SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)

     [X]  Annual  Report  Pursuant  To  Section  13 or 15(d)  Of The  Securities
Exchange Act Of 1934 For the fiscal year ended July 31, 1999

                                       OR

     [ ]  Transition  Report  Pursuant To Section 13 or 15(d) Of The  Securities
Exchange Act Of 1934 For the transition period from _________ to _________

                          Commission file number 1-7636

                              DATAPOINT CORPORATION

             (Exact name of registrant as specified in its charter)

         Delaware                                       74-1605174
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

                       7 rue d'Anjou 75008, Paris, France
               8410 Datapoint Drive, San Antonio, Texas 78229-8500
              (Address of principal executive offices and zip code)

                               (33-1) 40 07 37 37
                                 (210) 593-7000
              (Registrant's telephone number, including area code)


           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

  Title of each class                Name of each exchange on which registered

Common Stock, $.25 par value         National Association of Securities Dealers'
                                      Over-the-Counter Bulletin Board
$1.00 Exchangeable Preferred Stock,
   $1.00 par value                   National Association of Securities Dealers'
                                      Over-the-Counter Bulletin Board
8-7/8% Convertible Subordinated
   Debentures Due 2006                        Over-the-Counter

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No .

     As of November 1, 1999,  18,348,229 shares of Datapoint  Corporation Common
Stock were outstanding  (excluding  2,642,988 shares held in Treasury),  and the
aggregate  market value (based upon the last  reported  sale price of the Common
Stock  on the  National  Association  of  Securities  Dealers'  Over-the-Counter
Bulletin  Board --  Composite  Tape on November 1, 1999) of the shares of Common
Stock held by non-affiliates  was approximately  $7.1 million.  (For purposes of
calculating the preceding  amount only, all directors and executive  officers of
the registrant are assumed to be affiliates.)


<PAGE>


PART I

ITEM 1.  Business.

General

     Datapoint Corporation,  including its subsidiaries (hereinafter "Datapoint"
or "the  Company"),  is  principally  engaged in the  development,  acquisition,
marketing,  servicing,  and system  integration  of computer  and  communication
products -- both  hardware  and  software.  These  products and services are for
integrated computer,  telecommunication  and video conferencing network systems.
The Company  through its 80% owned  subsidiary  Corebyte  Inc., is also actively
engaged in the  development and marketing of the Corebyte  Networks(TM)  product
line consisting of internet communication and networking software.

     Datapoint  was   reincorporated  in  Delaware  in  1976  as  the  successor
corporation to a Texas  corporation.  It was originally  incorporated in 1968 as
Computer Terminal  Corporation and changed its name to Datapoint  Corporation in
1972. Its principal executive offices are located at 7 rue d'Anjou 75008, Paris,
France  (telephone number - (33-1) 40 07 37 37) and at 8410 Datapoint Drive, San
Antonio, Texas 78229-8500 (telephone number - (210)-593-7000).

     Throughout  the 1980's and the early  1990's,  the  Company's  business was
characterized by a significant decline in total revenue,  recurring  significant
losses, and a reduction of the domestic workforce. This was primarily due to (1)
a mass entry of competitors in the  networking  marketplace  compounded by (2) a
marketplace demand for "Open Systems" products and standard interfaces,  both of
which had a negative  impact on the  traditional  networking and data processing
components of the Datapoint business. The marketplace was forced into a sameness
of design that lead to highly  competitive  pricing  being the only  significant
product  differentiator.  These adverse  effects were, in turn,  worsened by the
increasing   availability  of  low-cost,   off-the-shelf  software  applications
packages written in a number of industry-standard programming languages. Between
1994 and 1996,  the  Company  was able to  maintain a  consistent  and  slightly
increasing  revenue level while, at the same time,  restructuring its operations
mostly through significant workforce reductions worldwide. The aim was to reduce
its cost base to support such revenue  levels.  At the end of 1996,  the Company
sold its European based Automotive Dealer  Management  Systems business ("EADS")
to Kalamazoo  Computer Group,  plc, a public limited company organized under the
laws of  England  ("Kalamazoo").  The  decline  in  revenue  levels  in 1997 and
subsequently, reflects the result of this sale.

