** **

**SERIES A PREFERRED STOCK ANDWARRANT PURCHASE AGREEMENT**

**between**

**TERAGLOBAL COMMUNICATIONS CORP.**

**and**

**WALLERSUTTON 2000, L.P.**

 

**TABLE OF CONTENTS**

 

| SECTION  1. | Issuance  and Sale of Series A Preferred Stock and Warrants.    |   |
|-------------|----------------------------------------------------------------------|--------|
| 1.1         | The Purchases                                                        |   |
| 1.2         | Initial  Closing                                                     |   |
| 1.3         | Subsequent  Sale of Series A Preferred Stock                    |   |
| 1.4         | Conditions to  the Initial Closing.                                  |   |
| 1.5         | Additional  Issuances, Purchase Price Adjustment.                    |   |
| 1.6         | Purchase Price Allocation                                            |   |
| 1.7         | Conditions to the  Subsequent Closing                                |   |
|        |                                                                 |   |
| SECTION  2. | Representations  and Warranties of the Company.                      |   |
| 2.1         | Organization  and Good Standing; Power and Authority; Qualifications |   |
| 2.2         | Authorization of the  Documents                                      |   |
| 2.3         | Capitalization                                                       |   |
| 2.4         | Authorization  and Issuance of Capital Stock                         |   |
| 2.5         | SEC Reports                                                          |   |
| 2.6         | Financial  Statements                                                |   |
| 2.7         | Absence of Material  Changes                                         |   |
| 2.8         | No Conflict                                                          |   |
| 2.9         | Agreements                                                           |   |
| 2.10        | Intellectual Property  Rights                                        |   |
| 2.11        | Equity Investments;  Subsidiaries                                    |   |
| 2.12        | Title to  Assets and Properties, Insurance                           |   |
| 2.13        | Employee  Benefit Plans                                              |   |
| 2.14        | Labor Relations, Employees                                           |   |
| 2.15        | Litigation,  Orders                                                  |   |
| 2.16        | Compliance with Laws,  Permits                                       |   |
| 2.17        | Offering  Exemption                                                  |   |
| 2.18        | Disclosure                                                           |   |
| 2.19        | Taxes                                                                |   |
| 2.20        | Consents                                                             |   |
| 2.21        | Brokers                                                              |   |
| 2.22        | Suppliers  and Customers                                             |   |
| 2.23        | Accounts  Payable and Current Liabilities                            |   |

 

| 2.24        | Transfer  Restrictions                                                   |   |
|-------------|--------------------------------------------------------------------------|--------|
| 2.25        | Efforts in Completing  Schedules                                         |   |
| 2.26        | Certain  Subsidiaries                                                    |   |
| SECTION  3. | Representations  and Warranties of the Purchaser                         |   |
| SECTION 4.  | Certain  Covenants.                                                      |   |
| 4.1         | Access to  Records                                                       |   |
| 4.2         | Financial  Reports                                                       |   |
| 4.3         | Affirmative  Covenants.                                                  |   |
| 4.4         | Use of Proceeds                                                          |   |
| 4.5         | Insurance                                                                |   |
| 4.6         | Merger, etc                                                              |   |
| 4.7         | Transactions with  Affiliates                                            |   |
| 4.8         | Notice of  Breach                                                        |   |
| 4.9         | Matters Related to  Directors.                                           |   |
| 4.10        | Rights  of First Offer                                                   |   |
| 4.11        | Subsidiary  Stock                                                        |   |
| 4.12        | Limitation  on Convertible Securities and Debt                           |   |
| 4.13        | Payment of Taxes  and Other Charges                                      |   |
| 4.14        | Dividends                                                                |   |
| 4.15        | Investments                                                              |   |
| 4.16        | Changes  in Capital Stock                                                |   |
| 4.17        | Filing of  Certificate of Designations                                   |   |
| 4.18        | NASDAQ Filing                                                            |   |
| 4.19        | Closing of  Bridge                                                       |   |
| SECTION 5.  | Transfer Taxes.                                                          |   |
| SECTION  6. | Survival  of Representations, Warranties, Agreements and Covenants, etc. |   |
| SECTION  7. | Expenses.                                                                |   |
| SECTION 8.  | Indemnification.                                                         |   |
| 8.1         | General  Indemnification                                                 |   |
| 8.2         | Indemnification Principles                                               |   |
| 8.3         | Claim Notice                                                             |   |
| SECTION  9. | Events  of Default and Remedies.                                         |   |

 

| 9.1          | Events of  Default          |   |
|--------------|-----------------------------|--------|
| 9.2          | Remedy for Event of Default |   |
| 9.3          | Waiver                      |   |
| SECTION 10.  | Other Remedies.             |   |
| SECTION 11.  | Further  Assurances.        |   |
| SECTION 12.  | Successors  and Assigns.    |   |
| SECTION 13.  | Entire Agreement.           |   |
| SECTION  14. | Notices.                    |   |
| SECTION  15. | Amendments.                 |   |
| SECTION 16.  | Counterparts.               |   |
| SECTION  17. | Headings.                   |   |
| SECTION 18.  | Nouns and  Pronouns.        |   |
| SECTION  19. | Arbitration.                |   |
| SECTION  20. | Publicity.                  |   |
| SECTION 21.  | Severability.               |   |

**INDEX OF DEFINED TERMS**
| Accredited  Investor               | 19 |
|------------------------------------|----|
| Additional  Common Stock Amount    | 5  |
| Additional  Preferred Stock Amount | 5  |
| Adversely  Affected Holders        | 32 |
| Ancillary  Documents               | 3  |
| Benefit  Plan                      | 14 |
| Board                              | 4  |
| Bridge  Conversion                 | 26 |
| Bridge  Document                   | 26 |
| Business                           | 1  |
| By–Laws                       | 4  |
| Certificate  of Designation        | 3  |
| Certificate  of Incorporation      | 3  |
| Claim  Notice                      | 28 |
| Closing                            | 2  |
| Code                               | 15 |
| Commission                         | 9  |
| Common  Stock                      | 1  |
| Common  Stock Equivalents          | 8  |
| Company                            | 1  |
| Company  Excluded Subsidiaries     | 18 |
| Company  Excluded Subsidiary       | 18 |
| Contract                           | 11 |
| Conversion  Shares                 | 9  |
| Employee                           | 14 |
| Employee  Agreement                | 14 |
| Encumbrances                       | 14 |
| Environmental  Laws                | 16 |
| ERISA                              | 14 |
| Event  of Default                  | 28 |
| Exchange  Act                      | 9  |
| Excluded  Securities               | 26 |
| GAAP                               | 9  |
| Initial  Closing                   | 2  |
| Initial  Designees                 | 4  |
| Initial  Purchase                  | 1  |
| Intellectual  Property             | 13 |
| Investment                         | 26 |
| Issuer                             | 1  |
| Losses                             | 28 |
| Maintenance  Amount                | 24 |
| Management  Letter                 | 20 |
| Material  Adverse Effect           | 7  |
| NASDAQ                             | 26 |
| Notice                             | 24 |
| Permits                            | 16 |
| Permitted  Encumbrances            | 11 |
| Proposed  Securities               | 24 |
| Purchase  Price                    | 2  |
| Purchaser                          | 1  |
| Purchaser  Designees               | 23 |
| Purchaser  Entity                  | 27 |
| Purchases                          | 1  |
| Quarterly  Financials              | 20 |
| Registration  Rights Agreement     | 3  |
| SEC  Reports                       | 9  |
| Securities  Act                    | 17 |
| Series A  Preferred Stock     | 1  |
| Software                           | 13 |
| Strategic  Partner                 | 2  |
| Subsequent  Closing                | 2  |
| Subsequent  Purchase               | 1  |
| Subsidiaries                       | 7  |
| Taxes                              | 17 |
| Third  Party Software              | 13 |
| Total  Purchase Price              | 2  |
| WallerSutton                       | 1  |
| Warrant  Shares                    | 1  |
| Warrants                           | 1  |

** **

**TERAGLOBAL COMMUNICATIONS CORP.PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT**

AGREEMENT, dated as of June 28, 2001, byand between TERAGLOBAL COMMUNICATIONS CORP., a Delaware corporation (the “Company”or “Issuer”),and WALLERSUTTON 2000, L.P., a Delaware limited partnership (“WallerSutton”or the “Purchaser”).

W I T N E S S E T H:

             WHEREAS,the Company is engaged in the business of developing, marketing, servicing andsupporting an advance networking software that enables real-time, two wayintegration of voice, video and data communication and collaboration, as suchbusiness is further described in the SEC Reports (the “Business”).

             WHEREAS,the Company wishes to sell to WallerSutton and WallerSutton wishes to purchasefrom the Company (i) shares of Convertible Redeemable Series APreferred Stock, par value $0.001 per share, containing the rights andprivileges as more fully set forth in the Certificate of Designations referredto in Section 1.4(b)(iv) hereof (the “Series A Preferred Stock”),convertible into shares of the Company’s Common Stock, par value $0.001 pershare (the “Common Stock”)and (ii) warrants, substantially in the form of **Exhibit A** hereto (the “Warrants”),to purchase shares of Common Stock (such shares of Common Stock referred to asthe “Warrant Shares”).

             NOW,THEREFORE in consideration of the mutual covenants and agreements set forthherein and for other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledge, the parties agree as follows:

**            ****SECTION 1.    Issuanceand Sale of Series A Preferred Stock and Warrants.**

             1.1        The Purchases. Upon the terms and subject to the conditionsset forth in this Agreement, at the Initial Closing and the Subsequent Closing,WallerSutton shall purchase from the Company, and the Company shall sell toWallerSutton, the number of shares of Series A Preferred Stock andWarrants set forth opposite its name on **Exhibit B-1**(the “Initial Purchase”)and **Exhibit B-2** (the “SubsequentPurchase”),respectively (collectively, the “Purchases”),at the purchase price set forth opposite WallerSutton’s name on eachexhibit.  Theaggregate purchase price to be paid by WallerSutton, based on$.536 per share of Series A Preferred Stock, for the Series A PreferredStock and Warrants purchased by it hereunderis set forth on Exhibit **B-1**and **B-2**, as the case may be, as “TotalPurchase Price” (collectively, the “PurchasePrice”).  No further payment shall be required fromWallerSutton in connection with the Purchases.
             1.2        Initial Closing. Theclosing of the Initial Purchase (the “Initial Closing”)shall take place at the offices of Cadwalader, Wickersham & Taft, theparties intending such Initial Closing to occur at12:30 p.m. on June 28, 2001 or on such other date as shall be mutually agreedby the Company and the Purchaser, but in no event later than July 6, 2001.

             1.3        Subsequent Sale ofSeries A Preferred Stock. The closing of the Subsequent Purchase (the “SubsequentClosing”and, together with the Initial Closing, the “Closing”)shall take place at the location and time of day referred to inSection 1.2 above upon Company reaching definitive financial commitmentsin a minimum amount of $1 million in sales revenues, license fees,development fees or equity contribution in form and substance satisfactory toWallerSutton from one or more Strategic Partners. For purposes of thisAgreement, a “Strategic Partner”shall mean an entity that has entered into a formal or informal agreement withthe Company to provide product development, integration, resale or servicesupport, provided, however, that in the event the SubsequentClosing has not occurred on or before June 30, 2002 for any reason,WallerSutton may elect, upon written notice to the Company, not to consummatethe Subsequent Purchase.  At each of theClosings, the Company shall deliver to Purchaser a certificate representing theshares of Series A Preferred Stock and the Warrants, registered in thename of the Purchaser or its nominee. Delivery of such certificates of sharesof Series A Preferred Stock and Warrants to Purchaser shall be madeagainst receipt at each of the Closings by the Company from Purchaser of thepurchase price therefor, which shall be paid by wire transfer to an accountdesignated at least two business days prior to each of the Closings by theCompany.  The account designated by theCompany for the Initial Closing, and associated wiring instructions, is set forthon Schedule 1.3 hereto.

             1.4        Conditions to theInitial Closing.

             (a)         The obligations of the Company and thePurchaser to consummate the transactions contemplated hereby at the InitialClosing are subject to the satisfaction of the following conditions: notemporary restraining order, preliminary or permanent injunction or other orderor decree which prevents the consummation of the transactions contemplatedhereby shall have been issued and remain in effect, and no statutes, rule orregulation shall have been enacted by any governmental authority (of the UnitedStates or otherwise) which prevents the consummation of the transactionscontemplated hereby; provided, however, that the parties shalluse their reasonable best efforts to cause any such decree, ruling, injunctionor other order to be vacated or lifted.

