Exhibit 10.1
EXECUTION COPY
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                      SERIES C PREFERRED STOCK AND WARRANT

                               PURCHASE AGREEMENT

                                  by and among

                   THE PURCHASERS LISTED ON SCHEDULE I HERETO,

                             SOFTLOCK.COM, INC. AND

                             SOFTLOCK SERVICES, INC.

                          Dated as of December 21, 2000

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<PAGE>


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                               Page
<S>                                                                                                            <C>


SECTION 1 - Authorization, Purchase and Sale of the Acquired Securities...........................................1
   1.1    Authorization of the Acquired Securities................................................................1
          ----------------------------------------
   1.2    Sale and Purchase of the Shares and Warrants............................................................1
          --------------------------------------------
   1.3    Certain Defined Terms...................................................................................2
          ---------------------
SECTION 2 - Closing, Payment and Delivery.........................................................................2
   2.1    Closing Date and Place of Closing.......................................................................2
          ---------------------------------
   2.2    Closing Payment and Delivery............................................................................2
          ----------------------------
   2.3    Subsequent Sales of Shares..............................................................................2
          --------------------------
SECTION 3 - Representations and Warranties of the Company.........................................................3
   3.1    Organization and Standing; Articles and By-laws.........................................................3
          -----------------------------------------------
   3.2    Corporate Power.........................................................................................3
          ---------------
   3.3    Subsidiaries............................................................................................3
          ------------
   3.4    Capitalization..........................................................................................4
          --------------
   3.5    Authorization...........................................................................................5
          -------------
   3.6    Contracts; Insurance....................................................................................6
          --------------------
   3.7    Securities and Exchange Commission Documents............................................................8
          --------------------------------------------
   3.8    Absence of Undisclosed Liabilities......................................................................9
          ----------------------------------
   3.9    Absence of Certain Changes..............................................................................9
          --------------------------
   3.10   Taxes..................................................................................................11
          -----
   3.11   Transactions With Affiliates...........................................................................11
          ----------------------------
   3.12   Litigation.............................................................................................11
          ----------
   3.13   Consents...............................................................................................12
          --------
   3.14   Title to Properties, Liens and Encumbrances............................................................12
          -------------------------------------------
   3.15   Leases.................................................................................................13
          ------
   3.16   Franchises, Licenses, Trademarks, Patents and Other Rights.............................................13
          ----------------------------------------------------------
   3.17   Issuance Taxes.........................................................................................14
          --------------
   3.18   Offering...............................................................................................14
          --------
   3.19   Employees..............................................................................................14
          ---------
   3.20   Business of the Company and Subsidiary.................................................................15
          --------------------------------------
   3.21   Use of Proceeds........................................................................................16
          ---------------
   3.22   Applicability of, and Compliance with, Other Laws......................................................16
          -------------------------------------------------
   3.23   Indebtedness...........................................................................................18
          ------------
   3.24   Insurance Coverage.....................................................................................18
          ------------------
   3.25   Illegal or Unauthorized Payments; Political Contributions..............................................18
          ---------------------------------------------------------
   3.26   Disclosure.............................................................................................18
          ----------
   3.27   Potential Conflicts of Interest........................................................................19
          -------------------------------
   3.28   Real Property Holding Corporation......................................................................19
          ---------------------------------
SECTION 4 - Representations and Warranties of Purchasers.........................................................19
   4.1    Organization; Good Standing; Power and Authority; Binding Obligation...................................19
          --------------------------------------------------------------------
   4.2    Purchase Entirety for Own Account; Etc.................................................................20
          --------------------------------------
   4.3    Disclosure.............................................................................................20
          ----------
   4.4    Accredited Investor....................................................................................20
          -------------------
   4.5    Restricted Securities..................................................................................21
          ---------------------
   4.6    Legends................................................................................................21
          -------
   4.7    Termination of Restrictions............................................................................21
          ---------------------------
SECTION 5 - Conditions to Closing of Purchasers..................................................................22
   5.1    Representations and Warranties Correct.................................................................22
          --------------------------------------
   5.2    Performance............................................................................................22
          -----------
   5.3    Compliance Certificate.................................................................................22
          ----------------------
   5.4    Opinion of Company's Counsel...........................................................................22
          ----------------------------
   5.5    Good Standing Certificates.............................................................................22
          --------------------------
   5.6    Qualifications.........................................................................................23
          --------------
   5.7    Amendment of Certificate and Filing of Certificate.....................................................23
          --------------------------------------------------
   5.8    Proceedings and Documents..............................................................................23
          -------------------------
   5.9    By-Laws................................................................................................23
          -------
   5.10   Shareholders' and Rights Agreement.....................................................................23
          ----------------------------------
   5.11   Certification by Corporate Secretary...................................................................23
          ------------------------------------
   5.12   Warrants...............................................................................................24
          --------
   5.13   Legal Investment.......................................................................................24
          ----------------
   5.14   Side Letter............................................................................................24
          -----------
SECTION 6 - Conditions to Closing of Company.....................................................................24
   6.1    Representations and Warranties Correct.................................................................24
          --------------------------------------
   6.2    Performance............................................................................................24
          -----------
   6.3    Qualifications.........................................................................................24
          --------------
   6.4    Proceedings and Documents..............................................................................25
          -------------------------
   6.5    Statement of Accredited Investor.......................................................................25
          --------------------------------
   6.6    Legal Investment.......................................................................................25
          ----------------
   6.7    Shareholders' and Rights Agreement.....................................................................25
          ----------------------------------
SECTION 7 - Affirmative Covenants................................................................................25
   7.1    Basic Financial Information............................................................................25
          ---------------------------
   7.2    Additional Information and Rights......................................................................26
          ---------------------------------
   7.3    Prompt Payment of Taxes, Etc...........................................................................28
          ----------------------------
   7.4    Maintenance of Properties and Leases...................................................................28
          ------------------------------------
   7.5    Insurance..............................................................................................28
          ---------
   7.6    Accounts and Records...................................................................................29
          --------------------
   7.7    Compliance with Laws, Contracts, Licenses and Permits..................................................29
          -----------------------------------------------------
   7.8    Maintenance of Corporate Existence, etc................................................................29
          ---------------------------------------
   7.9    Availability of Common Stock for Conversion............................................................30
          -------------------------------------------
   7.10   Proprietary Information Agreement, and Key Employee Agreement..........................................30
          -------------------------------------------------------------
   7.11   Use of Proceeds........................................................................................30
          ---------------
   7.12   Compliance by Subsidiaries.............................................................................30
          --------------------------
   7.13   Expenses of Board Members..............................................................................30
          -------------------------
   7.14   Securities Law Filings.................................................................................31
          ----------------------
   7.15   Registration and Transfer of Securities................................................................31
          ---------------------------------------
   7.16   Indemnification........................................................................................31
          ---------------
   7.17   Registration Requirements..............................................................................32
          -------------------------
   7.18   Indemnification and Contribution.......................................................................34
          --------------------------------
   7.19    "Market Stand-Off" Agreement..........................................................................37
           ----------------------------
SECTION 8 - Negative Covenants...................................................................................37
   8.1    Sale/Purchase of Assets; Merger........................................................................37
          -------------------------------
   8.2    Future Registration Rights.............................................................................38
          --------------------------
   8.3    Changes in Type of Business............................................................................38
          ---------------------------
   8.4    Dividends and Distributions............................................................................38
          ---------------------------
   8.5    Purchase of Equity Securities..........................................................................39
          -----------------------------
   8.6    Conflicting Agreements.................................................................................39
          ----------------------
   8.7    Amendment of Charter Documents.........................................................................39
          ------------------------------
   8.8    Related Party Transactions.............................................................................39
          --------------------------
   8.9    Issuance of Equity Securities..........................................................................39
          -----------------------------
   8.10   Subsidiaries...........................................................................................39
          ------------
   8.11   Fiscal Year............................................................................................39
          -----------
   8.12   Business Plan..........................................................................................40
          -------------
   8.13   Employee Stock Plans...................................................................................40
          --------------------
   8.14   Liens..................................................................................................40
          -----
   8.15   Investments............................................................................................40
          -----------
   8.16   Purchases and Sales....................................................................................40
          -------------------
   8.17   Leases.................................................................................................41
          ------
   8.18   Indebtedness...........................................................................................41
          ------------
   8.19   Loans; Guarantees......................................................................................41
          -----------------
   8.20   License of Listed Rights or Intellectual Property......................................................41
          -------------------------------------------------
   8.21   Compliance by Subsidiaries.............................................................................41
          --------------------------
SECTION 9 - Definitions..........................................................................................41
SECTION 10 - Miscellaneous.......................................................................................47
   10.1   Governing Law..........................................................................................47
          -------------
   10.2   Survival...............................................................................................47
          --------
   10.3   Successors and Assigns.................................................................................47
          ----------------------
   10.4   Entire Agreement; Amendment............................................................................47
          ---------------------------
   10.5   Notices, etc...........................................................................................48
          ------------
   10.6   Delays or Omissions....................................................................................48
          -------------------
   10.7   Rights; Severability...................................................................................49
          --------------------
   10.8   Agent's Fees and Services..............................................................................49
          -------------------------
   10.9   Legal Fees and Expenses................................................................................49
          -----------------------
   10.10     Titles and Subtitles................................................................................49
             --------------------
   10.11     Counterparts........................................................................................49
             ------------
   10.12     Construction........................................................................................50
             ------------
   10.13     Further Assurances..................................................................................50
             ------------------
   10.14     Equitable Relief....................................................................................50
             ----------------
   10.15     Publicity...........................................................................................50
             ---------

</TABLE>



<PAGE>


                                         SCHEDULES AND EXHIBITS

Schedule I  -     Schedule of Purchasers

Schedule II -     Disclosure Schedules

Exhibit A   -     Certificate of Designation of Powers, Preferences and Rights
                  of Series C Preferred Stock
Exhibit B   -     Form of Opinion of Counsel

Exhibit C   -     Amended and Restated Shareholders' and Rights Agreement

Exhibit D   -     Statement of Accredited Investor
Exhibit E  -      Form of Preferred Stock Warrant

Exhibit F   -     Form of August 1, 2001 Common Stock Warrant
Exhibit G         Form of October 15, 2001 Common Stock Warrant


<PAGE>





             SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

         THIS SERIES C  PREFERRED  STOCK AND WARRANT  PURCHASE  AGREEMENT  (this
"Agreement")  is made and entered into as of the 21st day of December,  2000, by
and among  SoftLock.com,  Inc. (the "Company"),  a Delaware  corporation  having
offices at Five Clock Tower Place, Suite 440, Maynard,  Massachusetts,  SoftLock
Services,  Inc., a wholly-owned subsidiary of the Company (the "Subsidiary") and
each of the parties listed on Schedule I hereto (the "Schedule of  Purchasers").
The parties listed on the Schedule of Purchasers and any  transferee(s) to which
the Purchasers may from time to time have transferred any "Shares" (as such term
is defined in Section 1.1 below) are hereinafter referred to collectively as the
"Purchasers."

         WHEREAS, the Company desires to issue and sell, and the Purchasers
desire to purchase, certain securities of the Company;

         NOW,  THEREFORE,  in  consideration  of the  promises  and  the  mutual
covenants and conditions  herein  contained,  the Company and the Purchasers (in
the case of the Purchasers, severally and not jointly), hereby agree as follows:

SECTION 1

           Authorization, Purchase and Sale of the Acquired Securities

         1.1      Authorization of the Acquired Securities.

         The Company has, or before the First Closing (as defined in Section 2.1
hereof) will have,  authorized the designation of Series C Preferred  Stock, par
value $0.01 per share (the "Series C Preferred"),  having the rights, privileges
and  preferences  as set forth in the  Certificate  of  Designation  of  Powers,
Preferences  and  Rights  of  Series  C  Preferred  Stock,  the form of which is
attached to this  Agreement as Exhibit A (the  "Certificate"),  and the issuance
and sale under  this  Agreement  of all of the  Acquired  Securities,  including
without  limitation the 76,523 shares (the "Shares") of Series C Preferred,  the
Conversion  Shares,  the  Warrants  and the Warrant  Shares,  each as defined in
Section 9 hereof.  The term "Shares" as used in this Agreement also includes any
securities  issued or issuable  with respect to the original  Shares by way of a
stock   dividend,    stock   split,   combination   or   division   of   shares,
recapitalization,  reclassification,  merger, consolidation,  reorganization, or
the like and any securities  into which any of the original Shares are converted
or  convertible,  directly  or  indirectly  (including  but not  limited  to the
Conversion  Shares) or for which any of the  original  Shares are  exchanged  or
exchangeable, directly or indirectly.

         1.2      Sale and Purchase of the Shares and Warrants.


         Upon and subject to the terms and  conditions of this  Agreement and in
reliance upon the  representations,  warranties and agreements contained herein,
at the First Closing the Company will issue and sell to the Purchasers, and each
Purchaser  will  purchase  from the Company at the  Closing,  (i) that number of
shares of Series C Preferred set forth  opposite each such  Purchaser's  name on
the Schedule of  Purchasers,  and (ii) the Warrants.  The purchase price for the
Shares and the Warrants  shall be $191.00 per share of Series C Preferred for an
aggregate purchase price for all of the Shares and Warrants at the First Closing
of $7,000,000.

         1.3      Certain Defined Terms.

         Certain  capitalized  terms  used  in this  Agreement  shall  have  the
respective meanings ascribed to them in Section 9 hereof.

SECTION 2

Closing, Payment and Delivery

         2.1      Closing Date and Place of Closing.

          The  closing  of the  initial  purchase  and  sale of the  Shares  and
Warrants (the "First  Closing")  shall be held on the date (the "Closing  Date")
of, and immediately following,  the final execution and delivery of at least one
counterpart of this  Agreement by the Company and the  Purchasers  listed on the
Schedule of  Purchasers,  or such other date as shall have been agreed to by the
Company and the  Purchasers.  The place of the Closing  (including  the place of
delivery to the  Purchasers  by the  Company of the  Warrants  and  certificates
evidencing the Shares being purchased and the place of payment to the Company by
such  Purchasers  of the  purchase  price  therefor)  shall be at the offices of
Hutchins, Wheeler & Dittmar, 101 Federal Street, Boston, Massachusetts,  or such
other  place as shall  have been  agreed to by the  Company  and the  Purchasers
participating in such First Closing.

         2.2      Closing Payment and Delivery.

          At the First Closing,  the Purchasers will pay to the Company, in cash
or by check or wire  transfer,  the amount set forth  opposite such  Purchaser's
name on the  Schedule  of  Purchasers;  and the  Company  will  deliver  to such
Purchaser a certificate or certificates  registered in such Purchaser's name for
the number of Shares set forth opposite such Purchaser's name on the Schedule of
Purchasers  and three  (3)  Warrants  substantially  in the form of  Exhibit  E,
Exhibit F and Exhibit G, attached  hereto,  for the number of shares of Series C
Preferred Stock and Common Stock, as defined in Section 9 hereof,  respectively,
as is set forth opposite such Purchaser's name on the Schedule of Purchasers.

          2.3     Subsequent Sales of Shares.

          At any time,  and from time to time,  on or before  March 31, 2001 the
Company  may  sell up to the  balance  of the  authorized  shares  of  Series  C
Preferred Stock not sold at the First Closing to such persons as may be approved
by the Board of Directors ("Board") of the Company;  provided that the aggregate
number of Shares sold pursuant to this Agreement  shall not exceed  76,523.  All
such  sales  shall  be  made on the  terms  and  conditions  set  forth  in this
Agreement,  including without limitation,  the representations and warranties by
such  Purchasers as set forth in Section 4; provided  however that Purchasers of
Shares  pursuant  to this  Section  2.3 shall not be  entitled  to any  Warrants
provided in Section 1.2. Any shares of Series C Preferred Stock sold pursuant to
this Section 2.3 shall be deemed  Shares for all purposes  under this  Agreement
and any Purchasers  thereof shall be deemed to be "Purchasers"  for all purposes
of this Agreement. Any Purchaser of Shares pursuant to this Section 2.3 shall be
required as a condition to closing to become a party to that certain Amended and
Restated Shareholders and Rights Agreement.

SECTION 3

Representations and Warranties of the Company

          Except as expressly  set forth (with  reference to a paragraph in this
Section 3) on Schedule 2 (the "Disclosure  Schedules")  hereto,  the Company and
Subsidiary  jointly and severally  represent and warrant to the Purchasers as of
the Closing Date as follows:

          3.1     Organization and Standing; Articles and By-laws.

          (a) The Company and Subsidiary  each is a corporation  duly organized,
validly  existing  and  in  good  standing  under  the  laws  of  its  state  of
organization and is qualified, licensed or domesticated as a foreign corporation
in each jurisdiction wherein the nature of its activities or properties owned or
leased by each makes such qualification,  licensing or domestication  necessary.
The Disclosure Schedules set forth the jurisdictions in which the Company and/or
Subsidiary is qualified,  licensed or domesticated as a foreign corporation. The
Company and  Subsidiary  each has all requisite  power,  governmental  licenses,
authorization  consents and approvals to own the  properties  owned by it and to
conduct the business as it is being  conducted by it and as  contemplated by the
business plan (the "Plan")  prepared by the Company,  a true and correct copy of
which has been given to the  Purchasers  and  counsel  for the  Purchasers.  The
Disclosure  Schedules  set  forth all  jurisdictions  in which  the  Company  or
Subsidiary  owns or leases  property  or engages  in any  activity  which  under
applicable  law  makes   qualification  or  license  as  a  foreign  corporation
necessary;

         (b) The Company has  furnished  counsel for the  Purchasers  with true,
correct and complete  copies of the Company's and  Subsidiary's  Certificate  of
Incorporation and By-laws,  and all amendments thereto through and including the
Closing Date and copies of the minutes of all Board, Committees of the Board and
stockholders  meetings of the Company and Subsidiary.  Prior to the Closing, the
Company  shall  have  properly  filed  and  recorded  the  Certificate  with the
Secretary of the State of Delaware. Neither the Company nor the Subsidiary is in
breach of any of the  provisions  of its  Certificate  of  Incorporation  or its
By-laws.

         3.2      Corporate Power.

         Each of the  Company and the  Subsidiary  has all  requisite  corporate
power to enter  into this  Agreement  and each of the  Financing  Documents,  as
defined  in  Section 9  hereof,  to which it is a party  and will  have,  on the
Closing Date, all requisite  corporate power to sell the Shares and Warrants and
to carry out and perform its  obligations  under the terms of this Agreement and
each of the Financing Documents.

         3.3      Subsidiaries.

         Neither the Company nor the Subsidiary has any other  subsidiaries  and
neither owns of record or beneficially any capital stock, membership interest or
equity interest or investment in any  corporation,  limited  liability  company,
partnership,  association or other business  entity,  except as set forth in the
Disclosure  Schedules.  The Company is the sole owner of all  securities  of the
Subsidiary.  There are no options,  warrants,  or other  agreements  pursuant to
which any Person may acquire any of the Equity Securities, as defined in Section
9  hereof,  of  Subsidiary.   The  Subsidiary  has  not  issued  any  Derivative
Securities, as defined in Section 9 hereof.