     Since fiscal year 1996, the Company  pursued,  and is continuing to pursue,
actions to provide cash infusions,  including the sale of selected assets of the
Company in order to improve its financial condition.  In this regard, on May 28,
1996, the Company  entered into an agreement with  Kalamazoo,  providing for the
sale by Datapoint to Kalamazoo of Datapoint's EADS for a purchase price of $33.0
million.

     In addition,  on October 27, 1997, the Company sold the three  buildings it
owned in San Antonio,  Texas to a private  unaffiliated  group for approximately
$3.2 million (net of mortgage obligations and closing costs). The sales contract
provided for the leaseback by the Company of one of the buildings (approximately
38,000  square feet) for an initial  lease term of five years.  During the first
quarter of 1999, the Company sold the building it owned in Gouda, Netherlands to
a private  unaffiliated  group for  approximately  $2.1 million (net of mortgage
obligations and closing costs). The sales contract provided for the leaseback by
the Company of  approximately  18,000  square feet for an initial  lease term of
five years and approximately 12,000 square feet for an initial lease term of one
year. The Company recorded in non-operating  income a gain of approximately  $.3
million  during  the  first  quarter  of 1999.  The  remainder  of the gain ($.9
million) was deferred and is being amortized over the lease terms.

     During the second quarter of 1997, the Company accepted 1,145,945 shares of
its $1.00 Exchangeable  Preferred Stock, having a liquidation preference $20 per
share ("the $1.00  Preferred  Stock"),  which was tendered in its exchange offer
(the "Exchange Offer") described in the proxy statement/prospectus  delivered to
the holders of the Company's common stock, par value $.25 per share (the "Common
Stock"),  and to the holders of $1.00  Preferred  Stock.  Under the terms of the
exchange  offer,  each share of $1.00 Preferred Stock tendered was exchanged for
3.25 shares of Common Stock.  The exchange offer expired  December 10, 1996. The
tendered shares  approximated  61.34% of the total  outstanding  shares of $1.00
Preferred Stock  immediately  prior to the expiration of the exchange offer. For
purposes of calculating  net income  applicable to common  shareholders in 1997,
and related per share amounts, a gain of $3.8 million on exchange and retirement
of preferred stock was added to net income. This gain includes the excess of the
carrying  value of preferred  stock accepted in the exchange over the fair value
of the common stock issued. In addition, the gain includes accumulated dividends
on the retired preferred stock.
<PAGE>

     Currently, the Company, principally through its European subsidiaries,  has
been engaged in the development,  acquisition,  marketing,  servicing and system
integration of computer and communications products. These products and services
are for integrated  computer,  telecommunication  and video conferencing network
systems.  While  substantially  all of the Company's  revenue for the last three
years has come from the European Operations, as defined below, the profitability
of that  business  has  decreased.  The Board of  Directors  of the  Company has
determined  that such decline in  profitability  is likely to continue  into the
foreseeable future unless the Company was to invest  significant  capital in the
European  Operations.  Subsequent  to year  end,  in  October  1999 the  Company
discontinued its domestic video  conferencing  (MINX)  operations.  As a result,
severance  pay of  approximately  $624  thousand will be paid to 28 employees in
regular  bi-weekly  installments.   The  severance  obligations  have  not  been
reflected in fiscal year 1999 results.  In connection with the discontinuance of
this  domestic  operation,  the Company  recognized  a charge to cost of revenue
during the fourth  quarter of 1999 of $613  thousand to reflect an adjustment to
the net  realizable  value of  inventories  at July  31,  1999  relating  to the
domestic video  conferencing  operation (MINX).  Net revenues from this domestic
operation  were  approximately  $2.1 million  during 1999.  Due to the Company's
limited financial  resources,  it was not able to continue making the investment
required,  both in  marketing  and product  development,  to sustain  consistent
profitability for this portion of the business. The Company does intend to honor
its existing warranty  obligations as well as its existing  maintenance  support
contracts and other contracts related to this business.

     Given  the  Company's  limited  resources,   the  Board  of  Directors  has
determined  that  the  Company  should  shift  its  focus to  developing  and/or
marketing  internet products and e-commerce  applications.  In this regard,  the
Company  recently  took steps to enter into a  transaction  to sell its European
Operations and acquired the Corebyte  Networks(TM)  product family  ("Corebyte")
which  consists of  internet  communication  and  networking  software  products
through a newly formed subsidiary named Corebyte Inc., of which the Company owns
an eighty-percent (80%) interest as more fully described below.

