filed pursuant hereto as may be necessary in order
to change the plan of distribution set forth in such Registration Statement.

     3.17 The  Company  shall  comply  with all  applicable  laws  related  to a
Registration  Statement  and  offering  and sale of  securities  covered  by the
Registration  Statement and all applicable rules and regulations of governmental
authorities  in  connection  therewith  (including,   without  limitation,   the
Securities  Act and the  Securities  Exchange Act of 1934,  as amended,  and the
rules and regulations promulgated by the Commission).

<PAGE>
    3.18 The Company  shall take all such other actions as any Purchaser or the
underwriters,  if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable  Securities,  but shall not be required to incur
any costs or expenses in connection  therewith not otherwise  provided herein to
be borne by the Company.

     3.19 From and after the date of this Agreement,  the Company shall not, and
shall not agree to, allow the holders of any  securities  of the Company  (other
than Purchasers with respect to Registrable  Securities) to include any of their
securities in any Registration  Statement or any amendment or supplement thereto
under  Section  2.1 or 3.2 hereof  without  the  consent of each of the  Initial
Purchasers and the holders of a majority of the Registrable Securities.  Without
the consent of each of the Initial  Purchasers,  until the  effectiveness of the
Registration  Statements  contemplated by Section 2.1 hereof,  the Company shall
not file  any  other  Registration  Statement  for the  sale of any  securities,
whether for the account of the Company or any other  person;  provided,  however
that  after  the  filing  of the  Registration  Statement  required  to be filed
pursuant  to  Section  2.1(a)  the  Company  may file a  Registration  Statement
covering the sale of up to one hundred twenty six thousand three hundred sixteen
(126,316)  shares of Common  Stock by Intel  Corporation  (such shares of Common
Stock issuable  pursuant to that certain  Warrant issued by the Company to Intel
Corporation as of November 13, 1997, included as item (4) on Schedule 3.3 to the
Securities Purchase Agreement) and a Registration Statement covering the sale of
up to one hundred thousand  (100,000) shares of Common Stock by W.B. McKee, Inc.
(such shares of Common Stock issuable  pursuant to those certain Warrants issued
by the Company to such W.B. McKee,  Inc. as of March 27, 1996 in connection with
the Company's initial public offering).

     3.20  The   Registration   Statement   shall  state  that  it  covers  such
indeterminate  number of  additional  shares as may be issuable upon exercise of
the Warrants to prevent  dilution  resulting from stock splits,  stock dividends
and other similar transactions.

                                   ARTICLE IV
                          OBLIGATIONS OF THE PURCHASERS

     In connection  with the  registration of the  Registrable  Securities,  the
Purchasers shall have the following obligations:

     4.1 Each Purchaser shall furnish to the Company such information  regarding
itself,  the  Registrable  Securities  held by it and  the  intended  method  of
disposition  of the  Registrable  Securities  held by it as shall be  reasonably
required to effect the  registration of such  Registrable  Securities.  At least
five  (5)  business  days  prior to the  first  anticipated  filing  date of the
Registration  Statement,   the  Company  shall  notify  each  Purchaser  of  the
information the Company requires from each such Purchaser.

<PAGE>
     4.2 Each  Purchaser,  by such  Purchaser's  acceptance  of the  Registrable
Securities,  agrees to cooperate with the Company as reasonably requested by the
Company  in  connection  with the  preparation  and  filing of the  Registration
Statements hereunder,  unless such Purchaser has notified the Company in writing
of such  Purchaser's  election  to exclude all of such  Purchaser's  Registrable
Securities from the Registration Statement.

     4.3  Each  Purchaser  whose  Registrable   Securities  are  included  in  a
Registration  Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such  Registration  Statement,  and each such Purchaser shall use its reasonable
efforts to comply with the applicable  prospectus  delivery  requirements of the
Securities Act in connection with any such sale.

     4.4 [Intentionally omitted]

     4.5 Each  Purchaser  agrees that,  upon receipt of written  notice from the
Company of the happening of any event of the kind described in Section 3.6, such
Purchaser will  immediately  discontinue  disposition of Registrable  Securities
pursuant to the  Registration  Statement  covering such  Registrable  Securities
until such  Purchaser's  receipt of the  copies of the  supplemented  or amended
prospectus  contemplated by Section 3.6 or advice that a supplement or amendment
is not required and, if so directed by the Company, such Purchaser shall deliver
to the Company (at the expense of the  Company) or destroy  (and  deliver to the
Company a certificate of destruction) all copies in such Purchaser's  possession
(other  than a limited  number of  permanent  file  copies),  of the  prospectus
covering  such  Registrable  Securities  current  at the time of receipt of such
notice.  Purchaser's  obligations under this paragraph shall in no way limit the
Company's  obligations  under this Agreement or  Purchaser's  rights or remedies
against  the  Company  with  respect to any breach or  threatened  breach by the
Company of any such obligations.

     4.6 Without limiting a Purchaser's  rights under Section 2.1 or 3.2 hereof,
no Purchaser may participate in any underwritten  distribution  hereunder unless
such Purchaser (a) agrees to sell such Purchaser's Registrable Securities on the
basis  provided  in any  underwriting  agreements  in usual and  customary  form
entered into by the Company  pursuant to Section 3.5 hereof,  (b)  completes and
executes   all   questionnaires,   powers  of  attorney,   custody   agreements,
indemnities,  underwriting  agreements and other documents  reasonably  required
under the terms of such underwriting arrangements, and (c) agrees to pay its pro
rata share of all  underwriting  discounts and  commissions  and any expenses in
excess  of  those  payable  by  the  Company  pursuant  to  Article  V.  Without
implication  that  the  contrary  would  otherwise  be  true,  it  is  expressly
understood and agreed that no Purchaser  shall be required to participate in any
such underwritten distribution.

                                    ARTICLE V
                            EXPENSES OF REGISTRATION

     All expenses,  other than underwriting discounts and commissions,  incurred
in connection with registrations, filings or qualifications pursuant to Articles
II and  III,  including,  without  limitation,  all  registration,  listing  and
qualification  fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, shall be borne by the Company.

<PAGE>
                                  ARTICLE VI
                                 INDEMNIFICATION

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

<PAGE>
     6.1 To the extent  permitted  by law,  the  Company  will  indemnify,  hold
harmless and defend (a) each  Purchaser who holds such  Registrable  Securities,
(b) each underwriter of Registrable Securities and (c) the directors,  officers,
partners,  members,  employees,  agents and persons  who  control any  Purchaser
within the  meaning of  Section  15 of the  Securities  Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), if any, (each,
an "Indemnified Person"),  against any losses, claims,  damages,  liabilities or
expenses (collectively,  together with actions, proceedings or inquiries whether
or not in any court,  before any  administrative  body or by any  regulatory  or
self-regulatory  organization,  whether  commenced  or  threatened,  in  respect
thereof,  "Claims")  to which any of them may  become  subject  insofar  as such
Claims  arise out of or are based  upon:  (i) any  untrue  statement  or alleged
untrue statement of a material fact in a Registration  Statement or the omission
or alleged  omission to state  therein a material  fact required to be stated or
necessary  to make the  statements  therein  not  misleading,  (ii)  any  untrue
statement  or alleged  untrue  statement  of a material  fact  contained  in any
preliminary  prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented,  if
the Company files any amendment  thereof or supplement  thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein,  in light of the circumstances under which the
statements therein were made, not misleading,  or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including,  without  limitation,  any  state  securities  law,  or any  rule  or
regulation  thereunder  relating  to  the  offer  or  sale  of  the  Registrable
Securities  (the  matters in the  foregoing  clauses  (i) through  (iii)  being,
collectively,  "Violations").  The Company shall reimburse each such Indemnified
Person,  promptly as such expenses are incurred and are due and payable, for any
reasonable  legal  fees  or  other  reasonable  expenses  incurred  by  them  in
connection  with  investigating  or  defending  any such Claim.  Notwithstanding
anything  to  the  contrary  contained  herein,  the  indemnification  agreement
contained in this Section 6.1: (x) shall not apply to an Indemnified Person with
respect to a Claim  arising  out of or based upon a  Violation  which  occurs in
reliance upon and in  conformity  with  information  furnished in writing to the
Company  by  such  Indemnified  Person  expressly  for  use in the  Registration
Statement or any such  amendment  thereof or supplement  thereto;  (y) shall not
apply to amounts paid in settlement of any Claim if such  settlement is effected
without the prior  written  consent of the Company,  which  consent shall not be
unreasonably withheld; and (z) with respect to any preliminary prospectus, shall
not inure to the benefit of any  Indemnified  Person if the untrue  statement or
omission of material fact contained in the preliminary  prospectus was corrected
on a timely basis in the prospectus,  as then amended or  supplemented,  if such
corrected  prospectus  was timely  made  available  by the  Company  pursuant to
Section 3.3 hereof,  and the Indemnified  Person was promptly advised in writing
not to use the incorrect  prospectus prior to the use giving rise to a Violation
and  such  Indemnified  Person,  notwithstanding  such  advice,  used  it.  Such
indemnity shall remain in full force and effect  regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by a Purchaser pursuant to Article IX.

     6.2 In connection with any  Registration  Statement in which a Purchaser is
participating,  to the extent  permitted by law, each such  Purchaser  agrees to
indemnify,  hold harmless and defend,  to the same extent and in the same manner
set forth in  Section  6.1,  the  Company,  each of its  directors,  each of its
officers  who  signs the  Registration  Statement,  its  employees,  agents  and
persons, if any, who control the Company within the meaning of Section 15 of the
Securities  Act or Section 20 of the  Exchange  Act,  and any other  stockholder
selling  securities  pursuant to the Registration  Statement,  together with its
directors, officers and members, and any person who controls such stockholder or
underwriter  within the meaning of the  Securities Act or the Exchange Act (such
an  "Indemnified  Party"),  against  any Claim to which  any of them may  become
subject,  under the  Securities  Act, the Exchange Act or otherwise,  insofar as
such Claim  arises out of or is based  upon any  Violation,  in each case to the
extent (and only to the extent) that such Violation  occurs in reliance upon and
in  conformity  with  written  information  furnished  to the  Company  by  such
Purchaser expressly for use in connection with such Registration Statement;  and
such  Purchaser  will  reimburse any legal or other  expenses  (promptly as such
expenses are incurred  and are due and payable)  reasonably  incurred by them in
connection with  investigating or defending any such Claim;  provided,  however,
that the  indemnity  agreement  contained in this Section 6.2 shall not apply to
amounts paid in settlement of any Claim if such  settlement is effected  without
the  prior  written  consent  of such  Purchaser,  which  consent  shall  not be
unreasonably  withheld;  provided,  further,  however, that a Purchaser shall be
liable  under this  Agreement  (including  this Section 6.2 and Article VII) for
only that amount as does not exceed the net proceeds  actually  received by such
Purchaser  as a result of the sale of  Registrable  Securities  pursuant to such
Registration  Statement.  Such  indemnity  shall remain in full force and effect
regardless of any  investigation  made by or on behalf of such Indemnified Party
and shall survive the transfer of the  Registrable  Securities by the Purchasers
pursuant  to Article IX.  Notwithstanding  anything  to the  contrary  contained
herein, the indemnification agreement contained in this Section 6.2 with respect
to any preliminary  prospectus shall not inure to the benefit of any Indemnified
Party if the untrue  statement  or omission of material  fact  contained  in the
preliminary  prospectus  was corrected on a timely basis in the  prospectus,  as
then amended or supplemented,  and the Indemnified  Party failed to utilize such
corrected prospectus.

<PAGE>
    6.3 Promptly  after receipt by an Indemnified  Person or Indemnified  Party
under this Article VI of notice of the commencement of any action (including any
governmental  action),  such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Article  VI,  deliver  to  the  indemnifying  party  a  written  notice  of  the
commencement  thereof,  and the indemnifying  party shall have the right (at its
expense)  to  participate  in,  and,  to the  extent the  indemnifying  party so
desires,  jointly with any other indemnifying party similarly noticed, to assume
and continue control of the defense thereof with counsel  mutually  satisfactory
to the indemnifying  party and the Indemnified  Person or the Indemnified Party,
as the case may be;  provided,  however,  that  such  indemnifying  party  shall
diligently  pursue such defense and an indemnifying  party shall not be entitled
to assume (or continue)  such defense if the  representation  by such counsel of
the Indemnified  Person or Indemnified Party and the indemnifying party would be
inappropriate  due to actual or  potential  conflicts  of interest  between such
Indemnified  Person or Indemnified  Party and the  indemnifying  party,  and any
other party  represented  by such  counsel in such  proceeding  or the actual or
potential  defendants  in, or  targets  of,  any such  action  include  both the
Indemnified  Person or the Indemnified Party and any such Indemnified  Person or
Indemnified  Party  reasonably  determines  that  there  may be  legal  defenses
available to such  Indemnified  Person or Indemnified  Party which are different
from  or  in  addition  to  those   available   to  such   indemnifying   party.
Notwithstanding  any  assumption  of  such  defense  and  without  limiting  any
indemnification  obligation  provided for in Section 6.1 or 6.2, the Indemnified
Party  or  Indemnified  Persons,  as the case may be,  shall be  entitled  to be
represented  by  counsel  (at its  own  expense  if the  indemnifying  party  is
permitted  to assume and  continue  control of the defense and  otherwise at the
expense  of the  indemnifying  party)  and such  counsel  shall be  entitled  to
participate  in such  defense.  The  failure  to deliver  written  notice to the
indemnifying  party within a  reasonable  time of the  commencement  of any such
action  shall  not  relieve  such  indemnifying  party of any  liability  to the
Indemnified  Person or  Indemnified  Party under this Article VI,  except to the
extent  that the  indemnifying  party is actually  prejudiced  in its ability to
defend such  action.  The  indemnification  required by this Article VI shall be
made by  periodic  payments  of the  amount  thereof  during  the  course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

                                   ARTICLE VII
                                  CONTRIBUTION

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

                                  ARTICLE VIII
                         REPORTS UNDER THE EXCHANGE ACT

     With a view to making available to each Purchaser the benefits of Rule 144,
the Company agrees that so long as a Purchaser holds  Warrants,  any Registrable
Securities, the Company shall:

     8.1(a) Not terminate its status as an issuer required to file reports under
the  Exchange  Act  even  if  the  Exchange  Act or the  rules  and  regulations
thereunder would permit such termination.

<PAGE>
     8.1(b) File with the SEC in a timely manner and make and keep available all
reports and other documents required of the Company under the Securities Act and
the  Exchange  Act so long as the filing and  availability  of such  reports and
other documents is required for the applicable provisions of Rule 144; and

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

                                   ARTICLE IX
                        ASSIGNMENT OF REGISTRATION RIGHTS

     The  rights  of  the  Purchasers  hereunder  as to  Registrable  Securities
transferred  by  a  Purchaser  (or  represented  by  Warrants  transferred  by a
Purchaser),  including  the  right  to have  the  Company  register  Registrable
Securities pursuant to this Agreement,  shall be automatically  assigned by each
Purchaser to any transferee of all or any portion of the Registrable  Securities
if: (a) the  Purchaser  agrees in writing  with the  transferee  or  assignee to
assign such  rights,  and a copy of such  agreement  is furnished to the Company
within a reasonable  time after such  assignment,  (b) the Company is,  within a
reasonable time after such transfer or assignment, furnished with written notice
of (i) the name and address of such transferee or assignee,  (ii) the securities
with respect to which such registration rights are being transferred or assigned
and (iii) the  information  specified  in Section 3.12 to such  transferee,  (c)
following  such  transfer  or  assignment,   the  further  disposition  of  such
securities by the transferee or assignee is restricted  under the Securities Act
or applicable  state  securities laws, and (d) at or before the time the Company
receives the written notice  contemplated  by clause (ii) of this sentence,  the
transferee  or  assignee  agrees in writing for the benefit of the Company to be
bound by all of the  provisions  contained  herein.  The  rights of a  Purchaser
hereunder with respect to any Registrable  Securities not  transferred  (and not
represented  by  Warrants  transferred)  shall not be  assigned by virtue of the
transfer of other Registrable  Securities or transferred  Warrants  representing
other Registrable Securities.

                                    ARTICLE X
                        AMENDMENT OF REGISTRATION RIGHTS

<PAGE>
    Provisions of this Agreement may be amended and the observance  thereof may
be waived (either generally or in a particular instance and either retroactively
or  prospectively),  only with  written  consent  of the  Company,  any  Initial
Purchaser  (but not an  Initial  Purchaser  who no longer  owns any  Registrable
Securities  and who is not affected by such  amendment or waiver) and Purchasers
who hold a majority  interest of the  Registrable  Securities.  Any amendment or
waiver  effected in  accordance  with this  Article X shall be binding upon each
Purchaser and the Company. Notwithstanding the foregoing, no amendment or waiver
shall  retroactively  affect any Purchaser  without its consent or prospectively
adversely  affect any  Purchaser  who no longer owns any  Warrants,  Registrable
Securities without its consent.  No amendment or waiver may adversely affect one
or more Purchasers or group of Purchasers vis-a-vis any other Purchaser or group
of  Purchasers.  Neither  Article  VI nor  Article  VII hereof may be amended or
waived in a manner adverse to a Purchaser  without its consent.  Notwithstanding
anything to the  contrary  contained  in this  Article X, no amendment or waiver
shall be  applicable  to an Initial  Purchaser  who does not  consent in writing
thereto.

                                   ARTICLE XI
                                  MISCELLANEOUS

     11.1 A person or entity is deemed to be a holder (or a holder in  interest)
of  Registrable  Securities  whenever  such person or entity owns of record such
Registrable  Securities (or the Warrants which may be exercised for  Registrable
Securities).  If the  Company  receives  conflicting  instructions,  notices  or
elections  from  two or more  persons  or  entities  with  respect  to the  same
Registrable  Securities,  the Company shall act upon the basis of  instructions,
notice  or  election  received  from the  registered  owner of such  Registrable
Securities (or Warrants, as the case may be).

     11.2 Any  notices  herein  required  or  permitted  to be given shall be in
writing  and  may  be   personally   served  or   delivered  by  courier  or  by
machine-generated  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 any Purchaser, at such address as such Purchaser,  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 11.2.

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

     11.4 This Agreement  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 federal  courts  located in the state of California and the
state courts of the State of California  located in the County of Los Angeles in
the State of Delaware in any suit or  proceeding  based on or arising under this
Agreement  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 parties hereto further agree that service of process upon the parties hereto
mailed by first class mail shall be deemed in every respect effective service of
process  upon each such  party in any such suit or  proceeding.  Nothing  herein
shall affect either party's right to serve process in any other manner permitted
by law.  The parties  hereto agree that a final  non-appealable  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.

     11.5 This Agreement and the Securities  Purchase  Agreement  (including all
schedules  and  exhibits  thereto and all  certificates  and  opinions  required
thereby)  constitute the entire  agreement among the parties hereto with respect
to the subject matter hereof and thereof.  There are no restrictions,  promises,
warranties or undertakings, other than those set forth or referred to herein and
therein.  This Agreement and the  Securities  Purchase  Agreement  supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.

     11.6 Subject to the requirements of Article IX hereof, this Agreement shall
inure to the benefit of and be binding upon the  successors  and assigns of each
of the  parties  hereto.  Notwithstanding  anything  to the  contrary  contained
herein,  including,  without  limitation,  Article  IX (and  without  compliance
therewith),  the rights of a  Purchaser  hereunder  shall be  assignable  to and
exercisable by a bona fide pledgee of the  Registrable  Securities in connection
with a Purchaser's margin or brokerage accounts.