          3.4     Capitalization.

         (a) The Disclosure Schedules contain a true and correct list of (i) all
capital  stock of the Company and  Subsidiary  (including  the amounts  thereof)
outstanding  immediately  prior to the First Closing  (including  all Derivative
Securities, which shall be reflected on a fully diluted basis) not giving effect
to the sale  and  purchase  of the  Shares  and  Warrants  provided  for in this
Agreement,  (ii) the holders of any interest  exceeding five percent (5%) of the
amount of such issued and outstanding  capital stock, (iii) the number of shares
of capital  stock held by the  Company's  management  and directors and (iv) the
number of shares of capital stock held by all other shareholders as a group. All
such  outstanding  shares of  capital  stock  will be duly  authorized,  validly
issued,  fully paid, and non-assessable.  No adjustment has previously been made
(or should have been made) nor will any  adjustment  be required to be made as a
result of the  Company's  issuance  of the  Shares  or  Warrant  Shares  (or the
issuance of Common Stock upon the conversion or exercise thereof) to the rate at
which  shares of Series A Preferred  Stock or Series B  Preferred  Stock and any
other capital stock or Derivative Securities of the Company are convertible into
or  exercisable  for shares of Common  Stock (by  reason of any  "anti-dilution"
provisions or agreements or otherwise);

         (b)  Except  as set  forth in the  Disclosure  Schedules,  neither  the
Company nor the  Subsidiary,  is bound by, has any  obligation to grant or enter
into, any (i) outstanding subscriptions,  options, warrants, calls, commitments,
or  agreements of any character  calling for it to issue,  deliver,  or sell, or
cause to be issued,  delivered,  or sold, any shares of its capital  stock,  any
membership  interests or any other equity security,  or any securities described
in the following clause, or (ii) securities convertible into,  exchangeable for,
or representing the right to subscribe for,  purchase,  or otherwise acquire any
shares of its  capital  stock,  any  membership  interests  or any other  equity
security.  No adjustment has previously been made (or should have been made) nor
will any adjustment be required to be made as a result of the Company's issuance
of the  Shares or  Warrant  Shares  (or the  issuance  of Common  Stock upon the
conversion  or  exercise  thereof)  to the number of shares of capital  stock or
Derivative  Securities  of the Company  into which any  subscriptions,  options,
warrants,  calls,  commitments or agreements are  convertible  (by reason of any
"anti-dilution" provisions or agreements or otherwise);

         (c)  Except  as set  forth in the  Disclosure  Schedules,  neither  the
Company nor the  Subsidiary  (i) has  outstanding  obligations,  contractual  or
otherwise,  to repurchase,  redeem,  or otherwise  acquire any shares of capital
stock or other equity securities of the Company, (ii) is a party to or bound by,
and has knowledge of, any agreement or instrument  relating to the voting of any
of its  securities,  and  (iii)  is a party  to or  bound  by any  agreement  or
instrument  under which any person has the right to require it to effect,  or to
include  any  securities  held by such  person  in, any  registration  under the
Securities Act of 1933, as amended (the  "Securities  Act").  There are no other
agreements,  contracts,  instruments  or  documents,  except as set forth in the
Disclosure  Schedules,  which  govern  or  affect  in any way the  rights of the
holders of securities,  including any class of capital stock,  of the Company or
the Subsidiary.  No First Public Offering (as defined in the  Shareholders'  and
Rights  Agreement  dated as of February  11,  2000 and the Amended and  Restated
Shareholders' and Rights Agreement dated of even date herewith) has occurred;

         (d) The Company has  reserved,  solely for the purpose of issuance upon
(i) exercise of the Warrants for Series C Preferred Stock, a number of shares of
Series C Preferred Stock  necessary to cover the exercise of such Warrants,  and
(ii) conversion of shares of Series C Preferred and exercise of the Warrants for
Common  Stock,  a number  of  shares of  Common  Stock  sufficient  to cover the
conversion  of all such  shares of Series C Preferred  and the  issuance of such
Warrant Shares;

         (e)  All  of  the  outstanding  shares  of  capital  stock,  membership
interests,  and other securities of the Company and the Subsidiary were offered,
issued,  and sold, and the Shares,  Warrants and other Acquired  Securities have
been offered and at the Closing will be issued and sold, in compliance  with (i)
all  applicable  preemptive or similar  rights of all persons (all of which have
been  waived),   and  (ii)  assuming  the   truthfulness  and  accuracy  of  the
representations  made by the  Purchasers  in  Section 4 hereof,  all  applicable
provisions of the Securities Act and the rules and regulations  thereunder,  and
all applicable state  securities laws and the rules and regulations  thereunder.
No person has any valid right to rescind  any  purchase of any shares of capital
stock or other securities of the Company or the Subsidiary;

         (f) The Shares, Warrants and other Acquired Securities being issued and
sold by the Company hereunder shall, upon issuance pursuant to the terms hereof,
be duly authorized and validly issued,  fully paid and  non-assessable  and free
and clear of any Lien, security interest, option or other charge or encumbrance.
The Conversion  Shares and Warrant  Shares shall be duly  authorized and validly
issued,  fully paid and non-assessable and free and clear of any Lien,  security
interest,  option or other charge or  encumbrance.  The issuance of the Acquired
Securities  is not and will not be subject to any  preemptive  rights or similar
rights with respect to any of such Acquired Securities;

          3.5     Authorization.

         (a) All action on the part of the  Company,  the  Subsidiary  and their
respective   directors  and  shareholders   necessary  for  the   authorization,
execution,  delivery and  performance  by the Company and the Subsidiary of this
Agreement and each of the Financing Documents to which it is a party and for the
consummation of the transactions  contemplated  herein and therein,  and for the
authorization,  issuance and delivery of any and all of the Acquired  Securities
has been taken or will be taken prior to the Closing;

         This  Agreement  and each of the  Financing  Documents  is a valid  and
binding obligation of the Company and Subsidiary, enforceable in accordance with
their  respective   terms,   subject  to  applicable   bankruptcy,   insolvency,
reorganization  and  moratorium  laws  and  other  laws of  general  application
affecting enforcement of creditors' rights generally. The execution and delivery
by the Company and the  Subsidiary  of this  Agreement and each of the Financing
Documents,  and compliance herewith and therewith,  and the issuance and sale of
the Acquired  Securities will not, with or without notice or the passage of time
or both,  result in any violation of and will not conflict  with, or result in a
breach of any of the terms of, or  constitute a default  under any provision of,
any state or federal law to which the  Company or  Subsidiary  is  subject,  the
Certificate  of  Incorporation  or By-laws of the Company or Subsidiary (in each
case as amended), or any mortgage, indenture, agreement,  instrument,  judgment,
decree,  order,  rule or regulation or other restriction to which the Company or
Subsidiary is a party or by which it or any of its property is bound,  or may be
affected, or result in the creation of any mortgage,  pledge, lien,  encumbrance
or charge  upon any of the  properties  or assets of the  Company or  Subsidiary
pursuant  to any such  term or give any  other  person  or  entity  the right to
accelerate  the  time  for  performance  of any  obligation  of the  Company  or
Subsidiary.  Except as set forth in the Shareholders'  and Rights Agreement,  as
defined  herein,  no shareholder  has any  preemptive  rights or rights of first
refusal  by  reason  of or in  connection  with  the  issuance  of the  Acquired
Securities;

          (b) The execution, delivery and performance of this Agreement and each
of  the  Financing   Documents,   and  the   consummation  of  the  transactions
contemplated  hereby and thereby require no governmental or judicial approval to
be obtained by the Company or Subsidiary,  except for post-sale filings with the
Securities and Exchange  Commission  (the  "Commission")  and, as required under
state law,  state  securities  commissions,  which  filings the  Company  and/or
Subsidiary (as applicable) will effect in a prompt and timely fashion.

         3.6      Contracts; Insurance.

          The  Disclosure  Schedules  set forth a true and  correct  list of all
material contracts,  obligations,  commitments,  agreements,  plans and the like
(which,  in  addition  to  the  material  contracts,  obligations,  commitments,
agreements and plans mentioned in subsections (a) through (q) below,  shall mean
the  performance by or payment to the Company of greater than $10,000 in any one
(1) year), whether written or oral, and all administrative, judicial and similar
orders to which the Company  and/or  Subsidiary is a party or by which it or any
of its properties is bound, including, without limitation, the following:

          (a) Any employment,  bonus or consulting  agreement,  pension,  profit
sharing,  deferred compensation,  stock bonus,  retirement,  stock option, stock
purchase,  phantom  stock or similar  plan,  or agreement  evidencing  rights to
purchase securities,  phantom stock or similar plan of the Company or Subsidiary
or any agreement among shareholders of the Company or Subsidiary;

          (b)  Any  loan or  other  agreement,  note,  indenture  or  instrument
relating to, or  evidencing,  indebtedness  for borrowed  money,  or mortgaging,
pledging  or  granting  or  creating  a  Lien  or  security  interest  or  other
encumbrance  on any property of the Company or  Subsidiary  or any  agreement or
instrument  evidencing  any guaranty by the Company or  Subsidiary of payment or
performance by any other party;

          (c)     Any material agreement with any dealer, sales representative,
broker or other distributor,  jobber,  advertiser or sales agency;

          (d)     Any agreement with any labor union or collective bargaining
organization or any other labor agreement;

          (e) Any contract for the  furnishing,  purchase or lease of machinery,
equipment, goods or services (including,  without limitation, any agreement with
processors and subcontractors) in an amount in excess of $10,000 per year;

          (f)     Any indenture,  agreement or other document  (including
private placement  brochures)  relating to the future sale or repurchase of
securities;

          (g)     Any agreement to register under the Securities Act, any of the
securities of the Company or Subsidiary;

         (h)      Any joint venture,  partnership or teaming contract or
arrangement or other agreement  involving a sharing of profits or expenses;

         (i) Any  agreement  (other than  distributorship  agreements or similar
agreements  providing  for the  distribution  of the  Company's or  Subsidiary's
products with dealers,  distributors and sales representatives of the Company or
Subsidiary)  limiting the freedom of the Company or Subsidiary to compete in any
line of business or in any geographic area or with any party;

         (j) Any agreement  providing for  disposition  of any line of business,
assets or securities of the Company or Subsidiary, or any agreement with respect
to the  acquisition  of any line of  business,  assets  or  shares  of any other
business,  any  agreement  of merger or  consolidation  or letter of intent with
respect to the foregoing;

         (k) Any agreement  requiring it to purchase all or substantially all of
its requirements for a particular product or service from a particular  supplier
or  suppliers,  or  requiring  it to supply all of a  particular  customer's  or
customers' requirements for a certain service or product;

         (l)      Any material  agreement or other  commitment  pursuant to
which it has agreed to indemnify or hold harmless any other person;

         (m) Any (i) employment agreement,  (ii) consulting agreement,  or (iii)
other  agreement,  in each  case  providing  for  severance  payments  or  other
additional rights or benefits (whether or not optional) in the event of the sale
or other change in control of it;

         (n) Any agreement with any current or former  Affiliate,  as defined in
Section 9 hereof, stockholder, officer, director, employee, or consultant of the
Company or  Subsidiary,  or with any person in which any such  Affiliate  has an
interest;

         (o) Any agreement with any domestic or foreign  government or agency or
executive  office  thereof or any  subcontract  between  it and any third  party
relating  to a contract  between  such third  party and any  domestic or foreign
government or agency or executive office thereof;

         (p) Any agreement with employees with respect to the confidentiality of
the Company's or Subsidiary's  Proprietary  Information,  as defined herein, and
the assignment to the Company or Subsidiary of any and all rights such employees
of the Company or Subsidiary  might have to acquire with respect to  technology,
inventions,  developments,  etc.,  developed in connection with their employment
with the Company or Subsidiary; and

         (q) Any agreement,  the  performance  of which is reasonably  likely to
result in a loss to the Company or  Subsidiary,  which loss would be  reasonably
likely to have a Material Adverse Effect, as defined in Section 9 hereof.

Each of the Company and the  Subsidiary  has delivered or caused to be delivered
to the  Purchasers  correct  and  complete  copies  of all  material  agreements
requested  by the  Purchasers,  including  but  not  limited  to  the  Company's
Certificate  of  Incorporation  as  amended  (including  but not  limited to the
Certificate  of  Designation  for the Series A Preferred  Stock as amended,  the
Certificate of Designation for the Series B Preferred  Stock),  the By-laws,  as
amended,  the Series A Preferred  Stock Purchase  Agreement dated as of December
30, 1999, as supplemented, the Series B Preferred Stock Purchase Agreement dated
as of February 10, 2000,  the  Shareholders'  and Rights  Agreement  dated as of
February 10, 2000. Each such agreement,  instrument,  and commitment is a valid,
binding and enforceable obligation of the Company or the Subsidiary (as the case
may be) and to the Company's and/or Subsidiary's  knowledge,  of the other party
or parties thereto, and is in full force and effect. Each of the Company and the
Subsidiary is not or, to the Company's and/or  Subsidiary's (as the case may be)
knowledge,  is any other party  thereto,  (nor is the Company or the  Subsidiary
considered by any other party thereto to be) in breach of or noncompliance  with
any term of any such  agreement,  instrument,  or  commitment  (nor is there any
basis for any of the foregoing), except for any breaches or non-compliances that
singly or in the aggregate would not have a Material  Adverse Effect.  No claim,
change order, request for equitable adjustment, or request for contract price or
schedule  adjustment,  between the Company or the Subsidiary and any supplier or
customer,  relating to any agreement,  instrument,  or commitment  listed in the
Disclosure  Schedules  is  pending  or, to the  Company's  or  Subsidiary's  (as
appropriate)  knowledge,  threatened,  nor is  there  any  basis  for any of the
foregoing,  except  for  any  claims,  change  orders,  requests  for  equitable
adjustment or requests for contract price or schedule  adjustment would not have
a Material Adverse Effect. No agreement, instrument, or commitment listed in the
Disclosure Schedules includes or incorporates any provision, the effect of which
may be to enlarge or  accelerate  any of the  obligations  of the Company or the
Subsidiary  or to give  additional  rights to any other party  thereto,  or will
terminate, lapse, or in any other way be affected, by reason of the transactions
contemplated by this Agreement.

         3.7      Securities and Exchange Commission Documents.

         The  Company  has  filed  all  required  reports,   schedules,   forms,
statements and other  documents  with the  Commission  (any of the foregoing are
referred to herein as the "SEC  Documents").  As of their respective  dates, the
SEC Documents  complied in all material  respects with the  requirements  of the
Securities  Act,  or the  Securities  Exchange  Act of  1934,  as  amended  (the
"Exchange  Act"),  as the case may be,  and the  rules  and  regulations  of the
Commission promulgated  thereunder applicable to such SEC Documents,  and to the
Company's and Subsidiary's  knowledge,  none of the SEC Documents  contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated  therein or necessary in order to make the statements  therein,  in
light of the circumstances under which they were made, not misleading. Except to
the extent that  information  contained  in any SEC Document has been revised or
superseded  by a later filed SEC Document,  to the  Company's  and  Subsidiary's
knowledge,  none of the SEC Documents currently contains any untrue statement of
a material fact at the time that it was made or omits to state any material fact
required  to be stated  therein  or  necessary  in order to make the  statements
therein as of the date thereof,  in light of the circumstances  under which they
were  made,  not  misleading.  The  financial  statements  of  the  Company  and
Subsidiary,  included  in the SEC  Documents  comply as to form in all  material
respects with  applicable  accounting  requirements  and the published rules and
regulations  of the  Commission  with  respect  thereto,  have been  prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited statements,  as permitted by Form 10-QSB of the Commission) applied on
a consistent  basis during the periods  involved  (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of the
Company,  Subsidiary and their consolidated Subsidiaries as of the dates thereof
and the consolidated  results of their operations and cash flows for the periods
then ended  (subject,  in the case of unaudited  statements,  to normal year-end
audit  adjustments).  All  of  the  SEC  Documents  have  been  provided  to the
Purchasers.  As used in this Agreement,  the term "Balance Sheet" shall mean the
unaudited,  draft consolidated balance sheet of the Company and Subsidiary as of
September 30, 2000, provided to the Purchasers and "Financial  Statements" shall
mean the unaudited,  draft consolidated  financial statements of the Company and
the Subsidiary as of and for the twelve (12) month period ended on September 30,
2000, a true and complete copy of which has been provided to the Purchasers.

         3.8      Absence of Undisclosed Liabilities.

         Neither the Company nor the  Subsidiary  has any  liabilities  (whether
accrued,  fixed,  contingent or otherwise,  including without limitation any tax
liabilities due or to become due),  whether due or to become due, which,  either
individually or in the aggregate,  are material and not disclosed on the Balance
Sheet.

         3.9      Absence of Certain Changes.

         Except as set forth on the Disclosure Schedules,  since the date of the
Balance Sheet, there has not been:

         (a) Any change in the  condition,  assets,  liabilities,  prospects  or
business  of the  Company or  Subsidiary  from that shown on the  Balance  Sheet
which, either individually or in the aggregate, has been or is reasonably likely
to have a Material Adverse Effect;

         (b)      Any damage to, or destruction  or loss of, any of the
properties or assets of the Company or the Subsidiary  (whether
or not covered by insurance) that has a Material Adverse Effect;

         (c) Any declaration,  setting aside or payment of any dividend or other
distribution  in  respect  of  any of  the  Company's  capital  stock  or  other
securities  of the Company,  or any direct or indirect  redemption,  purchase or
other  acquisition  of any of such stock (or any warrant,  option or other right
with  respect to such stock) by the Company or  Subsidiary  or any  repayment of
Company or Subsidiary  debt held by any Related  Party,  as defined in Section 9
hereof,  or by an Affiliate  (in each such case,  whether in cash,  stock and/or
property or otherwise);

         (d)      Any organizational activity, collective bargaining activity,
labor dispute or labor trouble;

         (e)      Any event or condition of any character  which,  either
individually  or in the  aggregate,  has a Material  Adverse Effect;

         (f) Any  action  taken or entered  into by the  Company  involving  any
transaction other than in the usual and ordinary course of business, except this
Agreement;

         (g) Any wage or salary increase made or granted, or entered into by the
Company or the Subsidiary  involving any employment agreement with an officer or
key employee other than any agreement set forth in the Disclosure Schedules;

         (h)      Any disclosure to any person of any material trade secrets,
except for disclosures  made to persons subject to valid and enforceable
confidentiality agreements;

          (i)     Any material disposition of assets outside the ordinary
course of business;

         (j) Any issuance of any shares of the capital stock or other securities
of the Company or Subsidiary, or any direct or indirect redemption, purchase, or
other  acquisition  by the  Company or  Subsidiary  of any shares of its capital
stock or other securities;

         (k)      Any change in the officers, directors, key employees, or key
independent contractors of the Company or Subsidiary;

         (l) Any labor trouble or claim of unfair labor practices  involving the
Company or the  Subsidiary,  any increase in the  compensation or other benefits
payable  or to become  payable  by the  Company  or  Subsidiary  to any of their
respective Affiliates,  or to any of their officers,  employees,  or independent
contractors  outside the ordinary  course of business,  or any bonus payments or
arrangements  made to or with any of such  officers,  employees,  or independent
contractors  outside the  ordinary  course of business or which were not accrued
and set forth in the Financial Statements or Balance Sheet;

         (m) Any forgiveness or cancellation of any debt or claim by the Company
or the Subsidiary or any waiver by the Company or the Subsidiary of any right of
material value,  other than  compromises of accounts  receivable in the ordinary
course of business;

         (n) Any incurrence or any payment,  discharge,  or  satisfaction by the
Company or the Subsidiary of any material Indebtedness,  as defined in Section 9
hereof, or any material obligations or material  liabilities,  whether absolute,
accrued,  contingent, or otherwise (including without limitation liabilities, as
guarantor or otherwise, with respect to obligations of others);

         (o) Any incurrence, discharge, or satisfaction of any Lien in excess of
$10,000 (i) by the Company or  Subsidiary,  or (ii) on any of the capital stock,
other  securities,  properties,  or assets owned or leased by the Company or the
Subsidiary;

         (p)      Any change in the financial or tax accounting principles,
practices, or methods of the Company or the Subsidiary; or

         (q) Any agreement,  understanding, or commitment by or on behalf of the
Company or the Subsidiary,  whether in writing or otherwise, to do or permit any
of the things referred to in this Section 3.9.