             (b)        The obligations of the Purchaser toconsummate the transactions contemplated hereby at the Initial Closing issubject to the satisfaction or waiver, on or prior to the date of the InitialClosing, of the following conditions:

             (i)          therepresentations and warranties of the Company set forth in Section 2 ofthis Agreement shall be true and correct in all material respects as of thedate when made and (unless made as of a specified date) as of the date of theInitial Closing; any and all documents or other materials provided to thePurchaser shall not contain any material misstatements or fail to contain anymaterial fact; and the Company shall have performed in all material respectsits covenants set forth in this Agreement to be performed prior to the date ofthe Initial Closing and shall not have taken any action which (if any shares ofSeries A Preferred Stock were outstanding) would violate any provision ofthe Certificate of Incorporation (including the Certificate of Designation) orthis Agreement or the Ancillary Documents, as the case may be (and at theInitial Closing the Company shall deliver to the Purchaser an officer’scertificate certifying as to the Company’s compliance with the conditions setforth in this clause (i), in the form of the officers certificate attachedhereto in Schedule 1.4(b)(i));
             (ii)         The Company and the Purchaser shall have entered into theRegistration Rights Agreement in the form of **Exhibit C**hereto (the “Registration Rights Agreement”),the Stockholders Agreement (discussed in Section 2.24 hereof) and, togetherwith all other contracts, agreements, schedules, certificates and otherdocuments (including, but not limited to, the Certificate of Designation, andthe Warrants) being delivered pursuant to or in connection with this Agreementby any party hereto at or prior to the Initial Closing, the “AncillaryDocuments”).

             (iii)        The Company shall have delivered to the Purchasercertificates of good standing from the jurisdictions set forth onSchedule 1.4(b)(iii) with respect to the Company and its Subsidiariesdated as of a date no earlier than ten days prior to the Initial Closing.

             (iv)       The Certificate of Incorporation of the Company shall havebeen amended and supplemented by a Certificate of Designation substantially inthe form of Exhibit D hereto setting forth the rights and preferences ofthe Series A Preferred Stock (the “Certificate of Designation”),and the Certificate of Designation shall have been filed with the Secretary ofState of the State of Delaware (the Certificate of Incorporation, as amended,including such Certificate of Designation, the “Certificate of Incorporation”).  The Series A Preferred Stock will have allof the rights, priorities and terms set forth in the Certificate ofDesignations;

             (v)        IntentionallyLeft Blank.

             (vi)       The Company shall have delivered to the Purchaser acertificate duly executed by its Secretary certifying (i)(a) a copy of itsorganizational documents including the Certificate of Incorporation and theBy-Laws of the Company (the “By-Laws”),and (b) resolutions authorizing the transaction, in the form attached asSchedule 1.4(b)(vi)(i) hereto, and (ii) incumbency matters, in theform attached as Schedule 1.4(b)(vi)(ii) hereto.

             (vii)      Pursuant to the terms of the Certificate of Designation, thePurchaser shall designate two persons (the “Initial Designees”)to serve on the Board of Directors of the Company (the “Board”),such designees shall have been elected to the Board effective, without anyfurther action, as of the date of the Initial Closing.

             (viii)     The Board of the Company shall have amended the By-Laws of theCompany to reflect that the size of the Board shall be fixed at six members(including the Initial Designees) with a maximum of 10 directors.  A copy of such by-laws is attached hereto asSchedule 1.4(b)(vi)(i).
             (ix)        The Company shall have obtained, with financially sound andreputable insurers, directors’ and officers’ liability insurance in an amountof at least $5,000,000 or a binder with respect to such insurance in formsatisfactory to WallerSutton and its counsel.

             (x)         Withoutlimiting the generality of Section 1.4(b)(i), no Material Adverse Effectshall have occurred since the date hereof nor shall any event or events haveoccurred since May 3, 2001 which could reasonably be expected to have aMaterial Adverse Effect nor shall a Material Adverse Change have occurred(i) in the finances, operations, prospects, facts and informationregarding the Business, the Company and its Subsidiaries, (ii) in theassets and liabilities of the Business, the Company and its Subsidiaries, and(iii) in any agreements, laws, rules and regulations pertaining to theBusiness, the Company and its Subsidiaries.

             (xi)        The Purchaser shall have satisfactorily completed its legal,technical, and other due diligence with respect to the Company.

             (xii)       The Company shall have received all permits, authorizations,consents and approvals of or by, and any notification of or filing with, anyperson (governmental or private), as set forth on Schedule 2.20 and the Companyshall have provided an officers certificate set forth in Schedule 1.4(b)(xii)to Purchaser certifying as to the Company’s compliance with this Section.

             1.5        Additional Issuances,Purchase Price Adjustment.

             (a)         In addition to and without limitationof all other indemnities and remedies in this Agreement, in the event that atany time on or after the Initial Closing or the Subsequent Closing, as the casemay be, the representation and warranty set forth in the last sentence ofSection 2.3 is determined not to have been true when made, the Companyshall issue to the Purchaser (on a pro rata basis based on the number of sharesof Series A Preferred Stock purchased hereunder by such Purchaser), at nocost to the Purchaser, and as an adjustment to the Purchase Price paid by thePurchaser for the Series A Preferred Stock and Warrants, an additionalamount of Series A Preferred Stock such that, if such issuance ofadditional Series A Preferred Stock were made at the Initial Closing orthe Subsequent Closing, as the case may be, such representation and warrantywould have been true and accurate in all respects when made.

             (b)        If at the time of any required PurchasePrice adjustment pursuant to Section 1.5(a) all shares of Series APreferred Stock have been mandatorily converted into shares of Common Stockpursuant to Section 5(b) of the Company’s Certificate of Designation, theCompany shall promptly issue to the Purchaser (on a pro rata basis based on thenumber of shares of Series A Preferred Stock purchased hereunder by such Purchaser),at no cost to the Purchaser and as an adjustment to the Purchase Price paid bythe Purchaser for the Series A Preferred Stock and Warrants, an additionalamount and kind of Common Stock equal to the amount and kind of Common Stock(such amount, the “Additional Common Stock Amount”)issuable upon the conversion (based on the conversion price in effect at thetime the last shares of Series A Preferred Stock were converted intoshares of Common Stock) of the amount of Series A Preferred Stock whichwould have been issued with respect to such Purchase Price adjustment pursuantto Section 1.5(a) if such Purchase Price adjustment had been madeimmediately prior to the time the last shares of Series A Preferred Stockwere converted into shares of Common Stock.
             (c)         Any additional shares of Series APreferred Stock and Common Stock issued to the Purchaser pursuant to thisSection 1.5 shall be treated as if they were issued on the date hereof oron the date of the Subsequent Closing, as the case may be, and shall reflect orbe accompanied by any dividends or other distributions which would have accruedor have been payable with respect to, and the application of any antidilution,ratable treatment or similar provisions (as set forth in the Company’sCertificate of Incorporation, applicable law or otherwise) which would havebeen applicable to, such shares of Series A Preferred Stock and CommonStock had they been issued on the date hereof or on the date of the SubsequentClosing, as the case may be.

             (d)        In connection with (i) any issuanceof Series A Preferred Stock pursuant to Section 1.5(a) (with respectto any such issuance, the amount of Series A Preferred Stock so issuedreferred to as the “Additional Preferred Stock Amount”),the Company shall promptly issue to the Purchaser (on a pro rata basis based onthe number of shares of Series A Preferred Stock purchased hereunder bysuch Purchaser), at no cost to the Purchaser and as an adjustment to thePurchase Price paid by the Purchaser for the Series A Preferred Stock andthe Warrants, an additional number of Warrants having the right to purchase anamount of Common Stock equal to the number of shares of Common Stock issuableupon conversion of the Additional Preferred Stock Amount times .4845 and(ii) any issuance of Common Stock pursuant to Section 1.5(b), theCompany shall promptly issue to the Purchaser (on a pro rata basis based on thenumber of shares of Series A Preferred Stock purchased hereunder by suchPurchaser), at no cost to the Purchaser and as an adjustment to the PurchasePrice paid by the Purchaser for the Series A Preferred Stock and theWarrants, an additional number of Warrants having the right to purchase an amountof Common Stock equal to the Additional Common Stock Amount in respect of suchissuance times .4845.  The Warrantsissuable pursuant to subsections 1.5(d) (i) and (ii) shall have an exerciseprice equal to $0.536.

             (e)         In connection with any issuance ofSeries A Preferred Stock and/or Warrants pursuant to thisSection 1.5, the Company shall reserve a sufficient number of shares of(i) Common Stock for issuance to the Purchaser upon exercise of theWarrants so issued and (ii) Common Stock for issuance to the Purchaserupon the conversion of the shares of Series A Preferred Stock so issued.Any shares of Series A Preferred Stock or Common Stock issued to thePurchaser pursuant to this Section 1.5 shall, when issued, be validlyissued and fully paid and nonassessable with no personal liability attaching tothe ownership thereof and free and clear of all Encumbrances.

             1.6        Purchase PriceAllocation. Subject to any adjustments to the PurchasePrice provided for herein, the Purchase Price shall be allocated between theSeries A Preferred Stock and the Warrants as set forth in **Exhibit E**.
             1.7        Conditions to the SubsequentClosing. The obligations of the Purchaser toconsummate the Subsequent Closing shall be subject to the satisfaction (orwaiver), on or prior to the date of the Subsequent Closing, of the followingconditions:

             (a)         The representations and warranties ofthe Company set forth in Section 2 of this Agreement shall be true andcorrect in all material respects as of the date when made and (unless made asof a specified date) as of the date of the Subsequent Closing; any and alldocuments or other materials provided to the Purchaser shall, in the solejudgment and discretion of the Purchaser, not contain any material misstatementor fail to contain any material fact; and the Company shall have performed inall material respects its covenants set forth in this Agreement to be performedprior to the date of the Subsequent Closing and shall not have taken any actionwhich (if any shares of Series A Preferred Stock were outstanding) wouldviolate any provision of the Certificate of Incorporation (including theCertificate of Designation), this Agreement or the Ancillary Documents, as thecase may be (and, at the Subsequent Closing, the Company shall deliver to the Purchaseran officer’s certificate certifying as to the Company’s compliance with theconditions set forth in this clause (a), in the form ofSchedule 1.7(a) hereto);

             (b)        The Initial Closing shall have occurred;

             (c)         The Company shall have delivered to thePurchaser long-form certificates of good standing from the jurisdictions setforth on Schedule 1.4(b)(iii) with respect to the Company and itsSubsidiaries dated as of a date no earlier than ten days prior to theSubsequent Closing;

             (d)        The Common Stock to be issued uponconversion of the Series A Preferred Stock and the exercise of the Warrantshall continue to be listed on the NASDAQ, or registered on the exchange orother forum in which the Company’s common Stock is then traded;

             (e)         The Company shall have delivered to thePurchaser a certificate executed by its Secretary, in form and substancesatisfactory to the Purchaser, dated as of the Subsequent Closing certifying(i) a copy of its organizational documents including the Certificate ofIncorporation and the By–Laws, (ii) resolutions authorizing thetransaction and (iii) incumbency matters;

             (f)         No Material Adverse Effect shall haveoccurred since the Initial Closing nor shall any event or events have occurredsince the Initial Closing which could reasonably be expected to have a MaterialAdverse Effect nor shall a Material Adverse Change have occurred (i) inthe facts and information regarding the Business, including, but not limitedto, the Software and the Intellectual Property, the Company and its Subsidiaries,(ii) in the assets of the Business, the Company and its Subsidiaries, and(iii) in any agreements, laws, rules and regulations pertaining to theIssuer, since May 3, 2001.

**            ****SECTION 2.    Representationsand Warranties of the Company.**

             The Company hereby represents andwarrants to the Purchaser as follows:

             2.1        Organization and GoodStanding; Power and Authority; Qualifications. Each of the Company and its subsidiaries, (“Subsidiaries”)(i) is duly organized, validly existing and in good standing under thelaws of its jurisdiction of organization, except as set forth on Schedule 2.26 and (ii) has all requisite power and authority toown, lease and operate its properties and to carry on its business as presentlyconducted and as proposed to be conducted. The Company has all requisite power and authority to enter into andcarry out the transactions contemplated by this Agreement and the AncillaryDocuments to which it is a party.  Eachof the Company and its Subsidiaries is qualifiedtotransact business as a foreign corporation in, and is in good standing underthe laws of, those jurisdictions listed on Schedule 2.1 under its name,except as set forth on Schedule 2.26, which jurisdictions constitute all of thejurisdictions wherein the character of the property owned or leased or thenature of the activities conducted by it makes such qualification necessary andwhere failure to so qualify would individually or in the aggregate have, orwould reasonably be expected to have,  amaterial adverse effect on the properties, business, prospects, operations,earnings, assets, liabilities, Intellectual Property, Software or the condition(financial or otherwise) of the Company and its Subsidiaries taken as a whole(a “Material Adverse Effect”).
             2.2        Authorization of the Documents. The execution, delivery and performance by the Company of thisAgreement and each of the Ancillary Documents to which it is a party has beenduly authorized by all requisite corporate action on the part of the Companyand the stockholders of the Company have approved and provided the requisiteconsent to effectuate the Purchases, and each of this Agreement and theAncillary Documents constitutes a legal, valid and binding obligation of theCompany, enforceable against the Company in accordance with its terms except tothe extent that enforceability may be limited by bankruptcy, insolvency orother similar laws affecting creditors’ rights generally.

