WPCS INTERNATIONAL INC
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>nov1820048kex101.txt
<TEXT>

                               PURCHASE AGREEMENT


          THIS PURCHASE  AGREEMENT  ("Agreement")  is made as of the 16th day of
November,  2004  by  and  among  WPCS  International  Incorporated,  a  Delaware
corporation (the "Company"),  and the Investors set forth on the signature pages
affixed hereto (each an "Investor" and collectively the "Investors").

                                    Recitals

          A. The Company and the Investors 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 U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended; and

          B. The Investors  wish to purchase  from the Company,  and the Company
wishes to sell and issue to the Investors,  upon the terms and conditions stated
in this Agreement, (i) an aggregate of 25,000,000 shares of the Company's Common
Stock, par value $0.0001 per share (together with any securities into which such
shares may be reclassified the "Common  Stock"),  at purchase price of $0.40 per
share, and (ii) warrants to purchase an aggregate of 25,000,000 shares of Common
Stock at an exercise price of $0.70 per share (subject to adjustment)in the form
attached hereto as Exhibit A (the "Warrants"); and

          C. Contemporaneous with the sale of the Common Stock and Warrants, the
parties hereto will execute and deliver a Registration Rights Agreement,  in the
form  attached  hereto  as  Exhibit  B (the  "Registration  Rights  Agreement"),
pursuant to which the Company will agree to provide certain  registration rights
under the  Securities  Act of 1933,  as amended,  and the rules and  regulations
promulgated thereunder, and applicable state securities laws.

          In consideration of the mutual promises made herein and for other good
and  valuable  consideration,  the receipt and  sufficiency  of which are hereby
acknowledged, the parties hereto agree as follows:

          1. Definitions. In addition to those terms defined above and elsewhere
in this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings set forth below:

          "Affiliate"  means, with respect to any Person, any other Person which
directly  or  indirectly  through  one  or  more  intermediaries   Controls,  is
controlled by, or is under common control with, such Person.

          "Business Day" means a day, other than a Saturday or Sunday,  on which
banks in New York City are open for the general transaction of business.


<PAGE>

          "Common Stock  Equivalents" means any securities of the Company or the
Subsidiaries  which  would  entitle  the  holder  thereof to acquire at any time
Common Stock,  including without limitation,  any debt, preferred stock, rights,
options,  warrants or other  instrument that is at any time  convertible into or
exchangeable  for, or otherwise  entitles the holder thereof to receive,  Common
Stock.

          "Company's  Knowledge"  means the actual  knowledge  of the  executive
officers (as defined in Rule 405 under the 1933 Act) of the  Company,  after due
inquiry.

          "Confidential   Information"   means   trade   secrets,   confidential
information  and  know-how  (including  but  not  limited  to  ideas,  formulae,
compositions,  processes,  procedures and  techniques,  research and development
information,   computer  program  code,  performance   specifications,   support
documentation, drawings, specifications,  designs, business and marketing plans,
and customer and supplier lists and related information).

          "Control"  (including  the  terms  "controlling",  "controlled  by" or
"under common control with") means the  possession,  direct or indirect,  of the
power to direct or cause the  direction  of the  management  and  policies  of a
Person,  whether  through the  ownership  of voting  securities,  by contract or
otherwise.

          "Effective  Date"  means  the date on which the  initial  Registration
Statement  (as  defined  in  the  Registration  Rights  Agreement)  is  declared
effective by the SEC.

     "Effectiveness  Deadline" means the date on which the initial  Registration
Statement (as so defined) is required to be declared  effective by the SEC under
the terms of the Registration Rights Agreement.

          "Intellectual  Property"  means  all of the  following:  (i)  patents,
patent   applications,   patent  disclosures  and  inventions  (whether  or  not
patentable  and whether or not reduced to practice);  (ii)  trademarks,  service
marks, trade dress, trade names,  corporate names,  logos,  slogans and Internet
domain names,  together with all goodwill associated with each of the foregoing;
(iii) copyrights and copyrightable  works; (iv) registrations,  applications and
renewals  for  any of the  foregoing;  and  (v)  proprietary  computer  software
(including but not limited to data, data bases and documentation).

          "Material  Adverse Effect" means a material  adverse effect on (i) the
assets, liabilities,  results of operations, condition (financial or otherwise),
business,  or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.

          "Person"  means  an  individual,  corporation,   partnership,  limited
liability  company,  trust,  business trust,  association,  joint stock company,
joint venture, sole proprietorship,  unincorporated  organization,  governmental
authority or any other form of entity not specifically listed herein.

          "Purchase Price" means Ten Million Dollars ($10,000,000).

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<PAGE>

          "Reverse  Split"  means a reverse  split of the  Common  Stock in such
proportion  as is  authorized  by the  Company's  Board of Directors in the good
faith   exercise  of  its  business   judgment,   but  in  no  event  less  than
one-for-twelve.

          "SEC Filings" has the meaning set forth in Section 4.6.

          "Registration Statement" has the meaning set forth in the Registration
Rights Agreement.

          "Securities" means the Shares, the Warrants and the Warrant Shares.

          "Shares"  means the  shares of Common  Stock  being  purchased  by the
Investors hereunder.

          "Subsidiary"  of any Person  means  another  Person,  an amount of the
voting  securities,  other voting ownership or voting  partnership  interests of
which is  sufficient  to elect at least a majority of its Board of  Directors or
other governing body (or, if there are no such voting interests,  50% or more of
the equity  interests of which) is owned  directly or  indirectly  by such first
Person.

          "Transaction  Documents"  means  this  Agreement,  the  Warrants,  the
Registration Rights Agreement and the Voting Agreement.

          "Voting  Agreement"  means a Voting  Agreement  in the  form  attached
hereto as Exhibit C.

          "Warrant  Shares"  means the shares of Common Stock  issuable upon the
exercise of the Warrants.

          "1933  Act"  means the  Securities  Act of 1933,  as  amended,  or any
successor statute, and the rules and regulations promulgated thereunder.

          "1934 Act" means the Securities  Exchange Act of 1934, as amended,  or
any successor statute, and the rules and regulations promulgated thereunder.

          2. Purchase and Sale of the Shares and Warrants.  Subject to the terms
and  conditions of this  Agreement,  on the Closing Date,  each of the Investors
shall severally, and not jointly, purchase, and the Company shall sell and issue
to the Investors,  the Shares and Warrants in the  respective  amounts set forth
opposite the Investors' names on the signature pages attached hereto in exchange
for the Purchase Price as specified in Section 3 below.

          3. Closing.  Upon  confirmation  that the other  conditions to closing
specified  herein  have been  satisfied  or duly  waived by the  Investors,  the
Company  shall  deliver to Lowenstein  Sandler PC, in trust,  a  certificate  or
certificates,  registered in such name or names as the Investors may  designate,
representing the Shares and Warrants,  with  instructions that such certificates

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<PAGE>
are to be held for  release to the  Investors  only upon  payment in full of the
Purchase  Price to the  Company  by all the  Investors.  Upon  such  receipt  by
Lowenstein Sandler PC of the certificates,  each Investor shall promptly, but no
more than one Business Day  thereafter,  cause a wire transfer in same day funds
to be sent to the  account  of the  Company  as  instructed  in  writing  by the
Company,  in an amount  representing  such  Investor's  pro rata  portion of the
Purchase  Price as set forth on the signature  pages to this  Agreement.  On the
date  (the  "Closing  Date")  the  Company  receives  the  Purchase  Price,  the
certificates  evidencing  the  Shares  and  Warrants  shall be  released  to the
Investors  (the  "Closing").  The Closing of the purchase and sale of the Shares
and  Warrants  shall take place at the  offices of  Lowenstein  Sandler PC, 1251
Avenue of the Americas,  18th Floor,  New York, New York 10020, or at such other
location and on such other date as the Company and the Investors  shall mutually
agree.

          4.  Representations and Warranties of the Company.  The Company hereby
represents  and  warrants  to the  Investors  that,  except  as set forth in the
schedules delivered herewith (collectively, the "Disclosure Schedules"):

               4. 1 Organization,  Good Standing and Qualification.  Each of the
Company and its Subsidiaries is a corporation  duly organized,  validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all requisite  corporate power and authority to carry on its business as now
conducted and to own its properties. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign  corporation  and is in good standing
in each  jurisdiction  in which the conduct of its business or its  ownership or
leasing of property makes such  qualification  or leasing  necessary  unless the
failure to so qualify  has not and could not  reasonably  be  expected to have a
Material Adverse Effect.  The Company's  Subsidiaries are listed on Schedule 4.1
hereto.