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

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

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

     11.10  Amounts set forth or provided  for herein with  respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by each Purchaser and shall not, except as expressly  provided  herein,
be subject to any other obligation of the Company (or the performance  thereof).
The Company  acknowledges that a breach by it of its obligations  hereunder will
cause irreparable harm to the Purchasers and that the remedy at law for any such
breach may be inadequate.

     11.11  The  initial  number  of  Registrable  Securities  included  on  any
Registration Statement and each increase to the number of Registrable Securities
included  thereon shall be allocated pro rata among the Purchasers  based on the
number of  Registrable  Securities  held by each  Purchaser  at the time of such
establishment  or increase,  as the case may be. In the event a Purchaser  shall
sell or otherwise  transfer any of such holder's  Registrable  Securities,  each
transferee  shall be allocated a pro rata  portion of the number of  Registrable
Securities included on a Registration Statement for such transferor.  Any shares
of Common Stock included on a Registration  Statement and which remain allocated
to any person or entity which does not hold any Registrable  Securities shall be
allocated to the remaining Purchasers, pro rata based on the number of shares of
Registrable  Securities then held by such Purchasers.  Without  implication that
the contrary  would  otherwise  be true,  for  purposes of this  paragraph,  all
Warrants then outstanding shall be assumed exercised for Registrable  Securities
(without giving effect to any limitations on exercise contained therein).

     11.12 Payment of Cash;  Defaults.  Whenever the Company is required to make
any cash payment to a Purchaser under this Agreement, such cash payment shall be
due on the date (the  "Cash Due  Date")  that such  Purchaser  delivers  written
notice from the Purchaser to the Company. Such cash payment shall be made to the
Purchaser by the method (by  certified or  cashier's  check or wire  transfer of
immediately  available  funds)  elected by such  Holder.  If such payment is not
delivered  within  two (2) days of the  Cash  Due  Date,  such  Purchaser  shall
thereafter  be entitled  to  interest  on the unpaid  amount at a per annum rate
equal to the lower of  eighteen  percent  (18%) and the  highest  interest  rate
permitted by applicable law until such amount is paid in full to the Holder.

     11.13 If any provision of this Agreement shall be invalid or unenforceable,
such   invalidity  or   unenforceability   shall  not  affect  the  validity  or
enforceability of the remainder of this Agreement.

                                      * * *

<PAGE>
IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly executed
as of the date first above written.


         MODACAD, INC.


         By:     /s/ Joyce Freedman
            _________________________________ 
         Name:   Joyce Freedman
         Title:  Chief Executive Officer

Initial Purchasers:

PURCHASER:
         CASTLE CREEK TECHNOLOGY PARTNERS LLC

         By: Castle Creek Partners, L.L.C.
         Its: Investment Manager

         By:     /s/ John D. Ziegelman
            _________________________________
         Name:   John D. Ziegelman
         Title:  Managing Member

         Address: 77 W. Wacker Drive, Suite 4040
                  Chicago, Illinois 60601

         Facsimile Number: (312) 499-6999

         with a copy to:

                           Altheimer & Gray
                           10 S. Wacker Drive, Suite 4000
                           Chicago, Illinois 60606
                           Attention: Peter H. Lieberman
                           Facsimile Number: (312) 715-4800

<PAGE>
PURCHASER:
         MARSHALL CAPITAL MANAGEMENT, INC.

         By:      /s/ Allan Weine
            _____________________________________
         Name:    Allan Weine
         Title:   President

         Address: c/o Credit Suisse First Boston
                      11 Madison Ave., Third Floor
                      New York, NY 10010

         Facsimile Number: (312) 750-1031

         with a copy to:
                           c/o Credit Suisse First Boston
                           227 W. Monroe Street, 41st Floor
                           Chicago, IL 60606

PURCHASER:
         WINFIELD CAPITAL CORP.

         By:      /s/ Paul A. Perlin
            _______________________________________
         Name:    Paul A. Perlin
         Title:   Chief Executive Officer

         Address: 
                       

         Facsimile Number:

         with a copy to:

                  ___________________________________
                  ___________________________________
                  ___________________________________
                  ___________________________________
                  ___________________________________

<PAGE>
PURCHASER:
         SPINNER ASSET MANAGEMENT CO.

         By:___________________________________
         Name:_________________________________
         Title:________________________________

         Address: 
                         

         Facsimile Number:
         
         with a copy to:

                  ___________________________________
                  ___________________________________
                  ___________________________________
                  ___________________________________
                  ___________________________________
<PAGE>


                                   EXHIBIT 1
                                 to Registration
                                Rights Agreement
                                                       [Date]
[Name and address
of transfer agent]

     RE: ModaCAD, Inc.

Ladies and Gentlemen:

     We are counsel to ModaCAD,  Inc., a California corporation (the "Company"),
and we understand that [Name of Purchaser] (the "Holder") has purchased from the
Company shares of the Company's  common stock (the "Common  Stock").  The Common
Stock was purchased by the Holder pursuant to a Securities  Purchase  Agreement,
dated as of April 7, 1999, by and among the Company and the signatories  thereto
(the  "Agreement").  Pursuant to a Registration  Rights  Agreement,  dated as of
April 7,  1999,  by and among  the  Company  and the  signatories  thereto  (the
"Registration  Rights  Agreement"),  the Company  agreed with the Holder,  among
other things, to register the Registrable Securities (as that term is defined in
the Registration  Rights Agreement) under the Securities Act of 1933, as amended
(the  "Securities  Act"),  upon the terms  provided in the  Registration  Rights
Agreement.  In connection with the Company's  obligations under the Registration
Rights Agreement,  on April __, 1999, the Company filed a Registration Statement
on Form S-3 (File No. 333- __________) (the  "Registration  Statement") with the
Securities  and  Exchange  Commission  (the "SEC")  relating to the  Registrable
Securities, which names the Holder as a selling stockholder thereunder.

     [Other  customary  introductory  and scope of  examination  language  to be
inserted, in each case as reasonably acceptable to Holders.]

     Based  on the  foregoing,  we  are  of  the  opinion  that  the  resale  of
Registrable Securities have been registered under the Securities Act.

     [Other  appropriate  customary  language  to be  included,  in each case as
reasonably acceptable to Holders.]

                              Very truly yours,





cc:      Castle Creek Technology Partners LLC
         Marshall Capital Management, Inc.
         Winfield Capital Corp.
         Spinner Asset Management Co.
[{"type": "8-K", "sequence": "1", "description": "SECURITIES PURCHASE AGREEMENT", "secsgml_size_bytes": 349456}]
{"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": "99591089"}, "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 reports its transaction with four investors, pursuant to which such
     investors  purchased an aggregate of 776,827  shares of the common stock of
     ModaCAD  and,  subject to  shareholder  approval,  warrants  to purchase an
     aggregate of 919,245 shares of ModaCAD's  common stock.  Concurrently  with
     the investor  transaction,  ModaCAD  entered 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
     Securities  Purchase  Agreement  between  ModaCAD and the Purchasers  named
     therein, 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 9, 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.
SECURITIES PURCHASE AGREEMENT

     This  SECURITIES  PURCHASE  AGREEMENT  ("Agreement")  is entered into as of
April 7, 1999,  by and between  ModaCAD,  Inc.,  a California  corporation  (the
"Company"),  with  headquarters  located  at  Culver  City,  California  and the
purchasers  (the  "Purchasers")  set forth on the execution  pages hereof,  with
regard to the following:
                                    RECITALS

     A. The Company and Purchasers  are executing and delivering  this Agreement
in reliance  upon the exemption  from  securities  registration  afforded by the
provisions of Regulation D ("Regulation D"), as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act").

     B. Purchasers  desire to purchase,  upon the terms and conditions stated in
this Agreement,  (i) shares of the Company's  Common Stock (the "Common Stock"),
(ii) Warrants in the form of Exhibit A-1 hereto (the "First Warrant")  entitling
the holder  thereof to purchase  shares of Common Stock,  (iii)  Warrants in the
form of Exhibit A-2 hereto  entitling the holder  thereof to purchase  shares of
Common Stock (the "Second Warrant") and (iv) Warrants in the form of Exhibit A-3
hereto  entitling  the holder  thereof to purchase  shares of Common  Stock (the
"Third  Warrant"  and,  taken  together  with the First  Warrant  and the Second
Warrant,  the "Warrants").  The shares of Common Stock being purchased hereunder
are  referred to herein as the  "Shares" or the "Stock" and the shares of Common
Stock  issuable  upon  exercise of the  Warrants  are  referred to herein as the
"Warrant  Shares".   The  Shares,  the  Warrants  and  the  Warrant  Shares  are
collectively referred to herein as the "Securities."

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

                                   AGREEMENTS

     NOW,  THEREFORE,  in consideration of their respective  promises  contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby  acknowledged,  the  Company  and  Purchasers  hereby  agree as
follows:
ARTICLE I
                         PURCHASE AND SALE OF SECURITIES

     I.1  Purchase  of  Shares  and  Warrants.  Subject  to the  terms  and  the
satisfaction  or  waiver of the  conditions  set  forth in this  Agreement,  the
issuance,  sale and purchase of the Shares and Warrants  shall be consummated in
one closing hereinafter referred to as the "Closing").

          a. [Intentionally deleted].

          b. On the date of the Closing, subject to the satisfaction (or waiver)
     of the applicable  conditions set forth in Articles VI and VII, the Company
     shall issue and sell to each  Purchaser,  and each Purchaser shall purchase
     from the Company  (i) the number of shares of Common  Stock set forth below
     such  Purchaser's  name  on the  signature  pages  hereof,  (ii) a  Warrant
     entitling  the holder  thereof to purchase the number of Warrant  Shares as
     set forth in such Warrant and (iii) the Second Warrant entitling the holder
     thereof  to  purchase  the  number of  Warrant  Shares as set forth in such
     Warrant.  The aggregate  purchase  price to be paid by  Purchasers  for the
     Common Stock and Warrants  being  purchased by Purchasers at the Closing is
     equal to eight million, five hundred and thirty two thousand,  four hundred
     seventy  three dollars  ($8,532,473),  which is one hundred and one percent
     (101%) of the closing sale price on April 6, 1999 (the "Per Share  Price"),
     times the  numbers  of shares  of Common  Stock set forth on the  signature
     pages  executed by each  Purchaser.  The purchase  price to be paid by each
     Purchaser  for the  Common  Stock  and  Warrants  being  purchased  by such
     Purchaser at the Closing is equal to one hundred and one percent  (101%) of
     the  closing  sale  price on April 6, 1999  times  the  number of shares of
     Common Stock set forth on the signature page executed by such Purchaser.

          c. [Intentionally deleted].

          d. Each  Purchaser  represents  that it and any person  trading on its
     behalf, has not engaged in any bids for or purchases or sales of the Common
     Stock  during the period  beginning  sixteen (16) trading days prior to the
     date of the Closing and ending on the trading day immediately preceding the
     date of the Closing.

     I.2  Form of  Payment.  At  each  Closing,  each  Purchaser  shall  pay the
applicable  Purchase Price for the Securities  being purchased by such Purchaser
at such  Closing  by wire  transfer  to the  Company,  in  accordance  with  the
Company's written wiring  instructions,  against delivery of duly executed stock
certificates and Warrants,  and the Company shall deliver to each Purchaser such
executed stock certificates and Warrants against delivery of such Purchase Price
from each  Purchaser.  The obligations in this Agreement of each Purchaser shall
be separate from the obligations of each other Purchaser and shall relate solely
to the Purchased  Securities to be purchased by such Purchaser.  The obligations
of the  Company  with  respect  to each  Purchaser  shall be  separate  from the
obligations of the Company to each other  Purchaser and shall not be conditioned
as to any  Purchaser  upon  the  performance  of the  obligations  of any  other
Purchaser.
I.3  Closing  Dates.  Subject  to  the  satisfaction  (or  waiver)  of  the
conditions  set forth in  Articles  VI and VII  below,  the date and time of the
issuance,  sale and purchase of the Securities  pursuant to this Agreement shall
be April 7, 1999  (the"Closing  Date").  The  Closing  shall occur at 10:00 a.m.
Chicago time,  at the offices of Altheimer & Gray, 10 S. Wacker Drive,  Chicago,
IL 60606.

     I.4 Limitation on Sales. Notwithstanding anything to the contrary contained
in this  Agreement,  the Company may not sell and any Purchaser may not purchase
any shares of Common  Stock  pursuant  to this  Agreement  and the  transactions
contemplated  hereby to the extent that such sale and  purchase  would result in
such  Purchaser  beneficially  owning in excess of 9.9% of the  shares of Common
Stock.  For  the  purposes  of  this  paragraph,  beneficial  ownership  and all
determinations and calculations,  including without limitation,  with respect to
calculations  of percentage  ownership,  shall be determined in accordance  with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D and G thereunder.  This Section 1.4(c) may not be waived by Purchaser unless
such waiver has been voted upon and approved by a majority of the holders of the
Common Stock.

                                   ARTICLE II
                   PURCHASER'S REPRESENTATIONS AND WARRANTIES

     Each Purchaser  represents and warrants,  solely with respect to itself and
its  purchase  hereunder  and not with  respect  to any other  Purchaser  or the
purchase  hereunder by any other  Purchaser (and no Purchaser shall be deemed to
make or have any liability for any  representation or warranty made by any other
Purchaser),  to the Company as set forth in this Article II. No Purchaser  makes
any other  representations or warranties,  express or implied, to the Company in
connection  with the  transactions  contemplated  hereby  and any and all  prior
representations and warranties,  if any, which may have been made by a Purchaser
to the Company in connection with the transactions  contemplated hereby shall be
deemed to have been merged in this Agreement and any such prior  representations
and  warranties,  if any,  shall not survive the  execution and delivery of this
Agreement.
II.1  Investment  Purpose.  Purchaser is purchasing the Shares and Warrants
for Purchaser's own account for investment only and not with a view toward or in
connection with the public re-sale or distribution  thereof,  except pursuant to
sales that are exempt from the  registration  requirements of the Securities Act
and/or sales registered under the Securities Act.  Purchaser will not resell any
of the Securities except pursuant to sales that are exempt from the registration
requirements of the Securities Act and/or sales  registered under the Securities
Act.  Purchaser  understands  that Purchaser must bear the economic risk of this
investment  indefinitely,   unless  the  applicable  Securities  are  registered
pursuant to the Securities Act and any applicable  state  securities  laws or an
exemption  from such  registration  is  available,  and that the  Company has no
present  intention of registering any such Securities other than as contemplated
by the Registration  Rights  Agreement.  By making the  representations  in this
Section 2.1, the Purchaser does not agree to hold any Securities for any minimum
or other  specific  term and  reserves the right to dispose of any or all of the
Securities  at any  time  in  accordance  with  or  pursuant  to a  registration
statement or an applicable exemption from registration under the Securities Act.

     II.2 Accredited Investor Status.  Purchaser is an "accredited  investor" as
that term is defined in Rule 501(a) of Regulation D.

     II.3  Reliance on  Exemptions.  Purchaser  understands  that the Shares and
Warrants  are being  offered and sold to  Purchaser  in reliance  upon  specific
exemptions from the  registration  requirements of the United States federal and
state  securities  laws and that the  Company  is  relying  upon the  truth  and
accuracy of the  representations and warranties of Purchaser set forth herein in
order to determine the  availability  of such  exemptions and the eligibility of
Purchaser to acquire the Securities.

     II.4  Information.  Purchaser  and its  counsel  have  been  furnished  all
materials  relating to the business,  finances and operations of the Company and
materials  relating to the offer and sale of the Shares and Warrants  which have
been  specifically  requested  by  Purchaser.  Purchaser  has been  afforded the
opportunity  to ask  questions  of the  Company,  and its  officers,  directors,
employees and agents,  and has received what  Purchaser  believes to be complete
and satisfactory  answers to any such inquiries.  Neither such inquiries nor any
other  due  diligence  investigation  conducted  by  Purchaser  or  any  of  its
representations  and warranties shall modify,  amend or affect Purchaser's right
to rely on the Company's  representations  and  warranties  contained in Article
III.  Purchaser  understands  that  Purchaser's  investment  in  the  Securities
involves a high degree of risk.

     II.5  Governmental  Review.  Purchaser  understands  that no United  States
federal  or state  agency or any other  government  or  governmental  agency has
passed upon or made any  recommendation  or  endorsement of the Securities or an
investment therein.

     II.6 Transfer or Resale.  Purchaser understands that (i) except as provided
in the Registration  Rights Agreement,  the Securities have not been and are not
being  registered under the Securities Act or any state securities laws, and may
not be transferred  unless  subsequently  registered  thereunder or an exemption
from such  registration  is available  (which  exemption  the Company  expressly
agrees may be established as  contemplated in clauses (b) and (c) of Section 5.1
hereof); (ii) any sale of such Securities made in reliance on Rule 144 under the
Securities Act (or a successor rule) ("Rule 144") may be made only in accordance
with the terms of said Rule and  further,  if said Rule is not  applicable,  any
resale of such  Securities  without  registration  under the  Securities Act may
require  compliance  with some other  exemption  under the Securities Act or the
rules and regulations of the SEC  thereunder;  and (iii) neither the Company nor
any other person is under any obligation to register such  Securities  under the
Securities  Act or any state  securities  laws or to  comply  with the terms and
conditions of any  exemption  thereunder  (in each case,  other than pursuant to
this Agreement or the Registration Rights Agreement).
II.7 Legends.  Purchaser understands that, subject to Article V hereof, the
certificates for the Warrants, and until such time as the Shares and the Warrant
Shares,  as  applicable,  have  been  registered  under  the  Securities  Act as
contemplated by the  Registration  Rights  Agreement or otherwise may be sold by
Purchaser  pursuant  to Rule 144,  the  certificates  for the Shares and Warrant
Shares will bear a restrictive legend (the "Legend") in the following form:

     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.

     II.8 Authorization; Enforcement. This Agreement and the Registration Rights
Agreement  have been duly and validly  authorized,  executed  and  delivered  on
behalf  of  Purchaser  and  are  valid  and  binding   agreements  of  Purchaser
enforceable against Purchaser in accordance with their terms.

     II.9 Residency. Purchaser is a resident of the jurisdiction set forth under
Purchaser's name on the signature page hereof executed by Purchaser.

