<PAGE>
                                                                    EXHIBIT 10.4
 
                     ONLINE TRANSACTION TECHNOLOGIES, INC.

                       PREFERRED STOCK PURCHASE AGREEMENT

     THIS PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is entered into
as of December 15, 1998, by and among ONLINE TRANSACTION TECHNOLOGIES, INC., a
California corporation (the "Company"), and CUMETRIX DATA SYSTEMS CORPORATION
(the "Purchaser").

                                    RECITALS
                                        
A. WHEREAS, the Company has authorized the sale and issuance of shares of its
   unissued and outstanding Series A-1, A-2, and A-3  Preferred Stock
   (collectively, the "Series A Preferred Stock");

B. WHEREAS, Purchaser desires to purchase Series A-1 Preferred Stock and the
   Company desires to issue and sell the Series A Preferred Stock to the
   Purchaser on the terms and conditions set forth herein;

C. WHEREAS, Purchaser shall receive upon issuance of the Series A-1 Preferred
   Stock an option (the "First Option") to acquire shares of the Company's
   Series A-2 Preferred Stock on the terms described below and as set forth more
   fully in the form of First Stock Option Agreement attached hereto as Exhibit
   A (the "First Stock Option Agreement"); and

D. WHEREAS, Purchaser shall receive upon exercise of the First Option an
   additional option (the "Second Option" and, together with the First Option,
   the "Options") to acquire shares of the Company's Series A-3 Preferred Stock
   on the terms described below and as set forth more fully in the form of the
   Second Stock Option Agreement attached hereto as Exhibit B (the "Second Stock
   Option Agreement," and together with the First Stock Option Agreement the
   "Option Agreements").

   NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
   promises hereinafter set forth, the parties hereto agree as follows:

1. AGREEMENT TO SELL AND PURCHASE.

1.1  Purchase of  Series A-1 Preferred Stock. At the closing (as defined in
     section 2 below), the Company agrees to sell to Purchaser and Purchaser
     agrees to purchase from the Company, the number of shares of the Company's
     Series A-1  Preferred Stock (the "Purchase Shares") equal to the remainder
     of (a) the quotient of (x) the number of shares of the Company's Common
     Stock issued and outstanding (including shares issuable upon conversion or
     exercise of outstanding options, warrants, rights and convertible debt or
     equity securities other than the options granted pursuant to this
     agreement) as of the 

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     closing date (as defined in section 2 below) divided by (y) .9714, minus
                                                                        -----
     (b) the number of shares of the Company's Common Stock issued and
     outstanding (including shares issuable upon conversion or exercise of
     outstanding options, warrants, rights and convertible debt or equity
     securities other than the options granted pursuant to this agreement) all
     determined on an as-converted basis as of the Closing Date (as defined in
     section 2 below). The per share purchase price (the "Per Share Price") of
     the shares shall be equal to the quotient of (x) $100,000 divided by (y)
     the number of Purchase Shares. The total purchase price (the "Purchase
     Price") for the Purchase Shares shall be $100,000. The Purchase Shares
     shall be sold at the Closing as hereinafter provided.

1.2  Designation of Rights, Preferences and Privileges of the Series A Preferred
     Stock.  Attached hereto as Exhibit 1.2 is a true and correct copy of a form
     of an  Amendment and Restatement of the Articles of Incorporation (the
     "Restated Articles") duly authorized and adopted by the Company by all
     necessary corporate action and submitted for filing with the Secretary of
     State of the State of California.  Upon acceptance of the Restated Articles
     by the Secretary of State of California, the Series A Preferred Stock and
     the Common Stock shall have the rights, preferences, privileges and
     restrictions set forth in the Restated Articles.

2. CLOSING, DELIVERY AND PAYMENT AND WARRANT ISSUANCES.

2.1  Closing. The closing (the "Closing") of the sale and purchase of the
     Purchase Shares under this Agreement shall occur on a date that is within
     three (3) business days of the satisfaction (or waiver) of all conditions
     to closing set forth in Section 7; provided, however, that if the Closing
                                        --------  -------                     
     shall not have occurred by 11:59 p.m. on December 31, 1998 other than as a
     result of a breach of this Agreement by the Company, this Agreement shall
     terminate, become void ab initio, and be of no force or effect.  The date
                            ---------------------------------------           
     of the occurrence of the Closing shall be referred to herein as the
     "Closing Date."

2.2  Delivery. At the Closing, subject to the terms and conditions hereof, the
     Company will deliver to the Purchaser certificates representing the number
     of Purchase Shares to be purchased at the Closing by Purchaser, against
     payment of the Purchase Price therefor by check or wire transfer made
     payable to the order of the Company.

2.3  Warrant Issuances.

2.3.1  At the Closing, the Company shall issue to Purchaser the First Option
     duly executed on behalf of the Company, substantially in the form of
     Exhibit A attached hereto, to acquire such number of shares of the
     Company's authorized but unissued Series A-2  Preferred Stock (the "First
     Option Shares") equal to the remainder of (A) the quotient of (x) the
     number of shares of the Company's Common Stock issued and outstanding
     (including shares issuable upon conversion or exercise of outstanding
     options, warrants, rights and convertible debt or equity securities other
     than options granted pursuant to this Agreement) all determined on an as-
     converted basis as of the date the First Option is 

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       exercised, divided by (y) .7429, minus (B) the number of shares of the
                                        -----
       Company's Common Stock issued and outstanding (including shares issuable
       upon conversion or exercise of outstanding options, warrants, rights and
       convertible debt or equity securities other than options granted pursuant
       to this Agreement) as of the date the First Option is exercised.

2.3.2  Upon the exercise of the First Option (the "First Option Exercise Date"),
       the Company will issue to Purchaser the Second Option duly executed on
       behalf of the Company, substantially in the form of Exhibit B attached
       hereto, to acquire such number of shares of the Company's authorized but
       unissued Series A-3 Preferred Stock (the "Second Option Shares") equal to
       the remainder of (A) the quotient of (x) the number of shares of the
       Company's Common Stock issued and outstanding (including shares issuable
       upon conversion or exercise of outstanding options, warrants, rights and
       convertible debt or equity securities other than options granted pursuant
       to this Agreement) as of the date the Second Option is initially
       exercised, divided by (y) .7857, minus (B) the number of shares of the
                                        -----
       Company's Common Stock issued and outstanding (including shares issuable
       upon conversion or exercise of outstanding options, warrants, rights and
       convertible debt or equity securities other than options granted pursuant
       to this Agreement) all determined on an as-converted basis as of the date
       the Second Option is initially exercised. The per share exercise price of
       the Second Option Shares shall be equal to the quotient of (x) $8,000,000
       divided by (y) the number of Second Option Shares. The total purchase
       price of the Second Option Shares shall be $8,000,000.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  The Company hereby represents
   and warrants to the Purchaser as follows:

3.1    Organization and Standing of the Company.  The Company is a duly
       organized and validly existing corporation in good standing under the
       laws of the State of California and has all requisite corporate power and
       authority for the ownership and operation of its properties and for the
       carrying on of its business as now conducted and as proposed to be
       conducted. The Company is duly licensed or qualified and in good standing
       as a foreign corporation authorized to do business in California and in
       all other jurisdictions in which the failure to be so qualified would
       have a material adverse effect upon the business as now conducted.

3.2    Capitalization; Voting Rights. The authorized capital stock of the
       Company, immediately prior to the Closing, will consist of (i) 10,000,000
       shares of Common Stock, 3,000,000 shares of which are issued and
       outstanding and (ii) 2,657,122 shares of preferred stock, designated
       Series A Preferred Stock, of which 88,326 shares shall be designated
       Series A-1 Preferred Stock none of which will be issued and outstanding,
       1,068,796 shares shall be designated as Series A-2 Preferred Stock, none
       of which will be issued and outstanding, and 1,500,000 shares shall be
       designated as Series A-3 Preferred Stock, none of which will be issued
       and outstanding. All issued and outstanding shares of the Company's
       Common Stock and Preferred Stock(a) have been duly authorized and (b)  

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     the Company's Common Stock is validly issued, fully paid and nonassessable.
     The First Option Shares and the Second Option Shares have been duly and
     validly reserved for issuance and, upon issuance and delivery against
     payment therefor, will be validly issued, fully paid and nonassessable.
     Except as may be granted pursuant to the Options and the Option Agreements,
     there are no outstanding options, warrants, rights (including conversion or
     preemptive rights and rights of first refusal), proxy or shareholder
     agreements, or agreements of any kind for the purchase or acquisition from
     the Company of any of its securities. When issued in compliance with the
     provisions of this Agreement and the Option Agreements, the Purchased
     Shares, the First Option, the Second Option, the First Option Shares and
     the Second Option Shares (collectively, the "Securities") will be validly
     issued (and, in the case of the Purchased Shares, the First Option Shares
     and the Second Option Shares only), fully paid and nonassessable, and will
     be free of any liens or encumbrances; provided, however, that the
     Securities may be subject to restrictions on transfer under state and/or
     federal securities laws as set forth herein or as otherwise required by
     such laws at the time a transfer is proposed.

3.3  Authorization; Binding Obligations. All corporate action on the part of the
     Company, its officers, directors and shareholders necessary for the
     authorization of this Agreement and the Option Agreements, the performance
     of all obligations of the Company hereunder and thereunder at the Closing
     and the authorization, sale, issuance and delivery of the Purchased Shares
     pursuant hereto and the First Option Shares and the Second Option Shares
     pursuant to the Option Agreements has been taken or will be taken prior to
     the Closing.  The Agreement and the Option Agreements, when executed and
     delivered, will be valid and binding obligations of the Company enforceable
     in accordance with their terms, except (a) as limited by applicable
     bankruptcy, insolvency, reorganization, moratorium or other laws of general
     application affecting enforcement of creditors' rights; (b) general
     principles of equity that restrict the availability of equitable remedies;
     and (c) to the extent that the enforceability of the indemnification
     provisions in Section 6 of the Option Agreements may be limited by
     applicable laws.  The sale of the Purchased Shares and the subsequent
     issuance of shares of the Company's Series A  Preferred Stock upon exercise
     of the First Option Shares and the Second Option Shares are not and will
     not be subject to any preemptive rights or rights of first refusal that
     have not been properly waived or complied with.

3.4  Compliance With Contracts.  Except as set forth in the Disclosure Letter,
     the Company is in compliance in all respects with the terms and provisions
     of its Articles of Incorporation and bylaws. The Company is in compliance
     in all material respects with the terms and provisions of each mortgage,
     indenture, lease, agreement and other instrument relating to obligations of
     the Company, and of all judgments, decrees, governmental orders, statutes,
     rules or regulations by which it is bound or to which its properties or
     assets are subject, in each case or in the aggregate if the failure to
     comply would have a material adverse effect on the business, properties, or
     condition, financial or otherwise, of the Company.  Neither the execution
     and delivery of this Agreement or the Option Agreements, nor the
     consummation of any transaction contemplated hereby or thereby, 

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     has constituted or resulted in a default or violation of any term or
     provision in any of the foregoing documents or instruments.

3.5  Registration Rights.  Except as set forth in this Agreement, no Person has
     demand or other rights to cause the Company to file any registration
     statement under the Securities Act relating to any securities of the
     Company or any right to participate in an offering of shares under any such
     registration statement.

3.6  Securities Act of 1933.  The Company has complied and will comply with all
     applicable federal and state securities laws in connection with the
     issuance and sale of the Securities.

3.7  No Brokers or Finders.  The Company owes no commission, fee or other
     compensation to any Person as a finder or broker as a result of the
     transactions contemplated by this Agreement.

3.8  Good Title. The Company has  title to, or a valid leasehold interest in,
     its properties and assets in each case free and clear of all liens, claims,
     security interests, charges and encumbrances, except such liens, claims,
     security interests, charges and encumbrances as arise in the ordinary
     course of business and do not materially impair the Company's ownership or
     use of such property or assets, and has the right to use all the assets it
     presently uses in the operation of its business.  The properties and assets
     of the Company are in all material respects in good operating condition and
     repair, normal wear and tear excepted.

3.9  Subsidiaries.  The Company does not own, control, directly or indirectly,
     any other corporation, association, partnership or other business entity or
     own any shares of capital stock or other securities of any other Person.

3.10 Certain Transactions.  Except as thoroughly set forth in the Disclosure
     Letter and other than the interest arising from a Person's stock ownership
     of the Company or for compensation as an employee or director of the
     Company, there are no material transactions between the Company, on the one
     hand, and any of its officers, directors or shareholders, or their
     immediate family members, on the other hand, and no such person is an
     interested party to any material contract of the Company or to the best of
     the Company's knowledge holds a direct or indirect ownership interest in
     any business or corporation which competes with the Company, except that
     any such Person may own up to one percent of the stock of a company whose
     stock is publicly traded and that does or may compete with the Company.

3.11 Material Contracts and Commitments.  All of the material contracts,
     agreements and instruments to which the Company is a party, are valid,
     binding and in full force and effect in all material respects, subject to
     laws of general application relating to bankruptcy, insolvency and the
     relief of debtors and rules of law governing specific performance,
     injunctive relief or other equitable remedies.  A material contract is a

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     contract reasonably deemed to be material by the Company.  A true and
     correct copy of each of such material written contracts and a description
     of such material oral contracts, together with all amendments, waivers or
     other changes thereto has been supplied to the Purchaser and its counsel.

3.12 Patents, Copyrights and Trademarks.  To the best knowledge of the Company
     and its officers and current shareholders (the "Company's Knowledge"), the
     Company has sufficient title to and ownership of, or can obtain on terms
     which will not result in any material adverse effect on its businesses, all
     necessary patents, licenses, trademarks, service marks, trade names,
     copyrights, trade secrets, inventions, franchises, computer software and
     other proprietary rights necessary for their businesses as now conducted,
     or as presently proposed to be conducted through calendar year 1999,
     without, to the Company's Knowledge, any conflict with or infringement of,
     the rights of others.  To the Company's Knowledge, no employee has
     violated, or is currently violating, any intellectual property rights of
     any other person or entity.  To the Company's Knowledge, no third party is
     infringing upon or violating any of the intellectual property rights of the
     Company.  The Company has not granted any license or option or entered into
     any agreement of any kind with respect to the use of its proprietary
     information, other than licenses to and uses of its products made in the
     ordinary course of its business.

3.13 Employees and Employee Benefit Plans.  The Company does not have any
     employment contracts with any of its employees not terminable at will (upon
     notice as provided in such employee contracts) and does not have any
     collective bargaining agreements covering any of its employees.  Other than
     as disclosed in the Disclosure Letter, there is no pension, health, profit-
     sharing, bonus, stock purchase, stock option, hospitalization, insurance,
     severance, or other employee benefit or welfare benefit plan with respect
     to any officer or employee of the Company.

3.14 Year 2000.   All software material to the Company's business, including
     without limitation all of the Company's software products, is Year 2000
     Compliant, as defined herein.  For purposes of this Agreement, "Year 2000
     Compliant" shall mean the ability of software to provide all of the
     following functions:  (a) consistently handle data information before,
     during and after January 1, 2000, including but not limited to accepting
     date input, providing date output, and performing calculations on dates or
     portions of dates; (b) function accurately, in accordance with any and all
     published documentation, and without interruption before, during and after
     January 1, 2000, without any change in operations associated with the
     advent of the new century; (c) respond to two-digit year-date input in a
     way that resolves any ambiguity as to century in a disclosed, defined and
     predetermined manner; and (d) store and provide output of date information
     in ways that are unambiguous as to century.

3.15 Proprietary Information.  Each employee, officer and consultant of the
     Company is subject to a valid and binding Proprietary Information and
     Inventions Agreement in 

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      substantially the forms provided to counsel to the Purchaser. The Company
      is not aware that any of its employees, officers or consultants are in
      violation thereof.

3.16  Disclosure.  No representation, warranty or statement by the Company in
      this Agreement or in any written statement or certificate required by this
      Agreement to be furnished to Purchaser or its counsel pursuant to this
      Agreement contains or will contain any untrue statement of material fact
      or to the Company's Knowledge, omits to state a material fact necessary to
      make the statements made herein or therein, in light of the circumstances
      under which they were made, not misleading.

4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Purchaser hereby represents
   and warrants to the Company as follows (such representations and warranties
   do not lessen or obviate the representations and warranties of the Company
   set forth in this Agreement):

4.1   Requisite Power and Authority. Purchaser has all necessary power and
      authority under all applicable provisions of law to execute and deliver
      this Agreement and the Option Agreements and to carry out their
      provisions. All action on Purchaser's part required for the lawful
      execution and delivery of this Agreement and the Option Agreements have
      been or will be effectively taken prior to the Closing. Upon their
      execution and delivery, this Agreement and the Option Agreements will be
      valid and binding obligations of Purchaser, enforceable in accordance with
      their terms, except (a) as limited by applicable bankruptcy, insolvency,
      reorganization, moratorium or other laws of general application affecting
      enforcement of creditors' rights, (b) general principles of equity that
      restrict the availability of equitable remedies, and (c) to the extent
      that the enforceability of the indemnification provisions of Section 6 of
      the Option Agreements may be limited by applicable laws

4.2   Investment Representations. Purchaser understands that the Securities have
      not been registered under the Securities Act. Purchaser also understands
      that the Securities are being offered and sold pursuant to an exemption
      from registration contained in the Securities Act based in part upon
      Purchaser's representations contained in the Agreement. Purchaser hereby
      represents and warrants as follows:

4.2.1 Acquisition for Own Account.  Purchaser is acquiring the Securities for
      Purchaser's own account for investment only, and not with a view towards
      their distribution.

4.2.2 Accredited Investor.  Purchaser represents that it is an accredited
      investor within the meaning of Regulation D under the Securities Act..

4.2.3 Company Information.  Purchaser has had an opportunity to discuss the
      Company's business, management and financial affairs with directors,
      officers and management of the Company and has had the opportunity to
      review the Company's operations and facilities. 

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      Purchaser has also had the opportunity to ask questions of and receive
      answers from the Company and its management regarding the terms and
      conditions of this investment.

4.2.4 Rule 144.  Purchaser acknowledges and agrees that the Purchased Shares,
      the First Option, the Second Option and, if issued, the First Option
      Shares and Second Option Shares must be held indefinitely unless they are
      subsequently registered under the Securities Act or an exemption from such
      registration is available. Purchaser has been advised or is aware of the
      provisions of Rule 144 promulgated under the Securities Act as in effect
      from time to time, which permits limited resale of shares purchased in a
      private placement subject to the satisfaction of certain conditions,
      including, among other things: the availability of certain current public
      information about the Company, the resale occurring following the required
      holding period under Rule 144 and the number of shares being sold during
      any three-month period not exceeding specified limitations.

4.2.5 Residence. The office or offices of the Purchaser in which its investment
      decision was made is located at the address or addresses of the Purchaser
      set forth on the signature page hereof.

4.3   Transfer Restrictions. Purchaser acknowledges and agrees that the
      Purchased Shares, the First Option, the Second Option and, if issued, the
      First Option Shares and the Second Option Shares are subject to
      restrictions on transfer as set forth in the Option Agreements.

5. COVENANTS OF THE COMPANY

5.1   Affirmative Covenants of the Company Other Than Reporting Requirements.
      Without limiting any other covenants and provisions hereof, the Company
      covenants and agrees that until a Covenant Termination Event (as defined
      in Section 9) it will perform and observe the following covenants and
      provisions and will cause each Subsidiary to perform and observe such of
      the following covenants and provisions as are applicable to such
      Subsidiary, and will not, without approval of the Purchaser, amend, revise
      or waive any terms of this Section 5.1:

5.1.1 Payment of Taxes and Trade Debt.  Pay and discharge, and cause each
      Subsidiary to pay and discharge, all taxes, assessments and governmental
      charges or levies imposed upon it or upon its income or profits or
      business, or upon any properties belonging to it, prior to the date on
      which penalties attach thereto, and all lawful claims, which, if unpaid,
      might become a lien or charge upon any properties of the Company or any
      Subsidiary, provided that neither the Company nor any Subsidiary shall be
      required to pay any such tax, assessment, charge, levy or claim (i) that
      is being contested in good faith and by appropriate proceedings if the
      Company or Subsidiaries concerned shall have set aside on its books
      adequate reserves with respect thereto as shall be determined by its Board
      of Directors or (ii) if the failure to pay such tax, assessment, charge,
      levy or claim would not have a material adverse effect on the business,
      properties, or condition, 

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      financial or otherwise, of the Company. Pay, and cause each Subsidiary to
      pay, when due, or in conformity with customary trade terms, after any
      adjustments agreed upon among the parties thereto, all lease obligations,
      all trade debt, and all other Indebtedness incident to the operations of
      the Company or its Subsidiaries, except (i) such as are being contested in
      good faith and by appropriate proceedings if the Company or Subsidiary
      concerned shall have set aside on its books adequate reserves with respect
      thereto as shall be determined by its Board of Directors or (ii) if the
      failure to pay would not have a material adverse effect on the business,
      properties, or condition, financial or otherwise, of the Company.

5.1.2 Maintenance of Insurance.  Maintain, and as appropriate and necessary
      cause each Subsidiary to maintain, with responsible and reputable
      insurance companies or associations insurance in such amounts and covering
      such risks as is usually carried by companies of similar size engaged in
      similar businesses and owning similar properties in the same general areas
      in which the Company or such Subsidiary.

5.1.3 Preservation of Corporate Existence.  Preserve and maintain its corporate
      existence, rights, franchises and privileges in the jurisdiction of its
      incorporation, and qualify and remain qualified, and cause each Subsidiary
      to qualify and remain qualified, as a foreign corporation in each
      jurisdiction in which such qualification is necessary or desirable in view
      of its business and operations or the ownership of its properties, and
      where failure to qualify would have a materially adverse effect upon the
      Company. Preserve and maintain, and cause each Subsidiary to preserve and
      maintain, all material licenses and other material rights to use patents,
      processes, licenses, trademarks, trade names, inventions, intellectual
      property rights or copyrights owned or possessed by it and necessary to
      the conduct of its business, unless fair and reasonable consideration is
      received by the Company or such subsidiary in exchange for such licenses
      or other rights.