             2.3        Capitalization. The authorized capitalization of the Companyimmediately following the Initial Purchase will consist of (a) 13,000,000shares of Preferred Stock, par value $0.001 per share, of which(i) 13,000,000 shares have been designated Series A Preferred Stock and (ii) 7,468,661 shares ofSeries A Preferred Stock are issued and outstanding and all such outstandingshares are validly issued, fully paid and nonassessable and free and clear ofall Encumbrances, other than Encumbrances, ifany, arising as a result of actions taken by the Purchaser; and (b) 200,000,000 sharesof Common Stock, par value $0.001 per share, of which 26,906,982 shares areissued and outstanding and all such outstanding shares are validly issued,fully paid and nonassessable and free and clear of all Encumbrances.  Except as listed on Schedule 2.3hereto, there are no outstanding options, warrants, subscription rights, callsor commitments of any character whatsoever relating to, or securities or rightsconvertible into,shares of anyclass of capital stock of the Company, or contracts, by which the Company orits Subsidiaries is or may become bound to issueadditional shares of its capital stock or options, warrantsor other rights to purchase or acquire any shares of its capital stock. Exceptas set forth in Schedule 2.3 hereto, since its inception, the Company hasnot declared or paid any dividend or made any other distribution of cash, stockor other property to its stockholders. Except as contemplated by this Agreement or the Ancillary Documents orexcept for the right to vote its shares of Common Stock for the election ofdirectors, no person has the right to nominate or elect one or more directorsof the Company.  There are no votingagreements, voting trusts, proxies or other agreements or understandings withrespect to the voting of any capital stock of the Company of which the Companyis a party, except as provided herein, in the Stockholders Agreement and theCertificate of Designations.  The sharesof Common Stock issuable upon conversion of the Series A Preferred Stockand exercise of the Warrants issued to Purchaser on the dates of the InitialClosing and the Subsequent Closing under this Agreement represent, in theaggregate, the percentages set forth on Schedule 2.3 of the outstanding CommonStock of the Company on the date of the Initial Closing and the SubsequentClosing, respectively, and the voting power of such issued shares represent, inthe aggregate, percentages set forth on Schedule 2.3 of the total number ofvotes able to be cast on anymatter by all voting securities of the Company (other than any matter to bevoted on by the holders of shares of Series A Preferred Stock as aseparate class) on the date of the Initial Closing and the Subsequent Closing,respectively (treating for purposes of these calculations (i) alloutstanding warrants, options, agreements, securities (including notes and debtsecurities)or other commitments convertible, exercisable or exchangeable into shares ofcapital stock or other equity securities of the Company or pursuant to whichthe equity securities of the Company (“Common Stock Equivalents”) outstanding on thedate hereof (including the Warrants) as having been converted, exchanged orexercised, (ii) any shares of Common Stock or Common Stock Equivalentsissuable pursuant to any Contract entered into by the Company on or prior tothe date hereof, or any preemptive right granted by the Company on or prior tothe date hereof, in each case, as having been issued on the date hereof and(iii) up to an additional 2,000,000 shares of Common Stock issued underthe Company’s 1997 and 1999 stock option plans or their equivalents.
             2.4        Authorization and Issuance ofCapital Stock. The authorization, issuance, sale anddelivery of the Series A Preferred Stock and the Warrants pursuant to thisAgreement and the authorization, reservation, issuance, sale and delivery ofthe shares of Series A Preferred Stock, the Warrants, the ConversionShares and the Warrant Shares have been duly authorized by all requisitecorporate action on the part of the Company, and when issued, sold anddelivered in accordance with this Agreement and/or any Ancillary Document, theSeries A Preferred Stock, the Warrants, the Conversion Shares and theWarrant Shares will be validly issued and outstanding,fully paid and nonassessable with no personal liability attaching to theownership thereof, free and clear of any Encumbrances, other than Encumbrances,if any, arising as a result of actions taken by the Purchaser. The terms, designations,powers, preferences and relative, participating,optional and other special rights, and the qualifications, limitations andrestrictions, of any series of Preferred Stock of the Company are as stated inthe Certificate of Incorporation. All stockholder approval required toconsummate the transaction contemplated hereunder and under the AncillaryDocuments has been received. The Board has unanimously approved the transactionscontemplated hereby for the purposes of Section 203 of the GeneralCorporation Law of the State of Delaware pursuant to Section 203(a)(1)thereof (and the Company shall deliver to the Purchaser an officer’scertificate certifying as to the Company’s compliance withthe conditionsset forth in this sentence of Section 2.4, in the form of the officerscertificate attached hereto in Schedule 2.4, and attacha copy of the written consent of all members of the Boardor minutes of a meeting of the Board authorizing and approving this Agreementand the actions and agreements contemplated hereby).  The Company has reserved a sufficient number of shares of(i) Common Stock for issuance upon conversion or exercise of theSeries A Preferred Stock and the Warrants, respectively, (ii) CommonStock for the issuance of dividends on the Series A Preferred Stockpursuant to the Certificate of Designation, and (iii) Common Stock forissuance upon conversion or exercise of all other Common Stock Equivalentsoutstanding on the date hereof.  Theshares of Common Stock issuable upon the conversion of the Series APreferred Stock issued or issuable to the Purchaser hereunder or under anyAncillary Document shall be referred to collectively as the “ConversionShares.”

             2.5        SEC Reports. The Company has filed all proxy statements,reports and other documents required to be filed by it with the Securities andExchange Commission (the “Commission”)under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),from its inception; and the Company has furnished the Purchaser true andcomplete copies of all annual reports, quarterly reports, proxy statements andother reports under the Exchange Act filed by the Company from and after suchdate, each as filed with the Commission, unless suchdocuments are available on the SEC’s EDGAR site at least 20 days prior to theInitial Closing (collectively, the “SEC Reports”).  Each SEC Report was in compliance in allmaterial respects with the requirements of its respective report form and didnot on the date of filing contain any untrue statement of a material fact oromit to state a material fact required to be stated therein or necessary tomake the statements therein, in the light of the circumstances under which theywere made, not misleading, and as of the date hereofthere is no fact or facts not disclosed in the SEC Reports which relate to theCompany, its Subsidiaries, and their respective businesses, and whichindividually or in the aggregate may have a Material Adverse Effect.
             2.6        Financial Statements. Thefinancial statements (including any related schedules and/or notes) included inthe SEC Reports have been prepared in accordance with generally acceptedaccounting principles (“GAAP”)consistently applied (except as indicated in the notes thereto) throughout theperiods involved and fairly present in all material respects the consolidatedfinancial condition, results of operations and changes in stockholders’ equityof the Company as of the respective dates thereof and for the respectiveperiods then ended (in each case subject, as to interim statements, to changesresulting from year-end adjustments, none of which were material in amount oreffect).  Except as set forth in Schedule 2.6(a), the Company has no liabilities orobligations (whether accrued, absolute, contingent, unliquidated or otherwise,whether or not known, whether due or to become due and regardless of whenasserted), except (i) liabilities and obligations in the respectiveamounts reflected in or reserved against in the Company’s balance sheet or thefootnotes thereto as of December 31, 2000 included in the SEC Reports or(ii) liabilities and obligations incurred after December 31, 2000 in the ordinary course of business consistent(in amount and kind) with past practice (none of which is a liability resultingfrom breach of contract, breach of warranty, tort, infringement,claim or lawsuit) and that do not exceed $25,000 in the aggregate.  Since December 31, 2000, the Company hasoperated its business only in the ordinary course and there has not beenindividually or in the aggregate any change that would have a Material AdverseEffect (a “Material Adverse Change”) other than changes disclosed in theSEC Reports or otherwise set forth in Schedule 2.6(b) hereto.

             2.7        Absence of MaterialChanges. Except as set forth on Schedule 2.7 andexcept as otherwise expressly contemplated by this Agreement, sinceDecember 31, 2000, the Business has been conducted in the ordinary course,consistent with past practice and there has not been (a) any MaterialAdverse Change, nor has any event or change occurred which could reasonablyresult in a Material Adverse Change, in the condition (financial or otherwise),results of operations, business, Intellectual Property, Software assets,liabilities or prospects of the Business, the Company or its Subsidiaries orany event or condition which could reasonably be expected to have a MaterialAdverse Effect, (b) any waiver or cancellation of any valuable right ofthe Business, the Company or its Subsidiaries, or the cancellation of anymaterial debt or claim held by the Business, the Company or its Subsidiaries,(c) any payment, discharge or satisfaction of any claim, liability orobligation of the Business, the Company or its Subsidiaries other than in theordinary course of business, (d) any Encumbrance upon the assets of theBusiness, the Company or its Subsidiaries other thanany Permitted Encumbrance, (e) any declaration or payment of dividends on,or other distribution with respect to, or any direct or indirect redemption oracquisition of, any securities of the Company or its Subsidiaries, (f) anyissuance of any stock, bonds or other securities of the Company or itsSubsidiaries, (g) any sale, assignment or transfer of any tangible orintangible assets of the Business, the Company or its Subsidiaries except inthe ordinary course of business, (h) any loan by the Company or itsSubsidiaries to any officer, director, employee, consultant or shareholder ofthe Company or its Subsidiaries (other than advances to such persons in the ordinarycourse of business in connection with travel and travel related expenses),(i) any damage, destruction or loss (whether or not covered by insurance)materially and adversely affecting the assets, property, condition (financialor otherwise), results of operations orprospects of the Business, the Company or its Subsidiaries, (j) anyincrease,director indirect, in the compensation paid or payable to any officer or director ofthe Company or its Subsidiaries and, other than in the ordinary course ofbusiness, consistent with past practice, to any other employee, consultant oragent of the Company or its Subsidiaries, provided, however, that in any event,no such increase has been in an amount more than 15% from such person’s,consultant’s or agent’s prior year’s compensation, (k) any change in theaccounting methods, practices or policies of the Business, the Company or itsSubsidiaries, (l) any indebtedness incurred for borrowed money by theBusiness, the Company or its Subsidiaries other than inthe ordinary course of business, (m) any amendment to or termination of,now or in the future, any material agreement to which the Business, the Companyor its Subsidiaries is a party other than the expiration of any such agreementin accordance with its terms, (n) any change in the laws or regulationsgoverning the Business, the Company or its Subsidiaries,(o) any Material Adverse Change in the manner of business or operations ofthe Business, the Company or its Subsidiaries(including, without limitation, any accelerations or deferral of the payment ofaccounts payable or other current liabilities or deferral of the collection ofaccounts or notes receivable), (p) any capital expenditures or commitmentstherefor bythe Business, the Company or its Subsidiaries that aggregate in excess of$25,000, (q) any amendment of the certificate ofincorporation, By–Laws or other organizational documents of the Companyor its Subsidiaries, (r) any transaction entered into by the Company otherthan in the ordinary course of business or any other material transactionsentered into by the Business, the Company or its Subsidiaries whether or not inthe ordinary course of business or (s) any agreement or commitment(contingent or otherwise) by the Business, the Company oritsSubsidiaries to do any of the foregoing. For purposes of this Agreement, “Permitted Encumbrances”shall mean (1) those consisting of zoning or planning restrictions,easements, permits and other restrictions or limitations on the use of suchproperty or irregularities in title thereto that, individually and in theaggregate, do not materially impair the use of such property, (ii) warehousemen’s,mechanics’, carriers’, landlords’, repairmen’s or other similar Encumbrancesarising in the ordinary course of business and securing obligations not yet dueand payable and (iii) other Encumbrances which arise in the ordinarycourse of business and which individually and in the aggregate do notmaterially impair its use of such property or its ability to obtain financingby using such asset as collateral or would otherwise individually or in theaggregate have a Material Adverse Effect.
             2.8        No Conflict. Theexecution and delivery by the Company of the Agreement and the AncillaryDocuments to which it is a party and the consummation by the Company of thetransactions contemplated hereby and thereby and its compliance with theprovisions hereof and thereof (including, without limitation, the issuance,sale and delivery by the Company of the Series A Preferred Stock, theWarrants, the Warrant Shares and the Conversion Shares) will not(a) violate any provision of any domestic (federal, state or local) or foreignlaw, statute, rule or regulation, or any ruling, writ, injunction, order,judgment or decree of any court, administrative agency or other governmentalbody applicable to it, or any of its properties or assets, (b) conflictwith, or result in any violation or breach of, or constitute (with due noticeor lapse of time, or both) a default or loss of a benefit under, or cause orpermit the acceleration under, the terms, conditions or provisions of anyContract to which it is a party or its properties or assets is subject, exceptfor defaults which would not individually or in the aggregate, have a MaterialAdverse Effect, (c) result in the creation or imposition of any Encumbrance upon any of its properties or assets, exceptfor Permitted Encumbrances or (d) violate its organizational documents.

