<PAGE>

                                 EXHIBIT 10.42





                     AGREEMENT AND PLAN OF REORGANIZATION

                                 BY AND AMONG

                            LEVEL 8 SYSTEMS, INC.,

                      MIDDLEWARE ACQUISITION CORPORATION,

                        MOMENTUM SOFTWARE CORPORATION,

                                      AND

       ROBERT BRILL, BRUNS GRAYSON AND HUBERTUS VANDERVOORT, AS TRUSTEES
                OF THE MOMENTUM LIQUIDATING TRUST, ON BEHALF OF
             THE SECURITYHOLDERS OF MOMENTUM SOFTWARE CORPORATION



                            DATED FEBRUARY 27, 1998
<PAGE>

                                INDEX OF EXHIBITS


EXHIBIT          DESCRIPTION

Exhibit A         Trust Agreement

Exhibit B         Form of Certificate of Merger

Exhibit C         Form of Parent Warrant

Exhibit D         Form of Note

Exhibit E         Form of Affiliate Letter

Exhibit F         Form of Letter Agreement

Exhibit G         Form of Registration Rights Agreement

Exhibit H         Form of Liraz Voting Agreement

Exhibit I         Form of Lock Up Agreement

Exhibit J         List of Knowledge Persons

Exhibit K         Form of Employee Registration Rights Agreement

<PAGE>

RECITALS
ARTICLE I  THE MERGER                                                         2
1.1  The Merger.                                                              2
1.2  Effective Time.                                                          2
1.3  Effect of the Merger.                                                    2
1.4  Certificate of Incorporation; Bylaws.                                    2
1.5  Directors and Officers.                                                  3
1.6  Effect on Capital Stock.                                                 3
     (a) Aggregate Shares of Parent Common Stock.                             3
     (b) Conversion of Company Capital Stock.                                 4
     (c) Cancellation of Parent-Owned and Company-Owned Stock.                4
     (d) Stock Options and Warrants.                                          4
     (e) Capital Stock of Merger Sub.                                         5
     (f) Fractional Shares.                                                   5
     (g) Escrow Amount                                                        5
     (h) Legends.                                                             5
1.7  Warrant.                                                                 5
1.8  Contingent Payment of Additional Shares of Parent
     Common Stock or of Note; Effect on Capital Stock.                        5
     (a) Definitions.                                                         5
         (i)   "Calculation Date"                                             6
         (ii)  "Contingent Consideration"                                     6
         (iii) "Contingent Shares"                                            6
         (iv)  "Note"                                                         6
         (v)   "Stock Value"                                                  6
         (vi)  "Stock Value Fraction"                                         6
     (b) Contingent Shares.                                                   6
     (c) Additional Contingent Shares.                                        6
     (d) Certificates.                                                        7
     (e) Fractional Shares.                                                   7
     (f) Legends.                                                             7
     (g) Adjustments.                                                         7
     (h) Assignability.                                                       7
     (i) Arbitration.                                                         7
     (j) Disputed Amounts.                                                    8
1.9  Dissenting Shares.                                                       8
1.10 Surrender of Certificates.                                               9
     (a) Trustee as Exchange and Company Securityholders Agent.               9
     (b) Parent to Provide Merger Consideration.                              9
     (c) Exchange Procedures.                                                 10
     (d) Distributions With Respect to Unexchanged Shares.                    11
     (e) Transfers of Ownership.                                              11
     (f) No Liability.                                                        12
     (g) Right to Vote.                                                       12
1.11 No Further Ownership Rights in Company Capital Stock.                    12
1.12 Lost, Stolen or Destroyed Certificates.                                  12
1.13 Withholding Rights.                                                      12
1.14 Tax Consequences; Exemption from Registration.                           12
1.15 Taking of Necessary Action; Further Action.                              13


2 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND OF THE TRUST   13
2.1  Organization, Standing and Power.                                        13
2.2  Company Capital Structure.                                               13
2.3  Subsidiaries.                                                            14
2.4  Authority.                                                               14
2.5  Company Financial Statements.                                            15
2.6  No Undisclosed Liabilities.                                              16
2.7  No Changes                                                               16
<PAGE>

2.8  Tax and Other Returns and Reports.                                       18
     (a) Definition of Taxes.                                                 18
     (b) Tax Returns and Audits.                                              18
2.9  Restrictions on Business Activities.                                     20
2.10 Title to Properties; Absence of Liens and Encumbrances.                  20
2.11 Intellectual Property.                                                   21
2.12 Agreements, Contracts and Commitments.                                   23
2.13 Compliance with Laws.                                                    25
2.14 Litigation.                                                              25
2.15 Bank Accounts.                                                           25
2.16 Insurance.                                                               25
2.17 Minute Books.                                                            25
2.18 Environmental Matters.                                                   25
2.19 Brokers' and Finders' Fees; Third Party Expenses.                        26
2.20 Employee Matters and Benefit Plans.                                      26
     (a) Company ERISA Plans.                                                 26
     (b) Pension Plans.                                                       26
     (c) Multiemployer or Multiple Employer Plans; Leased Employees.          26
     (d) Employee Benefit Plans.                                              27
     (e) Contributions                                                        27
     (f) No Post-Employment Obligations.                                      27
     (g) Agreements Terminable at Will; List.                                 27
     (h) COBRA.                                                               27
     (i) Employment Matters.                                                  28
     (j) Labor.                                                               28
2.21 Suppliers and Customers.                                                 28
2.22 Affiliates; Approval Vote.                                               29
2.23 Representations Complete.                                                29
2.24 Organization, Standing and Power.                                        29
2.25 Authority.                                                               29
2.26 Representations Complete.                                                30


3    ARTICLE III REPRESENTATIONS AND WARRANTIES OF, PARENT AND MERGER SUB     30

3.1  Organization, Standing and Power.                                        31
3.2  Authority.                                                               31
3.3  Capital Structure.                                                       32
3.4  SEC Documents; Parent Financial Statements.                              33
3.5  No Material Adverse Change.                                              33
3.6  Litigation.                                                              34
3.7  Intellectual Property.                                                   34
3.8  Restrictions on Business Activities.                                     36
3.9  Brokers or Finders; Professional Fees.                                   36
3.10 Conduct in the Ordinary Course.                                          36
3.11 Interim Operations of Merger Sub.                                        36
3.12 Third Party Consents.                                                    36
3.13 Agreements with Liraz Systems, Ltd. ("Liraz").                           36
3.14 Tax Returns and Audits.                                                  36
3.15 Compliance with Laws.                                                    37
3.16 Minute Books.                                                            37
3.17 Environmental Matters.                                                   37
3.18 Suppliers and Customers.                                                 38
<PAGE>

3.19 Performance Based Compensation.                                          38
3.20 Representations Complete.                                                38


4 ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME                              38

4.1  Conduct of Business of the Company.                                      39
4.2  Conduct of Business of the Parent and Merger Sub.                        41


5        ARTICLE V  ADDITIONAL AGREEMENTS                                     42

5.1  No Solicitation.                                                         42
5.2  Preparation of Information Statement.                                    43
5.3  Meeting.                                                                 44
5.4  Securities Act Exemption.                                                44
5.5  Stock Restrictions.                                                      44
5.6  Access to Information.                                                   44
5.7  Public Disclosure.                                                       45
5.8  Reasonable Efforts.                                                      45
5.9  Notification of Certain Matters.                                         45
5.10 Registration Rights Agreement.                                           45
5.11 Additional Documents and Further Assurances.                             45
5.12 Legal Requirements.                                                      46
5.13 Third Party Consents.                                                    46
5.14 Board of Directors of the Combined Company.                              46
5.15 Indemnification.                                                         46
5.16 Stockholder Solicitation Materials.                                      47
5.17 List of Stockholders, Optionholders and Warrantholders.                  47
5.18 NASDAQ Quotation.                                                        47
5.19 Dividends.                                                               47
5.20 Review of Returns.                                                       47


6    ARTICLE VI DOCUMENTS TO BE DELIVERED                                     48

6.1  Documents to Be Delivered by the Company at Closing.                     48
     (a) Third Party Consents.                                                48
     (b) Legal Opinion.                                                       48
     (c) Certificate of Merger.                                               48
     (d) Affiliates Letter.                                                   48
     (e) Resignation.                                                         48
     (f) Certificates.                                                        48
     (g) Voting Agreement.                                                    48
     (h) Lock Up Agreement.                                                   48
     (i) Severance Agreements.                                                48
6.2  Documents to be Delivered by the Parent and Merger Sub at Closing.       48
     (a) Legal Opinion.                                                       48
     (b) Certificate of Merger.                                               48
     (c) Third Party Consents.                                                48
     (d) Certificates.                                                        48
     (e) Registration Rights Agreement.                                       49
<PAGE>

7    ARTICLE VII CONDITIONS TO THE MERGER                                     49

7.1  Conditions to Obligations of Each Party to Effect the Merger.            49
     (a) Stockholder Approval.                                                49
     (b) Information Statement.                                               49
     (c) No Injunctions or Restraints; Illegality.                            49
     (d) Tax Returns.                                                         49
     (e) Permit.                                                              49
7.2  Additional Conditions to Obligations of the Company.                     49
     (a) Representations and Warranties.                                      49
     (b) Agreements and Covenants.                                            50
     (c) Board of Directors of Parent.                                        50
     (d) NASDAQ Quotation.                                                    50
     (e) Legal Opinion.                                                       50
     (f) No Material Adverse Effect.                                          50
     (g) Costs Summary.                                                       50
     (h) Closing Date Price.                                                  50
7.3  Additional Conditions to the Obligations of Parent and Merger Sub.       50
     (a) Representations and Warranties.                                      50
     (b) Agreements and Covenants.                                            51
     (c) Dissenters' Rights.                                                  51
     (d) Consent of Company Warrantholders.                                   51
     (e) Costs Summary.                                                       51
     (f) Legal Opinion.                                                       51
     (g) No Material Adverse Effect.                                          51
     (h) Opinion of Financial Advisor.                                        51
     (i) Severance Agreements.                                                51


8    ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW          51

8.1  Survival of Representations and Warranties.                              52
8.2  Escrow Arrangements                                                      52
     (a) Escrow Fund.                                                         52
     (b) Escrow Period; Distribution upon Termination of Escrow Period.       53
     (c) Protection of Escrow Fund.                                           53
     (d) Claims Upon Escrow Fund.                                             54
     (e) Objections to Claims.                                                54
     (f) Resolution of Conflicts; Arbitration.                                54
     (g) Third-Party Claims.                                                  56
     (h) Escrow Agent's Duties.                                               56
     (i) Fees.                                                                58
     (j) Consequential Damages.                                               59


9    ARTICLE IX  TERMINATION, AMENDMENT AND WAIVER                            59

9.1  Termination.                                                             59
9.2  Effect of Termination.                                                   60
9.3  Amendment.                                                               60
9.4  Extension; Waiver.                                                       61
9.5  Parent/Company Payments.                                                 61
     (a) Company Payments.                                                    61
     (b) Parent Payments.                                                     61


10   ARTICLE X  GENERAL PROVISIONS                                            61

10.1  Notices.                                                                61
10.2  Expenses.                                                               63
<PAGE>

10.3  Interpretation.                                                         63
10.4  Counterparts.                                                           64
10.5  Entire Agreement; Assignment.                                           64
10.6  Severability.                                                           64
10.7  Other Remedies.                                                         64
10.8  Governing Law.                                                          64
10.9  Rules of Construction.                                                  64
10.10 Specific Performance.                                                   65
<PAGE>

                      AGREEMENT AND PLAN OF REORGANIZATION


         This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
                                                          ---------
and entered into on February 27, 1998 by and among Level 8 Systems, Inc., a New
York corporation ("Parent"); Middleware Acquisition Corporation, a Delaware
                   ------
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"); Momentum
                                                      ----------
Software Corporation, a Delaware corporation (the "Company") and Robert Brill,
                                                   -------
Bruns Grayson and Hubertus Vandervoort (the "Trustees"), as trustees of the
                                             --------
Momentum Liquidating Trust for the benefit of the Company Securityholders (the
"Trust").
 -----


                                    RECITALS


         A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of the
Company with and into Merger Sub (the "Merger") and, in furtherance thereof,
                                       ------
have approved the Merger.

         B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("Company Capital Stock") and all outstanding
                               ---------------------
options, warrants and other rights to acquire or receive shares of Company
Capital Stock shall be converted into the right to receive their respective
distributive shares of the Merger Consideration (as defined below), after the
payment of all Trust liabilities, computed in accordance with their beneficial
interests in the Trust determined from time to time as set forth in the Trust
Agreement attached hereto as Exhibit A (collectively, "Beneficial Interests")
                                                       --------------------

         C. Pursuant to the Merger, subject to the terms and conditions of this
Agreement, the Parent shall issue to the Trust shares of Parent common stock, an
amount of cash equal to $75,000, warrants to acquire Parent common stock and
certain other contingent consideration, all as set forth below (collectively,
the "Merger Consideration").
     --------------------

         D. A portion of the Merger Consideration otherwise issuable by Parent
in connection with the Merger shall be placed in escrow by Parent with an Escrow
Agent (the "Escrow Agent"), the release of which amount shall be contingent
upon certain events and conditions, all as set forth in Article VIII hereof.

         E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code")
                       ----

         F. The Company, Parent, Merger Sub and the Trust desire to make certain
representations and warranties and other agreements in connection with the
Merger.

                                                                          Page 1
<PAGE>

        NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged intending to be
legally bound hereby the parties agree as follows:


                                        1

                                    ARTICLE I

                                   THE MERGER


          1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
              ----------
              subject to and upon the terms and conditions of this Agreement and
              the applicable provisions of the Delaware General Corporation Law
              ("Delaware Law"), the Company shall be merged with and into Merger
                ------------
              Sub, the separate corporate existence of the Company shall cease
              and Merger Sub shall continue as the surviving corporation and as
              a wholly-owned subsidiary of Parent. The Merger Sub as the
              surviving corporation after the Merger is hereinafter sometimes
              referred to as the "Surviving Corporation".
                                  ---------------------

          1.2 Effective Time. Unless this Agreement is earlier terminated
              --------------
              pursuant to Section 9.1, the closing of the Merger (the "Closing")
                                                                       -------
              will take place as promptly as practicable, but no later than five
              (5) business days following satisfaction or waiver of the
              conditions set forth in Article VII, at the offices of Parent at 1
              Penn Plaza, Suite 3400, New York, New York, unless another place
              or time is agreed to by Parent and the Company. The date upon
              which the Closing actually occurs is herein referred to as the
              "Closing Date". On the Closing Date, the parties hereto shall
               ------------
              cause the Merger to be consummated by filing a Certificate of
              Merger (or like instrument) with the Secretary of State of the
              State of Delaware (the "Certificate of Merger"), substantially in
                                      ---------------------
              the form attached hereto as Exhibit B, in accordance with the
              relevant provisions of applicable law (the time of acceptance by
              the Secretary of State of Delaware of such filing being referred
              to herein as the "Effective Time").
                                --------------

          1.3 Effect of the Merger. At the Effective Time, the effect of the
              --------------------
              Merger shall be as provided in the applicable provisions of
              Delaware Law. Without limiting the generality of the foregoing,
              and subject thereto, at the Effective Time, all the property,
              rights, privileges, powers and franchises of the Company and
              Merger Sub shall vest in the Surviving Corporation, and all debts,
              liabilities and duties of the Company and Merger Sub shall become
              the debts, liabilities and duties of the Surviving Corporation.


          1.4 Certificate of Incorporation; Bylaws.
              ------------------------------------

                                                                   Page 2
<PAGE>

                (a) At the Effective Time, the Certificate of Incorporation of
                    Merger Sub, as in effect immediately prior to the date of
                    this Agreement, shall be the Certificate of Incorporation of
                    the Surviving Corporation until thereafter amended as
                    provided by law and such Certificate of Incorporation;
                    provided, however, that Article I of the Certificate of
                    Incorporation of the Surviving Corporation shall be amended
                    to read as follows: "The name of the corporation is MOMENTUM
                    SOFTWARE CORPORATION".

                (b) The Bylaws of Merger Sub, as in effect immediately prior to
                    the Effective Time, shall be the Bylaws of the Surviving
                    Corporation until thereafter amended.


          1.5 Directors and Officers. The director(s) of Merger Sub immediately
              ----------------------
              prior to the Effective Time shall be the initial director(s) of
              the Surviving Corporation, each to hold office in accordance with
              the Certificate of Incorporation and Bylaws of the Surviving
              Corporation. The officers of Merger Sub immediately prior to the
              Effective Time shall be the initial officers of the Surviving
              Corporation, each to hold office in accordance with the Bylaws of
              the Surviving Corporation.


          1.6 Effect on Capital Stock. Subject to the terms and conditions of
              -----------------------
              this Agreement, as of the Effective Time, by virtue of the Merger
              and without any action on the part of the Parent, the Merger Sub,
              the Company or the holder of any shares of the Parent Common Stock
              or the Company Capital Stock, the following shall occur:

                (a) Aggregate Shares of Parent Common Stock. The Aggregate
                    ---------------------------------------
                    Shares of Parent Common Stock to be issued by Parent in the
                    Merger (the "Aggregate Shares of Parent Common Stock") shall
                                 ---------------------------------------
                    be equal to the excess of (i) 575,000, over (ii) a number of
                    shares of Parent Common Stock as is equal to (x) the
                    Reimbursable Amount (as defined in Section 10.2(c)), divided
                    by (y) the average of the last reported sale price per share
                    of Parent Common Stock in the NASDAQ National Market, as
                    reported by The Wall Street Journal for each of the thirty
                    (30) trading days ending on the day of the Special Meeting,
                    as defined herein (rounded up, if necessary to the next
                    whole share) ("Closing Date Price"), as further adjusted
                                   ------------------
                    pursuant to Section 1.9. The Aggregate Shares of Parent
                    Common Stock shall be issued to the Trust on behalf of
                    holders (collectively, the "Company Securityholders") of (i)
                                                -----------------------
                    Common Stock of the Company ("Company Common Stock") and of
                                                  --------------------
                    Company immediately preceding the Closing Date Options, when
                    and if such Company Options are exercised (as defined below)
                    and Company Warrants (as defined below), when and if such
                    Company Warrants are exercised pursuant to Section 1.6(d)
                    below, (ii) Series A Preferred Stock of the Company
                    ("Company Series A"), (iii) Series B Preferred Stock of the
                      ----------------
                    Company ("Company Series B"), (iv) Series B-1 Preferred
                              ----------------
                    Stock of the Company ("Company Series B-1"), (v) Series C
                                           ------------------
                    Preferred Stock of the Company ("Company Series C"), (vi)
                                                     ----------------
                    Series C-1 Preferred Stock of the Company ("Company Series
                                                                --------------
                    C-1"), (vii) Series D Preferred Stock of the Company
                    ---
                    ("Company Series D") and (viii) Series E Preferred Stock of
                      ----------------
                    the Company to be issued immediately prior to the Effective
                    Time to certain key employees of the

                                                                   Page 3
<PAGE>

                    Company who will provide transitional and other services in
                    connection with the Merger ("Company Series E"). (The
                                                 ----------------
                    Company Series A, Company Series B, Company Series B-1,
                    Company Series C, Company Series C-1, Company Series D and
                    Company Series E are collectively referred to as the
                    "Company Preferred Series").
                     ------------------------

                (b) Conversion of Company Capital Stock. Each share issued and
                    -----------------------------------
                    outstanding immediately prior to the Effective Time of
                    Company Common Stock (other than any shares of Company
                    Common Stock to be canceled pursuant to Section 1.6(c) and
                    any Dissenting Shares (as defined and to the extent provided
                    in Section 1.9(a))) and of Company Preferred Series (other
                    than any shares of Company Preferred Series to be canceled
                    pursuant to Section 1.6(c)) shall be canceled and
                    extinguished and will be converted automatically into
                    Beneficial Interests.

                (c) Cancellation of Parent-Owned and Company-Owned Stock. Each
                    ----------------------------------------------------
                    share of Company Capital Stock owned by Merger Sub, Parent,
                    the Company or any direct or indirect wholly-owned
                    subsidiary of Parent or of the Company immediately prior to
                    the Effective Time shall be canceled and extinguished
                    without any conversion thereof.

                (d) Stock Options and Warrants.
                    --------------------------

                    (i)     At the Effective Time, all options and stock
                            purchase rights to purchase Company Common Stock
                            (each a "Company Option") then outstanding under the
                                     --------------
                            Company's 1993 Stock Option Plan (the "Company
                                                                   -------
                            Option Plan") or otherwise, whether vested or
                            -----------
                            unvested, to the extent they grant their holders
                            continuing rights therein, and all warrants to
                            purchase Company Common Stock then outstanding (each
                            a "Company Warrant") shall be, in connection with
                               ---------------
                            the Merger, converted into the right to receive a
                            contingent Beneficial Interest provided for in the
                            Trust. Parent shall not assume any Company Option or
                            Company Warrant.

                    (ii)    Notwithstanding the above, in the event a holder of
                            a Company Warrant has not waived its rights with
                            respect to any Company Warrant held by it
                            ("Continuing Warrants") as provided in Section
                              -------------------
                            7.3(d) hereof, the Trustee shall deliver to Parent
                            upon the Calculation Date, as defined below, a
                            number of shares of Parent Common Stock equal to (x)
                            the fair market value of the Continuing Warrants as
                            of the Calculation Day (determined pursuant to the
                            Black-Scholes formula), divided by (y) the Stock
                            Value (as defined below) as of the Calculation Date.

                    (iii)   Parent shall assume such Continuing Warrants and
                            such assumed Continuing Warrants shall continue to
                            have, and be subject to, the same terms and
                            conditions set forth in the respective warrant
                            agreements governing such Continuing Warrant
                            immediately prior to the Effective Time, except that
                            (A) such Continuing Warrant shall be exercisable for
                            that number of whole shares of Parent Common Stock
                            equal to (x) the number of shares of Company Common
                            Stock issuable upon the exercise of such Continuing
                            Warrant, multiplied by (y)

                                                                   Page 4
<PAGE>

                            the number of shares of Parent Common Stock to be
                            received by a holder of one share of Company Common
                            Stock, rounded down to the nearest whole number of
                            shares of Parent Common Stock and (B) the exercise
                            price per share for the shares of Parent Common
                            Stock issuable upon exercise of such Continuing
                            Warrant shall be equal to (x) the exercise price per
                            share of Company Common Stock into which such
                            Continuing Warrant was exercisable immediately prior
                            to the Effective Time, divided by (y) the number of
                            shares of Parent Common stock to be received by a
                            holder of one share of Company Common Stock, rounded
                            up to the nearest whole cent.


                (e) Capital Stock of Merger Sub. Each stock certificate of
                    ---------------------------
                    Merger Sub evidencing ownership of any such shares shall
                    continue to evidence ownership of such shares of capital
                    stock of the Surviving Corporation.

                (f) Fractional Shares. No fraction of a share of Parent Common
                    -----------------
                    Stock will be issued, but in lieu thereof, if the Trust
                    would otherwise be entitled to a fraction of a share of
                    Parent Common Stock (after aggregating all fractional shares
                    of Parent Common Stock to be received by the Trust) shall be
                    entitled to receive, without any interest, from Parent an
                    amount of cash (rounded to the nearest whole cent) equal to
                    the product of (i) such fraction, multiplied by (ii) Closing
                    Date Price.

                (g) Escrow Amount. The "Escrow Amount" shall equal to the sum of
                    -------------       -------------
                    (i) 10% of the Merger Consideration as in effect from time
                    to time and (ii) a number of shares of Parent Common Stock
                    equal to (w) $250,000, divided by (x) the Stock Value as of
                    the Effective Time, with the resultant further divided by
                    (y) the number of shares of Company Common Stock outstanding
                    as of the Effective Time, with the resultant multiplied by
                    (z) the aggregate number of Dissenting Shares held by
                    Dissenting Shareholders, as such terms are defined below.