5.1.4 Compliance with Laws.  Comply in all material respects with all
      applicable laws. rules, regulations and orders of any governmental
      authority, noncompliance with which could materially adversely affect its
      business or condition, financial or otherwise, except non-compliance being
      contested in good faith through appropriate proceedings, so long as the
      Company shall have set up sufficient reserves, if any, required under
      generally accepted accounting principles with respect to such items.

5.1.5 Keeping of Records and Books of Account.  Keep, and cause each Subsidiary
      to keep, materially adequate records and books of account, in which
      materially complete entries will be made in accordance with generally
      accepted accounting principles consistently applied, reflecting all
      material financial transactions of the Company and such Subsidiary, and in
      which, for each fiscal year, all material proper reserves for
      depreciation, depletion, obsolescence, amortization, taxes, bad debts and
      other purposes in connection with its business shall be made.

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5.1.6  Maintenance of Properties, etc, Maintain and preserve, and cause each
       Subsidiary to maintain and preserve, all of its properties that the Board
       of Directors of the Company or such Subsidiary deems necessary in the
       proper conduct of its business, in good repair, working order and
       condition in all material respects, ordinary, wear and tear excepted, it
       being understood that this covenant relates only to the working order and
       condition of such properties and shall not be construed as a covenant not
       to dispose of properties.

5.1.7  Compensation. Cause aggregate compensation of Colin Kruger, Igor Kogan
       and Michael Shirman each to be fixed (i) at amounts not to exceed
       $8,333.33 per month during the period from the date of this Agreement
       through December 31, 1999, and (ii) thereafter, at amounts not in excess
       of the levels set forth in the Company's Budget for the applicable period
       established as required by Section 5.1.10 below (the Budget")

5.1.8  New Developments.  Cause all material technological or other material
       proprietary developments, inventions, discoveries or improvements by the
       Company's or any Subsidiary's employees to be fully documented in
       accordance with the practice in the industry. Cause all employees and,
       all consultants hereafter employed by the Company and each Subsidiary, to
       execute appropriate patent and copyright assignment agreements to the
       Company and, when the Company so requests, to file and prosecute United
       States and foreign patent or copyright applications relating to and
       protecting such developments on behalf of the Company or such Subsidiary.

5.1.9  Employee Invention and Non-Disclosure Agreement.  Use its best efforts to
       cause each employee or consultant and all employees hereafter employed by
       the Company or any Subsidiary promptly to execute an agreement
       substantially in the form of Attachment 5.1.9 hereto.
                                    ----------------        

5.1.10 Budgets.  Prior to the commencement of each fiscal year, prepare and
       submit to, and obtain Purchaser Budget Approval of a budget for the
       upcoming fiscal year (including projections or forecasts of capital and
       operating expenses, cash flow, and profits and losses, all itemized in
       reasonable detail, and setting forth compensation levels for all officers
       and the 6 most highly compensated employees and consultants), with the
       Purchaser Budget Approval for such budget being obtained no later than
       the end of the fiscal year then ending, and thereafter operate the
       business of the Company in accordance with such Budget. "Purchaser Budget
       Approval" means, (i) with respect to the budget for the fiscal year
       ending December 31, 1999, the approval of such Budget by the Purchaser at
       or prior to the Closing (or any amendments mutually agreed upon by the
       Company and the Purchaser), (ii) with respect to any Budget covering the
       first 18 full calendar months following the Closing, the written approval
       of such Budget by Purchaser in the exercise of Purchaser's sole
       discretion; provided that Purchaser agrees not to unreasonably withhold
                   --------
       approval of Budgets applicable to such period if variances between the
       applicable Budget and the budget for such period set forth in the
       Business Plan of the Company attached hereto as Attachment 5.1.10 (the
                                                       -----------------
       "Business Plan") do not exceed 20% in the case of budgeted marketing
       expense, and 10% in the case of all other budget items, 

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       and (iii) with respect to the portion of any Budget covering the period
       following the completion of the first 18 full calendar months following
       the Closing, the written approval of such Budget by Purchaser in the
       exercise of its reasonable business judgment.

5.1.11 Financings.  Promptly, fully and in detail, inform the Purchaser in
       advance of any material commitments or contracts relating to financing of
       any nature in which the Company pledges material corporate assets, other
       than under purchase money security interests secured only by the assets
       purchased with such financing in the ordinary course of business.

5.1.12 Required Use of Proceeds.  Use the proceeds from the issuance and sale
       of the Shares hereunder as specified in Attachment  5.1.12.
                                               ------------------ 

5.1.13 Board of Directors; Chief Executive Officer.  Provide Purchaser with at
       least 2 business days notice of any meeting of the Board of Directors of
       the Company or the taking of any action by unanimous written consent of
       the Board of Directors; and, from and after such time as the Purchaser
       has purchased Equity Securities of the Company with an aggregate purchase
       price of at least $1,000,000, (a) cause to be appointed to the Board of
       Directors of the Company and each committee thereof, one director
       nominated by the Purchaser, and (b) commence a search for a Chief
       Executive Officer (who shall have all the duties and responsibilities
       customarily given the most senior executive officer of a corporation and
       shall report only to the Board of Directors), whose appointment shall be
       subject to the approval of the Purchaser, which approval shall not be
       unreasonably withheld, and whose removal (and all subsequent appointments
       and removals of the Chief Executive Officer) shall be subject to the
       approval of the Purchaser, which approval shall not be unreasonably
       withheld.

5.1.14 Filing of Amended and Restated Articles of Incorporation.  Prepare and
       file the Restated Articles, substantially in the form attached hereto as
       Exhibit 1.2, and use its best efforts to cause the Restated Articles to
       be accepted for filing by the Secretary of State of the State of
       California.

5.1.15 Execution and Delivery of Second Option Agreement.  If the Purchaser
       exercises the First Option, as provided in the First Option Agreement
       attached hereto as Exhibit A, execute and deliver the Second Option
       Agreement, in the form attached hereto as Exhibit B, to the Purchaser.

5.2    Negative Covenants of the Company.  Without limiting any other covenants
       and provisions hereof, the Company covenants and agrees that until a
       Covenant Termination Event it will not take the actions contained in the
       following covenants and provisions, without the approval of the
       Purchaser, and will cause each Subsidiary, to not take the actions
       contained in the following covenants and provisions as are applicable to
       such Subsidiary, and will not, without the approval of the Purchaser
       amend, revise or waive any terms of this Section 5.2:

                                       11
<PAGE>
 
5.2.1  Issuance of Shares.  The Company shall not issue any authorized but
       unissued shares of Series A Preferred Stock except to the Purchaser at
       the Closing or to the Purchaser in subsequent transactions.

5.2.2  Mergers, Sale of Assets, etc. Merge or consolidate with, or sell, assign,
       lease or otherwise dispose of or voluntarily part with the control of
       (whether in one transaction or in a series of transactions), all or
       substantially all of its assets (whether now owned or hereinafter
       acquired) to any Person, or permit any Subsidiary to do any of the
       foregoing, except for sales, assignments, leases or other dispositions of
       assets in the ordinary course of business. Notwithstanding the foregoing,
       this clause shall be effective only (i) if and so long as the aggregate
       cash price paid by the Purchaser for Common Stock of the Company is at
       least 50% of the aggregate cash price received by the Company for all
       outstanding capital stock of the Company, and (ii) for all periods
       following exercise of the Second Option.

5.2.3  Maintenance of Ownership of Subsidiaries.  Create any Subsidiary (i) that
       is not a Wholly-Owned Subsidiary, unless a majority of the Board of
       Directors of the Company shall have approved the creation of such
       Subsidiary or (ii) any of whose shares of capital stock shall be owned by
       any officer, director or shareholder of the Company or affiliate of an
       officer, director, or shareholder of the Company; sell or otherwise
       dispose of any shares of capital stock of any Subsidiary, except to the
       Company or another Subsidiary, or to another Person who is not an
       officer, director, or shareholder of the Company, or affiliate of an
       officer, director, or shareholder of the Company, if, in the judgment of
       a majority of the Board of Directors of the Company, such sale or
       disposition is in the best interests of the Company; provided, however,
       that nothing herein contained shall prevent any merger, consolidation or
       transfer of assets permitted by subsection 4.2(a).

5.2.4  Dealings with Affiliates and Others.  Enter into any material
       transaction, including, without limitation, any material loans or
       extensions of credit or royalty agreements, with any officer or director
       of the Company or any Subsidiary or holder of any class of capital stock
       of the Company, or any member of their respective immediate families or
       any corporation or other entity, directly or indirectly controlled by one
       or more of such officers, directors or shareholders or members of their
       immediate families (other than any such transactions in the ordinary
       course of business which are in an amount not in excess of $5,000) unless
       such transaction is approved in advance by the Purchaser.

5.2.5  Change in Nature of Business.  Make, or permit any Subsidiary to make,
       any material change in the nature of its business as carried on at the
       date hereof or as contemplated in the Business Plan.

5.2.6  Dividends.  So long as the Purchaser is permitted to cause the Company to
       repurchase the Purchase Shares hereunder and if such right is exercised,
       until the Purchase Shares have been repurchased by the Company, declare
       or pay any cash dividends on any class of the Company's capital stock now
       or hereafter outstanding, or purchase, redeem or otherwise 

                                       12
<PAGE>
 
       acquire or retire any of the Company's capital stock of any class now or
       hereafter outstanding or otherwise return capital or make distributions
       of assets to shareholders as such, except repurchase of the Company's
       capital stock pursuant to the terms of Section 6.1 below. The Company
       shall not contribute assets in any material amount to any of its
       Subsidiaries who are not Wholly Owned Subsidiaries.

5.2.7  Stock Restriction Agreements, Stock Options. Authorize, grant or issue,
       upon the exercise of options or otherwise under any plan for the benefit
       of employees, officers, directors, or consultants of the Company a number
       of shares greater than 450,000 shares, (ii) issue any shares for
       consideration less than the fair market value of such shares except for
       shares issuable upon exercise of options, (iii) issue any options or
       warrants to purchase shares at a price which is less than the fair market
       value of the shares issuable upon exercise of such rights or options on
       the date such rights or options are issued, or (iv) authorize, grant or
       issue to employees, officers, directors of the Company compensatory
       options or rights which may be exercised in whole or in part prior to the
       completion of one year of continuous service to the Company.

5.3    Reporting Requirements.  The Company will furnish the following to the
       Purchaser so long as the Company holds any Series A Preferred Stock (or
       Common Stock issued upon conversion of Series A Preferred Stock) and so
       long as the Options remain exercisable:

5.3.1  as soon as reasonably available, and in any event within thirty (30) days
       after the end of each fiscal quarter of the Company, unaudited
       Consolidated balance sheets of the Company and its Subsidiaries as of the
       end of such quarter and unaudited Consolidated statements of income and
       retained earnings and of cash flow of the Company and its Subsidiaries
       for the period ending on the last day of such quarter, setting forth in
       each case in comparative form the corresponding figures for the
       corresponding period of the prior fiscal year, all in reasonable detail
       and duly certified (subject to year-end audit adjustments) by the chief
       executive officer or chief financial officer of the Company as having
       been prepared in all material respects in accordance with generally
       accepted accounting principles consistently applied, not including
       footnote disclosures;

5.3.2  as soon as reasonably available and in any event within ninety (90) days
       after the end of each fiscal year of the Company thereafter, a copy of
       the annual audit report for such year for the Company and its
       Subsidiaries, including therein Consolidated and consolidating balance
       sheets of the Company as of the end of such fiscal year and Consolidated
       and consolidating statements of income and retained earnings and of cash
       flow of the Company and its Subsidiaries for such fiscal year, setting
       forth in each case in comparative form the corresponding figures for the
       preceding fiscal year, all duly certified by an a recognized independent
       certified public accountant which in the regular conduct of its business
       audits the financial statements of at least one company which files
       reports under Section 13 or 15(d) of the Exchange Act;

                                       13
<PAGE>
 
5.3.3  promptly upon the request of the Purchaser, any written report submitted
       to the Company by independent public accountants in connection with an
       annual or interim audit of the books of the Company and its Subsidiaries
       made by such accountants;

5.3.4  promptly after the commencement thereof, notice of all material actions,
       suits and proceedings before any court or governmental department,
       commission, board, bureau, agency or instrumentality,, domestic or
       foreign, materially affecting the Company and any Subsidiary;

5.3.5  at least thirty (30) days prior to the commencement of each fiscal year
       of the Company, a copy of the Budget provided for in Section 5.1.10; and

5.3.6  promptly after sending, making available, or filing the same, all reports
       and financial statements that the Company or any Subsidiary sends or
       makes available to the shareholders of the Company or the Securities and
       Exchange Commission.

5.4    Confidentiality.  Each Purchaser represents and warrants that any
       information obtained by such Purchaser pursuant to Section 5.3 of this
       Agreement or otherwise obtained by such Purchaser from the Company if
       such information is designated as confidential information or is
       otherwise not available to the Purchaser or the public shall be treated
       as confidential and, except as may be required by applicable law or the
       rules of NASDAQ or any stock exchange applicable to Purchaser, shall not
       be disclosed to a third party (except a Purchaser's legal counsel,
       accountants or similar advisors) without the consent of the Board of
       Directors, except that such information shall not be deemed confidential
       for the purpose of enforcement of this Agreement or valuation of the
       Securities. At the request of the Board of Directors, any Person, prior
       to receiving any information pursuant to this Agreement, shall execute
       reasonable confidentiality agreements consistent with this Section 5.4.

6. REPURCHASE OPTION, FINANCING RESTRICTION AND RIGHT OF PARTICIPATION.

6.1    Repurchase Option.  In the event that (i) Purchaser elects not to
       exercise the First Option by the First Option Expiration Date, and (ii)
       the Company secures additional equity financing in an amount not less
       than $1,000,000 other than from the Purchaser (together, the "Repurchase
       Condition"), Purchaser shall have an irrevocable option (the "Repurchase
       Option"), to elect to sell to the Company all of the Purchased Shares and
       the Company shall agree to purchase such Purchased Shares under the
       conditions contained in this Section 5.1. Upon Purchaser's election of
       the Repurchase Option, Purchaser shall deliver notice to the Company (the
       "Notice") of the Repurchase Option within thirty (30) days after the
       occurrence of the Repurchase Conditions. Within ninety (90) days after
       receipt of the Notice, the Company shall repurchase the Purchased Shares
       at the Per Share Price for an aggregate purchase price of $100,000 with
       no interest. If the Company shall fail to repurchase the Purchased Shares
       as required herein, without limitation of 

                                       14
<PAGE>
 
       other remedies available to Purchaser hereunder, the amount due to
       Purchaser hereunder shall accrue interest at the rate of the lesser of
       1.167% per month or the maximum rare permitted by law. The Company may
       satisfy its obligation to repurchase the Purchased Shares upon exercise
       by the Purchaser of the Repurchase Option by causing a third party to
       purchase the Purchased Shares; provided, that the Company shall remain
       liable for payment therefor.

6.2    Financing Restriction.  Commencing on the Closing Date and ending on the
       earlier of (i) expiration of the First Option, or (ii) the date on which
       Purchaser elects to exercise the First Option, neither the Company nor
       any of its representatives shall enter into any agreement for a Financing
       Proposal (as defined below) unless Purchaser is a party to the relevant
       agreement or arrangement or consents in writing to such financing. The
       term "Financing Proposal," as used in this section, refers to any plan,
       proposal, agreement or understanding or arrangement contemplating any
       sale or issuance of any Debt Security or equity security related to the
       financing of the Company other than any sale or issuance to the
       shareholders of the Company.

6.3    Right of Participation.  The Company shall afford the Purchaser with the
       following rights of participation:

6.3.1  Until the Company has completed a Qualified Public Offering, the Company
       shall not issue, sell or exchange, agree to issue, sell or exchange, or
       reserve or set aside for issuance, sale or exchange, for cash or cash
       equivalents (i) any shares of Common Stock, (ii) any other equity
       security of the Company (other than the Purchased Shares, the First
       Option Shares and the Second Option Shares), including, without
       limitation, shares of Preferred Stock, (iii) , any option, warrant or
       other right to subscribe for, purchase or otherwise acquire any equity
       security of the Company (other than the Options), or (iv) any Debt
       Securities (collectively, the "Offered Securities"), unless in each such
       case the Company shall have offered to sell a portion of the Offered
       Securities to the Purchaser as follows: the Company shall offer to sell
       to the Purchaser on the same terms and conditions as the Offered
       Securities are being sold to other persons, that number of the Offered
       Securities so that Purchaser shall retain its then existing equity
       percentage of the Company on an as-converted fully diluted basis assuming
       for this purpose that the Options had been exercised in their entirety
       and all Series A Preferred Stock had been converted into Common Stock of
       the Company. For purposes of making this calculation, all outstanding
       options and warrants to purchase common stock and common stock issuable
       on the conversion of convertible securities of the Company shall be
       deemed to be issued and outstanding shares of Common Stock of the
       Company. The Company shall offer to sell to the Purchaser that portion of
       the Offered Securities as the aggregate number of shares of Series A
       Preferred Stock (on an as-converted basis) then held by or issuable to
       the Purchaser upon exercise of the Options (but only to the extent such
       Options have not expired due to passage of time) or otherwise bears to
       the total number of outstanding shares of Common Stock of the Company,
       plus all shares of Common Stock issuable upon exercise of then
       exercisable warrants or options or upon conversion 

                                       15
<PAGE>
 
       of convertible securities of the Company, at a price and on the other
       terms specified by the Company in writing delivered to the Purchaser (the
       "Offer"), and the Offer by its terms shall remain open and irrevocable
       for a period of thirty (30) days.

6.3.2  Notice of Acceptance.  Notice of each Purchaser 's intention to accept,
       in whole or in part, an Offer made pursuant to Section 6.3.1 shall be
       evidenced by a writing signed by such Purchaser and delivered to the
       Company prior to the end of the thirty (30) day period of the Offer,
       setting forth the portion of the Offered Securities that the Purchaser
       elects to purchase (the "Notice of Acceptance").

6.4    Conditions to Acceptance By Purchaser.

6.4.1  Permitted Sales of Refused Securities.  In the event that a Notice of
       Acceptance is not given by the Purchaser in respect of all the Offered
       Securities to which the Purchaser is entitled, the Company shall have on
       hundred and twenty (120) days from the expiration of the period set forth
       in Section 6.3 to sell, or to enter into a binding agreement to sell, all
       or any part of such Offered Securities as to which a Notice of Acceptance
       has not been given by Purchaser (the "Refused Securities") to the Person
       or Persons specified in the Offer, but only upon terms and conditions,
       including, without limitation, unit price and interest rates, which are
       not more favorable, in unit price and interest rates, in the aggregate,
       to such other Person or Persons or less favorable to the Company than
       those set forth in the Offer.

6.4.2  Reduction in Amount of Offered Securities.  In the event the Company
       shall propose to sell less than all the Refused Securities, then the
       Purchaser may, at its sole option and in its sole discretion, reduce the
       number of, or other units of the Offered Securities specified in its
       Notice of Acceptance to an amount that shall be not less than the amount
       of the Offered Securities that the Purchaser elected to purchase pursuant
       to Section 6.3 multiplied by a fraction, (i) the numerator of which shall
       be the amount of Offered Securities the Company actually proposes to
       sell, and (ii) the denominator of which shall be the amount of all
       Offered Securities. In the event that the Purchaser so elects to reduce
       the number or amount of Offered Securities specified in its Notice of
       Acceptance, the Company may not sell or otherwise dispose of more than
       the reduced amount of the Offered Securities until such securities have
       again been offered to the Purchasers in accordance with Section 6.3.

6.4.3  Closing.  Upon the closing, which shall include full payment to the
       Company, of the sale to such other Person or Persons of all or less than
       all the Offered Securities not being purchased by Purchaser, the
       Purchaser shall purchase from the Company, and the Company shall sell to
       Purchaser, the number of Offered Securities specified in the Notice of
       Acceptance, as reduced pursuant to Section 6.4.2 if the Purchaser have so
       elected, upon the terms and conditions specified in the Offer. The
       purchase by Purchaser of any Offered Securities is subject in all cases
       to the preparation, execution and delivery by the 

                                       16
<PAGE>
 
       Company and the Purchaser of a purchase agreement relating to such
       Offered Securities reasonably satisfactory in form and substance to
       Purchaser and its counsel.

6.5    Further Sale.  In each case, any Offered Securities not purchased by the
       Purchaser or other Persons in accordance with Section 6.4 may not be sold
       or otherwise disposed of until they are again offered to the Purchaser
       under the procedures specified in Section 6.3, 6.4 and 6.5.

6.6    Exceptions.  The rights of  the Purchasers under Section 6.3 shall not
       apply to:

6.6.1  Common Stock issued as a stock dividend to holders of Common Stock or
       upon any subdivision or combination of shares of Common Stock,

6.6.2  Common Stock issued in a Qualified Public Offering,

6.6.3  Common Stock issued upon exercise of the Options,

6.6.4  issuance of shares of Common Stock, or options exercisable therefor to
       officers, employees, directors or consultants of the Company and any
       Subsidiary pursuant to the Company's Stock Option Plan, or any other
       stock option agreement or plan or stock purchase agreement or plan
       approved by the Purchaser in an amount not greater than the amount
       specified in Section 5.2.6 hereof,

6.6.5  the issuance by the Company of securities in connection with a merger,
       consolidation or other acquisition of another corporation, or

6.7    Transfer of Right of Participation.  The right of participation held by
       Purchaser may not be transferred or assigned to any individual or entity
       which is not an accredited investor within the meaning of Regulation D
       under the Securities Act.

7. CONDITIONS TO CLOSING.

7.1    Conditions to Purchasers' Obligations at the Closing. The Purchaser's
       obligation to purchase the Purchased Shares at the Closing are subject to
       the satisfaction (or, waiver by the Purchaser in the exercise of the
       Purchaser's sole discretion), at or prior to the Closing Date, of the
       following conditions:

7.1.1  Amended and Restated Articles of Incorporation.  The Amended and Restated
       Articles of Incorporation in the form attached hereto as Exhibit 1.2
       shall have been filed with, and accepted for filing by, the office of the
       Secretary of State of the State of California, and shall be in full force
       and effect.