     In  connection  with such  refocus,  on May 17,  1999,  the Company and its
wholly-owned subsidiary, Datapoint International, Inc., entered into a letter of
intent  for  a  proposed  sale  of  its  European  subsidiaries  which  comprise
substantially all of the Company's operations (the "European  Operations").  The
European Operations  represented 96% of the Company's total revenue during 1999.
Excluding  the  European  Operations,  the  Company's  consolidated  revenue and
operating loss were $5 million and $6.1 million,  respectively,  in 1999.  Under
the terms of the proposed  sale, the European  Operations  will be purchased for
$49.5  million  plus  the  assumption  of  certain  liabilities,  less  fees and
expenses, by Reboot Systems, Inc., an investor group headed by Blake Thomas, the
Company's president, and which includes key management employees of the European
Operations (collectively, the "Buyer"). Subsequently, a Stock Purchase Agreement
for the proposed sale was signed on July 31, 1999, and  subsequently  amended on
November 1, 1999 ("Stock Purchase  Agreement").  The proposed sale is contingent
upon certain  conditions,  including the Buyer's  ability to secure  acquisition
financing, necessary third party consents, the consent of at least two thirds of
the  debentureholders,  and common shareholder  majority approval  ("shareholder
approval").  On November 1, 1999,  the  Company and the Buyer  entered  into the
First  Amendment to the Stock Purchase  Agreement (the "First  Amendment").  The
First  Amendment  provided  for a  refundable  deposit  of  $750  thousand  (the
"Deposit")  which was paid by the Buyer to the Company on November 8, 1999.  The
Deposit  will be  used  primarily  to  fund  transaction  costs,  including  the
engagement  of BNY  Capital  Markets,  Inc.  to  issue  a  fairness  opinion  in
connection with the transaction.

     The First Amendment also obligates the Buyer to loan to the Company,  on or
prior to December 1, 1999, approximately $2.5 million (the "December 1 Funding")
which  represent  the funds  necessary for the Company to make the December 1999
interest  payment  on  its 8  7/8 %  convertible  subordinated  debentures  (the
"Debentures").  The  Deposit,  the  December 1 Funding,  a fixed  amount of $375
thousand,  and repayment of commitment  fees (the  "Commitment  Fees") as may be
incurred by the Buyer in connection  with the  transaction in the event that the
Company  does not  receive the  requisite  approval  to the  transaction  by its
shareholders  and  holders  of  the  Debentures  will  be  secured  by  accounts
receivable of certain of the European subsidiaries.

     Although the termination  date pursuant to the First Amendment was extended
to March 31, 2000, if the December 1 Funding is not completed by the Buyer,  the
Stock Purchase  Agreement,  as amended,  will terminate on December 1, 1999. If
the transaction is consummated,  the Deposit and the December 1 Funding shall be
applied toward the purchase price. If the  transaction is not  consummated,  the
Company  would be required to repay to the Buyer (i) the  December 1 Funding and
(ii) the Deposit, and the payment of the Commitment Fees and the fixed amount of
$375 thousand if the  transaction  did not close as a result of the inability of
the Company to obtain the requisite  consents of its shareholders and holders of
the  Debentures.  In the event  that the Buyer  does not  obtain  the  financing
commitment  by February 1, 2000,  the Company is required to reimburse the Buyer
for the December 1 Funding, but retains the Deposit.
<PAGE>

     The  closing  under the Stock  Purchase  Agreement,  as  amended,  requires
majority  shareholder  approval  and the  consent  of at least two thirds of the
debentureholders  of the Company.  In connection  with obtaining such approvals,
the  Company  expects to file  shortly  with the U.S.  Securities  and  Exchange
Commission proxy materials  soliciting such approvals and tender offer documents
to repurchase  some portion of the Debentures.  In this regard,  the Company has
engaged  BNY  Capital  Markets,  Inc.  to deliver a  fairness  opinion as to the
fairness of the transaction to the  shareholders of the Company from a financial
point of view.