                (h) Legends. Certificates representing shares of Parent Common
                    -------
                    Stock delivered pursuant to this Section 1.6 shall bear the
                    legend referred to in Section 5.5 hereof.


          1.7 Warrant. In addition to the shares of Parent Common Stock to which
              -------
              the Trust is entitled pursuant to Section 1.6, the Trust shall be
              entitled to receive a warrant (the "Warrant") to acquire an
                                                  -------
              aggregate of 200,000 additional shares of Parent Common Stock, in
              the form set forth in Exhibit C.

          1.8 Contingent Payment of Additional Shares of Parent Common Stock or
              -----------------------------------------------------------------
              of Note; Effect on Capital Stock. In addition to the shares of
              --------------------------------
              Parent Common Stock and the Warrant to which the Trust is entitled
              pursuant to Section 1.6 and Section 1.7, the Trust shall be
              entitled to receive additional shares of Parent Common Stock or
              the Note, as defined below, as provided in this Section 1.8.

                (a) Definitions. For purposes of this Section 1.8 the following
                    -----------
                    terms shall have the meanings indicated below:

                                                                   Page 5
<PAGE>

                    (i)     "Calculation Date" shall mean the earlier of (i)
                             ----------------
                            December 1, 1998 or (ii) the effective date of the
                            filing by the Parent of a registration statement,
                            other than a registration statement filed pursuant
                            to the demand registration rights portion of the
                            Employee Registration Rights Agreement substantially
                            in the form set forth in Exhibit K.

                    (ii)    "Contingent Consideration" shall mean either the
                             ------------------------
                            Contingent Shares or the Note.

                    (iii)   "Contingent Shares" shall mean 250,000 shares of the
                             -----------------
                            Parent's Common Stock (as adjusted for any
                            reclassification, recapitalization, split,
                            combination, stock dividend or the like).

                    (iv)    "Note" shall mean a $3,000,000 installment
                             ----
                            promissory note issued by Parent, substantially in
                            the form set forth in ---- Exhibit D.

                    (v)     "Stock Value" shall mean, with respect to any date,
                             -----------
                            the average of the last reported sale price per
                            share of Parent Common Stock in the market on which
                            it is traded, as reported by The Wall Street Journal
                            for each of the thirty (30) trading days ending on
                            the day immediately preceding such date.

                    (vi)    "Stock Value Fraction" shall mean:
                             --------------------

                    if the Stock Value as of the Calculation Date is $21 or
                    more, 0.0; if the Stock Value as of the Calculation Date is
                    $15 or less, 1.0; otherwise, the value calculated by the
                    formula ($21.00 - Stock Value)/$6.00.


                (b) Contingent Shares. Subject to the provisions of this Section
                    -----------------
                    1.8, as promptly as practicable, but in no event later than
                    30 days, after the Calculation Date:

                    (i)     Parent shall first determine the aggregate number of
                            shares of Parent Common Stock, if any, to be issued
                            or delivered pursuant to this Section 1.8 by
                            multiplying the Contingent Shares by the Company
                            Stock Value Fraction (the "Payable Contingent
                                                       ------------------
                            Shares").
                            ------
                    (ii)    In the event that the Stock Value as of the
                            Calculation Date is equal to or less than $15, the
                            Trust shall, at its option, be entitled to receive
                            the Note from the Parent, in lieu of the Payable
                            Contingent Shares. Such option shall be exercised by
                            written notice provided to Parent no later than 10
                            business days after the Calculation Date. Failure to
                            provide such notice to Parent shall be deemed an
                            election to receive the Note.

                (c) Additional Contingent Shares. Subject to the provisions of
                    ----------------------------
                    this Section 1.8, as promptly as practicable, but in no
                    event later than 30 days, after the Calculation Date,

                                                                   Page 6
<PAGE>

                    Parent shall issue a number of additional shares of Parent
                    Common Stock equal to the excess, if any, of (x) 50,000,
                    over (y) the product of (1) $1,000,000, divided by (2) the
                    Stock Value as of the Calculation Date (the "Additional
                                                                 ----------
                    Contingent Shares")
                    -----------------

                (d) Certificates. Subject to Section 1.10, as promptly as
                    ------------
                    practicable after the completion of the calculations
                    described in Section 1.8(b) and Section 1.8(c) hereof,
                    Parent shall cause its transfer agent (the "Transfer Agent")
                                                                --------------
                    to deliver to the Trust a certificate representing the
                    number of whole shares of Payable Contingent Shares or
                    Additional Contingent Shares, as applicable.

                (e) Fractional Shares. No fractional shares of Parent Common
                    -----------------
                    Stock and no scrip or certificate therefor shall be issued
                    or delivered pursuant to this Section 1.8. Should the Trust
                    be entitled to a fractional share interest in Parent Common
                    Stock pursuant to this Section 1.8, Parent shall pay to the
                    Trust in lieu of such fractional share interest a dollar
                    amount equal to such fraction multiplied by the Stock Value
                    calculated as of the Calculation Date.

                (f) Legends. Certificates representing shares of Parent Common
                    -------
                    Stock delivered pursuant to this Section 1.8 shall bear the
                    legend referred to in Section 5.5 hereof.

                (g) Adjustments. If between the Effective Time and the date of
                    -----------
                    payment of any shares pursuant to this Section 1.8, the
                    outstanding shares of Parent Common Stock shall be changed
                    into a different number of shares by reason of any
                    reclassification, recapitalization, split-up, combination or
                    exchange of shares or if stock dividend thereon shall be
                    declared with a record date within said period, the number
                    of shares of Parent Common Stock to be issued or delivered
                    pursuant to this Section 1.8 shall be correspondingly
                    adjusted.

                (h) Assignability. The right of the Trust to receive Contingent
                    -------------
                    Consideration pursuant to this Section 1.8 may not be
                    assigned or transferred in any manner whatsoever except by
                    operation of law.

                (i) Arbitration. Any dispute, controversy or claim arising in
                    -----------
                    connection with the provisions of this Section 1.8 or the
                    actions, determinations or calculations contemplated thereby
                    shall be settled by arbitration by three arbitrators to be
                    appointed as follows: Parent and the Trust shall each shall
                    select one arbitrator, and the two arbitrators so selected
                    shall select a third arbitrator, each of which arbitrators
                    shall be independent and have at least ten years relevant
                    experience. The arbitrators shall set a limited time period
                    and establish procedures designed to reduce the cost and
                    time for discovery while allowing the parties an
                    opportunity, adequate in the sole judgment of the
                    arbitrators, to discover relevant information from the
                    opposing parties about the subject matter of the dispute.
                    The arbitrators shall rule upon motions to compel or limit
                    discovery and shall have the authority to impose sanctions,
                    including attorneys fees and costs, to the same extent as a
                    court of competent law or equity, should the arbitrators
                    determine that discovery was sought without substantial
                    justification or that discovery was refused or objected to
                    without substantial justification. The decision of

                                                                   Page 7
<PAGE>

                    a majority of the three arbitrators as to the validity and
                    amount of any claim shall be binding and conclusive upon the
                    parties to this Agreement. Such decision shall be written
                    and shall be supported by written findings of fact and
                    conclusions which shall set forth the award, judgment,
                    decree or order awarded by the arbitrators. The expense of
                    the arbitration shall be borne as determined by the
                    arbitrators. Any such arbitration shall be held in New York
                    City and shall be conducted by, and under the commercial
                    rules, then in effect, of the American Arbitration
                    Association.

                (j) Disputed Amounts. In the event that the payment of a portion
                    ----------------
                    of the Contingent Consideration to be paid pursuant to this
                    Section 1.8 is in dispute, the undisputed portion of the
                    Contingent Consideration shall be promptly paid in
                    accordance with the provisions of this Section 1.8 and the
                    disputed portion shall be paid upon resolution of the
                    dispute.


          1.9 Dissenting Shares.
              -----------------

                (a) Notwithstanding any provision of this Agreement to the
                    contrary, any shares of Company Capital Stock ("Dissenting
                                                                    ----------
                    Shares") held by a holder of Company Capital Stock who has
                    ------
                    demanded and perfected dissenters' rights for such shares in
                    accordance with Delaware Law and who, as of the Effective
                    Time, has not effectively withdrawn or lost such dissenters'
                    rights ("Dissenting Shareholder"), shall not be converted
                             ----------------------
                    into or represent a right to receive a portion of the Merger
                    Consideration, but the holder thereof shall only be entitled
                    to such rights as are granted by Delaware Law.

                (b) Notwithstanding the provisions of Section 1.9(a), if any
                    Dissenting Shareholder shall effectively withdraw or lose
                    (through failure to perfect or otherwise) the right to
                    appraisal, then, as of the later of the Effective Time or
                    the occurrence of such event, such Dissenting Shareholder's
                    Dissenting Shares shall automatically be converted into and
                    represent only the right to receive Beneficial Interests,
                    without interest thereon, upon surrender of the certificate
                    representing such shares of Dissenting Shares.

                (c) The Company and the Trust shall give Parent (i) prompt
                    notice of any written demands for appraisal of any shares of
                    Company Capital Stock, withdrawals of such demands, and any
                    other instruments served pursuant to Delaware Law and
                    received by the Company and (ii) the opportunity to
                    participate in all negotiations and proceedings with respect
                    to demands for appraisal under Delaware Law. Parent shall
                    not, except with the prior written consent of the Trust,
                    voluntarily make any payment with respect to any demands for
                    appraisal of Company Capital Stock or offer to settle or
                    settle any such demands.

                (d) In the event that it is determined by in a final
                    nonappealable order of a federal or state court of competent
                    jurisdiction that a Dissenting Shareholder is entitled to a
                    consideration with respect to this Dissenting Shares other
                    than Beneficial Interests, Parent shall pay such Dissenting
                    Shareholder such consideration, the Aggregate Shares of
                    Parent Common Stock shall be reduced by a number of Parent
                    Common Stock

                                                                   Page 8
<PAGE>

                    shares equal to (i) such consideration, divided by (ii)
                    Closing Date Price, and the Trust shall return such number
                    of shares to the Parent.



          1.10  Surrender of Certificates.
                -------------------------

                (a) Trustee as Exchange and Company Securityholders Agent. In
                    -----------------------------------------------------
                    the event that the Merger is approved by Company
                    Securityholders, each Company Securityholder (except any
                    Dissenting Shareholders) by virtue of such approval of this
                    Agreement, will be deemed to have irrevocably constituted
                    and appointed, effective as of the Effective Time and
                    without further act of any Company Securityholder, Robert
                    Brill, Bruns Grayson and Hubertus Vandervoort, as Trustees
                    for the Trust (together with permitted successors, "Merger
                                                                        ------
                    Agent"), his true and lawful agent and attorney-in-fact to
                    -----
                    enter into any agreement in connection with the transactions
                    contemplated by this Agreement, to (i) exercise all or any
                    of the powers, authority and discretion conferred on him
                    under any provision of the Agreement, (ii) waive any terms
                    and conditions of any such agreement on behalf of the
                    Company Securityholders, (iii) give and receive notices and
                    communications on his behalf and to be his exclusive
                    representative with respect to any matter, suit, claim,
                    action or proceeding arising with respect to any transaction
                    contemplated by any this Agreement, including, without
                    limitation, the defense, settlement or compromise of any
                    claim, action or proceeding for which Company or such
                    Company Securityholders may be entitled to indemnification,
                    (iv) authorize delivery to Parent of shares of Parent Common
                    Stock from the Trust assets in satisfaction of claims by
                    Dissenting Shareholders and from the Escrow Fund in
                    satisfaction of claims by Parent, (v) object to the
                    deliveries referred to (iv), above, and (vi) take all
                    actions necessary or appropriate in the judgment of Merger
                    Agent for the accomplishment of the foregoing and the Merger
                    Agent agrees to act as, and to undertake the duties and
                    responsibilities of, such agent and attorney-in-fact.
                    Notices or communications to or from the Merger Agent shall
                    constitute notice to or from each of the Company
                    Securityholders other than the Dissenting Shareholders. A
                    decision, act, consent or instruction of the Merger Agent
                    shall constitute a decision of all the Company
                    Securityholders other than the Dissenting Shareholders and
                    the Trust and shall be final, binding and conclusive upon
                    each of such stockholders, and the Escrow Agent and Parent
                    may rely upon any such decision, act, consent or instruction
                    of the Merger Agent as being the decision, act, consent or
                    instruction of each and every such stockholder of the
                    Company. The Escrow Agent and Parent are hereby relieved
                    from any liability to any Company Securityholder for any
                    acts done by them in reliance on such decision, act, consent
                    or instruction of the Merger Agent.

                (b) Parent to Provide Merger Consideration. As soon as the
                    --------------------------------------
                    Parent is notified by the Trust of its readiness to
                    effectuate a certificate exchange as set forth in this
                    Section and Section 1.10(c), Parent shall cause the Transfer
                    Agent to make the Merger Consideration available to the
                    Merger Agent for exchange in accordance with this Article.

                                                                   Page 9
<PAGE>

                    (i)     At the Effective Time, the Merger Agent shall notify
                            the Parent in writing to which Company
                            Securityholders the Merger Consideration would be
                            paid if the allocation was based on the fair market
                            value of the Merger Consideration at the Effective
                            Time. Parent will deliver the Merger Consideration,
                            other than the portion thereof attributable to the
                            Contingent Consideration ("Non-Contingent Merger
                                                       ---------------------
                            Consideration") on the Effective Time as follows:
                            -------------
                            (1) to the Escrow Agent, the Escrow Amount (other
                            than the portion thereof attributable to 10% of the
                            Contingent Merger Consideration); (2) to the Trust,
                            the excess of (x) the Non-Contingent Merger
                            Consideration, over (y) the amount delivered to the
                            Escrow Agent pursuant to the immediately preceding
                            subparagraph "(1)", multiplied by a fraction (x) the
                            numerator of which is the portion of the
                            Non-Contingent Merger Consideration to be paid to
                            the Company Securityholders whose Company Capital
                            Shares are delivered to the Transfer Agent
                            ("Delivered Securityholders") and (y) the
                              -------------------------
                            denominator of which is the sum of (a) the portion
                            of the Non-Contingent Merger Consideration payable
                            to the Delivered Securityholders and (b) the portion
                            which would have been paid to Company
                            Securityholders whose Company Capital Shares were
                            not so delivered ("Undelivered Securityholders") if
                                               ---------------------------
                            such Company Capital Shares had been so delivered;
                            and (3) the balance (the "Retained Merger
                                                      ---------------
                            Consideration") to the Transfer Agent to be held for
                            -------------
                            the Undelivered Securityholders pending receipt of
                            the underlying Company Securityholders' Company
                            Capital Shares.

                    (ii)    At the Calculation Date, the Merger Agent shall
                            notify the Parent in writing to which Company
                            Securityholders, and what portion of, the Merger
                            Consideration would be paid if the allocation was
                            based on the fair market value of the Merger
                            Consideration at the Calculation Date. The Parent
                            shall, subject to Section 8.2, deliver to the Trust
                            within five (5) days of receipt of such
                            notification, the portion of the Contingent
                            Consideration allocable to Delivered
                            Securityholders. Subject to Section 1.10(c), the
                            Transfer Agent shall also deliver the portion of the
                            Retained Merger Consideration attributable to
                            Undelivered Securityholders who become Delivered
                            Securityholders following the delivery referred to
                            in Section 1.10(b)(i). The Transfer Agent shall
                            deliver to the Escrow Agent any portion of the
                            Contingent Merger Consideration required to be paid
                            to the Escrow Agent pursuant to Section 8.2.

                    (iii)   The Merger Agent shall not distribute to the Company
                            Securityholders, any of the Merger Consideration
                            prior to the Calculation Date; provided, however,
                                                           --------  -------
                            that the Merger Agent may distribute a portion
                            thereof to a Dissenting Shareholder or a Company
                            Securityholder in settlement of any claims such
                            persons may have with respect to the Trustee's
                            computation of their Beneficial Interest or acts of
                            the Company's directors, upon such Company
                            Securityholders' tendering of their Company Capital
                            Shares.


                (c) Exchange Procedures.
                    -------------------

                                                                  Page 10
<PAGE>

                    (i)     Subject to subsection (b) above, the Merger Agent
                            shall from time to time deliver written notice to
                            the Transfer Agent, accompanied with certificates of
                            Parent Common Stock registered in its name,
                            directing that Certificates of Parent Common Stock
                            be issued and delivered to holder of Beneficial
                            Interests. As soon as practical after the delivery
                            of such shares of Parent Common Stock to the
                            Transfer Agent, the Transfer Agent shall deliver
                            Certificates to the person(s) designated by the
                            Merger Agent and deliver to the Merger Agent any
                            remaining shares of Parent Common Stock represented
                            by the Certificates delivered by the Merger Agent.

                    (ii)    After the termination of the Trust, an Undelivered
                            Securityholder shall be required to tender his
                            shares of Company Capital Stock to the Transfer
                            Agent in order to receive the portion of the Merger
                            Consideration to which it is entitled.

                    (iii)   Until so surrendered, each outstanding Certificate
                            that, prior to the Effective Time, represented
                            shares of Company Capital Stock will be deemed from
                            and after the Effective Time, for all corporate
                            purposes, evidence of the ownership of the
                            Beneficial Interest into which such shares of
                            Company Capital Stock shall have been so converted
                            and the right to receive an amount in cash in lieu
                            of the issuance of any fractional share in
                            accordance with Section 1.6.

                (d) Distributions With Respect to Unexchanged Shares. No
                    ------------------------------------------------
                    dividends or other distributions declared or made after the
                    Effective Time with respect to Parent Common Stock with a
                    record date after the Effective Time will be paid to the
                    holder of any unsurrendered Certificate with respect to the
                    shares of Parent Common Stock represented thereby until the
                    holder of record of such Certificate shall surrender such
                    Certificate in accordance with Sections 1.10(b) and 1.10(c).
                    Subject to applicable law, following surrender of any such
                    Certificate and in addition to shares and/or cash entitled
                    to such holder under Sections 1.10(b) and 1.10(c), there
                    shall be paid to the record holder of the certificates
                    representing whole shares of Parent Common Stock issued in
                    exchange therefor, without interest, at the time of such
                    surrender, the amount of dividends or other distributions
                    with a record date after the Effective Time theretofore paid
                    with respect to such whole shares of Parent Common Stock.

                (e) Transfers of Ownership. If any certificate for Beneficial
                    ----------------------
                    Interests or for shares of Parent Common Stock is to be
                    issued in a name other than that in which the certificate
                    surrendered in exchange therefor is registered, it will be a
                    condition of the issuance thereof that the certificate so
                    surrendered will be properly endorsed and otherwise in
                    proper form for transfer and that the person requesting such
                    exchange will have paid to Parent or any agent designated by
                    it any transfer or other taxes required by reason of the
                    issuance of a certificate for shares of Parent Common Stock
                    in any name other than that of the registered holder of the
                    certificate surrendered, or established to the satisfaction
                    of Parent or any agent designated by it that such tax has
                    been paid or is not payable.

                                                                  Page 11
<PAGE>

                (f) No Liability. Notwithstanding anything to the contrary in
                    ------------
                    this Section 1.10, none of the Merger Agent, the Surviving
                    Corporation or any party hereto shall be liable to a holder
                    of shares of Parent Common Stock or Company Capital Stock
                    for any amount properly paid to a public official pursuant
                    to any applicable abandoned property, escheat or similar
                    law.

                (g) Right to Vote. The Trust shall have the right to vote the
                    -------------
                    shares of Parent Common Stock in the name of the Trust and
                    the Escrow Agent.


          1.11  No Further Ownership Rights in Company Capital Stock. The Merger
                ----------------------------------------------------
              Consideration issued upon the surrender for exchange of shares of
              Company Capital Stock in accordance with the terms hereof
              (including any cash paid in respect thereof) shall be deemed to
              have been issued in full satisfaction of all rights pertaining to
              such shares of Company Capital Stock and there shall be no further
              registration of transfers on the records of the Surviving
              Corporation of shares of Company Capital Stock which were
              outstanding immediately prior to the Effective Time. If, after the
              Effective Time, Certificates are presented to the Surviving
              Corporation for any reason, they shall be canceled and exchanged
              as provided in this Article I.


          1.12  Lost, Stolen or Destroyed Certificates. In the event any
                --------------------------------------
              certificate evidencing shares of Company Capital Stock shall have
              been lost, stolen or destroyed, the Merger Agent shall issue in
              exchange for such lost, stolen or destroyed certificate, upon the
              making of an affidavit of that fact by the holder thereof, such
              shares of Parent Common Stock and cash for fractional share, if
              any, as may be required pursuant to Section 1.6; provided,
              however, that Parent may, in its discretion and as a condition
              precedent to the issuance thereof, require the owner of such lost,
              stolen or destroyed certificate to deliver such indemnification as
              it may reasonably direct as indemnity against any claim that may
              be made against Parent or the Merger Agent with respect to the
              certificate alleged to have been lost, stolen or destroyed.


          1.13  Withholding Rights. Parent or the Merger Agent shall be entitled
                ------------------
              to deduct and withhold from the Merger Consideration such amounts
              as Parent or the Merger Agent may be required to deduct and
              withhold with respect to any provision of Federal, state, local or
              foreign tax laws. To the extent that amounts are so withheld by
              Parent or the Merger Agent, such withheld amounts shall be treated
              for all purposes of this Agreement as having been paid to the
              holder of the Shares in respect of which such deduction and
              withholding was made by Parent or the Merger Agent.


          1.14  Tax Consequences; Exemption from Registration. It is intended by
                ----------------
              the parties hereto that (i) the Merger shall constitute a
              reorganization within the meaning of Section 368(a) of the Code
              and (ii) the Parent Common Stock to be issued in the Merger will
              be issued in a transaction exempt from registration under the
              Securities Act by reason of Rule 506 promulgated thereunder and in
              reliance on the representation made by certain Company
              Securityholders that such Company Securityholders are "accredited
              investors" as that term is defined in rules promulgated under the
              Securities Act.

                                                                  Page 12
<PAGE>

          1.15  Taking of Necessary Action; Further Action. If, at any time
                ------------------------------------------
              after the Effective Time, any such further action is necessary or
              desirable to carry out the purposes of this Agreement and to vest
              the Surviving Corporation with full right, title and possession to
              all assets, property, rights, privileges, powers and franchises of
              the Company and Merger Sub, the officers and directors of the
              Company and Merger Sub are fully authorized in the names of their
              respective corporations or otherwise to take, and will take, all
              such lawful and necessary action.



                                       2

                                   ARTICLE II


         REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND OF THE TRUST


The Company hereby represents and warrants to Parent and Merger Sub that:


          2.1 Organization, Standing and Power. The Company is a corporation
              --------------------------------
              duly organized, validly existing and in good standing under the
              laws of the State of Delaware. The Company has the corporate power
              to own its properties and to carry on its business as now being
              conducted. Except as set forth in Schedule 2.1, the Company is
              duly qualified to do business and in good standing as a foreign
              corporation in each jurisdiction in which the failure to be so
              qualified would have a material adverse effect on the assets
              (including intangible assets), financial condition, results of
              operations or business (hereinafter referred to as a "Material
                                                                    --------
              Adverse Effect") of the Company. The Company has delivered a true
              --------------
              and correct copy of its Certificate of Incorporation and Bylaws,
              each as amended to date, to Parent.