7.1.2  Representations and Warranties True; Performance of Obligations.  The
       representations and warranties made by the Company in Section 3 hereof
       shall be true and correct in all material respects as of the Closing Date
       with the same force and effect as if 

                                       17
<PAGE>
 
       they had been made as of the Closing Date, and the Company shall have
       performed all obligations and conditions herein required to be performed
       or observed by it on or prior to the Closing.

7.1.3  Legal Investment.  On the Closing Date, the sale and issuance of the
       Purchase Shares, the First Option and the Second Option and the proposed
       issuance of the First Option Shares and the Second Option Shares shall be
       legally permitted by all laws and regulations to which Purchaser and the
       Company are subject.

7.1.4  Consents, Permits, and Waivers.  The Company shall have obtained any and
       all consents, permits and waivers necessary or appropriate for
       consummation of the transactions contemplated by the Agreement and the
       Option Agreements (except for such as may be properly obtained subsequent
       to the Closing).


7.1.6  Reservation of Conversion Shares.  The First Option Shares and the Second
       Option Shares issuable upon exercise of the exercise of the Option
       Agreements shall have been duly authorized and reserved for issuance upon
       such exercise.

7.1.7  Execution and Delivery of First Stock Option Agreement.  Purchaser shall
       have received the First Stock Option Agreement, duly executed by the
       parties thereto, in the form attached hereto as Exhibit A.

7.1.8  Execution and Delivery of Indemnification Agreement.  Purchaser shall
       have received the Indemnification Agreement, duly executed by the parties
       thereto, in the form attached hereto as Exhibit C.

7.1.9  Approval of Budget for Calendar Year 1999.  Purchaser shall have been
       presented with, and shall have approved a budget of the Company for the
       calendar year ending December 31, 1999 (the "1999 Budget").

7.7    Conditions to Obligations of the Company. The Company's obligation to
       issue and sell the Purchase Shares at the Closing is subject to the
       satisfaction, on or prior to the Closing Date, of the following
       conditions:

7.7.1  Representations and Warranties True.  The representations and warranties
       made by the Purchaser acquiring Purchase Shares in Section 4 hereof shall
       be true and correct in all material respects at the date of the Closing,
       with the same force and effect as if they had been made on and as of said
       date.

7.7.2  Performance of Obligations. Purchaser shall have performed and complied
       with all agreements and conditions herein required to be performed or
       complied with by such Purchasers on or before the Closing.

                                       18
<PAGE>
 
8. REGISTRATION RIGHTS.  The registration rights set forth in this Section 8 are
   only applicable after the exercise of the First Option or investment by the
   Purchaser of at least $1,000,000 in securities of the Company.

8.1  "Piggy Back" Registration.  If at any time after the exercise of the First
     Option or investment by the Purchaser of at least $1,000,000 in securities
     of the Company, the Company shall determine to register under the
     Securities Act (including pursuant to a demand of any shareholder of the
     Company exercising registration rights) any of its Common Stock (except (i)
     shares to be issued solely in connection with any acquisition of any entity
     or business; (ii) shares issuable solely upon exercise of stock options;
     (iii) shares issuable solely pursuant to employee benefit plans; or (iv)
     shares proposed to be registered on any form that does not include
     substantially the same information as would be required to be included in a
     registration statement covering the sale of the Registrable Shares), it
     shall send to each holder of Registrable Shares, written notice of such
     determination and, if within twenty (20) days after receipt of such notice,
     such holder shall so request in writing, the Company shall use its best
     efforts to include in such registration statement all or any part of the
     Registrable Shares that such holder requests to be registered, except that
     if, in connection with any offering involving an underwriting of shares of
     the Company's Common Stock, the managing underwriter shall impose a
     reasonable limitation on the number of shares of Common Stock included in
     any such registration statement because, in its judgment, such limitation
     is necessary to effect an orderly public distribution or will otherwise
     jeopardize the success of the Offering, then such limitation shall be
     imposed pro rata among the holders of such Common Stock having an
     incidental ("piggy back") right to include such Common Stock in the
     registration statement as provided below, and, to the extent any
     Registrable Shares remain available for registration after the
     underwriter's cut-back, the Company shall be obligated to include in such
     registration statement only the product of (i) the number of Registrable
     Shares with respect to which such holder has requested inclusion hereunder
     and (ii) such holder's Ownership Percentage, as that term is defined in
     Section 9.1.  For purposes of the apportionment provided for in the
     preceding sentence, for any holder of Registrable Shares that is a
     partnership or a corporation, the partners, retired partners, and
     stockholders of such holder, or the estates and family members of any such
     partners and retired partners and any trusts for the benefit of any of the
     foregoing persons shall be deemed to be a single holder, Notwithstanding
     the foregoing, no such reduction shall be made with respect to securities
     being offered by the Company for its own.  If any holder of Registrable
     Shares disapproves of the terms of such underwriting, he may elect to
     withdraw therefrom by written notice to the Company and the underwriter
     given within three (3) days of the time such holder becomes aware of such
     terms.  No incidental right under this Section 8.1 shall be construed to
     limit any registration required under Section 8.2.

8.2  Required Registration.

                                       19
<PAGE>
 
8.2.1  If on any two occasions, following the completion of the Company's
       initial public offering (other than an offering relating solely to any
       acquisition of any entity or business, or to the sale of securities to
       officers, directors, employees, or consultants of the Company pursuant to
       a stock option, stock purchase, or similar plan or arrangement), one or
       more holders of the Registrable Shares shall notify the Company in
       writing that it or they intend to offer or cause to be offered for public
       sale at least fifty percent (50%) of the Registrable Shares, the Company
       will so notify all holders of Registrable Shares. Upon written request of
       any holder given within thirty (30) days after the receipt by such holder
       from the Company of such notification, the Company will use its
       reasonable best efforts to cause all or any part of the Registrable
       Shares that may be requested by any holder thereof (including the holder
       or holders giving the initial notice of intent to offer) to be registered
       under the Securities Act as expeditiously as reasonably possible. If (i)
       the Company determines to include shares to be sold by it in any
       registration request under this Section 8.2 pursuant to a registration
       statement for which the Company has previously sent written notice of its
       determination to register shares to holders of Registrable Shares under
       Section 8.1, or (ii) the Company determines to include shares to be sold
       by it in any registration request under this Section 8.2 and such
       inclusion of shares results in a cut-back or limitation of the number of
       shares or other benefits to the holder(s) of the Registrable Shares
       submitting the registration request under this Section 8.2, then such
       registration shall be deemed to have been a registration under Section
       8.1.

8.2.2  If the holders initiating the registration request hereunder ("Initiating
       Holders") intend to distribute the Registrable Shares covered by their
       request by means of an underwriting, they shall so advise the Company as
       a part of their request made pursuant to subsection (a) and the Company
       shall include such information in the written notice referred to in
       subsection (a). The underwriter will be selected by the Company and shall
       be reasonably acceptable to a majority in interest of the Initiating
       Holders. In such event, the right of any holder to include its
       Registrable Shares in such registration shall be conditioned upon such
       holder's participation in such underwriting and the inclusion of such
       holder's Registrable Shares in the underwriting (unless otherwise
       mutually agreed by a majority in interest of the Initiating Holders and
       such holder) to the extent provided herein. All holders proposing to
       distribute their Securities through such underwriting shall (together
       with the Company if required or desired by the Company) enter into an
       underwriting agreement in customary form with the underwriter or
       underwriters selected for such underwriting. Notwithstanding any other
       provision of this Section 8.2, if the underwriter advises the Initiating
       Holders in writing that marketing factors require a limitation of the
       number of shares to be underwritten, then the Initiating Holders shall so
       advise all holders of Registrable Shares which would otherwise be
       underwritten pursuant hereto, and the number of Registrable Shares that
       may be included in the underwriting shall be allocated among all holders
       thereof, including the Initiating Holders, in proportion (as nearly as
       practicable) to the amount of Registrable Shares of the Company owned by
       each holder; provided, however, that the number of Registrable Shares to
       be included in such 

                                       20
<PAGE>
 
         underwriting shall not be reduced unless all other securities are first
         entirely excluded from the underwriting.

8.2.3    Notwithstanding the foregoing, if the Company shall furnish to holders
         requesting a registration statement pursuant to this Section 8.2, a
         certificate signed by the chief executive officer of the Company
         stating that in the good faith judgment of the Board of Directors of
         the Company, it would be seriously detrimental to the Company and its
         shareholders for such registration statement to be filed and it is
         therefore essential to defer the filing of such registration statement,
         the Company shall have the right to defer taking action with respect to
         such filing for a period of not more than 90 days after receipt of the
         request of the Initiating Holders; provided, however, that the Company
         may not utilize this right more than once in any twelve-month period.

8.2.4    In addition, the Company shall not be obligated to effect, or to take
         any action to effect, any registration pursuant to this Section 8.2:

8.2.4.1  after the Company has effected two registrations pursuant to this
         Section 8.2 and such registrations have been declared or ordered
         effective; or

8.2.4.2  if the Initiating Holders propose to dispose of shares of Registrable
         Shares that may be immediately registered on Form S-3 pursuant to a
         request made pursuant to Section 8.3 below: or

8.2.4.3  if the Company has effected a registration pursuant to this Section 8.2
         and such registration has been declared or ordered effective within the
         previous 12 months.

8.3      Registration on Form S-3.  In addition to the rights provided the
         holders of Registrable Shares in Section 8.1 and Section 8.2 above,
         from and after the date that the registration of Registrable Shares
         under the Securities Act can be effected on Form S-3 (or any similar
         successor form promulgated by the Securities and Exchange Commission)
         through the period ending five years following the Company's first
         public offering of its Common Stock in an offering registered under the
         Securities Act, the Company will promptly so notify each holder of
         Registrable Shares and then will at any time, and from time to time,
         during such period, as expeditiously as possible, use its best efforts
         to effect registration under the Securities Act on said Form S-3 of all
         or such portion of the Registrable Shares as the holder or holders
         shall specify. Notwithstanding the above, the Company shall not be
         obligated to effect any registration pursuant to this Section 8.3: (i)
         if Form S-3 (or any similar successor form promulgated by the
         Securities and Exchange Commission) is not available for such offering
         by the holders; (ii) if the holders of Registrable Shares, together
         with the holders of any other securities of the Company entitled to
         inclusion in such registration, propose to sell Registrable Shares and
         such other securities (if any) at an aggregate price to the public (net
         of any underwriters' discounts or commissions) of less than $500,000:
         (iii) if the Company shall furnish the holders a certificate signed by
         the chief executive officer of the Company stating that in the good
         faith judgment of the 

                                       21
<PAGE>
 
     Board of Directors of the Company, it would be seriously detrimental to the
     Company and its shareholders for such Form S-3 Registration to be effected
     at such time, in which event the Company shall have the right to defer the
     filing of the Form S-3 registration statement for a period of not more than
     90 days after receipt of the request of the holder or holders under this
     Section 8 3; provided, however, that the Company shall not utilize this
     right more than once in any twelve (12) month period; or (iv) if the
     Company has, within the twelve (12) month period preceding the date of such
     request, already effected two registrations on Form S-3 (or any similar
     successor form promulgated by the Securities and Exchange Commission).for
     the holders pursuant to this Section 8.3.

8.4  Effectiveness.  The Company will use its best efforts to maintain the
     effectiveness for up to nine (9) months of any registration statement
     pursuant to which any of the Registrable Shares are being offered and will
     from time to time amend or supplement such registration statement and the
     prospectus contained therein as and to the extent necessary to comply with
     the Securities Act and any applicable state securities statute or
     regulation.

8.5  Indemnification of Holders of Registrable Shares.  In the event that the
     Company registers any of the Registrable Shares under the Securities Act,
     to the extent permitted by law, the Company will indemnify and hold
     harmless each holder and each underwriter of the Registrable Shares so
     registered (including any broker or dealer through whom such shares may be
     sold) and each person, if any, who controls such holder or any such
     underwriter within the meaning of Section 15 of the Securities Act from and
     against any and all losses, claims, damages, expenses or liabilities, joint
     or several, to which they or any of them become subject under the
     Securities Act and, except as hereinafter provided, will reimburse each
     such holder, each such underwriter and each such controlling person, if
     any, for any legal or other expenses reasonably incurred by them or any of
     them in connection with investigating or defending any actions whether or
     not resulting in any liability, insofar as such losses, claims, damages,
     expenses, liabilities or actions arise out of or are based upon any untrue
     statement or alleged untrue statement of a material fact contained in the
     registration statement, in any preliminary or amended preliminary
     prospectus or in the prospectus (or the registration statement or
     prospectus as from time to time amended or supplemented by the Company) or
     arise out of or are based upon the omission or alleged omission to state
     therein a material fact required to be stated therein or necessary in order
     to make the statements therein not misleading or any violation by the
     Company of any rule or regulation promulgated under the Securities Act
     applicable to the Company and relating to action or inaction required of
     the Company in connection with such registration, unless such untrue
     statement or omission was made in such registration statement, preliminary,
     or amended, preliminary prospectus or prospectus in reliance upon and in
     conformity with information furnished in writing to the Company in
     connection therewith by such holder of Registrable Shares, any such
     underwriter or any such controlling person expressly for use therein;
     provided that if a registration statement or any prospectus is amended to
     correct an untrue or misleading statement or omission, and any person who
     would otherwise be entitled to indemnification under this Section 8.5 fails
     to read such amendment and that failure results in a claim, loss, damage,
     expense or 

                                       22
<PAGE>
 
     liability which would otherwise be covered under this section, then the
     indemnification of this section shall not apply; and provided, further that
     if any untrue statement or omission is contained in a preliminary, or
     amended preliminary prospectus and the final prospectus corrects the untrue
     statement or omission and is timely furnished to the holders of Registrable
     Shares and any underwriters, then the indemnification of this section shall
     not apply. Promptly after receipt, but in any event, not more than 30 days
     after receipt, by any holder of Registrable Shares, any underwriter or any
     controlling person of notice of the commencement of any action in respect
     of which indemnity may be sought against the Company, such holder of
     Registrable Shares, or such underwriter or such controlling person, as the
     case may be, will notify the Company in writing of the commencement
     thereof, and, subject to the provisions hereinafter stated, the Company
     shall have the right to participate in, and to the extent it so desires, to
     assume the defense and full control of such action (including the
     employment of counsel, who shall be counsel reasonably satisfactory to such
     holder of Registrable Shares, such underwriter or such controlling person,
     as the case may be), and the payment of expenses insofar as such action
     shall relate to any alleged liability in respect of which indemnity may be
     sought against the Company, except as otherwise provided herein, Such
     holder of Registrable Shares, any such underwriter or any such controlling
     person shall have the right to employ separate counsel in any such action
     and to participate in the defense thereof but the fees and expenses of such
     counsel shall not be at the expense of the Company unless the employment of
     such counsel and payment of such fees and expenses of such counsel has been
     specifically authorized by the Company. The Company shall not be liable to
     indemnify any person for any settlement of any such action effected without
     the Company's consent. The Company shall not, except with the approval of
     each party, being indemnified under this Section 8.5, consent to entry of
     any judgment with respect to a matter against an indemnitee or enter into
     any settlement of a matter against an indemnitee that does not include as
     an unconditional term thereof the giving by the claimant or plaintiff to
     the parties being so indemnified of a release from all liability in respect
     to such claim or litigation.

8.6  Indemnification of Company.  In the event that the Company registers any of
     the Registrable Shares under the Securities Act, to the extent permitted by
     law, each holder of the Registrable Shares so registered will indemnify and
     hold harmless the Company, each of its directors, each of its officers who
     have signed the registration statement, each underwriter of the Registrable
     Shares so registered (including any broker or dealer through whom such of
     the shares may be sold) and each person, if any, who controls the Company
     within the meaning of Section 15 of the Securities Act from and against any
     and all losses, claims, damages, expenses or liabilities, joint or several,
     to which they or any of them may become subject under the Securities Act
     and, except as hereinafter provided, will reimburse the Company and each
     such director, officer, underwriter or controlling person for any legal or
     other expenses reasonably incurred by them or any of them in connection
     with investigating or defending any actions whether or not resulting in any
     liability, insofar as such losses, claims, damages, expenses, liabilities
     or actions arise out 

                                       23
<PAGE>
 
     of or are based upon any untrue statement or alleged untrue statement of a
     material fact contained in the registration statement, in any preliminary
     or amended preliminary prospectus or in the prospectus (or the registration
     statement or prospectus as from time to time amended or supplemented) or
     arise out of or are based upon the omission or alleged omission to state
     therein a material fact required to be stated therein or necessary in order
     to make the statements therein not misleading, but only insofar as any such
     statement or omission was made in reliance upon and in conformity with
     information furnished in writing to the Company in connection therewith by
     such holder of Registrable Shares, expressly for use therein; provided,
     however, that such holder's obligations hereunder shall be limited to an
     amount equal to the proceeds to such holder of the Registrable Shares sold
     in such registration, and provided further, that if a registration
     statement or any prospectus is amended to correct an untrue or misleading
     statement or omission and any person who would otherwise be entitled to
     indemnification under this section fails to read such amendment and that
     failure results in a claim, loss, damages, expenses or liability which
     would otherwise be covered under this section, then the indemnification of
     this Section 5.6 shall not apply; and provided, further that if any untrue
     statement or omission is contained in a preliminary or amended preliminary
     prospectus and the final prospectus corrects the untrue statement or
     omission and is timely furnished to the holders of Registrable Shares and
     any underwriters, then the indemnification of this section shall not apply,
     Promptly after receipt, but in any event not more than 30 days after
     receipt of notice of the commencement of any action in respect of which
     indemnity may be sought against such holder of Registrable Shares, the
     Company will notify such holder of Registrable Shares in writing of the
     commencement thereof, and such holder of Registrable Shares shall, subject
     to the provisions hereinafter stated, such holder shall have the right to
     participate in, and to the extent it so desires, to assume the defense and
     full control of such action (including the employment of counsel, who shall
     be counsel satisfactory to the Company) and the payment of expenses insofar
     as such action shall relate to the alleged liability in respect of which
     indemnify may be sought against such holder of Registrable Shares, except
     as otherwise provided herein. The Company and each such director, officer,
     underwriter or controlling person shall have the right to employ separate
     counsel in any such action and to participate in the defense thereof but
     the fees and expenses of such counsel shall not be at the expense of such
     holder of Registrable Shares unless employment of such counsel and payment
     of such fees and expenses of such counsel has been specifically authorized
     by such holder of Registrable Shares. Notwithstanding the two preceding
     sentences, if the action is one in which the Company may be obligated to
     indemnify, any holder of Registrable Shares pursuant to Section 8.5, the
     Company shall have the right to assume the defense of such action, subject
     to the right of such holders to participate therein as permitted by Section
     8.5. Such holder of Registrable Shares shall not be liable to indemnify any
     person for any settlement of any such action effected without such holder's
     consent. Such holder shall not, except with the approval of the Company,
     consent to entry of any judgment or enter into any settlement that does not
     include as an unconditional term thereof the giving 

                                       24
<PAGE>
 
         by the claimant or plaintiff to the party being so indemnified of a
         release from all liability in respect to such claim or litigation.

8.7      Exchange Act Registration.  At such time as it is required under the
         Exchange Act, the Company will use its best efforts to file on a timely
         basis with the Securities and Exchange Commission all material
         information that the Commission may require under either of Section 13
         or Section 15(d) of the Exchange Act and, so long as it is required to
         file such information under the Exchange Act, shall use its best
         reasonable efforts to take all action that may be required as a
         condition to the availability of Rule 144 under the Securities Act (or
         any successor exemptive rule hereinafter in effect) with respect to the
         Company's Common Stock. From and after the first filings provided
         above, the Company shall furnish to any holder of Registrable Shares
         forthwith upon request (i) a written statement by the Company as to its
         compliance with the reporting requirements of Rule 144, (ii) a copy of
         the most recent annual or quarterly report of the Company as filed with
         the Securities and Exchange Commission, and (iii) any other reports and
         documents that a holder may reasonably request in availing itself of
         any rule or regulation of the Securities and Exchange Commission
         allowing a holder to sell any such Registrable Securities without
         registration.

8.8      Further Obligations of the Company.  Whenever under the preceding
         Sections of this Section 8 the Company is required hereunder to
         register Registrable Shares, it agrees that it shall also do the
         following:

8.8.1    Furnish to each selling holder such copies of each preliminary and
         final prospectus and any other documents that such holder may
         reasonably request to facilitate the public offering of its Registrable
         Shares;

8.8.2    Use its best efforts to register or qualify the Registrable Shares to
         be registered pursuant to this Article 5 under the applicable
         securities or "blue sky" laws of such jurisdictions as any selling
         holder may reasonably request; provided, however, that the Company
         shall not be obligated to qualify to do business in any jurisdiction
         where it is not then so qualified or to take any action that would
         subject it to the service of process in suits other than those arising
         out of the offer or sale of the securities covered by the registration
         statement in any jurisdiction where it is not then so subject;

8.8.3    Furnish to each selling holder a signed counterpart of:

8.8.3.1  an opinion of counsel for the Company, dated the effective date of the
         registration statement: and

8.8.3.2  "comfort" letters signed by the Company's independent public
         accountants who have examined and reported on the Company's financial
         statements included in the registration statement, to the extent
         permitted by the standards of the American Institute of Certified
         Public Accountants, covering substantially the same matters with
         respect to 

                                       25
<PAGE>
 
       the registration statement (and the prospectus included therein) and (in
       the case of the accountants' "comfort" letters) with respect to events
       subsequent to the date of the financial statements, as are customarily
       covered in opinions of issuer's counsel and in accountants' "comfort"
       letters delivered to the underwriters in underwritten public offerings of
       securities, but only if and to the extent that the Company is required to
       deliver or cause the delivery of such opinion or "comfort" letters to the
       underwriters in an underwritten public offering of securities: and

8.8.4  Permit each selling holder or its counsel or other representatives to
       inspect and copy such corporate documents and records as may reasonably
       be requested by it; and

8.8.5  Furnish to each selling holder, upon request, a copy of all documents
       filed with and all correspondence from or to the Securities and Exchange
       Commission in connection with any such offering unless confidential
       treatment of such information has been requested of the Securities and
       Exchange Commission.