         3.10     Taxes.

         The Company and  Subsidiary has each filed or will file within the time
prescribed by law  (including  extensions  of time  approved by any  appropriate
taxing  authority)  all tax returns  and  reports  required to be filed with the
United  States  Internal  Revenue  Service  and with  the  States  of  Delaware,
Massachusetts,  and New York and  (except to the extent that the failure to file
would not have a Material  Adverse  Effect) with all other  jurisdictions  where
such filing is required by law; and the Company and Subsidiary has paid, or made
adequate provision in the Balance Sheet for the payment of, all taxes, interest,
penalties,  assessments or deficiencies due in connection therewith. Neither the
Company nor the Subsidiary has ever had any tax deficiency  proposed or assessed
against it and neither the Company nor the Subsidiary has executed any waiver of
any  statute  of  limitations  on the  assessment  or  collection  of any tax or
governmental  charge.  None of the Company's or Subsidiary's  federal income tax
returns  nor any state  income,  sales or  franchise  tax  returns has ever been
audited by governmental  authorities.  No tax audit, action,  suit,  proceeding,
investigation  or claim is now  pending  nor, to the best of the  Company's  and
Subsidiary's knowledge after reasonable inquiry,  threatened against the Company
or  Subsidiary,  and no issue or  question  has been  raised  (and is  currently
pending) by any taxing  authority  in  connection  with any of the  Company's or
Subsidiary's tax returns or reports.

         The Company and  Subsidiary  each has withheld or  collected  from each
payment made to each of their employees, the amount of all taxes (including, but
not limited to, federal income taxes,  Federal Insurance  Contribution Act taxes
and Federal  Unemployment  Tax Act taxes)  required to be withheld or  collected
therefrom,  and has  paid the  same to the  proper  tax  receiving  officers  or
authorized depositaries.

         3.11     Transactions With Affiliates

         Except  as set  forth on the  Disclosure  Schedules,  there is no loan,
lease or other  continuing  transaction  of any nature  between  the  Company or
Subsidiary and any Related Party and/or Affiliate.

         3.12     Litigation.

         Except  as set  forth on the  Disclosure  Schedules,  there is  neither
pending nor threatened  any action,  suit,  proceeding or claim,  whether or not
purportedly  on behalf  of the  Company  or  Subsidiary,  to which the  Company,
Subsidiary,  or any employee of the Company or Subsidiary, is or may be named as
a party or to which the Company's, Subsidiary's or any such person's property is
or may be  subject.  Except as set  forth on the  Disclosure  Schedules,  to the
Company's  and  Subsidiary's  knowledge,  there is no basis for any such action,
suit,  proceeding or claim involving the Company or the Subsidiary,  in which an
unfavorable  outcome,  ruling  or  finding  in any such  matter  or for all such
matters,  taken as a whole, might have a Material Adverse Effect.  Except as set
forth on the Disclosure Schedules,  the Company and Subsidiary have no knowledge
of any unasserted claim, the assertion of which is more likely than not.

         3.13     Consents.

         No consent,  approval or authorization of, or designation,  declaration
or  filing  with,  any  governmental  authority  on the part of the  Company  or
Subsidiary,  including  qualification  under applicable state securities laws of
the offer and sale of the Shares and of the issuance of the  Conversion  Shares,
is  required  in  connection  with the  valid  execution  and  delivery  of this
Agreement,  the offer,  sale or issuance of the Shares,  the  conversion  of the
Shares  into  Common  Stock or the  issuance of the  Conversion  Shares,  or the
consummation of any other  transaction  contemplated on the Closing Date by this
Agreement  or  any  of  the  Financing  Documents,  except  the  filing  of  the
Certificate  with the Secretary of the State of Delaware,  which filing has been
made  and is  effective  as of the  date  hereof.  Each of the  Company  and the
Subsidiary has complied with, and is in compliance with, (i) all laws, statutes,
governmental regulations, judicial or administrative tribunal orders, judgments,
writs,  injunctions,  decrees,  and similar  commands  applicable  to it and its
business, and all unwaived terms and provisions of all agreements,  instruments,
and  commitments  to which it is a party or to which it or any of its  assets or
properties is subject,  except for any  non-compliances  that, both individually
and in the aggregate,  have not had and could not reasonably be expected to have
a Material Adverse Effect,  and (ii) its charter documents and By-laws,  each as
amended to date. Each of the Company and the Subsidiary has not committed,  been
charged with, or, to their knowledge,  been under investigation with respect to,
nor does there exist,  any  violation by either of them of any  provision of any
federal,  state,  or local  law or  administrative  regulation,  except  for any
violations that,  either singly or in the aggregate,  have not had and could not
reasonably be expected to have a Material  Adverse  Effect.  The Company and the
Subsidiary have and maintain,  and the Disclosure Schedules set forth a complete
and correct list of, all such licenses,  permits,  and other authorizations from
all such  governmental  authorities  as are legally  required for the conduct of
their business or in connection  with the ownership or use of their  properties,
except for any such licenses, permits, and other authorizations,  the failure to
obtain or maintain which in effect, both singly or in the aggregate, has not had
and could not reasonably be expected to have a Material Adverse Effect,  and all
of which (except as specifically  described in the Disclosure  Schedules) are in
full force and effect in all material respects,  and true and complete copies of
all of which have been delivered to the Purchasers.

         3.14     Title to Properties, Liens and Encumbrances.

         Each of the  Company  and the  Subsidiary  has (i) good and  marketable
title  to all of the  assets  and  properties  owned  by it,  including  without
limitation  all assets and  properties  reflected in the Balance  Sheet (in each
case  excluding  any assets and  properties  sold or  otherwise  disposed  of to
persons other than  Affiliates in the ordinary course of business since the date
of such  Balance  Sheet),  free and clear of all Liens,  (ii) valid title to the
lessee interest in all assets and properties leased by them as lessee,  free and
clear of all  Liens,  and (iii) full right to hold and use all of its assets and
properties used in or necessary to its businesses and  operations,  in each case
all free and clear of all Liens, and in each case subject to applicable laws and
the terms of any lease  under which the  Company or the  Subsidiary  leases such
assets or  properties  as lessee.  All such  assets and  properties  are in good
condition and repair,  reasonable  wear and tear excepted,  and are adequate and
sufficient  to carry on the  businesses  of the Company and the  Subsidiary  (as
applicable) as presently conducted and as proposed to be conducted.

         3.15     Leases.

         Set forth on the Disclosure Schedules is a correct and complete list of
all leases  (including,  with respect to each lease, the material  provisions of
such lease,  including the term, the amount of rent called for and a description
of the leased property) under which the Company or Subsidiary is a lessee, other
than personal property  requiring rental payments of less than $10,000 per year.
The Company and Subsidiary each enjoys peaceful and undisturbed possession under
all such leases, all of such leases are valid and subsisting and none of them is
in default in any  material  respect,  and to the  knowledge  of the Company and
Subsidiary,  no event has occurred and no condition exists which, with notice or
the passage of time or both, would constitute such a default.

         3.16     Franchises, Licenses, Trademarks, Patents and Other Rights.

         (a) The  Disclosure  Schedules list all patents,  patent  applications,
trademarks,  trade names, service marks, logos, copyrights,  and licenses (other
than licenses from  governmental  authorities which are covered in Section 3.13)
used in or necessary to the Company's and/or Subsidiary's  business as now being
conducted or as proposed to be conducted  (collectively,  and together  with any
technology, know-how, trade secrets, processes, formulas, and techniques used in
or  necessary  to  the  Company's  and/or  Subsidiary's  business,  "Proprietary
Information").  Except as set forth in the  Disclosure  Schedules,  the  Company
and/or  Subsidiary  own,  or  are  licensed  or  otherwise  have  the  full  and
unrestricted  exclusive right to use,  without the payment of royalties or other
further consideration,  all Proprietary  Information,  and no other intellectual
property  rights,   privileges,   licenses,   contracts,  or  other  agreements,
instruments,  or evidences of interests  are necessary to or used in the conduct
of their businesses;

         (b) In any instance where the Company's and/or  Subsidiary's  rights to
Proprietary  Information  arise under a license or similar agreement (other than
for  software  programs  that have not been  customized  for its  use),  this is
indicated in the Disclosure Schedules and such rights are, to the best knowledge
of the Company and/or Subsidiary, licensed exclusively to it except as indicated
in the  Disclosure  Schedules.  No other  person has an  interest in or right or
license to use any of the  Proprietary  Information.  Except as set forth in the
Disclosure Schedules, to the Company's and Subsidiary's best knowledge,  none of
the Proprietary  Information is being infringed by others,  or is subject to any
outstanding order, decree, judgment, or stipulation.  Except as set forth in the
Disclosure Schedules, no litigation (or other proceedings in or before any court
or other governmental,  adjudicatory, arbitral, or administrative body) relating
to the Proprietary  Information is pending or, to the Company's and Subsidiary's
best knowledge, threatened, nor, to the Company's and Subsidiary's knowledge, is
there  any  basis  for any  such  litigation  or  proceeding.  The  Company  and
Subsidiary use reasonable  efforts to maintain adequate and sufficient  security
measures  for the  preservation  of the  secrecy and  proprietary  nature of the
Proprietary Information;

         (c) (i) Neither the Company  and/or  Subsidiary nor to the knowledge of
the Company  and/or  Subsidiary  any of their  employees  has  infringed or made
unlawful  use  of,  or  is,  to the  Company's  and/or  Subsidiary's  knowledge,
infringing  or  making   unlawful  use  of,  any   proprietary  or  confidential
information of any Person,  including without  limitation any former employer of
any past or present employee or consultant of the Company and/or Subsidiary; and
(ii) to the  Company's  and/or  Subsidiary's  knowledge,  the  activities of the
Company's and/or  Subsidiary's  employees in connection with their employment do
not  violate  any  agreements  or  arrangements   that  any  such  employees  or
consultants  have with any former  employer or any other  Person.  Except as set
forth in the Disclosure  Schedules,  no litigation  (or other  proceedings in or
before   any   court  or  other   governmental,   adjudicatory,   arbitral,   or
administrative body) charging the Company and/or Subsidiary with infringement or
unlawful use of any patent, trademark,  copyright, or other proprietary right is
pending or, to the Company's and/or Subsidiary's knowledge,  threatened,  nor is
there any basis for any such litigation or proceeding;

         (d) To the  knowledge  of  the  Company  and  Subsidiary,  no  officer,
director,  employee, or consultant of the Company and/or Subsidiary is presently
obligated  under or bound  by any  agreement  or  instrument,  or any  judgment,
decree,  or order of any court of administrative  agency,  that (i) conflicts or
may conflict with his or her agreements  and  obligations to use his or her best
efforts  to  promote  the  interests  of the  Company  and/or  Subsidiary,  (ii)
conflicts or may conflict with the business or operations of the Company  and/or
Subsidiary  as  presently  conducted  or as proposed to be  conducted,  or (iii)
restricts or may restrict the use or disclosure of any  information  that may be
useful to the Company and/or Subsidiary;

         3.17     Issuance Taxes.

         All taxes  imposed by any state in connection  with the issuance,  sale
and delivery of the Acquired Securities shall have been fully paid, and all laws
imposing such taxes shall have been fully  complied  with,  prior to the Closing
Date.

         3.18     Offering.

         Except as set forth on the  Disclosure  Schedules  and in the Company's
SEC  Documents,  within the past six (6) months,  the  Company  has not,  either
directly  or through any agent,  offered  any of the  Shares,  Warrants or other
Derivative  Securities,  or any preferred  security or securities similar to the
Shares for sale to, or solicited any offers to buy the Shares, Warrants or other
Derivative Securities or any part thereof or any such similar preferred security
or  securities  from, or otherwise  approached or negotiated in respect  thereof
with, any party or parties other than the Purchasers or  institutional  or other
sophisticated  investors,  each of which was  offered  all or a  portion  of the
Shares at private sale for investment.

         Subject  in  part  to  the  truth  and  accuracy  of  the   Purchasers'
representations set forth in this Agreement, the offer, sale and issuance of the
Acquired  Securities  as  contemplated  by this  Agreement  are exempt  from the
registration  requirements of the Securities Act, and all state securities laws,
and neither  the  Company  nor anyone  acting on its behalf will take any action
hereafter that would cause the loss of such exemption.

         3.19     Employees.

         (a) Each of the Company's and Subsidiary's  present or former employees
who has had access to  Proprietary  Information of the Company or Subsidiary has
executed the Company's or Subsidiary's standard form of proprietary  information
agreement ("Proprietary  Information  Agreement").  The Disclosure Schedules set
forth a complete list of the name and position of each person who has executed a
Proprietary  Information Agreement. To the Company's and Subsidiary's knowledge,
no employee or former employee of the Company or Subsidiary is or is expected to
be in violation of the terms of the aforesaid Proprietary  Information Agreement
or of any other  obligation  relating to the use of  confidential or Proprietary
Information of the Company or Subsidiary.  Each of such Proprietary  Information
Agreements remains in full force and effect;

         (b) The Disclosure Schedules set forth the current compensation of each
officer or director of the Company and  Subsidiary,  and of each employee  being
paid (or to whom the Company or Subsidiary has agreed to pay) annual salary at a
rate of $120,000 per year or more;

         (c) To the knowledge of the Company and Subsidiary, except as set forth
on the  Disclosure  Schedules,  no officer  or key  employee  of the  Company or
Subsidiary  has  any  present  intent  of  terminating  such  officer's  or  key
employee's employment with the Company or Subsidiary;

         (d)  Each  of the  Company  and  Subsidiary  complies  in all  material
respects with all laws regarding  employment,  wages,  hours, equal opportunity,
collective  bargaining  and  payment of Social  Security  and other  taxes.  The
Company and Subsidiary  each is in compliance in all material  respects with all
applicable  foreign,  federal,  state and local laws and  regulations  regarding
occupational safety and health standards and has received no complaints from any
foreign,  federal,  state or local agency or regulatory body alleging violations
of any such laws and regulations;

         (e)  Except  as set  forth  on the  Disclosure  Schedules  hereto,  the
employment of all persons and officers employed by the Company and Subsidiary is
terminable  at will without any penalty or severance  obligation  of any kind on
the part of the Company or  Subsidiary.  All sums due for employee  compensation
and  benefits and all  vacation  time owing to any  employees of the Company and
Subsidiary  have been duly and adequately  accrued on the accounting  records of
the Company and  Subsidiary.  All  employees of the Company and  Subsidiary  are
either  United States  citizens or resident  aliens  specifically  authorized to
engage in  employment in the United  States in  accordance  with all  applicable
laws;

         (f) Neither the Company nor  Subsidiary  has  experienced,  nor does it
know or have  reasonable  grounds to know of any basis for,  any  strike,  labor
troubles or strife,  work stoppages,  slow downs, or other  interference with or
impairment of its business.  Neither the Company nor Subsidiary has experienced,
nor does it know of, any union or collective bargaining  organization efforts or
negotiations, or requests for negotiations,  for any representation or any labor
contract relating to any employees of the Company or Subsidiary.

         3.20     Business of the Company and Subsidiary.

         Except as set forth on the  Disclosure  Schedules,  the Company and the
Subsidiary  have no knowledge or belief (i) that there is pending or  threatened
any  claim  or  litigation  against  or  affecting  the  Company  or  Subsidiary
contesting  its  right  to  manufacture,  sell or use  any  product  or  service
presently manufactured, sold or used or planned to be manufactured, sold or used
by the Company or Subsidiary,  or (ii) that there exists, or there is pending or
planned, any statute, rule, law, regulation, standard or code which would have a
Material Adverse Effect.  The Company and Subsidiary  currently intend to engage
in the business of the general type described in the Plan.

         3.21     Use of Proceeds.

         The Company and  Subsidiary  will use the  proceeds of the offering for
working capital  purposes.  The Company and Subsidiary will not use the proceeds
of  the  offering  for  other  business  purposes.   None  of  the  transactions
contemplated in this Agreement  (including,  without limitation,  the use of the
proceeds  from the sale of the Shares)  will violate or result in a violation of
Section 7 of the  Exchange  Act, or any  regulations  issued  pursuant  thereto,
including, without limitation,  Regulations G, T and X of the Board of Governors
of the Federal  Reserve System,  12 C.F.R.,  Chapter 11. Neither the Company nor
the Subsidiary owns or intends to carry or purchase any "margin security" within
the meaning of said Regulation G, including margin securities  originally issued
by the  Company or the  Subsidiary.  None of the  proceeds  from the sale of the
Shares  will be used to  purchase  or carry  (or  refinance  any  borrowing  the
proceeds  of which were used to  purchase  or carry) any  "security"  within the
meaning of the Securities Act.