          2.2 Company Capital Structure.
              -------------------------

                (a) The authorized capital stock of the Company consists of
                    17,500,000 shares of authorized Common Stock, $0.01 par
                    value, of which 2,032,065 shares are issued and outstanding
                    and 7,213,329 shares of authorized Preferred Stock, $0.10
                    par value. The authorized Preferred Stock consists of
                    1,000,000 shares designated as Series A Preferred Stock, of
                    which 1,000,000 are issued and outstanding, 2,133,775 shares
                    designated as Series B Preferred Stock, all of which are
                    issued and outstanding, 424,364 shares designated as Series
                    B-1 Preferred Stock, all of which are issued and
                    outstanding, 2,542,036 shares designated as Series C
                    Preferred Stock, of which 2,359,279 are issued and
                    outstanding, 78,654 shares designated as Series C-1
                    Preferred Stock, all of which are issued and outstanding and
                    1,034,500 shares designated as Series D Preferred Stock, of
                    which 947,692 are issued and outstanding. The Company
                    Capital Stock is held of record by the persons, with the
                    addresses of record and in the

                                                                  Page 13
<PAGE>

                    amounts set forth on Schedule 2.2(a). All outstanding shares
                    of Company Capital Stock are duly authorized, validly
                    issued, fully paid and non-assessable and not subject to
                    preemptive rights created by statute, the Certificate of
                    Incorporation or Bylaws of the Company or any agreement to
                    which the Company is a party or by which it is bound.

                (b) The Company has reserved 2,536,465 shares of Common Stock
                    for issuance to employees and consultants pursuant to the
                    Option Plan, of which 2,018,611 shares are subject to
                    outstanding, unexercised options and 444,104 shares remain
                    available for future grant. Schedule 2.2(b) sets forth for
                    each outstanding Company Option the name of the holder of
                    such option, the state in which each such holder is
                    domiciled, the number of shares of Common Stock subject to
                    such option, the exercise price of such option, including
                    the extent vested to date and whether the exercisability of
                    such option will be accelerated and become exercisable by
                    the transactions contemplated by this Agreement. Except as
                    described in Schedule 2.2(b), there are no options,
                    warrants, calls, rights, commitments or agreements of any
                    character, written or oral, to which the Company is a party
                    or by which it is bound obligating the Company to issue,
                    deliver, sell, repurchase or redeem, or cause to be issued,
                    delivered, sold, repurchased or redeemed, any shares of the
                    capital stock of the Company. Except as described in
                    Schedule 2.2(b), there are no options, warrants, calls,
                    rights, commitments or agreements of any character, written
                    or oral, to which the Company is a party or by which it is
                    bound obligating the Company to grant, extend, accelerate
                    the vesting of, change the price of, otherwise amend or
                    enter into any such option, warrant, call, right, commitment
                    or agreement. The holders of Company Options or any other
                    options or rights set forth in Schedule 2.2(b) have been or
                    will be given, or shall have properly waived, any required
                    notice prior to the Merger. As a result of the Merger,
                    Parent will be the record and sole beneficial owner of all
                    Company Capital Stock and rights to acquire or receive
                    Company Capital Stock.


          2.3 Subsidiaries. Except as set forth in Schedule 2.3, the Company
              ------------
              does not have and has never had any subsidiaries or affiliated
              companies and does not otherwise own and has never otherwise owned
              any shares of capital stock or any interest in, or controlled,
              directly or indirectly, any other corporation, partnership,
              association, joint venture or other business entity.


          2.4 Authority. Subject only to the requisite approval of the Merger by
              ---------
              the Company Securityholders, the Company has all requisite
              corporate power and authority to enter into this Agreement and to
              consummate the transactions contemplated hereby. The vote required
              of the Company Securityholders to duly approve the Merger is 60%
              of the aggregate number of outstanding shares of Company Common
              Stock and of the Company Preferred Series (other than the Company
              Series E), voting together as one class (with each share of
              Company Preferred Series being entitled to a number of votes equal
              to the number of whole shares of Common Stock into which such
              share of Company Preferred Series could be converted on the record
              date for the vote). The execution and delivery of this Agreement
              and the consummation of the transactions contemplated hereby have
              been duly authorized by all necessary corporate action on the part
              of the Company, subject only to

                                                                  Page 14
<PAGE>

              the approval of the Merger by the Company Securityholders. The
              Company's Board of Directors has approved the Merger and this
              Agreement. This Agreement has been duly executed and delivered by
              the Company and constitutes the valid and binding obligation of
              the Company, enforceable in accordance with its terms subject to
              applicable bankruptcy, insolvency, reorganization, liquidation,
              moratorium or other similar laws relating or affecting the rights
              of creditors generally and the effect or availability of rules of
              law governing specific performance, injunctive relief and other
              equitable remedies. Except as set forth on Schedule 2.4, subject
              only to the approval of the Merger by the Company Securityholders,
              the execution and delivery of this Agreement and the related
              agreements attached as exhibits hereto by the Company do not, and,
              as of the Effective Time, the performance and consummation of the
              transactions contemplated hereby and thereby will not, conflict
              with, or result in any violation of, or default under, (with or
              without notice or lapse of time, or both), or give rise to a right
              of termination, cancellation, forfeiture, or acceleration of any
              obligation or loss of any benefit under, or result in the creation
              of a lien or encumbrance on any of the properties or assets of
              Company (any such event, a "Conflict") pursuant to (i) any
                                          --------
              provision of the Certificate of Incorporation or Bylaws of the
              Company or (ii) any mortgage, indenture, lease, contract or other
              agreement or instrument, permit, concession, franchise, license,
              judgment, order, decree, statute, law, ordinance, rule or
              regulation applicable to the Company or its properties or assets
              other than any such conflict, violation or default which would not
              have a Material Adverse Effect on the Company, which
              representation and warranty is limited to the Actual Knowledge (as
              defined below) of the Company for purposes of Article VIII. No
              consent, waiver, approval, order or authorization of, or
              registration, declaration or filing with any third party (so as
              not to trigger any Conflict) or, to the Company's knowledge, with
              any court, administrative agency or commission or other federal,
              state, county, local or foreign governmental authority,
              instrumentality, agency or commission ("Governmental Entity"), is
                                                      -------------------
              required by or with respect to the Company in connection with the
              execution and delivery of this Agreement or the consummation of
              the transactions contemplated hereby, except for (i) the filing of
              the Certificate of Merger with the Delaware Secretary of State and
              the filing of other appropriate documents with the relevant
              authorities of other jurisdictions in which the Company is
              qualified to do business, (ii) such filings and proceedings as
              shall be necessary or appropriate to enable the shares of Parent
              Common Stock to be issued, as contemplated by this Agreement,
              pursuant to an exemption from the registration requirements of the
              Securities Act and such other consents, waivers, approvals,
              orders, authorizations, registrations, declarations and filings as
              may be required under applicable federal and state securities
              laws, (iii) the rights of Dissenting Shareholders, (iv) such other
              consents, waivers, authorizations, filings, approvals and
              registrations the absence of which would not have a Material
              Adverse Effect on the Company and (v) such other consents,
              waivers, authorizations, filings, approvals and registrations
              which are set forth on Schedule 2.4, which representation and
              warranty is limited to the Actual Knowledge of the Company for
              purposes of Article VIII.


          2.5 Company Financial Statements. Schedule 2.5 sets forth the
              ----------------------------
              Company's unaudited balance sheet as of December 31, 1997
              ("Balance Sheet Date") and the related unaudited statements of
                ------------------
              operations and cash flows for the 12-month period then ended and
              the Company's audited balance sheet as of December 31, 1996 (the
              "Balance Sheet") and the related audited statements of operations
               -------------
              and cash flows for the twelve-month period then ended
              (collectively, the "Company Financials"), except as set forth in
                                  ------------------
              Schedule 2.5. The Company Financials have been prepared in
              accordance


                                                                  Page 15
<PAGE>

              with generally accepted accounting principles ("GAAP") applied on
                                                              ----
              a basis consistent throughout the periods indicated and consistent
              with each other subject, in the case of the unaudited Company
              Financials to normal year-end closing and audit adjustments and
              the absence of footnotes related thereto (which are not material,
              either individually or in the aggregate). The Company Financials
              present fairly the financial condition and operating results of
              the Company as of the dates and during the periods indicated
              therein, subject, in the case of the unaudited financial
              statements, to normal year-end adjustments, which will not be
              material in amount or significance, which representation and
              warranty is limited, except to the extent it relates to Company
              Intellectual Property, to the Actual Knowledge of the Company for
              purposes of Article VIII.

          2.6 No Undisclosed Liabilities.  Except as set forth in Schedule 2.6
              --------------------------
              and as contemplated by this Agreement, and limited to the Actual
              Knowledge of the Company for purposes of Article VIII, the Company
              does not have any liability, indebtedness, obligation, expense,
              claim, deficiency, guaranty or endorsement of any type, whether
              accrued, absolute, contingent, matured or unmatured whether or not
              required to be reflected in a balance sheet in accordance with
              generally accepted accounting principles, which individually
              exceed $5,000 or in the aggregate exceed $15,000, and (i) has not
              been reflected in the Balance Sheet, or (ii) has not arisen in the
              ordinary course of the Company's business since the Balance Sheet
              Date consistent in nature and amount with past practices.

          2.7 No Changes.  Except as set forth in Schedule 2.7, and limited to
              ----------
              the Actual Knowledge of the Company for purposes of Article VIII,
              since the Balance Sheet Date, there has not been, occurred or
              arisen any:

                (a) transaction by the Company except in the ordinary course of
                    business as conducted on that date and consistent with past
                    practices;

                (b) amendments or changes to the Certificate of Incorporation or
                    Bylaws of the Company;

                (c) capital expenditure or commitment for capital expenditure by
                    the Company of $5,000 in any individual case or $15,000 in
                    the aggregate not otherwise disclosed in writing to Parent;

                (d) destruction of, damage to or loss of any material assets,
                    business or customer of the Company (whether or not covered
                    by insurance) that would have a Material Adverse Effect;

                (e) strike, work stoppage, or claim of wrongful discharge or
                    other unlawful labor practice or action;

                (f) change in accounting methods or practices (including any
                    change in depreciation or amortization policies or rates) by
                    the Company except to the extent such change was requested
                    by Parent with respect to, among other things, the software
                    revenue recognition rules pursuant to SOP 97-2;

                                                                   Page 16
<PAGE>

                (g) revaluation by the Company of any of its assets, including
                    without limitation, writing down the value of inventory or
                    writing off notes or accounts receivable other than in the
                    ordinary course of business;

                (h) declaration, setting aside or payment of a dividend or other
                    distribution with respect to the capital stock of the
                    Company, or any direct or indirect redemption, purchase or
                    other acquisition by the Company of any of its capital stock
                    except repurchases of unvested capital stock under the
                    Company Option Plan;

                (i) increase in the salary or other compensation payable or to
                    become payable by the Company to any of its officers,
                    directors, employees or advisors, or the declaration,
                    payment or commitment or obligation of any kind for the
                    payment, by the Company, of a bonus or other additional
                    salary or compensation to any such person, except, in each
                    case, to employees who are not officers or directors of the
                    Company in the ordinary course of business and except as
                    otherwise contemplated by this Agreement and to severance
                    payments made in connection with this Agreement in with the
                    consent of Parent;

                (j) sale, lease, license or other disposition of any of the
                    assets or properties of the Company, except in the ordinary
                    course of business as conducted on that date and consistent
                    with past practices;

                (k) transfer to any person or entity any rights to the Company
                    Intellectual Property Rights (as defined in Section 2.11(a)
                    below) other than licensing of Company Intellectual Property
                    Rights in the ordinary course of business;

                (l) amendment or termination of any material contract, agreement
                    or license to which the Company is a party or by which it is
                    bound, which amendments or terminations have not been
                    specifically disclosed to Parent;

                (m) the loan by the Company to any person or entity or the
                    incurring by the Company of any indebtedness, the
                    guaranteeing by the Company of any indebtedness, issuance or
                    sale of any debt securities of the Company or guaranteeing
                    of any debt securities of others, except for advances to
                    employees for travel and business expenses in the ordinary
                    course of business, consistent with past practices;

                (n) waiver or release of any right or claim of the Company,
                    including any write-off or other compromise of any account
                    receivable of the Company other than such waiver or lease
                    made in the ordinary course of business and without a
                    Material Adverse Effect on the Company;

                (o) commencement or notice or threat of commencement of any
                    lawsuit or proceeding against or investigation of the
                    Company or its affairs;

                (p) notice of any claim of ownership by a third party of the
                    Company Intellectual Property Rights or of infringement by
                    the Company of any third party's intellectual property

                                                                   Page 17
<PAGE>

                    rights;

                (q) issuance or sale by the Company of any of its shares of
                    capital stock, or securities exchangeable, convertible or
                    exercisable therefor, or of any other of its securities,
                    except to employees in connection with the issuance,
                    amendment or exercise of any stock options under the
                    Company's Option Plan or Company Warrants or the issuance of
                    the Company Series E;

                (r) any agreements pursuant to which any other party is granted
                    marketing, distribution or similar rights of any type or
                    scope with respect to any products of the Company;

                (s) event or condition of any character that has or reasonably
                    would be expected to have a Material Adverse Effect on the
                    Company other than revenue fluctuations in the ordinary
                    course of business, the incurrence of Merger related
                    expenses (including related severance payments to Company
                    employees as agreed to with Parent); or

                (t) agreement by the Company or any officer or employees thereof
                    to do any of the things described in the preceding clauses
                    (a) through (s) (other than as contemplated in the
                    negotiations with Parent and its representatives regarding
                    the transactions, including but not limited to payments of
                    severance to employees of the Company, contemplated by this
                    Agreement).


          2.8 Tax and Other Returns and Reports.
              ---------------------------------

                (a) Definition of Taxes. For the purposes of this Agreement,
                    -------------------
                    "Tax" or, collectively, "Taxes", means any and all federal,
                     ---                     -----
                    state, local and foreign taxes, assessments and other
                    governmental charges, duties, impositions and liabilities,
                    including taxes based upon or measured by gross receipts,
                    income, profits, sales, use and occupation, and value added,
                    ad valorem, transfer, franchise, withholding, payroll,
                    recapture, employment, excise and property taxes, together
                    with all interest, penalties and additions imposed with
                    respect to such amounts and any obligations under any
                    agreements or arrangements with any other person with
                    respect to such amounts and including any liability for
                    taxes of a predecessor entity.

                (b) Tax Returns and Audits. Except as set forth in Schedule 2.8:
                    ----------------------

                    (i)     The Company as of the Effective Time will have
                            prepared and filed all required federal, state,
                            local and foreign returns, estimates, information
                            statements and reports ("Returns") otherwise due
                                                     -------
                            relating to any and all Taxes concerning or
                            attributable to the Company or its operations, and
                            such Returns have been completed in accordance with
                            applicable law.

                    (ii)    The Company as of the Effective Time: (A) will have
                            paid or accrued all Taxes it is required to pay or
                            accrue and (B) will have withheld with respect to
                            its employees all federal and state income taxes,
                            FICA, FUTA and other Taxes

                                                                   Page 18
<PAGE>

                            required to be withheld.

                    (iii)   The Company is not currently delinquent in the
                            payment of any Tax and has not been delinquent in
                            the payment of any Tax during the three (3) years
                            preceding the date of this Agreement nor is there
                            any Tax deficiency outstanding, proposed or assessed
                            against the Company, nor has the Company executed
                            any waiver of any statute of limitations on or
                            extending the period for the assessment or
                            collection of any Tax.

                    (iv)    No audit or other examination of any Return of the
                            Company is presently in progress, nor has the
                            Company been notified of any request for such an
                            audit or other examination.

                    (v)     The Company does not have any liabilities for unpaid
                            federal, state, local and foreign Taxes which have
                            not been accrued or reserved against in accordance
                            with GAAP on the Balance Sheet, whether asserted or
                            unasserted, contingent or otherwise, and the Company
                            has no knowledge of any basis for the assertion of
                            any such liability attributable to the Company, its
                            assets or operations.

                    (vi)    The Company has provided to Parent copies of all
                            federal and state income and all state sales and use
                            Tax Returns for all periods since January 1, 1994.

                    (vii)   There are (and as of immediately following the
                            Closing there will be) no liens, pledges, charges,
                            claims, security interests or other encumbrances of
                            any sort ("Liens") on the assets of the Company
                                       -----
                            relating to or attributable to Taxes, other than
                            Liens for Taxes not yet due and payable.

                    (viii)  None of the Company's assets is treated as
                            "tax-exempt use property" within the meaning of
                            Section 168(h) of the Code.

                    (ix)    Immediately prior to the Effective Time, there will
                            not be any contract, agreement, plan or arrangement,
                            including but not limited to the provisions of this
                            Agreement, covering any employee or former employee
                            of the Company that, individually or collectively,
                            could give rise to the payment of any amount that
                            would not be deductible pursuant to Section 280G or
                            162 of the Code.

                    (x)     Schedule 2.8 contains, which representation and
                            warranty is limited to the Actual Knowledge of the
                            Company for purposes of Article VIII, an accurate
                            and complete descriptions of Company's basis in its
                            assets, its current and accumulated earnings and
                            profits, its tax carryovers and its tax elections
                            which representation and warranty is deemed complied
                            with for purposes of Article VIII except to the
                            extent the Company has failed to disclose relevant
                            information to the Parent. Schedule 2.8 contains,
                            which representation and warranty is limited to the
                            Actual Knowledge of the Company for purposes of
                            Article VIII, a list of net operating losses or
                            other tax attributes subject, immediately prior to
                            the Effective Time, to limitation under Sections
                            269, 382,

                                                                   Page 19
<PAGE>

                            383 or 384 of the Code.

                    (xi)    The Company has not filed any consent agreement
                            under Section 341(f) of the Code or agreed to have
                            Section 341(f)(2) of the Code apply to any
                            disposition of a subsection (f) asset (as defined in
                            Section 341(f)(4) of the Code) owned by the Company.

                    (xii)   The Company is not a party to a tax sharing or
                            allocation agreement nor does the Company owe any
                            amount under any such agreement.

                    (xiii)  The Company is not, and has not been at any time, a
                            "United States real property holding corporation"
                            within the meaning of Section 897(c)(2) of the Code.


          2.9 Restrictions on Business Activities.  Except as set forth on
              -----------------------------------
              Schedule 2.9 and as otherwise required by applicable law, and
              limited to the Actual Knowledge of the Company for purposes of
              Article VIII, there is no agreement (noncompete or otherwise),
              judgment, injunction, order or decree to which the Company is a
              party or otherwise binding upon the Company which has or
              reasonably would be expected to have the effect of prohibiting or
              materially impairing any business practice of the Company, any
              acquisition of property (tangible or intangible) by the Company or
              the conduct of business by the Company. Without limiting the
              foregoing, the Company has not entered into any agreement under
              which the Company is restricted from selling, licensing or
              otherwise distributing any of its products to any class of
              customers, in any geographic area, during any period of time or in
              any segment of the market.


          2.10  Title to Properties; Absence of Liens and Encumbrances.
                ------------------------------------------------------

                (a) The Company owns no real property, nor has it ever owned any
                    real property. Schedule 2.10(a) sets forth a list of all
                    real property currently leased by the Company, the name of
                    the lessor and the date of the lease and each amendment
                    thereto. Except as set forth in Schedule 2.10, all such
                    current leases are in full force and effect, are valid and
                    effective in accordance with their respective terms, and
                    there is not, under any of such leases, any material
                    existing default or event of default (or event which with
                    notice or lapse of time, or both, would constitute a
                    material default).

                (b) The Company has, which representation and warranty is
                    limited to the Actual Knowledge of the Company for purposes
                    of Article VIII, good and valid title to, or, in the case of
                    leased properties and assets, valid leasehold interests in,
                    all of its tangible properties and tangible assets, real,
                    personal and mixed, used or held for use in its business,
                    free and clear of any Liens, except as reflected in the
                    Company Financials or in Schedule 2.10(b) and except for
                    liens for Taxes not yet due and payable and such
                    imperfections of title and encumbrances, if any, which are
                    not material in character, amount or extent, and which do
                    not materially detract from the value, or materially
                    interfere with the present use, of the property subject
                    thereto or affected thereby.

                                                                   Page 20
<PAGE>

          2.11  Intellectual Property.
                ---------------------

                (a) The Company owns, or is licensed or otherwise possesses
                    valid rights to use all patents that are used in the
                    business of the Company as currently conducted. The Company
                    owns or is licensed or otherwise possesses valid rights to
                    use (i) all copyrights, and any applications therefor,
                    technology, know-how, computer software programs,
                    development tools or applications (in both source code and
                    object code form), and tangible or intangible proprietary
                    information or material that are used in the business of the
                    Company as currently conducted by the Company and (ii) all
                    trademarks, tradenames and service marks and any
                    applications therefor, in either case which are material to
                    the business of the Company as currently conducted (all of
                    the foregoing, including the patents, are collectively
                    referred to as the "Company Intellectual Property Rights").
                                        ------------------------------------

                (b) Schedule 2.11(b) sets forth a complete list of all patents,
                    registered and material unregistered trademarks, registered
                    and unregistered copyrights, trade names and service marks,
                    and any applications therefor, included in the Company
                    Intellectual Property Rights, and specifies, where
                    applicable, the jurisdictions in which each such Company
                    Intellectual Property Right has been issued or registered or
                    in which an application for such issuance and registration
                    has been filed, including the respective registration or
                    application numbers and the names of all registered owners.
                    Schedule 2.11(b) sets forth a complete list of all material
                    licenses, sublicenses and other agreements to which the
                    Company is a party and pursuant to which the Company or any
                    other person is authorized to use any Company Intellectual
                    Property Right (excluding object code end-user licenses
                    granted to end-users in the ordinary course of business that
                    permit use of software products without a right to modify,
                    distribute or sublicense the same ("End-User Licenses")) or
                                                        -----------------
                    trade secret of the Company (and, specifically designating
                    the agreements pursuant to which any party is granted a
                    source code license by the Company), and includes the
                    identity of all parties thereto. The execution and delivery
                    of this Agreement by the Company, and the consummation of
                    the transactions contemplated hereby, will neither cause the
                    Company to be in violation or default under any such
                    license, sublicense or agreement, entitle any other party to
                    any such license, sublicense or agreement to terminate or
                    modify such license, sublicense or agreement nor cause the
                    release of the source code form of any item of Company
                    Intellectual Property Rights to any third party.

                (c) Except as set forth in Schedule 2.11(c), there are no
                    outstanding options, licenses or agreements of any kind
                    relating to any Company Intellectual Property Rights held by
                    any third party (other than End-User Licenses), nor is the
                    Company bound by or a party to any options, licenses or
                    agreements of any kind with respect to the patents, trade
                    secrets, know-how, processes, trademarks, service marks,
                    trade names, copyrights, licenses, information, proprietary
                    rights or other rights of any other person or entity.

                                                                   Page 21
<PAGE>

                (d) Except with respect to the persons set forth in Schedule
                    2.11(d) to the extent specifically set forth therein, each
                    item of such Company Intellectual Property rights has been
                    created, conceived of, reduced to practice or developed by
                    employees or contractors of Company who have assigned their
                    rights in such Company Intellectual Property Rights to
                    Company. Except with respect to the persons set forth in
                    Schedule 2.11(d) to the extent specifically set forth
                    therein, Company has taken what it believes to be reasonable
                    actions to protect the confidentiality of the confidential
                    Company Intellectual Property Rights and the enforceability
                    of any trade secrets with respect thereto, (the parties
                    hereto agreeing that the failure of the Company's employees
                    set forth in Schedule 2.11(d) to sign confidentiality
                    agreements is not an unreasonable action hereunder)
                    including without limitation and as appropriate in each
                    instance, the acquisition of written non disclosure
                    agreements from those parties to whom Company has made an
                    authorized disclosure and who would not otherwise have a
                    common law or other legal duty or obligation of
                    non-disclosure. In addition, Company has taken steps
                    reasonably calculated to protect the confidentiality of
                    other Company Intellectual Property Rights owned by Company
                    which are not generally available to the public or customers
                    of the Company (the parties hereto agreeing that the failure
                    of the Company's employees set forth in Schedule 2.11(d) to
                    sign Confidentiality Agreement is not an unreasonable action
                    hereunder). Except as disclosed in Schedule 2.11(d), each
                    employee of and consultant to the Company has executed a
                    proprietary information and inventions agreement and a
                    nondisclosure agreement substantially in the Company's
                    standard form. Except as disclosed on Schedule 2.11(d) to
                    the best of Company's acknowledge, no party that has signed
                    a proprietary information and inventions agreement or
                    nondisclosure agreement is in violation of the
                    confidentiality provisions of that agreement.