8.9    Expenses.  Except as otherwise provided in this Agreement, in the case of
       a registration under Section8.1, 8.2 or 8.3 the Company shall bear all
       reasonable costs and expenses of each such registration, including, but
       not limited to, printing, legal and accounting expenses, Securities and
       Exchange Commission filing fees and "blue sky" fees and expenses;
       provided, however, that the Company shall have no obligation to pay or
       otherwise bear (i) any portion of the fees or disbursements of more than
       one counsel for the selling holders of Registrable Shares in connection
       with the registration of their Registrable Shares, (ii) any portion of
       the underwriter's commissions or discounts attributable to the
       Registrable Shares being offered and sold by the holders of Registrable
       Shares, (iii) any of such expenses if the payment of such expenses by the
       Company is prohibited by the laws of a state in which such offering is
       qualified, but only to the extent so prohibited, or (iv) any of such
       expenses in any registration proceeding begun pursuant to Section 5.2 or
       5.3 if the registration request is subsequently withdrawn at the request
       of the holders of Registrable Shares participating therein unless such
       withdrawal is due to a material adverse change in the condition,
       business, or prospects of the Company from that known to the holders of
       Registrable Shares at the time of their request and the request is
       withdrawn with reasonable promptness following disclosure by the Company
       of such material adverse change.

8.10   Transfer of Registration Rights.  The registration rights of the holders
       of Registrable Shares under this Article 8 may be transferred to any
       transferee of Registrable Shares that is an accredited investor within
       the meaning of Regulation D under the Securities Act; and provided, that
       (i) all provisions of this Agreement with respect to the transfer of
       Registrable Shares have been complied with: (ii) such transferee or
       assignee agrees in writing to be bound by and subject to the terms and
       conditions of this Agreement: (iii) such Transferee acquires from the
       purchaser at least $100,000 worth of shares of Common Stock; and (iv)
       such assignment shall be effective only if immediately following 

                                       26
<PAGE>
 
       such transfer the further disposition of such Securities by the
       transferee or assignee is restricted under the Securities Act.

8.11   No Superior Rights.  The Company will not grant registration rights to
       any Person that are superior to the rights granted hereunder.

9. DEFINITIONS AND ACCOUNTING TERMS

9.1    Certain Defined Terms.  As used in this Agreement, the following terms
       shall have the following meanings (such meanings to be equally applicable
       to both the singular and plural forms of the terms defined):

9.1.1  "Closing" shall have the meaning assigned to that term in Section.2.1.

9.1.2  "Company" means and shall include ONLINE TRANSACTION TECHNOLOGIES, INC.,
       a California corporation and its successors and assigns.

9.1.3  "Common Stock" includes (a) the Company's Common Stock, without par
       value, as authorized on the date of this Agreement, (b) any other capital
       stock of any class or classes (however designated) of the Company,
       authorized on or after the date hereof, the holders of which shall have
       the right, without limitation as to amount, either to all or to a share
       of the balance of current dividends and liquidating dividends after the
       payment of dividends and distributions on any shares entitled to
       preference, and the holders of which shall ordinarily, in the absence of
       contingencies, be entitled to vote for the election of directors of the
       Company (even though the right so to vote has been suspended by the
       happening of such a contingency), and (c) any other securities into which
       or for which any of the securities described in (a) or (b) may be
       converted or exchanged pursuant to a plan of recapitalization,
       reorganization, merger, sale of assets or otherwise.

9.1.4  "Consolidated" when used with reference to any term defined herein shall
       mean that term as applied to the accounts of the Company and its
       Subsidiaries consolidated in accordance with generally accepted
       accounting principles after eliminating intercompany items and minority
       interests.

9.1.5  A "Covenant Termination Event" is (i) the closing of a Qualified Public
       Offering, or (ii) the occurrence of the Repurchase Condition and
       subsequent expiration without exercise by the Purchaser of the Repurchase
       Option, or (iii) the completion of the purchase by the Company of the
       Purchased Shares if the Purchaser exercises the Repurchase Option.

9.1.6  "Debt Securities" means and includes (i) any debt security of the Company
       that by its terms is convertible into or exchangeable for any equity
       security of the Company or (ii) any option, warrant or other right to
       subscribe for, purchase or otherwise acquire any such debt security of
       the Company.

                                       27
<PAGE>
 
9.1.7  "Disclosure Letter" shall mean that certain disclosure letter of even
       date herewith certified by the President and the Chairman of the Company
       and delivered to the Purchaser on or prior to the date hereof.

9.1.8  "Exchange Act" means the Securities Exchange Act of 1934, or any similar
       federal statute, and the rules and regulations of the Securities and
       Exchange Commission (or of any other Federal Agency then administering
       the Exchange Act) thereunder, all as the same shall be in effect at the
       time.

9.1.9  "Indebtedness" means all material obligations, contingent and otherwise,
       which should, in accordance with generally accepted accounting principles
       consistently applied, be classified upon the obligor's balance sheet as
       liabilities, excluding any liabilities in respect of deferred federal or
       state income taxes, but in any event including, without limitation,
       liabilities secured by any material mortgage on property owned or
       acquired subject to such mortgage, whether or not the liability secured
       thereby shall have been assumed, and also including, without limitation,
       (i)all material guaranties, endorsements and other contingent obligations
       in respect of Indebtedness of others, whether or not the same are or
       should be so reflected in said balance sheet, except guaranties by
       endorsement of negotiable instruments for deposit or collection or
       similar transactions in the ordinary course of business and (ii) the
       present value of any material lease payments due under leases in respect
       to which the obligor is liable as a lessee, required to be capitalized in
       accordance with applicable Statements of Financial Accounting Standards,
       determined by discounting all such payments at the interest rate
       determined in accordance with applicable Statements of Financial
       Accounting Standards.

9.1.10 "Ownership Percentage" means and includes, with respect to each holder
       of Registrable Shares requesting inclusion of Registrable Shares in an
       offering pursuant to Section 8.1, the number of Registrable Shares held
       by such holder divided by the aggregate of (i) all Registrable Shares and
       (ii) the total number of all other securities entitled to registration
       pursuant to agreement with the Company.

9.1.11 "Person" means an individual, corporation, partnership, joint venture,
       trust, or unincorporated organization, or a government or any agency or
       political subdivision thereof.

9.1.12 "Qualified Public Offering" means and includes the closing of an
       underwritten public offering pursuant to an effective registration
       statement under the Securities Act, covering the offer and sale of Common
       Stock for the account of the Company from which the aggregate net
       proceeds to the Company exceed $15,000,000 and in which the price per
       share is at least four times the Per Share Price (such amount to be
       equitably adjusted whenever there shall occur a stock split, combination,
       reclassification, or other similar event affecting the Common Stock).

                                       28
<PAGE>
 
9.1.13  "Registrable Shares" means and includes (i) the Common Stock held by the
        Purchaser or its permitted assignees; (ii) any other shares of Common
        Stock held by Purchaser; and (iii) any shares of Common Stock issued or
        issuable upon conversion of the Purchased Shares, the First Option
        Shares and/or the Second Option Shares or conversion of other securities
        of the Company held by the Purchaser.

9.1.14  "Securities" shall have the meaning assigned to that term in Section
        1.2.

9.1.15  "Securities Act" means the Securities Act of 1933, as mended, or any
        similar Federal statute, and the rules and regulations of the Securities
        and Exchange Commission (or of any other Federal agency then
        administering the Securities Act) thereunder, all as the same shall be
        in effect at the time.

9.1.16  "Stock Option Plan" means the Company's Stock Option and Incentive Plan
        complying with the provisions of Section 5.2.6 , as hereafter adopted
        and amended from time to time.

9.1.17  "Subsidiary." or "Subsidiaries" means any corporation, 50% or more of
        the outstanding voting stock of which shall at the time be owned by the
        Company or by one or more Subsidiaries, or any other entity or
        enterprise, 50% or more of the equity of which shall at the time be
        owned by the Company or by one or more Subsidiaries.

9.1.18  "Wholly-Owned Subsidiary" or "Wholly-Owned Subsidiaries" means any
        corporation, 100% of the outstanding voting stock of which shall at the
        time be owned by the Company or by one or more Wholly-Owned
        Subsidiaries, or any other entity or enterprise, 100% of the equity of
        which shall at the time be owned by the Company or by one or more 
        Wholly-Owned Subsidiaries.

9.2     Accounting Terms.  All accounting terms not specifically defined herein
        shall be construed in accordance with generally accepted accounting
        principles, and all other financial data submitted pursuant to this
        Agreement shall be prepared and calculated in all material respects in
        accordance with such principles.

10. MISCELLANEOUS.

10.1    Survival. The representations, warranties, covenants and agreements of
        each party made herein shall survive any investigation made by any party
        and the closing of the transactions contemplated hereby.

10.2    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, heirs, executors and administrators of
        the parties hereto and shall inure to the benefit of and be enforceable
        by each person who shall be a holder of the Series A Preferred Stock,
        the First Option or the Second Option from time to time.

                                       29
<PAGE>
 
10.3 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, the
     Option Agreements and the other documents delivered pursuant hereto
     constitute the full and entire understanding and agreement between the
     parties with regard to the subjects hereof and supercedes all prior
     writings or communications and no party shall be liable or bound to any
     other in any manner by any representations, warranties, covenants and
     agreements except as specifically set forth herein and therein.

10.4 Severability. In case any provision of the 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.

10.5 Amendment, Waiver and Remedies.  This Agreement may be amended or modified
     only upon the written consent of the Company and Purchaser.  The
     obligations of the Company and the rights of the Purchaser under this
     Agreement may be waived only with the written consent of the Company and
     the Purchaser.  No failure or delay on the part of the Purchaser, or any
     other holder of the Registrable Shares, in exercising any right, power or
     remedy hereunder shall operate as a waiver thereof; nor shall any single or
     partial exercise of any such right, power or remedy preclude any other or
     further exercise thereof or the exercise of any other right, power or
     remedy hereunder.  The remedies herein provided are cumulative and not
     exclusive of any remedies provided by law.

10.6 Notices. All notices required or permitted hereunder shall be in writing
     and shall be deemed effectively given: (a) upon personal delivery to the
     party to be notified; (b) when sent by confirmed telex or facsimile if sent
     during normal business hours of the recipient, if not, then on the next
     business day; (c) five (5) days after having been sent by registered or
     certified mail, return receipt requested, postage prepaid; or (d) one (1)
     day after deposit with a nationally recognized overnight courier,
     specifying next day delivery, with written verification of receipt.  All
     communications shall be sent to the Company or the Purchaser at the
     addresses as set forth on the signature page hereof or at such other
     address as the Company or Purchaser may designate by ten (10) days advance
     written notice to the other parties hereto.

10.7 Expenses. From and after the Closing, so long as there remain obligations
     due by the Company under this Agreement, the Company agrees to pay the
     reasonable fees and out-of-pocket expenses of legal counsel, independent
     public accountants and other outside experts reasonably retained by
     Purchaser in connection with any amendments, modifications or waivers under
     this Agreement, the Option Agreements, the Options and other instruments
     and documents to be delivered hereunder or thereunder; provided, however,
     that the Company will pay Purchaser's legal fees and expenses resulting
     from amendments only if prior to the preparation of documents effectuating
     such amendments the Company and Purchaser have mutually agreed in writing
     to the proposed amendment and, provided further, that the Company will have
     no obligation to pay Purchaser's legal fees and expenses resulting from
     amendments, modifications or waivers requested by the Purchaser. Each party
     shall pay all costs and expenses that it incurs with respect to the

                                       30
<PAGE>
 
       negotiation, execution, delivery and performance of this Agreement. If
       any action at law or in equity is necessary to enforce or interpret the
       terms of this Agreement, the prevailing party shall be entitled to
       reasonable attorney's fees, costs and necessary disbursements in addition
       to any other relief to which such party may be entitled.

10.8   Titles and Subtitles. The titles of the sections and subsections of the
       Agreement are for convenience of reference only and are not to be
       considered in construing this Agreement.

10.9   Counterparts. This Agreement may be executed in any number of
       counterparts, each of which shall be an original, but all of which
       together shall constitute one instrument.

10.10  Broker's Fees. Each party hereto represents and warrants that no agent,
       broker, investment banker, person or firm acting on behalf of or under
       the authority of such party hereto is or will be entitled to any broker's
       or finder's fee or any other commission directly or indirectly in
       connection with the transactions contemplated herein. Each party hereto
       further agrees to indemnify each other party for any claims, losses or
       expenses incurred by such other party as a result of the representation
       in this paragraph being untrue.

10.11  Pronouns. All pronouns contained herein, and any variations thereof,
       shall be deemed to refer to the masculine, feminine or neutral, singular
       or plural, as to the identity of the parties hereto may
       require.Negotiation of Agreement. Each of the parties acknowledges that
       it has been represented by independent counsel of its choice throughout
       all negotiations that have preceded the execution of this Agreement and
       that it has executed the same with consent and upon the advice of said
       independent counsel. Each party and its counsel cooperated in the
       drafting and preparation of this Agreement and the documents referred to
       herein, and any and all drafts relating thereto shall be deemed the work
       product of the parties and may not be construed against any party by
       reason of its preparation. Accordingly, any rule of law or any legal
       decision that would require interpretation of any ambiguities in this
       Agreement against the party that drafted it is of no application and is
       hereby expressly waived. The provisions of this Agreement shall be
       interpreted in a reasonable manner to effect the intentions of the
       parties and this Agreement.


10.12  Further Assurances.  From and after the date of this Agreement, upon the
       reasonable request of Purchasers, or the Company and each Subsidiary, the
       other party shall execute and deliver such instruments, documents and
       other writings as may be reasonably necessary or desirable to confirm and
       carry out and to effectuate fully the intent and purposes of this
       Agreement and the Securities.

10.13  California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
       THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
       COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE
       OF SUCH SECURITIES OR THE 

                                       31
<PAGE>
 
       PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
       SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
       QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY
       THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
       CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM
       SUCH QUALIFICATION BEING AVAILABLE.

                                       32
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have executed the STOCK PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.

COMPANY:                                   PURCHASER:

ONLINE TRANSACTION.                        CUMETRIX DATA SYSTEMS
TECHNOLOGIES, INC                          CORP.


By: /s/ IGOR KOGAN                         By: /s/ MAX TOGHRAIE            
    ---------------------                      -----------------------         
    Igor Kogan, President                      Max Toghraie
                                               Chief Executive Officer

By: /s/ MICHAEL SHIRMAN          
    -------------------------        
    Michael Shirman, Chairman

Address: 909 6th  Street, Suite 6          Address: 957 Lawson Street
         Santa Monica, California 90403             Industry, California 91748
                                                                    


                                   EXHIBIT A

                          FIRST STOCK OPTION AGREEMENT
                                        

 THE SECURITIES EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
   SECURITIES ACT OF 1933, AS AMENDED, HAVE BEEN TAKEN FOR INVESTMENT AND MAY
     NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
       DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT.

                          FIRST STOCK OPTION AGREEMENT

     THIS FIRST STOCK OPTION AGREEMENT (the "Agreement") is made as of the _____
day of December, 1998, by and among ONLINE TRANSACTION TECHNOLOGIES, INC., a
California corporation (the "Company"), and CUMETRIX DATA SYSTEMS CORPORATION, a
California corporation ("Holder").

                                   RECITALS

                                      33
<PAGE>
 
     A.  The Company and Holder have agreed to enter into a Preferred Stock
Purchase Agreement, dated as of the date hereof (the "Purchase Agreement")
relating to the sale and issuance of shares of the Company's Series A-1
Preferred Stock.

     B.  The Company desires to grant Holder, pursuant to the Purchase Agreement
and in consideration of Holder's agreement to enter into the Purchase Agreement,
the right to purchase shares of its Series A-2  Preferred Stock.

     NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth below, the parties hereto covenant and agree
as follows:

                                   AGREEMENT

1.   OPTIONS.

     1.1  Grant of Option.  The Holder is hereby granted an option (the "First
Option") to purchase such number of shares (rounded up to the nearest whole
share) of the Company's Series A-2  Preferred Stock (the "First Option Shares")
equal to the remainder of (A) the quotient of (x) the number of shares of the
Company's Common Stock issued and outstanding (including shares issuable
pursuant to outstanding options, warrants, rights and convertible debt or equity
securities other than options granted pursuant to this Agreement) as of the date
the First Option is exercised, divided by (y) .7429 minus (B) the number of
                                                    -----                  
shares of the Company's Common Stock issued and outstanding (including shares
issuable pursuant to outstanding options, warrants, rights and convertible debt
or equity securities other than options granted pursuant to this Agreement) all
determined on an as-converted basis as of the date the First Option is
exercised.  The per share exercise price for the First Option Shares (the "First
Option Share Price") shall be equal to the quotient of (x) $900,000 divided by
(y) the number of First Option Shares.  The total purchase price (the "Total
Purchase Price") of the First Option Shares shall be $900,000.  The number and
purchase price of such shares are subject to adjustment as provided in Section 2
hereof.

     1.2  Exercise of Option.  The First Option may be exercised at any time,
only as to all of the First Option Shares, commencing on the date hereof and
ending the later of (i) at 5:00 p.m., California Time, on February 1, 1999, and
(ii) seven (7) business days following such time as the Company delivers to the
Holder  the Company's interactive software capable of performing in all material
respects the operations and functions set forth on Exhibit B (the "Term").  The
First Option may be exercised prior to the expiration of the Term by the
execution and delivery to the Company of a written notice in the form of Exhibit
"A" attached hereto, duly completed and executed. The written notice shall be
accompanied by payment of the Total Purchase Price in immediately available
funds.

2.   ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF OPTION SHARES.  The First
Option Share Price and number of First Option Shares shall be subject to
adjustment from time to time as follows:


                                       2
<PAGE>
 
     2.1  In case of any capital reorganization, any reclassification of the
Common Stock (other than a change in par value), or the consolidation of the
Company with, or a sale of substantially all of the assets of the Company to
(which sale is followed by a liquidation or dissolution of the Company), or
merger of the Company with, another person, except in the case of a
consolidation, sale or merger resulting in a Liquidity Event (as defined below),
Holder shall thereafter be entitled upon exercise of the First Option to
purchase the kind and number of shares of stock or other securities or property
of the surviving corporation receivable upon such event by a holder of the
number of shares of the Common Stock which the First Option entitles Holder to
purchase from the Company immediately prior to such event; and in any such case,
appropriate adjustment shall be made in the application of the provisions set
forth in this Agreement with respect to Holder's rights and interests
thereafter, to the end that the provisions set forth in this Agreement
(including the specified changes and other adjustments to the First Option Share
Price and the Total Purchase Price) shall thereafter be applicable in relation
to any other shares or other property thereafter purchasable upon exercise of
the First Option.

     2.2  A consolidation of the Company with, or a sale of substantially all of
the assets of the Company to (which sale is followed by a liquidation or
dissolution of the Company), or the merger of the Company with, any other
person, in each case resulting in a Liquidity Event shall cause the First Option
Shares to terminate on the effective date of such consolidation, sale or merger,
provided, however, that Holder shall have the right ending on the fifth day
prior to such consolidation, sale or merger to exercise the First Option Shares
in part or in whole.

     2.3  A consolidation, sale or merger of the Company as described in Section
2.1 and 2.2 above shall be deemed to result in a "Liquidity Event" if (i) the
Company is not the "Surviving Corporation" in such consolidation, sale or
merger, and (ii) all of the securities of the Company outstanding immediately
prior to such consolidation, sale or merger are exchanged, sold, redeemed or
otherwise converted into cash or publicly traded securities.  The determination
as to whether or not the Company is the "surviving corporation" in any
consolidation, sale or merger shall be made on the basis of the relative equity
interests of the shareholders in the Company existing after such consolidation,
sale or merger as follows:  If following any consolidation, sale or merger the
holders of outstanding voting securities of the Company prior to such
consolidation, sale or merger own equity securities possessing more than 50% of
the voting power of the corporation existing after such consolidation, sale or
merger then for purposes of this Agreement, the Company shall be the surviving
corporation.  In all other cases, the Company shall not be the surviving
corporation.  In making the determination of ownership by the stockholders of a
corporation, immediately after a consolidation, sale or merger, of securities
pursuant to this Section 2.3, securities which they owned immediately prior to
such consolidation, sale or merger as stockholders of another party to the
transaction shall be disregarded.

     2.4  In the case the Company, subsequent to the date hereof and prior to
the exercise of this First Option, distributes to any holders of Common Stock,
assets (including cash distributions), then upon the exercise of the First
Option, Holder shall be entitled to receive an 


                                       3
<PAGE>
 
amount equal to the greatest per share amount of consideration received by any
holder of the Common Stock times the number of shares of Common Stock into which
the shares purchased upon exercise of the First Option are convertible.

     2.5  The grant of the First Option shall not affect in any way the right or
power of the Company to make adjustments, reclassification, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.

3.   REPRESENTATIONS, WARRANTIES AND COVENANTS OF Holder.  Holder makes the
following representations, warranties and covenants:

     3.1  Holder is acquiring the First Option Shares for its own account with
the present intention of holding such security for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable federal
and state securities laws); provided, that nothing contained herein will prevent
Holder and its permitted assigns from transferring such securities in compliance
with the provisions of Section 5 of this Agreement.

     3.2  Holder is an experienced and sophisticated investor and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the relative merits and the risks of an investment in the First
Option and in the First Option Shares and of protecting its own interests in
connection with this transaction.