         3.22     Applicability of, and Compliance with, Other Laws.

           (a) Neither the Company nor Subsidiary has or makes  contributions to
any  pension  plans,   defined  benefit  plans  or  defined  contribution  plans
("Employee Plan") for its employees which are subject to the Employee Retirement
Income  Security Act of 1974, as amended  ("ERISA"),  except as set forth on the
Disclosure Schedules. With respect to such Employee Plans, if any, listed on the
Disclosure  Schedules,  each of the Company and the  Subsidiary is in compliance
with the applicable  provisions of ERISA. Neither the Company nor the Subsidiary
has incurred any unremedied accumulated funding deficiency within the meaning of
ERISA, or any unsatisfied  liability to the Pension Benefit Guaranty Corporation
established  under ERISA in  connection  with any Employee Plan  established  or
maintained by the Company or the Subsidiary  under the jurisdiction of ERISA. No
"Reportable  Event" or "Prohibited  Transaction"  (as defined in Section 4043 of
ERISA) has  occurred  with  respect to any  Employee  Plan  administered  by the
Company or Subsidiary;

          (b) The Company's and Subsidiary's  employment  practices and policies
comply in all  material  respects  with (i) all  applicable  laws of the  United
States  and  each   applicable   jurisdiction   relating  to  equal   employment
opportunity,  and any rules,  regulations,  administrative  orders and Executive
Orders  relating  thereto;  and (ii) the  applicable  terms,  relating  to equal
opportunity, of any contract,  agreement or grant the Company and Subsidiary has
with,  from or  relating  (by way of  subcontract  or  otherwise)  to any  other
contract, agreement or grant of, any federal or state governmental unit. Neither
the  Company  nor the  Subsidiary  has been the  subject of any charge of unfair
labor practices, employment discrimination made against it by the National Labor
Relations Board, the United States Equal  Employment  Opportunity  Commission or
any  other  governmental  unit,  (collectively   "Governmental  Agency")  or  is
presently   subject  to  any  formal  or   informal   proceedings   before,   or
investigations  by a  Governmental  Agency.  To the Company's  and  Subsidiary's
knowledge, neither the Company, nor Subsidiary, nor any employees of the Company
or Subsidiary,  nor any Related Parties are presently under investigation by any
Governmental Agency for purposes of security clearance or otherwise;

          (c) To the  Company's  and  Subsidiary's  knowledge,  none of the real
properties   presently  owned,  leased,  or  operated  by  the  Company  or  the
Subsidiary,  nor any leasehold  improvements thereto, nor any business conducted
by the Company or the  Subsidiary  thereon,  are in violation of any  applicable
land use or zoning requirements,  including without limitation any building line
or use or  occupancy  restriction,  any public  utility or other  easement,  any
limitation,  condition,  or covenant of record,  or any zoning or building  law,
code, or ordinance;

          (d)  Neither  the  Company,  Subsidiary,  nor any  property  owned  or
occupied by the Company or Subsidiary is in material violation of any federal or
state  Environmental  Law of any sort or in  violation  of any  federal or state
so-called  "OSHA"  law.  The  Disclosure   Schedules   contain  a  list  of  all
environmental  permits held by the Company and Subsidiary.  Without limiting the
foregoing:

                  (i) Environmental Permits. The Company and Subsidiary each has
obtained  all   environmental,   health  and  safety  permits  and  governmental
authorizations  (collectively,  the "Environmental  Permits")  necessary for the
construction  of their  facilities or the conduct of their  operations,  and all
such  Environmental  Permits are in good standing and the Company and Subsidiary
each is in  compliance  with  all  terms  and  conditions  of the  Environmental
Permits.  No  notice  to,  approval  of or  authorization  or  consent  from any
governmental  or  regulatory  authority  is  necessary  for the  transfer  of or
modification  to  any   Environmental   Permit  and  the   consummation  of  the
transactions  contemplated by this Agreement will not violate,  alter, impair or
invalidate, in any respect, any Environmental Permit;

                  (ii) Environmental  Claims. There are no Environmental Claims,
as defined in Section 9 hereof,  pending,  threatened or likely to be threatened
(a) against the Company or  Subsidiary,  (b) to the  Company's  or  Subsidiary's
knowledge,  against any person or entity whose  liability for any  Environmental
Claim the  Company or  Subsidiary  has or may have  retained  or assumed  either
contractually  or by  operation  of law,  or (c)  against  any real or  personal
property or  operations  which are now or have been  previously  owned,  leased,
operated  or  managed,  in whole  or in  part,  by the  Company  or  Subsidiary;
provided,  however  that to the extent the  Environmental  Claim is based on the
liability of another  person or entity that the Company or Subsidiary has or may
have  retained  or assumed  either  contractually  or by  operation  of law such
representation and warranty under this clause (c) is limited to the knowledge of
the Company and Subsidiary;

                  (iii)  Releases.  There have been no Releases of any Hazardous
Materials,  as  defined  in  Section 9 hereof,  that would be likely to form the
basis of any  Environmental  Claim  against the  Company,  Subsidiary  or to the
Company's  and  Subsidiary's  knowledge,  against  any  person or  entity  whose
liability for any Environmental  Claim the Company or Subsidiary has or may have
retained or assumed either contractually or by operation of law;

                  (iv) Environmental  Assessments.  There are no environmental
reports,  audits,  investigations or assessments of the Company,  Subsidiary,
or any real or personal property or operations which are now or have been
previously owned, leased,  operated or managed, in whole or in part, by the
Company or Subsidiary;

                  (v) Environmental  Disclosure. To the knowledge of the Company
and Subsidiary upon diligent  review,  the Company and Subsidiary have disclosed
to the  Purchasers  all  relevant  facts  with  respect to  potential  or actual
environmental liabilities of the Company and Subsidiary.

         3.23     Indebtedness.

         The Disclosure  Schedules  contain a true and complete list,  including
the names of the parties  thereto and summary  description of the terms thereof,
of  all  Indebtedness,  including  without  limitation  debt  instruments,  loan
agreements,  indentures,  guaranties or other  obligations,  whether  written or
oral,  other than (i)  obligations  which may be terminated  without  payment or
penalty by the Company or Subsidiary upon not more than thirty (30) days notice,
and (ii)  obligations  for less than $10,000.  All of the  aforesaid  items were
entered into in the ordinary course of business,  are valid and binding, in full
force and effect and are enforceable in accordance with their  respective  terms
and there  exists no breach or default,  or any event which with notice or lapse
of time or both, would constitute a breach or default by any party thereto.  All
of the Company's and Subsidiary's Indebtedness which is required to be disclosed
under  generally  accepted  accounting  principles  is  disclosed on the Balance
Sheet.

         3.24     Insurance Coverage.

         Neither the  Company  nor  Subsidiary  has been  refused any  insurance
coverage sought or applied for, and the Company and Subsidiary have no reason to
believe  that they will be unable to obtain one or more  policies  of  insurance
issued  by  insurers  of  recognized   responsibility,   insuring  the  Company,
Subsidiary and their  properties and business against such losses and risks, and
in such amounts,  as are customary in the case of  corporations  of  established
reputation engaged in the same or similar business and similarly  situated.  The
Disclosure  Schedules set forth each insurance  policy  (specifying the insurer,
the  amount of  coverage,  the type of  insurance,  the policy  number,  and the
expiration  date),  maintained by the Company and  Subsidiary  relating to their
properties, assets, business or personnel. Neither the Company nor Subsidiary is
in material  default with respect to any  provision  contained in any  insurance
policy,  and neither the Company nor Subsidiary has failed to give any notice or
present any  presently  existing  claims under any  insurance  policy in due and
timely fashion.

         3.25     Illegal or Unauthorized Payments; Political Contributions.

         To the  Company's  and  Subsidiary's  knowledge,  neither the  Company,
Subsidiary  nor any of their  officers,  directors,  employees,  agents or other
representatives  of the  Company,  Subsidiary  or any other  business  entity or
enterprise  with which the Company or  Subsidiary  is or has been  affiliated or
associated,  has,  directly  or  indirectly,  made or  authorized  any  payment,
contribution  or  gift  of  money,  property,  or  services,  whether  or not in
contravention  of applicable law (i) as a kickback or bribe to any person,  (ii)
to any political organization,  or the holder of or any aspirant to any elective
or  appointive  public office except for personal  political  contributions  not
involving the direct or indirect use of funds of the Company or  Subsidiary,  or
(iii) in violation of the Foreign Corrupt Practices Act of 1977, as amended,  or
any rules or regulations thereunder.

         3.26     Disclosure.

         Neither this  Agreement,  the  Disclosure  Schedules  nor other written
statement  furnished to the  Purchasers or their counsel in connection  with the
offer and sale of the Shares,  contains any untrue  statement of a material fact
or omits to state a  material  fact  necessary  in order to make the  statements
contained  therein or herein not  misleading  in the light of the  circumstances
under which they were made.  The  forecasts,  projections,  estimates  and other
forward-looking  matters  furnished to the Purchasers were prepared on the basis
of the Company's and Subsidiary's best estimates.  The Company and Subsidiary do
not have any reason to believe that any  assumptions  or  statements  of opinion
contained in such  forecasts,  projections,  estimates or other  forward-looking
matters are unreasonable or false.

         3.27     Potential Conflicts of Interest.

         Except as set forth on the Disclosure  Schedules,  neither the Company,
nor the Subsidiary nor, to the best knowledge of the Company and the Subsidiary,
any of either of their officers,  directors or employees,  (i) own,  directly or
indirectly,  any interest (excepting passive holdings for investment purposes of
not more than one percent (1%) of the  securities  of any publicly held company)
in, or is an officer, director, employee, or consultant of, any person that is a
competitor,  lessor,  lessee,  customer,  or  supplier  of  the  Company  or the
Subsidiary;  or (ii) has any cause of action or other claim  whatsoever  against
the  Company  or the  Subsidiary,  or owes  any  amount  to the  Company  or the
Subsidiary,  except for claims in the ordinary  course of business,  such as for
accrued vacation pay, accrued benefits under employee benefit plans, and similar
matters and agreements or under any employment agreements.

         3.28     Real Property Holding Corporation.

         Neither  the  Company  nor the  Subsidiary  is a  "United  States  real
property holding  corporation" within the meaning of Section 897 of the Internal
Revenue  Code of 1986,  as amended  (the  "Code")  and the  Treasury  Regulation
Section 1.897-2.

SECTION 4

Representations and Warranties of Purchasers

         Each of the  Purchasers  (severally  and not  jointly)  represents  and
warrants to the Company as of each closing date (including the date of the First
Closing) on which such Purchasers  purchase Shares of the Company,  as to itself
only, as follows:

         4.1      Organization; Good Standing; Power and Authority; Binding
Obligation.

         Such  Purchaser  has  full  power  and  authority  to enter  into  this
Agreement,  and is duly organized,  validly  existing and in good standing under
the laws of the  jurisdiction  of its  organization  and all  action on its part
necessary for the  authorization,  execution and delivery of this  Agreement and
the Financing  Documents,  the performance of all of its obligations  hereunder,
including,  without limitation, the payment of the purchase price for the Shares
and Warrants contemplated by this Agreement,  has been taken, and it has all the
requisite  power and  authority  to enter  into this  Agreement  and each of the
Financing  Documents  to  which it is a party.  This  Agreement  and each of the
Financing  Documents to which it is a party has been duly executed and delivered
by such  Purchasers  and  constitutes  a valid and  legally  binding  obligation
enforceable  against it in accordance  with its terms,  subject to the effect of
any applicable  bankruptcy,  reorganization,  insolvency,  moratorium or similar
laws affecting  creditors' rights generally,  subject, as to enforceability,  to
the  effect  of  general  principles  of  equity  (regardless  of  whether  such
enforceability is considered in a proceeding in equity or at law) and subject to
the effect of applicable securities laws as to rights of indemnification.

         4.2      Purchase Entirety for Own Account; Etc.

         Such  Purchaser  is  acquiring  the  Shares  and  Warrants  solely  for
investment  purposes for his, her or its own account,  not as a nominee or agent
and not with the view to, or for resale in  connection  with,  any  distribution
thereof.  Such  Purchaser  has no present  intention  of selling,  granting  any
participation  in, or  otherwise  distributing  the  Acquired  Securities.  Such
Purchaser does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant  participations to any person with respect
to the  Acquired  Securities.  Such  Purchaser  understands  that  the  Acquired
Securities  have not been  registered  under the  Securities Act by reason of an
exemption from the  registration  provisions of the Securities Act, and that the
Company's and Subsidiary's reliance on such exemption is predicated in part upon
its representations and warranties set forth in this Section 4.

         4.3      Disclosure.

         Such Purchaser has received or reviewed all the information  which each
has requested for the purposes of determining  the merits of the purchase of the
Acquired  Securities  and the  execution  of this  Agreement  and the  Financing
Documents. Such Purchaser also has received and reviewed a copy of the Financial
Statements  and Balance  Sheet.  Such  Purchaser has had an  opportunity  to ask
questions and receive  answers from the Company and  Subsidiary  regarding  such
entities,  their business,  operations and financial condition and the terms and
conditions  of the  purchase  of the  Shares,  this  Agreement  and  each of the
Financing  Documents  to which he, she or it is a party,  and answers  have been
provided  to its full  satisfaction.  Such  Purchaser  has  fully  reviewed  all
corporate  and  governance  documents  of the Company and  Subsidiary  provided,
understands all relevant terms and has asked all questions and received  answers
thereto  to  his,  her or its  full  satisfaction.  If  deemed  necessary,  such
Purchaser has consulted with a professional advisor who has provided him, her or
it with advice  concerning  these terms.  HE, SHE OR IT ACKNOWLEDGES  AND AGREES
THAT THE PURCHASE OF THE SHARES AND WARRANTS INVOLVES A HIGH DEGREE OF RISK, AND
MAY RESULT IN A LOSS OF THE ENTIRE  AMOUNT  INVESTED,  AND THERE IS NO ASSURANCE
THAT THE  REGISTRATION  STATEMENT  CONTEMPLATED  IN SECTION  7.17 HEREOF WILL BE
DECLARED EFFECTIVE; PROVIDED THAT THE COMPANY ACKNOWLEDGES ITS OBLIGATION TO USE
ITS  REASONABLE  BEST  EFFORTS TO CAUSE SUCH  REGISTRATION  STATEMENT  TO BECOME
EFFECTIVE AS PROVIDED IN SECTION 7.17 HEREOF.

         4.4      Accredited Investor.

         Such  Purchaser is an accredited  investor as defined in Rule 501(a) of
Regulation  D  under  the  Securities  Act.  The  information  provided  by such
Purchaser on the Statement of Accredited Investor,  attached hereto as Exhibit D
(the "Statement of Accredited  Investor"),  is true and correct in all respects.
Such  Purchaser is capable of bearing the economic  risk of an investment in the
purchase of the Acquired  Securities,  including the possible loss of its entire
investment.  Such  Purchaser has such  knowledge and  experience in financial or
business  matters  that it is capable of  evaluating  the merits and risks of an
investment in the Acquired  Securities  offered  hereby.  Such Purchaser has not
been organized solely for the purpose of acquiring the Acquired Securities. Such
Purchaser  has not  construed  the  contents of this  Agreement,  any  Financing
Document or any additional  agreement  with respect to the proposed  purchase of
the Shares  and  Warrants  or any prior or  subsequent  communications  from the
Company or Subsidiary,  or any of their officers,  employees or representatives,
as investment,  tax or legal advice or as information  necessarily applicable to
his, hers or its particular  financial  situation.  Such Purchaser has consulted
his,  her  or  its  own  financial  advisor,  tax  advisor,  legal  counsel  and
accountant,  as necessary or desirable, as to matters concerning the purchase of
the Shares and Warrants.

         4.5      Restricted Securities.

         Such Purchaser understands that the Acquired Securities are "restricted
securities" as defined in the  Securities  Act, and that under federal and state
securities laws the Acquired Securities may be resold without registration under
the  Securities  Act only in certain  limited  circumstances.  Such Purchaser is
familiar with Rule 144  promulgated by the Commission  under the Securities Act,
and understands the resale limitations  imposed thereunder and by the Securities
Act generally. Such Purchaser also acknowledges that the Acquired Securities are
subject to significant restrictions on transfer,  pledge or hypothecation.  Such
Purchaser  agrees  that  in no  event  will  he,  she or it make a  transfer  or
disposition  of the  Acquired  Securities  other  than in  compliance  with  all
applicable securities laws.

         4.6      Legends.

         It is understood by such Purchaser that  certificates or other evidence
of the Shares,  Warrant Shares and the Conversion  Shares may bear the following
legend, as well as any legend required by the laws of any relevant state:

         "THESE  SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
         1933 OR APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED
         FOR SALE,  PLEDGED OR  HYPOTHECATED  IN THE  ABSENCE OF A  REGISTRATION
         STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN
         OPINION OF COUNSEL  SATISFACTORY TO THE COMPANY THAT SUCH  REGISTRATION
         IS NOT  REQUIRED  PURSUANT  TO A VALID  EXEMPTION  THEREFROM  UNDER THE
         SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS."

         4.7      Termination of Restrictions.

         The restrictions  imposed by this Section 4 upon the transferability of
any Acquired  Securities  will terminate as to any  particular  Shares when such
Shares  have been sold  pursuant  to an  effective  Registration  Statement,  as
defined  herein,  under the  Securities  Act,  or pursuant to Rule 144 under the
Securities Act or any other exemption from the registration  requirements of the
Securities Act pursuant to which the transferee receives securities that are not
"restricted  securities"  within  the  meaning  of that term as  defined in Rule
144(a)(3).  Whenever any of such restrictions  terminates as to any Shares,  the
holder  thereof will be entitled to receive  from the Company,  upon its request
and at the Company's expense, new certificates representing such Shares, without
restrictive legends.

SECTION 5

Conditions to Closing of Purchasers

         The obligation of the Purchasers to purchase the Shares to be purchased
by them at the Closing is subject to the fulfillment to their satisfaction on or
prior to the Closing Date of each of the following conditions:

         5.1      Representations and Warranties Correct.

         The  representations  and warranties made by the Company and Subsidiary
in Section 3 hereof, as qualified by the Disclosure Schedules, shall be true and
correct in all respects when made, and shall be true and correct in all respects
on the First Closing Date and any subsequent closing pursuant to Section 2.3.

         5.2      Performance.

         All covenants, agreements and conditions contained in this Agreement to
be performed or complied  with by the Company  and/or  Subsidiary on or prior to
the Closing Date shall have been so  performed or complied  with in all material
respects.

         5.3      Compliance Certificate.

         The Company and  Subsidiary  shall have  executed and  delivered to the
Purchasers a  certificate  of the President or Executive  Vice  President of the
Company and Subsidiary, dated the Closing Date, certifying to the fulfillment of
the  conditions  specified  in Sections 5.1 and 5.2 of this  Agreement  and such
other matters as the Purchasers may reasonably request.

         5.4      Opinion of Company's Counsel.

         The  Purchasers  shall have received an opinion of Hutchins,  Wheeler &
Dittmar,  A  Professional  Corporation,  counsel to the Company and  Subsidiary,
addressed to the  Purchasers  and dated the Closing Date, in  substantially  the
form set forth in Exhibit B, attached hereto (the "Opinion of Counsel"),  and in
form and substance reasonably satisfactory to the Purchasers.

         5.5      Good Standing Certificates.

         The Company shall have delivered to the Purchasers  certificates  dated
not more than five (5) days before the Closing Date from the  Secretary of State
of the State of the  Company's  and  Subsidiary's  state of  incorporation  with
respect to the Company's and  Subsidiary's  due  incorporation,  good  standing,
legal corporate existence, due authorization to conduct business and the payment
of all franchise taxes,  and,  certificates  from the Secretary of State in each
jurisdiction  in which the Company or  Subsidiary is required to be qualified to
do business with respect to the Company's or Subsidiary's  good standing and due
authorization to conduct business therein and payment of all qualification fees.

         5.6      Qualifications.

         All authorizations, approvals, or permits of any governmental authority
or regulatory  body that are required in connection with the lawful issuance and
sale of the Acquired  Securities  pursuant to this Agreement,  the conversion of
the  Shares  into  Common  Stock  and the  issuance  of Common  Stock  upon such
conversion  and upon the exercise of the Warrants and issuance of Warrant Shares
upon such  exercise  shall have been duly obtained and shall be effective on and
as of the Closing Date, including,  if necessary,  permits from applicable state
securities   authorities,   qualifying  the  offer  and  sale  of  the  Acquired
Securities.

         5.7      Amendment of Certificate and Filing of Certificate.

         The  Certificate  shall have been duly filed with the  Secretary of the
State of Delaware,  evidence of which filing the Company  shall have provided to
the Purchasers.

         5.8      Proceedings and Documents.

         All corporate and other proceedings in connection with the transactions
contemplated  hereby  and  all  documents  and  instruments   incident  to  such
transactions  shall be  satisfactory in substance and form to the Purchasers and
counsel for the Purchasers.

         5.9      By-Laws.

         The By-laws of the Company  shall  provide that the holders of Series C
Preferred  which represent  fifteen percent (15%) or more of outstanding  voting
shares of the Company can call special meetings of stockholders.

         5.10     Shareholders' and Rights Agreement.

         The Company,  the holders of the Series A Preferred  Stock, the holders
of the Series B Preferred  Stock,  and the  Purchasers  shall have  executed and
delivered  an Amended  and  Restated  Shareholders'  and Rights  Agreement  (the
"Shareholders'  and Rights  Agreement") to the effect and in  substantially  the
form set forth in Exhibit C attached hereto.

         5.11     Certification by Corporate Secretary.

         With  respect to the Company and  Subsidiary,  a  certificate  of their
respective  secretaries,  dated the Closing Date,  certifying (i) the absence of
any amendments to its charter documents (or proceedings therefor) since the date
of the certificate  referred to in Section 5.5, above,  (ii) an attached copy of
the  By-laws,  (iii) an attached  copy of the  resolutions  of their  respective
Boards,  with respect to the transactions hereby contemplated or otherwise to be
effected at the Closing,  (iv) the incumbency of their  respective  officers and
directors,  and (v) as to the  membership of their  respective  Boards,  each of
which shall be  constituted  as provided in Section 2 of the  Shareholders'  and
Rights Agreement.