                                   ARTICLE III
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company represents and warrants to each Purchaser that:

     III.1  Organization  and  Qualification.   The  Company  and  each  of  its
subsidiaries  is a corporation  duly  organized,  validity  existing and in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite  corporate  power and authority to own its properties and to carry
on its business as now being conducted. The Company and each of its subsidiaries
is  duly  qualified  as a  foreign  corporation  to do  business  and is in good
standing  in every  jurisdiction  where the  failure to so qualify  would have a
Material  Adverse Effect.  "Material  Adverse Effect" means any material adverse
effect  on  (i)  the  business,  operations,  properties,  financial  condition,
operating results or prospects of the Company and its  subsidiaries,  taken as a
whole on a consolidated basis, (ii) the transactions  contemplated hereby, (iii)
the ability of the Company to perform its obligations under this Agreement,  the
Warrants or the Registration  Rights Agreement  (collectively,  the "Transaction
Documents") or (iv) the Purchaser's interest in the Securities.
III.2  Authorization;  Enforcement.  (a)  The  Company  has  the  requisite
corporate  power and  authority  (i) to enter into and perform  its  obligations
under each of the Transaction Documents,  (ii) to issue and sell, and to perform
its obligations  with respect to, the Shares and the Warrants in accordance with
the terms hereof and thereof,  as applicable,  (iii) issue the Warrant Shares in
accordance  with the terms of the  Warrants;  (b) the  execution,  delivery  and
performance  of  each  of the  Transaction  Documents  by the  Company  and  the
consummation  by  it  of  the  transactions   contemplated  hereby  and  thereby
(including  without  limitation the issuance of the Warrants and the reservation
for issuance  and the  issuance of the Shares and the Warrant  Shares) have been
duly  authorized by all  necessary  corporate  action and no further  consent or
authorization of the Company, its board of directors, or its stockholders or any
other person, body or agency is required with respect to any of the transactions
contemplated  hereby or thereby  (whether  under  rules of The  Nasdaq  National
Market ("Nasdaq"), the National Association of Securities Dealers or otherwise),
other than the Nasdaq  Authorizations (as herein defined) and the declaration or
ordering of effectiveness by the SEC of the Registration Statement or Statements
as  contemplated  by  the  Registration  Rights  Agreement  (collectively,   the
"Consents");  (c) this  Agreement,  the  Registration  Rights  Agreement and the
Warrants have been duly  executed and delivered by the Company;  and (d) each of
the Transaction  Documents  constitutes a legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.
III.3  Capitalization.  The capitalization of the Company as of the date of
this  Agreement,  including the authorized  capital stock,  the number of shares
issued and outstanding,  the number of shares reserved for issuance  pursuant to
the  Company's  stock option plans,  the number of shares  reserved for issuance
pursuant to securities (other than the Warrants) exercisable for, or convertible
into or exchangeable  for any shares of Common Stock and the number of shares to
be initially reserved for issuance upon exercise of the Warrants is set forth on
Schedule 3.3. All of such outstanding shares of capital stock have been, or upon
issuance will be, validly issued,  fully paid and  non-assessable.  No shares of
capital stock of the Company  (including the Shares and the Warrant  Shares) are
subject to preemptive  rights or any other similar rights of the stockholders of
the Company or any liens or  encumbrances.  Except as disclosed in Schedule 3.3,
as of the  date  of  this  Agreement,  (i)  there  are no  outstanding  options,
warrants,  scrip, rights to subscribe for, calls or commitments of any character
whatsoever  relating to, or securities or rights convertible into or exercisable
or  exchangeable  for, any shares of capital  stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the  Company  or  any of  its  subsidiaries  is or may  become  bound  to  issue
additional  shares of capital  stock of the Company or any of its  subsidiaries,
and (ii) there are no agreements or arrangements  under which the Company or any
of its  subsidiaries  is  obligated  to register the sale of any of its or their
securities under the Securities Act (except the Registration  Rights Agreement).
The Company has furnished to Purchaser  true and correct copies of the Company's
Certificate  of   Incorporation   as  currently  in  effect   ("Certificate   of
Incorporation"),   and  the  Company's  By-laws  as  currently  in  effect  (the
"By-laws").  The  Company  has set forth on  Schedule  3.3 all  instruments  and
agreements (other than the Certificate of Incorporation  and By-laws)  governing
securities  convertible  into or exercisable or exchangeable for Common Stock of
the Company (and the Company shall provide to Purchaser  copies thereof upon the
request of  Purchaser).  Except as disclosed in Schedule 3.3, the Company has no
indebtedness for borrowed money and no agreement  providing for indebtedness for
borrowed  money.  Except as disclosed in Schedule  3.3 and this  Agreement,  the
Company has no share purchase agreements,  rights plans or agreements containing
similar provisions and no agreements  containing  anti-dilution  provisions.  No
anti-dilution  provisions  which have,  individually  or in the  aggregate,  any
dilutive  effect on  Purchaser's  investment are triggered as a result of any of
the transactions  contemplated hereby, including exercise of the Warrants. Intel
Corporation has  specifically  agreed that no  anti-dilution  provisions will be
triggered as a result of the  transactions  contemplated  hereby with respect to
Intel Corporation shares and warrants issued in connection herewith. The Company
shall provide Purchaser with a written update of this  representation  signed by
the Company's  Chief Executive  Officer or Chief Financial  Officer on behalf of
the  Company  as of the  date of the  Closing  and it shall  be a  condition  to
Purchaser's  obligations  at Closing that there are no material  changes in such
capitalization  since  the  Company's  representation  on the date  hereof.  The
Company  has no  subsidiaries,  except as provided  on  Schedule  3.3.  All such
subsidiaries  included on Schedule 3.3. are one hundred  percent (100%) owned by
the Company. Except as provided on Schedule 3.3, the Company has no investments,
either debt or equity, in any other entity.

     III.4  Issuance  of  Shares.  The Shares  and the  Warrant  Shares are duly
authorized and reserved for issuance,  and, upon issuance in accordance with the
terms hereof and exercise of the Warrants in accordance  with the terms thereof,
as applicable,  will be validly issued, fully paid and non-assessable,  and free
from all liens,  claims and  encumbrances  and will not be subject to preemptive
rights or other similar rights of stockholders of the Company.  The Warrants are
duly authorized and are validly issued, fully paid and non-assessable,  and free
from all liens,  claims and  encumbrances and are not and will not be subject to
preemptive  rights or other similar rights of stockholders  of the Company.  The
Board of  Directors  of the Company has  unanimously  approved  the  issuance of
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 in Section 4.13)
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.
III.5  No  Conflicts.  The  execution,  delivery  and  performance  of this
Agreement,  the Warrants and the  Registration  Rights Agreement by the Company,
and the  consummation  by the Company of  transactions  contemplated  hereby and
thereby  (including,  without  limitation,  the  issuance  and  reservation  for
issuance,  as applicable,  of the Shares and Warrant Shares and the  Purchaser's
purchase and acquisition of the Shares,  the Warrants and the Warrant Shares) do
not and will not (a) result in a violation of the  Certificate of  Incorporation
or By-laws,  (b) conflict  with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of  termination,  amendment,  acceleration  or  cancellation  of, any
agreement,  indenture  or  instrument  to  which  the  Company  or  any  of  its
subsidiaries  is a party  (except for such  conflicts,  defaults,  terminations,
amendments,  accelerations,  and cancellations as would not,  individually or in
the aggregate,  have a Material Adverse Effect), or (c) result in a violation of
any law,  rule,  regulation,  order,  judgment  or  decree  (including,  without
limitation,  U.S. federal and state securities laws and regulations)  applicable
to the Company or any of its subsidiaries,  or by which any property or asset of
the  Company  or any of its  subsidiaries,  is bound or  affected.  Neither  the
Company  nor any of its  subsidiaries  is in  violation  of its  Certificate  of
Incorporation,  by-laws  or other  organizational  documents,  and  neither  the
Company nor any of its  subsidiaries  is in default  (and no event has  occurred
which, with notice or lapse of time or both, would put the Company or any of its
subsidiaries in default)  under,  nor has there occurred any event giving others
(with  notice or lapse of time or both) any  rights of  termination,  amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party,  except for possible defaults
or  rights as would  not,  individually  or in the  aggregate,  have a  Material
Adverse  Effect.  The business of the Company and its  subsidiaries is not being
conducted,  and shall not be  conducted  so long as a Purchaser  owns any of the
Securities,  in  violation  of any  law,  ordinance,  rule,  regulation,  order,
judgment or decree of any  governmental  entity,  court or arbitration  tribunal
except for possible  violations  the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect.  The Company is not required
to  obtain  any  consent,  authorization  or order  of,  or make any  filing  or
registration  with,  any  court or  governmental  agency  or any  regulatory  or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations  under this  Agreement,  the  Warrants  or the  Registration  Rights
Agreement or to perform its  obligations in accordance  with the terms hereof or
thereof, other than the Consents. The purchase and acquisition of the Securities
by the Purchaser do not violate any law, rule,  regulation,  order,  judgment or
decree  applicable to the Company,  or require  further filing by the Company or
Purchaser under such law, rule, regulation, order, judgment or decree, by virtue
of the Company's business or assets, other than the Consents. The Company is not
in  violation  of the  listing  requirements  of Nasdaq and does not  reasonably
anticipate that the Common Stock will be de-listed by Nasdaq for the foreseeable
future,  and the Company has made all necessary filings and notifications  with,
and  obtained  all  necessary   approvals  from,  Nasdaq  with  respect  to  the
transactions contemplated hereby, including, without limitation, the issuance of
the  Securities  and the  listing of the Shares  and the  Warrant  Shares on the
Nasdaq.
III.6 Registration and SEC Documents.  The Common Stock is registered under
Section 12 of the  Securities  Exchange Act of 1934,  as amended (the  "Exchange
Act") and has been so  registered  since March 1, 1996.  Except as  disclosed in
Schedule 3.6,  since  February  1996,  the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting  requirements  of the Exchange Act (all of the
foregoing  filed after  February  1996,  and all exhibits  included  therein and
financial  statements  and  schedules  thereto  and  documents  incorporated  by
reference  therein,  being  referred to herein as the "SEC  Documents"  and such
documents filed prior to the date hereof, the "Filed SEC Documents"),  including
for  purposes  of  determining  the  availability  of Form S-3.  The Company has
delivered to each Purchaser true and complete  copies of the SEC Documents filed
since  December  31,  1997.  As of their  respective  dates,  the SEC  Documents
complied in all material  respects with the requirements of the Exchange Act and
the rules and  regulations of the SEC promulgated  thereunder  applicable to the
SEC Documents,  and none of the SEC Documents,  at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to state a
material  fact  required to be stated  therein or necessary in order to make the
statements  therein,  in light of the circumstances  under which they were made,
not  misleading.  None of the  statements  made in any such SEC Document is, or,
except  pursuant  to Filed SEC  Documents  has been,  required  to be updated or
amended under  applicable law. The financial  statements of the Company included
in the SEC Documents were prepared in accordance  with U.S.  generally  accepted
accounting  principles,  consistently  applied, and the rules and regulations of
the SEC during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they do not include footnotes or are condensed
or summary  statements) and present  accurately and completely the  consolidated
financial  position of the Company and its  consolidated  subsidiaries as of the
dates thereof and the  consolidated  results of their  operations and cash flows
for the periods then ended  (subject,  in the case of unaudited  statements,  to
normal,  immaterial  year-end  audit  adjustments).  Except  as set forth in the
financial  statements of the Company  included in the Filed SEC  Documents,  the
Company has no liabilities,  contingent or otherwise, other than (i) liabilities
incurred  subsequent  to the date of such  financial  statements in the ordinary
course of business  consistent  with past  practice and (ii)  obligations  under
contracts and  commitments  incurred in the ordinary  course of business and not
required under generally accepted accounting  principles to be reflected in such
financial  statements,  in each case of clause  (i) and (ii) next  above  which,
individually or in the aggregate,  are not material to the financial  condition,
business, operations,  properties, operating results or prospects of the Company
and its subsidiaries taken on a whole. The Filed SEC Documents,  as supplemented
by Schedule 3.6 hereto,  contain a complete  and  accurate  list of all material
undischarged written or oral contracts,  agreements, leases or other instruments
to which the Company or any subsidiary is a party or by which the Company or any
subsidiary  is bound or to which any of the  properties or assets of the Company
or any  subsidiary  is  subject  (each a  "Contract"),  except to the extent not
required to be filed  pursuant to the  applicable  Rules and  Regulations of the
SEC.  None of the Company,  its  subsidiaries  or, to the best  knowledge of the
Company,  any of the other  parties  thereto,  is in breach or  violation of any
Contract,  which breach or violation relates to indebtedness for borrowed money,
is with  respect to an  obligation  in excess of one  hundred  thousand  dollars
($100,000)  or would have a Material  Adverse  Effect.  No event,  occurrence or
condition exists which,  with the lapse of time, the giving of notice,  or both,
or the  happening of any further  event or  condition,  would become a breach or
default by the Company or its  subsidiaries  under any Contract  which breach or
default would have a Material Adverse Effect.

     III.7 Absence of Certain  Changes.  Since December 31, 1998, there has been
no material adverse change and no material adverse  development in the business,
properties,  operations, financial condition, results of operations or prospects
of the Company, except as disclosed in Schedule 3.7.
III.8 Absence of Litigation.  Except as disclosed in Schedule 3.8, there is
no action,  suit,  proceeding,  inquiry or investigation before or by any court,
public board, governmental agency or authority, or self-regulatory  organization
or body pending or, to the knowledge of the Company or any of its  subsidiaries,
threatened against or affecting the Company, any of its subsidiaries,  or any of
their respective  directors or officers in their capacities as such,  wherein an
unfavorable  decision,  ruling or finding could reasonably be expected to have a
Material Adverse Effect or would adversely affect the transactions  contemplated
by this  Agreement or any of the  documents  contemplated  hereby or which would
adversely affect the validity or enforceability  of, or the authority or ability
of the Company to perform its obligations  under,  this Agreement or any of such
other documents. To the Company's knowledge,  there are no facts which, if known
by a potential claimant or governmental agency or authority,  could give rise to
a claim or proceeding  which, if asserted or conducted with results  unfavorable
to the Company or any of its subsidiaries,  could reasonably be expected to have
a Material Adverse Effect.

     III.9 Disclosure.  No information relating to or concerning the Company set
forth  in this  Agreement  or  provided  to  Purchaser  in  connection  with the
transactions contemplated hereby contains an untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were made, not
misleading.  Except for the execution and  performance of this Agreement and the
transactions  contemplated  hereby,  no material fact (within the meaning of the
federal securities laws of the United States) exists with respect to the Company
or any of its subsidiaries which has not been publicly disclosed.

     III.10 Acknowledgment Regarding Purchaser's Purchase of the Securities. The
Company  acknowledges and agrees that each Purchaser is acting independently and
is not acting as a  financial  advisor or  fiduciary  of the  Company (or in any
similar   capacity)  with  respect  to  this   Agreement  or  the   transactions
contemplated  hereby,  that  this  Agreement  and the  transaction  contemplated
hereby,  and the  relationship  between  each  Purchaser  and the  Company,  are
"arms-length",  and  that any  statement  made by any  Purchaser,  or any of its
representatives or agents, in connection with this Agreement or the transactions
contemplated  hereby is not advice or a recommendation,  is merely incidental to
such Purchaser's  purchase of the Securities and has not been relied upon in any
way by the  Company,  its  officers,  directors  or other  representatives.  The
Company  further  represents to Purchaser  that the Company's  decision to enter
into this  Agreement  and the  transactions  contemplated  hereby has been based
solely on an independent evaluation by the Company and its representatives.

     III.11 Current  Public  Information.  The Company is currently  eligible to
register the resale of the Shares and the Warrant  Shares by the  Purchaser in a
secondary  offering  under  General  Instruction  B3  and  B4 of  Form  S-3 on a
registration statement on Form S-3 under the Securities Act, all as contemplated
by Section 2.1 of the Registration Rights Agreement.

     III.12 No General  Solicitation.  Neither the Company nor any person acting
on behalf of the Company has conducted any "general  solicitation," as described
in Rule 502(c) under  Regulation D, with respect to any of the Securities  being
offered hereby.
III.13  No  Integrated  Offering.  Neither  the  Company,  nor  any  of its
affiliates,  nor any person acting on their  behalf,  has directly or indirectly
made any  offers or sales of any  security  or  solicited  any offers to buy any
security  under  circumstances  that  would  prevent  the  parties  hereto  from
consummating the transactions  contemplated hereby pursuant to an exemption from
registration  under the  Securities Act pursuant to the provisions of Regulation
D. The  transactions  contemplated  hereby  are  exempt  from  the  registration
requirements of the Securities Act, assuming the accuracy of the representations
and warranties  herein  contained of each  Purchaser to the extent  relevant for
such determination.

     III.14 No Brokers. The Company has taken no action which would give rise to
any claim by any  person for  brokerage  commissions,  finder's  fees or similar
payments  by  Purchaser   relating  to  this   Agreement  or  the   transactions
contemplated hereby,  except for dealings with PaineWebber  Incorporated and ING
Baring Furman Selz LLC (the fees of which shall be paid in full by the Company).
The Company will indemnify each Purchaser from and against any fees and expenses
sought or other claims made by  PaineWebber  Incorporated  or ING Baring  Furman
Selz LLC.

     III.15  Acknowledgment  of Dilution.  The number of Warrant Shares issuable
upon   exercise  of  the  Warrants  may   increase   substantially   in  certain
circumstances.  The Company's  executive officers and directors have studied and
fully understand the terms of this Agreement and the  transactions  contemplated
hereby and the nature of the securities  being sold hereunder and recognize that
they have a potentially  dilutive effect.  The board of directors of the Company
has unanimously  concluded in its good faith business judgment that the issuance
of the Shares, the Warrants and the Warrant Shares as contemplated  hereby is in
the best interests of the Company.  The Company acknowledges that its obligation
to issue  Warrant  Shares upon  exercise of the  Warrants is binding upon it and
enforceable  regardless  of the  dilution  that  such  issuance  may have on the
ownership interests of other stockholders.

     III.16 Intellectual Property. Each of the Company and its subsidiaries owns
or  possesses  adequate  and  enforceable  rights  to use  all  patents,  patent
applications,  trademarks,  trademark applications,  trade names, service marks,
copyrights, copyright applications,  licenses, know-how (including trade secrets
and  other   unpatented   and/or   unpatentable   proprietary  or   confidential
information,  systems or procedures)  and other similar  rights and  proprietary
knowledge (collectively, "Intangibles") used or necessary for the conduct of its
business as now being  conducted  and as  previously  described in the Company's
Annual  Report on Form  10-K most  recently  filed  and any  subsequently  filed
reports on Form 10-Q and Form 8-K. Neither the Company nor any subsidiary of the
Company  infringes on or is in conflict  with any right of any other person with
respect  to any  Intangibles  nor is there any claim of  infringement  made by a
third party against or involving the Company or any of its  subsidiaries,  which
infringement,  conflict  or  claim,  individually  or in the  aggregate,  if the
subject of an  unfavorable  decision,  ruling or finding,  would have a Material
Adverse Effect.
III.17  Foreign  Corrupt  Practices.  Neither the  Company,  nor any of its
subsidiaries,  nor any director, officer, agent, employee or other person acting
on behalf of the  Company or any  subsidiary  has,  in the course of his actions
for, or on behalf of, the  Company,  used any  corporate  funds for any unlawful
contribution,  gift,  entertainment  or  other  unlawful  expenses  relating  to
political activity;  made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate,  payoff,  influence payment,  kickback or
other  unlawful  payment  to any  foreign or  domestic  government  official  or
employee.  Without limiting the generality of the foregoing, the Company and its
subsidiaries  have not directly or indirectly made or agreed to make (whether or
not said  payment is lawful) any payment to obtain,  or with  respect to,  sales
other than usual and regular  compensation  to its or their  employees and sales
representatives with respect to such sales.

     III.18 Key  Employees.  The Key  Employee  (as defined  below) is currently
serving the Company in the capacity disclosed in Schedule 3.18. No Key Employee,
to the best of the knowledge of the Company and its subsidiaries,  is, or is now
expected to be, in violation of any material  term of any  employment  contract,
confidentiality,    disclosure    or    proprietary    information    agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its  subsidiaries  to any liability with respect to any of the
foregoing  matters.  No Key  Employee  has, to the best of the  knowledge of the
Company and its subsidiaries, any intention to terminate or limit his employment
with,  or services to, the Company or any of its  subsidiaries,  nor is any such
Key Employee  subject to any constraints  (e.g.,  litigation)  which would cause
such  employee  to be  unable  to devote  his full  time and  attention  to such
employment or services. "Key Employee" means Maurizio Vecchione.