     3.3  Holder is willing to bear and is capable of bearing the economic risk
of an investment in the First Option and the First Option Shares.  In making
this representation, consideration has been given to the fact that there is no
public market for the First Option and the First Option Shares and as to whether
the Holder could afford to hold the First Option and the First Option Shares for
an indefinite period of time and whether, at this time, Holder could afford a
complete loss of its First Option and the First Option Shares.  Holder
understands that the restrictions on transfer placed upon Holder pursuant to the
provisions of Section 5 of this Agreement may result in Holder being required to
hold the First Option until the date of expiration thereof or to hold the First
Option Shares for an indefinite period off time.

     3.4  The Company has made available, prior to the date of this Agreement,
to Holder the opportunity to ask questions of the Company and its officers, and
to receive from the Company and its officers information concerning the terms
and conditions of the First Option and this Agreement and to obtain any
additional information with respect to the Company, its business, operations and
prospects, as reasonably requested by Holder.

     3.5  Holder is an "accredited investor" as that term is defined under
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act") and an "excluded purchaser" as
such term is defined in Section 260.102.13 of the Rules of the California
Corporations Commissioner.


                                       4
<PAGE>
 
4.   RESERVATION OF STOCK.  The Company covenants that it will at all times
reserve and keep (i) available out of its authorized but unissued shares of
Series A-2  Preferred Stock, solely for the purpose of issuance upon exercise of
the First Option, such number of shares of Series A-2  Preferred Stock as shall
at any time be issuable upon the exercise of the First Option and (ii) out of
its authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of the shares of Series A-2  Preferred Stock
issuable upon exercise of the First Option, such number of shares of Common
Stock as shall at any time be issuable upon conversion of the Series A-2
Preferred Stock issuable upon exercise of the First Option.

5.   RESTRICTIONS ON TRANSFER OR EXERCISE OF THE OPTIONS.

     5.1  All certificates representing the First Option Shares and any
certificates representing the Common Stock issuable upon conversion of the First
Option Shares will bear the following legend:

          "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT")
          AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS
          REGISTERED IN ACCORDANCE WITH SAID ACT OR PURSUANT TO AN EXEMPTION
          FROM THE REGISTRATION THEREUNDER."

          If in the reasonable opinion of counsel for the Company, or the
opinion of counsel for Holder all future dispositions of any of the First Option
or First Option Shares by the contemplated transferee would be exempt from the
registration and prospectus delivery requirements of the Securities Act and the
qualification requirements of the California Corporate Securities Law, then the
restrictions on transfer of such securities contained in this Section 5 shall
not apply to any subsequent transfer thereof and the legend set forth above may
be removed from the certificates representing such securities.

     5.2  Holder may not transfer, sell, pledge, assign or hypothecate the First
Option or the First Option Shares to any person or entity and no person other
than Holder may exercise any options unless the transfer of the First Option or
First Option Shares to such person was permitted by this Section 5.  Prior to
any exercise of the First Options or any transfer or attempted transfer of any
of the First Options or First Option Shares, Holder shall give the Company
written notice of its intention so to do, describing briefly the manner of any
such proposed exercise, sale or transfer.  The Company agrees to permit such
exercise or transfer, provided that such exercise or transfer is not prohibited
by this Section 5 and that the Company is reasonably satisfied that such
exercise or transfer complies with all applicable federal and state securities
laws and regulations, and provided, further, in the case of a sale or transfer
Holder deliver to the Company an assignment form in the form attached to this
Agreement.


                                       5
<PAGE>
 
6.   REGISTRATION UNDER THE SECURITIES ACT OF 1933 (the "1933 Act").  The Holder
will have the right to cause the Common Stock into which the First Option Shares
are convertible to be registered under the 1933 Act in accordance with Section 8
of the Purchase Agreement.

7.   DISPUTES.

     7.1  Arbitration.

          7.1.1  Except as otherwise expressly provided for in Section 6(c)
below, all disputes arising in connection with this Agreement shall be finally
settled by arbitration in Los Angeles, California, in accordance with the rules
of the American Arbitration Association (the "Rules of Arbitration") and
judgment on the award rendered by the arbitration panel (the "Arbitration
Panel") may be entered in any court or tribunal of competent jurisdiction.

          7.1.2  Any party which desires to initiate arbitration proceedings as
provided in Section 7.1.1 above may do so by delivering written notice to the
other party (the "Arbitration Notice") specifying (A) the nature of the dispute
or controversy to be arbitrated, (B) the name and address of the arbitrator
appointed by the party initiating such arbitration and (C) such other matters as
may be required by the Rules of Arbitration.

          7.1.3  The party who receives an Arbitration Notice shall appoint an
arbitrator and notify the initiating party of such arbitrator's name and address
within 30 days after delivery of the Arbitration Notice; otherwise, a second
arbitrator shall be appointed at the request of the party who delivered the
Arbitration Notice as provided in the Rules of Arbitration.  The two arbitrators
so appointed shall appoint a third arbitrator who shall be the chairman of the
Arbitration Panel and who shall be of American nationality.  Should the
arbitrators appointed by the parties not agree upon the appointment of the third
arbitrator within 30 days of their appointment, the third shall be appointed in
accordance with the Rules of Arbitration.

          7.1.4  In any arbitration proceeding conducted pursuant to the
provision of this Section 7, both parties shall have the right to discovery, to
call witnesses and to cross-examine the opposing party's witnesses, either
through legal counsel, expert witnesses or both, and such proceedings shall be
conducted in the English language.

     7.2  Finality of Decision.  All decisions of the Arbitration Panel shall be
final, conclusive and binding on all parties and shall not be subject to
judicial review.  The arbitrator shall divide all costs (other than fees of
counsel) incurred in conducting the arbitration proceeding and the final award
in accordance with what they deem just and equitable under the circumstances.

     7.3  Limitations.  Notwithstanding anything to the contrary contained in
Sections 6.1 and 6.2 above, any claim by either party for injunctive or other
equitable relief, including specific performance, may be brought in the Superior
Court of the State of California for Los Angeles County, or in the United States
District Court for the Central District of California, and any 


                                       6
<PAGE>
 
judgment, order or decree relating thereto shall have precedence over any
arbitral award or proceeding. The Company and the Executive each consent and
submit in advance to the jurisdiction of the above-mentioned courts and agrees
that venue will be proper in such courts on any such matter.

8.   MISCELLANEOUS.

     8.1  All notices or demands shall be in writing and shall be delivered
personally, electronically, telegraphically, or by express or certified mail or
registered mail or by private overnight express mail service.  Delivery shall be
deemed conclusively made (i) at the time of delivery if personally delivered,
(ii) immediately in the event notice is delivered by transmittal over electronic
or telephonic transmitting devices, such as telex or telecopy, provided, the
party to whom the notice is delivered has a compatible device and electronically
or by other written document confirms receipt thereof, or the party otherwise
confirms actual receipt thereof, (iii) at the time that the telegraphic agency
confirms to the sender delivery thereof to the addressee if served
telegraphically, (iv) twenty-four (24) hours after delivery to the carrier if
served by any private, overnight, express mail service, (v) twenty-four (24)
hours after deposit thereof in the United States mail, properly addressed and
postage prepaid, return receipt requested, if served by express mail, or (vi)
five (5) days after deposit thereof in the United States mail, properly
addressed and postage prepaid, return receipt requested, if served by certified
mail.

     Any notice or demand to the Company shall be given to:

               Online Transaction Technologies, Inc.
               909 6th Street, Suite 6
               Santa Monica, California 90403
               Attn:  Board of Directors

     Any notice of demand to the Holder shall be given to:

               Cumetrix Data Systems Corp.
               957 Lawson Street
               Industry, California 9148
               Fax:  (626) 965-8159
               Attn:  Max Toghraie
                      ------------

Any party may, by virtue of written notice in compliance with this paragraph,
alter or change the address or the identity of the person to whom any notice, or
copy thereof, is to be delivered.

     8.2  Each party shall execute and deliver all such further instruments,
documents and papers, and shall perform any and all acts necessary, to give full
force and effect to all of the terms and provisions of this Agreement.


                                       7
<PAGE>
 
     8.3  No course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies.

     8.4  This Agreement and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of Holder except that the rights contained in Section 6 may not be
transferred to a purchaser the First Option Shares pursuant to a registration
statement under the Act covering such proposed distribution or pursuant to the
limitations contained in Rule 144 of the Act.  The provisions of this Agreement
are intended to be for the benefit of all holders from time to time of this
Agreement, and shall be enforceable by any such holder.

     8.5  The Company shall not by any action including, without limitation,
amending its articles of incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Agreement, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of the Option above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of the Option, and (c) use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the company to perform its
obligations under this Agreement. Upon the request of Holder, the Company will
at any time during the term of this Agreement acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Agreement and
the obligations of the Company hereunder.

     8.6  Upon receipt by the Company from Holder of evidence reasonably
satisfactory to the Company of the ownership of any loss, theft, distribution or
mutilation of this Agreement and indemnity reasonably satisfactory to the
Company (it being understood that the written agreement of Holder shall be
sufficient indemnity) and in case of mutilation upon surrender and cancellation
hereof, the Company will execute and deliver in lieu hereof a new Agreement of
like tenor to Holder; provided, in the case of mutilation, no indemnity shall be
required if this Agreement in identifiable form is surrendered to the Company
for cancellation.

     8.7  This Agreement shall be governed by and construed in accordance with
the laws of the State of California applicable to contracts entered into and
fully to be performed therein. In all matters of interpretation, whenever
necessary to give effort to any provision of this Agreement, each gender shall
include the others, the singular shall include the plural, and the plural shall
include the singular. The titles of the paragraphs of this Agreement are for
convenience only and shall not in any way affect the interpretation of any
provision or condition 


                                       8
<PAGE>
 
of this Agreement. All remedies, rights, undertakings, obligations and
agreements contained in this Agreement shall be cumulative and none of them
shall be in limitation of an other remedy, right, undertaking, obligation or
agreement of any party. Each party and its counsel have reviewed and revised
this Agreement. As a result, the normal rule of construction to the effect that
any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any amendments or exhibits
thereto.

     8.8  This Agreement may be executed in counterparts which, taken together,
shall constitute the whole of the agreement as between the parties.

     8.9  Each party to this Agreement which is a corporation hereby represents
and warrants that all necessary corporate action has been taken, including the
due adoption of a resolution by its board of directors sufficient to enable such
corporation to enter into this Agreement, to be bound thereby and to perform
fully as required hereunder.

     8.10 Each person executing this Agreement on behalf of an entity
represents and warrants that he or she has been duly authorized to enter into
this Agreement on behalf of such entity, and that such entity is thereby fully
bound.

     8.11 The terms and conditions of this Agreement shall be subject to all
applicable laws and regulations of any governing jurisdictions.  If an clause or
provision of this Agreement is illegal, invalid or unenforceable under present
or future laws effective during the term of this Agreement, then and, in that
event, the remainder of this Agreement shall not be affected thereby, and in
lieu of each clause or provision of this Agreement that is illegal, invalid or
unenforceable, there shall be added a clause or provision as similar in terms
and in amount to such illegal, invalid or unenforceable clause or provision as
may be possible and be legal, valid and enforceable, as long as it does not
otherwise frustrate the principal purposes of this Agreement.

     8.12 This Agreement may be amended or modified only with the written
agreement of the Company and upon the written consent of a majority of the
Holders.

     8.13 In the event that any dispute among the parties to this Agreement
should result in litigation, the prevailing party in such dispute shall be
entitled to recover from the losing party all fees, costs and expenses of
enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.


                                       9
<PAGE>
 
     IN WITNESS WHEREOF, the parties have entered into and executed this Option
Agreement as of the date first above written.

                              Online Transaction Technologies, Inc.


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

                              Its:
                                  ------------------------------------



                              Cumetrix Data Systems Corporation



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

                              Its:          
                                  ------------------------------------



                                      10
<PAGE>
 
                           EXHIBIT "A" TO EXHIBIT A

                              NOTICE OF EXERCISE

             (To be signed only upon exercise of the First Option)

TO:  Online Transaction Technologies, Inc.


     The undersigned, hereby irrevocably elects to exercise the purchase rights
represented by the First Option granted to the undersigned on ____________, 1998
and to purchase thereunder ___* shares of Series A-2 Preferred Stock of Online
Transaction Technologies, Inc., (the "Company") and herewith encloses payment of
$900,000 in full payment for the First Option Shares.

Dated:  ________________, _______


 
                                  ------------------------------------
                                  (Signature must conform in all
                                  respects to name of either holder
                                  as specified on the face of the
                                  Option)


 
                                  ------------------------------------
                                  (Please Print Name)


 
                                  ------------------------------------
                                  (Address)



                                      11
<PAGE>
 
                             EXHIBIT B TO EXHIBIT A


                           SPECIFICATIONS OF SOFTWARE

                                        

                    To be provided Separately to the Holder

                                   EXHIBIT B

                         SECOND STOCK OPTION AGREEMENT


 THE SECURITIES EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
   SECURITIES ACT OF 1933, AS AMENDED, HAVE BEEN TAKEN FOR INVESTMENT AND MAY
     NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
       DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT.


                         SECOND STOCK OPTION AGREEMENT

     THIS SECOND STOCK OPTION AGREEMENT (the "Agreement") is made as of the
_____ day of _________________, 1998, by and among ONLINE TRANSACTION
TECHNOLOGIES, INC., a California corporation (the "Company"), and CUMETRIX DATA
SYSTEMS CORPORATION, a California corporation ("Holder").


                                    RECITALS

     A.  The Company and Holder have agreed to enter into a Preferred Stock
Purchase Agreement, dated as of the date hereof (the "Purchase Agreement")
relating to the sale and issuance of shares of the Company's Series A-1
Preferred Stock.

     B.  Holder received upon entering into the Purchase Agreement an option
(the "First Option") to acquire shares of the Company's Series A-2  Preferred
Stock.

     C.  Upon exercise of the First Option, the Company desires to grant Holder,
pursuant to the Purchase Agreement and in consideration of Holder's exercise of
the First Option, the right to purchase shares of its Series A-3  Preferred
Stock.

     NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth below, the parties hereto covenant and agree
as follows:


                                      12
<PAGE>
 
                                   AGREEMENT

1.   OPTIONS.

     1.1  Grant of Option.  The Holder is hereby granted an option (the "Second
Option") to purchase such number of shares (rounded up to the nearest whole
share) of the Company's Series A-3  Preferred Stock (the "Second Option Shares")
equal to the remainder of (A) the quotient of (x) the number of shares of the
Company's Common Stock issued and outstanding (including shares issuable
pursuant to outstanding options, warrants, rights and convertible debt or equity
securities other than options granted pursuant to this Agreement) as of the date
the Second Option is initially exercised, divided by (y) .7857 minus (B) the
                                                               -----        
number of shares of the Company's Common Stock issued and outstanding (including
shares issuable pursuant to outstanding options, warrants, rights and
convertible debt or equity securities other than options granted pursuant to
this Agreement) all determind on an as-converted basis as of the date the Second
Option is initially exercised. The per share exercise price for the Second
Option Shares (the "Second Option Share Price") shall be equal to the quotient
of (x) $8,000,000 divided by (y) the number of Second Option Shares.  The total
purchase price (the "Total Purchase Price") of the Second Option Shares shall be
$8,000,000.  The number and purchase price of such shares are subject to
adjustment as provided in Section 2 hereof.

     1.2  Exercise of Option.  The Second Option may be exercised at any time,
in whole or in part, provided the Second Option is initially exercised as to at
least $4 million worth of the Second Option Shares, commencing on the date the
First Option is exercised and ending at 5:00 p.m., California Time, on the date
that is the later of (i) nine months after the First Option is exercised or (ii)
November 1, 1999 (the "Term"). Holder shall be entitled to purchase all the
Second Option Shares, but only up to an amount not to exceed, on an as-converted
basis determined as of the date of the exercise of the Second Option, 50% of the
issued and outstanding shares of the Company's Common Stock on a fully diluted
basis as of the date the Second Option is initially exercised.  The Second
Option may be exercised prior to the expiration of the Term by the execution and
delivery to the Company of a written notice in the form of Exhibit "A" attached
hereto, duly completed and executed. The written notice shall be accompanied by
payment of the Second Option Share Price for each share for which the Second
Option is exercised in immediately available funds.

2.   ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF OPTION SHARES.  The Second
Option Share Price and number of Second Option Shares shall be subject to
adjustment from time to time as follows:

     2.1  In case of any capital reorganization, any reclassification of the
Common Stock (other than a change in par value), or the consolidation of the
Company with, or a sale of substantially all of the assets of the Company to
(which sale is followed by a liquidation or dissolution of the Company), or
merger of the Company with, another person, except in the case of a
consolidation, sale or merger resulting in a Liquidity Event (as defined below),
Holder shall thereafter be entitled upon exercise of the Second Option to
purchase the kind and number of shares of stock or other securities or property
of the surviving corporation receivable upon such 


                                      2.
<PAGE>
 
event by a holder of the number of shares of the Common Stock which the Second
Option entitles Holder to purchase from the Company immediately prior to such
event; and in any such case, appropriate adjustment shall be made in the
application of the provisions set forth in this Agreement with respect to
Holder's rights and interests thereafter, to the end that the provisions set
forth in this Agreement (including the specified changes and other adjustments
to the Second Option Share Price and the Total Purchase Price) shall thereafter
be applicable in relation to any other shares or other property thereafter
purchasable upon exercise of the Second Option.

     2.2  A consolidation of the Company with, or a sale of substantially all of
the assets of the Company to (which sale is followed by a liquidation or
dissolution of the Company), or the merger of the Company with, any other
person, in each case resulting in a Liquidity Event shall cause the Second
Option Shares to terminate on the effective date of such consolidation, sale or
merger, provided, however, that Holder shall have the right ending on the fifth
day prior to such consolidation, sale or merger to exercise the Second Option
Shares in part or in whole.

     2.3  A consolidation, sale or merger of the Company as described in Section
2.1 and 2.2 above shall be deemed to result in a "Liquidity Event" if (i) the
Company is not the "Surviving Corporation" in such consolidation, sale or
merger, and (ii) all of the securities of the Company outstanding immediately
prior to such consolidation, sale or merger are exchanged, sold, redeemed or
otherwise converted into cash or publicly traded securities.  The determination
as to whether or not the Company is the "surviving corporation" in any
consolidation, sale or merger shall be made on the basis of the relative equity
interests of the shareholders in the Company existing after such consolidation,
sale or merger as follows:  If following any consolidation, sale or merger the
holders of outstanding voting securities of the Company prior to such
consolidation, sale or merger own equity securities possessing more than 50% of
the voting power of the corporation existing after such consolidation, sale or
merger then for purposes of this Agreement, the Company shall be the surviving
corporation.  In all other cases, the Company shall not be the surviving
corporation.  In making the determination of ownership by the stockholders of a
corporation, immediately after a consolidation, sale or merger, of securities
pursuant to this Section 2.3, securities which they owned immediately prior to
such consolidation, sale or merger as stockholders of another party to the
transaction shall be disregarded.

     2.4  In the case the Company, subsequent to the date hereof and prior to
the exercise of the Second Option, distributes to any holders of Common Stock,
assets (including cash distributions), then upon the exercise of the Second
Option, Holder shall be entitled to receive an amount equal to the greatest per
share amount of consideration received by any holder of the Common Stock times
the number of shares of Common Stock into which the shares purchased upon
exercise of the Second Option are convertible.

     2.5  The grant of the Second Option shall not affect in any way the right
or power of the Company to make adjustments, reclassification, reorganizations
or changes in its capital or business structure, or to merge, consolidate,
dissolve or liquidate, or to sell or transfer all or any part of its business or
assets.


                                      3.
<PAGE>
 
3.   REPRESENTATIONS, WARRANTIES AND COVENANTS OF HOLDER.  Holder makes the
following representations, warranties and covenants:

     3.1  Holder is acquiring the Second Option Shares for its own account with
the present intention of holding such security for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable federal
and state securities laws); provided, that nothing contained herein will prevent
Holder and its permitted assigns from transferring such securities in compliance
with the provisions of Section 5 of this Agreement.

     3.2  Holder is an experienced and sophisticated investor and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the relative merits and the risks of an investment in the Second
Option and in the Second Option Shares and of protecting its own interests in
connection with this transaction.

     3.3  Holder is willing to bear and is capable of bearing the economic risk
of an investment in the Second Option and the Second Option Shares.  In making
this representation, consideration has been given to the fact that there is no
public market for the Second Option and the Second Option Shares and as to
whether the Holder could afford to hold the Second Option and the Second Option
Shares for an indefinite period of time and whether, at this time, Holder could
afford a complete loss of its Second Option and the Second Option Shares.
Holder understands that the restrictions on transfer placed upon Holder pursuant
to the provisions of Section 5 of this Agreement may result in Holder being
required to hold the Second Option until the date of expiration thereof or to
hold the Second Option Shares for an indefinite period off time.

     3.4  The Company has made available, prior to the date of this Agreement,
to Holder the opportunity to ask questions of the Company and its officers, and
to receive from the Company and its officers information concerning the terms
and conditions of the Second Option and this Agreement and to obtain any
additional information with respect to the Company, its business, operations and
prospects, as reasonably requested by Holder.

     3.5  Holder is an "accredited investor" as that term is defined under
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act") and an "excluded purchaser" as
such term is defined in Section 260.102.13 of the Rues of the California
Corporations Commissioner.

4.   RESERVATION OF STOCK.  The Company covenants that it will at all times
reserve and keep (i) available out of its authorized but unissued shares of
Series A-3  Preferred Stock, solely for the purpose of issuance upon exercise of
the Second Option, such number of shares of Series A-3  Preferred Stock as shall
at any time be issuable upon the exercise of the Second Option and (ii) out of
its authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of the shares of Series A-3  Preferred Stock
issuable upon the exercise of the Second Option, such number of shares of Common
Stock as shall then be issuable upon the conversion of the shares of Series A-3
Preferred Stock issuable upon the exercise of the Second Option.


                                      4.
<PAGE>
 
5.   RESTRICTIONS ON TRANSFER OR EXERCISE OF THE OPTIONS.

     5.1  All certificates representing the Second Option Shares and any
certificates representing the Common Stock issuable upon conversion of the
Second Option Shares will bear the following legend:

          "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT")
          AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS
          REGISTERED IN ACCORDANCE WITH SAID ACT OR PURSUANT TO AN EXEMPTION
          FROM THE REGISTRATION THEREUNDER."