             2.9        Agreements. (a) Except as set forth onSchedule 2.9, neither the Company nor its Subsidiaries is a party to, andthe Business is not bound or subject to, any indenture,mortgage, guaranty, lease, license or othercontract, agreement or understanding, written or oral (a “Contract”), other than anyContract that (i) pursuant to its terms, has expired, been terminated orfully performed by the parties, and in each case, under which neither theCompany, its Subsidiaries nor the Business have any liability, contingent orotherwise, or (ii) involves monthly payments to or from the Company, itsSubsidiaries or the Business (as opposed to an indemnity agreementor similar contract under which a party is not required to make fixed monthly payments) which monthly payments do notaggregate on an annual basis $25,000 or more, and in each case, is not materialto the business, condition (financial or otherwise), operations or prospects ofthe Business, the Company or its Subsidiaries. (b) Each of suchContracts is, as of the date hereof, and will continue after the Closing to be,as to the Company or its Subsidiaries, as the case maybe, legal, valid, binding and in full force and effect and enforceable inaccordance with its terms. There is no breach, violation or default by theCompany or its Subsidiaries (or, to the knowledge of the Company, any otherparty) under any such Contract and no event (including, without limitation, theconsummation of the transactions contemplated by this agreement) which, withnotice or lapse of time or both, would (A) constitute a breach, violationor default by the Company or its Subsidiaries (or, to the best knowledge of theCompany, any other party) under any such Contract or (B) give rise to anylien or right of termination, modification, cancellation, prepayment,suspension, limitation, revocation oracceleration against the Company or itsSubsidiaries under any such Contract. Except as set forth on Schedule 2.9,neither the Company or its Subsidiaries nor, to the knowledge of the Company,any other party to any of such Contracts (i) is in arrears in respect ofthe performance or satisfaction of the terms and conditions on its part to beperformed or satisfied under any of such Contracts or (ii) has granted orhas been granted any waiver or indulgence under any of such Contracts or hasrepudiated any provision thereof.
             2.10      Intellectual Property Rights. (a) Except as disclosed on Schedule 2.10 hereto,(i) the Company owns or has the right to use pursuant to license,sub-license, agreement or permission all of its Intellectual Property,including all Intellectual Property used in the operation of the Business, aspresently conducted and as currently anticipated to be conducted, including, but in no way limited to, as set forth in theSEC Reports and to the specifications as set forth therein and as demonstrated,except where the absence of any thereof would not individually or in theaggregate have a Material Adverse Effect; (ii) the Company has, to itsknowledge, not interfered with, infringed upon or misappropriated anyIntellectual Property rights of third parties, except for interferences,infringements and misappropriations which would not individually or in theaggregate have a Material Adverse Effect, and the Company has not received anyclaim, demand or notice alleging any such interference, infringement ormisappropriation (including any claim that it must license or refrain fromusing any Intellectual Property rights of any third party).  To the Company’s knowledge, no third partyhas interfered with, infringed upon or misappropriated any IntellectualProperty rights of the Company, except for interferences, infringements andmisappropriations which would not individually or in the aggregate have aMaterial Adverse Effect.

             (b)        Except as set forth onSchedule 2.10(b), neither the Business, the Company nor its Subsidiariesis obligated to pay any amount, whether as royalty, license fee or otherpayment, to any person in order to make, use, or sell any IntellectualProperty.

             (c)         Except as set forth onSchedule 2.10(c), the operation of the Business, the Company and itsSubsidiaries as presently operated does not need to use or rely upon anyIntellectual Property rights of third parties.

             (d)        Schedule 2.10(d) sets forth a listof all Software used in the operation of the Business, the Company and itsSubsidiaries (in connection with servicing the customer) as currently conductedor currently proposed to be conducted.

             (e)         Schedule 2.10(e) lists andidentifies all Third Party Software used in connection with servicing clients.Except as set forth on Schedule 2.10(e), the Company and its Subsidiarieshas the right to use all Third Party Software, including all IntellectualProperty Rights associated therewith, pursuant to license, sublicense orcontract.  All royalties due under saidlicenses have been paid and there exists no default by the Business, theCompany or its Subsidiaries or by any other party under the terms of saidlicenses, and no event has occurred which, upon the passage of time or thegiving of notice, or both, would result in any default by the Business, theCompany or its Subsidiaries or by any other party to the license or prevent theCompany from exercising and obtaining the benefits of any options containedtherein.  The Company is not aware ofany circumstance pursuant to which it is, or could be, unable to use, or haveaccess to, such Third Party Software, or that its ability to use, or haveaccess to, such Third Party Software would be materially limited (including anyoral or written claim made by a third party to the Company or its counselthreatening to stop or restrict use of access by the Company to such ThirdParty Software).

             (f)         The Company Software actually performsas presently described in the Business and as currently anticipated to beconducted, including, but in no way limited to, as set forth in the SEC Reportsand to the specifications as set forth therein and as demonstrated;
             (g)        As used in this Agreement “IntellectualProperty” means all intellectual property owned, leased, licensed, and usedby the Company or its Subsidiaries, including, without limitation, (i) allworld wide inventions and discoveries (whether patentable or unpatentable andwhether or not reduced to practice), all improvements thereto, and all patents,patent applications and patent disclosures, together with all reissuances,continuations, continuations in-part, revisions, extensions and reexaminationsthereof, (ii) all trademarks, service marks, trade dress, logos, tradenames and corporate names, together with all translations, adaptations,derivations and combinations thereof and including all goodwill associatedtherewith, and all applications, registrations, renewals and derivatives inconnection therewith, (iii) all copyrightable works, all copyrights andall applications, registrations and renewals in connection therewith,(iv) all mask works and all applications, registrations and renewals inconnection therewith, (v) all know-how, trade secrets and confidentialbusiness information, whether patentable or unpatentable and whether or notreduced to practice (including ideas, research and development, know-how,formulas, compositions, manufacturing and production processes and techniques,technical data, designs, drawings, specifications, customer and supplier lists,addresses, phone numbers, pricing and cost information, and business andmarketing plans and proposals), (vi) all Software, (vii) all otherproprietary rights of any type of description (regardless of whether the samehave been formally registered), (viii) all copies and tangible embodimentsthereof (in whatever form or medium) and (ix) all licenses and agreementsin connection with the foregoing.

             (h)        As used in this Agreement, “Software”means any and all versions, releases, and predecessors of the software andcomputer programs of the Company, including all such software and computerprograms in machine readable source code forms and in machine executable objectcode forms and all related specifications (including, without limitation, alllogic architectures, algorithms and logic flows and all physical, financial,operating and design parameters), any data used by or related to Software, workin progress relating to corrections, modifications or enhancements, operatingsystems and procedures (including development methodology), designs, designrevisions, related applications, work benches, software in any language,concepts, ideas, processes, techniques, software designs and test tools, thirdparty software interfaces written by them and all methods of implementation andpackaging, together with all associated know-how and show-how.

             (i)          As used in this Agreement, “ThirdParty Software” means software or computer programs used in the operationof the Business (specifically, in connection with servicing clients) aspresently conducted or currently anticipated to be conducted and that are notowned by the Company.

             2.11      Equity Investments;Subsidiaries. Except for its Subsidiaries or as set forthon Schedule 2.11, the Company has never had, nor does it presently have,any subsidiaries, nor has it owned, nor does it presently own, whether directlyor indirectly owned, any capital stock or other proprietary interest, directlyor indirectly, in any corporation, association, trust, partnership, jointventure or other entity.  All of theoutstanding shares of capital stock of each class of its Subsidiaries(a) are owned beneficially and of record by the Company free and clear ofany liens, charges and Encumbrances, (b) constitute 100% of suchSubsidiary’s outstanding shares and (c) have been validly issued, arefully paid and non-assessable.

          2.12      Titleto Assets and Properties, Insurance. (a) Each of the Company and its Subsidiaries has good andmarketable title, or a valid leasehold interest in or contractual right to use,all of its assets and properties, free and clear of any mortgages, judgments,claims, liens, security interests, pledges, escrows,charges or other encumbrances of any kind or character whatsoever (“Encumbrances”) except in each casefor Permitted Encumbrances and such defects in title and such other liens andEncumbrances which do not individually or in the aggregate materially detractfrom the value to the Company of the properties and assets of the Company andits Subsidiaries taken as a whole.
             (b)        The Company and its Subsidiariesmaintain insurance in such amounts (to the extent available in the publicmarket), including self-insurance, retainage and deductible arrangements, andof such a character as is reasonable for companies engaged in the same orsimilar business (including, but not limited to, insurance against liabilityfrom customer losses as a result of the Company’s products).  Schedule 2.12(b) sets forth a list ofall insurance coverage carried by the Business and/or the Company and/or itsSubsidiaries, the carrier and terms and amount of coverage.

             2.13      EmployeeBenefit Plans. (a) Schedule 2.13 hereto contains a trueand complete list of (i) each plan, program, policy, payroll practice,contract, agreement or other arrangement, or commitment therefor, providing forcompensation, severance, termination pay, performance awards, stock orstock-related awards, fringe benefits or other employee benefits of any kind, whether formal or informal, funded or unfunded,written or oral, and whether or not legally binding, which is now or previouslyhas been sponsored, maintained, contributed to or required to be contributed toby the Company or pursuant to which the Company or its Subsidiaries have any liability, contingent or otherwise,including, but not limited to, any “employee benefit plan” within the meaningof Section 3(3) of the Employee Retirement Income Security Act of 1974, asamended (“ERISA”) (each, a “Benefit Plan”); and (ii) eachmanagement, employment, bonus, option, equity (or equityrelated), severance, consulting, non compete, confidentiality or similaragreement or contract (each, an “Employee Agreement”), pursuantto which the Company or the Subsidiary have anyliability, contingent or otherwise, between the Company or its Subsidiaries andany current, former or retired employee, officer, consultant, independentcontractor, agent or director of the Company or its Subsidiaries (an “Employee”).  Except as identified on Schedule 2.13,neither the Company nor its Subsidiaries currently sponsor, maintain,contribute to, nor is it required to contribute to, nor has the Company or itsSubsidiaries ever sponsored, maintained, contributed to or been required tocontribute to, or incurred any liability to, (i) any “defined benefitplan” (as defined in ERISA Section 3(35)); (ii) any “multiemployerplan” (as defined in ERISA Section 3(37)) or (iii) any Benefit Planwhich provides, or has any liability to provide, life insurance, medical,severance orother employee welfare benefits to anyEmployee upon his or her retirement or termination of employment, except asrequired by Section 4980B of the Internal Revenue Code of 1986, as amended(the “Code”).

             (b)        Neither the Company nor its Subsidiarieshas ever been (i) a member of a “controlled group of corporations,” under“common control” or an “affiliated service group” within the meaning ofSections 414(b), (c) or (m) of the Code, (ii) required to beaggregated under Section 414(o) of the Code, or (ii) under “commoncontrol,” within the meaning of Section 4001(a)(14) of ERISA, or anyregulations promulgated or proposed under any of the foregoing Sections, ineach case with any other entity.

             (c)         The Company has previously provided tothe Purchaser current, accurate and complete copies of all documents embodyingor relating to each Benefit Plan and each Employee Agreement, including allamendments thereto, trust or funding agreements relating thereto (if any), thetwo most recent annual reports (Series 5500 and related schedules)required under ERISA (if any), the most recent determination letter (if any)received from the Internal Revenue Service, the most recent summary plandescription (with all material modifications) (if any), and all materialcommunications to any Employee or Employees relating to any Benefit Plan orEmployee Agreement.
             (d)        Each Benefit Plan has been establishedand maintained in accordance with its terms and in compliance with allapplicable, laws, statutes, orders, rules and regulations, including but notlimited to ERISA and the Code; and each Benefit Plan intended to qualify underSection 401 of the Code is, and since its inception has been, soqualified.