                (e) Schedule 2.11(e) identifies each license, sublicense,
                    agreement, permission and right to use granted by a third
                    party to Company of any Company Intellectual Property
                    Rights, other than end-user licenses related to "off the
                    shelf" commercial, business or engineering application
                    software products not incorporated in any way in any product
                    licensed, sold, developed or being developed by or for
                    Company ("Third Party Licenses"). Company has provided
                              --------------------
                    Parent with copies of all Third Party Licenses. Except as
                    disclosed on Schedule 2.11(e), Company is not contractually
                    liable, nor has it made any contract or arrangement whereby
                    it may become liable, to any Person for any royalty or other
                    consideration for the use of any Company Intellectual
                    Property Rights.

                (f) All computer software included in the Company Intellectual
                    Property Rights is year 2000 compliant (that is, (i) it is
                    capable, to the extent called for, of correctly processing,
                    providing and receiving data within and between the 20th and
                    21st centuries (including accounting for all required leap
                    year calculations) and (ii) all date fields therein use four
                    (4) digit year fields).

                (g) No claims with respect to the Company Intellectual Property
                    Rights have been asserted to the Company or are, to the
                    Company's knowledge, threatened by any person, nor, to the
                    Company's knowledge, are there any valid grounds for any
                    bona fide claims (i) to the effect that the manufacture,
                    sale, licensing or use of any of the products of the

                                                                   Page 22
<PAGE>

                    Company infringes on any copyright, patent, trademark,
                    service mark, trade secret or other proprietary right, (ii)
                    against the use by the Company of any trademarks, service
                    marks, trade names, trade secrets, copyrights, patents,
                    technology, know-how or computer software programs and
                    applications used in the Company's business as currently
                    conducted, or (iii) challenging the ownership by the
                    Company, validity or effectiveness of any of the Company
                    Intellectual Property Rights. All registered trademarks,
                    service marks and copyrights held by the Company are valid
                    and subsisting. To the Company's knowledge, the business of
                    the Company as currently conducted has not and does not
                    infringe on any proprietary right of any third party. To the
                    Company's knowledge, there is no unauthorized use,
                    infringement or misappropriation of any of the Company
                    Intellectual Property Rights by any third party, including
                    any employee or former employee of the Company. No Company
                    Intellectual Property Right or product of the Company or any
                    of its subsidiaries, which representation and warranty is
                    limited to the Actual Knowledge of the Company for purposes
                    of Article VIII, is subject to any outstanding decree,
                    order, judgment, or stipulation restricting in any manner
                    the licensing thereof by the Company.


          2.12  Agreements, Contracts and Commitments.  Except as set forth on
                -------------------------------------
              Schedule 2.12, and limited to the Actual Knowledge of the Company
              for purposes of Article VIII, the Company does not have, is not a
              party to nor is it bound by:

                (a) any collective bargaining agreements,

                (b) any agreements or arrangements that contain any severance
                    pay or post-employment liabilities or obligations,

                (c) any bonus, deferred compensation, pension, profit sharing or
                    retirement plans, or any other employee benefit plans or
                    arrangements,

                (d) any employment or consulting agreement with an employee or
                    individual consultant or salesperson, or consulting or sales
                    agreement, under which a firm or other organization provides
                    services to the Company, and which, in each case, involves
                    payments by or to the Company in excess of $15,000 annually
                    and which is not cancelable within 30 days without a
                    required payment of not more than $5,000,

                (e) any agreement or plan, including, without limitation, any
                    stock option plan, stock appreciation rights plan or stock
                    purchase plan, any of the benefits of which will be
                    increased, or the vesting of benefits of which will be
                    accelerated, by the occurrence of any of the transactions
                    contemplated by this Agreement or the value of any of the
                    benefits of which will be calculated on the basis of any of
                    the transactions contemplated by this Agreement,

                (f) any fidelity or surety bond or completion bond,

                (g) any lease of personal property having an annual value
                    individually in excess of $5,000,

                                                                   Page 23
<PAGE>

                (h) any agreement of indemnification or guaranty other than in
                    the ordinary course of business,

                (i) any agreement containing any covenant limiting the freedom
                    of the Company to engage in any line of business or to
                    compete with any person,

                (j) any agreement relating to capital expenditures and involving
                    future payments in excess of $5,000,

                (k) any agreement relating to the disposition or acquisition of
                    assets or any interest in any business enterprise outside
                    the ordinary course of the Company's business entered into
                    on or after January 1, 1996,

                (l) any mortgages, indentures, loans or credit agreements,
                    security agreements or other agreements or instruments
                    relating to the borrowing of money or extension of credit
                    (other than by the Company's vendors in the ordinary course
                    of business) , including guaranties referred to in clause
                    (h) hereof in excess of $5,000,

                (m) any construction contracts,

                (n) any distribution, joint marketing or development agreement,

                (o) any agreement other than End-User Licenses and Third Party
                    Licenses pursuant to which the Company has granted and which
                    is still in effect or may grant in the future but prior to
                    the Effective Time, to any party a source-code license or
                    option or other right to use or acquire source-code, or

                (p) any other agreement that involves annual payment by the
                    Company of $5,000 or more or which is not cancelable without
                    more than a $5,000 penalty within thirty (30) days.

Except for such alleged material breaches, violations and defaults, and events
that would not constitute a material breach, violation or default with the lapse
of time, giving of notice, or both, as are all noted in Schedule 2.12, the
Company has not materially breached, violated or defaulted under, or received
notice that it has materially breached, violated or defaulted under, any of the
terms or conditions of any agreement, contract or commitment related to
Intellectual Property Rights required to be set forth on Schedule 2.12 and,
limited to the Actual Knowledge of the Company for purposes of Article VIII, it
has not materially breached, violated or defaulted under, or received notice
that it has materially breached, violated or defaulted under, any of the terms
or conditions of any other agreement, contract or commitment required to be set
forth on Schedule 2.12. Each agreement, contract or commitment listed on
Schedule 2.12 related to Intellectual Property Rights and, limited to the Actual
Knowledge of the Company for purposes of Article VIII, each other agreement,
contract or commitment listed on Schedule 2.12, is in full force and effect and,
except as otherwise disclosed in Schedule 2.12, is not subject to any default
thereunder of which the Company has knowledge by any party obligated to the
Company pursuant thereto.

                                                                   Page 24
<PAGE>

          2.13  Compliance with Laws.  The Company has, which representation and
                --------------------
              warranty is limited to the Actual Knowledge of the Company for
              purposes of Article VIII, complied with, is not in violation of,
              and has not received any notices of violation with respect to, any
              foreign, federal, state or local statute, law or regulation of
              which it should reasonably be aware of, except where any such
              non-compliance or violation would not have a Material Adverse
              Effect on the Company.

          2.14  Litigation.  Except as set forth in Schedule 2.14, there is no
                ----------
              action, suit or proceeding of any nature pending or, to the
              Company's knowledge, threatened against the Company, its
              properties or any of its officers or directors, in their
              respective capacities as such. Except as set forth in Schedule
              2.14, to the Company's knowledge, there is no investigation
              pending or threatened against the Company, its properties or any
              of its officers or directors by or before any Governmental Entity.
              Schedule 2.14 sets forth, with respect to any pending or known
              threatened action, suit, proceeding or investigation, the forum,
              the parties thereto, the subject matter thereof and the amount of
              damages claimed or other remedy requested. No Governmental Entity
              has at any time challenged or questioned in writing to the Company
              the legal right of the Company to manufacture, offer or sell any
              of its products in the present manner or style thereof.

          2.15  Bank Accounts.  Schedule 2.15 lists all bank accounts of
                -------------
              Company, the authorized signatories to the account and the name
              and telephone number of a contact person with respect to such
              account

          2.16  Insurance.  Schedule 2.16 sets forth a true and complete list of
                ---------
              Company's current insurance policies and fidelity bonds covering
              the assets, business, equipment, properties, operations,
              employees, officers and directors of the Company, including names
              of carriers, amounts of coverage and premiums therefor. With
              respect to such policies, there is no claim by the Company pending
              under any of such policies or bonds as to which coverage has been
              questioned, denied or disputed by the underwriters of such
              policies or bonds. All premiums due and payable under all such
              policies and bonds have been paid and the Company is otherwise in
              compliance with the material terms of such policies and bonds. The
              Company has no knowledge of any threatened termination of, or
              premium increase with respect to, any of such policies.

          2.17  Minute Books.  The minute books of the Company made available
                ------------
              upon request to counsel for Parent are the only minute books of
              the Company from the date of the Company's incorporation in the
              State of Delaware and contain true and correct copies of all
              resolutions adopted by the Company's Board of Directors (or
              committees thereof) and stockholders for such period.

          2.18  Environmental Matters.  Except for failures which will not have
                ---------------------
              a Material Adverse Effect on the Company, and limited to the
              Actual Knowledge of the Company for purposes of Article VIII, the
              Company has met, and continues to meet, all applicable local,
              state, federal and national environmental regulations and has
              disposed of its waste products and effluents and/or has caused
              others to dispose of such waste products and effluents in
              accordance with all applicable local,

                                                                   Page 25
<PAGE>

              state, federal and national environmental regulations.

          2.19  Brokers' and Finders' Fees; Third Party Expenses.  Except as set
                ------------------------------------------------
              forth on Schedule 2.19, the Company has not incurred, nor will it
              incur, directly or indirectly, any liability for brokerage or
              finders' fees or agents' commissions or any similar charges in
              connection with this Agreement or any transaction contemplated
              hereby. Schedule 2.19 sets forth the Company's current reasonable
              estimate of all legal, accounting, financial advisory, consulting
              and all other fees and expenses of third parties ("Third Party
                                                                 -----------
              Expenses") expected to be incurred by the Company in connection
              --------
              with the negotiation and effectuation of the terms and conditions
              of this Agreement and the transactions contemplated hereby.

          2.20  Employee Matters and Benefit Plans.
                ----------------------------------

                (a) Company ERISA Plans.  Schedule 2.20(a) contains an accurate
                    -------------------
                    and complete list of each Company "employee benefit plan" as
                    defined in Section 3(3) of the Employee Retirement Income
                    Security Act of 1974, as amended ("ERISA"), maintained or
                                                       -----
                    contributed to by the Company ("Company ERISA Plans")
                                                    -------------------
                    together with a schedule of all liabilities, whether or not
                    accrued. The Company ERISA Plans are in compliance with the
                    applicable provisions of ERISA, the Code and other
                    applicable law, except for instances of non-compliance that
                    could not reasonably be expected to have a Material Adverse
                    Effect on the Company. A complete and correct copy of each
                    Company Benefit Plan has been provided to Parent. The
                    Company does not have any stated plan or commitment to
                    establish any new Company ERISA Plan, to modify any Company
                    ERISA Plan (except to the extent required by law or to
                    conform any such Company ERISA Plan to the requirements of
                    any applicable law, in each case as previously disclosed to
                    Parent in writing, or as required by this Agreement), or to
                    enter into any Company ERISA Plan. Each such Company ERISA
                    Plan which is intended to qualify under Code Section 401(a),
                    has received (or an application has been filed to receive) a
                    favorable determination letter from the Internal Revenue
                    Service with respect to the qualification of the plan under
                    Section 401(a) of the Code. Nothing has occurred since the
                    date of the most recent such determination letter that would
                    cause such Company ERISA Plan to lose its ability to rely on
                    such determination letter.

                (b) Pension Plans.  Neither Company nor any other Person or
                    -------------
                    entity under common control with Company within the meaning
                    of Section 414(b), (c) or (m) of the Code and the
                    regulations thereunder has now or at any previous time,
                    maintained, established, sponsored, participated in, or
                    contributed to, any Company ERISA Plan that is subject to
                    Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA
                    or Section 412 of the Code.

                (c) Multiemployer or Multiple Employer Plans; Leased Employees.
                    ----------------------------------------------------------
                    At no time has the Company contributed to or been requested
                    to contribute to any multiemployer or multiple employer
                    plan. No "leased employee" (within the meaning of Section
                    414(n) or (o) of the Code) performs any material services
                    for Company.

                                                                   Page 26
<PAGE>

                (d) Employee Benefit Plans.  Schedule 2.20(a) and Schedule
                    ----------------------
                    2.20(b) list each employment, severance or other similar
                    contract, arrangement or policy and each plan or arrangement
                    (written or oral) providing insurance coverage (including
                    any self-insured arrangements), workers' benefits, vacation
                    benefits, severance benefits, fringe benefits, disability
                    benefits, death benefits, hospitalization benefits,
                    retirement benefits, deferred compensation, profit-sharing,
                    bonuses, stock options, stock purchase, phantom stock, stock
                    appreciation or other forms of incentive compensation or
                    post-retirement insurance, compensation or benefits (an
                    "Employee Benefit Plan") for employees, consultants or
                     ---------------------
                    directors which is entered into, maintained or contributed
                    to, as the case may be, by Company.

                (e) Contributions.  All contributions, premiums or other
                    -------------
                    payments (including all employer contributions and employee
                    salary reduction contributions) which are due have been
                    timely paid to each Company ERISA Plan and Employee Benefit
                    Plan and all contributions, premiums or other payments for
                    any period ending on or before the Effective Time which are
                    not yet due shall have been paid to each such plan by
                    Company prior to the Effective Time or shall be accrued in
                    accordance with the custom and practice of Company.

                (f) No Post-Employment Obligations.  Except as set forth in
                    ------------------------------
                    Schedule 2.20(f), no Company ERISA Plan and Employee Benefit
                    Plan provides, or has any liability to provide, life
                    insurance, medical or other employee welfare benefits to any
                    employee upon his or her retirement or termination of
                    employment for any reason, except as may be required by
                    statute, and the Company has never represented, promised or
                    contracted (whether in oral or written form) to any employee
                    (either individually or to employees as a group) that such
                    employee(s) would be provided with life insurance, medical
                    or other employee welfare benefits upon their retirement or
                    termination of employment, except to the extent required by
                    statute.

                (g) Agreements Terminable at Will; List.  Except as set forth in
                    -----------------------------------
                    Schedule 2.20(g), Company does not have any employment
                    contracts or consulting agreements currently in effect that
                    are not terminable at will (other than agreements with the
                    sole purpose of providing for the confidentiality of
                    proprietary information or assignment of inventions). A list
                    of all employees, officers and consultants of Company and
                    their current compensation (including salary, bonus or
                    commission arrangements or other contingencies) has
                    previously been delivered to Parent. To the knowledge of
                    Company, no employee or consultant of Company is in
                    violation of any term of any employment contract, patent
                    disclosure agreement, noncompetition agreement, or any other
                    contract or agreement, or any restrictive covenant relating
                    to the right of any such employee to be employed thereby, or
                    to use trade secrets or proprietary information of others,
                    and the employment of such employees does not subject
                    Company to any liability.

                (h) COBRA.  Company has provided, or will have provided prior to
                    -----
                    the Effective Time, to individuals entitled thereto all
                    required notices and coverage, if any, pursuant to

                                                                   Page 27
<PAGE>

                    Section 4980B of the Code and the Consolidated Omnibus
                    Budget Reconciliation Act of 1985, as amended, with respect
                    to any "qualifying event" (as defined in Section 4980B(f)(3)
                    of the Code) occurring prior to and including the Effective
                    Time, and no tax payable on account of Section 4980B of the
                    Code has been incurred with respect to any current or former
                    employees of Company or other qualified beneficiaries (as
                    defined in Section 4980B(g)(1)(A) of the Code).

                (i) Employment Matters.  Except as set forth in Schedule
                    ------------------
                    2.20(g), and limited to the Actual Knowledge of the Company
                    for purposes of Article VIII, the Company (i) is in material
                    compliance with all applicable foreign, federal, state and
                    local laws, rules and regulations respecting employment,
                    employment practices, immigration or other laws governing
                    the employment of foreign nationals, terms and conditions of
                    employment and wages and hours, in each case, with respect
                    to employees; (ii) has withheld all amounts required by law
                    or by agreement to be withheld from the wages, salaries and
                    other payments to employees; (iii) is not liable for any
                    arrears of wages or any taxes or any penalty for failure to
                    comply with any of the foregoing; and (iv) is not liable for
                    any payment to any trust or other fund or to any
                    governmental or administrative authority, with respect to
                    unemployment compensation benefits, social security or other
                    benefits or obligations for employees (other than routine
                    payments to be made in the normal course of business and
                    consistent with past practice).

                (j) Labor.  No work stoppage or labor strike against the Company
                    -----
                    is pending or, to the knowledge of the Company, threatened.
                    Except as set forth in Schedule 2.20(j), the Company is not
                    involved in or, to the knowledge of the Company, threatened
                    with, any labor dispute, grievance, or litigation relating
                    to labor, safety or discrimination matters involving any
                    employee, including, without limitation, charges of unfair
                    labor practices or discrimination complaints, which, if
                    adversely determined, would, individually or in the
                    aggregate, result in liability to the Company. The Company
                    has, which representation and warranty is limited to the
                    Actual Knowledge of the Company for purposes of Article
                    VIII, not engaged in any unfair labor practices within the
                    meaning of the National Labor Relations Act which would,
                    individually or in the aggregate, directly or indirectly
                    result in a liability to the Company. Except as set forth in
                    Schedule 2.20 (j), the Company is not presently, nor has it
                    been in the past, a party to, or bound by, any collective
                    bargaining agreement or union contract with respect to
                    employees and no collective bargaining agreement is being
                    negotiated by the Company.

          2.21  Suppliers and Customers.  There are, which representation and
                -----------------------
              warranty is limited to the Actual Knowledge of the Company for
              purposes of Article VIII, no material agreements which commit the
              Company to carry on business at fixed prices or prices determined
              by an established formula (it being agreed for purposes hereof
              that an agreement where the price is based on a fixed percentage
              of cost or where the customer may acquire up to a maximum number
              of Company products over a term not to exceed on (1) year are not
              deemed to be at a fixed price). Except as set forth in the
              Schedule 2.21, no customer who accounted for more than 5% of the
              Company's sales or purchases by year since January 1, 1995 and no
              other customer material to the business of the Company has
              terminated its relationship with the Company, has decreased or
              delayed

                                                                   Page 28
<PAGE>

              materially, or, to the Company's knowledge, threatened to decrease
              or materially delay its usage of the Company's products or
              services. The Company is not, which representation and warranty is
              limited to the Actual Knowledge of the Company for purposes of
              Article VIII, aware of any facts or events which may reasonably be
              expected to form the basis for such a decrease or delay. The
              Company does not believe that any customer or supplier material to
              the business of the Company will terminate or significantly change
              its relationship in a manner adverse to the Company following the
              consummation of the transactions contemplated under this
              Agreement.

          2.22  Affiliates; Approval Vote.  Schedule 2.22 sets forth those
                -------------------------
              persons who, in the Company's reasonable judgment, are
              "affiliates" of the Company within the meaning of Rule 145 (each
              such person an "Affiliate") promulgated under the Securities Act.
                              ---------
              The Affiliates will execute by the Effective Time an Affiliate
              Letter in the form attached hereto as Exhibit E ("Affiliate
                                                                ---------
              Letters"), each of which will be in full force and effect as of
              -------
              the Effective Time. The Parent shall be entitled to place
              appropriate legends on the certificates evidencing any of the
              Parent Common Stock to be received by such Affiliates pursuant to
              the terms of the Affiliates Letter, and to issue appropriate stop
              transfer instructions to its transfer agent for the, consistent
              with the terms of the Affiliate Letters. In addition, the
              requisite number of Company Securityholders needed for the
              approval and adoption of this Agreement and the Merger have agreed
              in writing to vote for approval of this Agreement and the Merger a
              special meeting of Company Securityholders for the purpose of
              voting upon this Agreement and related matters (the "Special
                                                                   -------
              Meeting").
              -------

          2.23  Representations Complete.  None of the representations or
                ------------------------
              warranties made by the Company in this Agreement (as modified by
              the Company disclosure schedules attached hereto (the "Company
                                                                     -------
              Schedules")), nor any statement made in any schedule or
              ---------
              certificate furnished by the Company pursuant to this Agreement,
              contains as of the date of this Agreement, any untrue statement of
              a material fact, or, which representation and warranty is limited
              (except to the extent related to Company Intellectual Property) to
              the Actual Knowledge of the Company for purposes of Article VIII,
              omits to state, as of the date of this Agreement, any material
              fact necessary in order to make the statements contained herein or
              therein, in the light of the circumstances under which made, not
              misleading.

The Trust hereby represents and warrants to Parent and Merger Sub that:

          2.24  Organization, Standing and Power.  The Trust is or, immediately
                --------------------------------
              prior to the Effective Time, will be, a trust duly organized,
              validly existing and in good standing under the laws of the State
              of Delaware. The Trust has or, immediately prior to the Effective
              Time, will have, the power to own its properties and to carry on
              its business as they are proposed to be conducted. The Company has
              delivered a true and correct copy of its Trust Agreement to
              Parent.

          2.25  Authority.  The Trust has, or by the Effective Time will have,
                ---------
              all requisite power and authority to enter into this Agreement and
              to consummate the transactions contemplated hereby. The

                                                                   Page 29
<PAGE>

              execution and delivery of this Agreement and the consummation of
              the transactions contemplated hereby have, or by the Effective
              Time will have, been duly authorized by all necessary action on
              the part of the Trust, the Trustee and the holders of Beneficial
              Interests. This Agreement has or, immediately prior to the
              Effective Time, will have, been duly executed and delivered by the
              Trust and constitutes the valid and binding obligation of the
              Trust, enforceable in accordance with its terms subject to
              applicable bankruptcy, insolvency, reorganization, liquidation,
              moratorium or other similar laws relating or affecting the rights
              of creditors generally and the effect or availability of rules of
              law governing specific performance, injunctive relief and other
              equitable remedies. The execution and delivery of this Agreement
              and the related agreements attached as exhibits hereto by the
              Trust do not, and, as of the Effective Time, the performance and
              consummation of the transactions contemplated hereby and thereby
              will not, conflict with, or result in any violation of, or default
              under, (with or without notice or lapse of time, or both), or give
              rise to a right of termination, cancellation, forfeiture, or
              acceleration of any obligation or loss of any benefit under, or
              result in the creation of a lien or encumbrance on any of the
              properties or assets of the Trust (any such event, a "Trust
                                                                    -----
              Conflict") pursuant to (i) any provision of the Trust Agreement or
              --------
              (ii) any mortgage, indenture, lease, contract or other agreement
              or instrument, permit, concession, franchise, license, judgment,
              order, decree, statute, law, ordinance, rule or regulation
              applicable to the Trust or its properties or assets other than any
              such conflict, violation or default which would not have a
              Material Adverse Effect on the Trust. No consent, waiver,
              approval, order or authorization of, or registration, declaration
              or filing with any third party (so as not to trigger any Trust
              Conflict) or, to the Trustee's knowledge, with any Governmental
              Entity, is required by or with respect to the Trust in connection
              with the execution and delivery of this Agreement or the
              consummation of the transactions contemplated hereby.

          2.26  Representations Complete.  None of the representations or
                ------------------------
              warranties made by the Trust in this Agreement, nor any statement
              made in any schedule or certificate furnished by the Trust
              pursuant to this Agreement, contains as of the date of this
              Agreement, any untrue statement of a material fact, or omits to
              state, as of the date of this Agreement, any material fact
              necessary in order to make the statements contained herein or
              therein, in the light of the circumstances under which made, not
              misleading.