         5.12     Warrants.

         The Company shall have executed and delivered to each of the Purchasers
three (3)  Warrants  (each for the  purchase  of that number of shares of Common
Stock  or  Series  C  Preferred   specified  in  the  Schedule  of   Purchasers)
substantially  in the form of  Exhibit  E,  Exhibit F and  Exhibit  G,  attached
hereto,  each of  which  shall  be in form  and  substance  satisfactory  to the
Purchasers (collectively, the "Warrants" and each, a "Warrant").

         5.13     Legal Investment.

         The acquisition of any Acquired  Securities  hereunder shall be legally
permitted at Closing by all laws and regulations to which the Purchasers and the
Company and Subsidiary are subject.

         5.14     Side Letter.

         The Company  shall have  executed  and  delivered  to each of RAM
Trading,  Ltd.,  RC  Capital,  L.L.C.  and Ritchie  Capital Management L.L.C.
that certain side letter in form and substance satisfactory to the foregoing
Purchasers.

SECTION 6

Conditions to Closing of Company

         The  Company's  obligation  to sell the Shares to be  purchased  at the
Closing is subject to the  fulfillment  to its  satisfaction  on or prior to the
Closing Date of each of the following conditions:

         6.1      Representations and Warranties Correct.

         The  representations  and warranties made by the Purchasers pursuant to
Section  4 hereof  shall be true and  correct  when  made and  shall be true and
correct in all  respects on the Closing  Date and with  respect  thereto,  after
giving effect to the purchase of the Shares at the Closing.

         6.2      Performance.

         All covenants, agreements and conditions contained in this Agreement to
be performed or complied with by the  Purchasers on or prior to the Closing Date
shall have been so performed or complied with in all material respects.

         6.3      Qualifications.

         All authorizations, approvals, or permits of any governmental authority
or regulatory  body that are required in connection with the lawful issuance and
sale of the Acquired  Securities  pursuant to this Agreement,  the conversion of
the Shares into  Common  Stock and the  issuance of such Common  Stock upon such
conversion, and the exercise of the Warrants and issuance of Warrant Shares upon
such exercise  shall have been duly obtained and shall be effective on and as of
the Closing  Date,  including,  if  necessary,  permits  from  applicable  state
securities   authorities,   qualifying  the  offer  and  sale  of  the  Acquired
Securities.

         6.4      Proceedings and Documents.

         All corporate and other proceedings in connection with the transactions
contemplated  hereby  and  all  documents  and  instruments   incident  to  such
transactions  shall be  satisfactory  in  substance  and form to the Company and
Subsidiary and their counsel.

         6.5      Statement of Accredited Investor.

         The  Purchasers  shall have  executed and  delivered to the Company and
Subsidiary a Statement of Accredited Investor to the effect and in substantially
the form set forth in Exhibit D attached hereto.

         6.6      Legal Investment.

         The sale and issuance of the  Acquired  Securities  hereunder  shall be
legally permitted at Closing by all laws and regulations to which the Purchasers
and the Company and Subsidiary are subject.

         6.7      Shareholders' and Rights Agreement.

         The Company,  the holders of the Series A Preferred  Stock, the holders
of the Series B Preferred  Stock,  and the  Purchasers  shall have  executed and
delivered the  Shareholders'  and Rights Agreement in substantially  the form of
Exhibit C attached hereto.

SECTION 7 - Affirmative Covenants

         The Company and Subsidiary  hereby  jointly and severally  covenant and
agree,  for the benefit of any  Purchaser  who owns 2,356 (which number shall be
subject to  adjustment  for any stock  dividends,  stock split,  combination  or
division of shares, recapitalization,  reclassification,  merger, consolidation,
reorganization,  or the like affecting the shares of Series C Preferred) or more
shares of the Series C Preferred  which  remain  outstanding  and which have not
been converted to Common Stock (the "Ownership Threshold"):

         7.1      Basic Financial Information.

         The Company and  Subsidiary  will  furnish to each such  Purchaser  the
following reports:

         (a) Within  seven (7) days  following  the filing with the  Commission,
copies of its reports filed on Form 10-K,  Form 10-Q,  Form 8-K or any successor
form or forms, its Form of Proxy and any other reports and financial  statements
sent  or  made  available  to  stockholders  or  directors  or  filed  with  the
Commission.

         (b) Each set of financial  statements delivered to a Purchaser pursuant
to Section  7.1 will be  accompanied  by a  certificate  of the Chief  Financial
Officer of the Company setting forth:

         (i)  Covenant  Compliance  -  any  information  required  in  order  to
         establish whether the Company,  Subsidiary and their other subsidiaries
         were in compliance  with the  requirements of this Section 7 during the
         period covered by the income statement then being furnished, and

         (ii) Event of Default - that the signer has reviewed the relevant terms
         of this Agreement,  the  Certificate and the other Financing  Documents
         and has made, or caused to be made, under their  supervision,  a review
         of the transactions and conditions of the Company, Subsidiary and their
         other subsidiaries, if any, from the beginning of the accounting period
         covered by the income statements being delivered  therewith to the date
         of the certificate and that such review has not disclosed the existence
         during such period of any condition or event which constitutes a breach
         or default under this  Agreement,  the  Certificate or any of the other
         Financing  Documents  or, if any such  condition  or event  existed  or
         exists,  specifying the nature and period of existence thereof and what
         action the  Company and  Subsidiary  have taken or propose to take with
         respect thereto.

         (iii) Notice of Material  Litigation  and Other  Material  Events - any
         information  regarding any  litigation or other event that might have a
         Material Adverse Effect.

         7.2      Additional Information and Rights.

          The Company and Subsidiary will, for any such Purchaser:

         (a) Permit such Purchaser (or its designated  representative)  to visit
and inspect any of the  properties  of the Company,  Subsidiary  and their other
subsidiaries  including  its  books of  account,  and to  discuss  its  affairs,
finances  and  accounts  with  the  Company's,   Subsidiary's  and  their  other
subsidiaries'  officers  and its  independent  public  accountants,  all  during
ordinary  business hours upon reasonable prior written notice to the Company and
as often as any such  party  may  reasonably  request.  Any such  visitation  or
inspection  shall  be  performed  in a  reasonable  manner  with  a  minimum  of
disruption to the Company's and Subsidiary's business and with due regard to the
proprietary and confidential nature of any information received by it.

          (b)    Deliver the reports and data described below to such Purchaser:

         (i) As soon as available (but in any event before the  commencement  of
         its fiscal  year  except in the case of the Annual Plan for fiscal year
         2001 which shall be delivered  no later than at Closing) the  Company's
         consolidated  capital and operating  expense  budgets and its operating
         plan (the "Annual Plan") approved by the Board indicating,  among other
         things,  monthly  income  statements,  balance  sheets  and  cash  flow
         statements for the next fiscal year, all itemized in reasonable detail,
         together with the underlying assumptions therefor,  plans for incurring
         indebtedness  and  projections  regarding  other sources of funds;  any
         material  changes in such financial plan shall be submitted as promptly
         as practicable after such changes have been approved by the Board;

         (ii) As soon as available, information and data on any material adverse
         changes in or any event or condition which has or could have a Material
         Adverse Effect;

         (iii)  Immediately  upon becoming aware of any condition or event which
         constitutes a breach of this Agreement,  the Financing Documents or any
         agreement contemplated hereby or thereby, written notice specifying the
         nature and period of  existence  thereof and what action the Company is
         taking or proposes to take with respect thereto;

         (iv) With  reasonable  promptness,  copies of audit  response  letters,
         accountants' management letters and any other written reports submitted
         to the Company by its independent public accountants in connection with
         an annual or interim  audit of the books of the Company,  Subsidiary or
         any of their other subsidiaries;

         (v) Such  other  information  and data  with  respect  to the  Company,
         Subsidiary and their other subsidiaries as any such party may from time
         to time reasonably request;

         (vi) Promptly after the  commencement  thereof,  notice of all actions,
         suits,  claims,  proceedings,  investigations and inquiries of the type
         described in Section 3.12 that could have a Material Adverse Effect;

         (vii) Promptly upon sending,  making  available or filing the same, all
         press  releases,  reports  and  financial  statements  that the Company
         Subsidiary or any of their other subsidiaries, sends or makes available
         to its stockholders or directors or files with the Commission;

         (viii)  At the  time  of  delivery  to the  Company's  Board,  reports,
         minutes,  consents,  waivers  or such other  information  substantially
         similar  to  such  reports,   minutes,   consents,   waivers  or  other
         information  delivered  to the  members of the  Company's  Board  (such
         obligation  being  satisfied  by  delivery  to such  Purchasers'  Board
         representative,  if  such  Purchaser  has a Board  representative,  for
         signature or consent) provided that each Purchaser  understands that it
         could be  subject  to  fines,  penalties  and other  liabilities  under
         applicable  securities  laws in the event of trading  in the  Company's
         securities  while  in  the  possession  of  any  material,   non-public
         information  concerning  the Company and agrees to abide by these legal
         prohibitions  on  tipping  and  trading  and each  Purchaser  agrees to
         maintain the confidentiality of such information in accordance with its
         applicable nondisclosure agreement with the Company;

         (ix) Promptly,  from time to time, such other information regarding the
         business,  prospects,  financial  condition,  operations,  property  or
         affairs of the Company, Subsidiary and their other subsidiaries as such
         Purchaser reasonably may request; and

         (x) As soon as available and in any event within thirty (30) days after
         the end of each fiscal  quarter,  commencing  with the  quarter  ending
         December  31,  2000,  the  Company  will  deliver  to  each  Purchaser,
         unaudited balance sheets and statements of income and cash flows of the
         Company and the Subsidiary as of the end of each such quarter,  as well
         as  summary   information  as  to  backlog  and  bookings  as  of  such
         quarter-end,  certified by the treasurer or chief financial officer (or
         other officer  acting in a similar  capacity) of the Company to be true
         and  correct  and to have been  prepared in  accordance  with GAAP,  as
         defined in Section 9 hereof,  consistently  applied (except for changes
         in the  application of such  principles  that have been approved by the
         Company's   Board),   subject  to  the  absence  of  footnotes  and  to
         adjustments  consisting  of normal  year-end  accruals,  the  effect of
         which, both individually and in the aggregate, is not material.

         7.3      Prompt Payment of Taxes, Etc.

         The Company,  Subsidiary and any Other Subsidiary will promptly pay and
discharge, or cause to be paid and discharged,  when due and payable, all lawful
taxes,  assessments and governmental  charges or levies imposed upon the income,
profits,  property  or  business  of  the  Company,  Subsidiary  and  any  Other
Subsidiary;  provided,  however,  that any such tax, assessment,  charge or levy
need not be paid if the validity  thereof shall at the time be contested in good
faith by appropriate proceedings,  and provided,  further, that unless otherwise
approved by the Board, the Company, Subsidiary and any Other Subsidiary will pay
all such taxes,  assessments,  charges or levies forthwith upon the commencement
of  proceedings  to  foreclose  any lien  which may have  attached  as  security
therefor.  Unless otherwise  approved by the Board, the Company,  Subsidiary and
any Other  Subsidiary  will  promptly  pay or cause to be paid  when due,  or in
conformance with customary trade terms, all other obligations  incident to their
operations.

         7.4      Maintenance of Properties and Leases.

         The  Company,  Subsidiary  and any Other  Subsidiary  will  keep  their
properties in good repair, working order and condition, reasonable wear and tear
excepted,  and from  time to time  make  all  needful  and  proper,  or  legally
required, repairs, renewals,  replacements,  additions and improvements thereto;
and the Company,  Subsidiary and any Other  Subsidiary  will at all times comply
with  each  provision  of all  leases  to which it is a party or under  which it
occupies,  or has possession of property if the breach of such  provision  might
have a Material Adverse Effect.

         7.5      Insurance.

         The Company, Subsidiary and any Other Subsidiary will keep their assets
which are of an insurable  character  insured by financially sound and reputable
insurers  against loss or damage by fire,  extended  coverage  and  explosion in
amounts  sufficient to prevent the Company,  Subsidiary or any Other  Subsidiary
from becoming a co-insurer.  The Company,  Subsidiary  and any Other  Subsidiary
will maintain for  themselves  with  financially  sound and reputable  insurers,
insurance  against other hazards and risks and liability to persons and property
to the extent and in the manner  customary for  companies in similar  businesses
similarly situated. The Company will use its best efforts to obtain within sixty
(60)  days of the  date  hereof  and  shall  thereafter  maintain  key-man  life
insurance  on the life of Scott  Griffith,  having a death  benefit  of at least
$500,000  payable to the Company and  providing  that such  insurance may not be
cancelled  without  at least  thirty  (30)  days'  prior  written  notice to the
Purchasers  delivered in accordance with Section 10.5 of this Agreement,  for so
long as Scott Griffith continues to be employed by the Company and will maintain
with,  to the best  knowledge of the Company,  financially  sound and  reputable
insurance  companies,  funds, or underwriters such other insurance of the kinds,
covering  the risks  (including  without  limitation  directors'  and  officers'
liability,  in  the  amount  of at  least  $15  million)  and  in  the  relative
proportionate  amounts  usually  carried by  reasonable  and  prudent  companies
conducting businesses similar to that of the Company (such insurance coverage at
all times to be at least as protective as the insurance currently carried by the
Company and described in the Disclosure Schedules).  The Company shall not cause
or permit any assignment or change in  beneficiary  and shall not borrow against
any such policy.

         7.6      Accounts and Records.

         The Company and the Subsidiary will each keep true and accurate records
and books of account in which full, true, and correct entries will be made so as
to permit the  preparation of financial  statements in accordance with GAAP, and
maintain  adequate  accounts and  reserves in  accordance  with good  accounting
practice for all taxes (including income taxes),  all  depreciation,  depletion,
obsolescence,  and amortization of its properties,  all  contingencies,  and all
other reserves.

         7.7      Compliance with Laws, Contracts, Licenses and Permits.

         The Company,  Subsidiary and other  subsidiaries shall duly observe and
conform in all  material  respects  to all valid  requirements  of  governmental
authorities  relating to their conduct of their  businesses or to their property
or assets.  Without  limiting  the  generality  of the  foregoing,  the Company,
Subsidiary and other subsidiaries will:

          (a) Comply with all minimum  funding  requirements  applicable  to any
pension plans,  employee benefit plans or employee  contribution plans which are
subject to ERISA or to the Code and comply in all other  material  respects with
the provisions of ERISA and the provisions of the Code applicable to such plans;
and

          (b) Comply in all material  respects with all  applicable  laws of the
United States and of each applicable  jurisdiction  relating to equal employment
opportunity, any rules, regulations,  administrative orders and executive orders
relating  thereto  and  the  applicable  terms,  relating  to  equal  employment
opportunity,  of any contract,  agreement or grant the Company,  Subsidiary  and
other  subsidiaries  has  with,  from  or  relating  (by way of  subcontract  or
otherwise)  to any other  contract,  agreement or grant of, any federal or state
governmental  unit;  and  keep all  records  required  to be kept,  and file all
reports,  affirmative  action plans and forms required to be filed,  pursuant to
any such applicable law or the terms of any such government contract.

         (c) So conduct its business  that neither the Company,  Subsidiary  and
other  subsidiaries,  nor any  property  owned or  occupied by any of them is in
material  violation of any federal or state  Environmental Law of any sort or in
material violation of any federal or state so-called "OSHA" Law.

         7.8      Maintenance of Corporate Existence, etc.

         The Company, Subsidiary and each Other Subsidiary will maintain in full
force and effect its  corporate  existence,  rights,  government  approvals  and
franchises  and  all  licenses  and  other  rights  to use  patents,  processes,
licenses,  trademarks,  trade names or  copyrights  owned or possessed by it and
deemed by it to be necessary to the conduct of its business.

         7.9      Availability of Common Stock for Conversion.

         The Company,  Subsidiary and each Other  Subsidiary  will, from time to
time, in accordance  with the laws of the state of its  incorporation,  increase
the  authorized  amount of Common  Stock if at any time the  number of shares of
Common Stock remaining unissued and available for issuance shall be insufficient
to permit  the  conversion  of all the then  outstanding  shares of the Series C
Preferred and issuance of the Warrant Shares.

         7.10     Proprietary Information Agreement, and Key Employee Agreement.

         (a) The Company, Subsidiary and each Other Subsidiary will enter into a
Proprietary  Information  Agreement as approved by the Board of the Company with
each  person  hereafter  employed  by any of them with  access  to  confidential
information.

         (b) At such time as the Board of the Company  authorizes  the  Company,
Subsidiary  and each  Other  Subsidiary,  to enter  into an  agreement  or other
arrangement that would constitute consideration for such key employee agreement,
the Company,  Subsidiary and each Other  Subsidiary will require all persons now
or hereafter  employed by the Company,  Subsidiary and each Other Subsidiary and
designated  as a "key person" by the  Company's  Board to execute a key employee
agreement  in favor of the Company  containing  the  non-competition  provisions
approved  by the  Board  and  reasonably  satisfactory  to the  Purchasers  as a
condition to the entering  into of such  agreement or  arrangement  with the key
person.

         (c) The Company,  Subsidiary and each Other  Subsidiary  will cause all
technological  developments,  inventions,  discoveries or  improvements  made by
employees  of the  Company,  Subsidiary  and each Other  Subsidiary  to be fully
documented  in  engineering  notebooks in  accordance  with the best  prevailing
industrial professional standards, and where possible and appropriate, cause all
employees to file and prosecute  United States and foreign  patent  applications
relating to and protecting such developments.

         7.11     Use of Proceeds.

         The Company and  Subsidiary  will use the proceeds from the sale of the
Shares for the purposes described in Section 3.21 hereof.

         7.12     Compliance by Subsidiaries.

         The Company and Subsidiary will each cause any Subsidiary  which it may
now have and/or  which it may  organize or acquire in the future to comply fully
with all the terms and provisions of this Section 7.

         7.13     Expenses of Board Members.

         The Company  agrees to reimburse  each of the directors  elected to the
Company's Board by the Purchasers for their  reasonable and properly  documented
out-of-pocket  travel and lodging  expenses in connection  with attending  Board
meetings and performing their  respective  obligations and  responsibilities  as
directors of the Company upon receipt of an itemized  invoice or expense  report
with appropriate receipts or other evidence in support of such expenses.

         7.14     Securities Law Filings.

         Based on the Purchaser's  representations  and warranties made pursuant
to this Agreement,  the Company will make any filings  necessary to perfect in a
timely fashion  exemptions  from (a) the  registration  and prospectus  delivery
requirements  of the Securities Act and (b) the  registration  or  qualification
requirements of all applicable securities or blue sky laws of any state or other
jurisdiction, for the issuance of the Shares to the Purchasers.