               4.2 Authorization.  The Company has full power and authority and,
except  for  the  preparation   and  delivery  of  the   Information   Statement
contemplated  by Section 7.9, has taken all requisite  action on the part of the
Company,  its  officers,  directors  and  stockholders  necessary  for  (i)  the
authorization,  execution  and  delivery  of  the  Transaction  Documents,  (ii)
authorization of the performance of all obligations of the Company  hereunder or
thereunder, (iii) the authorization,  issuance (or reservation for issuance) and
delivery of the Securities and (iv) the  consummation of the Reverse Split.  The
Transaction Documents constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer,  reorganization,  moratorium and
similar  laws of general  applicability,  relating  to or  affecting  creditors'
rights generally.

               4.3  Capitalization.  Schedule 4.3 sets forth (a) the  authorized
capital  stock of the  Company on the date  hereof;  (b) the number of shares of
capital stock issued and outstanding;  (c) the number of shares of capital stock
issuable  pursuant to the Company's stock plans; and (d) the number of shares of
capital stock issuable and reserved for issuance  pursuant to securities  (other
than the  Shares and the  Warrants)  exercisable  for,  or  convertible  into or
exchangeable  for any shares of capital stock of the Company.  All of the issued
and outstanding  shares of the Company's capital stock have been duly authorized
and validly  issued and are fully paid,  nonassessable  and free of  pre-emptive
rights and were  issued in full  compliance  with  applicable  state and federal
securities law and any rights of third parties.  Except as described on Schedule
4.3,  all of the  issued  and  outstanding  shares  of  capital  stock  of  each
Subsidiary  have been duly  authorized  and  validly  issued and are fully paid,
nonassessable  and free of pre-emptive  rights,  were issued in full  compliance
with applicable state and federal securities law and any rights of third parties
and are owned by the Company,  beneficially  and of record,  subject to no lien,
encumbrance  or other  adverse  claim.  Except as described on Schedule  4.3, no

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<PAGE>
Person is entitled to  pre-emptive or similar  statutory or  contractual  rights
with respect to any  securities of the Company.  Except as described on Schedule
4.3, there are no outstanding warrants, options, convertible securities or other
rights,  agreements or  arrangements of any character under which the Company or
any of its Subsidiaries is or may be obligated to issue any equity securities of
any kind and except as contemplated  by this Agreement,  neither the Company nor
any of its  Subsidiaries  is currently in  negotiations  for the issuance of any
equity  securities  of any kind.  Except as described on Schedule 4.3 and except
for the Registration Rights Agreement, there are no voting agreements,  buy-sell
agreements,  option or right of first purchase agreements or other agreements of
any  kind  among  the  Company  and any of the  securityholders  of the  Company
relating to the  securities of the Company held by them.  Except as described on
Schedule 4.3 and except as provided in the  Registration  Rights  Agreement,  no
Person has the right to require the Company to register  any  securities  of the
Company under the 1933 Act,  whether on a demand basis or in connection with the
registration of securities of the Company for its own account or for the account
of any other Person.

          Except as  described  on Schedule  4.3,  the  issuance and sale of the
Securities  hereunder  will not  obligate  the Company to issue shares of Common
Stock or other  securities  to any other Person (other than the  Investors)  and
will not result in the adjustment of the exercise, conversion, exchange or reset
price of any outstanding security.

          Except  as  described  on  Schedule  4.3,  the  Company  does not have
outstanding  stockholder  purchase  rights  or  "poison  pill"  or  any  similar
arrangement  in effect  giving  any  Person  the right to  purchase  any  equity
interest in the Company upon the occurrence of certain events.

               4.4  Valid  Issuance.  The  Shares  have  been  duly and  validly
authorized  and,  when issued and paid for pursuant to this  Agreement,  will be
validly issued, fully paid and nonassessable, and shall be free and clear of all
encumbrances  and  restrictions  (other  than those  created by the  Investors),
except for  restrictions on transfer set forth in the  Transaction  Documents or
imposed by applicable  securities  laws. The Warrants have been duly and validly
authorized.  Upon the due exercise of the Warrants,  the Warrant  Shares will be
validly issued, fully paid and non-assessable free and clear of all encumbrances
and  restrictions,  except  for  restrictions  on  transfer  set  forth  in  the
Transaction  Documents or imposed by applicable  securities  laws and except for
those created by the Investors.  The Company has reserved a sufficient number of
shares of Common Stock for issuance upon the exercise of the Warrants,  free and
clear of all encumbrances and restrictions,  except for restrictions on transfer
set forth in the Transaction  Documents or imposed by applicable securities laws
and except for those created by the Investors.

               4.5  Consents.  Except for the  preparation  and  delivery of the
Information Statement  contemplated by Section 7.9, the execution,  delivery and
performance by the Company of the Transaction Documents, the consummation of the

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<PAGE>
Reverse  Split and the offer,  issuance  and sale of the  Securities  require no
consent of, action by or in respect of, or filing with, any Person, governmental
body,  agency,  or official  other than filings that have been made  pursuant to
applicable  state  securities  laws, the filing of an amendment to the Company's
Certificate  of  Incorporation  to  effectuate  the Reverse  Split and post-sale
filings  pursuant  to  applicable  state and federal  securities  laws which the
Company  undertakes to file within the applicable  time periods.  Subject to the
accuracy of the  representations  and  warranties  of each Investor set forth in
Section 5 hereof,  the Company has taken all action  necessary to exempt (i) the
issuance and sale of the  Securities,  (ii) the  issuance of the Warrant  Shares
upon due exercise of the Warrants, and (iii) the other transactions contemplated
by the Transaction  Documents from the provisions of any shareholder rights plan
or other "poison pill" arrangement,  any anti-takeover,  business combination or
control  share law or statute  binding on the Company or to which the Company or
any of its  assets  and  properties  may be  subject  and any  provision  of the
Company's Certificate of Incorporation or By-laws that is or could reasonably be
expected to become  applicable to the Investors as a result of the  transactions
contemplated  hereby,   including  without  limitation,   the  issuance  of  the
Securities  and the  ownership,  disposition  or voting of the Securities by the
Investors or the exercise of any right granted to the Investors pursuant to this
Agreement or the other Transaction Documents.

               4.6  Delivery  of SEC  Filings;  Business.  The  Company has made
available to the Investors through the EDGAR system, true and complete copies of
the Company's most recent Annual Report on Form 10-KSB for the fiscal year ended
April  30,  2004 (the  "10-KSB"),  and all other  reports  filed by the  Company
pursuant  to the 1934 Act since the  filing of the  10-KSB and prior to the date
hereof (collectively,  the "SEC Filings").  The SEC Filings are the only filings
required of the Company  pursuant to the 1934 Act for such  period.  The Company
and its Subsidiaries  are engaged in all material  respects only in the business
described in the SEC Filings and the SEC Filings contain a complete and accurate
description  in all  material  respects  of the  business of the Company and its
Subsidiaries, taken as a whole.

               4.7 Use of  Proceeds.  The net proceeds of the sale of the Shares
and the  Warrants  hereunder  shall  be used by the  Company  for  acquisitions,
working capital and general corporate purposes.

               4.8 No Material Adverse Change.  Since April 30, 2004, except for
the Reverse Split and except as  identified  and described in the SEC Filings or
as described on Schedule 4.8, there has not been:

                    (i) any  change  in the  consolidated  assets,  liabilities,
financial  condition or operating  results of the Company from that reflected in
the  financial  statements  included in the Company's  Quarterly  Report on Form
10-QSB for the quarter  ended July 31, 2004,  except for changes in the ordinary
course of business which have not and could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate;

                    (ii) any  declaration  or  payment of any  dividend,  or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;

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<PAGE>
                    (iii) any material damage,  destruction or loss,  whether or
not  covered by  insurance  to any assets or  properties  of the  Company or its
Subsidiaries;

                    (iv) any waiver, not in the ordinary course of business,  by
the Company or any  Subsidiary of a material right or of a material debt owed to
it;

                    (v) any  satisfaction  or  discharge  of any lien,  claim or
encumbrance or payment of any obligation by the Company or a Subsidiary,  except
in the  ordinary  course of  business  and which is not  material to the assets,
properties,  financial  condition,  operating results or business of the Company
and its Subsidiaries  taken as a whole (as such business is presently  conducted
and as it is proposed to be conducted);

                    (vi) any change or amendment to the Company's Certificate of
Incorporation  or  by-laws,  or  material  change to any  material  contract  or
arrangement  by which the Company or any  Subsidiary is bound or to which any of
their respective assets or properties is subject;

                    (vii)  any  material  labor   difficulties  or  labor  union
organizing   activities  with  respect  to  employees  of  the  Company  or  any
Subsidiary;

                    (viii) any material  transaction entered into by the Company
or a Subsidiary other than in the ordinary course of business;

                    (ix)  the  loss  of the  services  of any key  employee,  or
material  change in the  composition  or duties of the senior  management of the
Company or any Subsidiary;

                    (x) the loss or  threatened  loss of any customer  which has
had or could reasonably be expected to have a Material Adverse Effect; or

                    (xi) any other event or condition of any character  that has
had or could reasonably be expected to have a Material Adverse Effect.