    On November 11, 1998, the Company engaged Dain Rauscher Wessels,  a division
of Dain Rauscher  Incorporated  ("Dain  Rauscher"),  as its investment banker to
assist  the  Company  in  marketing  and  negotiating  the sale of the  European
Operations.  Dain Rauscher solicited  indications of interest from a broad array
of strategic and financial prospective purchasers. In addition to the Buyer, the
Company entered into preliminary  negotiations  with two groups.  One such group
made an inferior  offer to purchase the European  Operations,  which the Company
rejected. The other such group initially indicated a willingness to pay a higher
purchase  price than the Buyer and the  Company  engaged in active  negotiations
with this group.  However, when such group failed to make an adequate offer, the
Company  then  resumed  negotiations  with the  Buyer.  Based  upon the  Buyer's
proposed purchase price, the Company's  familiarity with certain of the entities
and  individuals  comprising  the Buyer,  and the Buyer's  familiarity  with the
European  Operations,  among other factors, the Company believed the transaction
with  the  Buyer  represented  the  most  favorable  available   opportunity  to
consummate  the sale of the European  Operations  on the most  favorable  terms,
including price.

    Based on current  trends in its business and its  financial  forecasts,  the
Company  believes if the December 1 Funding is not made and if the proposed sale
of the European Operations is not consummated,  that it will not be able to make
the  scheduled  December  1999  interest  payment of $2.4  million on its 8 7/8%
convertible  subordinated debentures and a $5.0 million sinking fund payment due
in March 2000, respectively, from internal cash flow resources. In the event the
interest  payment is not made  within the 30-day  period  following  December 1,
1999, the resulting default would entitle the holders of the Debentures to elect
to declare  the entire  indebtedness  of $55.0  million as  immediately  due and
payable.

    On July 27, 1999, the Company, through its newly formed subsidiary, Corebyte
Inc.,  acquired the  Corebyte  communication  and  networking  software  product
family.  The  acquisition  was  accomplished   pursuant  to  an  Asset  Purchase
Agreement,  by and among the Company, SF Digital,  LLC and John Engstrom,  dated
July 27, 1999.  Consideration  provided for the Corebyte  assets  comprised  the
following:  (1) options to purchase up to one million  shares of common stock of
the Company at an exercise price of $1.00 per share, (ii) options to purchase an
additional  one  million  shares of common  stock of the  Company at an exercise
price equal to 80% of the closing price per share of common stock of the Company
on July 27, 2000, the first  anniversary of the  acquisition,  provided that Mr.
Engstrom is still employed by the Company on such date;  (iii) up to twenty-five
percent of the  common  stock in  Corebyte,  Inc.;  and (iv)  $75,000 in cash as
reimbursement   for  certain  research  and  development   expenses.   All  such
consideration  is to be held in escrow  pending final  resolution of Engstrom v.
Futureshare.com,  LLC,  a  litigation  which is  pending  in the  United  States
District  Court for the Southern  District of New York  concerning the ownership
status of the intellectual property which is the subject of the acquisition. The
discovery  process has begun in connection  with such litigation and depositions
are scheduled to be held in November 1999.

     Corebyte Inc. is led by John Engstrom, a pioneer of online and accomplished
enterprise  groupware and e-mail  service  provider.  Corebyte is an intelligent
browser-based   enterprise-to-enterprise   networking  system.   With  a  single
interface,  and based upon beta  testing of the system  performed  to date,  the
end-user  directly   accesses  every  application   necessary  to  manage  their
enterprise  from  basic  e-mail  to  advanced  e-commerce.   Users  of  Corebyte
seamlessly share and exchange  valuable  information,  selectively and securely,
within their network community and across enterprises.

Patents and Trademarks

     Datapoint owns certain patents, copyrights, trademarks and trade secrets in
network technologies, which it considers valuable proprietary assets.

Video Conferencing Patents

     Datapoint,  along with John  Frassanito  and David A.  Monroe,  owns United
States Patent Nos.  4,710,917 and  4,847,829  related to video  teleconferencing
technology. Datapoint has filed infringement actions against several companies.