             (e)         The execution of, and performance ofthe transactions contemplated in, this Agreement will not (either alone or uponthe occurrence of any additional or subsequent events) (i) constitute anevent under any Benefit Plan or Employee Agreement that will or may result inany payment (whether of severance pay or otherwise), acceleration, forgivenessof indebtedness, vesting, distribution, increase in benefits or obligations tofund benefits with respect to any Employee or (ii) result in a bonus orpayment to any officer or director of the Company.

             2.14      LaborRelations, Employees. Schedule 2.14 hereto lists all employeesof the Company and its Subsidiaries with total cash compensation in excess of$75,000.  Except as set forth onSchedule 2.14 hereto, (i) neither the Company nor its Subsidiaries isdelinquent inpaymentsto any of its employees, for any wages, salaries, commissions, bonuses or otherdirect compensation for any services performed bythe date hereof or amounts required to be reimbursed by them tothe date hereof, (ii) each of the Company and its Subsidiaries is incompliance with all applicable federal, state and local laws, rules andregulations respecting employment, employment practices, labor, terms andconditions of employment and wages and hours, (iii) neither the Companynor its Subsidiaries is bound by or subject to (and none of its assets orproperties is bound by or subject to) any written or oral, express or implied,commitment or arrangement with any labor union, and no labor union has requestedor, to the knowledge of the Company, has sought to represent any of theemployees, representatives or agents of the Company or its Subsidiaries,(iv) there is no labor strike, dispute, slowdown or stoppage actuallypending, or, to the knowledge of the Company, threatened against or involvingthe Company or its Subsidiaries, (v) tothe knowledge of the Company, no salaried key employee has any plans toterminate his or her employment with the Company or its Subsidiaries.  Each of the officers of the Company and itsSubsidiaries, each key employee and each other employee of the Company and itsSubsidiaries who has or had access to confidential information of the Businesshas executed a confidentiality agreement, and such agreements are in full forceand effect.

             2.15      Litigation,Orders. Except as set forth on Schedule 2.15,there is no civil, criminal or administrative action, suit, claim, notice,hearing, inquiry, proceeding or investigation at law or in equity by or beforeany court, arbitrator or similar panel, governmental instrumentality or otheragency now pending or, to the knowledge of the Company, threatened against the Business, the Company or its Subsidiaries orthe assets (including the Intellectual Property) of the Business, the Companyor its Subsidiaries. Except as set forth in Schedule 2.15, neither theBusiness, the Company nor its Subsidiaries is subject to any order, writ,injunction or decree of any court of any federal, state, municipal or otherdomestic or foreign governmental department, commission, board, bureau, agencyor instrumentality.
             2.16      Compliance with Laws, Permits. (a) Except as provided in Schedule 2.16, the Business, theCompany and its Subsidiaries are in compliance, and have been conducted incompliance with, all federal, state, local and foreign laws, rules, ordinances,codes, consents, authorizations, registrations, regulations, decrees,directives, judgments and orders (including Environmental Laws) applicable toit except where the failure to comply would not individually or in theaggregate have a Material Adverse Effect. Each of the Company and itsSubsidiaries has all federal, state, local and foreign governmental licenses,permits, qualifications and authorizations (“Permits”) necessary in theconduct of the Business as currently conducted. All such Permits are in fullforce and effect, and no violations have been recorded in respect of any suchPermits; no proceeding is pending or, to the best knowledge of the Company,threatened to revoke or limit any such Permit; and no such Permit will besuspended, cancelled or adversely modified as a result of the execution anddelivery of this Agreement or the Ancillary Documentsand the consummation of the transactions contemplated hereby or thereby, exceptwherefailure to have such Permit would not individually or in the aggregate have aMaterial Adverse Effect. Schedule 2.16 sets forth a list of all such Permits and theexpiration dates thereof.

             (b)        For purposes of this Agreement, “EnvironmentalLaws” means, without limitation, (i) the Comprehensive EnvironmentalResponse, Compensation and Liability Act, 42 U.S.C. §§ 9601, *et seq*.; the Emergency Planning andCommunity Rights-to-Know Act of 1986, 42 U.S.C. §§ 11001, *et seq*.; the Resource Conservation andRecovery Act, 42 U.S.C. §§ 6901, *et seq*.;the Toxic Substances Control Act, 15 U.S.C. §§ 2601, *et seq*.; the Federal Insecticide,Fungicide, and Rodenticide Act, 7 U.S.C. §§ 136, *et seq*.; the Clean Air Act 42 U.S.C.§§ 7401, *et seq*.; the CleanWater Act (Federal Water Pollution Control Act), 33 U.S.C. §§ 1251, *et seq*.; the Safe Drinking Water Act, 42U.S.C. §§ 300f, *et seq*.; theOccupational Safety and Health Act, 29 U.S.C. §§ 641, *et seq*.; the Hazardous MaterialsTransportation Act, 49 U.S.C. §§ 1801, *etseq*.; as any of the above statutes have been or may be amended fromtime to time, all rules and regulations promulgated pursuant to any of theabove statutes, and any other foreign, federal, state or local law, statute,ordinance, rule or regulation governing environmental matters, as the same havebeen or may be amended from time to time, including any common law cause ofaction providing any right or remedy with respect to environmental matters, andall applicable judicial and administrative decisions, orders, and decrees relatingto environmental matters and (ii) and all indemnity agreements and othercontractual obligations, as in effect at such date, relating to the protectionof the environment, including the air, surface and subsurface soils, surfacewaters, groundwaters and natural resources, and occupational health and safetyand exposure of persons to hazardous materials.

             2.17      OfferingExemption. Assuming the accuracy of the representationsand warranties contained in Section 3 hereof, the offer and sale of theSeries A Preferred Stock and the Warrants as contemplated hereby and theissuance and delivery of the Warrant Shares to the Purchaserupon exercise of the Warrants and the issuance and delivery of the ConversionShares to the Purchaser upon the conversion of the Series A PreferredStock are each exempt from registration under the Securities Act of 1933, asamended (the “Securities Act”), and under applicablestate securities and “blue sky” laws, as currently in effect.

             2.18      Disclosure. Neither this Agreement (including theExhibits and Schedules attached hereto) nor any certificate, instrument orwritten statement furnished or made to the Purchaser by or on behalf of theCompany in connection with this Agreement or the Ancillary Documents containsany untrue statement of a material fact or omits to state a material factnecessary in order to make the statements contained herein and therein notmisleading.  There is no fact which theCompany has not disclosed to the Purchaser or their counsel in writing and ofwhich the Company is aware which materially and adversely affects or whichcould reasonably be expected to materially and adversely affect the Business orthe business, financial condition, operations, property, affairs or prospectsof the Company or its Subsidiaries or the ability of the Company to perform itsobligations under the Agreement or any of the Ancillary Documents.
             2.19      Taxes. The Company and its Subsidiaries have filedor caused to be filed all income tax returns which are required to be filed andhave paid or caused to be paid all Taxes that havebecome due, except Taxes the validity or amount of which is being contested ingood faithby appropriate proceedings and with respect to which adequate reserves havebeen set aside.  “Taxes,”for purposes of this Agreement, means any taxes, assessments, duties, fees,levies, imposts, deductions, withholdings, including, without limitation,income, gross receipts, ad valorem, value added, excise, real or personalproperty, asset, sales, use, license, payroll, transaction, capital, networth and franchise taxes, estimated taxes, withholding, employment, socialsecurity, workers compensation, utility, severance, production,unemployment compensation, occupation,premium, windfall profits, transfer and gains taxes, or other governmentalcharges of any nature whatsoever imposed by any government or taxing authority of any country or political subdivision of any countryand any liabilities with respect thereto, including any penalties, additions to tax,fines or interest thereon, and includes any liability of the Company and itsSubsidiaries arising under any tax sharing agreement to which it is or has beena party.

             2.20      Consents. Except as set forth on Schedule 2.20, nopermit, authorization, consent or approval of or by, or any notification of orfiling with, any person (governmental or private) is required by the Company inconnection with the execution, delivery and performance of this Agreement andthe Ancillary Documents to which it is a party, the consummation by the Companyof the transactions contemplated hereby or thereby, or the issuance, sale ordelivery of the Series A Preferred Stock, the Warrants, the Warrant Sharesor the Conversion Shares (otherthan such notifications or filings requiredunder applicable federal or state securities laws, if any, which shall be madeon a timely basis).

             2.21      Brokers. Except as listed on Schedule 2.21,neither the Company nor any of its officers, directors, employees or stockholdershas employed any broker or finder in connection with the transactionscontemplated by this Agreement or the Ancillary Documents nor will theexecution of, and performance of the transactions contemplated in, thisAgreement or the Ancillary Documents result in a payment to any broker orfinder (including, but not limited to, any employee or director of theCompany).

             2.22      Suppliersand Customers. Except as listed on and in the amounts setforth on Schedule 2.22, the Company does not have any knowledge of anytermination, cancellation or threatened termination or cancellation orlimitation of, or any material modification or change in, or expressed materialdissatisfaction with the business relationship between the Business, theCompany or its Subsidiaries and any supplier or vendor or customer or client ofthe Business, the Company or its Subsidiaries, in each case, of materials orservices in an amount in excess of $10,000.
             2.23      AccountsPayable and Current Liabilities. The Company doesnot have an account payable or a current liability in excess of $250,000.

             2.24      Transfer Restrictions. The employees of the Company and thestockholders set forth on Schedule 2.24(a) have entered into the StockholdersAgreement attached hereto as Schedule 2.24(b) and the Company has delivered anoriginally-executed copy of all of those Stockholders Agreements to Purchaser.

             2.25      Effortsin Completing Schedules. The Company hasused its best efforts to and has caused its agents and counsel to use theirrespective commercially reasonable efforts to provide all information on allCompany schedules to this Agreement.

             2.26      CertainSubsidiaries. Thesubsidiaries set forth on Schedule 2.26 do not have any liabilities(whether contingent, pending, or now due), in the aggregate, in excess of$2,000 and as of the date hereof and as of the date of the Initial Closing andeach Subsequent Closing do not have any operations (each, a “CompanyExcluded Subsidiary” and, collectively, the “Company ExcludedSubsidiaries”).  All outstanding shares of capital stock orother equity interests of the Company ExcludedSubsidiaries are owned by the Company or a direct or indirect wholly-ownedsubsidiary of the Company, free and clear of all liens, charges, encumbrances,claims and options of any nature.  Thereare not as of the date hereof and there will not be as of the date hereof andas of the date of the Initial Closing and each Subsequent Closing, anyoutstanding or authorized options, warrants, calls, rights (includingpreemptive rights), commitments or any other agreements of any character whichany of the Company Excluded Subsidiaries or any of their respective subsidiaries area party to, or may be bound by, requiring the Company and any of the Company ExcludedSubsidiaries or any of their respective subsidiaries to issue, transfer, sell,purchase, redeem or acquire any shares of capital stock, common stockequivalents or any securities or rights convertible into, exchangeable for, or evidencing the right tosubscribe for, any shares of capital stock of the Company, any of the ExcludedSubsidiaries, or any of their respective subsidiaries.

**            ****SECTION 3.    Representationsand Warranties of the Purchaser. **The Purchaser represents and warrants to the Companyas of the date hereof as follows:

             (a)         Purchaser is acquiring theSeries A Preferred Stock, and the Warrants, for its own account, forinvestment and not with a view to the distribution thereof within the meaningof the Securities Act.

             (b)        Purchaser understands that (i) theSeries A Preferred Stock and the Warrants, have not been, and that theWarrant Shares and Conversion Shares will not be, registered under theSecurities Act or any state securities laws, by reason of their issuance by theCompany in a transaction exempt from the registration requirements thereof and(ii) the Series A Preferred Stock, Warrants, Warrant Shares and theConversion Shares may not be sold unless such disposition is registered underthe Securities Act and applicable state securities laws or is exempt fromregistration thereunder.
             (c)         Purchaser further understands that theexemption from registration afforded by Rule 144 (the provisions of whichare known to such Purchaser) under the Securities Act depends on thesatisfaction of various conditions, and that, if applicable, Rule 144 mayafford the basis for sales only in limited amounts.

             (d)        Purchaser has not employed any broker orfinder in connection with the transactions contemplated by this Agreement.

             (e)         Purchaser is an “Accredited Investor”(as defined in Rule 501(a) under the Securities Act).

             (f)         Purchaser is duly organized and validlyexisting under the laws of the state of its organization and has all power andauthority to enter into and consummate the transactions contemplated by thisAgreement and the Ancillary Documents. This Agreement and each of the Ancillary Documents to which Purchaser isa party has been duly authorized by all necessary action on the part ofPurchaser.  This Agreement and each ofthe Ancillary Documents to which Purchaser is a party constitutes a valid andbinding agreement of Purchaser enforceable against Purchaser in accordance withits terms except to the extent that enforceability may be limited bybankruptcy, insolvency or other similar laws affecting creditors’ rightsgenerally.