                                   ARTICLE IV
                                    COVENANTS

     IV.1 Best  Efforts.  The  parties  shall use their best  efforts  timely to
satisfy  each  of the  conditions  described  in  Articles  VI and  VII of  this
Agreement.

     IV.2  Securities  Laws. The Company agrees to file a Form D with respect to
the Securities with the SEC as required under Regulation D and to provide a copy
thereof to each Purchaser on or prior to the date of Closing. The Company agrees
to file a Form 8-K disclosing this Agreement and the  transactions  contemplated
hereby with the SEC within three (3) days  following  the date of Closing.  Such
Form  8-K  shall  contain  as  exhibits  this  Agreement,  the  Warrant  and the
Registration  Rights  Agreement.  The Company shall,  on or prior to the date of
Closing,  take  such  action  as is  necessary  to sell the  Securities  to each
Purchaser in accordance  with  applicable  securities  laws of the states of the
United  States,  and shall provide  evidence of any such action so taken to each
Purchaser  on or prior to the date of the Closing.  Without  limiting any of the
Company's obligations under this Agreement, the Registration Rights Agreement or
the  Warrant,  from and after the date of  Closing,  neither the Company nor any
person acting on its behalf shall take any action which would  adversely  affect
any exemptions  from  registration  under the Securities Act with respect to the
transactions contemplated hereby.
IV.3 Reporting  Status.  So long as any Purchaser  beneficially owns any of
the Securities,  the Company shall timely file all reports  required to be filed
with the SEC pursuant to the Exchange  Act, and the Company  shall not terminate
its status as an issuer  required to file reports under the Exchange Act even if
the  Exchange  Act or the rules and  regulations  thereunder  would  permit such
termination.

     IV.4 Use of Proceeds.  The Company  shall use the proceeds from the sale of
the Preferred Stock for working capital purposes.

     IV.5 Restriction on Below Market Issuance of Securities.(a) For a period of
one (1) year  following the date of the Closing,  the Company shall not issue or
agree to issue (except (i) to the Purchasers  pursuant to this  Agreement,  (ii)
pursuant to any employee stock option,  stock purchase or restricted  stock plan
of the  Company in effect on the date  hereof up to the  aggregate  amounts  set
forth on Schedule  4.5 hereto,  (iii)  pursuant to  strategic  investments  from
industry  participants,  the  primary  purpose  of each of which is not to raise
equity  capital)  any equity  securities  or any  equity-like  or  equity-linked
securities of the Company (or any security  convertible  into or  exercisable or
exchangeable,  directly or indirectly,  for equity, equity-like or equity-linked
securities of the Company) if such  securities  are issued at a price (or in the
case of securities convertible into or exercisable or exchangeable,  directly or
indirectly, for Common Stock such securities provide for a conversion,  exercise
or exchange  price)  which may be less than the then  current  market  price for
Common Stock on the date of issuance  (in the case of Common  Stock) or the date
of conversion,  exercise or exchange (in the case of securities convertible into
or exercisable or exchangeable, directly or indirectly, for Common Stock).

     IV.6 Further  Restriction  on Issuance of  Securities.  While any Purchaser
holds any  Shares,  Warrants  or Warrant  Shares,  the  Company  and each of its
subsidiaries  shall not issue, or authorize for issuance,  or otherwise transfer
or enter into any commitment to issue or otherwise transfer,  any debt or equity
security, bond, note or other security of any of the Company's subsidiaries.

     IV.7 Expenses.  The Company shall pay to Castle Creek  Technology  Partners
LLC ("CCTP"), or at its direction, at the Closing reimbursement for the expenses
incurred  by  it  and  its  affiliates  and  advisors  in  connection  with  the
negotiation,  preparation,  execution,  and delivery of this  Agreement  and the
other agreements and documents to be executed in connection herewith, including,
without  limitation,  due  diligence  and  attorneys'  fees  and  expenses  (the
"Expenses").  In addition,  from time to time  thereafter,  upon CCTP's  written
request,  the Company  shall pay to CCTP such  Expenses,  if any, not so paid at
Closing and/or covered by such payment,  in each case to the extent  incurred by
CCTP. The Company shall not be required to reimburse Expenses to the extent such
Expenses exceed fifty thousand dollars ($50,000) in the aggregate.
IV.8 Information.  The Company agrees to send the following reports to each
Purchaser  until the earlier of (i) such Purchaser  transfers,  assigns or sells
all of its  Securities;  or (ii) the 2nd  anniversary  of the Closing Date:  (a)
within three (3) days after the filing with the SEC, a copy of its Annual Report
on Form 10-K, its Quarterly  Reports on Form 10-Q, any proxy  statements and any
Current  Reports on Form 8-K; and (b) within two (2) days after release,  copies
of all press  releases  issued by the  Company or any of its  subsidiaries.  The
Company  further agrees to promptly  provide to each  Purchaser any  information
with respect to the Company, its properties, or its business or such Purchaser's
investment as such Purchaser may reasonably request; provided, however, that the
Company  shall not be  required to give any  Purchaser  any  material  nonpublic
information.  If any  information  requested  by a  Purchaser  from the  Company
contains material nonpublic information, the Company shall inform such Purchaser
in  writing  that  the  information   requested   contains  material   nonpublic
information  and shall in no event  provide such  information  to any  Purchaser
without the  express  prior  written  consent of such  Purchaser  after being so
informed.

     IV.9  Restriction on Each Purchaser.  Each Purchaser agrees (whether itself
or through agent on behalf of itself) not to engage in any purchases or sales of
the Common Stock (i) during the period beginning sixteen (16) trading days prior
to the date of the  Closing  and ending on the  trading day prior to the date of
the  Closing,  and (ii) if the  average of the  closing bid prices of the Common
Stock  for the  period  beginning  fifteen  (15) days  prior to the first  (1st)
anniversary of the Closing and ending on the 1st anniversary of the Closing (the
"Reset Period") is less than the Per Share Price, during the Reset Period.

     IV.10 Listing.  For a period of beginning on the Closing Date and ending on
the third (3rd)  anniversary of the Closing Date, the Company shall continue the
listing  and  trading of its Common  Stock on The Nasdaq  National  Market,  the
Nasdaq  SmallCap  Market,  the New York Stock  Exchange  or the  American  Stock
Exchange,  secure and  maintain  listing  and  trading of the Shares and Warrant
Shares  on  such  exchange,  and  comply  in all  respects  with  the  Company's
reporting,  filing  and other  obligations  under the  by-laws  or rules of such
exchange.  If the Company fails to maintain the listing or trading of the Common
Stock as required by this  Section  4.10,  then  beginning  on the tenth  (10th)
business day following such failure,  if the Common Stock is still not listed or
traded,  then the Company  shall pay to each  Purchaser  an amount  equal to one
percent (1%) of the fair market value of the Shares and Warrant Shares then held
by such Purchaser per day that such failure continues.  For purposes hereof, the
number of Warrant  Shares held by a Purchaser  shall be calculated as though all
Warrants held by such  Purchaser  were fully  exercised,  without  regard to any
limitations on the exercise thereof. If the Common Stock is not listed or traded
for an  aggregate  of thirty (30) days over any twelve (12) month  period,  each
Purchaser may, at its option, require the Company to purchase all or any portion
of the Shares and  Warrant  Shares held by such  Purchaser  at a price per share
equal to the greater of (i) one hundred  fifty  percent  (150%) of the Per Share
Price and (ii) the fair market value of such share.

     IV.11 Prospectus Delivery Requirement.  Each Purchaser understands that the
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof  pursuant to a registration  statement under
the  Securities  Act covering  the resale by such  Purchaser of the Common Stock
being sold.

     IV.12  Intentional Acts or Omissions.  The Company shall not  intentionally
perform any act which if  performed,  or  intentionally  omit to perform any act
which,  if omitted to be performed,  would prevent or excuse the  performance of
this Agreement or any of the transactions contemplated hereby.
IV.13 Share  Authorization.  The Company shall use its best efforts to have
Nasdaq confirm in writing that the 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 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 each  Purchaser  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 each Purchaser,  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,  each Purchaser may, at
its option,  (the "Exchange  Option") require the Company to purchase all or any
portion of the First  Warrant,  the Second Warrant and/or the Third Warrant held
by such  Purchaser for the Exchange  Price (as herein  defined),  subject to the
limitation on shares set forth below.  The "Exchange  Price" means a price equal
to the number of shares of Common Stock  Purchaser  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  average  closing  sale  price  during  the ten  (10)  trading  days
immediately  preceding  the  earlier  of (i) July 30,  1999 and (ii) the  annual
meeting  of  the  Company's   shareholders  at  which  Shareholder  Approval  is
considered over the Exercise Price. Such number of shares may include all shares
of Common Stock  Purchaser  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 such  Purchaser the Exchange 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 Exchange Price, in cash
(the "Cash Portion") to the extent that the Company has sufficient liquidity and
in a promissory  note (the  "Exchange  Note") to such  Purchaser with a one-year
term,  interest  equal to the  then-current  prime rate and in principal  amount
equal to the the difference between the Exchange Price and the Cash Portion.  If
the Company elects to deliver a Exchange Note,  then the Company shall repay the
outstanding  principal  and  interest  on the  Exchange  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  pre-payment  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  pre-payment.  If the  Company  delivers  a  Exchange  Note and  during the
one-year  term of such note,  obtains  Shareholder  Approval as required by this
Section 4.13, the Company may, at its election, require the holder of a Exchange
Note to exchange such Exchange  Note for a Warrant with  identical  terms to the
Warrant (or part  thereof)  which was  exchanged 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 Exchange Note divided by (III) the original  principal amount of
the Exchange  Note, at an exercise  price equal to (q) the closing sale price of
the Common Stock on the date the Company  elected to exchange the Exchange  Note
for a warrant  minus  (r) an  amount  equal to the  difference  between  (X) the
average of the highest "X" (as defined  below) closing sale prices of the Common
Stock during the period (the "Computation  Period")  beginning on the earlier of
(i)  July  30,  1999  and (ii)  the  date of the  Company's  annual  meeting  of
shareholders at which Shareholder Approval was considered and ending on the date
the Company  elects to exchange the Exchange Notes for a new warrant and (Y) the
exercise price of the Original Warrant at the time of exchange (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 exchange until
the date of exchange); provided the following conditions are then met:

          (i)  the  Company  has  delivered  to  the  Purchasers  notice  of its
     intention to exercise its right to exchange  within ten (10)  business days
     after obtaining Shareholder Approval;

          (ii) the  exercise  period  of the new  warrant  begins on the date of
     issuance thereof and ends on the date which is the number of days following
     the effectiveness of the resale Registration Statement required to be filed
     under Section  2.1(b) of the  Registration  Rights  Agreement  equal to the
     number of days remaining in the exercise period of the Original  Warrant at
     the time of the exchange of the Original Warrant;

          (iii) the Common Stock,  including all Warrant  Shares,  is listed and
     trading on the Nasdaq National Market or the New York Stock Exchange;
(iv) no breach of a material  agreement or  obligation  of the Company
     under this Agreement, the Registration Rights Agreement or the Warrants has
     occurred; and

          (v) within  sixty  (60) days after the  exchange,  the  Company  shall
     obtain the  effectiveness of a Registration  Statement on Form S-3 covering
     the  resale of the  Warrant  Shares on Form S-3;  the  Registration  Rights
     Agreement  shall  apply  to  this  obligation  as if this  obligation  were
     included in Section 2.1(a) of the Registration Rights Agreement.

     For  purposes of this  Section  4.13,  "X" shall mean:  if the  Computation
Period  is four (4)  months  or less,  ten (10);  if the  Computation  Period is
greater than four (4) months but less than six (6) months,  fifteen (15); if the
Computation Period is greater than or equal to six (6) months, twenty (20).

                                    ARTICLE V
                    LEGEND REMOVAL AND TRANSFER INSTRUCTIONS

     V.1 Removal of Legend.  The Legend  shall be removed and the Company  shall
issue a certificate  without any legend to the holder of any Security upon which
such Legend is stamped,  and a  certificate  for a Security  shall be originally
issued without any legend,  if, unless  otherwise  required by applicable  state
securities  laws,  (a)  the  sale of  such  Security  is  registered  under  the
Securities Act, (b) such holder provides the Company with an opinion of counsel,
in form,  substance  and scope  customary  for opinions of counsel in comparable
transactions,  and  reasonably  satisfactory  to the Company  (the cost of which
shall be borne by the  Holder),  to the effect that a public sale or transfer of
such Security may be made without  registration  under the Securities Act or (c)
such  Security can be sold  pursuant to Rule 144.  Purchaser  agrees to sell all
Securities,  including  those  represented  by a  certificate(s)  from which the
Legend has been removed, or which were originally issued without the Legend, (i)
pursuant to an effective  registration  statement and to deliver a prospectus in
connection  with  such sale or (ii) in  compliance  with an  exemption  from the
registration  requirements  of the  Securities  Act.  In the event the Legend is
removed  from any  Security  or any  Security  is issued  without the Legend and
thereafter the effectiveness of a registration  statement covering the resale of
such Security is suspended or a supplement  or amendment  thereto is required by
applicable  securities  laws, then upon  reasonable  advance notice to Purchaser
holding such Security,  the Company may require that the Legend be placed on any
such  Security  that cannot then be sold  pursuant to an effective  registration
statement or Rule 144 or with respect to which the opinion referred to in clause
(b) next above has not been  rendered,  which  Legend shall be removed when such
Security may be sold pursuant to an effective registration statement or Rule 144
or such holder provides the opinion with respect thereto described in clause (b)
next above.  Except for the Legend  required  pursuant to this  Section 5.1, the
Securities shall bear no legend.
V.2 Transfer  Agent  Instructions.  The Company shall instruct its transfer
agent to issue certificates, registered in the name of Purchaser or its nominee,
for the Shares and Warrant Shares in such amounts as specified from time to time
by Purchaser to the Company.  Such certificates  shall bear a legend only in the
form of the Legend and only to the extent  permitted  by Section 5.1 above.  The
Company warrants that no instruction other than such instructions referred to in
this  Article V, and no stop  transfer  instructions  other  than stop  transfer
instructions  to give effect to Section 2.6 hereof in the case of the Shares and
Warrant Shares prior to  registration  thereof under the Securities Act, will be
given by the  Company  to its  transfer  agent  and that  the  Securities  shall
otherwise  be  freely  transferable  on the books and  records  of the  Company.
Nothing in this Section  shall  affect in any way  Purchaser's  obligations  and
agreement set forth in Section 5.1 hereof to resell the  Securities  pursuant to
an effective  registration  statement  and to deliver a prospectus in connection
with  such  sale  or in  compliance  with an  exemption  from  the  registration
requirements of applicable securities laws. Without limiting any other rights of
Purchaser or obligations of the Company,  if (a) Purchaser  provides the Company
with an opinion of counsel, which opinion of counsel shall be in form, substance
and scope  customary  for opinions of counsel in  comparable  transactions  (the
reasonable cost of which shall be borne by the Company),  to the effect that the
Securities to be sold or transferred  may be sold or transferred  pursuant to an
exemption from registration or (b) a Purchaser transfers  Securities pursuant to
Rule 144, the Company  shall  permit the  transfer,  and  promptly  instruct its
transfer  agent  to  issue  one or more  certificates  in such  name and in such
denomination  as specified by such  Purchaser in order to effect such a transfer
or  sale.  The  Company  acknowledges  that a  breach  by it of its  obligations
hereunder will cause irreparable harm to a Purchaser by vitiating the intent and
purpose  of  the  transaction  contemplated  hereby.  Accordingly,  the  Company
acknowledges  that the remedy at law for a breach of its obligations  under this
Article V will be inadequate and agrees,  in the event of a breach or threatened
breach by the  Company of the  provisions  of this  Article V, that a  Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring  immediate  issuance and transfer,  without
the necessity of showing  economic  loss and without any bond or other  security
being required.

     V.3 Failure to Remove Legend.  If the Company fails to remove any legend as
required by this Article V (a "Legend Removal  Failure"),  then beginning on the
tenth (10th) day  following  such failure,  if the Company  continues to fail to
remove such  legend,  the Company  shall pay to each  Purchaser  holding  shares
subject to a Legend  Removal  Failure an amount equal to one percent (1%) of the
fair market value of the Shares and Warrant  Shares then held by such  Purchaser
per day that such failure continues.  For purposes hereof, the number of Warrant
Shares held by a Purchaser  shall be  calculated  as though all Warrants held by
such Purchaser were fully  exercised,  without regard to any  limitations on the
exercise thereof.  If during any twelve (12) month period,  the Company fails to
remove any legend as required by this  Article V for an aggregate of thirty (30)
days, each Purchaser  holding shares subject to a Legend Removal Failure may, at
its option, require the Company to purchase all or any portion of the Shares and
Warrant  Shares held by such Purchaser at a price per share equal to the greater
of (i) one hundred fifty percent (150%) of the Per Share Price and (ii) the fair
market value of such share.

                                   ARTICLE VI
                 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
VI.1 Conditions to the Company's  Obligation to Sell. The obligation of the
Company  hereunder  to issue and sell the Shares and  Warrants to a Purchaser at
the  Closing is subject to the  satisfaction,  as of the date of the Closing and
with respect to such  Purchaser,  of each of the following  conditions  thereto,
provided that these  conditions  are for the  Company's  sole benefit and may be
waived by the Company at any time in its sole discretion:

          (i) Such  Purchaser  shall have  executed the  signature  page to this
     Agreement and the  Registration  Rights Agreement and delivered the same to
     the Company.

          (ii) Such Purchaser  shall deliver the  applicable  Purchase Price for
     the Shares and Warrant Shares purchased at the Closing.

          (iii) The  representations  and warranties of such Purchaser  shall be
     true and  correct as of the date when made and as of the  Closing as though
     made at that time,  and  Purchaser  shall  have  performed,  satisfied  and
     complied  in all  material  respects  with  the  covenants  and  agreements
     required by this Agreement to be performed or complied with by Purchaser at
     or prior to the  Closing.  The Company  shall have  received a  certificate
     executed by the Chief Executive  Officer or Chief Financial Officer of such
     Purchaser  dated the Date of the Closing to the foregoing  effect and as to
     such other matters as may be reasonably requested by the Company.

          (iv) No statute, rule, regulation,  executive order, decree, ruling or
     injunction shall have been enacted, entered, promulgated or endorsed by any
     court  or   governmental   authority  of  competent   jurisdiction  or  any
     self-regulatory organization having authority over the matters contemplated
     hereby  which  restricts  or  prohibits  the  consummation  of  any  of the
     transactions contemplated by this Agreement.

                                   ARTICLE VII
              CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE

     VII.1 Conditions to the Closing. The obligation of each Purchaser hereunder
to purchase  the Shares and  Warrants to be  purchased  by it on the date of the
Closing is  subject to the  satisfaction  of each of the  following  conditions,
provided that these  conditions are for each Purchaser's sole benefit and may be
waived by such  Purchaser  (with respect to it) at any time in such  Purchaser's
sole discretion:

          (i)  The  Company  shall  have  executed  the  signature  page to this
     Agreement and the  Registration  Rights Agreement and delivered the same to
     such Purchaser.