          4.9 SEC Filings.

                    (a) At the time of filing thereof,  the SEC Filings complied
as to form in all material  respects with the  requirements  of the 1934 Act and
did not contain  any untrue  statement  of a material  fact or omit to state any
material fact  necessary in order to make the  statements  made therein,  in the
light of the circumstances under which they were made, not misleading.

                    (b) Each  registration  statement and any amendment  thereto
filed by the  Company  since  January 1, 2001  pursuant  to the 1933 Act and the
rules and  regulations  thereunder,  as of the date such  statement or amendment
became effective, complied as to form in all material respects with the 1933 Act
and did not contain any untrue statement of a material fact or omit to state any
material  fact  required to be stated  therein or necessary in order to make the

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<PAGE>

statements  made therein not misleading;  and each prospectus  filed pursuant to
Rule  424(b)  under the 1933 Act,  as of its issue date and as of the closing of
any sale of securities  pursuant thereto did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements  made therein,  in the light of the
circumstances under which they were made, not misleading.

          4.10  No  Conflict,  Breach,  Violation  or  Default.  The  execution,
delivery and  performance  of the  Transaction  Documents by the Company and the
issuance and sale of the Securities will not conflict with or result in a breach
or  violation  of any of the terms and  provisions  of, or  constitute a default
under (i) the Company's  Certificate of Incorporation  or the Company's  Bylaws,
both as in effect on the date  hereof  (true and  complete  copies of which have
been made available to the Investors  through the EDGAR system),  or (ii)(a) any
statute,  rule,  regulation or order of any  governmental  agency or body or any
court, domestic or foreign, having jurisdiction over the Company, any Subsidiary
or any of  their  respective  assets  or  properties,  or (b) any  agreement  or
instrument  to which the  Company or any  Subsidiary  is a party or by which the
Company or a Subsidiary is bound or to which any of their  respective  assets or
properties is subject.

          4.11 Tax Matters.  Except as described on Schedule  4.11,  the Company
and each  Subsidiary has timely  prepared and filed all tax returns  required to
have  been  filed  by the  Company  or  such  Subsidiary  with  all  appropriate
governmental  agencies and timely paid all taxes shown thereon or otherwise owed
by it. The charges, accruals and reserves on the books of the Company in respect
of taxes for all fiscal periods are adequate in all material respects, and there
are no material unpaid assessments against the Company or any Subsidiary nor, to
the Company's  Knowledge,  any basis for the assessment of any additional taxes,
penalties or interest for any fiscal  period or audits by any federal,  state or
local taxing  authority  except for any assessment  which is not material to the
Company and its Subsidiaries,  taken as a whole. All taxes and other assessments
and levies  that the  Company or any  Subsidiary  is  required to withhold or to
collect for payment have been duly withheld and collected and paid to the proper
governmental  entity or third  party when due.  There are no tax liens or claims
pending or, to the Company's  Knowledge,  threatened  against the Company or any
Subsidiary or any of their respective assets or property. Except as described on
Schedule  4.11,  there are no outstanding  tax sharing  agreements or other such
arrangements  between the Company and any  Subsidiary  or other  corporation  or
entity.

          4.12 Title to Properties.  Except as disclosed in the SEC Filings, the
Company and each Subsidiary has good and marketable title to all real properties
and all other  properties  and assets owned by it, in each case free from liens,
encumbrances  and  defects  that would  materially  affect the value  thereof or
materially  interfere with the use made or currently  planned to be made thereof
by them;  and except as  disclosed  in the SEC  Filings,  the  Company  and each
Subsidiary  holds  any  leased  real  or  personal   property  under  valid  and
enforceable  leases with no exceptions that would materially  interfere with the
use made or currently planned to be made thereof by them.

          4.13  Certificates,  Authorities  and  Permits.  The  Company and each
Subsidiary  possess  adequate  certificates,  authorities  or permits  issued by
appropriate  governmental  agencies or bodies  necessary to conduct the business

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now operated by it, and neither the Company nor any  Subsidiary has received any
notice of  proceedings  relating to the revocation or  modification  of any such
certificate, authority or permit that, if determined adversely to the Company or
such Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.

          4.14 No Labor  Disputes.  No material labor dispute with the employees
of the  Company or any  Subsidiary  exists or, to the  Company's  Knowledge,  is
imminent.

          4.15 Intellectual Property.

                    (a)  All  Intellectual  Property  of  the  Company  and  its
Subsidiaries is currently in compliance with all legal  requirements  (including
timely filings,  proofs and payments of fees) and is valid and  enforceable.  No
Intellectual  Property of the Company or its Subsidiaries which is necessary for
the conduct of Company's and each of its Subsidiaries'  respective businesses as
currently  conducted or as currently proposed to be conducted has been or is now
involved in any  cancellation,  dispute or  litigation,  and,  to the  Company's
Knowledge,  no such  action  is  threatened.  No patent  of the  Company  or its
Subsidiaries  has  been  or  is  now  involved  in  any  interference,  reissue,
re-examination or opposition proceeding.

                    (b) All of the licenses and sublicenses and consent, royalty
or other agreements concerning Intellectual Property which are necessary for the
conduct of the Company's and each of its Subsidiaries'  respective businesses as
currently  conducted  or as  currently  proposed  to be  conducted  to which the
Company or any  Subsidiary  is a party or by which any of their assets are bound
(other than generally commercially available, non-custom, off-the-shelf software
application  programs having a retail acquisition price of less than $10,000 per
license) (collectively,  "License Agreements") are valid and binding obligations
of the  Company  or its  Subsidiaries  that  are  parties  thereto  and,  to the
Company's Knowledge,  the other parties thereto,  enforceable in accordance with
their  terms,  except to the extent that  enforcement  thereof may be limited by
bankruptcy,  insolvency,  reorganization,  moratorium,  fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally, and
there exists no event or condition which will result in a material  violation or
breach of or constitute  (with or without due notice or lapse of time or both) a
default  by the  Company  or any of its  Subsidiaries  under  any  such  License
Agreement.

                    (c) The Company and its  Subsidiaries  own or have the valid
right to use all of the Intellectual  Property that is necessary for the conduct
of  the  Company's  and  each  of its  Subsidiaries'  respective  businesses  as
currently  conducted  or as  currently  proposed  to be  conducted  and  for the
ownership,  maintenance  and operation of the  Company's  and its  Subsidiaries'
properties and assets, free and clear of all liens, encumbrances, adverse claims
or obligations to license all such owned Intellectual  Property and Confidential
Information,  other than  licenses  entered into in the  ordinary  course of the
Company's and its  Subsidiaries'  businesses.  The Company and its  Subsidiaries
have a valid and enforceable right to use all third party Intellectual  Property
and Confidential  Information used or held for use in the respective  businesses
of the Company and its Subsidiaries.

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<PAGE>

                    (d) The  conduct  of the  Company's  and  its  Subsidiaries'
businesses  as currently  conducted  does not  infringe or  otherwise  impair or
conflict with (collectively, "Infringe") any Intellectual Property rights of any
third party or any confidentiality obligation owed to a third party, and, to the
Company's Knowledge,  the Intellectual Property and Confidential  Information of
the  Company  and its  Subsidiaries  which  are  necessary  for the  conduct  of
Company's  and each of its  Subsidiaries'  respective  businesses  as  currently
conducted or as currently  proposed to be conducted  are not being  Infringed by
any third party.  There is no litigation or order pending or outstanding  or, to
the  Company's  Knowledge,  threatened  or  imminent,  that  seeks  to  limit or
challenge or that concerns the ownership, use, validity or enforceability of any
Intellectual  Property  or  Confidential  Information  of the  Company  and  its
Subsidiaries  and the Company's and its  Subsidiaries'  use of any  Intellectual
Property  or  Confidential  Information  owned  by a third  party,  and,  to the
Company's Knowledge, there is no valid basis for the same.