         7.15     Registration and Transfer of Securities.

         (a) Transfer and  Exchange of Capital  Stock.  The Company has retained
and will continue to retain a transfer agent to maintain a register of names and
addresses  of the holders of the Common  Stock and handle  other  record-keeping
matters  regarding the Common Stock.  The Company will maintain at its principal
executive  office a register in which will be entered the names and addresses of
the holders of the capital stock (other than Common  Stock) and the  particulars
(including without limitation the class thereof) of the respective capital stock
(other than Common Stock) held by them and of all transfers of shares of capital
stock (other than Common Stock) or  conversions  of shares of capital stock from
one  class  to  another.  Upon  surrender  at  such  office  of any  certificate
representing  shares of capital stock (other than Common Stock) for registration
of conversion,  exchange,  or (subject to compliance with applicable federal and
state securities laws) transfer,  the Company will issue, at its expense, one or
more  new  certificates,  in  such  denomination  or  denominations  as  may  be
requested,  for shares of such capital  stock (other than the Common  Stock) and
registered as such holder may request.  Any certificate  representing  shares of
capital stock surrendered for registration of transfer will be duly endorsed, or
accompanied  by a written  instrument of transfer duly executed by the holder of
such  certificate or his attorney duly  authorized in writing.  The Company will
pay shipping and insurance charges,  from and to each holder's principal office,
upon any transfer, exchange, or conversion provided for in this Section 7.15(a).

         (b) Replacement of Shares. In the case of any loss, theft, destruction,
or mutilation of the certificate  representing any Shares or Warrant Shares,  or
of any Warrant, upon receipt of evidence thereof reasonably  satisfactory to the
Company,  and (i) in the case of any such  loss,  theft,  or  destruction,  upon
delivery  of an  indemnity  bond in such  reasonable  amount as the  Company may
determine, or (ii) in the case of any such mutilation, upon the surrender to the
Company at its principal office of such mutilated  certificate for cancellation,
the Company will execute and deliver,  in lieu  thereof,  new  certificates  (or
Warrants,  as the case may be) of like  tenor.  Any old  stock  certificate  (or
Warrants,  as the case may be) in lieu of which any such new  stock  certificate
(or  Warrants,  as the case may be) has been so executed  and  delivered  by the
Company will not be deemed to be  outstanding  for any purpose of this Agreement
or otherwise.

         7.16     Indemnification.

         (a) All covenants,  agreements,  representations,  and warranties  made
herein or in the other  Financing  Documents or any other  document  referred to
herein or delivered  to the  Purchasers  pursuant  hereto will be deemed to have
been relied on by the Purchasers,  notwithstanding  any investigation made by or
on behalf of the Purchasers,  and will survive the Closing.  The Company and the
Subsidiary will jointly and severally indemnify,  defend, and hold harmless each
Purchaser,  and  each  of such  Purchaser's  partners,  stockholders,  officers,
directors, employees, agents, and representatives,  from and against any and all
Damages  incurred by any of them in any capacity and resulting  from or relating
to the  breach  by the  Company  of  any  of  its  representations,  warranties,
covenants,  or  agreements  contained  in  this  Agreement  or in the  Financing
Documents  or  any  other  document  referred  to  herein  or  delivered  to the
Purchasers  pursuant hereto, (i) for two (2) years after the Closing Date in the
case of any breach by the Company of any of its  representations  and warranties
set forth in this  Agreement  and (ii) for two (2)  years  after the date of any
breach by the Company of any covenant or agreement  contained in this  Agreement
or in any of the other Financing Documents.

         (b) The  obligations  of the  Company  and the  Subsidiary  under  this
Section  7.16  will  survive  transfer  of  the  Acquired   Securities  and  the
termination of this Agreement.

         7.17     Registration Requirements.

         (a) No later than April 15, 2001,  the Company  shall (i) file with the
Commission  one or more  Registration  Statements  on Form S-1,  Form S-3 or any
other suitable form, as determined by the Company in its  discretion,  (together
with any prospectus  included therein, a "Registration  Statement,"  pursuant to
Rule 415 of the  Securities  Act in order to register  with the  Commission  the
continuous  resale by the  Purchasers,  from time to time, of all Warrant Shares
(or  shares  of  Common  Stock  issuable  on  conversion  of  shares of Series C
Preferred Stock included within "Warrant  Shares") and shares of Common Stock of
the  Company  that may be  acquired by the  Purchasers  through any  exchange or
conversion  of the Shares,  through the  facilities  of any national  securities
exchange on which the Common  Stock is then traded,  or in  privately-negotiated
transactions.  The Company shall use its  reasonable  best efforts to cause such
Registration Statement to be declared effective on or before July 15, 2001. Each
Purchaser  agrees to furnish  promptly to the Company in writing all information
required  from  time to time to be  disclosed  in order to make the  information
previously furnished to the Company by such holder not misleading.

         (b) The Company shall pay all Registration Expenses, as defined herein,
in connection with any registration,  qualification or compliance hereunder, and
each Purchaser  shall pay all Selling  Expenses,  as defined  herein,  and other
expenses that are not Registration  Expenses relating to the Common Stock resold
by such Purchaser.  "Registration Expenses" shall mean all expenses,  except for
Selling  Expenses,  incurred by the Company in complying  with the  registration
provisions herein described,  including  without  limitation,  all registration,
qualification  and filing  fees  (including  all  Commission  and Nasdaq  fees),
printing  expenses,  escrow  fees,  fees and  disbursements  of counsel  for the
Company and for any underwriter (unless paid by such underwriter), blue sky fees
and expenses,  the expense of any special audits  incident to or required by any
such registration and the fees, not to exceed $20,000,  and disbursements of one
counsel to all selling  Purchasers.  "Selling  Expenses" shall mean only selling
commissions, underwriting fees and stock transfer taxes applicable to the Common
Stock sold by each Purchaser and all fees and  disbursements  of counsel for any
Purchaser in excess of $20,000 for the one counsel to all selling Purchasers.

         (c) In the case of the registration effected by the Company pursuant to
these registration provisions, the Company will use its best efforts to:

                  (i)......keep such registration  statement on Form S-1 or Form
S-3  effective  until the earlier of (A) the second  anniversary  of the date on
which the Registration  Statement first becomes effective,  (B) such date as all
of the Common Stock  (constituting  Conversion Shares and Shares of Common Stock
issuable  upon exercise of the Warrants) has been resold or (C) such time as all
of the Conversion Shares and Warrant Shares can be sold within a given three (3)
month  period  without  compliance  with the  registration  requirements  of the
Securities Act pursuant to Rule 144;

                  (ii).....prepare  and file with the Commission such amendments
and  supplements  to the  Registration  Statement  and  the  prospectus  used in
connection  therewith as may be necessary to comply with the  provisions  of the
Securities Act with respect to the disposition of all securities  covered by the
Registration Statement;

                  (iii)....furnish   such  number  of  prospectuses   and  other
documents  incident  thereto,  including  any  amendment of or supplement to the
prospectus, as a Purchaser from time to time may reasonably request;

                  (iv).....cause all Common Stock registered as described herein
to be listed on each securities exchange and quoted on each quotation service on
which the Equity Securities of the Company are then listed or quoted;

                  (v)......provide a transfer agent and registrar for all Common
Stock registered  pursuant to the Registration  Statement and a CUSIP number for
all such Common Stock;

                  (vi).....otherwise use its best efforts promptly to comply
with all applicable rules and regulations of the Commission;

                  (vii)....file  the  documents  required  of  the  Company  and
otherwise use its best efforts to promptly obtain,  if applicable,  and maintain
requisite  blue sky  clearance  in (A) all  jurisdictions  in  which  any of the
Acquired  Securities are originally  sold, and (B) all other states specified in
writing by a  Purchaser;  provided,  however,  as to Clause (B) that the Company
shall not be required to qualify to do business or consent to service of process
in any state in which it is not now so qualified or has not so consented;

                  (viii)...with   respect   to  the   initial   filing   of  the
Registration Statement as of the date of declaration of effectiveness, obtain an
opinion of counsel to the Company in customary form and reasonably acceptable to
each  Purchaser  addressed  to each  Purchaser  selling  registrable  securities
pursuant to the Registration  Statement.  The Company shall use its best efforts
to qualify for use of Form S-1 or Form S-3 under the  Securities Act to register
the resale of the Common Stock issuable upon the conversion of the Shares and to
maintain such  qualification  during the periods  described in subsection (c)(i)
hereof; and

                  (ix) in the event that the Common Stock is de-listed  from the
Nasdaq SmallCap Market,  then the Company will, at such time as the Common Stock
(including  Conversion Shares and Warrant Shares) again qualifies for listing on
the Nasdaq SmallCap Market, cause the Common Stock to be so listed.

         (d)  The  Company  shall  furnish  to each  Purchaser  upon  request  a
reasonable  number  of  copies  of a  supplement  to or  an  amendment  of  such
prospectus as may be necessary in order to  facilitate  the public sale or other
disposition of all or any of the Common Stock held by the Purchaser.

         (e) With a view to making  available to the  Purchasers the benefits of
Rule 144 and any other rule or regulation of the Commission that may at any time
permit a Purchaser to sell Common Stock to the public  without  registration  or
pursuant to registration, the Company covenants and agrees to: (i) make and keep
public information available,  as those terms are understood and defined in Rule
144, until the earlier of (A) the second  anniversary of the Closing Date or (B)
such date as all of the Common Stock (constituting  Conversion Shares and Shares
of Common Stock issuable upon exercise of Warrants) shall have been resold; (ii)
file with the  Commission  in a timely  manner all reports  and other  documents
required  of the  Company  under the  Exchange  Act;  and (iii)  furnish  to any
Purchaser upon request,  as long as the Purchaser  owns any Common Stock,  (A) a
written  statement  by the  Company  that it has  complied  with  the  reporting
requirements  of the  Exchange  Act,  (B) a copy of the most  recent  annual  or
quarterly  report  of the  Company,  and (C) such  other  information  as may be
reasonably  requested in order to avail any  Purchaser of any rule or regulation
of the  Commission  that  permits the selling of any such Common  Stock  without
registration.

         (f) The  Company  may,  at any time,  refuse to permit a  Purchaser  to
resell  any Common  Stock  pursuant  to the  Registration  Statement;  provided,
however,  that in order to exercise  this right at any time the Company does not
qualify for either Form S-1 or Form S-3, the Company must deliver a  certificate
in writing to the Purchasers to the effect that suspension of the sale of shares
under the  Registration  Statement,  until such time as the  Company can make an
appropriate filing with the Commission,  is necessary because a sale pursuant to
the  Registration  Statement,  in its  then-current  form,  could  constitute  a
violation  of the federal  securities  laws.  In such an event,  each  Purchaser
agrees to  immediately  suspend any sale of Common Stock under the  Registration
Statement,  and the Company shall use its best efforts to amend the Registration
Statement if necessary and take all other  actions  necessary to allow such sale
under the federal  securities  laws,  and shall notify the  Purchasers  promptly
after it has determined that such sale has become  permissible under the federal
securities laws.  Notwithstanding the foregoing, the Company shall not under any
circumstances  be  entitled  to  exercise  its right to suspend  sales under the
Registration  Statement  more than two (2) times in any twelve (12) month period
and the period during which such  Registration  Statement may be withdrawn shall
not exceed  thirty  (30) days or sixty (60) days if the  Company  has  suspended
sales of the  Common  Stock to permit  the  Company  to  negotiate  a  strategic
acquisition, disposition, merger or other significant transaction.

         (g) The Purchasers agree not to sell or otherwise transfer any Acquired
Securities  covered  by the  Registration  Statement  until the  earlier  of (i)
September 11, 2001,  and (ii) the date that is four (4) months after the date on
which such Registration Statement became effective;  provided, however, that the
Purchasers shall remain free from time to time to transfer  Acquired  Securities
to or among their Affiliates  (including  without limitation the Tudor Entities)
and otherwise in sales exempt from registration.

         7.18     Indemnification and Contribution.

         (a) The Company  agrees to indemnify and hold  harmless each  Purchaser
and its Affiliates from and against any losses,  claims,  damages or liabilities
(or  actions or  proceedings  in respect  thereof) to which such  Purchaser  may
become subject (under the  Securities  Act, state law,  common law or otherwise)
insofar  as  such  losses,   claims,  damages  or  liabilities  (or  actions  or
proceedings  in respect  thereof)  arise out of, or are based  upon,  any untrue
statement of a material fact  contained in, or omission of a material fact from,
the  Registration  Statement,  or arise out of any  failure  by the  Company  to
fulfill  any  undertaking  included  in  the  Registration   Statement  or  this
Agreement,  and the Company will, as incurred,  reimburse such Purchaser for any
legal or other  expenses  reasonably  incurred in  investigating,  defending  or
preparing to defend any such action, proceeding or claim; provided however, that
the  Company  shall not be liable in any such case (i) to the  extent  that such
loss,  claim,  damage or  liability  arises out of, or is based upon,  an untrue
statement made in such Registration Statement in reliance upon and in conformity
with  information  furnished  to the  Company in writing by or on behalf of such
Purchaser  specifically for use in preparation of the Registration  Statement or
(ii) to any  particular  Purchaser or its  Affiliate to the extent that any such
claim,  loss,  damage or  liability  arises  out of or is based  upon any untrue
statement or alleged  untrue  statement or omission or alleged  omission made in
any final, preliminary or summary prospectus if such untrue statement or alleged
untrue statement or omission or alleged  omission is completely  corrected in an
amendment or supplement to such  prospectus  provided to, and which the relevant
Purchaser or its Affiliates  fails to deliver prior to or concurrently  with the
sales of the Common Stock to the person or entity  asserting  such claim,  loss,
damage or liability.  The Company will reimburse the Purchasers for any legal or
other expenses reasonably incurred and documented in investigating, defending or
preparing to defend any such action,  proceeding  or claim  notwithstanding  the
absence of a judicial  determination as to the propriety and  enforceability  of
the obligations  under this section and the possibility that such payments might
later be held to be improper,  provided,  that to the extent any such payment is
ultimately  held to be  improper,  the persons  receiving  such  payments  shall
promptly refund them.

         (b) Each Purchaser,  severally and not jointly, agrees to indemnify and
hold  harmless  the  Company  and its  Affiliates  from and  against any losses,
claims, damages or liabilities (or actions or proceedings in respect thereof) to
which the Company or its  Affiliates  may become  subject  (under the Securities
Act, state law, common law or otherwise) insofar as such losses, claims, damages
or liabilities  (or actions or proceedings in respect  thereof) arise out of, or
are based upon, an untrue  statement made in or omission of a material fact from
such Registration  Statement in reliance upon and in conformity with information
furnished  to  the  Company  in  writing  by  or on  behalf  of  such  Purchaser
specifically  for use in preparation of the  Registration  Statement;  provided,
however,  that no  Purchaser  shall be liable  in any such  case for any  untrue
statement  included in or any omission of a material fact from any  Registration
Statement which statement has been corrected,  in writing, by such Purchaser and
delivered to the Company before the sale from which such loss occurred and in no
event shall any Purchaser be liable for any amount in excess of the net proceeds
received  for the  sale  of its  Common  Stock  pursuant  to  such  Registration
Statement.

         (c) Promptly after receipt by any  indemnified  person of a notice of a
claim or the  beginning  of any action in respect  of which  indemnity  is to be
sought  against an  indemnifying  person  pursuant to this  Section  7.18,  such
indemnified person shall notify the indemnifying person in writing of such claim
or  of  the  commencement  of  such  action,  and,  subject  to  the  provisions
hereinafter  stated,  in case  any  such  action  shall be  brought  against  an
indemnified person and the indemnifying person shall have been notified thereof,
the indemnifying  person shall be entitled to participate  therein,  and, to the
extent  that it  shall  wish,  to  assume  the  defense  thereof,  with  counsel
reasonably  satisfactory  to the  indemnified  person.  After  notice  from  the
indemnifying  person to such  indemnified  person of the  indemnifying  person's
election to assume the defense  thereof,  the  indemnifying  person shall not be
liable to such indemnified person for any legal expenses  subsequently  incurred
by such  indemnified  person in connection with the defense  thereof;  provided,
however,  that if there exists or shall exist a conflict of interest  that would
make it inappropriate in the reasonable  judgment of the indemnified  person for
the same counsel to represent both the indemnified  person and such indemnifying
person or any affiliate or associate  thereof,  the indemnified  person shall be
entitled to retain its own counsel at the expense of such  indemnifying  person.
No indemnifying  person, in the defense of any such claim or litigation,  shall,
except  with the  consent of each  indemnified  person,  consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified  person
of a release from all liability in respect to such claim or  litigation.  If the
defense of any claim or resulting  litigation is not assumed by the indemnifying
person,  the  indemnifying  person will not be subject to any  liability for any
settlement  made without its consent,  but such consent may not be  unreasonably
withheld;  provided that an indemnifying person shall not be deemed unreasonable
in withholding  consent to any settlement  involving the imposition of equitable
remedies  or  involving  the  imposition  of any  material  obligations  on such
indemnifying person other than financial  obligations for which such indemnified
person will be indemnified hereunder.

         (d)  If the  indemnification  provided  for in  this  Section  7.18  is
unavailable  to or  insufficient  to hold  harmless an  indemnified  party under
subsection  (a) or (b)  hereof in  respect  of any  losses,  claims,  damages or
liabilities (or actions or proceedings in respect thereof)  referred to therein,
then each  indemnifying  party shall contribute to the amount paid or payable by
such  indemnified  party  as  a  result  of  such  losses,  claims,  damages  or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative  fault of the Company on the one hand and the Purchasers
on the other in connection  with the  statements or omissions  which resulted in
such losses,  claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference  to, among other  things,  whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to  information  supplied by the Company on the one hand
or a Purchaser on the other and the parties' relative intent, knowledge,  access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Purchasers  agree that it would not be just and equitable if
contribution  pursuant  to this  subsection  (d)  were  determined  by pro  rata
allocation  (even if the Purchasers were treated as one entity for such purpose)
or by any  other  method  of  allocation  which  does  not take  account  of the
equitable  considerations  referred to above in this  subsection (d). The amount
paid or  payable  by an  indemnified  party as a result of the  losses,  claims,
damages,  or liabilities  (or actions in respect  thereof)  referred to above in
this  subsection  (d)  shall be deemed to  include  any legal or other  expenses
reasonably  incurred by such indemnified party in connection with  investigating
or defending any such action or claim.  Notwithstanding  the  provisions of this
subsection  (d), no  Purchaser  shall be required  to  contribute  any amount in
excess of the amount, if any, by which the amount received by the Purchaser from
the sale of the Common  Stock to which such loss  relates  exceeds the amount of
any damages which such Purchaser has otherwise been required to pay by reason of
such untrue or alleged  untrue  statement  or omission or alleged  omission.  No
person  guilty of  fraudulent  misrepresentation  (within the meaning of Section
11(f) of the Securities Act) shall be entitled to  contribution  from any person
who was  not  guilty  of  such  fraudulent  misrepresentation.  The  Purchasers'
obligations  in this  subsection  (d) to contribute are several in proportion to
their respective sales of Common Stock.

         7.19     "Market Stand-Off" Agreement.

         If at the time of any  underwritten  offering a Purchaser  has not sold
all the Acquired Securities owned by it pursuant to the Registration  Statement,
each such  Purchaser  agrees,  if requested by the managing  underwriter  of any
public  offering of the Common  Stock,  to enter into an  agreement  pursuant to
which such Purchaser agrees not to sell or otherwise  transfer or dispose of any
Common  Stock (or other  securities)  of the Company  held by it during a period
specified  by such  underwriter,  not to exceed one  hundred  eighty  (180) days
following the effective date of the registration  statement of the Company filed
under the Securities Act in connection with any underwritten offering;  provided
that all shareholders  having registration rights and all officers and directors
of the Company enter into similar agreements.

         Such  agreement  shall  be in  writing  in a form  satisfactory  to the
Company and such underwriter.  The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing  restriction
until the end of such period and shall  remove such  stop-transfer  instructions
effective immediately upon the expiration of such period.