                                       3

                                  ARTICLE III

           REPRESENTATIONS AND WARRANTIES OF, PARENT AND MERGER SUB


Parent and Merger Sub, jointly and severally, represent and warrant (which
representations or warranties, to the extent they relate to the Merger Sub, are
made as of immediately prior to the Effective Time and not as of the date
hereof) to the Company that:

                                                                   Page 30
<PAGE>

          3.1 Organization, Standing and Power. Each of Parent and Merger Sub is
              --------------------------------
              a corporation duly organized, validly existing and in good
              standing under the laws of the State of New York and Delaware,
              respectively. Each of Parent and Merger Sub has the corporate
              power to own its properties and to carry on its business as now
              being conducted and is duly qualified to do business and is in
              good standing in each jurisdiction in which the failure to be so
              qualified would have a Material Adverse Effect on the Parent or
              the Merger Sub. Parent and Merger Sub have each delivered a true
              and correct copy of their respective Certificates of Incorporation
              and Bylaws, as amended to date, to the Company.


          3.2 Authority.
              ---------

                (a) Parent and Merger Sub have all requisite corporate power and
                    authority to enter into this Agreement and to consummate the
                    transactions contemplated hereby. The execution and delivery
                    of this Agreement and the consummation of the transactions
                    contemplated hereby have been duly authorized by all
                    necessary corporate action on the part of Parent and Merger
                    Sub, and do not require the consent of the stockholders of
                    the Parent. This Agreement has been duly executed and
                    delivered by Parent and Merger Sub and constitutes the valid
                    and binding obligations of Parent and Merger Sub,
                    enforceable in accordance with its terms subject to
                    applicable bankruptcy, insolvency, reorganization,
                    liquidation, moratorium or other similar laws relating or
                    affecting the rights of creditors generally and the effect
                    or availability of rules of law governing specific
                    performance, injunctive relief and other equitable remedies.

                (b) Subject to satisfaction of the conditions set forth in
                    Article VII hereto, and except as set forth on Schedule 3.2,
                    the execution and delivery of this Agreement and the related
                    agreements by each of the Parent and Merger Sub do not, and
                    as of the Effective Time the performance and consummation of
                    the transactions contemplated hereby and thereby will not,
                    conflict with, or result in any violation of, or default
                    under (with or without notice or lapse of time, or both), or
                    give rise to a right of termination, cancellation,
                    forfeiture, or acceleration of any obligation or loss of any
                    benefit under or result in the creation of a lien or
                    encumbrance on any of the properties or assets of Parent or
                    Merger Sub (any such event, a "Parent Conflict") pursuant to
                                                   ---------------
                    (i) any provision of the Certificate of Incorporation or
                    Bylaws of the Parent or Merger Sub or (ii) any mortgage,
                    indenture, lease, contract or other agreement or instrument,
                    permit, concession, franchise, license, judgment, order,
                    decree, statute, law, ordinance, rule or regulation
                    applicable to the Parent or Merger Sub or their respective
                    properties or assets other than any such conflict, violation
                    or default which would not have a Material Adverse Effect on
                    the Parent or Merger Sub. No consent, waiver, approval,
                    order or authorization of, or registration, declaration or
                    filing with any third party (so as not to trigger any Parent
                    Conflict) or, to the Parent's knowledge, with any
                    Governmental Entity, is required by or with respect to the
                    Company in connection with the execution and delivery of
                    this Agreement or the consummation of the transactions
                    contemplated hereby, except for (i) the filing of the
                    Certificate of Merger with the Delaware Secretary of State
                    and the filing of other appropriate documents with the
                    relevant authorities of other jurisdictions in which the
                    Company is qualified to do

                                                                   Page 31
<PAGE>

                    business and (ii) such other consents, waivers,
                    authorizations, filings, approvals and registrations which
                    are set forth on Schedule 3.2.


          3.3 Capital Structure.
              -----------------
                (a) The authorized stock of Parent consists of 15,000,000 shares
                    of Common Stock, $0.01 par value, of which 7,044,634 shares
                    were issued and outstanding as of December 31, 1997 and of
                    1,000,000 shares of Preferred Stock, $.01 par value, none of
                    which were issued and outstanding as of December 31, 1997.
                    The authorized capital stock of Merger Sub consists of 1,000
                    shares of Common Stock, 1,000 shares of which are issued and
                    outstanding and are held by Parent. All outstanding shares
                    of the capital stock of Parent and Merger Sub are duly
                    authorized, validly issued, fully paid and non-assessable
                    and are not subject to preemptive rights created by statute,
                    the Certificate of Incorporation or Bylaws of either Parent
                    or Merger Sub or any agreement to which either Parent or
                    Merger Sub is a party or by which either is bound.

                (b) The Parent has reserved 900,000 shares of Common Stock for
                    issuance to employees and consultants pursuant to the
                    Parent's 1995 Stock Plan, of which 706,919 shares are
                    subject to outstanding, unexercised options and 161,361
                    shares remain available for future grant. The Parent has
                    reserved 600,000 shares of Common Stock for issuance to
                    employees and consultants pursuant to the Parent's 1996
                    Stock Plan, of which 417,385 shares are subject to
                    outstanding, unexercised options and 171,034 shares remain
                    available for future grant. Except as described in Schedule
                    3.3(b), there are no options, warrants, calls, rights,
                    commitments or agreements of any character, written or oral,
                    to which the Parent is a party or by which it is bound
                    obligating the Parent to issue, deliver, sell, repurchase or
                    redeem, or cause to be issued, delivered, sold, repurchased
                    or redeemed, any shares of the capital stock of the Parent.
                    Schedule 3.3(b) sets forth for each outstanding Parent stock
                    option (a "Parent Option") the name of the holder of such
                               -------------
                    option, the number of shares of Common Stock subject to such
                    option and the exercise price of such option. Except as
                    described in Schedule (b), there are no options, warrants,
                    calls, rights, commitments or agreements of any character,
                    written or oral, to which the Parent is a party or by which
                    it is bound obligating the Parent to grant, extend,
                    accelerate the vesting of, change the price of, otherwise
                    amend or enter into any such option, warrant, call, right,
                    commitment or agreement.

                (c) The shares of Parent Common Stock to be issued pursuant to
                    the Merger, when issued, sold and delivered in accordance
                    with the terms hereof for the consideration described
                    herein, will, assuming the accuracy of the representations
                    contained in the Affiliate Letters, and the accuracy of the
                    representations of the Company Securityholders contained in
                    the Letter Agreements to be executed by them, and the form
                    of which is attached hereto as Exhibit F, be duly
                    authorized, validly issued, fully paid, non-assessable and
                    will be issued in compliance with all applicable securities
                    laws and will b free and clear of any liens, claims,
                    encumbrances or restrictions other than liens or
                    encumbrances created by or imposed upon the holders thereof.

                                                                   Page 32
<PAGE>

                (d) Except as set forth in Schedule 3.3(d), the Parent (i) has
                    not granted any Parent Securityholders any registration
                    rights or (ii) entered into or is aware of any voting
                    agreements with respect to Parent Securities.



          3.4 SEC Documents; Parent Financial Statements. Parent has furnished
              ------------------------------------------
              or made available to the Company true and complete copies of all
              reports filed by it with the Securities and Exchange Commission
              ("SEC") under the Exchange Act for all periods subsequent to
                ---
              December 31, 1995, all in the form so filed (all of the foregoing
              being collectively referred to as the "SEC Documents"). As of
                                                     -------------
              their respective filing dates, the SEC Documents complied in all
              material respects with the requirements of the Exchange Act, and
              none of the SEC Documents contained any untrue statement of a
              material fact or omitted to state a material fact required to be
              stated therein or necessary to make the statements made therein,
              in light of the circumstances in which they were made, not
              misleading, except to the extent corrected by a document
              subsequently filed with the SEC. Parent has made all filings
              required under the rules and regulations promulgated by the SEC.
              Except for the transactions contemplated hereunder or as set forth
              in Schedule 3.4, and limited to the Actual Knowledge of the Parent
              for purposes of Article VIII, Parent has no knowledge of any
              information not disclosed in the SEC Documents which would be
              required to be disclosed in a post-effective amendment if the
              Parent had an effective registration with respect to a continuous
              offering. The financial statements of Parent, including the notes
              thereto, included in the SEC Documents (the "Parent Financial
                                                           ----------------
              Statements") comply as to form in all material respects with
              ----------
              applicable accounting requirements and with the published rules
              and regulations of the SEC with respect thereto, have been
              prepared in accordance with generally accepted accounting
              principles consistently applied (except as may be indicated in the
              notes thereto) and present fairly the consolidated financial
              position of Parent at the dates thereof and of its operations and
              cash flows for the periods then ended (subject, in the case of
              unaudited statements, to normal audit adjustments), which
              representation and warranty is limited, except to the extent it
              relates to Parent Intellectual Property, to the Actual Knowledge
              of the Parent for purposes of Article VIII. There has been no
              change in Parent accounting policies except as described in the
              notes to the Parent Financial Statements.


          3.5 No Material Adverse Change. Since the date of the balance sheet
              --------------------------
              included in the Parent's most recently filed report on Form 10-Q,
              Parent has conducted its business in the ordinary course and
              except as set forth in Schedule 3.5, there has not occurred: (a)
              any material adverse change in the financial condition,
              liabilities, assets or business of Parent; (b) any amendment or
              change in the Certificate of Incorporation or Bylaws of Parent;
              (c) any damage to, destruction or loss of any assets of the
              Parent, (whether or not covered by insurance); (d) strike, work
              stoppage, or claim of wrongful discharge or other unlawful labor
              practice or action; (e) declaration, setting aside or payment of a
              dividend or other distribution with respect to the capital stock
              of the Parent, or any direct or indirect redemption, purchase or
              other acquisition by the Parent of any of its capital stock except
              repurchases of unvested capital stock under any Parent Option
              Plan; (f) capital expenditure or commitment for capital
              expenditure of $15,000 in any individual case or $25,000 in the
              aggregate not otherwise disclosed in writing to the Company; (g)
              the entering into or consummation of any sale, license or other
              disposition or termination of a material asset of the

                                                                   Page 33
<PAGE>

              Parent other than in the ordinary course of business; (h) notice
              of any claim of ownership by a third party of the Parent
              Intellectual Property Rights (as defined below) or of infringement
              by the Parent of any third party's intellectual property rights;
              (i) revaluation by the Parent of any of its assets, including
              without limitation, writing down the value of inventory or writing
              off notes or accounts receivable other than in the ordinary course
              of business; or (j) any new loan financing, refinancing or
              modifications, that materially, and adversely affects the
              financial condition or business of Parent.


          3.6 Litigation. There is no action, suit, proceeding, claim,
              ----------
              arbitration or investigation pending, or as to which Parent has
              received any notice of assertion against Parent which in any
              manner challenges or seeks to prevent, enjoin, alter or materially
              delay any of the transactions contemplated by this Agreement.
              Except as set forth in the SEC Documents or in Schedule 3.6,
              Parent is not aware of any other pending or threatened action,
              suit, proceeding, investigation or claim against Parent, its
              properties or any of its officers or directors in their respective
              capacities as such, or any reasonable basis therefor, that
              individually or in the aggregate would reasonably be expected to
              have a Material Adverse Effect on Parent. Schedule 3.6 sets forth,
              with respect to any pending or known threatened action, suit,
              proceeding or investigation, the forum, the parties thereto, the
              subject matter thereof and the amount of damages claimed or other
              remedy requested. No Governmental Entity has at any time
              challenged or questioned in writing to the Parent the legal right
              of the Parent to manufacture, offer or sell any of its products in
              the present manner or style thereof.


          3.7 Intellectual Property.
              ---------------------

                (a) The Parent owns, or is licensed or otherwise possesses valid
                    rights to use all patents that are used in the business of
                    the Parent as currently conducted. The Parent owns or is
                    licensed or otherwise possesses valid rights to use all
                    trademarks, trade names, service marks, copyrights, and any
                    applications therefor, technology, know-how, computer
                    software programs or applications (in both source code and
                    object code form), and tangible or intangible proprietary
                    information or material that are used in the business of the
                    Parent as currently conducted (all of the foregoing,
                    including the patents, are collectively referred to as the
                    "Parent Intellectual Property Rights").
                     -----------------------------------

                (b) The execution and delivery of this Agreement by the Parent,
                    and the consummation of the transactions contemplated
                    hereby, will neither cause the Parent to be in violation or
                    default under any such license, sublicense or agreement, nor
                    entitle any other party to any such license, sublicense or
                    agreement to terminate or modify such license, sublicense or
                    agreement.

                (c) Except with respect to the persons set forth in Schedule
                    3.7(c) to the extent specifically set forth therein, Company
                    has taken what it believes to be reasonable actions to
                    protect the confidentiality of the confidential Company
                    Intellectual Property Rights and the enforceability of any
                    trade secrets with respect thereto, (the parties hereto
                    agreeing that the failure of the Company's employees set
                    forth in Schedule 3.7(c) to sign confidentiality agreements
                    is not an unreasonable action hereunder) including without
                    limitation and as appropriate in each instance, the
                    acquisition of written non disclosure

                                                                   Page 34
<PAGE>

                    agreements from those parties to whom Company has made an
                    authorized disclosure and who would not otherwise have a
                    common law or other legal duty or obligation of non-
                    disclosure. In addition, Company has taken steps reasonably
                    calculated to protect the confidentiality of other Company
                    Intellectual Property Rights owned by Company which are not
                    generally available to the public or customers of the
                    Company (the parties hereto agreeing that the failure of the
                    Company's employees set forth in Schedule 3.7(c) to sign
                    Confidentiality Agreement is not an unreasonable action
                    hereunder). Except as disclosed in Schedule 3.7(c), each
                    employee of and consultant to the Company has executed a
                    proprietary information and inventions agreement and a
                    nondisclosure agreement substantially in the Company's
                    standard form. Except as disclosed on Schedule 3.7(c) to the
                    best of Company's acknowledge, no party that has signed a
                    proprietary information and inventions agreement or
                    nondisclosure agreement is in violation of the
                    confidentiality provisions of that agreement

                (d) No claims, including without limitation, arising out of
                    Section 2.1 of the Parent's July 17, 1995 agreement with
                    Microsoft Corporation, with respect to the Parent
                    Intellectual Property Rights have been asserted to Parent or
                    are, to the Parent's knowledge, threatened by any person,
                    nor, to the Parent's knowledge, are there any valid grounds
                    for any bona fide claims (i) to the effect that the
                    manufacture, sale, licensing or use of any of the products
                    of the Parent infringes on any copyright, patent, trademark,
                    service mark, trade secret or other proprietary right, (ii)
                    against the use by the Parent of any trademarks, service
                    marks, trade names, trade secrets, copyrights, patents,
                    technology, know-how or computer software programs and
                    applications used in the Parent's business as currently
                    conducted, or (iii) challenging the ownership by the Parent,
                    validity or effectiveness of any of the Parent Intellectual
                    Property Rights. All registered trademarks, service marks
                    and copyrights held by the Parent are valid and subsisting.
                    To Parent's knowledge, the business of the Parent as
                    currently conducted has not and does not infringe on any
                    proprietary right of any third party. To the Parent's
                    knowledge, there is no unauthorized use, infringement or
                    misappropriation of any of the Parent Intellectual Property
                    Rights by any third party, including any employee or former
                    employee of the Parent. No Parent Intellectual Property
                    Right or product of the Parent or any of its subsidiaries is
                    subject to any outstanding decree, order, judgment, or
                    stipulation restricting in any manner the licensing thereof
                    by the Parent. Except as set forth in Schedule 3.7(d), each
                    employee of and consultant to the Parent has executed a
                    proprietary information and inventions agreement
                    substantially in the Parent's standard form.

                (e) All computer software included in the Parent Intellectual
                    Property Rights is year 2000 compliant (that is, (i) it is
                    capable, to the extent called for, of correctly processing,
                    providing and receiving data within and between the 20th and
                    21st centuries (including accounting for all required leap
                    year calculations) and (ii) all date fields therein use four
                    (4) digit year fields).

                (f) Parent has complied in all material respects with Section
                    2.1 of the July 17, 1995 agreement with Microsoft
                    Corporation and made the Product (as defined therein)
                    available for commercial distribution.

                                                                   Page 35
<PAGE>

          3.8 Restrictions on Business Activities. There is, which
              -----------------------------------
              representation and warranty is limited to the Actual Knowledge (as
              defined below) of the Parent for purposes of Article VIII, no
              agreement, judgment, injunction, order or decree binding upon
              Parent that has or could reasonably have the effect of prohibiting
              or significantly impairing any business practice of Parent, any
              acquisition of property by Parent, or the continuation of the
              business of Parent as currently conducted or as currently proposed
              to be conducted.


          3.9 Brokers or Finders; Professional Fees. No third party shall be
              -------------------------------------
              entitled to receive any brokerage commissions, finder's fees, or
              similar compensation in connection with the transactions
              contemplated by this Agreement based on any arrangement or
              agreement made by or on behalf of Parent or Merger Sub.


          3.10  Conduct in the Ordinary Course. Since the date of the Parent's
                ------------------------------
              most recently filed report on Form 10-Q, there has not occurred
              any amendments or changes in the Certificate of Incorporation or
              Bylaws of Parent or any agreement or arrangement made by Parent to
              do the same.


          3.11  Interim Operations of Merger Sub. Merger Sub was formed solely
                --------------------------------
              for the purpose of engaging in the transactions contemplated by
              this Agreement, has engaged in no other business activities and
              has conducted its operations only as contemplated by this
              Agreement.


          3.12  Third Party Consents. Except as set forth in Schedule 3.12, no
                --------------------
              consent or approval is needed from any third party in order to
              enable Parent and Merger Sub to effect the Merger or any of the
              transactions contemplated hereby.


          3.13  Agreements with Liraz Systems, Ltd. ("Liraz"). Schedule 3.13
                ---------------------------------------------
              sets forth a correct list of all agreements between the Parent and
              Liraz.


          3.14  Tax Returns and Audits.
                ----------------------

                (a) Tax and Other Returns and Reports.  Except as set forth in
                    ---------------------------------
                    Schedule 3.14:

                    (i)     The Parent as of the Effective Time will have
                            prepared and filed all required federal, state,
                            local and foreign returns, estimates, information
                            statements and reports ("Returns") otherwise due
                                                     -------
                            relating to any and all Taxes concerning or
                            attributable to the Company or its operations, and
                            such Returns have been completed in accordance with
                            applicable law.

                    (ii)    The Parent as of the Effective Time: (A) will have
                            paid or accrued all Taxes it is

                                                                   Page 36
<PAGE>

                            required to pay or accrue and (B) will have withheld
                            with respect to its employees all federal and state
                            income taxes, FICA, FUTA and other Taxes required to
                            be withheld.

                    (iii)   The Parent is not currently delinquent in the
                            payment of any Tax and has not been delinquent in
                            the payment of any Tax during the three (3) years
                            preceding the date of this Agreement nor is there
                            any Tax deficiency outstanding, proposed or assessed
                            against the Company, nor has the Company executed
                            any waiver of any statute of limitations on or
                            extending the period for the assessment or
                            collection of any Tax.

                    (iv)    No audit or other examination of any Return of the
                            Parent is presently in progress, nor has the Company
                            been notified of any request for such an audit or
                            other examination.

                    (v)     The Parent does not have any liabilities for unpaid
                            federal, state, local and foreign Taxes which have
                            not been accrued or reserved against in accordance
                            with GAAP on the Parent Financial Statements,
                            whether asserted or unasserted, contingent or
                            otherwise, and the Company has no knowledge of any
                            basis for the assertion of any such liability
                            attributable to the Company, its assets or
                            operations.

                    (vi)    There are (and as of immediately following the
                            Closing there will be) no Liens, on the assets of
                            the Parent relating to or attributable to Taxes,
                            other than Liens for Taxes not yet due and payable.

                    (vii)   None of the Parent's assets is treated as
                            "tax-exempt use property" within the meaning of
                            Section 168(h) of the Code.

                    (viii)  The Parent is not a party to a tax sharing or
                            allocation agreement nor does the Parent owe any
                            amount under any such agreement.


          3.15  Compliance with Laws. The Parent has, which representation and
                --------------------
              warranty is limited to the Actual Knowledge of the Parent for
              purposes of Article VIII, complied with, is not in violation of,
              and has not received any notices of violation with respect to, any
              foreign, federal, state or local statute, law or regulation of
              which it should reasonably be aware of, except where any such
              non-compliance or violation would not have a Material Adverse
              Effect on the Parent.

          3.16  Minute Books. The minute books of the Parent made available upon
                ------------
              request to counsel for Company are the only minute books of the
              Parent from the date of the Parent's incorporation in the State of
              New York and contain true and correct copies of all resolutions
              adopted by the Parent's Board of Directors (or committees thereof)
              and stockholders for such period.

          3.17  Environmental Matters. Except for failures which will not have a
                ---------------------
              Material Adverse Effect on the Parent, and limited to the Actual
              Knowledge of the Parent for purposes of Article VIII, the

                                                                   Page 37
<PAGE>

              Parent has met, and continues to meet, all applicable local,
              state, federal and national environmental regulations and has
              disposed of its waste products and effluents and/or has caused
              others to dispose of such waste products and effluents in
              accordance with all applicable local, state, federal and national
              environmental regulations.

          3.18  Suppliers and Customers. There are, which representation and
                -----------------------
              warranty is limited to the Actual Knowledge of the Parent for
              purposes of Article VIII, no material agreements which commit the
              Parent to carry on business at fixed prices or prices determined
              by an established formula (it being agreed for purposes hereof
              that an agreement where the price is based on a fixed percentage
              of cost or where the customer may acquire up to a maximum number
              of Company products over a term not to exceed on (1) year are not
              deemed to be at a fixed price). Except as set forth in the
              Schedule 3.18, no customer who accounted for more than 5% of the
              Parent's sales or purchases by year since January 1, 1995 and no
              other customer material to the business of the Company has
              terminated its relationship with the Parent, has decreased or
              delayed materially, or, to the Parent's knowledge, threatened to
              decrease or delay materially its usage of the Parent's products or
              services. The Parent is not aware of any facts or events which may
              reasonably be expected to form the basis for such a decrease or
              delay. The Parent does not believe that any customer or supplier
              material to the business of the Parent will terminate or
              significantly change its relationship in a manner adverse to the
              Parent following the consummation of the transactions contemplated
              under this Agreement.


          3.19  Performance Based Compensation. Schedule 3.19 sets forth a
                ------------------------------
              correct list of all material performance based compensation
              arrangements of the Parent, except sales based commission plans
              and options under the Parent's Option Plans.


          3.20  Representations Complete. None of the representations or
                ------------------------
              warranties made by the Parent or Merger Sub (as modified by the
              Parent, disclosure schedules attached hereto (the "Parent
              Schedules")), nor any statement made in any schedule or
              certificate furnished by the Parent or Merger Sub pursuant to this
              Agreement, or furnished in or in connection with documents mailed
              or delivered to the Company Securityholders in connection with
              soliciting their consent to this Agreement and the Merger (to the
              extent prepared by the Parent or Merger Sub), contains or will
              contain, as of the date of this Agreement, or if made after the
              date of this Agreement, on the date such representation, warranty,
              or statement is first made, any untrue statement of a material
              fact, or, which representation and warranty is limited (except to
              the extent related to Parent Intellectual Property) to the Actual
              Knowledge of the Parent for purposes of Article VIII, omits or
              will omit to state, as of the date of this Agreement, or if made
              after the date of this Agreement, the date such representation,
              warranty, or statement is first made, any material fact necessary
              in order to make the statements contained herein or therein, in
              the light of the circumstances under which made, not misleading.