          (ii) The Company shall have delivered duly executed  certificates  for
     the  Shares  (in such  denominations  as such  Purchaser  shall  reasonably
     request) and Warrant being so purchased by Purchaser at the Closing.
(iii) The Common Stock, including all Shares and Warrant Shares, shall
     be listed on the Nasdaq and trading in the Common Stock shall not have been
     suspended  by the  Nasdaq,  the SEC or other  regulatory  authority  and no
     de-listing or suspension  shall be  reasonably  likely for the  foreseeable
     future.

          (iv) The  representations  and warranties of the Company shall be true
     and  correct as of the date when made and as of the  Closing as though made
     at that time and the Company shall have  performed,  satisfied and complied
     with  the  covenants  and  agreements  required  by  this  Agreement  to be
     performed or complied with by the Company at or prior to the Closing.  Such
     Purchaser  shall  have  received  a  certificate,  executed  by  the  Chief
     Executive  Officer or Chief Financial  Officer of the Company,  dated as of
     the Closing to the foregoing  effect and as to such other matters as may be
     reasonably requested by such Purchaser.

          (v) No statute, rule,  regulation,  executive order, decree, ruling or
     injunction shall have been enacted, entered, promulgated or endorsed by any
     court  or   governmental   authority  of  competent   jurisdiction  or  any
     self-regulatory organization having authority over the matters contemplated
     hereby  which  prohibits  the  consummation  of  any  of  the  transactions
     contemplated by this Agreement.

          (vi) Such  Purchaser  shall have  received the  officer's  certificate
     described  in Section  3.3,  dated as of the  Closing and there shall be no
     material  changes from the date of signing of this Agreement to the date of
     the Closing other than as a result of issuance of Common Stock  pursuant to
     options, warrants and other obligations disclosed on Schedule 3.3 as of the
     date of this Agreement.

          (vii) Such  Purchaser  shall have  received  opinions of the Company's
     counsel, dated as of the Closing, in the form attached hereto as Exhibit C.

          (viii) The  Company's  transfer  agent has agreed to act in accordance
     with irrevocable instructions in the form attached hereto as Exhibit D.

          (ix) Intel Corporation ("Intel") has previously or simultaneously with
     the Closing  exchanged  all rights to Intel's  future  royalty  stream into
     warrants (on the same terms as the  Warrants,  including but not limited to
     with respect to exercise price) Common Stock at an exchange rate acceptable
     to the Company  which is not less than five million  dollars  ($5,000,000),
     pursuant to documents acceptable to such Purchaser.

          (x) The Company has filed a Form D with respect to the Securities with
     the SEC as required  under  Regulation D and has provided a copy thereof to
     each Purchaser.
(xi) The Company has filed an Additional  Listing  Application (and no
     additional time is required for the effectiveness  thereof) with respect to
     all Shares and Warrant  Shares with the National  Association of Securities
     Dealers and has provided a copy thereof to each Purchaser.

     VII.2 [Intentionally deleted].

                                  ARTICLE VIII
                          GOVERNING LAW; MISCELLANEOUS

     VIII.1 Governing Law; Jurisdiction. This Agreement 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  parties
hereto  irrevocably  consent to the  jurisdiction  of the United States  federal
courts  located in the State of California  and the state courts  located in the
County of Los Angeles in the State of California in any suit or proceeding based
on or arising under this Agreement or the transactions  contemplated  hereby and
irrevocably  agree 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
further  agrees that  service of process  upon the  Company  mailed by the first
class mail shall be deemed in every  respect  effective  service of process upon
the Company in any suit or proceeding  arising  hereunder.  Nothing herein shall
affect any Purchaser's  right to serve process in any other manner  permitted by
law. The parties hereto agree that a final  non-appealable  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.
VIII.2 Vecchione 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 later of (a) six (6) months
following the effectiveness of the Registration  Statement  required to be filed
pursuant to Section 2.1 of the  Registration  Rights Agreement and (b) the first
(1st) anniversary of the date of the Closing and (ii) the date on which Maurizio
Vecchione ceases to be President or CEO of the Company, the Company shall pay to
each  Purchaser an amount  equal to (x) the number of Shares and Warrant  Shares
(without  giving  effect to any exercise  thereof)  then held by such  Purchaser
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 (each a "Freedman")  dispose of any 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
effectiveness  of the  Registration  Statement  required to be filed pursuant to
Section 2.1 of the Registration Rights Agreement,  the Company shall pay to each
Purchaser  an  amount  equal to (x) the  number  of Shares  and  Warrant  Shares
(without  giving  effect to any exercise  thereof)  then held by such  Purchaser
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.

     VIII.3  Counterparts.  This  Agreement  may be  executed  in  two  or  more
counterparts,  including, without limitation, by facsimile transmission,  all of
which  counterparts  shall be  considered  one and the same  agreement and shall
become effective when  counterparts have been signed by each party and delivered
to the other party.  In the event any  signature  page is delivered by facsimile
transmission,  the party  using such means of delivery  shall  cause  additional
original executed signature pages to be promptly delivered to the other parties.

     VIII.4  Headings.  The headings of this  Agreement are for  convenience  of
reference  and shall not form part of, or affect  the  interpretation  of,  this
Agreement.

     VIII.5 Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or  enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

     VIII.6 Scope of Agreement; Amendments. This Agreement and the documents and
instruments  referenced  herein contain the entire  understanding of the parties
with  respect  to  the  matters  covered  herein  and  therein  and,  except  as
specifically set forth herein or therein, no Purchaser makes any representation,
warranty,  covenant or undertaking  with respect the  transactions  contemplated
hereby. No provision of this Agreement may be waived other than by an instrument
in writing signed by the party to be charged with  enforcement  and no provision
of this  Agreement may be amended other than by an instrument in writing  signed
by the Company and each Purchaser.

     VIII.7 Notice. Any notice herein required or permitted to be given shall be
in  writing  and  may  be  personally  served  or  delivered  by  courier  or by
facsimile-machine  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

If to any Purchaser,  to such address set forth under such  Purchaser's  name on
the signature page hereto executed by such  Purchaser.  Each party shall provide
notice to the other parties of any change in address.

     VIII.8  Successors and Assigns.  This  Agreement  shall be binding upon and
inure to the benefit of the parties and their  successors  and assigns.  Neither
the Company nor any  Purchaser  shall  assign  this  Agreement  or any rights or
obligations   hereunder   without  the  prior  written  consent  of  the  other.
Notwithstanding  the  foregoing,  each  Purchaser  may  assign  its  rights  and
obligations  hereunder  and may transfer any or all of its  Securities to any of
its  "affiliates,"  as that term is defined under the Exchange Act,  without the
consent of the Company so long as such affiliate is an accredited investor. This
provision  shall not limit each  Purchaser's  right to transfer  the  Securities
pursuant  to the  terms of this  Agreement.  In  addition,  and  notwithstanding
anything  to the  contrary  contained  in this  Agreement,  the  Warrant  or the
Registration Rights Agreement,  the Securities may be pledged, and all rights of
Purchaser under this Agreement or any other agreement or document related to the
transaction contemplated hereby may be assigned,  without further consent of the
Company,  to a bona fide  pledgee in  connection  with a  Purchaser's  margin or
brokerage accounts.

     VIII.9  Third Party  Beneficiaries.  This  Agreement  is  intended  for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other person.
VIII.10 Survival. The representations, warranties, covenants and agreements
of the Company in this Agreement shall survive each and every Closing  hereunder
notwithstanding  any due  diligence  investigation  conducted by or on behalf of
Purchaser.  The Company agrees to indemnify and hold harmless each Purchaser and
each of each Purchaser's officers,  directors,  employees,  partners, agents and
affiliates for loss or damage to the extent arising as a result of or related to
(a) any breach by the Company of any of its  representations  or  covenants  set
forth herein or (b) any cause of action,  suit or claim  brought or made against
such indemnitee  (other than by the Company solely for breach of this Agreement,
the  Warrant  or the  Registration  Rights  Agreement  by the  indemnitee  or by
governmental or regulatory authorities) and arising out of or resulting from the
execution,  delivery,  performance or enforcement of this Agreement or any other
instrument,  document or  agreement  executed  pursuant  hereto or  contemplated
hereby, any transaction financed or to be financed in whole or in part, directly
or indirectly, with the proceeds of the issuance of the Securities or the status
of  Purchaser  as an  investor  in the  Company,  except to the extent that such
actual loss or damage arises out of or results from a breach by such  indemnitee
of this Agreement,  the Warrant or the  Registration  Rights Agreement or from a
Purchaser's  violation of law. The right to  indemnification  shall  include the
right to advancement of expenses as they are incurred.

     VIII.11 Public Filings; Publicity.  Immediately following execution of this
Agreement,  the  Company  shall  issue  a  press  release  with  respect  to the
transactions  contemplated hereby. The Company and each Purchaser shall have the
right to approve  before  issuance any press  releases  (including the foregoing
press  release),  SEC or other  filings,  or any other public  statements,  with
respect to the transactions  contemplated hereby;  provided,  however,  that the
Company shall be entitled,  without the prior approval of any Purchaser, to make
any press release or SEC, Nasdaq,  NASD or exchange filings with respect to such
transactions  as is required by applicable  law and  regulations  (although each
Purchaser  shall (to the extent  time  permits) be  consulted  by the Company in
connection  with any  such  press  release  prior to its  release  and  shall be
provided with a copy thereof).

     VIII.12 Further Assurances. Each party shall do and perform, or cause to be
done and  performed,  all such  further acts and things,  and shall  execute and
deliver all such other agreements,  certificates,  instruments and documents, as
the other  party may  reasonably  request  in order to carry out the  intent and
accomplish  the  purposes  of  this  Agreement  and  the   consummation  of  the
transactions contemplated hereby, including,  without limitation,  the filing of
all appropriate  documentation and notifications with Nasdaq with respect to the
Warrant  Shares  immediately  following  each  of  any  applicable   Shareholder
Approval,  any  applicable  Nasdaq  Approval and any  applicable  Second  Nasdaq
Approval.

     VIII.13 Remedies.  No provision of this Agreement  providing for any remedy
to a Purchaser shall limit any remedy which would otherwise be available to such
Purchaser at law or in equity.  Nothing in this Agreement shall limit any rights
a Purchaser may have with any applicable  federal or state  securities laws with
respect to the investment contemplated hereby.

     VIII.14  Directly or  Indirectly.  Where any  provision  in this  Agreement
refers to action to be taken by any  person or entity,  or which such  person or
entity is prohibited from taking, such provision shall be applicable whether the
action in question is taken directly or indirectly by such person or entity.
VIII.15  Remedies,  Characterizations,   Other  Obligations,  Breaches  and
Injunctive  Relief.  The remedies provided in this Agreement shall be cumulative
and in addition to all other remedies available under this Agreement,  at law or
in equity  (including a decree of specific  performance  and/or other injunctive
relief),  no remedy contained herein shall be deemed a waiver of compliance with
the  provisions  giving  rise to such remedy and  nothing  herein  shall limit a
Purchaser's  right to actual  damages  for any  failure by the Company to comply
with the terms of this Agreement.  The Company  covenants to each Purchaser that
there shall be no  characterization  concerning  this  instrument  other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments and the like (and the  computation  thereof) shall be the amounts to
be  received  by each  Purchaser  and shall not,  except as  expressly  provided
herein,  be subject to any other  obligation of the Company (or the  performance
thereof).  The  Company  acknowledges  that a  breach  by it of its  obligations
hereunder will cause  irreparable  harm to the Purchasers and that the remedy at
law for any such breach may be inadequate. The Company therefore agrees that, in
the event of any such  breach or  threatened  breach,  the  Purchasers  shall be
entitled,  in  addition  to  all  other  available  remedies,  to an  injunction
restraining  any breach,  without the  necessity  of showing  economic  loss and
without any bond or other security being required.
VIII.16 Payment of Cash; Defaults. Whenever the Company is required to make
any cash payment to a Purchaser under this Agreement, such cash payment shall be
due on the date (the  "Cash Due  Date")  that such  Purchaser  delivers  written
notice from the Purchaser to the Company. Such cash payment shall be made to the
Purchaser by the method (by  certified or  cashier's  check or wire  transfer of
immediately  available  funds)  elected by such  Holder.  If such payment is not
delivered  within  two (2) days of the  Cash  Due  Date,  such  Purchaser  shall
thereafter  be entitled  to  interest  on the unpaid  amount at a per annum rate
equal to the lower of  eighteen  percent  (18%) and the  highest  interest  rate
permitted by applicable law until such amount is paid in full to the Holder.

     VIII.17  Failure or Indulgence Not Waiver.  No failure or delay on the part
of a Purchaser in the exercise of any power, right or privilege  hereunder shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such power,  right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

     VIII.18 Termination.  In the event that the Closing shall not have occurred
on or before two (2) business days after the date of this agreement,  unless the
parties agree otherwise, this Agreement shall terminate at the close of business
on such date.

     VIII.19 Black-Scholes Amount. 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.

     VIII.20  Miscellaneous.  Notwithstanding  anything to the  contrary in this
Agreement  or the  Warrants,  to the extent that the consent or approval of each
Purchaser is required  under the documents,  with respect to a given matter,  no
Purchaser who  initially  puchases  less than one million  dollars  ($1,000,000)
shall have such consent or approval right.

                                      * * *
IN WITNESS WHEREOF, the undersigned  Purchasers and the Company have caused
this Agreement to be duly executed as of the date first above written.

PURCHASERS:

PURCHASER:

CASTLE CREEK TECHNOLOGY PARTNERS LLC

By: Castle Creek Partners, L.L.C.
Its: Investment Manager

By:                                                  
Name: John D. Ziegelman
Title: Managing Member

ADDRESS:77 W. Wacker Drive, Suite 4040   COPY TO: Altheimer & Gray
        Chicago, Illinois 60601                   10 S. Wacker Drive, Suite 4000
        Facsimile: (312) 499-6999                 Chicago, Illinois 60606
                                                  Attention: Peter H. Lieberman
                                                  Facsimile: (312) 715-4800

JURISDICTION: ILLINOIS

AGGREGATE NUMBER OF SHARES: 455,218
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-1: 159,326
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-2: 189,674
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-3: 189,674
PURCHASER:

MARSHALL CAPITAL MANAGEMENT, INC.

By:                                                  
Name: Allan Weine
Title: President

ADDRESS:c/o Credit Suisse First Boston   COPY TO:c/o Credit Suisse First Boston
        11 Madison Ave., Third Floor            227 W. Monroe Street, 41st Floor
        New York, NY 10010                      Chicago, IL 60606
        Facsimile Number: (312) 750-1031

JURISDICTION: NEW YORK

AGGREGATE NUMBER OF SHARES: 227,609
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-1: 79,663
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-2: 94,837
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-3: 94,837
PURCHASER:

WINFIELD CAPITAL CORP.

By:                                                  
Name:  Paul A. Perlin
Title: Chief Executive Officer

ADDRESS: 237 Mamaroneck Avenue              COPY TO:                            
         White Plains, New York 10605
         Facsimile Number: (914) 949-7195

JURISDICTION: New York

AGGREGATE NUMBER OF SHARES: 47,000
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-1: 16,450
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-2: 19,583
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-3: 19,583
PURCHASER:

SPINNER ASSET MANAGEMENT CO.

By:                                                  
Name:                                                
Title:                                               

ADDRESS:                                             COPY TO:

Facsimile Number:                           

JURISDICTION:                       

AGGREGATE NUMBER OF SHARES: 47,000
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-1: 16,450
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-2: 19,583
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY WARRANT A-3: 19,583
COMPANY:

MODACAD, INC.

By:    /s/ JOYCE FREEDMAN
   ________________________________ 
   Name: Joyce Freedman
   Title: Chief Executive Officer
EXHIBIT A-1

VOID AFTER 5:00 P.M.
[EASTERN] TIME ON APRIL 7, 2004 [fifth anniversary of Closing]

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 ____ Shares of Common Stock

Date: April 7, 1999

                                  MODACAD, INC.
                             STOCK PURCHASE WARRANT

     THIS CERTIFIES THAT, for value received,  _______________ 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,  ______________  [0.35 times  (initial  tranche  funded amount
divided  by  initial   tranche   purchase  price  per  share)]  fully  paid  and
nonassessable  shares of the Company's common stock (the "Common Stock"),  at an
initial  exercise price of $13.72 per share (the  "Exercise  Price" [125% of Per
Share  Price (as  defined  in the  Securities  Purchase  Agreement  (as  defined
below)]),  subject to  adjustment  as contained  in Section  1(f)  hereof.  This
Warrant is being issued pursuant to that certain  Securities  Purchase Agreement
dated  April  7,  1999  between  the  Company  and the  signatory  thereto  (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 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  or (ii) if the Holder  elects to effect a Cashless  Exercise (as
     defined in  Section  12(c)  below),  delivery  to the  Company of a written
     Exercise Agreement for a Cashless Exercise hereunder 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.

          (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  notice to exercise a Cashless  Exercise)  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
fifth (5th) anniversary of the date hereof (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 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 Section 4.10 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,  at its  election,  either 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  of  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 that certain Registration Rights
     Agreement dated April 7, 1999 among the Company and the signatories thereto
     (the  "Registration  Rights  Agreement")  to  assume  all of the  Company's
     obligations  under the Registration  Rights  Agreement.  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 The
          Nasdaq National Market 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 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  First  Closing  and  ending on the
               earlier  of (i)  the  later  of (A)  six  (6)  months  after  the
               effectiveness of the Registration  Statement required to be filed
               by Section 2.1 of the  Registration  Rights Agreement and (B) the
               first (1st) anniversary of the date of the First Closing and (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   effectiveness  of  the  Registration   Statement
               required  to be filed by Section 2.1 of the  Registration  Rights
               Agreement,

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, 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 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 Registration Rights 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  Warrant,  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.  Additional  Restriction  on Exercise or Transfer.  Notwithstanding
     anything  to the  contrary  contained  herein,  the  Warrants  shall not be
     exercisable  by the Holder to the extent (but only to the extent)  that, if
     exercisable by Holder, Holder would beneficially own in excess of 9.9% (the
     "Applicable  Percentage")  of the shares of Common Stock. To the extent the
     above limitation  applies,  the determination of whether the Warrants shall
     be exercisable  (vis-a-vis  other  securities owned by Holder which contain
     similar   limitations  on  conversion)  and  of  which  Warrants  shall  be
     exercisable  (as among Warrants) shall be made on the basis of the earliest
     submission of the Warrants  (vis-a-vis other securities owned by the Holder
     which  contain  similar  limitations  on  conversion  and  vis a vis  other
     Warrants), in each case subject to such aggregate percentage limitation. No
     prior inability to exercise  Warrants pursuant to this paragraph shall have
     any effect on the  applicability  of the  provisions of this paragraph with
     respect to any subsequent determination of exercisability. For the purposes
     of  this  paragraph,   beneficial  ownership  and  all  determinations  and
     calculations, including without limitation, with respect to calculations of
     percentage ownership,  shall be determined in accordance with Section 13(d)
     of the Securities Exchange Act of 1934, as amended,  and Regulation 13D and
     G thereunder.  The  provisions of this  paragraph may be  implemented  in a
     manner  otherwise than in strict  conformity with the terms of this Section
     8(f) with the  approval  of the Board of  Directors  of the Company and the
     Holder:  (i) with respect to any matter to cure any  ambiguity  herein,  to
     correct this  paragraph  (or any portion  hereof) which may be defective or
     inconsistent with the intended Applicable  Percentage  beneficial ownership
     limitation herein contained or to make changes or supplements  necessary or
     desirable to properly give effect to such Applicable Percentage limitation;
     and (ii) with respect to any other matter (including  through any amendment
     of this Warrant),  with the further consent of the holders of a majority of
     the then  outstanding  shares of Common  Stock.  For  clarification,  it is
     expressly a term of this  security that the  limitations  contained in this
     Section shall apply to each successor Holder.
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 the  Registration  Rights
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
Los Angeles 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,
     subject to the limitation contained in Section 8(f).