                    (e) The consummation of the transactions contemplated hereby
and by the other Transaction Documents will not result in the alteration,  loss,
impairment  of or  restriction  on the  Company's  or  any of its  Subsidiaries'
ownership  or  right to use any of the  Intellectual  Property  or  Confidential
Information  which is  necessary  for the conduct of  Company's  and each of its
Subsidiaries'  respective  businesses  as  currently  conducted  or as currently
proposed to be conducted.

                    (f) The Company and its  Subsidiaries  have taken reasonable
steps  to  protect  the  Company's  and  its   Subsidiaries'   rights  in  their
Intellectual Property and Confidential  Information.  Each employee,  consultant
and contractor who has had access to Confidential Information which is necessary
for the conduct of Company's and each of its Subsidiaries' respective businesses
as currently  conducted or as currently proposed to be conducted has executed an
agreement to maintain the  confidentiality of such Confidential  Information and
has executed appropriate  agreements that are substantially  consistent with the
Company's  standard forms  thereof.  Except under  confidentiality  obligations,
there  has  been  no  material  disclosure  of  any  of  the  Company's  or  its
Subsidiaries' Confidential Information to any third party.

          4.16 Environmental Matters.  Neither the Company nor any Subsidiary is
in  violation  of any  statute,  rule,  regulation,  decision  or  order  of any
governmental agency or body or any court,  domestic or foreign,  relating to the
use,  disposal or release of  hazardous or toxic  substances  or relating to the
protection or restoration  of the  environment or human exposure to hazardous or
toxic substances (collectively, "Environmental Laws"), owns or operates any real
property  contaminated  with any substance that is subject to any  Environmental
Laws,  is liable for any  off-site  disposal  or  contamination  pursuant to any
Environmental  Laws, and is subject to any claim  relating to any  Environmental
Laws,  which  violation,  contamination,  liability  or  claim  has had or could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate;  and there is no pending or, to the Company's  Knowledge,  threatened
investigation that might lead to such a claim.

          4.17  Litigation.  Except as described on Schedule 4.17,  there are no
pending  actions,  suits or  proceedings  against or affecting the Company,  its

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Subsidiaries or any of its or their properties;  and to the Company's Knowledge,
no such actions, suits or proceedings are threatened or contemplated.

          4.18 Financial  Statements.  The financial statements included in each
SEC Filing present fairly, in all material respects,  the consolidated financial
position of the Company as of the dates  shown and its  consolidated  results of
operations and cash flows for the periods shown,  and such financial  statements
have  been  prepared  in  conformity  with  United  States  generally   accepted
accounting  principles  applied on a consistent basis ("GAAP") (except as may be
disclosed  therein  or in the  notes  thereto,  and,  in the  case of  quarterly
financial statements, as permitted by Form 10-QSB under the 1934 Act). Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or as  described  on Schedule  4.18,  neither the
Company nor any of its Subsidiaries has incurred any liabilities,  contingent or
otherwise, except those incurred in the ordinary course of business,  consistent
(as to amount and nature) with past  practices  since the date of such financial
statements,  none of which,  individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect.

          4.19  Insurance  Coverage.  Except as described on Schedule  4.19, the
Company  and each  Subsidiary  maintains  in full  force  and  effect  insurance
coverage that is customary for  comparably  situated  companies for the business
being  conducted  and  properties  owned  or  leased  by the  Company  and  each
Subsidiary,  and the Company  reasonably  believes such insurance coverage to be
adequate against all liabilities, claims and risks against which it is customary
for comparably situated companies to insure.

          4.20  Brokers and  Finders.  No Person  will have,  as a result of the
transactions  contemplated  by  the  Transaction  Documents,  any  valid  right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or  understanding  entered  into by or on behalf of the  Company,  other than as
described in Schedule 4.20.

          4.21 No Directed Selling Efforts or General Solicitation.  Neither the
Company  nor  any  Person  acting  on  its  behalf  has  conducted  any  general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Securities.

          4.22  No  Integrated  Offering.  Neither  the  Company  nor any of its
Affiliates,  nor any  Person  acting on its or their  behalf  has,  directly  or
indirectly,  made any offers or sales of any Company  security or solicited  any
offers to buy any security,  under  circumstances  that would  adversely  affect
reliance by the Company on Section 4(2) for the exemption from  registration for
the  transactions  contemplated  hereby  or would  require  registration  of the
Securities under the 1933 Act.

          4.23 Private  Placement.  The offer and sale of the  Securities to the
Investors as contemplated hereby is exempt from the registration requirements of
the 1933 Act.

                                       11
<PAGE>

          4.24  Questionable  Payments.  Neither  the  Company  nor  any  of its
Subsidiaries nor, to the Company's Knowledge, any of their respective current or
former stockholders,  directors,  officers,  employees,  agents or other Persons
acting on behalf of the Company or any Subsidiary,  has on behalf of the Company
or any Subsidiary or in connection with their  respective  businesses:  (a) used
any corporate funds for unlawful  contributions,  gifts,  entertainment or other
unlawful  expenses  relating  to  political  activity;  (b) made any  direct  or
indirect  unlawful  payments to any  governmental  officials or  employees  from
corporate  funds;  (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment,  kickback or other unlawful payment of
any nature.

          4.25  Transactions  with  Affiliates.  Except as  disclosed in the SEC
Filings or as disclosed on Schedule  4.25,  none of the officers or directors of
the Company  and,  to the  Company's  Knowledge,  none of the  employees  of the
Company  is  presently  a party  to any  transaction  with  the  Company  or any
Subsidiary  (other than as holders of stock  options  and/or  warrants,  and for
services  as  employees,  officers  and  directors),   including  any  contract,
agreement or other  arrangement  providing for the  furnishing of services to or
by,  providing for rental of real or personal  property to or from, or otherwise
requiring payments to or from any officer,  director or such employee or, to the
Company's  Knowledge,  any entity in which any  officer,  director,  or any such
employee  has a  substantial  interest  or is an officer,  director,  trustee or
partner.

          4.26 Internal Controls. The Company is in material compliance with the
provisions  of  the  Sarbanes-Oxley  Act of  2002  currently  applicable  to the
Company.  The  Company  and the  Subsidiaries  maintain  a  system  of  internal
accounting  controls  sufficient  to  provide  reasonable   assurance  that  (i)
transactions  are executed in accordance with  management's  general or specific
authorizations,   (ii)   transactions   are  recorded  as  necessary  to  permit
preparation  of financial  statements  in  conformity  with  generally  accepted
accounting  principles  and to maintain  asset  accountability,  (iii) access to
assets is permitted  only in accordance  with  management's  general or specific
authorization,  and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.  The Company has established disclosure controls and
procedures  (as defined in 1934 Act Rules 13a-14 and 15d-14) for the Company and
designed  such  disclosure  controls  and  procedures  to ensure  that  material
information relating to the Company,  including the Subsidiaries,  is made known
to the certifying officers by others within those entities,  particularly during
the period in which the Company's  most  recently  filed period report under the
1934  Act,  as the case may be,  is being  prepared.  The  Company's  certifying
officers  have  evaluated  the  effectiveness  of  the  Company's  controls  and
procedures  as of the end of the  period  covered  by the  most  recently  filed
periodic  report  under the 1934 Act (such date,  the  "Evaluation  Date").  The
Company  presented in its most recently filed periodic report under the 1934 Act
the  conclusions  of the  certifying  officers  about the  effectiveness  of the
disclosure  controls  and  procedures  based  on  their  evaluations  as of  the
Evaluation  Date.  Since the  Evaluation  Date,  there have been no  significant
changes  in the  Company's  internal  controls  (as such term is defined in Item
307(b) of Regulation S-K) or, to the Company's Knowledge,  in other factors that
could  significantly  affect  the  Company's  internal  controls.   The  Company

                                       12
<PAGE>
maintains  and will  continue  to  maintain  a  standard  system  of  accounting
established  and  administered  in  accordance  with  GAAP  and  the  applicable
requirements of the 1934 Act.