          If in the reasonable opinion of counsel for the Company, or the
opinion of counsel for Holder all future dispositions of any of the Second
Option or Second Option Shares by the contemplated transferee would be exempt
from the registration and prospectus delivery requirements of the Securities Act
and the qualification requirements of the California Corporate Securities Law,
then the restrictions on transfer of such securities contained in this Section 5
shall not apply to any subsequent transfer thereof and the legend set forth
above may be removed from the certificates representing such securities.

     5.2  Holder may not transfer, sell, pledge, assign or hypothecate the
Second Option or the Second Option Shares to any person or entity and no person
other than Holder may exercise any options unless the transfer of the Second
Option or Second Option Shares to such person was permitted by this Section 5.
Prior to any exercise of the Second Options or any transfer or attempted
transfer of any of the Second Options or Second Option Shares, Holder shall give
the Company written notice of its intention so to do, describing briefly the
manner of any such proposed exercise, sale or transfer.  The Company agrees to
permit such exercise or transfer, provided that such exercise or transfer is not
prohibited by this Section 5 and that the Company is reasonably satisfied that
such exercise or transfer complies with all applicable federal and state
securities laws and regulations, and provided, further, in the case of a sale or
transfer Holder deliver to the Company an assignment form in the form attached
to this Agreement.

6.   REGISTRATION UNDER THE SECURITIES ACT OF 1933 (the "1933 Act").  The Holder
will have the right to cause the Common Stock into which the Second Option
Shares are convertible to be registered under the 1933 Act in accordance with
Section 8 of the Purchase Agreement.

7.   DISPUTES.

     7.1  Arbitration.

          7.1.1  Except as otherwise expressly provided for in Section 6(c)
below, all disputes arising in connection with this Agreement shall be finally
settled by arbitration in Los Angeles, California, in accordance with the rules
of the American Arbitration Association (the 


                                      5.
<PAGE>
 
"Rules of Arbitration") and judgment on the award rendered by the arbitration
panel (the "Arbitration Panel") may be entered in any court or tribunal of
competent jurisdiction.

          7.1.2  Any party which desires to initiate arbitration proceedings as
provided in Section 7.1.1 above may do so by delivering written notice to the
other party (the "Arbitration Notice") specifying (A) the nature of the dispute
or controversy to be arbitrated, (B) the name and address of the arbitrator
appointed by the party initiating such arbitration and (C) such other matters as
may be required by the Rules of Arbitration.

          7.1.3  The party who receives an Arbitration Notice shall appoint an
arbitrator and notify the initiating party of such arbitrator's name and address
within 30 days after delivery of the Arbitration Notice; otherwise, a second
arbitrator shall be appointed at the request of the party who delivered the
Arbitration Notice as provided in the Rules of Arbitration.  The two arbitrators
so appointed shall appoint a third arbitrator who shall be the chairman of the
Arbitration Panel and who shall be of American nationality.  Should the
arbitrators appointed by the parties not agree upon the appointment of the third
arbitrator within 30 days of their appointment, the third shall be appointed in
accordance with the Rules of Arbitration.

          7.1.4  In any arbitration proceeding conducted pursuant to the
provision of this Section 7, both parties shall have the right to discovery, to
call witnesses and to cross-examine the opposing party's witnesses, either
through legal counsel, expert witnesses or both, and such proceedings shall be
conducted in the English language.

     7.2  Finality of Decision.  All decisions of the Arbitration Panel shall be
final, conclusive and binding on all parties and shall not be subject to
judicial review.  The arbitrator shall divide all costs (other than fees of
counsel) incurred in conducting the arbitration proceeding and the final award
in accordance with what they deem just and equitable under the circumstances.

     7.3  Limitations.  Notwithstanding anything to the contrary contained in
Sections 6.1 and 6.2 above, any claim by either party for injunctive or other
equitable relief, including specific performance, may be brought in the Superior
Court of the State of California for Los Angeles County, or in the United States
District Court for the Central District of California, and any judgment, order
or decree relating thereto shall have precedence over any arbitral award or
proceeding.  The Company and the Executive each consent and submit in advance to
the jurisdiction of the above-mentioned courts and agrees that venue will be
proper in such courts on any such matter.

8.   MISCELLANEOUS.

     8.1  All notices or demands shall be in writing and shall be delivered
personally, electronically, telegraphically, or by express or certified mail or
registered mail or by private overnight express mail service.  Delivery shall be
deemed conclusively made (i) at the time of delivery if personally delivered,
(ii) immediately in the event notice is delivered by transmittal over electronic
or telephonic transmitting devices, such as telex or telecopy, provided, the
party to whom the notice is delivered has a compatible device and electronically
or by other written 


                                      6.
<PAGE>
 
document confirms receipt thereof, or the party otherwise confirms actual
receipt thereof, (iii) at the time that the telegraphic agency confirms to the
sender delivery thereof to the addressee if served telegraphically, (iv) twenty-
four (24) hours after delivery to the carrier if served by any private,
overnight, express mail service, (v) twenty-four (24) hours after deposit
thereof in the United States mail, properly addressed and postage prepaid,
return receipt requested, if served by express mail, or (vi) five (5) days after
deposit thereof in the United States mail, properly addressed and postage
prepaid, return receipt requested, if served by certified mail.

     Any notice or demand to the Company shall be given to:

               Online Transaction Technologies, Inc.
               909 6th Street, Suite 6
               Santa Monica, California 90403
               Attn:  Board of Directors

     Any notice of demand to the Holder shall be given to:

               Cumetrix Data Systems Corp.
               957 Lawson Street
               Industry, CA 91748
               Attn:  Chairman

Any party may, by virtue of written notice in compliance with this paragraph,
alter or change the address or the identity of the person to whom any notice, or
copy thereof, is to be delivered.

     8.2  Each party shall execute and deliver all such further instruments,
documents and papers, and shall perform any and all acts necessary, to give full
force and effect to all of the terms and provisions of this Agreement.

     8.3  No course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies.

     8.4  This Agreement and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of Holder except that the rights contained in Section 6 may not be
transferred to a purchaser of the Second Option Shares pursuant to a
registration statement under the Act covering such proposed distribution or
pursuant to the limitations contained in Rule 144 of the Act.  The provisions of
this Agreement are intended to be for the benefit of all holders from time to
time of this Agreement, and shall be enforceable by any such holder.

     8.5  The Company shall not by any action including, without limitation,
amending its articles of incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Agreement, but will at all times in good 


                                      7.
<PAGE>
 
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of the Option above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of the Option, and (c) use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the company to perform its
obligations under this Agreement. Upon the request of Holder, the Company will
at any time during the term of this Agreement acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Agreement and
the obligations of the Company hereunder.

     8.6  Upon receipt by the Company from Holder of evidence reasonably
satisfactory to the Company of the ownership of any loss, theft, distribution or
mutilation of this Agreement and indemnity reasonably satisfactory to the
Company (it being understood that the written agreement of Holder shall be
sufficient indemnity) and in case of mutilation upon surrender and cancellation
hereof, the Company will execute and deliver in lieu hereof a new Agreement of
like tenor to Holder; provided, in the case of mutilation, no indemnity shall be
required if this Agreement in identifiable form is surrendered to the Company
for cancellation.

     8.7  This Agreement shall be governed by and construed in accordance with
the laws of the State of California applicable to contracts entered into and
fully to be performed therein.  In all matters of interpretation, whenever
necessary to give effort to any provision of this Agreement, each gender shall
include the others, the singular shall include the plural, and the plural shall
include the singular.  The titles of the paragraphs of this Agreement are for
convenience only and shall not in any way affect the interpretation of any
provision or condition of this Agreement.  All remedies, rights, undertakings,
obligations and agreements contained in this Agreement shall be cumulative and
none of them shall be in limitation of an other remedy, right, undertaking,
obligation or agreement of any party.  Each party and its counsel have reviewed
and revised this Agreement.  As a result, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments or
exhibits thereto.

     8.8  This Agreement may be executed in counterparts which, taken together,
shall constitute the whole of the agreement as between the parties.

     8.9  Each party to this Agreement which is a corporation hereby represents
and warrants that all necessary corporate action has been taken, including the
due adoption of a resolution by its board of directors sufficient to enable such
corporation to enter into this Agreement, to be bound thereby and to perform
fully as required hereunder.

     8.10  Each person executing this Agreement on behalf of an entity
represents and warrants that he or she has been duly authorized to enter into
this Agreement on behalf of such entity, and that such entity is thereby fully
bound.


                                      8.
<PAGE>
 
     8.11  The terms and conditions of this Agreement shall be subject to all
applicable laws and regulations of any governing jurisdictions.  If an clause or
provision of this Agreement is illegal, invalid or unenforceable under present
or future laws effective during the term of this Agreement, then and, in that
event, the remainder of this Agreement shall not be affected thereby, and in
lieu of each clause or provision of this Agreement that is illegal, invalid or
unenforceable, there shall be added a clause or provision as similar in terms
and in amount to such illegal, invalid or unenforceable clause or provision as
may be possible and be legal, valid and enforceable, as long as it does not
otherwise frustrate the principal purposes of this Agreement.

     8.12  This Agreement may be amended or modified only upon the written
agreement of the Company and upon the written consent of a majority of the
Holders.

     8.13  In the event that any dispute among the parties to this Agreement
should result in litigation, the prevailing party in such dispute shall be
entitled to recover from the losing party all fees, costs and expenses of
enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.


                                      9.
<PAGE>
 
     IN WITNESS WHEREOF, the parties have entered into and executed this Option
Agreement as of the date first above written.

                              Online Transaction Technologies, Inc.



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

                              Its:
                                  ------------------------------------



                              Cumetrix Data Systems Corporation



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

                              Its:            
                                  ------------------------------------



                                      10.
<PAGE>
 
                           EXHIBIT "A" TO EXHIBIT B

                              NOTICE OF EXERCISE

             (To be signed only upon exercise of the Second Option)

TO:  Online Transaction Technologies, Inc.


     The undersigned, hereby irrevocably elects to exercise the purchase rights
represented by the Second Option granted to the undersigned on ____________,
1998 and to purchase thereunder ___* shares of Series A-3 Preferred Stock of
Online Transaction Technologies, Inc., (the "Company") and herewith encloses
payment of $_____________ in full payment of the purchase price of such shares
being purchased.

Dated:  ________________, _______


 
                                  ------------------------------------
                                  (Signature must conform in all
                                  respects to name of either holder
                                  as specified on the face of the
                                  Option)


 

                                  ------------------------------------
                                  (Please Print Name)


 

                                  ------------------------------------
                                  (Address)




                                      11.
<PAGE>
 
                                   EXHIBIT C

                           INDEMNIFICATION AGREEMENT
                           -------------------------


     THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered into
as of December ___, 1998, by and among Cumetrix Data Systems Corp., a California
corporation ("Cumetrix") on the one hand, and Colin P. Kruger, Igor Kogan,
Michael Shirman (collectively, the "Principal Shareholders"), on the other hand.

                                R E C I T A L S
                                - - - - - - - -

     A.   Cumetrix has, upon the terms and subject to the conditions of that
certain Stock Purchase Agreement, dated as of even date herewith (the "Purchase
Agreement"), entered into with Online Transaction Technologies, Inc., a
California corporation (the "Company"), has agreed to purchase from the Company
88,326 shares (the "Purchased Shares") of the Series A-1 Preferred Stock,
without par value, of the Company (the "Series A-1 Preferred Stock").

     B.   In consideration of the purchase of the Purchased Shares by Cumetrix,
the Company has granted Cumetrix (i) an option (the "First Option") to purchase
shares of Series A-2 Preferred Stock, without par value,  pursuant to that
certain First Stock Option Agreement, dated as of even date herewith (the "First
Option Agreement"), and (ii) an option (the "Second Option") to purchase Series
A-3 Preferred Stock, without par value,  pursuant to that certain Second Stock
Option Agreement, dated as of even date herewith (the "Second Option
Agreement").

     C.   A material and essential inducement for Cumetrix (i) to enter into the
Purchase Agreement, the First Option Agreement and the Second Option Agreement,
and the other agreements contemplated thereby and (ii) to exercise the First
Option and/or the Second Option, if applicable,  is that the Principal
Shareholders, who collectively hold all of the outstanding Common Stock of the
Company, enter into this Agreement.

                               A G R E E M E N T
                               - - - - - - - - -

     NOW, THEREFORE, for good and valuable consideration, the receipt, adequacy
and sufficiency of which is hereby acknowledged by the parties hereto, and as a
material inducement to Cumetrix to enter into the Purchase Agreement, First
Option Agreement and Second Option Agreement, the parties hereto hereby agree as
follows:

1.        Indemnification by the Principal Shareholders.  The Principal
          ---------------------------------------------                
Shareholders hereby jointly and severally covenant and agree to indemnify,
defend and hold harmless Cumetrix and its respective former and current
directors, officers, shareholders, employees, attorneys and agents, as the case
may be, and each of their successors and assigns (individually, an "Indemnified
Party") and hold them harmless from, against and in respect of any and all
costs, losses (including investment losses), claims, liabilities, damages and
expenses, including court costs and fees and disbursements of counsel,
(collectively, "Losses") incurred by any of them, directly or indirectly, in
connection with:


                                      12.
<PAGE>
 
     (a)  any action, proceeding, investigation, inquiry or suit, commenced or
          threatened, arising under or in connection with that certain Contract
          to Provide Web Site Related Services, dated as of August 7, 1995, by
          and between ZAUCTION, a California general partnership and CODA, a
          partnership (the "ZAUCTION Agreement"); and

     (b)  any action, proceeding, investigation, inquiry or suit, commenced or
          threatened, by ZAUCTION, its principals or affilates (collectively,
          the "Z Group") or any person or entity claiming through, for, or on
          behalf of Z Group or its principals or affiliates (by assignment,
          subrogation or otherwise), relating to the intellectual property
          rights (or alleged rights) of Z Group, including without limitation
          infringement (or alleged infringement or other claimed invasion) of
          the ZAUCTION Agreement and all claims related thereto.

2.   Duty to Defend, Etc.  If the facts giving rise to any such indemnification
     -------------------                                                       
shall involve any actual claim or demand by any third Person (an "Indemnified
Claim") against an Indemnified Party, said Indemnified Party shall as soon as
reasonably practicable notify the Principal Shareholders in writing of such
Indemnified Claim (a "Claim Notice") stating with reasonable specificity the
circumstances giving rise to the Indemnified Party's claim for indemnification;
provided, however, that any failure to give such notice will not waive any
--------  -------                                                         
rights of the Indemnified Party except to the extent that the rights of the
Principal Shareholders are actually and substantially prejudiced.  Within ten
(10) days of receipt of a Claim Notice, the Principal Shareholders shall
acknowledge receipt of the Claim Notice and agree to comply with their
obligations under this Agreement and shall assume the defense of the Indemnified
Party.  After providing the Principal Shareholders with the Claim Notice, an
Indemnified Party may defend such Indemnified Claim with attorneys of its own
choosing until it shall have received written notice from the Principal
Shareholders agreeing to assume the defense of such Indemnified Claim and
providing a written undertaking of their agreement to assume the defense or
prosecution of such Indemnified Claim at the Principal Shareholders' sole cost
and expense in accordance with this Agreement.  The Principal Shareholders then
shall be entitled (without prejudice to the right of any Indemnified Party to
participate at its own expense through counsel of its own choosing) to defend or
prosecute such claim at its expense and through counsel acceptable to such
Indemnified Party; provided, however, that if the defendants in any action shall
                   --------  -------                                            
include both the Principal Shareholders and the Indemnified Party, and the
Indemnified Party shall have reasonably concluded that counsel selected by the
Principal Shareholders has an actual or potential conflict of interest, the
Indemnified Party shall have the right to separate counsel of its choosing to
participate in the defense of such action on its behalf, at the reasonable
expense of the Principal Shareholders.  Each Indemnified Party shall cooperate
fully in the defense of such claim and shall make available to the Principal
Shareholders pertinent information under its control relating thereto, but shall
be entitled to be reimbursed for all actual costs and expenses incurred by it in
connection therewith, including actual loss of earnings of the Indemnified Party
(which, in the case of an individual, shall not be greater than $300 per day),
with prejudgment interest at the prevailing rate.

3.   Right to Settle or Compromise Claims.  The Principal Shareholders will not,
     ------------------------------------                                     
without the prior written consent of each affected Indemnified Party, settle or
compromise any pending or


                                      13.
<PAGE>
 
threatened Indemnified Claim, unless such settlement or compromise includes a
full and unconditional release of each such Indemnified Party from all liability
arising out of such Indemnified Claim, reasonably satisfactory in form and
substance to such Indemnified Party. If the Principal Shareholders assume the
defense of an Indemnified Claim, no Indemnified Party will, without the prior
written consent of each of the Principal Shareholders, settle or compromise any
pending or threatened Indemnified Claim unless such settlement or compromise
includes a full and unconditional release of each Principal Shareholder from all
liability to the Indemnified Parties arising (under this Agreement or otherwise)
out of such claim, action, suit or proceeding, reasonably satisfactory in form
and substance to the Principal Shareholders. If the Principal Shareholders
decline to assume the defense of an Indemnified Claim, the Indemnified Party
shall not, without the prior written consent of each of the Principal
Shareholders, which shall not be unreasonably withheld, settle or compromise the
Indemnified Claim unless such settlement or compromise includes a full and
unconditional release of each Principal Shareholder from all liability to the
Indemnified Parties arising (under this Agreement or otherwise) out of such
claim, action, suit or proceeding, reasonably satisfactory in form and substance
to the Principal Shareholders.

4.   Subrogation.  If the Indemnified Party receives payment or other
     -----------                                                     
indemnification from the Principal Shareholders hereunder with respect to any
claim or demand by any third Person against the Indemnified Party, the Principal
Shareholders shall be subrogated to the extent of such payment or
indemnification to all rights in respect of the subject matter of such claim to
which the Indemnified Party may be entitled and to institute appropriate action
for the recovery thereof.  The Indemnified Party agrees to provide reasonable
levels of assistance and cooperation to the Principal Shareholders in enforcing
such rights, but shall be entitled to be reimbursed for all actual costs and
expenses incurred by it in connection therewith.

5.   Payment; Attorneys' Fees.  The Indemnified Parties shall be entitled to
     ------------------------                                               
recover from the Principal Shareholders all amounts due the Indemnified Parties
pursuant to this Agreement arising out of all matters described in Section 1 and
                                                                   -------------
Section 2 of this Agreement, including court costs and fees of and disbursements
---------                                                                       
of counsel, in connection with the enforcement of this Agreement.  If any
action, suit, or other proceeding is instituted to remedy, prevent or obtain
relief from a default in the performance by either party of its obligations
under this Agreement, the prevailing party shall recover all of such party's
costs and reasonable attorneys' fees incurred in each and every such action,
suit or other proceeding, including any and all appeals or petitions therefrom.

6.   Limitations on Liability.  Notwithstanding anything to the contrary in this
     ------------------------                                                   
Agreement, with respect to any and all matters described in Section 1 and
Section 2, in no event shall the Principal Shareholders, aggregate
indemnification liability exceed 115% of Cumetrix's total cash investment in the
Company, determined as of the date of the Claim Notice.

7.   Time Limit on Indemnification and Duty to Defend.  The Principal
     ------------------------------------------------                
Shareholders shall only be liable under this Agreement to provide
indemnification against Losses and/or defense to Cumetrix for any action,
proceeding, investigation, inquiry or suit (as provided in Section 1 and Section
2, above)  (a) with respect to which a Claim Notice is received, (b) with
respect to which Cumetrix notifies the Principal Shareholders in writing, or (c)
which 


                                      14.
<PAGE>
 
is asserted in a written claim for indemnification under this Agreement
specifying the basis therefor, within one (1) year from the date hereof.

8.   Insurance Proceeds.  Notwithstanding any provision of this Agreement to the
     ------------------                                                         
contrary, the Principal Shareholders shall not be obligated to make any payment
or otherwise indemnify the Indemnified Parties for losses, damages and expenses
paid, suffered or incurred by the Indemnified Parties if and to the extent that
the Indemnified Parties have actually received any insurance proceeds under
policies purchased by the Company attributable to such losses, damages or
expenses.

9.   Further Assurances re Insurance.  The Principal Shareholders will cooperate
     -------------------------------                                            
with Cumetrix in its attempt to purchase insurance relating to the claims
covered by this Agreement and will provide all requested representations and
warranties to any insurer selected by Cumetrix; provided, that the Principal
Shareholders shall not by this paragraph be required to incur personal liability
for monetary damages for any breach of representations and warranties to any
insurer (other than for fraud).

10.  Waiver of Jury Trial.  EACH SIGNATORY TO THIS AGREEMENT FURTHER WAIVES ITS
     --------------------                                                      
RESPECTIVE RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF
THIS AGREEMENT OR ANY DEALINGS BETWEEN ANY OF THE SIGNATORIES HERETO RELATING TO
THE SUBJECT MATTER OF THIS AGREEMENT.  The scope of this waiver is intended to
be all-encompassing of any and all disputes that may be filed in any court and
that relate to the subject matter of this Agreement, including, without
limitation, contract claims, tort claims, and all other common law and statutory
claims.  This waiver is irrevocable, meaning that it may not be modified either
orally or in writing, and this waiver shall apply to any subsequent amendments,
supplements or other modifications to this Agreement or to any other document or
agreement relating to the transactions contemplated by this Agreement.

11.  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
     -------------                                                        
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS TO
BE EXECUTED AND WHOLLY PERFORMED THEREIN (WITHOUT REGARD TO THE CONFLICT OF LAWS
PROVISIONS THEREOF).

12.  Amendments.  Amendments may be made to this Agreement from time to time
     ----------                                                             
with the signed written consent of Cumetrix and each of the Principal
Shareholders.