          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.

          di  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.

                                      * * *
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

OID AFTER 5:00 P.M.
[EASTERN] TIME ON APRIL 7, 2000 [first anniversary of Closing]

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 ____ Shares of Common Stock

Date: April 7, 1999

                                  MODACAD, INC.
                             STOCK PURCHASE WARRANT

     THIS CERTIFIES THAT, for value received,  _______________ 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,  ______________  [Purchaser's portion of $5 million, allocated
pro rata based  upon  original  funding  amounts]  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"  [120% of Per Share
Price (as defined in the  Securities  Purchase  Agreement (as defined  below)]).
This  Warrant is being  issued  pursuant  to that  certain  Securities  Purchase
Agreement dated April 7, 1999 between the Company and the signatory thereto (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 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.

          (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
first (1st) anniversary of the date hereof (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 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 Section 4.10 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,  at its  election,  to either (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  of  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 that certain Registration Rights
     Agreement dated April 7, 1999 among the Company and the signatories thereto
     (the  "Registration  Rights  Agreement")  to  assume  all of the  Company's
     obligations  under the Registration  Rights  Agreement.  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 The
          Nasdaq National Market 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 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  First  Closing  and  ending on the
               earlier  of (i)  the  later  of (A)  six  (6)  months  after  the
               effectiveness of the Registration  Statement required to be filed
               by Section 2.1 of the  Registration  Rights Agreement and (B) the
               first (1st) anniversary of the date of the First Closing and (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   effectiveness  of  the  Registration   Statement
               required  to be filed by Section 2.1 of the  Registration  Rights
               Agreement,

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, 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 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 Registration Rights 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  Warrant,  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.  Additional  Restriction  on Exercise or Transfer.  Notwithstanding
     anything  to the  contrary  contained  herein,  the  Warrants  shall not be
     exercisable  by the Holder to the extent (but only to the extent)  that, if
     exercisable by Holder, Holder would beneficially own in excess of 9.9% (the
     "Applicable  Percentage")  of the shares of Common Stock. To the extent the
     above limitation  applies,  the determination of whether the Warrants shall
     be exercisable  (vis-a-vis  other  securities owned by Holder which contain
     similar   limitations  on  conversion)  and  of  which  Warrants  shall  be
     exercisable  (as among Warrants) shall be made on the basis of the earliest
     submission of the Warrants  (vis-a-vis other securities owned by the Holder
     which  contain  similar  limitations  on  conversion  and  vis a vis  other
     Warrants), in each case subject to such aggregate percentage limitation. No
     prior inability to exercise  Warrants pursuant to this paragraph shall have
     any effect on the  applicability  of the  provisions of this paragraph with
     respect to any subsequent determination of exercisability. For the purposes
     of  this  paragraph,   beneficial  ownership  and  all  determinations  and
     calculations, including without limitation, with respect to calculations of
     percentage ownership,  shall be determined in accordance with Section 13(d)
     of the Securities Exchange Act of 1934, as amended,  and Regulation 13D and
     G thereunder.  The  provisions of this  paragraph may be  implemented  in a
     manner  otherwise than in strict  conformity with the terms of this Section
     8(f) with the  approval  of the Board of  Directors  of the Company and the
     Holder:  (i) with respect to any matter to cure any  ambiguity  herein,  to
     correct this  paragraph  (or any portion  hereof) which may be defective or
     inconsistent with the intended Applicable  Percentage  beneficial ownership
     limitation herein contained or to make changes or supplements  necessary or
     desirable to properly give effect to such Applicable Percentage limitation;
     and (ii) with respect to any other matter (including  through any amendment
     of this Warrant),  with the further consent of the holders of a majority of
     the then  outstanding  shares of Common  Stock.  For  clarification,  it is
     expressly a term of this  security that the  limitations  contained in this
     Section shall apply to each successor Holder.
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 the  Registration  Rights
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
Los Angeles 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,
     subject to the limitation contained in Section 8(f).

          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.

          ci [Intentionally deleted].

          di  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.

                                      * * *
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

VOID AFTER 5:00 P.M.
[EASTERN] TIME ON JULY 7, 2000 [fifteen (15) months after Closing]

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 ____ Shares of
                                                                    Common Stock

Date: April 7, 1999

                                  MODACAD, INC.
                             STOCK PURCHASE WARRANT

     THIS CERTIFIES THAT, for value received,  _______________ 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,  ______________  [Purchaser's portion of $5 million, allocated
pro rata based  upon  original  funding  amounts]  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"  [120% of Per Share
Price (as defined in the  Securities  Purchase  Agreement (as defined  below)]).
This  Warrant is being  issued  pursuant  to that  certain  Securities  Purchase
Agreement dated April 7, 1999 between the Company and the signatory thereto (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 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.

          (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").

          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 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 ("Nasdaq"), the Nasdaq SmallCap Market, the New York
     Stock Exchange or the American Stock Exchange,  as required by Section 4.10
     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,  at its  election,  either 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  of  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 that certain Registration Rights
     Agreement dated April 7, 1999 among the Company and the signatories thereto
     (the  "Registration  Rights  Agreement")  to  assume  all of the  Company's
     obligations  under the Registration  Rights  Agreement.  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 for
     the trading day  immediately  preceding such date, or (ii) if Nasdaq 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 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 First  Closing and ending on the earlier of (i) the later of (A) six
     (6) months after the effectiveness of the Registration  Statement  required
     to be filed by Section 2.1 of the Registration Rights Agreement and (B) the
     first (1st)  anniversary of the date of the First Closing and (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   effectiveness  of  the
     Registration  Statement  required  to  be  filed  by  Section  2.1  of  the
     Registration Rights Agreement,

     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 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 Registration Rights 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  Warrant,  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.  Additional  Restriction  on Exercise or Transfer.  Notwithstanding
     anything  to the  contrary  contained  herein,  the  Warrants  shall not be
     exercisable  by the Holder to the extent (but only to the extent)  that, if
     exercisable by Holder, Holder would beneficially own in excess of 9.9% (the
     "Applicable  Percentage")  of the shares of Common Stock. To the extent the
     above limitation  applies,  the determination of whether the Warrants shall
     be exercisable  (vis-a-vis  other  securities owned by Holder which contain
     similar   limitations  on  conversion)  and  of  which  Warrants  shall  be
     exercisable  (as among Warrants) shall be made on the basis of the earliest
     submission of the Warrants  (vis-a-vis other securities owned by the Holder
     which  contain  similar  limitations  on  conversion  and  vis a vis  other
     Warrants), in each case subject to such aggregate percentage limitation. No
     prior inability to exercise  Warrants pursuant to this paragraph shall have
     any effect on the  applicability  of the  provisions of this paragraph with
     respect to any subsequent determination of exercisability. For the purposes
     of  this  paragraph,   beneficial  ownership  and  all  determinations  and
     calculations, including without limitation, with respect to calculations of
     percentage ownership,  shall be determined in accordance with Section 13(d)
     of the Securities Exchange Act of 1934, as amended,  and Regulation 13D and
     G thereunder.  The  provisions of this  paragraph may be  implemented  in a
     manner  otherwise than in strict  conformity with the terms of this Section
     8(f) with the  approval  of the Board of  Directors  of the Company and the
     Holder:  (i) with respect to any matter to cure any  ambiguity  herein,  to
     correct this  paragraph  (or any portion  hereof) which may be defective or
     inconsistent with the intended Applicable  Percentage  beneficial ownership
     limitation herein contained or to make changes or supplements  necessary or
     desirable to properly give effect to such Applicable Percentage limitation;
     and (ii) with respect to any other matter (including  through any amendment
     of this Warrant),  with the further consent of the holders of a majority of
     the then  outstanding  shares of Common  Stock.  For  clarification,  it is
     expressly a term of this  security that the  limitations  contained in this
     Section shall apply to each successor Holder.
g. Redemption at Company's Option.

          1. On the first (1st)  anniversary of the date hereof and for ten (10)
     business  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
     representations,  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,  the Registration Rights Agreement and
     the  Warrants;   (b)  the   Registration   Statement  (as  defined  in  the
     Registration Rights Agreement) required to be filed by the Company pursuant
     to the Registration Rights Agreement covering the 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 Shares and Warrant  Shares,  is listed on the
     Nasdaq and trading in the Common Stock is not suspended by the Nasdaq,  the
     SEC or other  regulatory  authority  and, to the  Company's  knowledge,  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  reasonably  likely to cause a
     Material  Adverse  Effect,  and (e) the weighted  average sale price of the
     Common  Stock during any period of fifteen  (15)  consecutive  trading days
     during the twenty (20) trading days  immediately  preceding the first (1st)
     anniversary  is greater  than the  Exercise  Price.  For  purposes  of this
     Section  8(g),  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(g) by  delivering  written  notice  thereof (the  "Optional
     Redemption  Notice") on the first (1st)  anniversary  of the date hereof or
     within ten (10) business 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 the  Registration
     Rights 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 Los Angeles 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,
     subject to the limitation contained in Section 8(f).

          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.

                                                        * * *

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

                                                           ModaCAD, Inc.

                                                   By:

                                                   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

                          REGISTRATION RIGHTS AGREEMENT

     THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"),  is made as of April
7, 1999, by and among ModaCAD,  Inc., a California  corporation (the "Company"),
with  headquarters  located at Culver City,  California and the undersigned (the
"Initial Purchasers").

                                    RECITALS

     A. In connection with the Securities  Purchase Agreement dated of even date
herewith by and between the Company and the Initial  Purchasers (the "Securities
Purchase Agreement"),  the Company has agreed, upon the terms and subject to the
conditions  contained  therein,  to issue and sell to the Initial  Purchaser (i)
shares of the  Company's  common  stock  (the  "Common  Stock"),  (ii)  warrants
exercisable  for shares of Common Stock,  in the form attached as Exhibit A-1 to
the Securities  Purchase  Agreement,  (iii) warrants  exercisable  for shares of
Common  Stock,  in the form attached as Exhibit A-2 to the  Securities  Purchase
Agreement and (iv) warrants  exercisable for shares of Common Stock, in the form
attached  as Exhibit A-3 to the  Securities  Purchase  Agreement  (each of (ii),
(iii) and (iv) a "Warrant" and taken  collectively,  the "Warrants").  Shares of
Common Stock issued and purchased pursuant to the Securities  Purchase Agreement
are herein  referred to as "Shares"  and shares of Common  Stock  issuable  upon
exercise of the Warrants are herein referred to as "Warrant Shares".

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

                                   AGREEMENTS

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

                                    ARTICLE I
                                   DEFINITIONS

     1.1 Definitions.  As used in this Agreement, the following terms shall have
the following meanings:
(a) "Purchasers"  means the Initial  Purchasers and any transferees or
     assignees who agree to become bound by the  provisions of this Agreement in
     accordance with Article IX hereof.

          (b)  "register,"   "registered,"   and   "registration"   refer  to  a
     registration  effected by preparing and filing a Registration  Statement or
     Statements in compliance  with the  Securities Act and pursuant to Rule 415
     under the  Securities  Act or any  successor  rule  providing  for offering
     securities  on a continuous  basis ("Rule  415"),  and the  declaration  or
     ordering of  effectiveness  of such  Registration  Statement  by the United
     States Securities and Exchange Commission (the "SEC").

          (c) "Registrable  Securities"  means the Shares and the Warrant Shares
     and any shares of capital stock issued or issuable, from time to time (with
     any  adjustments),  on or in exchange for or otherwise  with respect to the
     Common Stock or any other Registrable Securities.

          (d)  "Registration  Statement"  means a registration  statement of the
     Company  under  the  Securities  Act  pursuant  to the  provisions  of this
     Agreement.

          (e) "Funded  Amount"  means eight  million,  five  hundred  thirty two
     thousand, four hundred seventy three dollars ($8,532,473).

     1.2  Capitalized  Terms.  Capitalized  terms used herein and not  otherwise
defined  herein shall have the  respective  meanings set forth in the Securities
Purchase Agreement.

                                   ARTICLE II
                                  REGISTRATION

     2.1 Mandatory Registration.

          (a) The Company shall prepare and file as soon as  practicable  but in
     any event on or prior to fifteen  (15) days  after the date of the  Closing
     (the "Filing Date") with the SEC a Registration Statement on Form S-3 (but,
     without limiting the Company's  obligation to file on Form S-3, if Form S-3
     is unavailable  to the Company,  on Form S-1) covering the resale of all of
     the Registrable Securities in a secondary offering by Purchasers,  provided
     that  each  Purchaser  shall  have  provided  timely  to  the  Company  all
     information needed for the Registration Statement regarding it and its plan
     of  distribution.   The  Registration  Statement  (and  each  amendment  or
     supplement  thereto,  and each request for  acceleration  of  effectiveness
     thereof)  shall be  provided  to (and  subject  to the  approval  of (which
     approval  shall not be  unreasonably  withheld  or  denied))  each  Initial
     Purchaser  and its counsel at least five (5) business days (or fewer to the
     extent provided herein) prior to its filing or other submission.
(b) If the Company fails to timely obtain Nasdaq  Approval (as defined
     in the Securities Purchase Agreement) or Second Nasdaq Approval (as defined
     in the Securities  Purchase  Agreement),  the Company shall (i) within five
     (5) days (also a "Filing Date") amend the Registration  Statement  required
     to be filed under  subsection (a) to cover the resale of as many of the the
     Shares and the Warrant Shares issuable upon exercise of the Warrants as are
     registrable  in a secondary  offering by  Purchasers  in such  Registration
     Statement and (ii) prepare and file as soon as practicable but in any event
     on or prior to five (5) days  after  the date of the  Shareholder  Approval
     (also a "Filing  Date") with the SEC a  Registration  Statement on Form S-3
     covering the resale of all of the Registrable Securities not covered by the
     Registration  Statement as described in clause (i) in a secondary  offering
     by Purchasers,  provided that each Purchaser  shall have provided timely to
     the Company all information needed for the Registration Statement regarding
     it and its plan of distribution. Each Registration Statement required to be
     filed hereunder (and each amendment or supplement thereto, and each request
     for  acceleration  of  effectiveness  thereof)  shall be  provided  to (and
     subject  to the  approval  of (which  approval  shall  not be  unreasonably
     withheld or denied))  each Initial  Purchaser and its counsel at least five
     (5) business  days (or fewer to the extent  provided  herein)  prior to its
     filing or other submission.

          (c) If the Company fails to cause the Registration  Statement required
     to filed under subsection (a) (as amended, if applicable, as required under
     clause (i) of subsection (b)) to become effective before one hundred eighty
     (180) days after the Closing,  then, as to the shares of Common Stock to be
     covered by such  Registration  Statement or Registration  Statements,  each
     Purchaser  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 such Common  Stock at a
     price per share  equal to the  greater  of (i) one  hundred  fifty  percent
     (150%)  of the Per Share  Price  (as  defined  in the  Securities  Purchase
     Agreement)  and (ii) the fair market  value for such Common  Stock.  If the
     Company  fails to cause the  Registration  Statement  required  to be filed
     under clause (ii) of subsection (b) to become  effective before one hundred
     eighty (180) days after the earlier (the "Second  Filing  Deadline") of (x)
     the date of filing thereof or (y) the fifth (5th) day after the date of the
     Shareholder  Approval,  then each Purchaser shall be entitled to sell (also
     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 part of the
     First  Warrant,  the Second  Warrant  and/or the Third Warrant held by such
     Purchaser  at a price  equal to one  hundred  fifty  percent  (150%) of the
     Black-Scholes  Amount (as defined in the Securities  Purchase Agreement) of
     the applicable  Warrant times the number of shares  underlying that portion
     of the Warrant as to which such  Purchaser has  exercised  such option (but
     only to the extent required to be covered by such Registration Statement).

          (d) After any Registration  Statement required to be filed pursuant to
     this  Section  2.1 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 Purchaser 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 Per Share Price (as defined in the  Securities
     Purchase Agreement) and (ii) the fair market value for the Common Stock.
(e) In order to effect an  Effectiveness  Failure Sale, a Purchaser (a
     "Selling Purchaser") 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  Purchaser,
     the Company shall  immediately  send, via facsimile,  a confirmation to the
     Selling Purchaser 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 and/or
     the Warrants, as applicable, to be sold hereunder, along with a copy of the
     Notice of Sale.  The Company shall  promptly pay the amount  required under
     subsection (c) upon delivery of such certificates.

     2.2  Underwritten  Offering.  If any  offering  pursuant to a  Registration
Statement  filed  pursuant  to  Section  2.1  hereof  involves  an  underwritten
offering,  the  Purchasers  who hold a majority in  interest of the  Registrable
Securities  subject  to such  underwritten  offering,  with the  consent of each
Initial  Purchaser,  shall have the right to select a total of one legal counsel
to represent the Purchasers  and an investment  banker or bankers and manager or
managers to  administer  the  offering,  which  investment  banker or bankers or
manager or managers  shall be reasonably  satisfactory  to the Company,  and all
fees and expenses of which shall be paid by the Purchasers.
2.3  Payments  by the  Company.  The Company  shall cause the  Registration
Statement  filed pursuant to Section 2.1(a) (or such  Registration  Statement as
amended  pursuant to Section  2.1(b)(i),  as applicable) 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").
The Company shall cause the  Registration  Statement  filed  pursuant to Section
2.1(b)(ii), if applicable, to become effective as soon as practicable, but in no
event later than the forty-fifth (45th) day following the applicable Filing Date
(also a "Registration  Deadline").  If any Registration Statement required to be
filed by the Company pursuant to Section 2.1 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  Purchasers)  (a  "Registration  Suspension"),  then the  Company  will make
payments  to the  Purchasers  in such  amounts  and at such  times  as  shall be
determined pursuant to this Section 2.3 as partial relief for the damages to the
Purchasers  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 Purchasers an amount equal to (A) .02 times (B) the
sum of the aggregate  Funded Amount plus the amount payable to the Company under
the  Warrants  times  (C) 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 2.1 is declared  effective  by the SEC. In
addition,  in the event of a Registration  Suspension,  the Company shall pay to
the Purchasers an amount equal to (D) .02 times (E) the Applicable Funded Amount
times (F) 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 2.3,  "Applicable  Funded  Amount" shall
mean (G) the sum of the Funded  Amount  plus the amount  payable to the  Company
under the Warrants  times (H) the number of Shares and Warrant Shares then owned
by the Purchasers (or issuable at that time as Warrant Shares upon full exercise
of the Warrant, without regard to any limitations on conversion thereof) divided
by (I) the number of Shares  originally  purchased and Warrant  Shares  issuable
upon full  exercise of the Warrant at the time of the  original  purchase of the
Warrants,  in each case without regard to any limitations on conversion thereof.
Amounts  to be paid  pursuant  to this  Section  2.3  shall  be paid pro rata to
Purchasers  based upon the number of Shares and Warrant Shares owned and Warrant
Shares issuable upon full conversion of the Warrant by each Purchaser, 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.