          4.27  Disclosures.  Neither the  Company nor any Person  acting on its
behalf  has  provided  the  Investors  or  their  agents  or  counsel  with  any
information   that  constitutes  or  might   constitute   material,   non-public
information. The written materials delivered to the Investors in connection with
the  transactions  contemplated by the Transaction  Documents do not contain any
untrue  statement of a material fact or omit to state a material fact  necessary
in order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading.

          5.  Representations  and  Warranties  of the  Investors.  Each  of the
Investors  hereby  severally,  and not jointly,  represents  and warrants to the
Company that:

                    5.1 Organization  and Existence.  Such Investor is a validly
existing  corporation,  limited partnership or limited liability company and has
all requisite  corporate,  partnership  or limited  liability  company power and
authority to invest in the Securities pursuant to this Agreement.

                    5.2 Authorization.  The execution,  delivery and performance
by such Investor of the Transaction  Documents to which such Investor is a party
have been duly authorized and will each constitute the valid and legally binding
obligation  of such  Investor,  enforceable  against such Investor in accordance
with their  respective  terms,  subject to  bankruptcy,  insolvency,  fraudulent
transfer, reorganization,  moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.

                    5.3 Purchase Entirely for Own Account.  The Securities to be
received by such Investor  hereunder  will be acquired for such  Investor's  own
account,  not as  nominee  or  agent,  and  not  with a view  to the  resale  or
distribution of any part thereof in violation of the 1933 Act, and such Investor
has no present intention of selling, granting any participation in, or otherwise
distributing the same in violation of the 1933 Act without  prejudice,  however,
to such Investor's right at all times to sell or otherwise dispose of all or any
part  of such  Securities  in  compliance  with  applicable  federal  and  state
securities laws.  Nothing  contained herein shall be deemed a representation  or
warranty by such Investor to hold the  Securities  for any period of time.  Such
Investor is not a broker-dealer registered with the SEC under the 1934 Act or an
entity engaged in a business that would require it to be so registered.

                    5.4 Investment  Experience.  Such Investor acknowledges that
it can bear  the  economic  risk  and  complete  loss of its  investment  in the
Securities  and has such  knowledge  and  experience  in  financial  or business
matters that it is capable of evaluating  the merits and risks of the investment
contemplated hereby.

                    5.5  Disclosure  of  Information.  Such  Investor has had an
opportunity to receive all  information  related to the Company  requested by it
and to ask  questions  of and receive  answers  from the Company  regarding  the
Company,  its  business  and the terms and  conditions  of the  offering  of the
Securities.  Such  Investor  acknowledges  receipt of copies of the SEC Filings.

                                       13
<PAGE>
Neither such  inquiries nor any other due diligence  investigation  conducted by
such Investor shall modify, amend or affect such Investor's right to rely on the
Company's representations and warranties contained in this Agreement.

                    5.6 Restricted  Securities.  Such Investor  understands that
the  Securities are  characterized  as  "restricted  securities"  under the U.S.
federal  securities laws inasmuch as they are being acquired from the Company in
a  transaction  not  involving  a public  offering  and that under such laws and
applicable  regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.

                    5.7  Legends.  It is  understood  that,  except as  provided
below,  certificates  evidencing  the  Securities  may bear the following or any
similar legend:

                    (a)  "The   securities   represented   hereby   may  not  be
transferred unless (i) such securities have been registered for sale pursuant to
the  Securities  Act of 1933,  as  amended,  (ii)  such  securities  may be sold
pursuant to Rule 144(k), or (iii) the Company has received an opinion of counsel
reasonably  satisfactory  to it that such  transfer may lawfully be made without
registration under the Securities Act of 1933 or qualification  under applicable
state securities laws."

                    (b)  If  required  by  the   authorities  of  any  state  in
connection with the issuance of sale of the  Securities,  the legend required by
such state authority.

                    5.8  Accredited  Investor.  Such  Investor is an  accredited
investor as defined in Rule 501(a) of Regulation  D, as amended,  under the 1933
Act.

                    5.9 No General Solicitation.  Such Investor did not learn of
the  investment  in the  Securities  as a result of any  public  advertising  or
general solicitation.

                    5.10 Brokers and Finders.  No Person will have,  as a result
of the transactions  contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of such Investor.

                    5.11  Prohibited  Transactions.  During the last thirty (30)
days prior to the date hereof,  neither such  Investor nor any Affiliate of such
Investor which (x) had knowledge of the transactions  contemplated  hereby,  (y)
has or shares discretion  relating to such Investor's  investments or trading or
information concerning such Investor's investments,  including in respect of the
Securities, or (z) is subject to such Investor's review or input concerning such
Affiliate's  investments or trading  (collectively,  "Trading  Affiliates") has,
directly or indirectly,  effected or agreed to effect any short sale, whether or
not against the box,  established any "put  equivalent  position" (as defined in
Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock,  granted any
other right (including, without limitation, any put or call option) with respect
to the Common Stock or with respect to any security that includes, relates to or
derived any  significant  part of its value from the Common  Stock or  otherwise

                                       14
<PAGE>
sought  to  hedge  its  position  in  the   Securities   (each,   a  "Prohibited
Transaction").  Prior to the  earliest to occur of (i) the  termination  of this
Agreement,  (ii) the Effective Date or (iii) the  Effectiveness  Deadline,  such
Investor  shall not,  and shall cause its  Trading  Affiliates  not to,  engage,
directly or indirectly, in a Prohibited Transaction.  Such Investor acknowledges
that the  representations,  warranties  and covenants  contained in this Section
5.11 are being made for the benefit of the  Investors as well as the Company and
that each of the other Investors  shall have an independent  right to assert any
claims  against  such  Investor  arising out of any breach or  violation  of the
provisions of this Section 5.11.

          6. Conditions to Closing.

                    6.1 Conditions to the Investors' Obligations. The obligation
of each  Investor  to  purchase  the Shares and the  Warrants  at the Closing is
subject to the fulfillment to such Investor's  satisfaction,  on or prior to the
Closing Date, of the  following  conditions,  any of which may be waived by such
Investor (as to itself only):

                    (a) The  representations  and warranties made by the Company
in Section 4 hereof qualified as to materiality shall be true and correct at all
times  prior  to and  on the  Closing  Date,  except  to  the  extent  any  such
representation or warranty expressly speaks as of an earlier date, in which case
such  representation  or warranty  shall be true and correct as of such  earlier
date, and, the  representations  and warranties made by the Company in Section 4
hereof not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such  representation  or warranty shall be true and correct in all material
respects as of such  earlier  date.  The  Company  shall have  performed  in all
material respects all obligations and conditions herein required to be performed
or observed by it on or prior to the Closing Date.

                    (b) The Company  shall have  obtained any and all  consents,
permits,  approvals,  registrations  and waivers  necessary or  appropriate  for
consummation of the purchase and sale of the Securities, the consummation of the
Reverse Split and the consummation of the other transactions contemplated by the
Transaction Documents, all of which shall be in full force and effect.

                    (c) The  Company  shall  have  executed  and  delivered  the
Registration Rights Agreement.

                    (d)  The  Company  shall  have  received   executed   Voting
Agreements  from the  holders  of not less than a  majority  of the  outstanding
Common Stock irrevocably consenting to the Reverse Split.

                    (e) No judgment, writ, order, injunction, award or decree of
or by any court, or judge, justice or magistrate, including any bankruptcy court
or judge,  or any order of or by any  governmental  authority,  shall  have been
issued,  and  no  action  or  proceeding  shall  have  been  instituted  by  any
governmental  authority,   enjoining  or  preventing  the  consummation  of  the
transactions contemplated hereby or in the other Transaction Documents.

                                       15
<PAGE>

                    (f) The Company shall have delivered a Certificate, executed
on behalf of the Company by its Chief  Executive  Officer or its Chief Financial
Officer,  dated as of the Closing  Date,  certifying to the  fulfillment  of the
conditions  specified in subsections  (a), (b), (d), (e) and (i) of this Section
6.1.

                    (g) The Company shall have delivered a Certificate, executed
on  behalf  of the  Company  by its  Secretary,  dated as of the  Closing  Date,
certifying  the  resolutions  adopted by the Board of  Directors  of the Company
approving  the  transactions  contemplated  by  this  Agreement  and  the  other
Transaction  Documents  (including  the Reverse  Split) and the  issuance of the
Securities,  certifying the current versions of the Certificate of Incorporation
and Bylaws of the Company and  certifying as to the  signatures and authority of
persons signing the Transaction Documents and related documents on behalf of the
Company.