                                       4

                                   ARTICLE IV

                       CONDUCT PRIOR TO THE EFFECTIVE TIME

                                                                   Page 38
<PAGE>

          4.1 Conduct of Business of the Company. During the period from the
              ----------------------------------
              date of this Agreement and continuing until the earlier of the
              termination of this Agreement or the Effective Time, the Company
              agrees (except to the extent that Parent shall otherwise consent
              in writing and except with respect to the termination of employees
              and the combination of the Company's operations with that of the
              Parent and other substantial cost reduction measures all as
              discussed with or approved by Parent) to carry on its business in
              the usual, regular and ordinary course in substantially the same
              manner as heretofore conducted, to pay its debts and Taxes when
              due, to pay or perform other obligations when due, and, to the
              extent consistent with such business, to use all reasonable
              efforts consistent with past practice and policies to preserve
              intact its present business organization, keep available the
              services of its present officers and key employees and preserve
              their relationships with customers, suppliers, distributors,
              licensors, licensees, and others having business dealings with it,
              all with the goal of preserving unimpaired its goodwill and
              ongoing businesses at the Effective Time. The Company shall
              promptly notify Parent of any event not previously discussed with
              or approved by Parent which materially adversely effects the
              Company or its business. Except as expressly contemplated by this
              Agreement or disclosed in Schedule 4.1, the Company shall not,
              without the prior written consent of Parent:

                (a) Enter into any commitment or transaction not in the ordinary
                    course of business.

                (b) Transfer to any person or entity any rights to the Company
                    Intellectual Property Rights, except licenses in the
                    ordinary course of business, including without limitation
                    End-User Licenses and Third Party Licenses;

                (c) Enter into or amend any agreements pursuant to which any
                    other party is granted marketing, distribution or similar
                    rights of any type or scope with respect to any products of
                    the Company;

                (d) Amend or otherwise modify (or agree to do so), except in the
                    ordinary course of business, or violate the terms of, any of
                    the agreements set forth or described in the Company
                    Schedules;

                (e) Declare, set aside or pay any dividends on or make any other
                    distributions (whether in cash, stock or property) in
                    respect of any of its capital stock, or split, combine or
                    reclassify any of its capital stock or issue or authorize
                    the issuance of any other securities in respect of, in lieu
                    of or in substitution for shares of capital stock of the
                    Company, or repurchase, redeem or otherwise acquire,
                    directly or indirectly, any shares of its capital stock (or
                    options, warrants or other rights exercisable therefor),
                    except upon termination of employment at cost;

                (f) Except for the issuance of shares of Company Capital Stock
                    upon exercise or conversion of presently outstanding Company
                    Options or Company Preferred Stock or warrants, issue,
                    grant, deliver or sell or authorize or propose the issuance,
                    grant, delivery or sale of, or purchase or propose the
                    purchase of, any shares of Company Capital Stock or
                    securities convertible into, or subscriptions, rights,
                    warrants or options

                                                                   Page 39
<PAGE>

                    to acquire, or other agreements or commitments of any
                    character obligating it to issue any such shares or other
                    convertible securities, without the prior written consent of
                    Parent;

                (g) Cause or permit any amendments to its Certificate of
                    Incorporation or Bylaws, except as contemplated hereby;

                (h) Acquire or agree to acquire by merging or consolidating
                    with, or by purchasing any assets or equity securities of,
                    or by any other manner, any business or any corporation,
                    partnership, association or other business organization or
                    division thereof, or, other than in the ordinary course of
                    business, otherwise acquire or agree to acquire any assets
                    in an amount in excess of $5,000 per single transaction;

                (i) Sell, lease, license or otherwise dispose of any of its
                    properties or assets, except in the ordinary course of
                    business;

                (j) Incur any indebtedness for borrowed money or guarantee any
                    such indebtedness or issue or sell any debt securities of
                    the Company or guarantee any debt securities of others;

                (k) Grant any severance or termination pay (i) to any director
                    or officer or (ii) to any other employee except payments
                    made pursuant to written agreements outstanding on the date
                    hereof, or as set forth in the Company Schedules or as
                    contemplated in this Agreement;

                (l) Except as set forth in the Company Schedules or as
                    contemplated hereunder, adopt or amend any employee benefit
                    plan, or enter into any employment contract, extend
                    employment offers, pay or agree to pay any special bonus or
                    special remuneration to any director or employee, or
                    increase the salaries or wage rates of its employees,
                    without the prior written consent of Parent;

                (m) Revalue any of its assets, including without limitation
                    writing down the value of inventory or writing off notes or
                    accounts receivable other than in the ordinary course of
                    business;

                (n) Pay, discharge or satisfy, in an amount in excess of $5,000
                    (in any one case) or $15,000 (in the aggregate), any claim,
                    liability or obligation (absolute, accrued, asserted or
                    unasserted, contingent or otherwise), other than the
                    payment, discharge or satisfaction of liabilities reflected
                    or reserved against in the Company Financial Statements (or
                    the notes thereto) or identified in the Company Schedules or
                    that arose in the ordinary course of business subsequent to
                    Balance Sheet Date or expenses consistent with the
                    provisions of this Agreement incurred in connection with any
                    transaction contemplated hereby;

                (o) Make or change any material election in respect of Taxes,
                    adopt or change any accounting method in respect of Taxes,
                    enter into any closing agreement, settle any

                                                                   Page 40
<PAGE>

                    claim or assessment in respect of Taxes, or consent to any
                    extension or waiver of the limitation period applicable to
                    any claim or assessment in respect of Taxes; or

                (p) Enter into any strategic alliance, joint development or
                    joint marketing agreement; or

                (q) Take, or agree in writing or otherwise to take, any of the
                    actions described in Sections 4.1(a) through (q) above, or
                    any other action that would prevent the Company from
                    performing or cause the Company not to perform its covenants
                    hereunder.



          4.2 Conduct of Business of the Parent and Merger Sub. During the
              ------------------------------------------------
              period from the date of this Agreement and continuing until the
              earlier of the termination of this Agreement or the Effective
              Time, each of the Parent and Merger Sub agrees (except with
              respect to the combination of the Parent's operations with that of
              the Company and other substantial cost reduction measures all as
              discussed with or approved by Company) to carry on its business in
              the usual, regular and ordinary course in substantially the same
              manner as heretofore conducted, to pay its debts and Taxes when
              due, to pay or perform other obligations when due, and, to the
              extent consistent with such business, to use all reasonable
              efforts consistent with past practice and policies to preserve
              intact its present business organization, keep available the
              services of its present officers and key employees and preserve
              their relationships with customers, suppliers, distributors,
              licensors, licensees, and others having business dealings with it,
              all with the goal of preserving unimpaired its goodwill and
              ongoing businesses at the Effective Time. The Parent shall
              promptly notify Company of any event not previously discussed with
              or approved by Company which materially adversely effects the
              Parent or its business. Except as expressly contemplated by this
              Agreement or disclosed in Schedule 4.2, neither Parent nor Merger
              Sub shall, without the prior written consent of the Company:

                (a) Enter into any commitment or transaction not in the ordinary
                    course of business, except with respect to the sale of all
                    or substantially all of the assets of, or shares in,
                    Profitkey International, Inc.

                (b) Acquire or agree to acquire by merging or consolidating
                    with, or by purchasing any assets or equity securities of,
                    or by any other manner, any business or any corporation,
                    partnership, association or other business organization or
                    division thereof, or, other than in the ordinary course of
                    business, otherwise acquire or agree to acquire any assets
                    in an amount in excess of $75,000 per single transaction;

                (c) Sell, lease, license or otherwise dispose of any of its
                    properties or assets, except in the ordinary course of
                    business;

                (d) Except for the issuance of shares of Parent Common Stock
                    upon exercise or conversion of presently outstanding Parent
                    Options or warrants, issue, grant, deliver or sell or
                    authorize or propose the issuance, grant, delivery or sale
                    of, or purchase or propose the purchase of, any shares of
                    Parent Common Stock or securities convertible into, or
                    subscriptions, rights, warrants or options to acquire, or
                    other agreements or

                                                                   Page 41
<PAGE>

                    commitments of any character obligating it to issue any such
                    shares or other convertible securities, without the prior
                    written consent of Company;

                (e) Incur any indebtedness for borrowed money or guarantee any
                    such indebtedness or issue or sell any debt securities of
                    the Parent or guarantee any debt securities of others, in
                    each case, in excess of $100,000;

                (f) Declare, set aside or pay any dividends on or make any other
                    distributions (whether in cash, stock or property) in
                    respect of any of its capital stock, or split, combine or
                    reclassify any of its capital stock or issue or authorize
                    the issuance of any other securities in respect of, in lieu
                    of or in substitution for shares of capital stock of the
                    Company, or repurchase, redeem or otherwise acquire,
                    directly or indirectly, any shares of its capital stock (or
                    options, warrants or other rights exercisable therefor),
                    except upon termination of employment at cost; and

                (g) Continue to file with the SEC such reports as are required
                    by applicable law.



                                        5

                                    ARTICLE V

                              ADDITIONAL AGREEMENTS



          5.1 No Solicitation.
              ---------------

                (a) The Company shall not, directly or indirectly, through any
                    officer, director, employee, representative or agent of the
                    Company or any of its subsidiaries, (i) solicit, initiate or
                    encourage any inquiries or proposals regarding any merger,
                    sale of substantial assets, sale of the outstanding shares
                    of capital stock (including without limitation by way of a
                    tender offer) or similar transactions involving the Company
                    other than the Merger (any of the foregoing inquiries or
                    proposals being referred to herein as an "Acquisition
                    Proposals"), (ii) engage in negotiations or discussions
                    concerning, or provide any nonpublic information to any
                    person relating to, any Acquisition Proposal or (iii) agree
                    to, approve or recommend any Acquisition Proposal. Nothing
                    contained in this Section 5.1(a) shall prevent the Board of
                    Directors of the Company from considering, negotiating,
                    discussing, approving and recommending to the stockholders
                    of the Company a bona fide Acquisition Proposal not
                    solicited in violation of this Agreement, provided the Board
                    of Directors of the Company determines in good faith that it
                    is required to do so in order to discharge properly its
                    fiduciary duties.

                                                                   Page 42
<PAGE>

                (b) Unless otherwise required under the applicable fiduciary
                    duties of the directors of the Company, the Company shall
                    promptly notify Parent after receipt of any Acquisition
                    Proposal, or any material modification of or amendment to
                    any Acquisition Proposal. Such notice to Acquiror shall
                    indicate the name of the person making such Acquisition
                    Proposal, the terms and conditions of such Acquisition
                    Proposal, and whether the Company is providing or intends to
                    provide the person making the Acquisition Proposal with
                    access to information concerning the Company as provided in
                    Section 5.1(c), and the Company shall furnish Parent with
                    copies of any written Acquisition Proposal and the contents
                    of any communications in response thereto. The Company shall
                    not waive any provisions of any "standstill" agreements
                    between the Company and any party, except to the extent that
                    such waiver is, as advised by counsel, required by the
                    fiduciary duties of the directors of the Company.

                (c) If the Board of Directors of the Company receives a request
                    for nonpublic information by a person who makes, or
                    indicates that it is considering making, a bona fide
                    Acquisition Proposal, and the Board of Directors determines
                    in good faith that it is required to cause the Company to
                    act as provided in this Section 5.1(c) in order to discharge
                    properly the directors' fiduciary duties, then, provided
                    such person has executed a confidentiality agreement with
                    the Company, the Company may provide such person with access
                    to information regarding the Company


          5.2 Preparation of Information Statement. As soon as practicable after
              ------------------------------------
              the execution of this Agreement, but in no event later than 7days
              from the date hereof, Parent and Company shall prepare an
              information statement (the "Information Statement") for the
                                          ---------------------
              Company Securityholders to approve this Agreement, the Certificate
              of Merger and the transactions contemplated hereby and thereby.
              Company shall use its reasonable commercial efforts, with the
              cooperation of Parent, to cause such Information Statement to be
              distributed to Company's stockholders as soon as practicable after
              the execution of this Agreement. Each of Parent and Company agrees
              to provide promptly to the other such information concerning its
              business and financial statements and affairs as, in the
              reasonable judgment of the providing party or its counsel, may be
              required or appropriate for inclusion in the Information
              Statement, or in any amendments or supplements thereto, and to
              cause its counsel and auditors to cooperate with the other's
              counsel and auditors in the preparation of the Information
              Statement. Company will promptly advise Parent, and Parent will
              promptly advise Company, in writing if at any time prior to the
              Effective Time either Company or Parent shall obtain knowledge of
              any facts that might make it necessary or appropriate to amend or
              supplement the Information Statement in order to make the
              statements contained or incorporated by reference therein not
              misleading or to comply with applicable law. The Information
              Statement shall, subject to Section 5.1, contain the
              recommendation of the Board of Directors of Company that the
              Company Securityholders approve the Merger and this Agreement and
              the conclusion of the Board of Directors of Company that the terms
              and conditions of the Merger are fair and reasonable to the
              stockholders of Company. Anything to the contrary contained herein
              notwithstanding, Company shall not include in the Information
              Statement any information with respect to Parent or its Affiliates
              or associates, the form and content of which information shall not
              have been approved by Parent prior to such inclusion, which
              approval shall not be unreasonably withheld.

                                                                   Page 43
<PAGE>

5.3  Meeting. The Company shall call the Special Meeting to be held as promptly
     -------
     as practicable for the purpose of voting upon this Agreement and related
     matters. Subject to Section 5.1 hereof, the Company will, through its
     Boards of Directors, recommend to Company Securityholders approval of such
     matters. The Company and Parent shall coordinate and cooperate with respect
     to the timing of such meeting and the Company shall use its best efforts to
     hold such meeting as soon as practicable after the date hereof, giving due
     consideration for providing Company Securityholders sufficient notice under
     the appraisal provisions of Delaware Law.


5.4  Securities Act Exemption. The Parent Common Stock to be issued pursuant to
     ------------------------
     this Agreement initially will not be registered under the Securities Act,
     in reliance on the exemption set forth in Section 4(2) thereof and
     Regulation D promulgated thereunder.


5.5  Stock Restrictions. In addition to any legend imposed by applicable state
     ------------------
     securities laws or by any contract which continues in effect after the
     Effective Time, the certificates representing the shares of Parent Common
     Stock issued to the Affiliates of the Company pursuant to this Agreement
     shall bear a restrictive legend (and stop transfer orders shall be placed
     against the transfer thereof with Parent's transfer agent), stating
     substantially as follows:

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
     PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
     TRANSFERRED PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
     REGISTRATION STATEMENT UNDER SAID ACT OR A WRITTEN OPINION OF COUNSEL,
     REASONABLY ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE, THAT SUCH
     TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SAID ACT.


5.6  Access to Information. Subject to any applicable contractual
     ---------------------
     confidentiality obligations (which the Company shall use its best efforts
     to cause to be waived) and subject to the terms of the Confidentiality
     provisions of the Letter of Intent dated December 5th, 1997 between the
     Company and Parent the terms of which to the extent not inconsistent with
     the provisions of this Agreement are incorporated herein and made a part
     hereof, and survive the execution of this Agreement, each of the Company
     and Parent shall afford the other and its accountants, counsel and other
     representatives, reasonable access during normal business hours during the
     period prior to the Effective Time to (a) all of its properties, books,
     contracts, agreements and records, and (b) all other information concerning
     the business, properties and personnel (subject to restrictions imposed by
     applicable law) of it as the other may reasonably request. In addition, the
     Company shall provide to Parent on a weekly basis a report detailing the
     Company's cash receipts and disbursements for the prior week. No
     information or knowledge obtained in any investigation pursuant to this
     Section 5.6 shall affect or be deemed to modify any representation or
     warranty contained herein or the conditions to the obligations of the
     parties to consummate the Merger.

                                                                         Page 44
<PAGE>

5.7  Public Disclosure. Unless otherwise required by law (including, without
     -----------------
     limitation, securities laws), prior to the Effective Time, no disclosure
     (whether or not in response to an inquiry) of the subject matter of this
     Agreement shall be made by any party hereto unless approved by Parent and
     the Company prior to release, provided that such approval shall not be
     unreasonably withheld. If such disclosure is required by law, the party
     required by law to so disclose shall deliver the disclosure to the other
     party prior to the disclosure and to the extent possible, incorporate the
     other party's comments therein.


5.8  Reasonable Efforts. Subject to the terms and conditions provided in this
     ------------------
     Agreement, each of the parties hereto shall use its reasonable efforts to
     take promptly, or cause to be taken, all actions, and to do promptly, or
     cause to be done, all things necessary, proper or advisable under
     applicable laws and regulations to consummate and make effective the
     transactions contemplated hereby to obtain all necessary waivers, consents
     and approvals and to effect all necessary registrations and filings and to
     remove any injunctions or other impediments or delays, legal or otherwise,
     in order to consummate and make effective the transactions contemplated by
     this Agreement for the purpose of securing to the parties hereto the
     benefits contemplated by this Agreement; provided that Parent shall not be
     required to agree to any divestiture by Parent or the Company or any of
     Parent's subsidiaries or affiliates of shares of capital stock or of any
     business, assets or property of Parent or its subsidiaries or affiliates or
     the Company or its affiliates, or the imposition of any material limitation
     on the ability of any of them to conduct their businesses or to own or
     exercise control of such assets, properties and stock.


5.9  Notification of Certain Matters. The Company shall use reasonable efforts
     -------------------------------
     to give prompt notice to Parent, and Parent shall use reasonable efforts to
     give prompt notice to the Company, of (i) the occurrence or non-occurrence
     of any event, the occurrence or non-occurrence of which is likely to cause
     any representation or warranty of the Company or Parent and Merger Sub,
     respectively, contained in this Agreement to be untrue or inaccurate in any
     material respect at or prior to the Effective Time except as contemplated
     by their Agreement (including the Company Schedules) and (ii) any failure
     of the Company or Parent, as the case may be, to comply with or satisfy in
     any material respect any covenant, condition or agreement to be complied
     with or satisfied by it hereunder; provided, however, that the delivery of
     any notice pursuant to this Section 5.9 shall not limit or otherwise affect
     any remedies available to the party receiving such notice.


5.10 Registration Rights Agreement. Parent hereby agrees to grant to the holders
     -----------------------------
     of Parent Common Stock issued pursuant to this Agreement registration
     rights as set forth in the Registration Rights Agreement, the form of which
     is attached hereto as Exhibit G (the "Registration Rights Agreement").
                                           -----------------------------

5.11 Additional Documents and Further Assurances. Each party hereto, at the
     -------------------------------------------
     request of the other party hereto, shall execute and deliver such other
     instruments and do and perform such other acts

                                                                         Page 45
<PAGE>

     and things as may be necessary or desirable for effecting completely the
     consummation of this Agreement and the transactions contemplated hereby.


5.12 Legal Requirements. Each of Parent, Merger Sub and Company will take all
     ------------------
     reasonable actions necessary or desirable to comply promptly with all legal
     requirements which may be imposed on them with respect to the consummation
     of the transaction contemplated by this Agreement (including furnishing all
     information required in connection with approvals by or filings with any
     Governmental Entity) and will promptly cooperate with and furnish
     information to any party hereto necessary in connection with any such
     filings with or investigations by any Governmental Entity, and any other
     such requirements imposed upon any of them or their respective subsidiaries
     in connection with a consummation of the transaction contemplated by this
     Agreement. Parent shall take such steps as may be necessary to comply with
     the securities and blue sky laws of all jurisdictions which are applicable
     to the issuance of the Parent Common Stock pursuant hereto. The Company
     shall use its reasonable efforts to assist Parent as may be necessary to
     comply with the securities and blue sky laws of all jurisdictions which are
     applicable in connection with the issuance of Parent Common Stock pursuant
     hereto.


5.13 Third Party Consents. As soon as practical following the date hereof Parent
     --------------------
     and Company will each use its commercially reasonable efforts to obtain all
     material consents, waivers and approvals under any of its or its
     subsidiaries agreements, contracts, licenses or leases required to be
     obtained in connection with the consummation of the transactions
     contemplated hereby.


5.14 Board of Directors of the Combined Company. The Board of Directors of
     ------------------------------------------
     Parent will take all actions necessary to cause the Board of Directors of
     Parent, immediately after the Effective Time, to consist of 7 persons, 6 of
     whom shall have served on the Board of Directors of Parent immediately
     prior to the Effective Time and one of whom shall be Robert Brill and to
     cause Robert Brill to continue to serve as director for a period of two
     years after the Calculation Date.


5.15 Indemnification. From and after the Effective Time, Parent and the
     ---------------
     Surviving Corporation jointly and severally shall, indemnify, defend and
     hold harmless each person who is now, or has been at any time prior to the
     date of this Agreement or who becomes prior to the Effective Time, an
     officer, director or an employee of the Company (the "Indemnified Parties")
                                                           -------------------
     in respect of acts or omissions occurring on or prior to the Effective Time
     to the extent provided under the Company's Certificate of Incorporation and
     Bylaws and Indemnification Agreements in effect on the date hereof,
     including but not limited to payment of legal fees; provided that such
     indemnification shall be subject to any limitation imposed from time to
     time under applicable law and provided further that it is understood that
     the foregoing undertaking shall not grant to any such officers, directors
     or employees or other person rights of indemnity against either Parent or
     the Surviving Corporation more extensive than those such persons may
     currently have against the Company. The provisions of this Section 5.15 are
     intended to be for the benefit of, and shall be enforceable by, each
     Indemnified Party, his or her heirs and representatives.

                                                                         Page 46
<PAGE>

5.16 Stockholder Solicitation Materials. The Company shall use is best efforts
     ----------------------------------
     to ensure that the Information Statements to the extent prepared by the
     Company do not contain any untrue statement of a material fact or omit to
     state any material fact necessary in order to make the statements contained
     therein, in the light of the circumstances under which made, not
     misleading.


5.17 List of Stockholders, Optionholders and Warrantholders. Immediately prior
     ------------------------------------------------------
     to the Effective Time, the Company shall deliver to Parent the information
     set forth in Schedules 2.2(a) and 2.2(b) current as of immediately prior to
     the Effective Time.


5.18 NASDAQ Quotation. Parent shall cause the shares of Parent Common Stock
     ----------------
     issuable pursuant to the Merger to be authorized for quotation on the
     NASDAQ, upon official notice of issuance.


5.19 Dividends. After the Effective Time and until the Calculation Date, Parent
     ---------
     shall not declare, set aside or pay any dividends on or make any other
     distributions (whether in cash, stock or property) in respect of any of its
     capital stock, or split, combine or reclassify any of its capital stock or
     issue or authorize the issuance of any other securities in respect of, in
     lieu of or in substitution for shares of capital stock of the Company, or
     repurchase, redeem or otherwise acquire, directly or indirectly, any shares
     of its capital stock (or options, warrants or other rights exercisable
     therefor), except upon termination of employment at cost.


5.20 Review of Returns. Notwithstanding any other provision of this Agreement,
     Parent shall have 10 days from the date hereof to review any Returns
     provided to it by the Company in connection with the transactions
     contemplated herein and may accept or reject, at its reasonable discretion,
     any Return or part thereof. Upon a receipt by Company, no later than the
     end of such 10 day period, of a notice to the effect that any Return or
     part thereof is not acceptable to Parent, the parties shall deem this
     Agreement, for all purposes whatsoever, as if it had never been executed.
     The failure of the Parent to timely provide such notice shall be deemed a
     waiver by the Parent of its rights pursuant to this Section 5.20.



                                       6

                                  ARTICLE VI

                           DOCUMENTS TO BE DELIVERED

                                                                         Page 47
<PAGE>

6.1  Documents to Be Delivered by the Company at Closing. At the Closing, the
     ---------------------------------------------------
     Company shall deliver or shall cause to be delivered, the following
     documents to Parent and Merger Sub:

        (a)  Third Party Consents. Evidence satisfactory to Parent and Merger
             --------------------
             Sub that the Company has obtained the consents, approvals and
             waivers set forth in Schedule 2.4.

        (b)  Legal Opinion. A legal opinion from counsel to the Company, in form
             -------------
             and substance reasonably satisfactory to Parent and its counsel.

        (c)  Certificate of Merger. An executed Certificate of Merger in the
             ---------------------
             form of Exhibit B.