The status of the patent infringement litigation is as follows:

     (1) Datapoint  Corporation v. PictureTel  Corporation,  No.  3:93-CV-2381-D
(N.D.  Texas).  This case was  tried in March and April of 1998 with an  adverse
result. Notice of Appeal had been filed and the case since has been dismissed.

     (2) Datapoint  Corporation v.  Compression  Labs,  Inc. No.  3:93-CV-2522-D
(N.D.  Texas);   Datapoint  Corporation  v.  Teleos  Communications,   Inc.  No.
95-4455-AET  (D.N.J.);  Datapoint  Corporation v. Videolan  Technologies,  Inc.;
Videolan  Technologies,  Inc. v.  Datapoint  Corporation,  No. 96 CV-604-H (W.D.
Kentucky) et al;  Datapoint  Corporation  v. Intel Corp.  No.  97-CV-2581  (N.D.
Texas).  These cases have been  dismissed and were subject to being  reopened if
the  Company  was  successful  in its appeal of certain of the issues  adversely
determined in the PictureTel litigation described above.  Datapoint's appeal was
unsuccessful.
<PAGE>

Multi-speed Networking Patents

     Datapoint  is also the owner of United  States  Patent Nos.  5,008,879  and
5,077,732  related to network  technology.  The Company  believes  these patents
cover most products  introduced by various suppliers to the networking  industry
and  dominates  certain types of  dual-speed  technology on networking  recently
introduced by various  industry  leaders.  Datapoint has asserted one or both of
these patents in the United States  District  Court for the Eastern  District of
New York against a number of parties:

     (1)  Datapoint  Corporation  v.  Standard  Micro-Systems,  Inc.  and  Intel
Corporation, No. C.V.-96-1685;

     (2) Datapoint Corporation v. Cisco Systems, Plaintree Systems Corp., Accton
Technologies Corp., Cabletron Systems, Inc., Bay Networks,  Inc., Crosscom Corp.
and Assante Technologies, Inc. No. CV 96 4534;

     (3) Datapoint Corporation v. Dayna Communications,  Inc., Sun Microsystems,
Inc.,  Adaptec,  Inc.  International  Business Machines Corp.,  Lantronix,  SVEC
America Computer Corporation, and Nbase Communications, No. CV 96 6334; and

     (4) Datapoint  Corporation v. Standard  Microsystems Corp. and Intel Corp.,
individually, and as representatives of the class of all manufacturers,  vendors
and users of Fast Ethernet-compliant, dual protocol local-area network products,
No. CV-96-03819.

     These actions have been  consolidated  for  discovery,  and for purposes of
claim  construction.  On January 20,  1998,  a hearing  commenced  in the United
States  District  Court that  concluded  on January 23, 1998 during  which claim
construction was submitted to a Special Master.  The Special Master's report was
issued  April of 1998  adverse to  Datapoint.  The Company had filed two sets of
objections to certain  portions of this report.  The objections  were overruled.
These  objections will now have to be resolved at the Appellate Court level. The
briefing is  completed.  The Company is awaiting a date to be scheduled for oral
arguments.

     The above actions represent the Company's continuing efforts to license and
enforce  its  multi-speed   networking  patents  through   negotiations   and/or
litigation.  The Company  believes  that these patents  provide  broad  coverage
multi-speed  networking  technology  and  present  the  opportunity  for further
royalty bearing licenses. While such royalty bearing licenses and enforcement of
its patents may be important to the Company's business to create long-term value
for its shareholders, the ultimate outcome of the above litigation, appeals with
respect to the  litigation,  and /or  negotiations  cannot be determined at this
time.

Products

     The Company  provides  communication  solutions to the world  through data,
voice, and video  integration.  A complete line of products for data processing,
video communications, and telecommunications is available.