                    (h) The  Investors  shall  have  received  an  opinion  from
Sichenzia  Ross  Friedman  Ference LLP, the Company's  counsel,  dated as of the
Closing Date, in form and substance  reasonably  acceptable to the Investors and
addressing such legal matters as the Investors may reasonably request.

                    (i) No stop order or  suspension  of trading shall have been
imposed by Nasdaq,  the SEC or any other  governmental  or regulatory  body with
respect to public trading in the Common Stock.

                    6.2 Conditions to Obligations of the Company.  The Company's
obligation  to sell and issue the  Shares  and the  Warrants  at the  Closing is
subject to the fulfillment to the satisfaction of the Company on or prior to the
Closing  Date of the  following  conditions,  any of which  may be waived by the
Company:

                    (a) The representations and warranties made by the Investors
in Section 5 hereof,  other than the representations and warranties contained in
Sections   5.3,   5.4,   5.5,   5.6,   5.7,   5.8  and  5.9   (the   "Investment
Representations"), shall be true and correct in all material respects when made,
and shall be true and correct in all material  respects on the Closing Date with
the same force and  effect as if they had been made on and as of said date.  The
Investment  Representations shall be true and correct in all respects when made,
and shall be true and correct in all  respects on the Closing Date with the same
force and effect as if they had been made on and as of said date.  The Investors
shall have  performed in all material  respects all  obligations  and conditions
herein  required to be  performed or observed by them on or prior to the Closing
Date.

                    (b) The  Investors  shall have  executed and  delivered  the
Registration Rights Agreement.

                    (c) The Investors shall have delivered the Purchase Price to
the Company.

                    6.3 Termination of Obligations to Effect Closing; Effects.


                    (a) The obligations of the Company, on the one hand, and the
Investors, on the other hand, to effect the Closing shall terminate as follows:

                    (i) Upon the mutual  written  consent of the Company and the
Investors;

                    (ii) By the  Company if any of the  conditions  set forth in
Section 6.2 shall have become incapable of fulfillment,  and shall not have been
waived by the Company;

                    (iii) By an Investor (with respect to itself only) if any of
the  conditions  set  forth in  Section  6.1  shall  have  become  incapable  of
fulfillment, and shall not have been waived by the Investor; or

                    (iv) By either the Company or any Investor  (with respect to
itself only) if the Closing has not occurred on or prior to November 19, 2004;

provided,  however,  that,  except in the case of clause  (i)  above,  the party
seeking to terminate  its  obligation to effect the Closing shall not then be in
breach  of any of  its  representations,  warranties,  covenants  or  agreements
contained in this  Agreement or the other  Transaction  Documents if such breach
has  resulted  in the  circumstances  giving  rise to such  party's  seeking  to
terminate its obligation to effect the Closing.

                                       16
<PAGE>

                    (b) In the  event  of  termination  by  the  Company  or any
Investor of its obligations to effect the Closing  pursuant to this Section 6.3,
written notice thereof shall  forthwith be given to the other  Investors and the
other Investors  shall have the right to terminate  their  obligations to effect
the Closing upon written notice to the Company and the other Investors.  Nothing
in this Section 6.3 shall be deemed to release any party from any  liability for
any breach by such party of the terms and  provisions  of this  Agreement or the
other  Transaction  Documents  or to  impair  the  right of any  party to compel
specific  performance by any other party of its obligations under this Agreement
or the other Transaction Documents.

          7. Covenants and Agreements of the Company.

                    7.1  Reservation  of Common Stock.  The Company shall at all
times reserve and keep available out of its  authorized  but unissued  shares of
Common  Stock,  solely for the  purpose of  providing  for the  exercise  of the
Warrants, such number of shares of Common Stock as shall from time to time equal
the number of shares  sufficient  to permit the exercise of the Warrants  issued
pursuant to this Agreement in accordance with their respective terms.

                    7.2  Reports.  The Company  will  furnish to such  Investors
and/or  their  assignees  such  information  relating  to the  Company  and  its
Subsidiaries  as from time to time may reasonably be requested by such Investors
and/or their assignees;  provided,  however, that the Company shall not disclose
material  nonpublic  information  to  the  Investors,   or  to  advisors  to  or
representatives of the Investors, unless prior to disclosure of such information
the Company identifies such information as being material nonpublic  information
and  provides  the  Investors,   such  advisors  and  representatives  with  the
opportunity  to accept or refuse to accept such material  nonpublic  information
for review and any Investor  wishing to obtain such  information  enters into an
appropriate confidentiality agreement with the Company with respect thereto.

                    7.3 No Conflicting Agreements. The Company will not take any
action,  enter into any agreement or make any commitment  that would conflict or
interfere  in  any  material  respect  with  the  Company's  obligations  to the
Investors under the Transaction Documents.

                    7.4 Insurance.  The Company shall not materially  reduce the
insurance coverages described in Section 4.19.

                    7.5  Compliance  with Laws.  The Company  will comply in all
material  respects with all  applicable  laws,  rules,  regulations,  orders and
decrees of all governmental authorities.

                    7.6  Listing  of  Underlying  Shares  and  Related  Matters.
Promptly  following  the  Closing,  the  Company  shall  take  all  commercially
reasonable action to cause the Shares and the Warrant Shares to be listed on the
Nasdaq SmallCap Market,  including  effectuating the Reverse Split.  Further, if
the Company applies to have its Common Stock or other  securities  traded on any
other principal stock exchange or market,  it shall include in such  application
the  Shares  and the  Warrant  Shares  and will  take  such  other  action as is
necessary  to cause such  Common  Stock to be so listed.  The  Company  will use
commercially  reasonable  efforts to effect and continue the listing and trading
of its Common Stock on the Nasdaq SmallCap Market and, in accordance, therewith,
will use  commercially  reasonable  efforts to comply in all  respects  with the
Company's  reporting,  filing and other obligations under the bylaws or rules of
such market or exchange, as applicable.

                    7.7 Termination of Covenants. The provisions of Sections 7.2
through 7.5 shall terminate and be of no further force and effect on the date on
which the  Company's  obligations  under the  Registration  Rights  Agreement to
register  or  maintain  the  effectiveness  of  any  registration  covering  the
Registrable  Securities  (as such term is  defined  in the  Registration  Rights
Agreement) shall terminate.

                    7.8 Removal of Legends. Upon the earlier of (i) registration
for resale  pursuant to the  Registration  Rights  Agreement  and receipt by the
Company of the Investor's written  confirmation that such Securities will not be
disposed of except in compliance  with the prospectus  delivery  requirements of
the 1933 Act or (ii) Rule 144(k) becoming  available the Company shall,  upon an
Investor's  written  request,   promptly  cause   certificates   evidencing  the
Investor's  Securities to be replaced with  certificates  which do not bear such
restrictive legends, and Warrant Shares subsequently issued upon due exercise of
the Warrants shall not bear such restrictive  legends provided the provisions of
either  clause (i) or clause (ii)  above,  as  applicable,  are  satisfied  with
respect to such Warrant Shares. When the Company is required to cause unlegended
certificates to replace previously issued legended  certificates,  if unlegended
certificates  are not delivered to an Investor within three (3) Business Days of
submission by that Investor of legended certificate(s) to the Company's transfer
agent together with a representation letter in customary form, the Company shall

                                       17
<PAGE>
be liable to the Investor for  liquidated  damages in an amount equal to 1.5% of
the aggregate purchase price of the Securities  evidenced by such certificate(s)
for each  thirty  (30) day period (or  portion  thereof)  beyond  such three (3)
Business Day that the unlegended certificates have not been so delivered.