        (d)  Affiliates Letter. An executed Affiliates Letter.
             -----------------

        (e)  Resignation. The resignation of each director of Company, in form
             -----------
             and substance reasonably acceptable to Parent, effective as of the
             Effective Time.

        (f)  Certificates. The certificates referred to in Section 7.2(a) and
             ------------
             Section 7.2(b).

        (g)  Voting Agreement. A voting agreement in favor of Liraz
             ----------------
             substantially in the form attached hereto as Exhibit H executed by
             the Trust.

        (h)  Lock Up Agreement. A lock up agreement substantially in the form
             -----------------
             attached hereto as Exhibit I executed by each Affiliate and the
             Trust.

        (i)  Severance Agreements. Severance agreements executed by each person
             --------------------
             in the list to be reasonably agreed to by the parties, including a
             waiver of any claims against Company, Parent and Merger Sub.




6.2  Documents to be Delivered by the Parent and Merger Sub at Closing. At the
     -----------------------------------------------------------------
     Closing, the Parent and Merger Sub shall deliver or shall cause to be
     delivered, the following documents to the Company:

        (a)  Legal Opinion. A legal opinion from Counsel to Parent, in form and
             -------------
             substance reasonably satisfactory to the Company and its counsel.

        (b)  Certificate of Merger. An executed Certificate of Merger in the
             ---------------------
             form of Exhibit B.

        (c)  Third Party Consents. Evidence satisfactory to the Company that the
             --------------------
             Parent has obtained the consents, approvals and waivers set forth
             in Schedule 3.2 and Schedule 3.12.

        (d)  Certificates. The certificates referred to in Section 7.3(a) and
             ------------
             Section 7.3(b).

                                                                         Page 48
<PAGE>

        (e)  Registration Rights Agreement. An executed Registration Rights
             -----------------------------
             Agreement.


                                       7

                                  ARTICLE VII

                           CONDITIONS TO THE MERGER



7.1  Conditions to Obligations of Each Party to Effect the Merger. The
     ------------------------------------------------------------
     respective obligations of each party to this Agreement to effect the Merger
     shall be subject to the satisfaction at or prior to the Closing of the
     following conditions:

        (a)  Stockholder Approval. This Agreement and the Merger shall have been
             --------------------
             approved and adopted by the Company Securityholders by the
             requisite vote under applicable law and the Company's Certificate
             of Incorporation.

        (b)  Information Statement. The distribution of the Information
             ---------------------
             Statement to all of the Company Securityholders shall have occurred
             no later than 7 business days prior to the Effective Time.

        (c)  No Injunctions or Restraints; Illegality. No temporary restraining
             ----------------------------------------
             order, preliminary or permanent injunction or other order issued by
             any court of competent jurisdiction or other legal or regulatory
             restraint or prohibition preventing the consummation of the Merger
             shall be in effect.

        (d)  Tax Returns. Company shall have filed all Returns required to be
             -----------
             filed on or before the Closing Date and copies of such Returns
             shall have been previously provided to Parent.

        (e)  Permit. The requirements of all other state securities or "blue
             ------
             sky" laws applicable to the transactions contemplated by this
             Agreement shall have been fulfilled.



7.2  Additional Conditions to Obligations of the Company. The obligations of the
     ---------------------------------------------------
     Company to consummate the Merger and the transactions contemplated by this
     Agreement shall be subject to the satisfaction at or prior to the Closing
     of each of the following conditions, any of which may be waived, in
     writing, exclusively by the Company:

        (a)  Representations and Warranties. The representations and warranties
             ------------------------------
             of Parent and Merger Sub contained in this Agreement shall be true
             and correct in all material respects on and as of the Effective
             Time with the same effect as though such

                                                                         Page 49
<PAGE>

             representations and warranties had been made on and as of the
             Effective Time, except for changes contemplated by this Agreement
             and except for such breaches, inaccuracies or omissions of such
             representations and warranties which have neither had nor
             reasonably would be expected to have a Material Adverse Effect on
             Parent; and the Company shall have received a certificate to such
             effect signed on behalf of Parent by a duly authorized officer of
             Parent.

        (b)  Agreements and Covenants. Parent and Merger Sub shall have
             ------------------------
             performed or complied (which performance or compliance shall be
             subject to Parent's or Merger Sub's ability to cure as provided in
             Section 9.1(e) below) in all material respects with all agreements
             and covenants required by this Agreement to be performed or
             complied with by them on or prior to the Effective Time, and the
             Company shall have received a certificate to such effect signed by
             a duly authorized officer of Parent.

        (c)  Board of Directors of Parent. The Board of Directors of Parent will
             ----------------------------
             take all actions necessary to cause the Board of Directors of
             Parent, immediately after the Effective Time, to consist of 7
             persons, 6 of whom shall have served on the Board of Directors of
             Parent immediately prior to the Effective Time and 1 of whom shall
             be Robert Brill.

        (d)  NASDAQ Quotation. Parent shall have caused the shares of Parent
             ----------------
             Common Stock issuable pursuant to the Merger to be authorized for
             quotation on the NASDAQ.

        (e)  Legal Opinion. The Company shall have received a legal opinion from
             -------------
             Counsel to Parent, in form and substance reasonably satisfactory to
             the Company an its counsel.

        (f)  No Material Adverse Effect. Since the date hereof, no Material
             --------------------------
             Adverse Effect to the business or financial condition of the Parent
             shall have occurred and be continuing.

        (g)  Costs Summary. Company shall have received the Costs Summary
             -------------
             at least two (2) business days prior to the Effective Time.

        (h)  Closing Date Price. The Closing Date Price shall be no less
             ------------------
             than $8.00.


7.3  Additional Conditions to the Obligations of Parent and Merger Sub. The
     -----------------------------------------------------------------
     obligations of Parent and Merger Sub to consummate the Merger and the
     transactions contemplated by this Agreement shall be subject to the
     satisfaction at or prior to the Closing of each of the following
     conditions, any of which may be waived, in writing, exclusively by Parent:

        (a)  Representations and Warranties. The representations and warranties
             of the Company contained in this Agreement shall be true and
             correct in all material respects on and as of the Effective Time
             with the same effect as though such representations and warranties
             had been made on and as of the Effective Time, except for changes
             contemplated by this Agreement (including the Company Schedules)
             and except for such breaches, inaccuracies or omissions of such
             representations and warranties which

                                                                         Page 50
<PAGE>

             have neither had nor reasonably would be expected to have a
             Material Adverse Effect on the Company or Parent; and Parent and
             Merger Sub shall have received a certificate to such effect signed
             on behalf of the Company by a duly authorized officer of the
             Company;

        (b)  Agreements and Covenants. The Company shall have performed or
             ------------------------
             complied (which performance or compliance shall be subject to the
             Company's ability to cure as provided in Section 9.1(d) below) in
             all material respects with all agreements and covenants required by
             this Agreement to be performed or complied with by it on or prior
             to the Closing Date, and Parent and Merger Sub shall have received
             a certificate to such effect signed by a duly authorized officer of
             the Company;

        (c)  Dissenters' Rights. Holders of not more than 5% of the outstanding
             ------------------
             shares of Company Preferred Series shall have exercised, nor shall
             they have any continued right to exercise, appraisal, dissenters'
             or similar rights under applicable law with respect to their shares
             by virtue of the Merger.

        (d)  Consent of Company Warrantholders. Holders of not more than 5% of
             ---------------------------------
             the outstanding Company Warrants have refused to the waiver of
             their right to exercise their Company Warrants directly into shares
             of Parent Common Stock after the Effective Time.

        (e)  Costs Summary. Parent shall have received the Costs Summary at
             -------------
             least two (2) business days prior to the Effective Time.

        (f)  Legal Opinion. The Parent shall have received a legal opinion from
             -------------
             Counsel to Company, in form and substance reasonably satisfactory
             to the Parent and its counsel.

        (g)  No Material Adverse Effect. Since the date hereof, no Material
             --------------------------
             Adverse Effect to the business or financial condition of the
             Company shall have occurred and be continuing.

        (h)  Opinion of Financial Advisor. Company has received from C. E.
             ----------------------------
             Unterberg, Towbin, its financial advisor, an opinion that the terms
             of the Merger are fair to the Company Securityholders as a whole
             from a financial point of view.

        (i)  Severance Agreements. The Parent shall have received the severance
             --------------------
             agreements referred to in Section 6.1(i).


                                       8

                                  ARTICLE VIII


               SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW

                                                                         Page 51
<PAGE>

8.1  Survival of Representations and Warranties. All of the representations and
     ------------------------------------------
     warranties by the Company in this Agreement or in any instrument delivered
     at the Closing pursuant to this Agreement (each as modified by the Company
     Schedules) as of the date of this Agreement and all the representations and
     warranties by Parent and Merger Sub in this Agreement or in any instrument
     delivered at the Closing pursuant to this Agreement shall survive the
     Merger and shall continue through the Calculation Date.


8.2  Escrow Arrangements
     -------------------

        (a)  Escrow Fund. At the Effective Time, the Company Securityholders
             -----------
             will be deemed to have received and deposited with the Escrow Agent
             the Escrow Amount (as increased by any additional shares as may be
             issued with respect to the Escrow Amount upon any stock split,
             stock dividend or recapitalization effected by Parent after the
             Effective Time) without any act of any Company Securityholder, to
             be maintained for the benefit of the Company Securityholders and to
             secure the representations and warranties of the Company hereunder,
             such deposit to constitute an escrow fund (the "Escrow Fund") to be
                                                             -----------
             governed by the terms set forth herein and at Parent's cost and
             expense. The Escrow Fund shall be available to compensate,
             reimburse, defend, indemnify and hold harmless the Parent and its
             affiliates (including the Surviving Corporation) for any claims,
             losses, liabilities, damages, deficiencies, costs and expenses,
             including reasonable attorneys' fees and expenses and expenses of
             investigation and defense incurred by Parent, its officers,
             directors or affiliates (including the Surviving Corporation)
             directly or indirectly as a result of (i) any material inaccuracy
             or breach of a representation or warranty of the Company contained
             herein and not waived by the Parent, or in any certificate,
             instrument, schedule or document delivered by the Company in
             connection with this Agreement or the Merger, (ii) any material
             failure by the Company to perform or comply with any covenant
             contained herein, (iii) for any untrue statement of a material fact
             or omission to state any material fact necessary in order to make
             the statements, in the light of the circumstances under which made,
             not misleading in any documents mailed, delivered or otherwise
             furnished to the Company Securityholders in connection with
             soliciting their consent to this Agreement and the Merger, to the
             extent prepared by the Company or (iv) any payment made to
             Information Builders, Inc. after the date hereof with respect to
             the December 31, 1997 termination of its license agreement with
             Company (hereinafter individually a "Loss" and collectively
                                                  ----
             "Losses"). Parent may not receive any shares from the Escrow Fund
              ------
             unless and until Officer's Certificates (as defined below)
             identifying Losses, the aggregate amount of which exceed $50,000,
             have been delivered to the Escrow Agent as provided in paragraph
             (d) and either there is no objection thereto or any objection has
             been resolved in favor of the Parent in accordance with the
             provisions of this Article VIII; in such case, Parent may recover
             from the Escrow Fund any Losses so identified in accordance with
             the provisions of this Section 8.2. The Escrow Fund shall be the
             sole source of damages to Parent arising from any claim hereunder
             (other than for damages due to fraud or willful misrepresentation).

                                                                         Page 52
<PAGE>

        (b)  Escrow Period; Distribution upon Termination of Escrow Period.
             -------------------------------------------------------------
             Subject to the following requirements, the Escrow Fund shall be in
             existence immediately following the Effective Time and shall
             terminate at 5:00 p.m., New York time on the Calculation Date (the
             "Escrow Period"). Such amount (or some portion thereof) that is
              -------------
             necessary in the reasonable judgment of Parent, subject to the
             objection of the Merger Agent and the subsequent arbitration of the
             matter in the manner provided in Section 8.2(f) hereof, to satisfy
             any unsatisfied claims concerning facts and circumstances existing
             prior to the termination of such Escrow Period as are specified in
             any Officer's Certificate delivered to the Escrow Agent prior to
             termination of such Escrow Period, may be retained in the Escrow
             Fund after termination of the Escrow Period. As soon as all such
             claims have been resolved as evidenced by the written memorandum of
             the Merger Agent and Parent, the Escrow Agent shall deliver to the
             Trust such portion of the balance of the Escrow Fund that is not
             required to satisfy such claims, as certified by the Trustee to
             represent the portion of the Merger Consideration payable to
             Delivered Securityholders and to the Transfer Agent the remaining
             portion of the Escrow Fund for the benefit of Undelivered
             Securityholders who are entitled to a portion of the Merger
             Consideration in such amounts as certified to the Transfer Agent by
             the Trustee. If no Officer's Certificate pertaining to unsatisfied
             claims is delivered to the Escrow Agent prior to the termination of
             the Escrow Period, upon termination of the Escrow Period, the
             Escrow Agent, without further authorization or instruction, shall
             distribute the remainder of the Escrow Fund as provided in the
             previous sentence.


        (c)  Protection of Escrow Fund.
             -------------------------

             (i)    The Escrow Agent shall hold and safeguard the Escrow Fund
                    during the Escrow Period, shall treat such fund as a trust
                    fund in accordance with the terms of this Agreement and not
                    as the property of Parent and shall hold and dispose of the
                    Escrow Fund only in accordance with the terms hereof.

             (ii)   Any shares of Parent Common Stock or other equity securities
                    issued or distributed by Parent (including shares issued
                    upon a stock split) ("New Shares") in respect of Parent
                                          ----------
                    Common Stock in the Escrow Fund which have not been released
                    from the Escrow Fund shall be deposited with the Escrow
                    Agent and added to the Escrow Fund and become a part
                    thereof. New Shares issued in respect of shares of Parent
                    Common Stock which have been released from the Escrow Fund
                    shall not be added to the Escrow Fund but shall be
                    distributed to the distributee thereof. Cash dividends on
                    Parent Common Stock held in the Escrow Fund shall not be
                    added to the Escrow Fund but shall be distributed to the
                    Trust on behalf of Delivered Securityholders in accordance
                    with their respective Beneficial Interests, with the balance
                    delivered to the Transfer Agent for the benefit of
                    Undelivered Securityholders.

              (iii) Except as otherwise provided in this Article VIII, the Trust
                    shall have all indicia of ownership, including, without
                    limitation, voting rights with respect to the shares of
                    Parent Common Stock contributed to the Escrow Fund (and on
                    any

                                                                         Page 53
<PAGE>

                    voting securities added to the Escrow Fund in respect of
                    such shares of Parent Common Stock) and rights to receive
                    distributions thereon.

        (d)  Claims Upon Escrow Fund.
             -----------------------

             (i)    Upon receipt by the Escrow Agent at any time on or before
                    the last day of the Escrow Period of a certificate signed by
                    the President of Parent (an "Officer's Certificate") (A)
                                                 ---------------------
                    stating that Parent has paid or properly accrued or
                    reasonably anticipates that it will have to pay or accrue
                    Losses, and (B) specifying in reasonable detail the
                    individual items of Losses included in the amount so stated,
                    the date each such item was paid or properly accrued, or the
                    basis for such anticipated liability, and the nature of the
                    misrepresentation, breach of warranty or covenant to which
                    such item is related, the Escrow Agent shall, subject to the
                    provisions of Section 8.2(e) hereof, deliver to Parent out
                    of the Escrow Fund, as promptly as practicable, shares of
                    Parent Common Stock held in the Escrow Fund in an amount
                    equal to such Losses.

             (ii)   Claims by or relating to Dissenting Shareholders shall be
                    deemed claims on the Escrow Fund until settled and
                    satisfied.

             (iii)  For the purposes of determining the number of shares of
                    Parent Common Stock to be delivered to Parent out of the
                    Escrow Fund pursuant to Section 8.2(d)(i) hereof, each share
                    of Parent Common Stock shall be valued at the Stock Value as
                    of such date.

        (e)  Objections to Claims. At the time of delivery of any Officer's
             --------------------
             Certificate to the Escrow Agent, a duplicate copy of such
             certificate shall be delivered to the Merger Agent and counsel for
             the Trust and for a period of thirty (30) days after receipt of
             such Officer's Certificate by the Merger Agent, the Escrow Agent
             shall make no delivery to Parent of any Escrow Amounts pursuant to
             Section 8.2(d) hereof unless the Escrow Agent shall have received
             written authorization from the Merger Agent to make such delivery.
             After the expiration of such thirty (30) day period, the Escrow
             Agent shall make delivery of shares of Parent Common Stock from the
             Escrow Fund in accordance with Section 8.2(d) hereof, provided that
             no such payment or delivery may be made if the Merger Agent shall
             object in a written statement to the claim made in the Officer's
             Certificate, and such statement shall have been delivered to the
             Escrow Agent prior to the expiration of such thirty (30) day
             period, to the extent of the amount so objected.

        (f)  Resolution of Conflicts; Arbitration.
             ------------------------------------

             (i)    In case the Merger Agent shall so object in writing to any
                    claim or claims made in any Officer's Certificate, the
                    Merger Agent and Parent shall attempt in good faith for
                    thirty (30) days to agree upon the rights of the respective
                    parties with respect to each of such claims. If the Merger
                    Agent and Parent should so agree, a memorandum setting forth
                    such agreement shall be prepared and signed by both parties
                    and shall be furnished to the Escrow Agent. The Escrow


                                                                         Page 54
<PAGE>

                    Agent shall be entitled to rely on any such memorandum and
                    distribute shares of Parent Common Stock from the Escrow
                    Fund in accordance with the terms thereof.

             (ii)   If no such agreement can be reached after such good faith
                    negotiation, either Parent or the Merger Agent may demand
                    arbitration of the matter unless the amount of the damage or
                    loss is at issue in pending litigation with a third party,
                    in which event arbitration shall not be commenced until such
                    amount is ascertained or both parties agree to arbitration;
                    and in either such event the matter shall be settled by
                    arbitration conducted by three arbitrators. Parent and the
                    Merger Agent shall each select one arbitrator, and the two
                    arbitrators so selected shall select a third arbitrator,
                    each of which arbitrators shall be independent and have at
                    least ten years relevant experience. The arbitrators shall
                    set a limited time period and establish procedures designed
                    to reduce the cost and time for discovery while allowing the
                    parties an opportunity, adequate in the sole judgment of the
                    arbitrators, to discover relevant information from the
                    opposing parties about the subject matter of the dispute.
                    The arbitrators shall rule upon motions to compel or limit
                    discovery and shall have the authority to impose sanctions,
                    including attorneys fees and costs, to the same extent as a
                    court of competent law or equity, should the arbitrators
                    determine that discovery was sought without substantial
                    justification or that discovery was refused or objected to
                    without substantial justification. The decision of a
                    majority of the three arbitrators as to the validity and
                    amount of any claim in such Officer's Certificate shall be
                    binding and conclusive upon the parties to this Agreement,
                    and notwithstanding anything in Section 8.2(e) hereof, the
                    Escrow Agent shall be entitled to act in accordance with
                    such decision and make or withhold payments out of the
                    Escrow Fund in accordance therewith. Such decision shall be
                    written and shall be supported by written findings of fact
                    and conclusions which shall set forth the award, judgment,
                    decree or order awarded by the arbitrators.

             (iii)  Any such arbitration shall be held in New York City and
                    shall be conducted by, and under the commercial rules then
                    in effect, of the American Arbitration Association. For
                    purposes of this Section 8.2(f), in any arbitration
                    hereunder in which any claim or the amount is at issue,
                    Parent shall be deemed to be the Prevailing Party in the
                    event that the arbitrators award Parent 50% or more of the
                    disputed amount; otherwise, the Parent shall be deemed to be
                    the Non-Prevailing Party. The Non-Prevailing Party to an
                    arbitration shall pay its own expenses, the fees of each
                    arbitrator, the administrative costs of the arbitration, and
                    the expenses, including without limitation, reasonable
                    attorneys' fees and costs, incurred by the other party to
                    the arbitration. Judgment upon any award rendered by the
                    arbitrators may be entered in any court having jurisdiction;
                    provided, however, that in no event will the Non-Prevailing
                    Party be required to pay any legal fees and costs of the
                    Prevailing Party in an amount in excess of one-third of the
                    disputed amount awarded the Prevailing Party. The Merger
                    Agent may pay such amounts (including without limitation
                    unreimbursed

                                                                         Page 55
<PAGE>

                    expenses of counsel for the Company Securityholders and
                    Parent, arbitrator fees and administrative costs) by
                    distributing shares of Parent Common Stock held by the Trust
                    or from the Escrow Fund with respect to which Parent has not
                    made a claim; provided, however, that no shares of Parent
                    Common Stock may be distributed from the Escrow Fund prior
                    to the termination of the Escrow Period and such shares may
                    be distributed only to the extent that such shares are not
                    required to satisfy any claim for Losses.

        (g)  Third-Party Claims. In the event Parent becomes aware of a third-
             ------------------
             party claim, which Parent believes may result in a demand against
             the Escrow Fund, Parent shall notify the Merger Agent of such
             claim, and the Merger Agent, as representative for the Company
             Securityholders, shall be entitled, at the expense of the Company
             Securityholders, to participate in any defense of such claim.
             Parent shall have the right in its sole discretion to settle any
             such claim; provided, however, that except with the consent of the
             Merger Agent, no settlement of any such claim with third-party
             claimants shall alone be determinative of the amount of any claim
             against the Escrow Fund. In the event that the Merger Agent has
             consented to any such settlement and acknowledged that the claim is
             a valid claim against the Escrow Fund, the Merger Agent shall have
             no power or authority to object under any provision of this Article
             VIII to the amount of any claim by Parent against the Escrow Fund
             with respect to such settlement amount.


        (h)  Escrow Agent's Duties.
             ---------------------

             (i)     The Escrow Agent shall be obligated only for the
                     performance of such duties as are specifically set forth in
                     this Article VIII, and as set forth in any additional
                     written escrow instructions which the Escrow Agent may
                     receive after the date of this Agreement which are signed
                     by an officer of Parent and the Merger Agent and approved
                     by the Escrow Agent, and may rely and shall be protected in
                     relying or refraining from acting on any Officer's
                     Certificate, memorandum, instruction or other instrument
                     reasonably believed to be genuine and to have been signed
                     or presented by the proper party or parties. The Escrow
                     Agent shall not be liable for any act done or omitted
                     hereunder as Escrow Agent while acting in good faith and in
                     the exercise of reasonable judgment, and any act done or
                     omitted pursuant to the advice of counsel shall be
                     conclusive evidence of such good faith.

             (ii)    The Escrow Agent is hereby expressly authorized to
                     disregard any and all warnings given by any of the parties
                     hereto or by any other person, excepting only orders or
                     process of courts of law, and is hereby expressly
                     authorized to comply with and obey orders, judgments or
                     decrees of any court. In case the Escrow Agent obeys or
                     complies with any such order, judgment or decree of any
                     court, the Escrow Agent shall not be liable to any of the
                     parties hereto or to any other person by reason of such
                     compliance, notwithstanding any such order, judgment or
                     decree being subsequently reversed, modified, annulled, set
                     aside, vacated or found to have been entered without
                     jurisdiction.

                                                                         Page 56
<PAGE>

             (iii)   The Escrow Agent shall not be liable in any respect on
                     account of the identity, authority or rights of the parties
                     executing or delivering or purporting to execute or deliver
                     this Agreement or any documents or papers deposited or
                     called for hereunder.

             (iv)    The Escrow Agent shall not be liable for the expiration of
                     any rights under any statute of limitations with respect to
                     this Agreement or any documents deposited with the Escrow
                     Agent.