**SECTION 4.    CertainCovenants.**

             4.1        Access to Records. TheCompany shall afford the Purchaser and its employees, counsel and otherauthorized representatives full access, during normal business hours, uponreasonable advance notice, with due regard to its ongoing operations, to theassets, properties, plants, offices, warehouses andother facilities, Contracts and books and records of the Business and of theCompany and its Subsidiaries, and to the outside auditors of the Company andtheir work papers relating thereto, in each case, as the Purchaser may fromtime to time reasonably request.  The parties hereto agree that noinvestigation by the Purchaser or their representatives shall affect or limitthe scope of the representations and warranties of theCompanycontained herein or in any Ancillary Document delivered pursuant hereto orlimit liability for breach of any such representation or warranty.

             4.2        Financial Reports. So long as the Purchaser holds one or moreseats on the Board of Directors, the Company agrees to furnish to the Purchaserthe following:

             (a)         Within 15 days after the end ofeach fiscal month, internal summary financial and operating statements for suchmonth, prepared by management for the Chief Executive Officer of the Companyand, if prepared, a letter or memorandum discussing the summary financialinformation for such period and setting forth a comparison by reasonablecategories of such financial information to the applicable budget and thecomparable figures for the prior year and a reasonable explanation of anydifferences (a “Management Letter”).
             (b)        Within 45 days after the end ofeach of the first three quarterly fiscal periods, (i) unaudited balancesheets and an income statement as of the end of such period, together withstatements of retained earnings and cash flow for such period (“QuarterlyFinancials”)and a Management Letter, (ii) a statement certified by the Chief FinancialOfficer of the Company, certifying that the financial position and results ofoperations of the Company for such period as reflected in the QuarterlyFinancials are presented fairly and have been prepared in accordance with GAAP(subject to normal year–end adjustments and the absence of footnotes)consistently applied and (iii) an officer’s certificate stating that theCompany is not in default under any of its material agreements or, if any suchdefault exists, specifying the nature and period of existence thereof and whatactions the Company has taken and proposes to take with respect thereto;provided, however, that delivery pursuant to this clause (b) of a copy ofthe Quarterly Financials on Form 10–Q of the Company for suchquarterly period filed with the Commission shall be deemed to satisfy therequirements of this clause (b).

             (c)         Within 90 days after the end ofeach fiscal year, commencing with the first fiscal year ending after the Closing,(i) audited balance sheets and an income statement as of the end of suchfiscal year, together with statements of retained earnings and cash flow forsuch fiscal year, all in reasonable detail and certified by a “Big Six”national firm of independent accountants selected by the Board, or theCompany’s auditors ratified by the Company’s shareholders at their 2001 annualmeeting of shareholders, as presenting fairly the financial position andresults of operations of the Company and as having been prepared in accordancewith GAAP consistently applied, including their opinion thereon which isunqualified with respect to the scope of such firm’s examination and theCompany’s status as a going concern, (ii) the accounting firm’s managementletter, plus (iii) an officer’s certificate stating that the Company isnot in default under any of its material agreements or, if such default by theCompany or its Subsidiaries exists, a certificate specifying the nature andperiod of existence thereof and what actions the Company has taken and proposesto take with respect thereto; provided, however, that delivery pursuant toclause (c) of a copy of the Annual Report on Form 10–K of theCompany for such fiscal year filed with the Commission shall be deemed tosatisfy the requirements of this clause (c).

             (d)        At least 30 days but not more than90 days prior to the beginning of each fiscal year, an annual operatingplan and budget prepared on a monthly basis for the Company for such fiscalyear (displaying anticipated statements of income and cash flows and balancesheets), and promptly upon preparation thereof any other significant budgetsprepared by the Company and any revisions of such annual or other budgets, andwithin 30 days after any monthly period in which there is a materialadverse deviation from the annual budget, an officer’s certificate explainingthe deviation and what actions the Company has taken and proposes to take withrespect thereto.

             (e)         Promptly (but in any event within threebusiness days) after the discovery or receipt of notice of any default underany material agreement to which the Company and/or its Subsidiaries is a party,which default could have a Material Adverse Effect on the Company or itsSubsidiaries or any other Material Adverse Event or circumstance affecting theCompany or its Subsidiaries (including, without limitation, the filing of anymaterial litigation against the Company or its Subsidiaries or the existence ofany dispute with any person which involves a reasonable likelihood of suchlitigation being commenced), an officer’s certificate specifying the nature andperiod of existence thereof and what actions the Company has taken and proposesto take with respect thereto.

             (f)         Promptly (but in any event within threebusiness days) after transmission thereof, copies of all financial statements,proxy statements, reports and any other general written communications whichthe Company sends to its stockholders and copies of all registration statementsand all regular, special or periodic reports which it files, or any of itsofficers or directors file with respect to the Company, with the Commission orwith any securities exchange on which any of its securities are then listed,and copies of all press releases and other statements made available generallyby the Company to the public concerning material developments in the Company’sbusinesses.
             (g)        With reasonable promptness, such otherinformation and financial data concerning the Company and/or its subsidiariesas the Purchaser may reasonably request.

             (h)        If for any period the Company shall haveany subsidiary or subsidiaries whose accounts are consolidated with those ofthe Company, then, in respect of such period, the financial statements andinformation delivered pursuant to the foregoing Sections 4.2(a), 4.2(b)and 4.2(c) shall be the consolidated and consolidating financial statements ofthe Company and all such consolidated subsidiaries.

             (i)          In all cases, the Company shallprovide to the Purchaser all information which it provides or has an obligationto provide to any other stockholder of the Company in such person’s capacity asa stockholder, pursuant to any agreement with such stockholder or otherwise andany other information that the Purchaser may reasonably request.

             4.3        Affirmative Covenants.

             (a)         The books of account and otherfinancial and corporate records of the Company and its Subsidiaries shall bemaintained in accordance with good business and accounting practices and thefinancial condition of the Company and its Subsidiaries shall be accuratelyreflected in the financial statements referred to in Section 4.2.

             (b)        The Company shall, and shall cause itsSubsidiaries to, maintain in full force and effect its corporate existence,rights, governmental approvals and franchises and all licenses and other rightsto use patents, processes, trademarks, trade names or copyrights owned orpossessed by it and deemed by it to be material to the conduct of itsbusiness.  The Company shall, and shallcause its Subsidiaries to, use its commercially reasonable efforts to preserveits favorable business relationships with the clients, lenders, suppliers,customers, licensors and licensees and others having business dealings with theBusiness and to preserve the goodwill and ongoing operations of the Business.

             (c)         The Company shall, and shall cause itsSubsidiaries to, comply with all applicable laws, rules regulations and orders,the violation of which could have a Material Adverse Effect on the Company orits Subsidiaries.

             (d)        The Company shall, and shall cause itsSubsidiaries to, keep their properties in good repair, working order andcondition, reasonable wear and tear excepted, and from time to time make allreasonably needful and proper, or legally required, repairs, renewals, replacements,additions and improvements thereto.  TheCompany shall, and shall cause its Subsidiaries to, comply at all times witheach provision of all leases to which any of them is a party or under which anyof them occupies, or has possession, of, property and are material to theoperation of the Business.
             (e)         The Company shall, and shall cause itsSubsidiaries to, keep its assets which are of an insurable character, if any,insured by financially sound and reputable insurers against loss or damage by fire,extended coverage and other hazards and risks and liability to persons andproperty to the extent and in the manner customary for companies in similarbusinesses similarly situated.

             (f)         The Company shall, and shall cause itsSubsidiaries to, use its best efforts to obtain all federal, state, local andforeign governmental licenses, permits and qualifications material to andnecessary in the conduct of its business as proposed to be conducted.

             (g)        The Company shall, and shall cause itsSubsidiaries to, use its best efforts to cause all Intellectual Property,including, but not limited to, technological developments, inventions,discoveries or improvements made by its employees to be fully documented inengineering or other notebooks in accordance with the prevailing industrialprofessional standards, and, where possible and appropriate, file and prosecuteUnited States and foreign patent applications relating to and protecting suchdevelopments.  In addition, the Companyshall, and shall cause its Subsidiaries to, use its commercially reasonableefforts to cause all Intellectual Property, including, but not limited to, alltechnological developments, inventions, discoveries or improvements made by anyof its employees or any employees of its subsidiaries to be owned by it and,where possible and appropriate, obtain reasonable legal protections for itsbenefit with respect to such property.

             (h)        The Company shall, and shall cause itsSubsidiaries to, comply with all material obligations which it incurs pursuantto any contract or agreement, whether oral or written, express or implied, assuch obligations become due, unless and to the extent that the same are beingcontested in good faith and by appropriate proceedings and adequate reserves(as determined in accordance with generally accepted accounting principles,consistently applied) have been established on its books with respect thereto.

             4.4        Use of Proceeds. The Company shall use the proceeds arisingfrom the transactions contemplated hereby for development expenses and forgeneral working capital requirements.

             4.5        Insurance. The Company shall maintain after the closingsdirectors’ and officers’ liability insurance in an amount not less than$5,000,000.  The Company and the Boardwill evaluate the appropriateness of obtaining “key man” life insurance to beowned by the Company and with the Company named as the payee of all benefitsthereunder.

             4.6        Merger, etc. The Company will not merge with or into orconsolidate with, or sell all or substantially all of its assets to, any otherperson unless (a) the surviving entity shall have assumed in writing allof the obligations of the Company under this Agreement and the AncillaryDocuments, and (b) immediately after the consummation of such merger or consolidation the surviving entity would not be inviolation of any of the provisions applicable to the Company contained in thisAgreement and the Ancillary Documents.
             4.7        Transactions with Affiliates. The Company will not, and will not permit its Subsidiaries to,engage in any transaction or group of related transactions (including, withoutlimitation, the issuance of capital stock, borrowing money or a sale of theCompany, or the purchase, lease, sale or exchange of properties of any kind orthe rendering of any service) with any affiliate, including, but not limited toany stockholder or any affiliate of such stockholder  (other than the Company), without the approval of a majority ofthe disinterested members of the Board.

             4.8        Notice of Breach. As promptly as practicable, and in any eventnot later than three business days after senior management of the Companybecomes aware thereof, the Company shall provide the Purchaser with writtennotice of any breach by the Company of any provision ofthis Agreement, including, without limitation, this Section 4, specifyingthe nature of such breach and any actions proposed to be taken by the Companyto cure such breach.

             4.9        Matters Related toDirectors.

             (a)         Purchaser shall have the right toratify the appointment of one additional member to the Issuer’s Board for solong as at least 50% of the Series A Preferred Stock remains outstanding.

             (b)        In the event that any of the InitialDesignees, or their replacements (collectively, the “Purchaser Designees”),shall cease to be on the Board, other than in the event that such InitialDesignee or his or her replacement is removed for cause, the Purchaser shallhave the exclusive right to nominate replacements and the Board shall recommendand elect the nominees or, in the case of the election of directors at anannual meeting, the Board shall recommend such nominees and use its bestefforts to cause the shareholders to elect such nominees, subject to applicablelaw.

             (c)         The Company shall, upon requesttherefor, promptly reimburse the Initial Designees and any replacements, as thecase may be, for all reasonable expenses incurred by them in connection withtheir attendance at meetings of the Board or of committees of the Board and anyother activities undertaken by them in their capacity as directors of theCompany or its Subsidiaries, as applicable. The foregoing shall be in addition to, and not in lieu of (or induplication of), any indemnification or reimbursement obligations of the Companyunder the Certificate of Incorporation or By–Laws or by law.

             (d)        Without the approval of the Board thatincludes the affirmative vote of the Purchaser Designees,

             (i)          theCompany shall not amend, supplement, modify or repeal any provision of theCertificate of Incorporation or By-Laws or take any other action, including,without limitation, the adoption of a shareholders’ rights plan or similarplan, which would adversely affect the rights or benefits of the Purchaserunder any of this Agreement or the Ancillary Documents, including, withoutlimitation, the conversion rights of the holders of the Series A PreferredStock or the exercise rights of the Warrants hereunder, and

             (ii)         for so long as at least 50% of the Series A PreferredStock remains outstanding, the Company shall not, and shall not permit itsSubsidiaries to, sell assets of the Company or its Subsidiaries in excess of anaggregate of $50,000 annually, without the prior written consent of Purchaser,which consent shall not be unreasonably withheld.
             (e)         For so long as any of the Series APreferred Stock remains outstanding, the Board of the Company shall use itsbest efforts, subject to applicable law, to not amend the By-Laws of theCompany to reflect that the size of the Board is in excess of 10 directors,without the consent of the Purchaser Designees.