                    7.9 Information  Statement.  Promptly following the Closing,
the Company shall take all action  necessary to effectuate the Reverse Split. In
connection therewith, the Company will promptly prepare and file with the SEC an
information  statement  and,  after  receiving  and promptly  responding  to any
comments of the SEC thereon,  shall promptly mail such information  statement to
the  stockholders of the Company (as so mailed,  the  "Information  Statement").
Each Investor shall promptly  furnish in writing to the Company such information
relating to such  Investor and its  investment in the Company as the Company may
reasonably request for inclusion in the Information Statement.  The Company will
comply with Section 14(c) of the 1934 Act and the rules  promulgated  thereunder
in relation to the Information  Statement,  and the Information  Statement shall
not, on the date that the  Information  Statement (or any  amendment  thereof or
supplement  thereto) is first  mailed to  stockholders,  or at the time that the
Reverse Split is  effectuated,  contain any statement  which, at the time and in
light of the circumstances  under which it was made, is false or misleading with
respect  to any  material  fact,  or  which  omits to state  any  material  fact
necessary in order to make the  statements  therein not false or  misleading  or
necessary to correct any statement in any earlier  communication with respect to
same subject matter which has become false or misleading.  If the Company should
discover at any time prior to the  effectuation of the Reverse Split,  any event
relating to the Company or any of its  Subsidiaries  or any of their  respective
affiliates,  officers  or  directors  that  is  required  to be set  forth  in a
supplement  or  amendment  to the  Information  Statement,  in  addition  to the
Company's  obligations  under the 1934 Act, the Company will promptly inform the
Investors thereof.

                    7.10 Director Designee.

                    (a) So long as Special  Situations  Fund III,  L.P.  ("SSF")
and/or one or more of its Affiliates  collectively are the beneficial  owners of
at least 10% of the outstanding Common Stock (determined in accordance with Rule
13d-3 under the 1934 Act),  SSF shall have the right to designate one person for
election to the board of  directors  of the Company  (the "SSF  Designee").  The
Company shall use its commercially  reasonable efforts to cause the SSF Designee
to be elected to the Company's  board of directors.  SSF shall have the right to
remove or replace any SSF Designee by giving notice to such SSF Designee and the
Company. The Company shall use its commercially reasonable efforts to effect the
removal or replacement of any such SSF Designee.

                    (b) Subject to any  limitations  imposed by applicable  law,
the SSF  Designee  shall be entitled to the same  perquisites,  including  stock
options,  reimbursement  of expenses and other similar rights in connection with
such  person's  membership  on the Board of Directors  of the Company,  as every
other non-employee member of the Board of Directors of the Company.

                                       18
<PAGE>

                    (c) If  requested  by SSF,  the  Company  shall  procure and
maintain  directors'  and  officers'  liability  insurance  in such  amounts and
covering such risks as SSF may reasonably request in connection with the service
of the SSF Designee on the Company's board of directors.

                    7.11 Prohibited  Sales.  From and after the Closing Date and
continuing  for a period  until  the  earlier  to occur of (i)  three  (3) years
thereafter,  or (ii) the date on which  the  Investors  beneficially  own in the
aggregate less than 10% of the Company's  outstanding  Common Stock, the Company
will not, and will cause its Subsidiaries not to, issue any:

                    (i)       shares of  preferred  stock which are  convertible
                              into  shares  of  Common  Stock  other  than  on a
                              conversion  ratio  which is  fixed,  except in the
                              case  of  normal  adjustments  which  may  include
                              customary  anti-dilution  provisions,  among other
                              things,  but which  shall not  include in any case
                              any  adjustment  in the  conversion  ratio of such
                              shares  of  Preferred  Stock  as a  result  of the
                              market price of the Common Stock after the date of
                              closing  of  the   issuance   of  such  shares  of
                              preferred stock;
                    (ii)      convertible   debt  in  the   Company   which   is
                              convertible  into  shares of  Common  Stock of the
                              Company other than on a conversion  ratio which is
                              fixed,  except in the case of  normal  adjustments
                              which   may   include   customary    anti-dilution
                              provisions,  among other  things,  but which shall
                              not  include  in any  case any  adjustment  in the
                              conversion ratio of such convertible debt based on
                              the  market  price of the Common  Stock  after the
                              date  of   closing   of  the   issuance   of  such
                              convertible  debt; or
                    (iii)     shares of Common  Stock of the Company  other than
                              for a fixed  price at the time of issuance of such
                              shares  of  Common  Stock,  except  in the case of
                              normal  adjustments  which may  include  customary
                              anti-dilution provisions,  among other things, but
                              which   shall   not   include   in  any  case  any
                              adjustments  to the issued  shares of Common Stock
                              which require the issuance of additional shares of
                              Common  Stock during that time based on the market
                              price of the Common Stock.

          8. Survival and Indemnification.

                    8.1 Survival. The representations, warranties, covenants and
agreements  contained  in  this  Agreement  shall  survive  the  Closing  of the
transactions contemplated by this Agreement.

                    8.2  Indemnification.  The Company  agrees to indemnify  and
hold harmless each Investor and its Affiliates and their  respective  directors,
officers,  employees  and agents from and  against  any and all losses,  claims,
damages,  liabilities  and expenses  (including  without  limitation  reasonable
attorney fees and  disbursements  and other expenses incurred in connection with
investigating,  preparing or defending any action, claim or proceeding,  pending
or threatened and the costs of enforcement thereof) (collectively,  "Losses") to
which  such   Person   may  become   subject  as  a  result  of  any  breach  of
representation,  warranty,  covenant or agreement  made by or to be performed on

                                       19
<PAGE>
the part of the Company under the Transaction Documents,  and will reimburse any
such Person for all such amounts as they are incurred by such Person.

                    8.3 Conduct of Indemnification  Proceedings.  Promptly after
receipt by any Person (the "Indemnified  Person") of notice of any demand, claim
or  circumstances  which would or might give rise to a claim or the commencement
of any action,  proceeding or investigation in respect of which indemnity may be
sought  pursuant to Section 8.2, such  Indemnified  Person shall promptly notify
the  Company in writing  and the  Company  shall  assume  the  defense  thereof,
including the employment of counsel reasonably  satisfactory to such Indemnified
Person,  and  shall  assume  the  payment  of all fees and  expenses;  provided,
however,  that the  failure of any  Indemnified  Person so to notify the Company
shall not relieve the Company of its obligations  hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any such
proceeding,  any  Indemnified  Person  shall  have the right to  retain  its own
counsel,  but the fees and expenses of such  counsel  shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel  would be  inappropriate  due to actual or potential  differing
interests  between them.  The Company shall not be liable for any  settlement of
any proceeding effected without its written consent,  which consent shall not be
unreasonably  withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff,  the Company shall  indemnify and hold harmless such
Indemnified  Person from and against any loss or liability (to the extent stated
above) by reason of such  settlement  or  judgment.  Without  the prior  written
consent of the  Indemnified  Person,  which  consent  shall not be  unreasonably
withheld,  the  Company  shall not  effect  any  settlement  of any  pending  or
threatened  proceeding  in respect of which any  Indemnified  Person is or could
have  been a party  and  indemnity  could  have been  sought  hereunder  by such
Indemnified Party, unless such settlement  includes an unconditional  release of
such Indemnified Person from all liability arising out of such proceeding.

          9. Miscellaneous.

                    9.1  Successors  and  Assigns.  This  Agreement  may  not be
assigned by a party hereto  without the prior written  consent of the Company or
the Investors, as applicable, provided, however, that an Investor may assign its
rights and delegate its duties  hereunder in whole or in part to an Affiliate or
to a  third  party  acquiring  some  or  all  of  its  Securities  in a  private
transaction  without  the prior  written  consent  of the  Company  or the other
Investors, after notice duly given by such Investor to the Company and the other
Investors,  provided,  that no such  assignment or  obligation  shall affect the
obligations of such Investor  hereunder.  The provisions of this Agreement shall
inure to the benefit of and be binding upon the respective  permitted successors
and assigns of the parties.  Nothing in this Agreement,  express or implied,  is
intended  to  confer  upon any  party  other  than the  parties  hereto or their
respective  successors  and  assigns  any  rights,  remedies,   obligations,  or
liabilities under or by reason of this Agreement,  except as expressly  provided
in this Agreement.

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

                                       20
<PAGE>
also be executed via facsimile, which shall be deemed an original.

                    9.3 Titles and  Subtitles.  The titles and subtitles used in
this  Agreement  are used for  convenience  only and are not to be considered in
construing or interpreting this Agreement.