             (v)     In performing any duties under the Agreement, the Escrow
                     Agent shall not be liable to any party for damages, losses,
                     or expenses, except for gross negligence or willful
                     misconduct on the part of the Escrow Agent. The Escrow
                     Agent shall not incur any such liability for (A) any act or
                     failure to act made or omitted in good faith, or (B) any
                     action taken or omitted in reliance upon any instrument,
                     including any written statement or affidavit provided for
                     in this Agreement that the Escrow Agent shall in good faith
                     believe to be genuine, nor will the Escrow Agent be liable
                     or responsible for forgeries, fraud, impersonations, or
                     determining the scope of any representative authority. In
                     addition, the Escrow Agent may consult with legal counsel
                     in connection with Escrow Agent's duties under this
                     Agreement and shall be fully protected in any act taken,
                     suffered, or permitted by him/her in good faith in
                     accordance with the advice of counsel. The Escrow Agent is
                     not responsible for determining and verifying the authority
                     of any person acting or purporting to act on behalf of any
                     party to this Agreement.

             (vi)    If any controversy arises between the parties to this
                     Agreement, or with any other party, concerning the subject
                     matter of this Agreement, its terms or conditions, the
                     Escrow Agent will not be required to determine the
                     controversy or to take any action regarding it. The Escrow
                     Agent may hold all documents and shares of Parent Common
                     Stock and may wait for settlement of any such controversy
                     by final appropriate legal proceedings or other means as,
                     in the Escrow Agent's discretion, may be required, despite
                     what may be set forth elsewhere in this Agreement. In such
                     event, the Escrow Agent will not be liable for damage.
                     Furthermore, the Escrow Agent may at its option, file an
                     action of interpleader requiring the parties to answer and
                     litigate any claims and rights among themselves. The Escrow
                     Agent is authorized to deposit with the clerk of the court
                     all documents and shares of Parent Common Stock held in
                     escrow, except all costs, expenses, charges and reasonable
                     attorney fees incurred by the Escrow Agent due to the
                     interpleader. The parties jointly and severally agree to
                     immediately pay the Escrow Agent, to the extent not
                     previously reimbursed, such amounts so incurred by the
                     Escrow Agent upon the Escrow Agent's demand therefor, which
                     demand may be made at any time before or after completion
                     of such action of interpleader. Upon initiating such
                     action, the Escrow Agent shall be fully released and
                     discharged of and from all obligations and liability
                     imposed by the terms of this Agreement.

                                                                         Page 57
<PAGE>

          (vii)  Parent, the Surviving Corporation and the Trust agree jointly
                 and severally to indemnify and hold the Escrow Agent harmless
                 against any and all losses, claims, damages, liabilities, and
                 expenses, including reasonable costs of investigation, counsel
                 fees, and disbursements that may be imposed on Escrow Agent or
                 incurred by Escrow Agent in connection with the performance of
                 his/her duties under this Agreement, including but not limited
                 to any litigation arising from this Agreement or involving its
                 subject matter; provided, however, that in the event the Escrow
                 Agent shall be the Prevailing Party in connection with any
                 claim or action initiated by any Company Securityholder, then
                 such Company Securityholder or Company Securityholders shall be
                 responsible for the indemnification of the Escrow Agent to the
                 full extent provided by this paragraph.

          (viii) The Escrow Agent may resign at any time upon giving at least
                 thirty (30) days written notice to Parent and the Merger Agent;
                 provided, however, that no such resignation shall become
                 effective until the appointment of a successor escrow agent
                 which shall be accomplished as follows: Parent and the Merger
                 Agent shall use their best efforts to mutually agree on a
                 successor escrow agent within thirty (30) days after receiving
                 such notice. If Parent and the Merger Agent fail to agree upon
                 a successor escrow agent within such time, the Escrow Agent
                 shall have the right to appoint a successor escrow agent
                 authorized to do business in the state of New York. In
                 addition, any company into which the Escrow Agent is merged or
                 with which it is consolidated, or any company to which the
                 Escrow Agent transfers a substantial amount of its Global
                 Escrow business, shall be the successor to the Escrow Agent
                 without the execution or filing of any paper or any further act
                 on the part of any of the parties, anything herein to the
                 contrary notwithstanding. The successor escrow agent shall
                 deliver notification of such appointment to Parent and Merger
                 Agent and it shall, without further acts, be vested with all
                 the estates, properties, rights, powers, and duties of the
                 predecessor escrow agent as if originally named as escrow
                 agent. Thereafter, the predecessor escrow agent shall be
                 discharged from any further duties and liability under this
                 Agreement.


     (i)  Fees. All fees of the Escrow Agent for performance of its duties here
          ----
          under shall be paid by Parent in accordance with the fee schedule
          attached as Schedule 8.2(i). It is understood that the fees and usual
          charges agreed upon for services of the Escrow Agent shall be
          considered compensation for ordinary services as contemplated by this
          Agreement. In the event that the conditions of this Agreement are not
          promptly fulfilled, or if the Escrow Agent renders any service not
          provided for in this Agreement, or if the parties request a
          substantial modification of its terms, or if any controversy arises,
          or if the Escrow Agent is made a party to, or intervenes in, any
          litigation pertaining to this escrow or its subject matter, the Escrow
          Agent shall be reasonably compensated for such extraordinary services
          and reimbursed for all costs, attorney's fees, and expenses occasioned
          thereby. Parent promises to pay these sums upon

                                                                         Page 58
<PAGE>

          demand.


     (j)  Consequential Damages. In no event shall the Escrow Agent be liable
          ---------------------
          for special, indirect or consequential loss or damage of any kind
          whatsoever (including but not limited to lost profits), even if the
          Escrow Agent has been advised of the likelihood of such loss or damage
          and regardless of the form of action.



                                        9

                                   ARTICLE IX

                        TERMINATION, AMENDMENT AND WAIVER


9.1  Termination. Except as provided in Section 9.2 below, this Agreement may be
     -----------
     terminated and the Merger abandoned at any time prior to the Effective
     Time:

        (a) by mutual written consent of the Company and Parent;

        (b) by Parent or the Company if: (i) the Effective Time has not occurred
            within 60 days of the date hereof (provided that the right to
            terminate this Agreement under this Section 9.1(b)(i) shall not be
            available to any party whose willful failure to fulfill any
            obligation hereunder has been the cause of, or resulted in, the
            failure of the Effective Time to occur on or before such date); (ii)
            there shall be a final nonappealable order of a federal or state
            court in effect preventing consummation of the Merger; or (iii)
            there shall be any statute, rule, regulation or order enacted,
            promulgated or issued or deemed applicable to the Merger by any
            Governmental Entity that would make consummation of the Merger
            illegal;

        (c) by Parent if there shall be any action taken, or any statute, rule,
            regulation or order enacted, promulgated or issued or deemed
            applicable to the Merger, by any Governmental Entity, which would:
            (i) prohibit Parent's or the Company's ownership or operation of any
            portion of the business of the Company or (ii) compel Parent or the
            Company to dispose of or hold separate, as a result of the Merger,
            any portion of the business or assets of the Company or Parent; in
            either case, the unavailability of which assets or business would
            have a Material Adverse Effect on Parent or would reasonably be
            expected to have a Material Adverse Effect on Parent's ability to
            realize the benefits expected from the Merger;

        (d) by Parent if it is not in material breach of its obligations under
            this Agreement and there has been a breach of any representation,
            warranty, covenant or agreement contained in

                                                                         Page 59
<PAGE>

            this Agreement on the part of the Company and as a result of such
            breach the conditions set forth in Section 7.3(a) or 7.3(b), as the
            case may be, would not then be satisfied; provided, however, that if
            such breach is curable by the Company within thirty (30) days
            through the exercise of its reasonable best efforts, then for so
            long as the Company continues to exercise such reasonable best
            efforts Parent may not terminate this Agreement under this Section
            9.1(d) unless such breach is not cured within thirty (30) days (but
            no cure period shall be required for a breach which by its nature
            cannot be cured);

        (e) by the Company if it is not in material breach of its obligations
            under this Agreement and there has been a breach of any
            representation, warranty, covenant or agreement contained in this
            Agreement on the part of Parent or Merger Sub and as a result of
            such breach the conditions set forth in Section 7.2(a) or 7.2(b), as
            the case may be, would not then be satisfied; provided, however,
            that if such breach is curable by Parent or Merger Sub within thirty
            (30) days through the exercise of its reasonable best efforts, then
            for so long as Parent or Merger Sub continues to exercise such
            reasonable best efforts the Company may not terminate this Agreement
            under this Section 9.1(e) unless such breach is not cured within
            thirty (30) days (but no cure period shall be required for a breach
            which by its nature cannot be cured); or

        (f) by Parent, if the Board of Directors of the Company shall have
            withheld, withdrawn or modified in a manner adverse to the Parent
            its recommendation in favor of adoption and approval of this
            Agreement and approval of the Merger; or

        (g) by either Parent or the Company if the Agreement shall not receive
            the requisite vote for approval and adoption by the Company
            Securityholders.


        Where action is taken to terminate this Agreement pursuant to Section
        9.1, it shall be sufficient for such action to be authorized by the
        Board of Directors (as applicable) of the party taking such action.


9.2  Effect of Termination. Subject to Section 9.5, in the event of termination
     ---------------------
     of this Agreement as provided in Section 9.1, this Agreement shall
     forthwith become void and, there shall be no liability or obligation on the
     part of Parent, Merger Sub or the Company, or their respective officers,
     directors or Company Securityholders, provided that the provisions of this
     Article IX, the confidentiality provisions hereof and Section 10.2 shall
     remain in full force and effect and survive any termination of this
     Agreement.


9.3  Amendment. Except as is otherwise required by applicable law, prior to the
     ---------
     Closing, this Agreement may be amended by the parties hereto at any time by
     execution of an instrument in writing signed by Parent and by the Company.
     Except as is otherwise required by applicable law, after the Closing, this
     Agreement may be amended by the parties hereto at any time by execution of
     an instrument in writing signed by Parent and the Trustee; provided,
     however, that no

                                                                         Page 60
<PAGE>

     amendment may be made to the Merger Consideration and the components
     thereof after approval of this Agreement and Merger by the Company
     Securityholders.


9.4  Extension; Waiver. At any time prior to the Effective Time, Parent and
     -----------------
     Merger Sub, on the one hand, and the Company, on the other, may, to the
     extent legally allowed, (i) extend the time for the performance of any of
     the obligations of the other party hereto, (ii) waive any inaccuracies in
     the representations and warranties made to such party contained herein or
     in any document delivered pursuant hereto, and (iii) waive compliance with
     any of the agreements or conditions for the benefit of such party contained
     herein. Any agreement on the part of a party hereto to any such extension
     or waiver shall be valid only if set forth in an instrument in writing
     signed on behalf of such party.

9.5  Parent/Company Payments.
     -----------------------

        (a) Company Payments. If (x) the Company Securityholders fail to approve
            ----------------
            this Agreement and the Merger or (y) an intentional breach by the
            Company of any material representation, warranty covenant or
            intentional failure to comply with any other material obligation
            hereunder, the Company shall pay Parent an amount equal to $500,000
            within one business day following the earlier to occur of (A)
            termination of this Agreement and (B) the failure to obtain the
            required vote upon a vote taken at a meeting of Company
            Securityholders duly convened therefor or any adjournment thereof of
            the Company.

        (b) Parent Payments. Upon the termination of this Agreement as a result
            ---------------
            of an intentional breach by the Parent of any material
            representation, warranty covenant or intentional failure to comply
            with any other material obligation hereunder, the Parent shall pay
            Company an amount equal to $500,000 within one business day
            following the termination of this Agreement.



                                      10

                                   ARTICLE X

                              GENERAL PROVISIONS


10.1  Notices. All notices and other communications hereunder shall be in
      -------
      writing and shall be deemed given if delivered personally or by a
      nationally recognized commercial delivery service, or mailed by registered
      or certified mail (return receipt requested) or sent via facsimile (with
      acknowledgment of complete transmission) to the parties at the following
      addresses (or at such other address for a party as shall be specified by
      like notice):

                                                                         Page 61
<PAGE>

        (a) if to Parent or Merger Sub, to:
            1 Penn Plaza, Suite 3401
            New York, NY 10019
            Attention: Mr. Joseph DiZazzo
            Telephone No.: 212-244-1234
            Facsimile No.: 212-760-2327

            with a copy to:

            Bruno Dov Lerer, Esq.
            655 Third Avenue, 20th floor
            New York, NY 10017
            Telephone No.: 212-949-8999
            Facsimile No.: 201-490-2990

        (b) If to the Company, to:
            777 Terrace Avenue
            Hasbrouck Heights, New Jersey 07604
            Attention: Mr. Joseph Valley
            Telephone No.: 201-288-5373
            Facsimile No.: 201-288-5474

            with a copy to:

            H. David Berkowitz, Esq.
            Snow Becker Krauss, PC.
            605 Third Avenue
            New York, NY 10158
            Telephone No.: 212-455-0316
            Facsimile No.: 201-949-7052


        (c) If to the Trustee:

            Robert Brill, Trustee
            Momentum Liquidating Trust
            Newport Management, LLC.
            500 North Broadway, Suite 144
            Jericho, NY 11793
            Telephone No.: 516-433-0090
            Facsimile No.: 516-433-0412

            with a copy to:

            H. David Berkowitz, Esq.
            Snow Becker Krauss, PC.

                                                                         Page 62
<PAGE>

            605 Third Avenue
            New York, NY 10158


        (d) If to the Escrow Agent:




10.2  Expenses.
      --------

        (a) If the Merger is not consummated, all fees and expenses incurred in
            connection with the Merger including, without limitation, Third
            Party Expenses, incurred by a party in connection with the
            negotiation and effectuation of the terms and conditions of this
            Agreement and the transactions contemplated hereby, shall be the
            obligation of the respective party incurring such fees and expenses.

        (b) Subject to Section 10.2(c), if the Merger is consummated, all fees
            and expenses incurred in connection with the Merger including Third
            Party Expenses incurred by Company in connection with the
            negotiation and effectuation of the terms and conditions of this
            Agreement and the transactions contemplated hereby (the "Company
                                                                     -------
            Transaction Costs"), shall be the obligation of the Surviving
            -----------------
            Corporation.

        (c) Company shall deliver to Parent, at least two (2) business days
            prior to the Effective Time, an officer's certificate certifying the
            aggregate amount of Company Transaction Costs which the Company
            believes it incurred or to be incurred (the "Costs Summary"). Parent
                                                         -------------
            shall be entitled to make the adjustment referred to in Section
            1.6(a) with respect to that portion of the Company Transaction Costs
            (the "Reimbursable Amount") equal to the sum of (i) amounts incurred
                  -------------------
            for Company employee termination costs in excess of $330,000 and the
            employer's shares of related payroll taxes such as FICA and FUTA),
            (ii) the investment banking and similar fees paid to C. E.
            Unterberg, Towbin, (iii) 50% of the aggregate legal fees incurred by
            all parties hereto and (v) $75,000. The above-mentioned $75,000 is
            part of the Merger Consideration and shall be paid by the Parent to
            the Trust upon the Effective Time.


10.3  Interpretation. The words "include," "includes" and "including" when used
      --------------
      herein shall be deemed in each case to be followed by the words "without
      limitation." The word "agreement" when used herein shall be deemed in each
      case to mean any contract, commitment or other agreement, whether oral or
      written, that is legally binding. The table of contents and headings
      contained in this Agreement are for reference purposes only and shall not
      affect in any way the meaning or interpretation of this Agreement.

                                                                         Page 63
<PAGE>

10.4  Counterparts. This Agreement may be executed in two or more counterparts,
      ------------
      all of which shall be considered one and the same agreement and shall
      become effective when two or more counterparts have been signed by each of
      the parties and delivered to the other party, it being understood that all
      parties need not sign the same counterpart.


10.5  Entire Agreement; Assignment. This Agreement, the schedules and exhibits
      ----------------------------
      hereto, and the documents and instruments and other agreements among the
      parties hereto referenced herein: (a) constitute the entire agreement
      among the parties with respect to the subject matter hereof and supersede
      all prior agreements and understandings, both written and oral, among the
      parties with respect to the subject matter hereof; (b) are not intended to
      confer upon any other person any rights or remedies hereunder; and (c)
      shall not be assigned by operation of law or otherwise except as otherwise
      specifically provided.


10.6  Severability. In the event that any provision of this Agreement or the
      ------------
      application thereof, becomes or is declared by a court of competent
      jurisdiction to be illegal, void or unenforceable, the remainder of this
      Agreement will continue in full force and effect and the application of
      such provision to other persons or circumstances will be interpreted so as
      reasonably to effect the intent of the parties hereto. The parties further
      agree to replace such void or unenforceable provision of this Agreement
      with a valid and enforceable provision that will achieve, to the extent
      possible, the economic, business and other purposes of such void or
      unenforceable provision.


10.7  Other Remedies. Except as otherwise provided herein, any and all remedies
      --------------
      herein expressly conferred upon a party will be deemed cumulative with and
      not exclusive of any other remedy conferred hereby, or by law or equity
      upon such party, and the exercise by a party of any one remedy will not
      preclude the exercise of any other remedy.


10.8  Governing Law. This Agreement shall be governed by and construed in
      -------------
      accordance with the laws of the State of New York, regardless of the laws
      that might otherwise govern under applicable principles of conflicts of
      laws thereof. Each of the parties hereto agrees that process may be served
      upon them in any manner authorized by the laws of the State of New York
      for such persons and waives and covenants not to assert or plead any
      objection which they might otherwise have to such jurisdiction and such
      process.


10.9  Rules of Construction. The Company and Parent hereto agree that they have
      ---------------------
      been represented by counsel during the negotiation and execution of this
      Agreement and, therefore, waive the application of any law, regulation,
      holding or rule of construction providing that ambiguities in an agreement
      or other document will be construed against the party drafting such
      agreement or document.

                                                                         Page 64
<PAGE>

10.10 Specific Performance. The parties hereto agree that irreparable damage
      --------------------
      will occur in the event that any of the provisions of this Agreement are
      not performed in accordance with their specific terms or are otherwise
      breached. It is accordingly agreed that the parties shall be entitled to
      an injunction or injunctions to prevent breaches of this Agreement and to
      enforce specifically the terms and provisions hereof in any court of the
      United States or any state having jurisdiction, this being in addition to
      any other remedy to which they are entitled at law or in equity.

                                                                         Page 65
<PAGE>

IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Merger Agent and the
Escrow Agent have caused this Agreement to be signed as of the date first
written above.


Level 8 Systems, Inc.                       Momentum Software Corporation

By:                                         By:
    ---------------                             ---------------

Name:                                       Name:
      -------------                               -------------

Title:                                      Title:
       ------------                                ------------



Momentum Liquidating Trust

By:
    ---------------

Name:              , Trustee
      -------------



Middleware Acquisition Corporation

By:
    ---------------

Name:
      -------------

Title:
       ------------


ESCROW AGENT (as to the provisions of Article VIII only)


----------------


----------------


----------------

                                                                         Page 66
<PAGE>

                                   DEFINITIONS


Actual Knowledge - the conscious awareness of facts or other information by,
----------------
       with respect to the Parent or the Company, as applicable, named in
       Exhibit J.

Additional Contingent Shares - Section 1.8(c)
----------------------------

Affiliate - Section 2.22
---------

Affiliate Letters - Section 2.22
-----------------

Aggregate Shares of Parent Common Stock - Section 1.6(a)
---------------------------------------

Agreement - the Preamble
---------

Balance Sheet - Section 2.5
-------------

Balance Sheet Date - Section 2.5
------------------

Beneficial Interests - the Recitals
--------------------

Calculation Date - Section 1.8(a)
----------------

Certificates - Section 1.10(c)
------------

Certificate of Merger - Section 1.2
---------------------

Closing - Section 1.2
-------

Closing Date - Section 1.2
------------

Closing Date Price - Section 1.6(a)
------------------

Code - the Recitals
----

Company - the Preamble
-------

Company Capital Stock - the Recitals
---------------------

Company Common Stock - Section 1.6(b)
--------------------

Company ERISA Plans - Section 2.20(a)
-------------------

Company Intellectual Property Rights - Section 2.11(a)
------------------------------------

                                                                         Page 67
<PAGE>

Company Financials - Section 2.5
------------------

Company Option - Section 1.6(d)
--------------

Company Option Plan - Section 1.6(d)
-------------------

Company Preferred Series - Section 1.6(c)
------------------------

Company Warrant - Section 1.6(d)
---------------

Common Exchange Ratio - Section 1.6(b)
---------------------

Company Schedules - Section 2.28
-----------------

Company Securityholders - Section 1.6(a)
-----------------------

Company Series A - Section 1.6(a)
----------------

Company Series B - Section 1.6(a)
----------------

Company Series B-1 - Section 1.6(a)
------------------

Company Series C - Section 1.6(a)
----------------

Company Series C-1 - Section 1.6(a)
------------------

Company Series D - Section 1.6(a)
----------------

Company Series E - Section 1.6(a)
----------------

Company Transaction Costs - Section 10.2(c)
-------------------------

Conflict - Section 2.4
--------

Contingent Consideration - Section 1.8(a)
------------------------

Contingent Shares - Section 1.8(a)
-----------------

Continuing Warrants - Section 1.6(d)
-------------------

Costs Summary - Section 10.2(c)
-------------

Delaware Law - Section 1.1
------------

Delivered Securityholders - Section 1.10
-------------------------

                                                                         Page 68
<PAGE>

Dissenting Shares - Section 1.9(a)
-----------------

Dissenting Shareholder - Section 1.9(a)
----------------------

Effective Time - Section 1.2
--------------

Employee Benefit Plan - Section 2.21(d)
---------------------

End-User Licenses - Section 2.11(a)
-----------------

ERISA - Section 2.20(a)
-----

Escrow Agent - the Recitals
------------

Escrow Amount - Section 1.6(g)
-------------

Escrow Fund - Section 8.2(a)
-----------

Escrow Period - Section 8.2(b)
-------------

Information Statement - Section 5.2
---------------------

GAAP - Section 2.5
----

Governmental Entity - Section 2.4
-------------------

Indemnified Parties - Section 5.15
-------------------

Liens - Section 2.8(b)(vii)
-----

Liraz - Section 3.13
-----

Loss and Losses - Section 8.2(a)
---------------

Material Adverse Effect - Section 2.1
-----------------------

Merger - the Recitals
------

Merger Consideration - the Recitals
--------------------

Merger Agent - Section 1.10
------------

Merger Sub - the Preamble
----------

New Shares - Section 8.2(c)(ii)
----------

                                                                         Page 69
<PAGE>

Non-Contingent Merger Consideration - Section 1.10
-----------------------------------

Note - Section 1.8(a)
----

Officer's Certificate - Section 8.2(d)
---------------------

Parent - the Preamble
------

Parent Common Stock - the Recitals
-------------------

Parent Conflict - Section 3.2(b)
---------------

Parent Financial Statements - Section 3.4
---------------------------

Parent Intellectual Property Rights - Section 3.7(a)
-----------------------------------

Parent Option - Section 3.3(b)
-------------

Parent Schedules - Section 3.20
---------------

Payable Contingent Shares - Section 1.8(b)
-------------------------

Reimbursable Amount - Section 10.2(c)
-------------------

Registration Rights Agreement - Section 5.10
-----------------------------

Retained Merger Consideration - Section 1.10
-----------------------------

Returns - Section 2.8(b)
-------

SEC - Section 3.4
---

SEC Documents - Section 3.4
-------------

Securities Act - Section 1.12
--------------

Special Meeting - Section 2.22
---------------

Stock Value - Section 1.8(a)
-----------

Stock Value Fraction - Section 1.8(a)
--------------------

Surviving Corporation - Section 1.1
---------------------

Tax or Taxes - Section 2.8(a)
------------

Third Party Expenses - Section 2.19
--------------------

                                                                         Page 70
<PAGE>

Third Party Licenses - Section 2.11(e)
--------------------

Transfer Agent - Section 1.8
--------------

Trust - the Preamble
-----

Trust Conflict - Section 2.25
--------------

Trustee - the Preamble
-------

Undelivered Securityholders - Section 1.10
---------------------------

Warrant - Section 1.7
-------

                                                                         Page 71