     2.4 Intentionally deleted

     2.5 Eligibility  for Form S-3. The Company  represents and warrants that it
meets the  requirements  for the use of Form S-3 for registration of the re-sale
by the Initial  Purchaser and any other Purchaser of the Registrable  Securities
and the Company shall file all reports  required to be filed by the Company with
the SEC in a timely  manner so as to maintain  such  eligibility  for the use of
Form S-3.

                                   ARTICLE III
                           OBLIGATIONS OF THE COMPANY

     In connection  with the  registration of the  Registrable  Securities,  the
Company shall have the following obligations:

     3.1 The  Company  shall  prepare  promptly  and  file  with  the  SEC  each
Registration Statement required by Section 2.1, and cause each such Registration
Statement  relating to  Registrable  Securities  to become  effective as soon as
practicable  after such filing,  and keep the Registration  Statement  effective
pursuant  to Rule 415 and  available  for use at all times until such date as is
the earlier of (i) the date on which all of the Registrable Securities have been
sold (and no further  Registrable  Securities  may be issued in the  future) and
(ii) the date on which  all of the  Registrable  Securities  (in the  reasonable
opinion of counsel to the Initial  Purchasers)  may be  immediately  sold to the
public  without  registration  and  without  restriction  as to  the  number  of
Registrable  Securities  to be sold,  whether  pursuant to Rule 144 or otherwise
(the "Registration  Period").  Each such Registration  Statement  (including any
amendments or supplements  thereto and  prospectuses  contained  therein and all
documents  incorporated  by  reference  therein)  shall not  contain  any untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated therein, or necessary to make the statements therein not misleading.
3.2 The  Company  shall  prepare  and file  with  the SEC  such  amendments
(including   post-effective   amendments)  and  supplements  to  a  Registration
Statement and the prospectus used in connection with each Registration Statement
as may be necessary to keep such Registration  Statement effective and available
for use at all times during the  Registration  Period,  and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all  Registrable  Securities  of the  Company  covered  by such  Registration
Statement until the termination of the Registration Period or, if earlier,  such
time as all of such  Registrable  Securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof as set
forth  in such  Registration  Statement.  In the  event  the  number  of  shares
available under a Registration  Statement filed pursuant to this Agreement is at
any time  insufficient  to cover all shares of Common  Stock  issued or issuable
pursuant to the Warrant or the Securities  Purchase Agreement (without regard to
any  limitations on exercise  contained  therein),  the Company shall amend,  if
permissible,  the Registration  Statement,  or file a new Registration Statement
(on the short form available therefor,  if applicable),  or both, so as to cover
all of the  Warrant  Shares  issued or  issuable  upon  exercise  of the Warrant
(without regard to any limitation on exercise contained therein),  in each case,
as soon as practicable, but in any event within five (5) days. The Company shall
cause such amendment  and/or new  Registration  Statement to become effective as
soon as practicable following the filing thereof.

     3.3  The  Company  shall  furnish  to  each  Purchaser  whose   Registrable
Securities are included in the Registration  Statement and its legal counsel (a)
promptly  after the same is prepared  and publicly  distributed,  filed with the
SEC, or received by the Company, one copy of the Registration  Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto,  and, in the case of the Registration  Statement referred
to in Section 2.1, each letter written by or on behalf of the Company to the SEC
or the  staff of the SEC,  and each item of  correspondence  from the SEC or the
staff of the SEC, in each case relating to such  Registration  Statement  (other
than any portion,  if any,  thereof  which  contains  information  for which the
Company has sought confidential  treatment),  and (b) such number of copies of a
prospectus,   including  a  preliminary  prospectus,   and  all  amendments  and
supplements  thereto and such other  documents as such  Purchaser may reasonably
request in order to facilitate  the  disposition of the  Registrable  Securities
owned (or to be owned) by such Purchaser.
3.4 The Company shall (a) register and qualify the  Registrable  Securities
covered  by  each   Registration   Statement  under   securities  laws  of  such
jurisdictions in the United States as each Purchaser who holds (or has the right
to hold) Registrable  Securities being offered reasonably requests,  (b) prepare
and  file in  those  jurisdictions  such  amendments  (including  post-effective
amendments) and supplements to such  registrations and  qualifications as may be
necessary to maintain the  effectiveness and availability for use thereof during
the  applicable  Registration  Period,  (c) take such  other  actions  as may be
necessary to maintain such  registrations  and  qualifications  in effect at all
times during the applicable  Registration Period, and (d) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for sale
in such jurisdictions; provided, however, that the Company shall not be required
in connection  therewith or as a condition thereto to (i) qualify to do business
in any jurisdiction  where it would not otherwise be required to qualify but for
this  Section  3.4,  (ii)  subject  itself  to  general  taxation  in  any  such
jurisdiction,  (iii)  file a general  consent  to service of process in any such
jurisdiction,  (iv)  provide any  undertakings  that cause the Company  material
expense or burden,  or (v) make any change in its charter or  by-laws,  which in
each case the board of directors of the Company determines to be contrary to the
best interests of the Company and its stockholders.

     3.5 In the event the  Purchasers  who hold a majority  in  interest  of the
Registrable  Securities being offered in an offering  pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof
select  underwriters for the offering,  the Company shall enter into and perform
its obligations  under an underwriting  agreement,  in usual and customary form,
including,  without  limitation,   customary  indemnification  and  contribution
obligations,  with the  underwriters  of such  offering,  but shall not bear any
costs or expenses of the underwriting.

     3.6 As soon as practicable  after becoming aware of such event, the Company
shall  notify  (by  telephone  and also by  facsimile  and  reputable  overnight
courier) each Purchaser of the happening of any event,  of which the Company has
knowledge,  as a result of which the  prospectus  included  in the  Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated  therein or necessary to
make the statements therein not misleading,  and use its best efforts as soon as
possible  (but in any event  within  five (5) days) to prepare a  supplement  or
amendment to the Registration  Statement (and make all required filings with the
SEC) to correct  such  untrue  statement  or  omission,  and the  Company  shall
simultaneously  (and  thereafter as requested)  deliver such number of copies of
such supplement or amendment to each Purchaser (or other applicable document) as
such  Purchaser  may  request  in  writing.  Unless  such an event  is  publicly
announced,  the Company shall not,  without the consent of the  Purchaser,  give
such  Purchaser  any  material  non-public  information,  but shall  inform  the
Purchasers that such prospectus  includes an untrue statement of a material fact
or omission to state a material fact required to be stated  therein or necessary
to make the statements therein not misleading.

     3.7 The Company  shall use its best  efforts to prevent the issuance of any
stop order or other  suspension of  effectiveness  of a Registration  Statement,
and, if such an order is issued,  to obtain the  withdrawal of such order at the
earliest  practicable time and the Company shall immediately notify by facsimile
each  Purchaser  (at the  facsimile  number for such  Purchaser set forth on the
signature page hereto) who holds Registrable  Securities (or, in the event of an
underwritten  offering, the managing underwriters) of the issuance of such order
and the resolution thereof.

     3.8 The Company shall permit counsel  designated by each Initial  Purchaser
to review the Registration  Statement and all amendments and supplements thereto
a reasonable period of time prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects.

     3.9 [Intentionally deleted].
3.10 At the request of any  Purchaser,  the Company shall  furnish,  on the
date of effectiveness of the Registration  Statement and thereafter from time to
time on such dates as a Purchaser may reasonably  request (a) an opinion,  dated
as of such applicable date, from counsel  representing the Company  addressed to
the Purchasers and in form,  scope and substances as is customarily  given in an
underwritten public offering and (b) a letter, dated as of such applicable date,
from the Company's  independent  certified public  accountants  addressed to the
Purchasers and in form, scope and substance as customarily given to underwriters
in an underwritten public offering.

     3.11 The Company shall make  available for inspection by (i) any Purchaser,
(ii)  any  underwriter   participating  in  any  disposition   pursuant  to  the
Registration  Statement,   (iii)  attorneys  and  accountants  retained  by  any
Purchaser, and (iv) attorneys retained by such underwriters  (collectively,  the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively,  the "Records"), as shall
be  reasonably  deemed  necessary  by each  Inspector  and cause  the  Company's
officers,  directors and employees to supply all information which any Inspector
may reasonably  request;  provided,  however,  that each Inspector shall hold in
confidence  and shall not make any  disclosure  (except to a  Purchaser)  of any
Record or other  information  which the Company  determines  in good faith to be
confidential,  and of which  determination  the  Inspectors  are so  notified in
writing,  unless (a) the  disclosure  of such  Records is  necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required to be disclosed in such  Registration  Statement to permit Purchaser to
sell under  such  Registration  Statement,  (b) the  release of such  Records is
ordered pursuant to a subpoena or other order from a court or government body of
competent  jurisdiction,  or is otherwise  required by  applicable  law or legal
process or (c) the information in such Records has been made generally available
to the  public  other  than by  disclosure  in  violation  of this or any  other
agreement (to the knowledge of the relevant Purchaser). The Company shall not be
required  to  disclose  any  confidential  information  in such  Records  to any
Inspector   until  and  unless   such   Inspector   shall  have   entered   into
confidentiality agreements (in form and reasonable substance satisfactory to the
Company)  with the Company with respect  thereto,  substantially  in the form of
this Section  3.11.  Each  Purchaser  agrees that it shall,  upon  learning that
disclosure  of such Records is sought in or by a court or  governmental  body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the  Company,  at its  expense,  to  undertake  appropriate  action to
prevent  disclosure of, or to obtain a protective  order for, the Records deemed
confidential.  Nothing herein shall be deemed to limit a Purchaser's  ability to
sell Registrable Securities in a manner which is consistent with applicable laws
and regulations.
3.12 The Company  shall hold in confidence  and not make any  disclosure of
information  concerning  a  Purchaser  provided  to the  Company  excluding  any
information   provided  by  Purchaser  for  use  in  or  in  connection  with  a
Registration Statement unless (a) disclosure of such information is necessary to
comply  with  federal  or state  securities  laws,  (b) the  disclosure  of such
information is necessary to avoid or correct a  misstatement  or omission in any
Registration Statement,  (c) the release of such information is ordered pursuant
to a subpoena  or other  order from a court or  governmental  body of  competent
jurisdiction  or is otherwise  required by applicable law or legal process,  (d)
such  information has been made generally  available to the public other than by
disclosure in violation of this or any other  agreement (to the knowledge of the
Company),  or (e) such  Purchaser  consents  to the form and content of any such
disclosure.  The Company agrees that it shall,  upon learning that disclosure of
such  information  concerning  a  Purchaser  is  sought  in  or  by a  court  or
governmental body of competent  jurisdiction or through other means, give prompt
notice  to such  Purchaser  prior to  making  such  disclosure,  and  allow  the
Purchaser, at its expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such information.

     3.13 From and after each  Closing,  the Company shall cause the listing and
the  continuation of listing of all the Registrable  Securities  related to such
Closing and  required to be covered by a  Registration  Statement  on The Nasdaq
National  Market or the New York  Stock  Exchange,  and  cause  the  Registrable
Securities  to be  quoted  or  listed  on each  additional  national  securities
exchange or quotation  system upon which the Class A Common Stock is then listed
or quoted.

     3.14 The Company shall provide a transfer agent and registrar, which may be
a single  entity,  for the  Registrable  Securities not later than the effective
date of the applicable Registration Statement.

     3.15 The Company shall  cooperate with the Purchasers who hold  Registrable
Securities being offered and the managing  underwriter or underwriters,  if any,
to facilitate the timely  preparation and delivery of certificates  (not bearing
any  restrictive  legends)  representing  Registrable  Securities  to be offered
pursuant to the  Registration  Statement and enable such  certificates  to be in
such denominations or amounts,  as the case may be, as the managing  underwriter
or underwriters, if any, or the Purchasers may reasonably request and registered
in such  names as the  managing  underwriter  or  underwriters,  if any,  or the
Purchasers may request,  and,  within two (2) business days after a Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall cause legal counsel selected by the Company to deliver, to the
transfer  agent for the  Registrable  Securities  (with copies to the Purchasers
whose  Registrable  Securities are included in such  Registration  Statement) an
opinion of such counsel in the form attached hereto as Exhibit 1.

     3.16 At the request of any Purchaser,  the Company shall  promptly  prepare
and file with the SEC such amendments (including post-effective  amendments) and
supplements  to a Registration  Statement and the prospectus  used in connection
with a Registration Statement filed pursuant hereto as may be necessary in order
to change the plan of distribution set forth in such Registration Statement.

     3.17 The  Company  shall  comply  with all  applicable  laws  related  to a
Registration  Statement  and  offering  and sale of  securities  covered  by the
Registration  Statement and all applicable rules and regulations of governmental
authorities  in  connection  therewith  (including,   without  limitation,   the
Securities  Act and the  Securities  Exchange Act of 1934,  as amended,  and the
rules and regulations promulgated by the Commission).
3.18 The Company  shall take all such other actions as any Purchaser or the
underwriters,  if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable  Securities,  but shall not be required to incur
any costs or expenses in connection  therewith not otherwise  provided herein to
be borne by the Company.

     3.19 From and after the date of this Agreement,  the Company shall not, and
shall not agree to, allow the holders of any  securities  of the Company  (other
than Purchasers with respect to Registrable  Securities) to include any of their
securities in any Registration  Statement or any amendment or supplement thereto
under  Section  2.1 or 3.2 hereof  without  the  consent of each of the  Initial
Purchasers and the holders of a majority of the Registrable Securities.  Without
the consent of each of the Initial  Purchasers,  until the  effectiveness of the
Registration  Statements  contemplated by Section 2.1 hereof,  the Company shall
not file  any  other  Registration  Statement  for the  sale of any  securities,
whether for the account of the Company or any other  person;  provided,  however
that  after  the  filing  of the  Registration  Statement  required  to be filed
pursuant  to  Section  2.1(a)  the  Company  may file a  Registration  Statement
covering the sale of up to one hundred twenty six thousand three hundred sixteen
(126,316)  shares of Common  Stock by Intel  Corporation  (such shares of Common
Stock issuable  pursuant to that certain  Warrant issued by the Company to Intel
Corporation as of November 13, 1997, included as item (4) on Schedule 3.3 to the
Securities Purchase Agreement) and a Registration Statement covering the sale of
up to one hundred thousand  (100,000) shares of Common Stock by W.B. McKee, Inc.
(such shares of Common Stock issuable  pursuant to those certain Warrants issued
by the Company to such W.B. McKee,  Inc. as of March 27, 1996 in connection with
the Company's initial public offering).

     3.20  The   Registration   Statement   shall  state  that  it  covers  such
indeterminate  number of  additional  shares as may be issuable upon exercise of
the Warrants to prevent  dilution  resulting from stock splits,  stock dividends
and other similar transactions.

                                   ARTICLE IV
                          OBLIGATIONS OF THE PURCHASERS

     In connection  with the  registration of the  Registrable  Securities,  the
Purchasers shall have the following obligations:

     4.1 Each Purchaser shall furnish to the Company such information  regarding
itself,  the  Registrable  Securities  held by it and  the  intended  method  of
disposition  of the  Registrable  Securities  held by it as shall be  reasonably
required to effect the  registration of such  Registrable  Securities.  At least
five  (5)  business  days  prior to the  first  anticipated  filing  date of the
Registration  Statement,   the  Company  shall  notify  each  Purchaser  of  the
information the Company requires from each such Purchaser.
4.2 Each  Purchaser,  by such  Purchaser's  acceptance  of the  Registrable
Securities,  agrees to cooperate with the Company as reasonably requested by the
Company  in  connection  with the  preparation  and  filing of the  Registration
Statements hereunder,  unless such Purchaser has notified the Company in writing
of such  Purchaser's  election  to exclude all of such  Purchaser's  Registrable
Securities from the Registration Statement.

     4.3  Each  Purchaser  whose  Registrable   Securities  are  included  in  a
Registration  Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such  Registration  Statement,  and each such Purchaser shall use its reasonable
efforts to comply with the applicable  prospectus  delivery  requirements of the
Securities Act in connection with any such sale.

     4.4 [Intentionally omitted]

     4.5 Each  Purchaser  agrees that,  upon receipt of written  notice from the
Company of the happening of any event of the kind described in Section 3.6, such
Purchaser will  immediately  discontinue  disposition of Registrable  Securities
pursuant to the  Registration  Statement  covering such  Registrable  Securities
until such  Purchaser's  receipt of the  copies of the  supplemented  or amended
prospectus  contemplated by Section 3.6 or advice that a supplement or amendment
is not required and, if so directed by the Company, such Purchaser shall deliver
to the Company (at the expense of the  Company) or destroy  (and  deliver to the
Company a certificate of destruction) all copies in such Purchaser's  possession
(other  than a limited  number of  permanent  file  copies),  of the  prospectus
covering  such  Registrable  Securities  current  at the time of receipt of such
notice.  Purchaser's  obligations under this paragraph shall in no way limit the
Company's  obligations  under this Agreement or  Purchaser's  rights or remedies
against  the  Company  with  respect to any breach or  threatened  breach by the
Company of any such obligations.

     4.6 Without limiting a Purchaser's  rights under Section 2.1 or 3.2 hereof,
no Purchaser may participate in any underwritten  distribution  hereunder unless
such Purchaser (a) agrees to sell such Purchaser's Registrable Securities on the
basis  provided  in any  underwriting  agreements  in usual and  customary  form
entered into by the Company  pursuant to Section 3.5 hereof,  (b)  completes and
executes   all   questionnaires,   powers  of  attorney,   custody   agreements,
indemnities,  underwriting  agreements and other documents  reasonably  required
under the terms of such underwriting arrangements, and (c) agrees to pay its pro
rata share of all  underwriting  discounts and  commissions  and any expenses in
excess  of  those  payable  by  the  Company  pursuant  to  Article  V.  Without
implication  that  the  contrary  would  otherwise  be  true,  it  is  expressly
understood and agreed that no Purchaser  shall be required to participate in any
such underwritten distribution.