                    9.4 Notices.  Unless otherwise provided, any notice required
or permitted  under this Agreement shall be given in writing and shall be deemed
effectively  given as hereinafter  described (i) if given by personal  delivery,
then such  notice  shall be deemed  given upon such  delivery,  (ii) if given by
telex or  telecopier,  then such notice  shall be deemed  given upon  receipt of
confirmation of complete  transmittal,  (iii) if given by mail, then such notice
shall be deemed  given  upon the  earlier of (A)  receipt of such  notice by the
recipient  or (B) three days after such notice is deposited in first class mail,
postage prepaid,  and (iv) if given by an internationally  recognized  overnight
air  courier,  then such notice  shall be deemed  given one  business  day after
delivery to such  carrier.  All notices  shall be  addressed  to the party to be
notified at the address as follows,  or at such other  address as such party may
designate by ten days' advance written notice to the other party:

                           If to the Company:

                                    WPCS International Incorporated
                                    140 South Village Avenue
                                    Suite 20
                                    Exton, Pennsylvania 19341
                                    Attention:
                                    Fax:

                           With a copy to:

                                    Sichenzia Ross Friedman Ference LLP
                                    1065 Avenue of the Americas
                                    New York, New York 10010
                                    Attention:  Marc Ross, Esq.
                                    Fax:  (212) 930-9725

                           If to the Investors:

to the addresses set forth on the signature pages hereto.

                    9.5 Expenses.  The parties  hereto shall pay their own costs
and  expenses in  connection  herewith,  except  that the Company  shall pay the
reasonable fees and expenses of counsel to the Investors, not to exceed $30,000.
Such  expenses  shall be paid not later  than the  Closing.  The  Company  shall
reimburse the Investors  upon demand for all reasonable  out-of-pocket  expenses
incurred  by  the  Investors,  including  without  limitation  reimbursement  of
attorneys'   fees  and   disbursements,   in  connection   with  any  amendment,

                                       21
<PAGE>
modification or waiver of this Agreement or the other Transaction Documents.  In
the event that legal  proceedings  are commenced by any party to this  Agreement
against another party to this Agreement in connection with this Agreement or the
other Transaction  Documents,  the party or parties which do not prevail in such
proceedings  shall severally,  but not jointly,  pay their pro rata share of the
reasonable attorneys' fees and other reasonable out-of-pocket costs and expenses
incurred by the prevailing party in such proceedings.

                    9.6 Amendments  and Waivers.  Any term of this Agreement may
be  amended  and the  observance  of any term of this  Agreement  may be  waived
(either  generally  or in a  particular  instance  and either  retroactively  or
prospectively),  only with the written consent of the Company and the Investors.
Any amendment or waiver  effected in  accordance  with this  paragraph  shall be
binding upon each holder of any Securities purchased under this Agreement at the
time outstanding, each future holder of all such Securities, and the Company.

                    9.7 Publicity.  Except as set forth below, no public release
or announcement concerning the transactions  contemplated hereby shall be issued
by the Company or the Investors without the prior consent of the Company (in the
case of a release or  announcement  by the  Investors)  or the Investors (in the
case of a release or  announcement  by the Company) (which consents shall not be
unreasonably  withheld),  except as such release or announcement may be required
by law or the applicable  rules or  regulations  of any  securities  exchange or
securities  market, in which case the Company or the Investors,  as the case may
be,  shall allow the  Investors  or the Company,  as  applicable,  to the extent
reasonably practicable in the circumstances,  reasonable time to comment on such
release or announcement in advance of such issuance. By 8:30 a.m. (New York City
time) on the trading day  immediately  following the Closing  Date,  the Company
shall issue a press release  disclosing  the  consummation  of the  transactions
contemplated  by this  Agreement.  No later than the third trading day following
the Closing Date,  the Company will file a Current  Report on Form 8-K attaching
the press release  described in the foregoing  sentence as well as copies of the
Transaction Documents. In addition, the Company will make such other filings and
notices  in the  manner  and  time  required  by the  SEC.  Notwithstanding  the
foregoing,  the Company shall not publicly disclose the name of any Investor, or
include  the name of any  Investor  in any filing  with the SEC (other  than the
Registration  Statement  and any  exhibits  to  filings  made in respect of this
transaction in accordance with periodic filing  requirements under the 1934 Act)
or any regulatory  agency or Nasdaq,  without the prior written  consent of such
Investor,  except to the extent  such  disclosure  is required by law or trading
market  regulations,  in which case the Company shall provide the Investors with
prior notice of such disclosure.

                    9.8  Severability.  Any provision of this  Agreement that is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be ineffective to the extent of such  prohibition  or  unenforceability  without
invalidating the remaining  provisions  hereof but shall be interpreted as if it
were  written  so as to be  enforceable  to  the  maximum  extent  permitted  by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall  not  invalidate  or  render  unenforceable  such  provision  in any other
jurisdiction.  To the extent  permitted by  applicable  law, the parties  hereby
waive any  provision of law which  renders any  provision  hereof  prohibited or
unenforceable in any respect.

                                       22
<PAGE>

                    9.9 Entire Agreement. This Agreement, including the Exhibits
and the Disclosure Schedules, and the other Transaction Documents constitute the
entire  agreement  among the parties  hereof with respect to the subject  matter
hereof and thereof and supersede all prior agreements and  understandings,  both
oral and written,  between the parties with respect to the subject matter hereof
and thereof.

                    9.10  Further  Assurances.  The  parties  shall  execute and
deliver  all such  further  instruments  and  documents  and take all such other
actions as may reasonably be required to carry out the transactions contemplated
hereby and to evidence the fulfillment of the agreements herein contained.

                    9.11 Governing Law; Consent to Jurisdiction;  Waiver of Jury
Trial.  This Agreement  shall be governed by, and construed in accordance  with,
the internal  laws of the State of New York without  regard to the choice of law
principles  thereof.  Each of the  parties  hereto  irrevocably  submits  to the
exclusive  jurisdiction  of the  courts of the State of New York  located in New
York County and the United States  District  Court for the Southern  District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising  out of this  Agreement  and the  transactions  contemplated  hereby.
Service of process in connection with any such suit, action or proceeding may be
served on each party  hereto  anywhere  in the world by the same  methods as are
specified  for the giving of notices under this  Agreement.  Each of the parties
hereto  irrevocably  consents to the  jurisdiction of any such court in any such
suit,  action or proceeding and to the laying of venue in such court. Each party
hereto irrevocably waives any objection to the laying of venue of any such suit,
action or  proceeding  brought in such courts and  irrevocably  waives any claim
that any such  suit,  action or  proceeding  brought  in any such court has been
brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
REQUEST A TRIAL BY JURY IN ANY  LITIGATION  WITH RESPECT TO THIS  AGREEMENT  AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

                    9.12  Independent  Nature  of  Investors'   Obligations  and
Rights.  The  obligations  of each Investor under any  Transaction  Document are
several  and not  joint  with the  obligations  of any  other  Investor,  and no
Investor shall be responsible in any way for the  performance of the obligations
of any other  Investor  under any  Transaction  Document.  The  decision of each
Investor to purchase Securities  pursuant to the Transaction  Documents has been
made by such Investor  independently  of any other Investor.  Nothing  contained
herein  or in any  Transaction  Document,  and no action  taken by any  Investor
pursuant thereto,  shall be deemed to constitute the Investors as a partnership,
an  association,  a joint  venture  or any  other  kind of  entity,  or create a
presumption  that the  Investors  are in any way acting in concert or as a group
with  respect  to  such  obligations  or the  transactions  contemplated  by the
Transaction  Documents.  Each Investor  acknowledges  that no other Investor has
acted as agent for such  Investor  in  connection  with  making  its  investment
hereunder  and that no  Investor  will be  acting as agent of such  Investor  in
connection  with  monitoring  its  investment in the Securities or enforcing its
rights  under the  Transaction  Documents.  Each  Investor  shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of the other Transaction  Documents,
and it  shall  not be  necessary  for any  other  Investor  to be  joined  as an
additional  party in any proceeding for such purpose.  The Company  acknowledges

                                       23
<PAGE>
that each of the Investors has been provided with the same Transaction Documents
for the purpose of closing a transaction with multiple Investors and not because
it was required or requested to do so by any Investor.

                            [signature page follows]


                                       24
<PAGE>

                    IN WITNESS WHEREOF, the parties have executed this Agreement
or caused their duly  authorized  officers to execute  this  Agreement as of the
date first above written.

The Company:                                WPCS INTERNATIONAL INCORPORATED



                                            By:/s/ ANDREW HIDALGO
                                               ------------------
                                            Name:  Andrew Hidalgo
                                            Title: Chief Executive Officer

                                       25

</TEXT>
</DOCUMENT>