SECTION 8

Negative Covenants

         The Company and Subsidiary jointly and severally agree, for the benefit
of any Purchaser who meets the  Ownership  Threshold,  that so long as less than
seventy-five  percent  (75%) of the  shares  of  Series C  Preferred  have  been
converted  into Common Stock each of the Company,  Subsidiary  and each of their
other  subsidiaries  (unless the context otherwise  requires) will not after the
date  hereof do (i) any of the  following  set forth in Section  8.1 through 8.9
unless  the  holders  of a  majority  of such  outstanding  shares  of  Series C
Preferred held by holders who continue to meet the Ownership  Threshold  approve
or consent in writing or (ii) any of the  following  set forth in Sections  8.10
through 8.21 without the approval of a majority of the Board:

         8.1      Sale/Purchase of Assets; Merger.

                  (a)......Sell or otherwise dispose of the capital stock of the
Company,  Subsidiary  or any other  subsidiaries  or a  substantial  part of the
Company's  assets or business or of all or a  substantial  part of the assets or
business  of  Subsidiary  or any Other  Subsidiary  (whether  by sale of assets,
exclusive license or otherwise);

                  (b)......Purchase  or otherwise  acquire all or  substantially
all of the  capital  stock of any  corporation  or equity  interest in any other
entity or lend money to any person or entity,  or purchase a substantial part of
the operating  assets of any person or entity for a purchase  price in excess of
the lower of (i) $5,000,000,  and (ii) twenty percent (20%) of the Company's and
Subsidiary's  consolidated  net  revenues  for  the  twelve  (12)  month  period
immediately preceding such purchase; or

                  (c)......Consolidate  with or  merge  into or with  any  other
person or entity or permit  any other  person or entity to  consolidate  with or
merge into it (except  that  Subsidiary  may merge into the  Company,  and a one
hundred  percent  (100%) Other  Subsidiary  may  consolidate  with or merge into
Subsidiary  or the  Company or into  another one hundred  percent  (100%)  Other
Subsidiary);  provided  that the  foregoing  restriction  does not  apply to the
merger of another corporation into the Company or Subsidiary, if:

                  (i)......either  (x) in the case of a merger into the Company,
the Company is the  surviving  corporation  and more than fifty percent (50%) of
the  outstanding  common stock of the surviving  corporation is owned by persons
who prior to such merger owned  Common Stock of the Company;  or (y) in the case
of a merger into Subsidiary,  Subsidiary is the surviving corporation, remains a
one hundred percent (100%) subsidiary of the Company and more than fifty percent
(50%) of the  outstanding  Common Stock of the Company after the merger is owned
by persons who prior to such merger owned Common Stock of the Company; and

                   (ii)  after  giving   effect  to  the   proposed   merger  or
 consolidation  the surviving  corporation will be engaged in substantially  the
 same lines of business; and

                   (iii)  immediately after the consummation of the transaction,
 and  after  giving  effect  thereto,  no  default  under  this  Agreement,  the
 Certificate or any other Financing Document would exist.

         8.2      Future Registration Rights.

         Except as set  forth in the  Shareholders'  and  Rights  Agreement  and
except  for an  underwriting  agreement  between  the  Company  and  one or more
professional underwriters of securities, the Company shall not agree to register
any Equity  Securities  under the  Securities  Act that will  provide such other
Equity  Securities  with  registration  rights  which  are  preferential  to  or
inconsistent with those granted to Purchasers under this Agreement.

         8.3      Changes in Type of Business.

         Make any  substantial  change in the  character  of its  business.  Any
business activities related to repetitive locking techniques or the distribution
of electronic  content will not constitute a substantial change in the character
of its business.

         8.4      Dividends and Distributions.

         Directly  or  indirectly  declare  or pay any  dividends  or  make  any
distributions  upon any of its Equity  Securities  other  than (i) the  dividend
amount set forth in the  Certificate  of  Designation  of the Series A Preferred
Stock  payable on the Series A Preferred  Stock,  (ii) the  dividend  amount set
forth in the  Certificate of Designation of the Series C Preferred Stock payable
on the Series C Preferred  Stock and (iii)  dividends and  distributions  on the
Series  A  Preferred  Stock,  the  Series B  Preferred  Stock  and the  Series C
Preferred  made,  together  as a  single  class  for this  purpose,  pro rata in
proportion  to the number of shares of Common Stock then  issuable on conversion
of the  Series A  Preferred  Stock,  the Series B  Preferred  Stock and Series C
Preferred.

         8.5      Purchase of Equity Securities.

         Directly or indirectly redeem,  purchase or otherwise  acquire,  any of
the Company's,  Subsidiary's or any Other Subsidiary's  Equity Securities except
(i) as permitted by this Agreement,  the Shareholders' and Rights Agreement, and
the  Certificate,  (ii) as required by the  Certificates  of Designations of the
Series A Preferred Stock or Series B Preferred Stock, or (iii) from any employee
upon termination of employment, but subject to Board approval.

         8.6      Conflicting Agreements.

         Become subject to any agreement or instrument, which by its terms would
(under any  circumstances)  restrict the  Company's,  Subsidiary's  or any Other
Subsidiary's  right to perform any of its  obligations  pursuant to the terms of
this  Agreement or any  agreement  contemplated  hereby,  the  Certificate,  the
Financing  Documents,  or the Company's By-laws (including,  without limitation,
all  obligations  relating to payment of dividends on and making  redemptions of
the Series C Preferred and conversions of the Series C Preferred).

         8.7      Amendment of Charter Documents.

         Except as  contemplated  by this  Agreement,  make any amendment to the
By-laws  that has not been  approved by action of the Board or any  amendment to
the  Company's,   Subsidiary's   or  any  Other   Subsidiary's   Certificate  of
Incorporation,  including but not limited to the  Certificate  of Designation of
the Series C Preferred Stock.

         8.8      Related Party Transactions.

         Enter into any transaction with any Related Party or Affiliate,  except
as otherwise expressly  contemplated by this Agreement or referred to in Section
3.11 hereto.

         8.9      Issuance of Equity Securities.

         Issue,  sell,  grant or award or enter into any  agreement or adopt any
plan to issue,  sell,  grant or award any Equity Security (other than the Shares
issuable at any Subsequent  Closing and the warrants to purchase 1,964 shares of
Series A  Preferred  Stock  granted to SI  Venture  Fund II,  L.P.) with  rights
ranking  senior  or pari  passu to the  Series  C  Preferred  as to  liquidation
preference,  voting rights,  registration rights, dividends or any other matters
or rights.

         8.10     Subsidiaries.

         Establish or acquire (a) any other subsidiaries other than wholly-owned
other subsidiaries or (b) any other subsidiaries organized outside of the United
States and its territorial possessions.

         8.11     Fiscal Year.

         Change its fiscal year.

         8.12     Business Plan.

         Make any material changes in the Plan or the Company's, Subsidiary's or
any Other Subsidiary's  operation of the business;  provided however the Company
may present to the  Shareholders at the next annual meeting a proposal to change
the name of the Corporation.

         8.13     Employee Stock Plans.

         Issue,  sell,  grant or award  any  Equity  Security  or any  option to
acquire any Equity Security to officers,  directors,  employees,  consultants or
advisors to the Company;  provided,  however that this provision shall not limit
the ability of the Board to delegate  authority to issue,  sell,  grant or award
Equity Securities or options to the Compensation Committee.

         8.14     Liens.

         Create,  assume  or  permit,  any Lien  upon any of its  properties  or
assets, whether now owned or hereafter acquired, except (i) Liens existing as of
the date hereof as disclosed in Section 3.14 hereof,  (ii) any Lien on any asset
of a  corporation  existing  at the time  such  corporation  is  merged  into or
consolidated  with the  Company,  Subsidiary  or any  Other  Subsidiary  and not
created in  contemplation  of such event,  (iii) any Lien  existing on any asset
prior  to the  acquisition  thereof  by the  Company,  Subsidiary  or any  Other
Subsidiary and not created in contemplation of such event, (iv) any Lien created
on any real  property or equipment in  connection  with the leasing of such real
property  or  equipment,  (v) Liens  contemplated  by the  Annual  Plan and (vi)
Permitted Liens.

         8.15     Investments.

         Own,  purchase or acquire any stock,  obligations  or securities of, or
any interest in, or make any capital  contribution to, any other Person, or own,
purchase or acquire any property  not used in the usual and  ordinary  course of
business,  except that the Company,  Subsidiary or any Other  Subsidiary may (i)
own,  purchase or acquire  certificates  of deposit in or repurchase  agreements
from United  States  commercial  banks  having  capital  resources  in excess of
$100,000,000  and  obligations  of the United  States  Government  or any agency
thereof and obligations guaranteed by the United States Government,  (ii) invest
in commercial paper rated at least Prime I by Moody's Industrial  Manual,  (iii)
deposit funds in money market accounts in financial  institutions having capital
resources  in excess of  $100,000,000  and (iv)  make  such  investments  as are
approved by a majority of the Board.

         8.16     Purchases and Sales.

         Except as contemplated by the Annual Plan:

         (a) other  than  normal  operating  expenditures  made as a part of the
ordinary  course of business,  purchase,  directly or  indirectly,  any item (or
group of items) of real or  personal  property  which  has a  purchase  price in
excess of $75,000 or enter into any other  transaction with respect to such item
(or group of items) which, under generally accepted accounting  principles is or
should be treated as a purchase or capital expenditure for accounting  purposes;
or

         (b) (i) Pay or provide  annual  salary in excess of  $120,000,  or (ii)
increase the compensation of any person listed in part 3.19(b) of the Disclosure
Schedules and will not compensate any other officer,  director or employee at an
annual salary of $120,000 per year or more.

         8.17     Leases.

         Enter into any leases or other rental agreements (excluding capitalized
leases)  that are not within the scope of an Annual Plan unless  entered into in
the ordinary course of business.

         8.18     Indebtedness.

         Create,  incur, issue, assume,  guarantee or otherwise become or remain
directly or indirectly liable for any Indebtedness other than as contemplated by
the Annual Plan.

         8.19     Loans; Guarantees.

           Make any loan or advance to any person or entity, including,  without
 limitation,  any employee or director of the Company,  Subsidiary  or any Other
 Subsidiary,  except advances for travel and entertainment expenses,  relocation
 costs and similar expenditures

  in the ordinary  course of  business,  as  contemplated  by the Annual Plan or
     under  the  terms  of an  employee  stock  option  plan or  stock  purchase
     agreement approved by the Board, or guarantee,  directly or indirectly, any
     Indebtedness except for trade accounts or

        personal  property  leases  of the  Company,  Subsidiary  or  any  Other
Subsidiary arising in the ordinary course of business.

         8.20     License of Listed Rights or Intellectual Property.

         Not transfer,  assign or license any Proprietary  Information now owned
or hereafter  acquired by it (except for  licenses to Company's or  Subsidiary's
customers in the ordinary course of business).

         8.21     Compliance by Subsidiaries.

         The Company and Subsidiary will cause any Other Subsidiary which either
of them may now have and/or  which either of them may organize or acquire in the
future to comply with all the terms and provisions of this Section 8.

SECTION 9

Definitions

         As used in this  Agreement or in the Financing  Documents,  capitalized
terms shall have the  respective  meanings  set forth in this  Agreement  or set
forth below or in the Section of this Agreement referred to below:

         Acquired Securities means, collectively,  the Shares (including without
limitation Conversion Shares), Warrants and Warrant Shares.

         Affiliate  means any other person  directly or indirectly  controlling,
controlled  by, or under direct or indirect  common control with the Company (or
other referenced person) and includes without limitation,  (a) any person who is
an officer,  director,  or direct or indirect beneficial holder of at least five
percent  (5%) of the then  outstanding  capital  stock of the  Company (or other
referenced  person),  and any of the Family Members of any such person,  (b) any
person of which the Company (or other  referenced  person) and/or its Affiliates
(as defined in clause (a) above),  directly or indirectly,  either  beneficially
own(s) at least five percent (5%) of the then outstanding  Equity  Securities or
constitute(s) at least a five percent (5%) equity  participant,  (c) in the case
of a specified person who is an individual,  Family Members of such person,  and
(d) the case of the  Purchasers,  any entities for which a Purchaser its general
partner,  investment advisor or any person serving in a similar capacity, or any
of its Affiliates  serve as general  partner and/or  investment  adviser or in a
similar capacity,  and all mutual funds,  hedge funds or other pooled investment
vehicles or entities  under the control or management  of such  Purchaser or the
general partner or investment adviser thereof,  or any Affiliate of any of them,
or any Affiliates of any of the foregoing.

                  For purposes  hereof,  Family Members means, as applied to any
                  individual,  any  parent,  spouse,  child,  spouse of a child,
                  brother or sister of the individual sharing the same household
                  as such individual,  and each trust created for the benefit of
                  one or more of such  persons and each  custodian of a property
                  of one or  more  such  persons  and  the  estate  of any  such
                  persons.

         Affiliated  Group has the  meaning  given to it in Section  1504 of the
Code, and in addition includes any analogous combined,  consolidated, or unitary
group, as defined under any applicable state, local, or foreign income tax law.

         Annual Plan shall have the meaning ascribed to it in Section 7.2 hereof


          Balance  Sheet  shall have the  meaning  ascribed to it in Section 3.7
hereof.

         Board shall mean the entire  Board of  Directors  of the Company or the
Subsidiary as applicable.

         Certificate  shall  mean the  Certificate  of  Designation  of  Powers,
Preferences and Rights of Series C Preferred Stock.

         Closing  Date  shall have the  meaning  ascribed  to it in Section  2.1
hereof.

         Code shall have the meaning ascribed to it in Section 3.28 hereof.

         Commission  shall mean the Securities and Exchange  Commission.  Common
         Stock  means the  Common  Stock,  par value  $0.01  per  share,  of the
         Company.

         Conversion  Shares  shall mean at any time,  shares of Common Stock (a)
issued  and then  outstanding  upon the  conversion  of the  Series C  Preferred
(including  without  limitation Shares of Series C Preferred Stock issuable upon
exercise of Warrants issued pursuant to this  Agreement),  (b) issuable upon the
conversion  of the Series C Preferred,  and (c) issued and then  outstanding  or
issuable  in  respect  of the  Common  Stock  referred  to in clause (a) of this
definition  upon any stock  dividend,  stock split,  combination  or division of
shares,    recapitalization,     reclassification,     merger,    consolidation,
reorganization, or the like.

         Damages means all damages, losses, claims, demands,  actions, causes of
action,  suits,  litigations,  arbitrations,  liabilities,  costs, and expenses,
including  without  limitation  court costs and the fees and expenses of counsel
and experts.

         Derivative   Securities  means  (a)  all  shares  of  stock  and  other
securities that are convertible into or exchangeable for shares of Common Stock,
and (b) all  options,  warrants,  and other  rights to acquire  shares of Common
Stock or any class of stock or other security or securities  convertible into or
exchangeable for shares of Common Stock or any class of stock or other security.

         Environmental Claim shall mean any and all  administrative,  regulatory
or judicial actions, suits, demands, demand letters, directives,  claims, liens,
investigations,  proceedings  or notices of compliance or violation  (written or
oral) by any person or entity  (including any governmental  authority)  alleging
potential  liability  (including,  without  limitation,  potential liability for
enforcement,  investigatory costs, cleanup costs,  governmental  response costs,
removal costs,  remedial costs,  natural  resources  damages,  property damages,
personal injuries,  or penalties) arising out of, based on or resulting from (a)
the presence,  or Release or  threatened  Release into the  environment,  of any
Hazardous Material at any location,  whether owned, operated,  leased or managed
by the Company, Subsidiary or any Other Subsidiary; or (b) circumstances forming
the basis of any violation,  or alleged violation,  of any Environmental Law; or
(c) any  and all  claims  by any  third  party  seeking  damages,  contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
the presence or Release of any Hazardous Materials.

         Environmental  Laws  shall  mean all  laws or  orders  relating  to the
regulation or protection of human health, safety or the environment  (including,
without limitation,  ambient air, soil, surface water,  ground water,  wetlands,
land or subsurface strata), including,  without limitation, laws and regulations
relating to Releases or threatened Releases of Hazardous Materials, or otherwise
relating to the manufacture,  processing, distribution, use, treatment, storage,
disposal, transport, recycling or handling of Hazardous Materials.

          Environmental Permits shall have the meaning ascribed to it in Section
3.22 hereof.

         Equity Securities shall mean any stock or similar  security,  including
without  limitation   securities   containing  equity  features  and  securities
containing  profit  participation  features,  or  any  security  convertible  or
exchangeable, with or without consideration, into any stock or similar security,
or any  security  carrying  any warrant or right to subscribe to or purchase any
stock or similar security, or any such warrant or right.

         ERISA shall have the meaning ascribed to it in Section 3.22 hereof.

         Exchange  Act  shall  mean the  Securities  Exchange  Act of  1934,  as
amended.

         Financing  Documents  shall mean,  collectively,  this  Agreement,  the
Certificate, the Shareholders' and Rights Agreement, and all other documents set
forth in any other schedules or exhibits hereto under which,  upon its execution
thereof,  the Company,  Subsidiary,  any Other  Subsidiary  or any Related Party
shall have an obligation to any Purchaser,  all in the respective  forms thereof
as executed and as amended from time to time.

         Financial  Statements  shall have the meaning ascribed to it in Section
3.7 hereof.

         First  Closing  shall  have the  meaning  ascribed  to it in  Section 2
hereof.

         GAAP  means  generally  accepted  accounting  principles  that  are (a)
consistent  with  the  principles   promulgated  or  adopted  by  the  Financial
Accounting  Standards  Board  and  its  predecessors,  (b)  applied  on a  basis
consistent  with  prior  periods,  and  (c)  such  that,  insofar  as the use of
accounting principles is pertinent,  a certified public accountant could deliver
an  unqualified  opinion  with  respect to  financial  statements  in which such
principles have been properly applied.

         Hazardous Materials shall mean (a) any petroleum or petroleum products,
radioactive  materials,  asbestos in any form that is or could  become  friable,
above ground or underground  storage tanks and  compressors  or other  equipment
that  contain  polychlorinated   biphenyls  ("ECBs");  and  (b)  any  chemicals,
materials or substances  which are now defined as or included in the  definition
of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes,"  "restricted  hazardous wastes," "toxic  substances,"  "toxic
pollutants," "pollutants,"  "contaminants" or words of similar import, under any
Environmental  Law; and (c) any other  chemical,  material,  substance or waste,
exposure  to  which  is  now   prohibited,   limited  or  regulated   under  any
Environmental Law.

         Indebtedness  means,  with  respect to the Company,  Subsidiary  or any
Other  Subsidiary (a) all  indebtedness  for borrowed money,  whether current or
long-term,  or secured  or  unsecured,  (b) all  indebtedness  for the  deferred
purchase  price  of  property  or  services  represented  by a note or  security
agreement, (c) all indebtedness created or arising under any conditional sale or
other title  retention  agreement  (even  though the rights and  remedies of the
seller or lender under such  agreement in the event of default may be limited to
repossession  or sale of such  property),  (d)  all  indebtedness  secured  by a
purchase  money  mortgage  or other lien to secure  all or part of the  purchase
price of property  subject to such mortgage or lien, (e) all  obligations  under
leases that have been or must be, in accordance  with GAAP,  recorded as capital
leases in respect of which it is liable as lessee,  (f) any liability in respect
of banker's  acceptances or letters of credit,  and (g) all  indebtedness of any
person  that  is  directly  or  indirectly  guaranteed  by  the  Company  or the
Subsidiary  or that it has agreed  (contingently  or  otherwise)  to purchase or
otherwise  acquire or in respect  of which it has  otherwise  assured a creditor
against  loss.  Any  obligation  secured  by a Lien on,  or  payable  out of the
proceeds of or production from, property of the Company, Subsidiary or any Other
Subsidiary shall be deemed to be Indebtedness even though such obligation is not
assumed by the Company, Subsidiary or Other Subsidiary.