13.  Assignment.  Neither Cumetrix nor any of the Principal Shareholders may
     ----------                                                             
assign its rights or delegate its obligations under this Agreement without the
written consent of the other parties to this Agreement.

14.  Binding Provisions.  The covenants and agreements contained herein shall be
     ------------------                                                         
binding upon, and inure to the benefit of, the permitted successors and assigns
of the parties hereto.

15.  Notices.  All notices, demands or other communications hereunder shall be
     -------                                                                  
in writing and shall be deemed to have been duly given (i) if delivered in
person, on the date actually given, (ii) 


                                      15.
<PAGE>
 
if by United States mail, certified or registered, with return receipt
requested, on the date which is two business days after the date of mailing, or
(iii) if sent by telecopier, on the date transmitted, provided receipt is
confirmed by telephone and United States mail with postage prepaid:

          if to Cumetrix:


                                      16.
<PAGE>
 
                  Cumetrix Data Systems Corp.
                  957 Lawson Street
                  Industry, California 91748
                  Telecopy No.:  (626) 965-8159
                  Attention: Max Toghraie

          if to the Principal Shareholders:

                  to the addresses set forth opposite their signatures hereto,

or at such other address as may have been furnished by such Person in writing to
the other parties.

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

17.  Negotiation of Agreement.  Each of the parties acknowledges that it has
     ------------------------                                               
been represented by independent counsel of its choice throughout all
negotiations that have preceded the execution of this Agreement and that it has
executed the same with consent and upon the advice of said independent counsel.
Each party and its counsel cooperated in the drafting and preparation of this
Agreement and the documents referred to herein, and any and all drafts relating
thereto shall be deemed the work product of the parties and may not be construed
against any party by reason of its preparation. Accordingly, any rule of law or
any legal decision that would require interpretation of any ambiguities in this
Agreement against the party that drafted it is of no application and is hereby
expressly waived.  The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intentions of the parties and this Agreement.

18.  Severability.  If one or more provisions of this Agreement are held to be
     ------------                                                             
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its terms
to the fullest extent permitted by law.

19.  Entire Agreement.  This Agreement embodies the entire agreement and
     ----------------                                                   
understanding of the parties hereto in respect of the subject matter of this
Agreement and supersedes all prior agreements, understandings and
representations relating to such subject matter.


                                      17.
<PAGE>
 
     IN WITNESS WHEREOF, the parties have executed this Agreement upon the date
first written above.

                                       CUMETRIX DATA SYSTEMS CORP.,
                                       a California corporation



                                       By: ______________________________
                                             Max Toghraie
                                             Chief Executive Officer
 

PRINCIPAL SHAREHOLDERS:
 
                                       Address:   ___________________________
                                                  ___________________________
___________________________                       ___________________________
Colin P. Kruger

                                       Address:   ___________________________
                                                  ___________________________
___________________________                       ___________________________
Igor Kogan
                                       Address:   ___________________________
                                                  ___________________________
___________________________                       ___________________________
Michael Shirman




                                      18.
<PAGE>
 
                                  EXHIBIT 1.2

                                        
                       RESTATED ARTICLES OF INCORPORATION
                                       OF
                     ONLINE TRANSACTION TECHNOLOGIES, INC.

                                        

     Igor Kogan and Colin Kruger hereby certify that:

     ONE:  They are the duly elected and acting President and Secretary,
respectively, of Online Transaction Technologies, Inc., a California corporation
(the "Corporation").

     TWO:  The Articles of Incorporation of this Corporation are hereby amended
and restated to read as follows:

                                      I.

     The name of the Corporation is ONLINE TRANSACTION TECHNOLOGIES, INC.

                                      II.

The purpose of the Corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.

                                     III.

     A.   This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock."  The total
number of shares which the Corporation is authorized to issue is Twelve Million
Six Hundred Fifty-Seven Thousand One Hundred and Twenty-Two (12,657,122) shares,
Ten Million (10,000,000) shares of which shall be Common Stock (the "Common
Stock") and Two Million Six Hundred Fifty-Seven Thousand One Hundred and Twenty-
Two (2,657,122) shares of which shall be Preferred Stock (the "Preferred
Stock").

     B.   The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in these Restated Articles of Incorporation, to fix or alter
the dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices, the liquidation preferences of any wholly unissued series of Preferred
Stock, and the number of shares constituting any such series and the designation
thereof, or any of them; and to increase or decrease the number of shares of any
series subsequent to the issue of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.


                                      19.
<PAGE>
 
     C.  Eighty-Eight Thousand Three Hundred and Twenty-Six (88,326) of the
authorized shares of Preferred Stock are hereby designated "Series A-1 Preferred
Stock," One Million Sixty-Eight Thousand Seven Hundred Ninety-Six (1,068,796) of
the authorized shares of Preferred Stock are hereby designated "Series A-2
Preferred Stock," and One Million Five Hundred Thousand (1,500,000) of the
authorized shares of Preferred Stock are hereby designated "Series A-3 Preferred
Stock" (collectively, the "Series A Preferred").

     D.  The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred are as follows:

         1.  DIVIDEND RIGHTS.

             a.  So long as any shares of Series A Preferred shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on any other stock of the
Corporation ("Junior Stock"), nor shall any shares of any Junior Stock of the
Corporation be purchased, redeemed, or otherwise acquired for value by the
Corporation (except for acquisitions of Common Stock by the Corporation pursuant
to agreements which permit the Corporation to repurchase such shares upon
termination of services to the Corporation or in exercise of the Corporation's
right of first refusal upon a proposed transfer). The provisions of this Section
1.a. shall not, however, apply to (i) a dividend payable in Common Stock, (ii)
the acquisition of shares of any Junior Stock in exchange for shares of any
other Junior Stock, or (iii) any repurchase of any outstanding securities of the
Corporation that is unanimously approved by the Corporation's Board of
Directors. The holders of the Series A Preferred expressly waive their rights,
if any, as described in California Corporations Code Sections 502, 503 and 506
as they relate to repurchase of shares upon termination of employment.

         2.  VOTING RIGHTS.

             a.  General Rights.  Except as otherwise provided herein or as
required by law, the Series A Preferred shall be voted equally with the shares
of the Common Stock of the Corporation and not as a separate class, at any
annual or special meeting of shareholders of the Corporation, and may act by
written consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of Series A Preferred shall be entitled
to such number of votes as shall be equal to the number of shares of Common
Stock (rounded up to the nearest whole number) into which such holder's
aggregate number of shares of Series A Preferred are convertible (pursuant to
Section 5 hereof) immediately after the close of business on the record date
fixed for such meeting or the effective date of such written consent.

             b.  Separate Vote of Series A Preferred.  Until the occurrence of a
Covenant Termination Event (as defined in that certain Preferred Stock Purchase
Agreement dated as of December 15, 1998 between the Corporation and Cumetrix
Data Systems, Inc.) and thereafter, for so long as at least One Million One
Hundred Fifty-Seven Thousand One Hundred And Twenty-Two (1,157,122) shares of
Series A Preferred (subject to adjustment for any stock split, reverse stock
split or other similar event affecting the Series A Preferred) remain
outstanding, in addition to any other vote or consent required herein or by law,
the vote or 


                                      20.
<PAGE>
 
written consent of the holders of at least a majority of the outstanding Series
A Preferred shall be necessary for effecting or validating the following
actions:

                 (i)   Any authorization or any designation, whether by
reclassification or otherwise, of any new class or series of stock or any other
securities convertible into equity securities of the Corporation ranking pari
passu or senior to the Series A Preferred in liquidation preference, voting or
dividends or any increase in the authorized or designated number of any such new
class or series; or

                 (ii)  Any redemption, purchase or other acquisition (or payment
into or setting aside for a sinking fund for such purpose) any share or shares
of Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for this Corporation or any
subsidiary pursuant to agreements under which this Corporation has the option to
repurchase such shares at cost upon the occurrence of certain events, such as
the termination of services.

             c.  Additional Series A Preferred Protective Provisions.  In
addition to any other vote or consent required herein or by law, the vote or
written consent of the holders of at least a majority of the outstanding Series
A Preferred shall be necessary for effecting or validating the following
actions:

                 (i)   Any amendment, alteration, or repeal of any provision of
the Articles of Incorporation of the Corporation (including any filing of a
Certificate of Determination) that changes the voting powers, preferences, or
other special rights or privileges, or restrictions of the Series A Preferred;

                 (ii)  Any liquidation or dissolution of this corporation or
reclassification of its outstanding capital stock; or

                 (iii) Any issuance of Series A-3 Preferred Stock other than
pursuant to the terms of that certain "Second Option" (as defined in that
certain Stock Purchase Agreement dated as of December 15, 1998 between the
Corporation and Cumetrix Data Systems, Inc.

             d.  Election of Board of Directors.  For so long as at least One
Million One Hundred Fifty-Seven Thousand One Hundred and Twenty-Two (1,157,122)
shares of Series A Preferred remain outstanding (subject to adjustment for any
stock split, reverse stock split or similar event affecting the Series A
Preferred) and the authorized size of the Corporation's Board of Directors is
three (3) or more, (i) until such time that the Series A Preferred may elect
more than one (1) member of the Corporation's Board of Directors pursuant to the
right to cumulate votes for the election of directors under Section 708 of the
California Corporations Code, the holders of Series A Preferred, voting as a
separate class, shall be entitled to elect one (1) member of the Corporation's
Board of Directors at each meeting or pursuant to each consent of the
Corporation's shareholders for the election of directors, and to remove from
office such director and to fill any vacancy caused by the resignation, death or
removal of such director; and (ii) the holders of Common Stock and Series A
Preferred, voting as a single class, shall be entitled to elect all remaining
members of the Board of Directors at each meeting or 


                                      21.
<PAGE>
 
pursuant to each consent of the Corporation's shareholders for the election of
directors, and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of such directors.

         3.  LIQUIDATION RIGHTS.

             a.  Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Junior Stock, the holders of Series
A Preferred shall be entitled to be paid out of the assets of the Corporation an
amount per share of Series A Preferred equal to the Original Issue Price (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) for each share of Series A Preferred held
by them. The Original Issue Price of the Series A-1 Preferred Stock shall be
equal to one dollar and thirteen cents ($1.13), the Original Issue Price of the
Series A-2 Preferred Stock shall be equal to eighty four and two tenths cents
($.842), and the Original Issue Price of the Series A-3 Preferred Stock shall be
equal to the total amount paid for the Series A-3 Preferred Stock upon the first
issuance of such shares divided by the total number of Series A-3 Preferred
Stock issued upon the first issuance of such shares. If, upon any liquidation,
distribution, or winding up, the assets of the Corporation shall be insufficient
to make payment in full to all holders of Series A Preferred of the liquidation
preference set forth above, then such assets shall be distributed among the
holders of Series A Preferred at the time outstanding, ratably in proportion to
the full amounts to which they would otherwise be respectively entitled.

             b.  After the payment of the full liquidation preference of the
Series A Preferred as set forth in Section 3.a. above, the remaining assets of
the Corporation legally available for distribution, if any, shall be distributed
ratably to the holders of the Common Stock.

             c.  The following events shall be considered a liquidation under
this Section:

                 (i)  a consolidation or merger of the Corporation with or into
any other corporation or other entity or person, or any other corporate
reorganization in which the stockholders of the Corporation immediately prior to
such consolidation, merger or reorganization, own less than fifty percent (50%)
of the Corporation's voting power immediately after such consolidation, merger
or reorganization, or any transaction or series of related transactions to which
the Corporation is a party in which excess of fifty present (50%) of the
Corporation's voting power is transferred; or

                 (ii) a sale, lease or other disposition of all or substantially
all of the assets of the Corporation.

             d.  If any of the assets of the corporation are to be distributed
other than in cash under this Section 3 or for any purpose, then the Board of
Directors of the Corporation shall promptly engage independent competent
appraisers to determine the value of the assets to be distributed to the holders
of Series A Preferred or Common Stock. The Corporation shall, upon receipt of
such appraiser's valuation, give prompt written notice to each holder of shares
of Series A Preferred or Common Stock of the appraiser's valuation.


                                      22.
<PAGE>
 
             e.  If, upon any liquidation, dissolution, or winding up, the
assets of the Corporation shall be insufficient to make payment in full to all
holders of Series A Preferred of the liquidation preference set forth in Section
3(a), then such assets shall be distributed among the holders of Series A
Preferred at the time outstanding, ratably in proportion to the full amounts to
which they would otherwise be respectively entitled.

         4.  CONVERSION RIGHTS.

The holders of the Series A Preferred shall have the following rights with
respect to the conversion of the Series A Preferred into shares of Common Stock
(the "Conversion Rights"):

             a.  Optional Conversion.  Subject to and in compliance with the
provisions of this Section 4, any shares of Series A Preferred may, at the
option of the holder, be converted at any time into fully-paid and nonassessable
shares of Common Stock. The number of shares of Common Stock to which a holder
of Series A Preferred shall be entitled upon conversion shall be the product
obtained by multiplying the "Series A Preferred Conversion Rate" then in effect
(determined as provided in Section 4.b.) by the number of shares of Series A
Preferred being converted.

             b.  Series A Preferred Conversion Rate.  The conversion rate in
effect at any time for conversion of the Series A Preferred (the "Series A
Preferred Conversion Rate") shall be the quotient obtained by dividing the
Original Issue Price of the Series A Preferred by the "Series A Preferred
Conversion Price," calculated as provided in Section 4.c.

             c.  Conversion Price.  The conversion price for the Series A
Preferred shall initially be the Original Issue Price of the Series A Preferred
(the "Series A Preferred Conversion Price"). Such initial Series A Preferred
Conversion Price shall be adjusted from time to time in accordance with this
Section 4. All references to the Series A Preferred Conversion Price herein
shall mean the Series A Preferred Conversion Price as so adjusted.

             d.  Mechanics of Conversion.  Each holder of Series A Preferred who
desires to convert the same into shares of Common Stock pursuant to this Section
4 shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or any transfer agent for the Series A Preferred,
and shall give written notice to the Corporation at such office that such holder
elects to convert the same. Such notice shall state the number of shares of
Series A Preferred being converted. Thereupon, the Corporation shall promptly
issue and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is entitled and
shall promptly pay in cash or, to the extent sufficient funds are not then
legally available therefor, in Common Stock (at the Common Stock's fair market
value determined by the Board of Directors as of the date of such conversion),
any declared and unpaid dividends on the shares of Series A Preferred being
converted. Such conversion shall be deemed to have been made at the close of
business on the date of such surrender of the certificates representing the
shares of Series A Preferred to be converted, and the person entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder of such shares of Common Stock on such date.


                                      23.
<PAGE>
 
             e.  Adjustment for Stock Splits and Combinations.  If the
Corporation shall at any time or from time to time after the date that the first
share of Series A Preferred is issued (the "Original Issue Date") effect a
subdivision of the outstanding Common Stock without a corresponding subdivision
of the Preferred Stock, the Series A Preferred Conversion Price in effect
immediately before that subdivision shall be proportionately decreased.
Conversely, if the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock into a
smaller number of shares without a corresponding combination of the Preferred
Stock, the Series A Preferred Conversion Price in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 4.e. shall become effective at the close of business on the date the
subdivision or combination becomes effective.

             f.  Adjustment for Common Stock Dividends and Distributions.  If
the Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, in each such event the Series A Preferred Conversion
Price that is then in effect shall be decreased as of the time of such issuance
or, in the event such record date is fixed, as of the close of business on such
record date, by multiplying the Series A Preferred Conversion Price then in
effect by a fraction (i) the numerator of which is the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and (ii) the denominator
of which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Series A Preferred Conversion Price shall
be recomputed accordingly as of the close of business on such record date and
thereafter the Series A Preferred Conversion Price shall be adjusted pursuant to
this Section 4.f. to reflect the actual payment of such dividend or
distribution.

             g.  Adjustment for Reclassification, Exchange and Substitution.  If
at any time or from time to time after the Original Issue Date, the Common Stock
issuable upon the conversion of the Series A Preferred is changed into the same
or a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than as a result of a
subdivision or combination of shares or stock dividend or a reorganization,
merger or consolidation in which the Corporation is the continuing entity and
which does not result in any change in the Common Stock) in any such event the
Series A Preferred shall be convertible into the kind and amount of stock and
other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of shares of
Common Stock into which such shares of Series A Preferred could have been
converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.

             h.  Reorganizations, Mergers, Consolidations or Sales of Assets.  
If at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares),
as a part of such capital reorganization, provision shall be 


                                      24.
<PAGE>
 
made so that the holders of the Series A Preferred shall thereafter be entitled
to receive upon conversion of the Series A Preferred the number of shares of
stock or other securities or property of the Corporation to which a holder of
the number of shares of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, subject to adjustment in respect of
such stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of Series A Preferred after the
capital reorganization to the end that the provisions of this Section 4
(including adjustment of the Series A Preferred Conversion Price then in effect
and the number of shares issuable upon conversion of the Series A Preferred)
shall be applicable after that event and be as nearly equivalent as practicable.

             i.  Sale of Shares Below Series A Preferred Conversion Price.

                 (i)  If at any time or from time to time after the Original
Issue Date, the Corporation issues or sells, or is deemed by the express
provisions of this subsection i to have issued or sold, Additional Shares of
Common Stock (as defined in subsection i.(iv) below)), other than as a dividend
or other distribution on any class of stock as provided in Section 4.f. above,
and other than a subdivision or combination of shares of Common Stock as
provided in Section 4.e. above, for an Effective Price (as defined in subsection
i.(iv) below) less than the then effective Series A Preferred Conversion Price
for any then outstanding sub-series of Series A Preferred, then and in each such
case the then existing Series A Preferred Conversion Price for such sub-series
shall be reduced, as of the opening of business on the date of such issue or
sale, to a price determined by multiplying the Series A Preferred Conversion
Price for such sub-series by a fraction (i) the numerator of which shall be (A)
the number of shares of Common Stock deemed outstanding (as defined below)
immediately prior to such issue or sale, plus (B) the number of shares of Common
Stock which the aggregate consideration received (as defined in subsection
i.(ii)) by the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Series A Preferred Conversion Price, and
(ii) the denominator of which shall be the number of shares of Common Stock
deemed outstanding (as defined below) immediately prior to such issue or sale
plus the total number of Additional Shares of Common Stock so issued. For the
purposes of the preceding sentence, the number of shares of Common Stock deemed
to be outstanding as of a given date shall be the sum of (A) the number of
shares of Common Stock actually outstanding, (B) the number of shares of Common
Stock into which the then outstanding shares of Series A Preferred could be
converted if fully converted on the day immediately preceding the given date,
and (C) the number of shares of Common Stock which could be obtained through the
exercise or conversion of all other rights, options and convertible securities
outstanding or exercisable on the day immediately preceding the given date.

                 (ii) For the purpose of making any adjustment required under
this Section 4.i., the consideration received by the Corporation for any issue
or sale of securities shall (A) to the extent it consists of cash, be computed
at the net amount of cash received by the Corporation after deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Corporation in connection with such issue or sale but without deduction
of any expenses payable by the Corporation, (B) to the extent it consists of
property other than cash, be computed at the fair value of that property as
determined in good faith by the Board of Directors, and (C) if Additional Shares
of Common Stock, Convertible Securities (as defined in subsection i.(iii) below)
or rights or options to purchase either Additional Shares of 


                                      25.
<PAGE>
 
Common Stock or Convertible Securities are issued or sold together with other
stock or securities or other assets of the Corporation for a consideration which
covers both, be computed as the portion of the consideration so received that
may be reasonably determined in good faith by the Board of Directors to be
allocable to such Additional Shares of Common Stock, Convertible Securities or
rights or options.

                 (iii) For the purpose of the adjustment required under this
Section 4.i., if the Corporation issues or sells any (i) stock or other
securities convertible into, Additional Shares of Common Stock (such convertible
stock or securities being herein referred to as "Convertible Securities") or
(ii) rights or options for the purchase of Additional Shares of Common Stock or
Convertible Securities and if the Effective Price of such Additional Shares of
Common Stock is less than the Series A Preferred Conversion Price, in each case
the Corporation shall be deemed to have issued at the time of the issuance of
such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion thereof
and to have received as consideration for the issuance of such shares an amount
equal to the total amount of the consideration, if any, received by the
Corporation for the issuance of such rights or options or Convertible
Securities, plus, in the case of such rights or options, the minimum amounts of
consideration, if any, payable to the Corporation upon the exercise of such
rights or options, plus, in the case of Convertible Securities, the minimum
amounts of consideration, if any, payable to the Corporation (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion thereof; provided that if in the case of
Convertible Securities the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
the Corporation shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; provided further that if the
minimum amount of consideration payable to the Corporation upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or
on the occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; provided
further that if the minimum amount of consideration payable to the Corporation
upon the exercise or conversion of such rights, options or Convertible
Securities is subsequently increased, the Effective Price shall be again
recalculated using the increased minimum amount of consideration payable to the
Corporation upon the exercise or conversion of such rights, options or
Convertible Securities. No further adjustment of the Series A Preferred
Conversion Price, as adjusted upon the issuance of such rights, options or
Convertible Securities, shall be made as a result of the actual issuance of
Additional Shares of Common Stock on the exercise of any such rights or options
or the conversion of any such Convertible Securities. If any such rights or
options or the conversion privilege represented by any such Convertible
Securities shall expire without having been exercised, the Series A Preferred
Conversion Price as adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Series A Preferred Conversion
Price which would have been in effect had an adjustment been made on the basis
that the only Additional Shares of Common Stock so issued were the Additional
Shares of Common Stock, if any, actually issued or sold on the exercise of such
rights or options or rights of conversion of such Convertible Securities, and
such Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation for the granting of
all such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the 


                                      26.
<PAGE>
 
Convertible Securities actually converted, plus the consideration, if any,
actually received by the Corporation (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities) on the conversion of
such Convertible Securities; provided that such readjustment shall not apply to
prior conversions of Series A Preferred.