                                    ARTICLE V
                            EXPENSES OF REGISTRATION

     All expenses,  other than underwriting discounts and commissions,  incurred
in connection with registrations, filings or qualifications pursuant to Articles
II and  III,  including,  without  limitation,  all  registration,  listing  and
qualification  fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, shall be borne by the Company.
ARTICLE VI
                                 INDEMNIFICATION

     In the event any  Registrable  Securities  are  included in a  Registration
Statement under this Agreement:
6.1 To the extent  permitted  by law,  the  Company  will  indemnify,  hold
harmless and defend (a) each  Purchaser who holds such  Registrable  Securities,
(b) each underwriter of Registrable Securities and (c) the directors,  officers,
partners,  members,  employees,  agents and persons  who  control any  Purchaser
within the  meaning of  Section  15 of the  Securities  Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), if any, (each,
an "Indemnified Person"),  against any losses, claims,  damages,  liabilities or
expenses (collectively,  together with actions, proceedings or inquiries whether
or not in any court,  before any  administrative  body or by any  regulatory  or
self-regulatory  organization,  whether  commenced  or  threatened,  in  respect
thereof,  "Claims")  to which any of them may  become  subject  insofar  as such
Claims  arise out of or are based  upon:  (i) any  untrue  statement  or alleged
untrue statement of a material fact in a Registration  Statement or the omission
or alleged  omission to state  therein a material  fact required to be stated or
necessary  to make the  statements  therein  not  misleading,  (ii)  any  untrue
statement  or alleged  untrue  statement  of a material  fact  contained  in any
preliminary  prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented,  if
the Company files any amendment  thereof or supplement  thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein,  in light of the circumstances under which the
statements therein were made, not misleading,  or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including,  without  limitation,  any  state  securities  law,  or any  rule  or
regulation  thereunder  relating  to  the  offer  or  sale  of  the  Registrable
Securities  (the  matters in the  foregoing  clauses  (i) through  (iii)  being,
collectively,  "Violations").  The Company shall reimburse each such Indemnified
Person,  promptly as such expenses are incurred and are due and payable, for any
reasonable  legal  fees  or  other  reasonable  expenses  incurred  by  them  in
connection  with  investigating  or  defending  any such Claim.  Notwithstanding
anything  to  the  contrary  contained  herein,  the  indemnification  agreement
contained in this Section 6.1: (x) shall not apply to an Indemnified Person with
respect to a Claim  arising  out of or based upon a  Violation  which  occurs in
reliance upon and in  conformity  with  information  furnished in writing to the
Company  by  such  Indemnified  Person  expressly  for  use in the  Registration
Statement or any such  amendment  thereof or supplement  thereto;  (y) shall not
apply to amounts paid in settlement of any Claim if such  settlement is effected
without the prior  written  consent of the Company,  which  consent shall not be
unreasonably withheld; and (z) with respect to any preliminary prospectus, shall
not inure to the benefit of any  Indemnified  Person if the untrue  statement or
omission of material fact contained in the preliminary  prospectus was corrected
on a timely basis in the prospectus,  as then amended or  supplemented,  if such
corrected  prospectus  was timely  made  available  by the  Company  pursuant to
Section 3.3 hereof,  and the Indemnified  Person was promptly advised in writing
not to use the incorrect  prospectus prior to the use giving rise to a Violation
and  such  Indemnified  Person,  notwithstanding  such  advice,  used  it.  Such
indemnity shall remain in full force and effect  regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by a Purchaser pursuant to Article IX.

     6.2 In connection with any  Registration  Statement in which a Purchaser is
participating,  to the extent  permitted by law, each such  Purchaser  agrees to
indemnify,  hold harmless and defend,  to the same extent and in the same manner
set forth in  Section  6.1,  the  Company,  each of its  directors,  each of its
officers  who  signs the  Registration  Statement,  its  employees,  agents  and
persons, if any, who control the Company within the meaning of Section 15 of the
Securities  Act or Section 20 of the  Exchange  Act,  and any other  stockholder
selling  securities  pursuant to the Registration  Statement,  together with its
directors, officers and members, and any person who controls such stockholder or
underwriter  within the meaning of the  Securities Act or the Exchange Act (such
an  "Indemnified  Party"),  against  any Claim to which  any of them may  become
subject,  under the  Securities  Act, the Exchange Act or otherwise,  insofar as
such Claim  arises out of or is based  upon any  Violation,  in each case to the
extent (and only to the extent) that such Violation  occurs in reliance upon and
in  conformity  with  written  information  furnished  to the  Company  by  such
Purchaser expressly for use in connection with such Registration Statement;  and
such  Purchaser  will  reimburse any legal or other  expenses  (promptly as such
expenses are incurred  and are due and payable)  reasonably  incurred by them in
connection with  investigating or defending any such Claim;  provided,  however,
that the  indemnity  agreement  contained in this Section 6.2 shall not apply to
amounts paid in settlement of any Claim if such  settlement is effected  without
the  prior  written  consent  of such  Purchaser,  which  consent  shall  not be
unreasonably  withheld;  provided,  further,  however, that a Purchaser shall be
liable  under this  Agreement  (including  this Section 6.2 and Article VII) for
only that amount as does not exceed the net proceeds  actually  received by such
Purchaser  as a result of the sale of  Registrable  Securities  pursuant to such
Registration  Statement.  Such  indemnity  shall remain in full force and effect
regardless of any  investigation  made by or on behalf of such Indemnified Party
and shall survive the transfer of the  Registrable  Securities by the Purchasers
pursuant  to Article IX.  Notwithstanding  anything  to the  contrary  contained
herein, the indemnification agreement contained in this Section 6.2 with respect
to any preliminary  prospectus shall not inure to the benefit of any Indemnified
Party if the untrue  statement  or omission of material  fact  contained  in the
preliminary  prospectus  was corrected on a timely basis in the  prospectus,  as
then amended or supplemented,  and the Indemnified  Party failed to utilize such
corrected prospectus.
6.3 Promptly  after receipt by an Indemnified  Person or Indemnified  Party
under this Article VI of notice of the commencement of any action (including any
governmental  action),  such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Article  VI,  deliver  to  the  indemnifying  party  a  written  notice  of  the
commencement  thereof,  and the indemnifying  party shall have the right (at its
expense)  to  participate  in,  and,  to the  extent the  indemnifying  party so
desires,  jointly with any other indemnifying party similarly noticed, to assume
and continue control of the defense thereof with counsel  mutually  satisfactory
to the indemnifying  party and the Indemnified  Person or the Indemnified Party,
as the case may be;  provided,  however,  that  such  indemnifying  party  shall
diligently  pursue such defense and an indemnifying  party shall not be entitled
to assume (or continue)  such defense if the  representation  by such counsel of
the Indemnified  Person or Indemnified Party and the indemnifying party would be
inappropriate  due to actual or  potential  conflicts  of interest  between such
Indemnified  Person or Indemnified  Party and the  indemnifying  party,  and any
other party  represented  by such  counsel in such  proceeding  or the actual or
potential  defendants  in, or  targets  of,  any such  action  include  both the
Indemnified  Person or the Indemnified Party and any such Indemnified  Person or
Indemnified  Party  reasonably  determines  that  there  may be  legal  defenses
available to such  Indemnified  Person or Indemnified  Party which are different
from  or  in  addition  to  those   available   to  such   indemnifying   party.
Notwithstanding  any  assumption  of  such  defense  and  without  limiting  any
indemnification  obligation  provided for in Section 6.1 or 6.2, the Indemnified
Party  or  Indemnified  Persons,  as the case may be,  shall be  entitled  to be
represented  by  counsel  (at its  own  expense  if the  indemnifying  party  is
permitted  to assume and  continue  control of the defense and  otherwise at the
expense  of the  indemnifying  party)  and such  counsel  shall be  entitled  to
participate  in such  defense.  The  failure  to deliver  written  notice to the
indemnifying  party within a  reasonable  time of the  commencement  of any such
action  shall  not  relieve  such  indemnifying  party of any  liability  to the
Indemnified  Person or  Indemnified  Party under this Article VI,  except to the
extent  that the  indemnifying  party is actually  prejudiced  in its ability to
defend such  action.  The  indemnification  required by this Article VI shall be
made by  periodic  payments  of the  amount  thereof  during  the  course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

                                   ARTICLE VII
                                  CONTRIBUTION

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

                                  ARTICLE VIII
                         REPORTS UNDER THE EXCHANGE ACT

     With a view to making available to each Purchaser the benefits of Rule 144,
the Company agrees that so long as a Purchaser holds  Warrants,  any Registrable
Securities, the Company shall:

     8.1(a) Not terminate its status as an issuer required to file reports under
the  Exchange  Act  even  if  the  Exchange  Act or the  rules  and  regulations
thereunder would permit such termination.
8.1(b) File with the SEC in a timely manner and make and keep available all
reports and other documents required of the Company under the Securities Act and
the  Exchange  Act so long as the filing and  availability  of such  reports and
other documents is required for the applicable provisions of Rule 144; and

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

                                   ARTICLE IX
                        ASSIGNMENT OF REGISTRATION RIGHTS

     The  rights  of  the  Purchasers  hereunder  as to  Registrable  Securities
transferred  by  a  Purchaser  (or  represented  by  Warrants  transferred  by a
Purchaser),  including  the  right  to have  the  Company  register  Registrable
Securities pursuant to this Agreement,  shall be automatically  assigned by each
Purchaser to any transferee of all or any portion of the Registrable  Securities
if: (a) the  Purchaser  agrees in writing  with the  transferee  or  assignee to
assign such  rights,  and a copy of such  agreement  is furnished to the Company
within a reasonable  time after such  assignment,  (b) the Company is,  within a
reasonable time after such transfer or assignment, furnished with written notice
of (i) the name and address of such transferee or assignee,  (ii) the securities
with respect to which such registration rights are being transferred or assigned
and (iii) the  information  specified  in Section 3.12 to such  transferee,  (c)
following  such  transfer  or  assignment,   the  further  disposition  of  such
securities by the transferee or assignee is restricted  under the Securities Act
or applicable  state  securities laws, and (d) at or before the time the Company
receives the written notice  contemplated  by clause (ii) of this sentence,  the
transferee  or  assignee  agrees in writing for the benefit of the Company to be
bound by all of the  provisions  contained  herein.  The  rights of a  Purchaser
hereunder with respect to any Registrable  Securities not  transferred  (and not
represented  by  Warrants  transferred)  shall not be  assigned by virtue of the
transfer of other Registrable  Securities or transferred  Warrants  representing
other Registrable Securities.

                                    ARTICLE X
                        AMENDMENT OF REGISTRATION RIGHTS
Provisions of this Agreement may be amended and the observance  thereof may
be waived (either generally or in a particular instance and either retroactively
or  prospectively),  only with  written  consent  of the  Company,  any  Initial
Purchaser  (but not an  Initial  Purchaser  who no longer  owns any  Registrable
Securities  and who is not affected by such  amendment or waiver) and Purchasers
who hold a majority  interest of the  Registrable  Securities.  Any amendment or
waiver  effected in  accordance  with this  Article X shall be binding upon each
Purchaser and the Company. Notwithstanding the foregoing, no amendment or waiver
shall  retroactively  affect any Purchaser  without its consent or prospectively
adversely  affect any  Purchaser  who no longer owns any  Warrants,  Registrable
Securities without its consent.  No amendment or waiver may adversely affect one
or more Purchasers or group of Purchasers vis-a-vis any other Purchaser or group
of  Purchasers.  Neither  Article  VI nor  Article  VII hereof may be amended or
waived in a manner adverse to a Purchaser  without its consent.  Notwithstanding
anything to the  contrary  contained  in this  Article X, no amendment or waiver
shall be  applicable  to an Initial  Purchaser  who does not  consent in writing
thereto.

                                   ARTICLE XI
                                  MISCELLANEOUS

     11.1 A person or entity is deemed to be a holder (or a holder in  interest)
of  Registrable  Securities  whenever  such person or entity owns of record such
Registrable  Securities (or the Warrants which may be exercised for  Registrable
Securities).  If the  Company  receives  conflicting  instructions,  notices  or
elections  from  two or more  persons  or  entities  with  respect  to the  same
Registrable  Securities,  the Company shall act upon the basis of  instructions,
notice  or  election  received  from the  registered  owner of such  Registrable
Securities (or Warrants, as the case may be).

     11.2 Any  notices  herein  required  or  permitted  to be given shall be in
writing  and  may  be   personally   served  or   delivered  by  courier  or  by
machine-generated  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 any Purchaser, at such address as such Purchaser,  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 11.2.
11.3  Failure  of any party to  exercise  any right or  remedy  under  this
Agreement or otherwise,  or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

     11.4 This Agreement  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 federal  courts  located in the state of California and the
state courts of the State of California  located in the County of Los Angeles in
the State of Delaware in any suit or  proceeding  based on or arising under this
Agreement  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 parties hereto further agree that service of process upon the parties hereto
mailed by first class mail shall be deemed in every respect effective service of
process  upon each such  party in any such suit or  proceeding.  Nothing  herein
shall affect either party's right to serve process in any other manner permitted
by law.  The parties  hereto agree that a final  non-appealable  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.

     11.5 This Agreement and the Securities  Purchase  Agreement  (including all
schedules  and  exhibits  thereto and all  certificates  and  opinions  required
thereby)  constitute the entire  agreement among the parties hereto with respect
to the subject matter hereof and thereof.  There are no restrictions,  promises,
warranties or undertakings, other than those set forth or referred to herein and
therein.  This Agreement and the  Securities  Purchase  Agreement  supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.

     11.6 Subject to the requirements of Article IX hereof, this Agreement shall
inure to the benefit of and be binding upon the  successors  and assigns of each
of the  parties  hereto.  Notwithstanding  anything  to the  contrary  contained
herein,  including,  without  limitation,  Article  IX (and  without  compliance
therewith),  the rights of a  Purchaser  hereunder  shall be  assignable  to and
exercisable by a bona fide pledgee of the  Registrable  Securities in connection
with a Purchaser's margin or brokerage accounts.

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

     11.8 This  Agreement may be executed in two or more  counterparts,  each of
which shall be deemed an original but all of which shall  constitute one and the
same agreement.  This Agreement,  once executed by a party,  may be delivered to
the other party hereto,  by facsimile  transmission  of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
11.9 Each party shall do and  perform,  or cause to be done and  performed,
all such further acts and things,  and shall  execute and deliver all such other
agreements,  certificates,  instruments  and  documents,  as the other party may
reasonably  request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

     11.10  Amounts set forth or provided  for herein with  respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by each Purchaser and shall not, except as expressly  provided  herein,
be subject to any other obligation of the Company (or the performance  thereof).
The Company  acknowledges that a breach by it of its obligations  hereunder will
cause irreparable harm to the Purchasers and that the remedy at law for any such
breach may be inadequate.

     11.11  The  initial  number  of  Registrable  Securities  included  on  any
Registration Statement and each increase to the number of Registrable Securities
included  thereon shall be allocated pro rata among the Purchasers  based on the
number of  Registrable  Securities  held by each  Purchaser  at the time of such
establishment  or increase,  as the case may be. In the event a Purchaser  shall
sell or otherwise  transfer any of such holder's  Registrable  Securities,  each
transferee  shall be allocated a pro rata  portion of the number of  Registrable
Securities included on a Registration Statement for such transferor.  Any shares
of Common Stock included on a Registration  Statement and which remain allocated
to any person or entity which does not hold any Registrable  Securities shall be
allocated to the remaining Purchasers, pro rata based on the number of shares of
Registrable  Securities then held by such Purchasers.  Without  implication that
the contrary  would  otherwise  be true,  for  purposes of this  paragraph,  all
Warrants then outstanding shall be assumed exercised for Registrable  Securities
(without giving effect to any limitations on exercise contained therein).

     11.12 Payment of Cash;  Defaults.  Whenever the Company is required to make
any cash payment to a Purchaser under this Agreement, such cash payment shall be
due on the date (the  "Cash Due  Date")  that such  Purchaser  delivers  written
notice from the Purchaser to the Company. Such cash payment shall be made to the
Purchaser by the method (by  certified or  cashier's  check or wire  transfer of
immediately  available  funds)  elected by such  Holder.  If such payment is not
delivered  within  two (2) days of the  Cash  Due  Date,  such  Purchaser  shall
thereafter  be entitled  to  interest  on the unpaid  amount at a per annum rate
equal to the lower of  eighteen  percent  (18%) and the  highest  interest  rate
permitted by applicable law until such amount is paid in full to the Holder.

     11.13 If any provision of this Agreement shall be invalid or unenforceable,
such   invalidity  or   unenforceability   shall  not  affect  the  validity  or
enforceability of the remainder of this Agreement.

                                      * * *
IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly executed
as of the date first above written.

         MODACAD, INC.

         By:     /s/ Joyce Freedman
            _________________________________ 
         Name:   Joyce Freedman
         Title:  Chief Executive Officer

Initial Purchasers:

PURCHASER:
         CASTLE CREEK TECHNOLOGY PARTNERS LLC

         By: Castle Creek Partners, L.L.C.
         Its: Investment Manager

         By:     /s/ John D. Ziegelman
            _________________________________
         Name:   John D. Ziegelman
         Title:  Managing Member

         Address: 77 W. Wacker Drive, Suite 4040
                  Chicago, Illinois 60601

         Facsimile Number: (312) 499-6999

         with a copy to:

                           Altheimer & Gray
                           10 S. Wacker Drive, Suite 4000
                           Chicago, Illinois 60606
                           Attention: Peter H. Lieberman
                           Facsimile Number: (312) 715-4800
PURCHASER:
         MARSHALL CAPITAL MANAGEMENT, INC.

         By:      /s/ Allan Weine
            _____________________________________
         Name:    Allan Weine
         Title:   President

         Address: c/o Credit Suisse First Boston
                      11 Madison Ave., Third Floor
                      New York, NY 10010

         Facsimile Number: (312) 750-1031

         with a copy to:
                           c/o Credit Suisse First Boston
                           227 W. Monroe Street, 41st Floor
                           Chicago, IL 60606

PURCHASER:
         WINFIELD CAPITAL CORP.

         By:      /s/ Paul A. Perlin
            _______________________________________
         Name:    Paul A. Perlin
         Title:   Chief Executive Officer

         Address: 
                       

         Facsimile Number:

         with a copy to:

                  ___________________________________
                  ___________________________________
                  ___________________________________
                  ___________________________________
                  ___________________________________
PURCHASER:
         SPINNER ASSET MANAGEMENT CO.

         By:___________________________________
         Name:_________________________________
         Title:________________________________

         Address: 
                         

         Facsimile Number:
         
         with a copy to:

                  ___________________________________
                  ___________________________________
                  ___________________________________
                  ___________________________________
                  ___________________________________
EXHIBIT 1
                                 to Registration
                                Rights Agreement
                                                       [Date]
[Name and address
of transfer agent]

     RE: ModaCAD, Inc.

Ladies and Gentlemen:

     We are counsel to ModaCAD,  Inc., a California corporation (the "Company"),
and we understand that [Name of Purchaser] (the "Holder") has purchased from the
Company shares of the Company's  common stock (the "Common  Stock").  The Common
Stock was purchased by the Holder pursuant to a Securities  Purchase  Agreement,
dated as of April 7, 1999, by and among the Company and the signatories  thereto
(the  "Agreement").  Pursuant to a Registration  Rights  Agreement,  dated as of
April 7,  1999,  by and among  the  Company  and the  signatories  thereto  (the
"Registration  Rights  Agreement"),  the Company  agreed with the Holder,  among
other things, to register the Registrable Securities (as that term is defined in
the Registration  Rights Agreement) under the Securities Act of 1933, as amended
(the  "Securities  Act"),  upon the terms  provided in the  Registration  Rights
Agreement.  In connection with the Company's  obligations under the Registration
Rights Agreement,  on April __, 1999, the Company filed a Registration Statement
on Form S-3 (File No. 333- __________) (the  "Registration  Statement") with the
Securities  and  Exchange  Commission  (the "SEC")  relating to the  Registrable
Securities, which names the Holder as a selling stockholder thereunder.

     [Other  customary  introductory  and scope of  examination  language  to be
inserted, in each case as reasonably acceptable to Holders.]

     Based  on the  foregoing,  we  are  of  the  opinion  that  the  resale  of
Registrable Securities have been registered under the Securities Act.

     [Other  appropriate  customary  language  to be  included,  in each case as
reasonably acceptable to Holders.]

                              Very truly yours,

cc:      Castle Creek Technology Partners LLC
         Marshall Capital Management, Inc.
         Winfield Capital Corp.
         Spinner Asset Management Co.