         Lien(s) means any and all liens, claims, mortgages, security interests,
charges,  encumbrances, and restrictions on transfer of any kind, except: (a) in
the case of  references to  securities,  any of the same arising (i) pursuant to
the Financing  Documents,  or (ii) under  applicable  securities  laws solely by
reason of the fact that such  securities were issued pursuant to exemptions from
registration  under such securities  laws, (b) real estate taxes not yet due and
payable,  (c) any lien in favor of any  landlord  or  lessor  for  unpaid  rent,
additional rent, or other charges, which lien is created by statute or under any
lease under which the Company is lessee and (d) Permitted Liens.

         Material  Adverse  Effect means,  with  reference to the Company or the
Subsidiary, a material adverse effect on the condition (financial or otherwise),
operations,  business, assets, or prospects of the Company or the Subsidiary, or
on its ability to consummate the transactions hereby contemplated.

         Other  Subsidiary  shall  mean  any  corporation,   partnership,  joint
venture,  association or other  business  entity at least fifty percent (50%) of
the  outstanding  equity  interests of which is at the time owned or controlled,
directly  or  indirectly,  by  the  Company  (other  than  with  respect  to the
Subsidiary),  or by  Subsidiary,  or by one or  more of  such  Other  Subsidiary
entities or both.

         Opinion of  Counsel  shall have the  meaning  set forth in Section  5.4
hereof.

         Ownership  Threshold  shall  have the  meaning  set  forth in the first
paragraph of Section 7.

         Permitted  Liens  shall  mean (a) Liens for  taxes and  assessments  or
governmental  charges  or levies  not at the time due or in respect of which the
validity  thereof  shall  currently be  contested  in good faith by  appropriate
proceedings  conducted  with due  diligence  and for the  payment  of which  the
Company,  Subsidiary or Other Subsidiary has furnished  adequate  security;  (b)
Liens in respect of pledges or  deposits  under  workers'  compensation  laws or
similar  legislation,  carriers',  warehousemen's,   mechanics',  laborers'  and
materialmen's  and similar liens, if the  obligations  secured by such Liens are
not  then  delinquent  or are  being  contested  in good  faith  by  appropriate
proceedings  conducted  with due  diligence  and for the  payment  of which  the
Company, Subsidiary or Other Subsidiary has furnished adequate security; and (c)
statutory  Liens  incidental  to the  conduct of the  business  of the  Company,
Subsidiary or any Other  Subsidiary,  which were not incurred in connection with
the  borrowing of money or the obtaining of advances or credits and which do not
in the aggregate materially detract from the value of its property or materially
impair the use thereof in the operation of its business;  and (d) purchase money
liens or security  interests  securing the cost of acquisition of assets subject
to such liens or security interests.

         Person  shall  include  all  natural  persons,  corporations,  business
trusts, associations, companies, partnerships, joint ventures and other entities
and governments, agencies and political subdivisions.

         Plan shall have the meaning ascribed to it in Section 3.1 hereof.

         Proprietary  Information  shall have the  meaning  ascribed  thereto in
Section 3.16 hereof.

         Proprietary Information Agreement shall have the meaning ascribed to it
in Section 3.19 and Section 7.10 hereof.

         Qualified  Public Offering shall mean an  underwritten  public offering
pursuant  to an  effective  registration  statement  under  the  Securities  Act
covering  the  offering and sale of Common Stock for the account of the Company,
on a firm  commitment  basis,  yielding  aggregate  proceeds  to the  Company of
$20,000,000  at a public  offering  price  that is at least  $7.64  per share of
Common Stock (as adjusted for stock splits, including  recapitalizations and the
like).

         RAM shall mean RAM Trading, Ltd.

         Raptor shall mean the Raptor Global Portfolio.

         Registration  Expenses  shall  have the  meaning  ascribed  thereto  in
Section 7.17 hereof.

         Registration  Statement  shall  have the  meaning  ascribed  thereto in
Section 7.17 hereof.

         Related Party shall mean any officer, director,  employee or consultant
of the Company,  Subsidiary  or Other  Subsidiary  or any holder of five percent
(5%) or more of any class of capital  stock of the Company,  Subsidiary or Other
Subsidiary or any member of the immediate family of any such officer,  director,
employee,  consultant  or  shareholder  or any  Person  controlled  by any  such
officer,  director,  employee,  consultant  or  shareholder  or a member  of the
immediate  family  of  any  such  officer,  director,  employee,  consultant  or
shareholder.

         Release shall mean any release,  spill, emission,  leaking,  injection,
deposit,  disposal,  discharge,   dispersal,  leaching  or  migration  into  the
atmosphere, soil, surface water, ground water or property.

         Securities  Act shall  have the  meaning  ascribed  thereto  in Section
3.4(c).

         Selling  Expenses  shall have the meaning  ascribed  thereto in Section
7.17 hereof.

         Series C Preferred shall have the meaning ascribed to it in Section 1.1
hereof.

         Shareholders'  and Rights  Agreement shall have the meaning ascribed to
it in Section 5.10 hereof.

         Shares shall have the meaning ascribed to it in Section 1.1 hereof.

         Statement of Accredited  Investor shall have the meaning ascribed to it
in Section 4.4 hereof.

         Subsidiary shall mean SoftLock Services, Inc.

         Warrant(s)  shall have the  meaning  ascribed  thereto in Section  5.11
hereof.

         Warrant Shares means,  at any time,  shares of Series C Preferred Stock
or Common Stock as the case may be (a) issued and then outstanding upon exercise
of the Warrants,  and (b) issued and  outstanding  or issuable in respect of the
Common  Stock  referred  to in  clause  (a) of this  definition  upon any  stock
dividend,  stock  split,  combination  or division of shares,  recapitalization,
reclassification, merger, consolidation, reorganization, or the like.

SECTION 10

Miscellaneous

         10.1     Governing Law.

         This  Agreement  shall be governed  by, and  construed  and enforced in
accordance  with,  the  laws of the  Commonwealth  of  Massachusetts;  provided,
however,   that  matters  related  to  the  construction,   interpretation   and
enforcement of the  Certificate of  Incorporation  (including but not limited to
any certificates of designation of preferred stock),  By-laws and other internal
corporate documents of the Company,  Subsidiary or any Other Subsidiary shall be
governed by the Delaware  General  Corporation  Law. The parties  agree that any
legal or equitable suit, action or proceeding  arising out of this Agreement may
be instituted and  prosecuted in any state or federal court in the  Commonwealth
of Massachusetts and for the purposes of this Agreement,  irrevocably  submit to
the jurisdiction of any such court in any such suit, action or proceeding.

         10.2     Survival.

         The representations,  warranties,  covenants and agreements made herein
shall  survive any  investigation  made by any  Purchaser  and shall survive the
Closing.

         10.3     Successors and Assigns.

         Except as otherwise  expressly  provided herein,  the provisions hereof
shall inure to the benefit of, and be binding  upon,  the  successors,  assigns,
transferees,   heirs,  executors  and  administrators  of  the  parties  hereto;
provided,  however,  that the Company Subsidiary,  if added to Agreement may not
assign its rights  hereunder.  Without limiting the generality of the foregoing,
all  representations,  covenants and agreements  benefiting the Purchasers shall
inure to the benefit of any and all subsequent  holders from time to time of the
Shares.  Notwithstanding  any other provision of this Agreement,  this Agreement
and the rights and  obligations  hereunder  and the Acquired  Securities  may be
transferred by each of the  Purchasers in their sole  discretion at any time, in
whole or in part,  including  without  limitation  transfers  to  Affiliates  or
Affiliated  Groups of the  transferor,  without  the  consent of any other party
hereto; provided that such transferees agree in writing with the Company and the
Subsidiary to be bound by all of the provisions contained herein.

          10.4    Entire Agreement; Amendment.

         (a) This Agreement  (including  the Schedules and Exhibits  hereto) and
the other documents  (including each of the other Financing Documents) delivered
pursuant  hereto  constitute  the full and entire  understanding  and  agreement
between  the  parties   with  regard  to  the   subjects   hereof  and  thereof.
Notwithstanding  anything to the contrary contained herein, nothing contained in
this Agreement  shall be deemed to modify or limit any of the rights pursuant to
the Series B Purchase Agreement.  Except as otherwise expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated, except by a written instrument signed by the Company and the holders
of two-thirds  (2/3) or more of the shares of Series C Preferred  which have not
been converted to Common Stock,  but in no event shall this paragraph be amended
or the obligation of any Purchaser hereunder increased,  except upon the written
consent of such  Purchaser;  provided  however  that the  Company may amend this
Agreement for the sole purpose of adding  Purchasers hereto pursuant to sales in
accordance with Section 2.3 hereof without the Consent of the Purchasers.

         (b)  For  purposes  of  determining  whether  a  Purchaser  has met the
Ownership Threshold, a Purchaser shall be deemed to hold the number of shares of
Series C Preferred owned by such Purchaser and any of its Affiliates.

         (c) For purposes of determining  whether, for any provision hereof, the
number of shares of Common Stock,  Warrant Shares,  Conversion  Shares or Shares
held by a Tudor Entity is  sufficient to meet a required  threshold,  such Tudor
Entity  shall be  deemed  to hold the  number  of  Shares,  Warrant  Shares,  or
Conversion  Shares, as the case may be, held by such Tudor Entity and any of its
Affiliates  and  other  Tudor  Entities;  provided,  however,  for  purposes  of
determining whether a Tudor Entity has met the Ownership  Threshold,  such Tudor
Entity  shall be deemed to hold only the number of shares of Series C  Preferred
(without including in such calculation any Warrants,  Warrant Shares, Conversion
Shares  or  other  Common  Stock)  held  by  such  Tudor  Entity  and any of its
Affiliates and other Tudor Entities.

          10.5    Notices, etc.

         (a)  All  notices  and  other  communications   required  or  permitted
hereunder shall be in writing and shall be mailed by first-class,  registered or
certified mail, postage prepaid, or delivered either by hand, overnight delivery
service, or by messenger, or sent via telex, telecopier,  computer mail or other
electronic means,  addressed (i) if to a Purchaser,  at the address shown on the
Schedule of Purchasers,  or at such other address as such  Purchaser  shall have
furnished  to the  Company  in  writing,  or (ii) if to any other  holder of any
Acquired Securities,  at such address as such holder shall have furnished to the
Company in writing,  or,  until any such holder so  furnishes  an address to the
Company,  then to and at the  address  of the  last  holder  thereof  who has so
furnished an address to the Company,  or (iii) if to the Company or  Subsidiary,
Five Clock Tower Place,  Suite 440,  Maynard,  Massachusetts  01754,  or at such
other address as the Company  shall have  furnished to the  Purchasers  and each
such other holder in writing.

          (b) Any  notice  or other  communications  so  addressed  and  mailed,
postage  prepaid,  by  registered or certified  mail (in each case,  with return
receipt  requested)  shall be deemed to be given when so  mailed.  Any notice so
addressed  and  otherwise  delivered  shall be deemed to be given when  actually
received by the addressee.

         10.6     Delays or Omissions.

         No delay or omission to exercise any right, power or remedy accruing to
any holder of  Acquired  Securities,  upon any breach or default of the  Company
and/or  Subsidiary under this Agreement,  shall impair any such right,  power or
remedy  of such  holder  nor  shall it be  construed  to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default  thereafter  occurring;  nor shall any  waiver of any  single  breach or
default  be deemed a waiver  of any  other  breach  or  default  theretofore  or
thereafter  occurring.  Any waiver,  permit,  consent or approval of any kind or
character  on the  part of any  holder  of any  breach  or  default  under  this
Agreement,  or any  waiver  on the  part  of any  holder  of any  provisions  or
conditions of this Agreement must be made in writing and shall be effective only
to the  extent  specifically  set forth in such  writing.  No course of  dealing
between the Company and/or  Subsidiary and any of the Purchasers will operate as
a waiver of any of the Company's,  the  Subsidiary's or any  Purchaser's  rights
under this  Agreement.  All remedies,  either under this  Agreement or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.

         10.7     Rights; Severability.

         In case any provision of this  Agreement  shall be invalid,  illegal or
unenforceable,  the  validity,  legality  and  enforceability  of the  remaining
provisions shall not in any way be affected or impaired thereby.

          10.8    Agent's Fees and Services.

          (a) The Company represents and warrants that it has retained no finder
or  broker  or  other  person  or  firm  in  connection  with  the  transactions
contemplated  by this  Agreement.  The Company hereby agrees to indemnify and to
hold the  Purchasers  harmless of and from any liability  for any  commission or
compensation  in the nature of an  agent's  fee to any  broker,  finder or other
person or firm (and the costs and expenses of defending  against such  liability
or  asserted  liability)  arising  from  any  act by the  Company  or any of its
employees or representatives.

          (b) Each  Purchaser  represents and warrants as to itself only that it
has  retained  no  finder  or  broker  in  connection   with  the   transactions
contemplated by this Agreement. Each Purchaser hereby agrees to indemnify and to
hold the  Company  harmless  of and from any  liability  for any  commission  or
compensation  in the nature of an  agent's  fee to any  broker,  finder or other
person or firm (and the costs and expenses of defending  against such  liability
or asserted  liability)  arising  from any act by such  Purchaser  or any of its
members, employees or representatives.

         10.9     Legal Fees and Expenses.

         The Company  shall bear its own expenses and legal fees incurred on its
behalf with respect to this Agreement and the transactions  contemplated hereby.
At the Closing (or if the Closing shall not take place,  within thirty (30) days
of  receiving  any  statement  or invoice  therefor),  the Company  will pay the
reasonable  legal fees and  out-of-pocket  expenses  actually  incurred  for the
services of (i) Shipman & Goodwin, LLP, special counsel to the Purchasers (which
fees and expenses shall not exceed $35,000 without the prior, written consent of
the  Company)  and $2,000 for each  additional  counsel to the  Purchasers  with
respect to this Agreement and the transactions contemplated hereby.

         10.10    Titles and Subtitles.

         The titles of the Sections and  subsections  of this  Agreement are for
convenience  or reference  only and are not to be considered in construing  this
Agreement.

         10.11    Counterparts.

         This Agreement may be executed in  counterparts,  each of which when so
executed and delivered shall  constitute a complete and original  instrument but
all of which together shall constitute one and the same agreement,  and it shall
not be necessary when making proof of this Agreement or any counterpart  thereof
to account for any other counterpart.

         10.12    Construction.

         The  language  used in this  Agreement  is the  language  chosen by the
parties to express their mutual intent, and no rule of strict  construction will
be applied against either party.

         10.13    Further Assurances.

         From time to time on and after the  Closing  Date,  the Company and the
Subsidiary will each promptly  execute and deliver all such further  instruments
and  assurances,  and  will  promptly  take  all such  further  actions,  as the
Purchasers or any of them may  reasonably  request in order more  effectively to
effect or confirm the transactions  contemplated by this Agreement and/or any of
the other Financing Documents and to carry out the purposes hereof and thereof.

         10.14    Equitable Relief.

         Each of the parties  acknowledges that any breach by such party of his,
her,  or its  obligations  under this  Agreement  would  cause  substantial  and
irreparable  damage to one or more of the other  parties and that money  damages
would be an inadequate remedy therefor.  Accordingly, each party agrees that the
other  parties  or any of  them  will be  entitled  to an  injunction,  specific
performance,  and/or  other  equitable  relief  to  prevent  the  breach of such
obligations.

         10.15    Publicity.

         The  Purchasers  or any of them will have the right to publicize  their
investment  in the  Company  as  contemplated  hereby by means of a  "tombstone"
advertisement  or other customary  advertisement  in newspapers and other media.
The Company may issue a press  release or other form of public  announcement  as
soon as  practicable  after the Closing  announcing the issuance and sale of the
Shares,  provided that each Purchaser shall have approved the form of such press
release or other  public  announcement,  such  approval  not to be  unreasonably
withheld.

                        [ Signatures on Following Page ]


<PAGE>




         IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly
executed and  delivered by their proper and duly  authorized  officers as of the
day and year first written above.
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                                                     <S>     <C>




                                                     SOFTLOCK COM., INC.


                                                     By:  _______________________________
                                                     Name:
                                                     Title:


                                                     SOFTLOCK SERVICES, INC.


                                                     By:  _______________________________
                                                     Name:
                                                     Title:


                                                     RAPTOR GLOBAL PORTFOLIO, LTD.

                                                     By:  TUDOR INVESTMENT CORPORATION,
                                                          As Investment Advisor

                                                     By:  _______________________________
                                                     Name:
                                                     Title:


                                                     ALTAR ROCK FUND, L.P.

                                                     By:  Tudor Investment Corporation, as General Partner

                                                     By:  _______________________________

                                                     RC CAPITAL, L.L.C.

                                                     By:  Ritchie Capital Investments, L.L.C., its manager

                                                     By:  Ritchie Capital Management, L.L.C., its manager

                                                     By:  THR, Inc.

                                                     By: ____________________________

                                                     RAM TRADING, LTD.

                                                     By:  Ritchie Capital Management, L.L.C., its investment manager


                                                     By:  THR, Inc.


                                                     By: ____________________________

                                                     RITCHIE CAPITAL MANAGEMENT, L.L.C.
                                                     By:  THR, Inc.

                                                     By:____________________________

                                                     APEX INVESTMENT FUND IV, L.P.

                                                     By:  Apex Management IV, L.L.C., its General Partner

                                                     By: ______________________________________

                                                     APEX STRATEGIC PARTNERS IV, LLC

                                                     By:  Apex Management IV, LLC, Manager

                                                     By: ______________________________________

                                                     SI VENTURE FUND II, L.P.

                                                     By:  SI VENTURE MANAGEMENT II, L.L.C.
                                                     Its General Partner

                                                     By: ______________________________________

                                                  ASCENT VENTURE PARTNERS
                                                  By:  ASCENT VENTURE MANAGEMENT III, LLC,
                                                     Its General Partner

                                                  By: ______________________________________
</TABLE>



<PAGE>


<TABLE>
<CAPTION>

                                                                                               Schedule 1

                                      SCHEDULE OF PURCHASERS

                                        Number of

                                         Series C         Number of Shares           Number of
                                        Preferred           Issuable Under        Shares Issuable         Price Per Share
                                        Aggregate              August 1,          Under October            of Series C
Name and Address                           Shares           2001 Warrants         15, 2001 Warrants         Preferred
----------------                           ------           -------------         -----------------         ---------
<S>                                     <C>                 <C>                   <C>                     <C>

Altar Rock Fund, L.P.                        31                      8                  207                     207

Apex Investment Fund IV, L.P.             9,528                  2,382               63,523                  63,523

Apex Strategic Partners IV, L.L.C.          289                     72                1,927                   1,927

Ascent Venture Partners                   7,853                  1,963               52,356                  52,356

Ritchie Capital Management LLC              187                     47                1,247                   1,247

RC Capital LLC                              187                     47                1,247                   1,247

Ram Trading Ltd.                            935                    234                6,234                   6,234

Raptor Global Portfolio, Ltd.             7,822                  1,956               52,149                  52,149

SI Venture Fund II, L.P.                  9,817                  2,454               65,450                  65,450
</TABLE>