                 (iv) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued by the Corporation or deemed to be issued pursuant to
this Section 4.i., whether or not subsequently reacquired or retired by the
Corporation other than (A) shares of Common Stock issued upon conversion of the
Series A Preferred; (B) shares of Common Stock and/or options, warrants or other
Common Stock purchase rights and the Common Stock issued pursuant to such
options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) after the Original Issue
Date to employees, officers or directors of, or consultants or advisors to the
Corporation or any subsidiary pursuant to stock purchase or stock option plans
or other arrangements that are approved by the Board; (C) shares of Common Stock
issued pursuant to the exercise of options, warrants or convertible securities
outstanding as of the Original Issue Date; (D) shares of Common Stock issued for
consideration other than cash pursuant to a merger, consolidation, acquisition
or similar business combination; and (E) shares of Common Stock issued pursuant
to any equipment leasing arrangement, or debt financing from a bank or similar
financial institution. The "Effective Price" of Additional Shares of Common
Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold by the Corporation under this Section 4.i., into the aggregate
consideration received, or deemed to have been received by the Corporation for
such issue under this Section 4.i., for such Additional Shares of Common Stock.

             j.  Certificate of Adjustment.  In each case of an adjustment or
readjustment of the Series A Preferred Conversion Price for the number of shares
of Common Stock or other securities issuable upon conversion of the Series A
Preferred, if the Series A Preferred is then convertible pursuant to this
Section 4, the Corporation, at its expense, shall compute such adjustment or
readjustment in accordance with the provisions hereof and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to each registered holder of Series A
Preferred at the holder's address as shown in the Corporation's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (i) the consideration received or deemed to be received by the
Corporation for any Additional Shares of Common Stock issued or sold or deemed
to have been issued or sold, (ii) the Series A Preferred Conversion Price at the
time in effect, (iii) the number of Additional Shares of Common Stock and (iv)
the type and amount, if any, of other property which at the time would be
received upon conversion of the Series A Preferred.

             k.  Notices of Record Date.  Upon (i) any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation with or into any other
corporation, or any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, the Corporation shall mail to each holder of Series A
Preferred at least twenty (20) days prior to the record date specified therein a
notice specifying (A) the date on which any such 


                                      27.
<PAGE>
 
record is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (B) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective, and (C) the date, if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.

             l.  Automatic Conversion.

                 (i)  Each share of Series A Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective Series A
Preferred Conversion Price, (A) at any time upon the affirmative election of the
holders of at least a majority of the outstanding shares of the Series A
Preferred, or (B) immediately upon the closing of a firmly underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation in which (i) the per share price is at least $3.00
(as adjusted for stock splits, dividends, recapitalizations and the like), and
(ii) the gross cash proceeds to the Corporation (before underwriting discounts,
commissions and fees) are at least $15,000,000. Upon such automatic conversion,
any declared and unpaid dividends shall be paid in accordance with the
provisions of Section 4.d.

                 (ii) Upon the occurrence of the event specified in paragraph
(i) above, the outstanding shares of Series A Preferred shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, however, that the Corporation shall
not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless the certificates evidencing such shares of
Series A Preferred are either delivered to the Corporation or its transfer agent
as provided below, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. Upon the occurrence of
such automatic conversion of the Series A Preferred, the holders of Series A
Preferred shall surrender the certificates representing such shares at the
office of the Corporation or any transfer agent for the Series A Preferred.
Thereupon, there shall be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Series A Preferred surrendered were convertible on the date
on which such automatic conversion occurred, and any declared and unpaid
dividends shall be paid in accordance with the provisions of Section 4.d.

             m.  Fractional Shares.  No fractional shares of Common Stock shall
be issued upon conversion of Series A Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series A Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the 


                                      28.
<PAGE>
 
Common Stock's fair market value (as determined by the Board of Directors) on
the date of conversion.

             n.  Reservation of Stock Issuable Upon Conversion.  The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Preferred, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.

             o.  Notices.  Any notice required by the provisions of this Section
4 shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day, (iii) five (5) days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All notices shall be
addressed to each holder of record at the address of such holder appearing on
the books of the Corporation.

             p.  Payment of Taxes.  The Corporation will pay all taxes (other
than taxes based upon income) and other governmental charges that may be imposed
with respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Series A Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series A Preferred
so converted were registered.

             q.  No Dilution or Impairment.  Without the consent of the holders
of the then outstanding Series A Preferred, as required under Section 2.b., the
Corporation shall not amend its Restated Articles of Incorporation or
participate in any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or take any other voluntary action, for
the purpose of avoiding or seeking to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but shall
at all times in good faith assist in carrying out all such action as may be
reasonably necessary or appropriate in order to protect the conversion rights of
the holders of the Series A Preferred against dilution or other impairment.

         5.  NO REISSUANCE OF SERIES A PREFERRED.

             No share or shares of Series A Preferred acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
reissued.

         6.  NO PREEMPTIVE RIGHTS.

             Shareholders shall have no preemptive rights except as granted by
the Corporation pursuant to written agreements.


                                      29.
<PAGE>
 
                                      IV.

     A.  The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.

     B.  The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the General Corporation Law of California) for breach
of duty to the Corporation and its shareholders through bylaw provisions or
through agreements with agents, or both, in excess of the indemnification
otherwise permitted by Section 317 of the General Corporation Law of California,
subject to the limits on such excess indemnification set forth in Section 204 of
the General Corporation Law of California.  If, after the effective date of this
Article, California law is amended in a manner which permits a corporation to
limit the monetary or other liability of its directors or to authorize
indemnification of, or advancement of such defense expenses to, its directors or
other persons, in any such case to a greater extent than is permitted on such
effective date, the references in this Article to "California law" shall to that
extent be deemed to refer to California law as so amended.

     C.  Any repeal or modification of this Article shall only be prospective
and shall not effect the rights under this Article in effect at the time of the
alleged occurrence of any action or omission to act giving rise to liability."

THREE:  The foregoing amendment and restatement of the Articles of Incorporation
has been duly approved by the Board of Directors of this Corporation.

FOUR:  The foregoing amendment and restatement of the Articles of Incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 902 of the California Corporations Code.  The Corporation has one class
of stock outstanding and such class of stock is entitled to vote with respect to
the amendment herein set forth.  The total number of outstanding shares of
Common Stock of the Corporation is 3,000,000.  The number of shares voting in
favor of the amendment equaled or exceeded the vote required.  The percentage
vote required was more than fifty percent (50%) of the outstanding Common Stock
voting as a class.

                     [THIS SPACE INTENTIONALLY LEFT BLANK]


                                      30.
<PAGE>
 
The undersigned, Igor Kogan and Colin Kruger, the President and Secretary,
respectively, of ONLINE TRANSACTION TECHNOLOGIES, INC., declares under penalty
of perjury under the laws of the State of California that the matters set out in
the foregoing Certificate are true of his own knowledge.

     Executed at San Diego, California on __________________, 1998.



                                     -----------------------------------------
                                     Igor Kogan, President


Attest:


---------------------------------- 
Colin Kruger, Secretary


                                      31.
<PAGE>
 
                               ATTACHMENT 5.1.9

                EMPLOYEE INVENTION AND NON-DISCLOSURE AGREEMENT

[Original Document Appears in Dual Column Format]

                     ONLINE TRANSACTION TECHNOLOGIES, INC.

                EMPLOYEE AND CONSULTANT PROPRIETARY INFORMATION
                           AND INVENTIONS AGREEMENT

          In consideration of my employment with or continued employment by or
engagement as a consultant to perform services for or for the benefit of ONLINE
TRANSACTION TECHNOLOGIES, INC. (the "Company"), and the compensation now and
hereafter paid to me for such services, I hereby agree as follows:

1.  Nondisclosure

    1.1    Recognition of Company's Rights; Nondisclosure. At all times during
my employment or engagement as a consultant and thereafter, I will hold in
strictest confidence and will not disclose, use, lecture upon or publish any of
the Company's Proprietary Information (defined below), except as such
disclosure, use or publication may be required in connection with my work for
the Company, or unless an officer of the Company expressly authorizes such in
writing. I will obtain the Company's written approval before publishing or
submitting for publication any material (written, verbal, or otherwise) that
relates to my work at Company and/or incorporates any Proprietary Information. I
hereby assign to the Company any rights I may have or acquire in such
Proprietary Information and recognize that all Proprietary Information shall be
the sole property of the Company and its assigns.

    1.2    Proprietary Information. The term "Proprietary Information" shall
mean any and all confidential and/or proprietary knowledge, data or information
of the Company. By way of illustration but not limitation, "Proprietary
Information" includes (a) trade secrets, inventions, mask works, ideas,
processes, formulas, source and object codes, data, programs, other works of
authorship, know-how, improvements, discoveries, developments, designs and
techniques (hereinafter collectively referred to as "Inventions"); and (b)
information regarding plans for research, development, new products, marketing
and selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers; and (c) information
regarding the skills and compensation of other employees of the Company.
Notwithstanding the foregoing, it is understood that, at all such times, I am
free to use information which is generally known in the trade or industry, which
is not gained as result of a breach of this Agreement, and my own, skill,
knowledge, know-how and experience to whatever extent and in whichever way I
wish.

    1.3    Third Party Information.  I understand, in addition, that the Company
has received and in the future will receive from third parties confidential or
proprietary information ("Third Party Information") subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes.  During the 


                                      33
<PAGE>
 
term of my employment and thereafter, I will hold Third Party Information in the
strictest confidence and will not disclose to anyone (other than Company
personnel who need to know such information in connection with their work for
the Company) or use, except in connection with my work for the Company, Third
Party Information unless expressly authorized by an officer of the Company in
writing.

    1.4   No Improper Use of Information of Prior Employers and Others. During
my employment by or engagement as a consultant to the Company I will not
improperly use or disclose any confidential information or trade secrets, if
any, of any current or former employer or any other person to whom I have an
obligation of confidentiality, and I will not bring onto the premises of the
Company any unpublished documents or any property belonging to any current or
former employer or any other person to whom I have an obligation of
confidentiality unless consented to in writing by that current or former
employer or other person. I will use in the performance of my duties only
information which is generally known and used by persons with training and
experience comparable to my own, which is common knowledge in the industry or
otherwise legally in the public domain, or which is otherwise provided or
developed by the Company.

2.  Assignment of Inventions.

    2.1   Proprietary Rights. The term "Proprietary Rights" shall mean all trade
secret, patent, copyright, mask work and other intellectual property rights
throughout the world.

    2.2   Prior Inventions. Inventions, if any, patented or unpatented, which I
made prior to the commencement of my employment with or engagement as a
consultant to the Company are excluded from the scope of this Agreement. To
preclude any possible uncertainty, I have set forth on Exhibit B (Previous
Inventions) attached hereto a complete list of all Inventions that I have, alone
or jointly with others, conceived, developed or reduced to practice or caused to
be conceived, developed or reduced to practice prior to the commencement of my
employment with or engagement as a consultant to the Company, that I consider to
be my property or the property of third parties and that I wish to have excluded
from the scope of this Agreement (collectively referred to as "Prior
Inventions"). If disclosure of any such Prior Invention would cause me to
violate any prior confidentiality agreement, I understand that I am not to list
such Prior Inventions in Exhibit B but am only to disclose a cursory name for
each such invention, a listing of the party(ies) to whom it belongs and the fact
that full disclosure as to such inventions has not been made for that reason. A
space is provided on Exhibit B for such purpose. If no such disclosure is
attached, I represent that there are no Prior Inventions. If, in the course of
my employment with or engagement as a consultant to the Company, I incorporate a
Prior Invention into a Company product, process or machine, the Company is
hereby granted and shall have a nonexclusive, royalty-free, irrevocable,
perpetual, worldwide license (with rights to sublicense through multiple tiers
of sublicensees) to make, have made, modify, use and sell such Prior Invention.
Notwithstanding the foregoing, I agree that I will not incorporate, or permit to
be incorporated, Prior Inventions in any Company Inventions without the
Company's prior written consent.


                                      34
<PAGE>
 
    2.3    Assignment of Inventions.  Subject to Sections 2.4, and 2.6, I hereby
assign and agree to assign in the future (when any such Inventions or
Proprietary Rights are first reduced to practice or first fixed in a tangible
medium, as applicable) to the Company all my right, title and interest in and to
any and all Inventions (and all Proprietary Rights with respect thereto) whether
or not patentable or registrable under copyright or similar statutes, made or
conceived or reduced to practice or learned by me, either alone or jointly with
others, during the period of my employment with or as a result of services
performed by me as a consultant to the Company.  Inventions assigned to the
Company, or to a third party as directed by the Company pursuant to this Section
2, are hereinafter referred to as "Company Inventions."

    2.4    Nonassignable Inventions.  This Agreement does not apply to an
Invention which qualifies fully as a nonassignable Invention under Section 2870
of the California Labor Code (hereinafter "Section 2870").  I have reviewed the
notification on Exhibit A (Limited Exclusion Notification) and agree that my
signature acknowledges receipt of the notification.

    2.5    Obligation to Keep Company Informed.  During the period of my
employment or engagement as a consultant and for six (6) months after
termination of my employment with or engagement as a consultant to the Company,
I will promptly disclose to the Company fully and in writing all Inventions
authored, conceived or reduced to practice by me, either alone or jointly with
others.  In addition, I will promptly disclose to the Company all patent
applications filed by me or on my behalf within a year after termination of
employment or my engagement as a consultant to the Company.  At the time of each
such disclosure, I will advise the Company in writing of any Inventions that I
believe fully qualify for protection under Section 2870; and I will at that time
provide to the Company in writing all evidence necessary to substantiate that
belief.  The Company will keep in confidence and will not use for any purpose or
disclose to third parties without my consent any confidential information
disclosed in writing to the Company pursuant to this Agreement relating to
Inventions that qualify fully for protection under the provisions of Section
2870.  I will preserve the confidentiality of any Invention that does not fully
qualify for protection under Section 2870.

    2.6    Government or Third Party. I also agree to assign all my right, title
and interest in and to any particular Company Invention to a third party,
including without limitation the United States, as directed by the Company.

    2.7    Works for Hire.  I acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of my
employment or engagement as a consultant to and which are protectable by
copyright are "works made for hire," pursuant to United States Copyright Act (17
U.S.C., Section 101).
 
    2.8    Enforcement of Proprietary Rights. I will assist the Company in every
proper way to obtain, and from time to time enforce, United States and foreign
Proprietary Rights relating to Company Inventions in any and all countries. To
that end I will execute, verify and deliver such documents and perform such
other acts (including appearances as a witness) as the Company may reasonably
request for use in applying for, obtaining, perfecting, evidencing, sustaining
and enforcing such Proprietary Rights and the assignment thereof. In addition, I
will execute, verify and deliver assignments of such Proprietary Rights to the
Company or its 


                                      35
<PAGE>
 
designee. My obligation to assist the Company with respect to Proprietary Rights
relating to such Company Inventions in any and all countries shall continue
beyond the termination of my employment or engagement as a consultant, but the
Company shall compensate me at a reasonable rate after my termination for the
time actually spent by me at the Company's request on such assistance.

In the event the Company is unable for any reason, after reasonable effort, to
secure my signature on any document needed in connection with the actions
specified in the preceding paragraph, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and attorney
in fact, which appointment is coupled with an interest, to act for and in my
behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by me.  I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.

3.  RECORDS.  I agree to keep and maintain adequate and current records (in the
form of notes, sketches, drawings and in any other form that may be required by
the Company) of all Proprietary Information developed by me and all Inventions
made by me during the period of my employment with or engagement as a consultant
to the Company, which records shall be available to and remain the sole property
of the Company at all times.

4.  ADDITIONAL ACTIVITIES.  I agree that during the period of my employment by
or engagement as a consultant to the Company I will not, without the Company's
express written consent, engage in any employment or business activity which is
competitive with, or would otherwise conflict with, my employment by or
engagement as a consultant to the Company.  I agree further that for the period
of my employment by or engagement as a consultant to the Company and for one (l)
year after the date of termination of my employment by or engagement as a
consultant to the Company I will not induce any employee of or engagement as a
consultant to the Company to leave the employ of the Company.

5.  NO CONFLICTING OBLIGATION.  I represent that my performance of all the terms
of this Agreement and as an employee of or a consultant to the Company does not
and will not breach any agreement to keep in confidence information acquired by
me in confidence or in trust prior to my employment by the Company.  I have not
entered into, and I agree I will not enter into, any agreement either written or
oral in conflict herewith.

6.  RETURN OF COMPANY DOCUMENTS.  When I leave the employ of or upon the
termination of my services as a consultant to the Company, I will deliver to the
Company any and all drawings, notes, memoranda, specifications, devices,
formulas, and documents, together with all copies thereof, and any other
material containing or disclosing any Company Inventions, Third Party
Information or Proprietary Information of the Company.  I further agree that any
property situated on the Company's premises and owned by the Company, including
disks and other storage media, filing cabinets or other work areas, is subject
to inspection by Company personnel at any time with or without notice.  Prior to
leaving, I will cooperate with the Company in completing and signing the
Company's termination statement.


                                      36
<PAGE>
 
7.  LEGAL AND EQUITABLE REMEDIES.  Because my services are personal and unique
and because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights and
remedies that the Company may have for a breach of this Agreement.

8.  NOTICES.  Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified below or at such other address as the
party shall specify in writing.  Such notice shall be deemed given upon personal
delivery to the appropriate address or if sent by certified or registered mail,
three (3) days after the date of mailing.

9.  NOTIFICATION OF NEW EMPLOYER OR CURRENT EMPLOYER.  As an employee, in the
event that I leave the employ of the Company, I hereby consent to the
notification of my new employer of my rights and obligations under this
Agreement.  As a consultant, in connection with my services as a consultant to
the Company, I hereby consent to the notification of my employer and any third
party to whom I may provide consulting services of my rights and obligations
under this Agreement.

10.  General Provisions.

     10.1  Governing Law; Consent to Personal Jurisdiction. This Agreement will
be governed by and construed according to the laws of the State of California,
as such laws are applied to agreements entered into and to be performed entirely
within California between California residents. I hereby expressly consent to
the personal jurisdiction of the state and federal courts located in San Diego
County, California for any lawsuit filed there against me by Company arising
from or related to this Agreement.

     10.2  Severability. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, it shall be construed
by limiting and reducing it, so as to be enforceable to the extent compatible
with the applicable law as it shall then appear.

     10.3  Successors and Assigns. This Agreement will be binding upon my heirs,
executors, administrators and other legal representatives and will be for the
benefit of the Company, its successors, and its assigns.

     10.4  Survival. The provisions of this Agreement shall survive the
termination of my employment or engagement as a consultant and the assignment of
this Agreement by the Company to any successor in interest or other assignee.


                                      37
<PAGE>
 
     10.5  Employment or Engagement as a Consultant. I agree and understand that
nothing in this Agreement shall confer any right with respect to continuation of
employment by or engagement as a consultant to the Company, nor shall it
interfere in any way with my right or the Company's right to terminate my
employment or engagement as a consultant at any time, with or without cause.

     10.6  Waiver. No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.

     10.7  Entire Agreement. The obligations pursuant to Sections 1 and 2 of
this Agreement shall apply to any time during which I was previously employed,
or am in the future employed, by the Company. This Agreement is the final,
complete and exclusive agreement of the parties with respect to the subject
matter hereof and supersedes and merges all prior discussions between us. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, will be effective unless in writing and signed by the
party to be charged. Any subsequent change or changes in my duties, salary or
compensation will not affect the validity or scope of this Agreement.

Dated:  ___________

     I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS.  I HAVE
COMPLETELY FILLED OUT EXHIBIT B TO THIS AGREEMENT.

 
-----------------------------------
(Signature)


-----------------------------------
(Printed Name)


ACCEPTED AND AGREED TO:

ONLINE TRANSACTION TECHNOLOGIES, INC.


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

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

-----------------------------------
(Address)

-----------------------------------
 
Dated: 
       -------

                                      38
<PAGE>
 
                         EXHIBIT A TO ATTACHMENT 5.1.9

                        LIMITED EXCLUSION NOTIFICATION

     THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and the Company does not
require you to assign or offer to assign to the Company any invention that you
developed entirely on your own time without using the Company's equipment,
supplies, facilities or trade secret information except for those inventions
that either:

     1.   Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company;

     2.   Result from any work performed by you for the Company.

     To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.

     This limited exclusion does not apply to any patent or invention covered by
a contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.

     I ACKNOWLEDGE RECEIPT of a copy of this notification.


                              By:
                                   (PRINTED NAME OF EMPLOYEE)

                              Date:
                                   -----------------------------------
WITNESSED BY:

 
-----------------------------------
(PRINTED NAME OF REPRESENTATIVE)


                                      A-1.
<PAGE>
 
                         EXHIBIT B TO ATTACHMENT 5.1.9

TO:       ONLINE TRANSACTION TECHNOLOGIES, INC.

FROM:     ____________________

DATE:     ____________________

SUBJECT:  Previous Inventions

1.   Except as listed in Section 2 below, the following is a complete list of
all inventions or improvements relevent to the subject matter of my employment
by or engagement as a consultant to Online Transaction Technologies, Inc. (the
"Company") that have been made or conceived or first reduced to practice by me
alone or jointly with others prior to my engagement by the Company:

     [_]   No inventions or improvements.

     [_]   See below:


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[_]  Additional sheets attached.

     2.   Due to a prior confidentiality agreement, I cannot complete the
disclosure under Section 1 above with respect to inventions or improvements
generally listed below, the proprietary rights and duty of confidentiality with
respect to which I owe to the following party(ies):

     Invention or Improvement       Party(ies)          Relationship

1.   
     ----------------------------   -----------------   ------------------------

2.
     ----------------------------   -----------------   ------------------------

3.
     ----------------------------   -----------------   ------------------------

[_]  Additional sheets attached.

<PAGE>
 
                               ATTACHMENT 5.1.10

                                 BUSINESS PLAN

                  To be provided separately to the Purchaser
<PAGE>
 
                               ATTACHMENT 5.1.12

                                USE OF PROCEEDS

    The proceeds from the sale of the Purchase Shares pursuant to this Agreement
will be used by the Company for the development of the software system, purchase
of related hardware, licenses, and general infrastructure and working capital.