             4.10      Rightsof First Offer. Prior to seeking financing from any thirdparty consisting of an issuance of Equity Securities (the “ProposedSecurities”)by the Company on or after the Initial Closing and for so long as 50% of theSeries A Preferred Stock remains outstanding, the Company shall notify thePurchaser of a description in reasonable detail of the Proposed Securities, theamount proposed to be issued and the consideration the Company desires toreceive therefor (the “Notice”),which Notice shall constitute an offer to the Purchaser to purchase a portion(a “Maintenance Amount”)of such Proposed Securities on a pari passu basis in order to maintain thePurchaser’s percentage level of ownership of the total Common Stock outstandingas such term is used in the last sentence of Section 2.3.  The Purchaser shall have 15 days after receipt of the Notice (unless the Purchaser earlierindicates thatit has no interest in purchasing the Proposed Securities), to decide whether ornot to acquire the Maintenance Amount, after which (if the Purchaser has notagreed to purchase the above-mentioned Maintenance Amount on the terms setforth in the Notice or such other terms as are mutually acceptable to theCompany and the Purchaser) the Company shall be permitted to seek and obtain athird-party purchaser to acquire the entire amount of the Proposed Securities,provided that the closing of such acquisition by such third party purchaseroccurs within 90 days from the date of the Notice and provided that theacquisition of the Proposed Securities by such third-party purchaser is onterms no more favorable to such third-party purchaser than those terms setforth in the Notice.  No equitysecurities shall be issued by the Company to any person unless the Company hasfirst offered such portion of the equity securities to the Purchaser inaccordance with this Section 4.10, except with respect to a secondarypublic offering of at least aprice per shareequal to 500% of the amount designated as the Purchase Price Per Share onExhibit B–I with gross proceeds to the Company of at least$15 million.

             4.11      SubsidiaryStock. The Company shall not, without the priorwritten consent of the holders of a majority of the shares of Series APreferred Stock, (a) create, designate, or authorizethe issuance of, any series of stock of its subsidiaries or (b) spin offthe assets or the shares of the common stock of its subsidiaries.

             4.12      Limitation onConvertible Securities and Debt. For so long as at least 50% of the Series APreferred Stock remains outstanding, the Company and its Subsidiaries will not

             (a)         issueany convertible debt securities,

             (b)        issueany convertible equity securities ranking pari passu or senior to theSeries A Preferred Stock with respect todividends or as to distribution of assets upon liquidation, dissolution orwinding up or,
             (c)         incur, at any time, which in the aggregateexceeds $250,000, any indebtedness for borrowed money or guarantee any suchindebtedness (excluding trade debt) or make any loans, advances or capitalcontributions to, or investments in, any other person

withoutthe prior written consent of the holders of a majority of the shares ofSeries A Preferred Stock then outstanding.

             4.13      Payment of Taxes andOther Charges. The Company will pay or discharge, and willcause its Subsidiaries to pay or discharge, before the same shall becomedelinquent, (a) all Taxes, assessments and other governmental charges orlevies imposed upon it or any of its properties or income (including, withoutlimitation, such as may arise under Section 4062, 4063 or 4064 of ERISA orany similar provision of law) and (b) all claims or demands ofmaterialmen, mechanics, carriers, warehousemen, landlords and other likepersons which, in the case of either clause (a) or clause (b), ifunpaid, might result in the creation of a material lienupon any of its properties, provided, however, that the Company shall not berequired to pay or discharge or cause to be paid or discharged any such tax,assessment, charge orclaim whose amount, applicability or validity is being contested in good faithpursuant to appropriate proceedings.

             4.14      Dividends. Without the approval of the Board, whichapproval includes the affirmative vote of the Purchaser’s Designees, theCompany will not declare or pay any dividend or make any other distribution ofcash, stock or property to its shareholders.

             4.15      Investments. TheCompany will not, and will not permit its Subsidiaries to, make, directly orindirectly, any advance, loan (including guarantees), or other extension ofcredit or capital contribution to (by means of any transfer of cash or otherproperty to others or any payment for property or services for the account oruse of others), or any purchase, acquisition or ownership by such person of anycapital stock, bonds, notes, debentures or other securitiesissued or owned by any other person and all other items that would beclassified as investments on a balance sheet prepared in accordance withgenerally accepted accountingprinciples (an “Investment”)unless (i) such an Investment is in the ordinary course of business or(ii) the Investment is approved by the Board, which approval includes theaffirmative vote of the Purchaser’s Designees.

             4.16      Changesin Capital Stock. Between the date hereof and the SubsequentClosing, the Company will not change the amount of its authorized capitalstock, or subdivide or otherwise change any shares of any class of its capitalstock, whether by way of reclassification, stock splitor otherwise, or issue any additional shares of capital stock other than as setforth in Schedule 4.16 hereto (“Excluded Securities” ”)and will not grant any options, warrants or otherrights to purchase or acquire shares of the Company’s capital stock.

             4.17      Filing of Certificate ofDesignations. The Company shall file the Certificate ofDesignations on the Closing Date and use its best efforts to get the Secretaryof State of the State of Delaware to approve the Certificate of Designations.
             4.18      NASDAQ Filing. On the date of the Initial Closing, the Company shall make allfilings with the Nasdaq National Market (“NASDAQ”)and pay all fees, when due, in connection therewith to list all of the CommonStock to be issued upon conversion of the Series A Preferred Stock and theexercise of the Warrants and shall use its best efforts, and shall cause itsdirectors and its counsel to use their respective best efforts, to (i) list allof the Common Stock on the NASDAQ, or register such shares of Common Stock onthe exchange or other forum in which the Company’s Common Stock is then traded,and shall keep such Common Stock listed or registered, as the case may be.

             Closingof Bridge.Notwithstandinganything to the contrary in the Convertible Promissory Note and WarrantPurchase Agreement, made as of the specific date in May or June, 2001 as setforth in Schedule 4.19 (including all exhibits and attachments thereto, the“Bridge Document”),the Company shall at the Initial Closing: (i) cause each investors’ promissorynotes purchased in connection with the Bridge Document, together with allaccrued and unpaid interest thereon, in the amounts set forth on Schedule 4.19,to convert into the number of shares of Series A Preferred Stock and Warrantsset forth on Schedule 4.19, which equal in the aggregate: 2,804,481 shares ofPreferred Stock; 975,000 Warrants exercisable at $.536; 225,000 Warrantsexercisable at $1.00; and 225,000 Warrants exercisable at $1.50, (ii) causeeach investors’ bridge warrants purchased in connection with the BridgeDocument, in the amount set forth on Schedule 4.19, to be exchanged for suchnumber of warrants, as set forth on Schedule 4.19, in an aggregate amount of1,399,256, and (iii) shall issue and deliver such shares and Warrants to therespective persons as set forth on Schedule 4.19.  The Series A Preferred Stock to be issued with respect to suchconversion and the Warrants to be issued in exchange for such warrants shall beof the exact same kind, type and form as the Series A Preferred Stock purchasedpursuant to this Agreement and the Warrants issued pursuant to this Agreement,respectively, as if such Series A Preferred Stock and warrants were purchasedpursuant to this Agreement.  Theconversion of all of the promissory notes into the number of shares of Series APreferred Stock, all as set forth on Schedule 4.19, at the Initial Closing, andthe issuance and delivery of Series A Preferred Stock in accordance with thisSection 4.19, and the exchange, issuance and delivery of the warrants ascontemplated in this Section 4.19, shall be referred to in this Agreement asthe “Bridge Conversion”).

**            ****SECTION 5.    TransferTaxes.**

             The Company agrees that it willpay, and will hold each Purchaser harmless from any and all liability withrespect to any stamp or similarTaxes which may be determined to be payable in connectionwith the execution and delivery and performance of this Agreement, and that itwill similarly pay and hold each Purchaser harmless from all Taxes in respectof the issuance of the Series A Preferred Stock, the Warrants, the WarrantShares and the Conversion Shares to such Purchaser.

**            ****SECTION 6.    Survivalof Representations, Warranties, Agreements and Covenants, etc.**

             All representations and warrantiesin this Agreement and in the Ancillary Documents shall survive the executionand delivery of this Agreement and the Closing.  All agreements contained herein shall survive the Closing until,by their respective terms, they are no longer operative.****             SECTION 7.    Expenses.**

             (a)         Except as set forth inSection 7(b), the Company and Purchaser shall pay all the costs andexpenses incurred by it or on its behalf in connection with this Agreement andthe consummation of the transactions contemplated hereby.

             (b)        The Company shall pay and shallreimburse the Purchaser in cash (or, at the option of the Company, penny warrantsequivalent to cash expenses) for all (i) reasonable legal (including, withoutlimitation, all fees and expenses of Cadwalader, Wickersham & Taft asspecial counsel of the Purchaser), accounting and other fees and out-of-pocketexpenses associated with the proposed transaction and its due diligence inconnection therewith to the extent of not more than $125,000 in the aggregate,including related engineering and accounting due diligence expenses, (ii)reasonable fees and expenses incurred by the Purchaser with respect to anyamendments or waivers (whether or not the same become effective) under or inrespect of this Agreement and the Ancillary Documents, (iii) stamp andother Taxes which may be payable in respect of the execution and delivery ofthis Agreement or the issuance, delivery or acquisition of any shares ofSeries A Preferred Stock, the Warrants, the Warrant Shares or ConversionShares and (iv) the reasonable fees and expenses incurred with respect tothe enforcement of the rights granted under this Agreement and the AncillaryDocuments.

**            ****SECTION 8.    Indemnification.**

             8.1        General Indemnification. The Company shall indemnify, defend and holdPurchaser, its affiliates, officers, directors, partners, employees, attorneys,agents,representatives,successors and assigns (each a “Purchaser Entity”) harmless from andagainst all Losses incurred or suffered by a Purchaser Entity (whether incurredor suffered directly or indirectly through ownership of capital stock of theCompany) arising from the breach of any of therepresentations, warranties, covenants or agreements made by the Company inthis Agreement or in any Ancillary Document. Purchasershall indemnify, defend and hold the Company, its affiliates, officers,directors, employees, agents, representatives, successors andassignsharmless against all Losses arising from the breach of any of itsrepresentations, warranties, covenants or agreements in this Agreement or inany Ancillary Documents.

             8.2        Indemnification Principles. For purposes of this Section 8,(i) “Losses”shall mean each and all of the following items: claims, losses, (including,without limitation, losses of earnings) liabilities, obligations, payments,damages (actual, punitive or consequential), charges,judgments, fines, penalties, amounts paid in settlement, costs and expenses(including, without limitation, interest which may be imposed in connectiontherewith, costs and expenses of investigation, actions, suits, proceedings,demands, assessments and fees, expenses and disbursements of counsel,consultants and other experts).  Anypayment (or deemed payment) by the Company to a Purchaser pursuant to thisSection 8 shall be treated for federal income tax purposes as an adjustment to the pricepaid by such Purchaser for the Series A Preferred Stock and the Warrantspursuant to this Agreement.

             8.3        Claim Notice. A party seeking indemnification under thisSection 8 shall, promptly upon becoming aware of the facts indicating thata claim for Indemnification may be warranted, give to the party from whomindemnification is being sought a claim notice relating tosuch Loss (a “Claim Notice”).  Each Claim Notice shall specify the natureof the claim, the applicable provision(s) of this Agreement or other instrumentunder which the claim for indemnify arises, and, if possible, the amount or theestimated amount thereof. No failure or delay in giving a Claim Notice (so longas the same is given prior to expiration of the representation or warranty uponwhich the claim is based) and no failure to include any specific informationrelating to the claim (such as the amount or estimated amount thereof) or any reference to any provision of thisAgreement or other instrument under which the claim arises shall affect theobligation of the party from whom indemnity is sought unless such failurematerially and adversely prejudices the indemnifying party.****             SECTION 9.    Events of Default and Remedies.**

             9.1        Events of Default. Each of the following shall constitute an “Eventof Default”under this Agreement:

             (a)         The failure to maintain a 1.25/1.00ratio of current assets over current liabilities; or

             (b)        The failure to make required redemptionpayment on the Series A Preferred Stock, when and as the same becomes due andpayable; or

             (c)         Any capital expenditures together withcash expenditures are made that exceed $1,000,000 per month during the year2001, unless approved in advance by WallerSutton; or

             (d)        Voluntary Bankruptcy and InsolvencyProceedings.  If the Company or anyof its Subsidiaries shall file a petition in bankruptcy or for reorganizationor for an arrangement or any composition, readjustment liquidation, dissolutionor similar relief pursuant to the Federal Bankruptcy Code of 1978, as amended,or under any similar present or future federal Law or the law of any otherjurisdiction or shall be adjudicated a bankrupt or become insolvent, or consentto the appointment of or taking possession by a receiver, liquidator, assignee,trustee, custodian, sequestrator (or other similar official) of the Company orits Subsidiaries or for all or any substantial part of the Company’s or itsSubsidiaries’ property, or the Company or its Subsidiaries shall make anassignment for the benefit of its creditors, or shall admit in writing itsinability to pay its debts generally as they become due, or shall take anycorporate action, as the case may be, in furtherance of any of the foregoing;or

             (e)         Adjudication of Bankruptcy.  If a petition or answer shall be filedproposing the adjudication of the Company or its Subsidiaries as a bankrupt orits reorganization or arrangement, or any composition, readjustment,liquidation, dissolution or similar relief with respect to it pursuant to theFederal Bankruptcy Code of 1978, as amended, or under any similar present orfuture federal Law or the Law of any other jurisdiction applicable to theCompany or its Subsidiaries, and the Company or its Subsidiaries shall consentto or acquiesce in the filing thereof, or such petition or answer shall not bedischarged or denied within 60 days after the filing thereof, or
             (f)         Receivership or Sequestration.  If a decree or order is entered by a courthaving jurisdiction (i) for the appointment of a receiver or custodian orliquidator or trustee or sequestrator or assignee (or similar official) inbankruptcy or insolvency of the Company or its Subsidiaries or of all or asubstantial part of its property, or for the winding–up or liquidation ofits affairs, and such decree or order shall have remained in force undischargedand unstayed for a period of 60 days, or (ii) for the sequestrationor attachment of any property of the Company or its Subsidiaries without itsreturn to the possession of the Company or its Subsidiaries or its release fromsuch sequestration or attachment within 60 days thereafter; or

             (g)        Defaults Under Other Agreements.The Company or its Subsidiaries shall (i) default in the payment orprincipal or interest on any indebtedness of $250,000, in the aggregate, ormore beyond the applicable period of grace, if any, (ii) fail to observeor perform any covenant or agreement contained in any agreement(s) orinstrument(s) relating to indebtedness of $250,000 or more in the aggregatewithin any applicable grace period, (iii) any other event shall occur, ifthe effect of such failure or other event is to accelerate, or to permit theholder of such indebtedness or any other person to accelerate, the maturity of$250,000 or more in the aggregate of such indebtedness; or (iv) $250,000or more in the aggregate of any indebtedness shall be, or if as a result ifsuch failure or other event may be, required to be prepaid (other than byregularly scheduled required prepayment) in whole or in part prior to itsstated maturity; or

             (h)        Covenants.  The Company shall fail to observe or performany covenant or agreement contained in this Agreement or the AncillaryDocuments, and, if capable of being remedied, such failure shall remainunremedied for 30 days after the Company becomes aware of such failure; or

             (i)          Misrepresentation.  The representations and warranties of theCompany set forth in this Agreement, without giving effect to any materialityor knowledge qualifier therein, shall not have been true and correct in anymaterial respect as of the date hereof and shall not be true and correct in anymaterial respect as of the date of the Subsequent Closing with the same effectas though such representations and warranties had been made as of such date; or

             (j)          Purchaser Designee.  The failure of at least one designee of thePurchaser to be serving as a director of the Company, which situation continuesfor a period of five days or more, provided that such failure is not the resultof the Purchaser failing to designate a designee, and provided further that itshall be an Event of Default if, during any period in which no Designee of thePurchaser is serving as a director of the Company, a meeting of the Board shallbe called or held or action shall have been taken by written consent of thedirectors; or

             (k)         Judgments.  A final judgment or Judgments entered by acourt of competent jurisdiction for the payment of money aggregating in excessof $50,000 is or are outstanding against the Company or its Subsidiaries andany one such judgment in excess of $50,000 has, or such Judgments aggregatingin excess of $50,000 have, remained unpaid, unvacated, unbonded, or unstayed byappeal or otherwise for a period of 30 days from the date of entry.

             (l)          Bridge Conversion.  If the Bridge Conversion has not occurred atthe Initial Closing.
             9.2        Remedy for Event of Default. In addition to the remedies set forth herein and in the AncillaryDocuments, if any Event of Default shall have occurred and be continuing, WallerSutton shall have the right to demand immediateredemption or require a sale of the Company, and shall have the right to electa majority of the directors of the Board.

             9.3        Waiver. No course of dealing on the part of anyholder, nor any delay or failure on the part of any holder to exercise any ofits rights, shall operate as a waiver of such right or otherwise prejudice suchholder’s rights, powers and remedies.

**             SECTION 10.  Other Remedies.**

             (a)         In addition to those remediesspecifically set forth herein and in the Ancillary Documents, each Purchasermay proceed to protect and enforce its rights under this Agreement and theAncillary Agreements either by suit in equity and/or by action at law,including, but not limited to, an action for damages as a result of any suchbreach and/or an action for specific performance of any such covenant oragreement contained in this Agreement. No right or remedy conferred upon orreserved to the holders of Series A Preferred Stock under this Agreementor the Ancillary Documents is intended to be exclusive of any other right orremedy, and every right and remedy shall be cumulative and in addition to everyother right and remedy given hereunder or under the Ancillary Documents or nowand hereafter existing under applicable law.  Every right and remedy given by this Agreement or the AncillaryDocuments or by applicable law to the holders of Series A Preferred Stockmay be exercised from time to time and as often as may be deemed expedient bythe holders.

             (b)        Any payment by the Company to Purchaserin connection with a breach of the representations, warranties and covenants ofthe company shall be treated for federal income tax purposes as an adjustmentto the price paid by such Purchaser for the Series A Preferred Stock andthe Warrants pursuant to this Agreement.

**            ****SECTION 11.  FurtherAssurances.**

             At any time or from time to timeafter the Closing, the Company, on the one hand, and the Purchaser, on theother hand, agree to cooperate with each other, and at the request of the otherparty, to execute and deliver any further instruments or documents and to takeall such further action as the other party may reasonably request in order toevidence or effectuate the consummation of the transactions contemplated herebyrelating to the Purchase and to otherwise carry out the intent of the partieshereunder.

**            ****SECTION 12.  Successorsand Assigns.**

             This Agreement shall bind and inureto the benefit of the Company and the Purchaser and the respective successors,permitted assigns, heirs and personal representatives of the Company and thePurchaser except that the Company may not assign its rights and obligationsunder this Agreement to any person without the prior written consent of thePurchaser.  In addition, and whether ornot any express assignment has been made, the provisions of this Agreementwhich are for each of the Purchaser’s benefit as a purchaser or holder ofSeries A Preferred Stock are also for the benefit of, and enforceable by,any subsequent holder of such Series A Preferred Stock and/or ConversionShares.****             SECTION 13.  EntireAgreement.**

             This Agreement and the otherwritings referred to herein or delivered pursuant hereto which form a parthereof contain the entire agreement among the parties with respect to thesubject matter hereof and, other than as set forth on Schedule 13, supersedeall prior and contemporaneous arrangements or understandings with respectthereto, including the Letter of Intent, as amended.

**            ****SECTION 14.  Notices.**

             All notices, requests, consents andother communications hereunder to any party shall be deemed to be sufficient ifcontained in a written instrument delivered in person or sent by telecopy,nationally recognized overnight courier or first class registered or certifiedmail, return receipt requested, postage prepaid, addressed to such party at theaddress set forth below or such other address as may hereafter be designated inwriting by such party to the other parties:

(i)          if to the Company, to:             TeraGlobal CommunicationsCorp.             9171Towne Centre Drive, 6th Floor             San Diego, CA  92122             Telecopy:  (858) 404-5555             Attention: Chief ExecutiveOfficer

(ii)         if to the Purchaser, to the addresslisted on Exhibit A

witha copy to:             Cadwalader, Wickersham &Taft             100 Maiden Lane             New York, New York  10038             Telecopy:  (212) 504-6666             Attention:  Jonathan M. Wainwright, Esq.

Allsuch notices, requests, consents and other communications shall be deemed tohave been given when received.

**            ****SECTION 15.  Amendments.**

             The terms and provisions of thisAgreement, the Ancillary Agreements and any instruments pertaining to theInvestment may be modified or amended, or any of the provisions hereof andthereof waived, temporarily or permanently, pursuant to the written consent ofthe holders of a majority of the Company’s Common Stock and the holders of theSeries A Preferred Stock voting together as a single group on an asconverted basis; provided, however, that (i) any amendment or modification thatwould adversely affect one or more holders (“Adversely Affected Holders”)in a manner that is materially different from its effect upon other holdersshall not be effective unless approved by a majority in interest of theAdversely Affected Holders, or, in the event the Adversely Affected Holders includethe holders of the Series A Preferred Stock, such amendment shall not beeffective unless approved by WallerSutton and (ii) any amendment ormodification that would take away any rights specifically granted under thisAgreement, the Ancillary Agreements and any instruments pertaining to theInvestment, including buy not limited to tag along and registration rights,shall not be effective unless approved by a majority in interest of the holdersto whom such rights were granted, or in the case of the Series A PreferredStock, unless approved by WallerSutton. No waiver of any of the provisions of this Agreement shall be deemed toor shall constitute a waiver of any other provision hereof (whether or notsimilar).  No delay on the part of anyparty in exercising any right, power or privilege hereunder shall operate as awaiver thereof.****             SECTION 16.  Counterparts.**

             This Agreement may be executed inany number of counterparts, and each such counterpart hereof shall be deemed tobe an original instrument, but all such counterparts together shall constitutebut one agreement.

**            ****SECTION 17.  Headings.**

             The headings of the sections ofthis Agreement have been inserted for convenience of reference only and shallnot be deemed to be a part of this Agreement.

**            ****SECTION 18.  Nounsand Pronouns.**

             Whenever the context may require,any pronouns used herein shall include the corresponding masculine, feminine orneuter forms, and the singular form of names and pronouns shall include theplural and vice versa.

**            ****SECTION 19.  Arbitration.**

             Any dispute, controversy or claimarising out of or relating to this Agreement or the Ancillary Documents shallbe resolved by confidential binding arbitration in New York City, New Yorkconducted in accordance with the JAMS’ Comprehensive Arbitration Rules andProcedures then in effect and shall be submitted to arbitration with JAMS.  Arbitration shall be initiated by writtendemand.  The determination of the arbitratorshall be final and binding on the parties and not subject to further review.  Judgment upon the award rendered by thearbitrator may be entered in any court having jurisdiction thereof, and forpurposes of enforcing any award, the parties hereby consent to jurisdiction inany state or federal court located within New York County.  Each party shall bear its own attorneys’fees and other costs of the arbitration, and the Company on the one hand andthe Series A Preferred Shares, on a pro rata basis, on the other hand shalleach pay one-half of the arbitrator’s fees and expenses.  The arbitrator shall have discretion toaward reasonable attorneys’ fees and expenses and the costs of the arbitration,including the fees of the arbitrator, to the prevailing party only upon anexpress determination by the arbitrator that the losing party has acted in badfaith or in willful disregard of his or its obligations under thisAgreement.  The arbitrator shall have noauthority to amend this Agreement in any fashion or to award punitive damages.  Notwithstanding anything to the contrarycontained herein, the provisions of this Section 19 shall not apply with regardto (i) any equitable remedies to which any party may be entitled hereunder,(ii) any fraud claims, or (iii) any disputes involving claims of third parties.****             SECTION 20.  Publicity.**

             Each of the parties hereto agreesthat it will make no public statement regarding the transactions contemplatedhereby unless the language and timingof such statement has been approved by the Company andthe Purchaser.  Notwithstanding theforegoing, each of the parties hereto may, in documents required to be filed byit with the Commission or other regulatory bodies, make such statements withrespect to the transactions contemplated hereby as each may be advised islegally necessary upon advice of its counsel; provided, however,that the party making such determination shall immediately notify the otherparty that it intends to make a public announcement and the parties heretoshall, in good faith, attempt to agree on any public announcements or publicitystatements with respect thereto.

**             SECTION 21.  Severability.**

             Whenever possible, each provisionof this Agreement shall be interpreted in such manner as to be effective andvalid, but if any provision of this Agreement is held to be invalid orunenforceable in any respect, such invalidity or unenforceability shall notrender invalid or unenforceable any other provision of this Agreement.

IN WITNESS WHEREOF, the parties heretohave duly executed this Series A Preferred Stock and Warrant PurchaseAgreement as of the date first above written.

THE COMPANY:

TERAGLOBAL COMMUNICATIONS CORP.
By: /s/  ROBERT E. RANDALL    Name:          Robert E. Randall  Title:            Chief Executive Officer
PURCHASER:

WALLERSUTTON 2000, L.P.
By: WallerSutton  2000, L.L.C., general partner
 

 
By: /s/  JACK WOODRUFF    Name:          Jack Woodruff  Title:            Member
 **********