     In 1994,  consistent  with the Company's  patent  licensing  business,  the
Company began patent  infringement  suits against several  defendants related to
the Company's  video  conferencing  patents and dual protocol local area network
patents.  The Company's patent enforcement policy included the identification of
video  conferencing  products and dual protocol local area network  products and
applications  which infringe the related  patents and the execution of licensing
agreements  through  a)  normal  commercial   negotiations  or  b)  pursuant  to
settlements of litigation brought against the patent infringers. The Company has
not been successful in asserting its U.S. video  conferencing  patents resulting
in payments for licenses.  The Company is taking steps through an  industry-wide
program to license  and  enforce  its  multi-speed  networking  patents  through
negotiations  and/or litigation.  Currently,  four patent infringement suits are
pending  with respect to  Datapoint's  patents on its dual  protocol  local area
networking  technology.  These patents  cover  certain  ARCNET and Fast Ethernet
products  recently  introduced  by various  suppliers  to the local area network
industry and dominates certain types of dual-speed LAN Adaptor Products recently
introduced  by various  industry  leaders.  Such  royalty  bearing  licenses and
enforcement  of its patents  may create  long-term  value for its  shareholders,
pending resolution of the above-referenced litigations which so far have not had
favorable results to the Company.

     The Company's Networking products are  industry-standard.  The file servers
are based  upon a  scalable  architecture  using the Intel  microprocessor.  The
multi-processor functionality is provided for the Company's highly sophisticated
RMS network operating system.  The same systems can be used for Windows NT, UNIX
and other operating systems.  The Company offers  high-performance,  Pentium PRO
and Pentium III file servers. All systems support RAID disks and popular network
protocols such as TCP/IP and NetBios.

     The  Company's   networking   products   focus  on  linking  file  servers,
workstations, terminals, printers, and other peripherals (such as modems) to the
network.  High-performance  networking software and hardware components comprise
the product offering and provide the ability to implement high-capacity,  highly
efficient  networks composed of client/server and data  communications  devices.
The  networking  solutions  provide the capability of running  MS-DOS,  WINDOWS,
WINDOWS NT, UNIX, and RMS simultaneously along with flexible choices of adapters
such as  ARCNET,  ARCNETPLUS,  Ethernet  and  FastEthernet.  These  capabilities
provide customers the flexibility to design network  architectures to meet their
specific requirements.
<PAGE>

     Realizing  that personal  computers are the desktop  workstation of choice,
the Company offers PC-based hardware and software. A Microsoft Windows compliant
terminal  emulation package for the RMS environment which can be run on existing
PCs is also provided.

     Through various non-exclusive value added reseller agreements, the Company,
through its European  subsidiaries,  sells a complete set of  telecommunications
products  and  systems  integration  services to meet the  requirements  of call
centers,  customer  service centers,  and  telemarketing  firms.  These products
include  automatic  call  distributor  (ACD),  power dialer,  interactive  voice
response (IVR),  and software,  which are used to handle high volumes of inbound
and outbound  telephone  calls,  faxes,  and  e-mails.  The  Company's  services
include,  consulting,  systems integration,  application  development,  and post
sales support. The Company provides solutions with expertise in networking, data
processing, and voice technologies.

     The  supplier  and  value-added  reseller  relationships  that the  Company
continues  to  develop,   allow  its   customers   worldwide  to  enhance  their
productivity with sensible,  cost-effective computer-based networking, telephony
and video communication solutions.

     Corebyte   is   an   intelligent   browser-based   enterprise-to-enterprise
networking system.  With a single interface,  and based upon beta testing of the
system  performed to date,  the end-user  directly  accesses  every  application
necessary to manage their  enterprise from basic e-mail to advanced  e-commerce.
Users  of  Corebyte   seamlessly  share  and  exchange   valuable   information,
selectively and securely, within their network community and across enterprises.
Based  on the  above,  the  following  features  are  currently  available  with
Corebyte:

o        Instant Virtual Private Network with simple and remote administration;
o        E-mail;
o        Calendar;
o        Address book;
o        Notepad;
o        Enterprise-wide website editor;
o        Slideshow;
o        Intelligent instant messaging;
o        Website bookmarks and links manager;
o        Folder management and sharing;
o        Unlimited color and style combinations (totally customizable);
o        Advanced searching and sorting; and
o        Automatic content update broadcast.

    Subsequent  to year  end,  in  October  1999 the  Company  discontinued  its
domestic video  conferencing  (MINX) operations.  As a result,  severance pay of
approximately  $624 thousand  will be paid to 28 employees in regular  bi-weekly
installments.  The severance  obligations have not been reflected in fiscal year
1999 results.  In connection with the discontinuance of this domestic operation,
the Company  recognized a charge to cost of revenue during the fourth quarter of
1999 of $613 thousand to reflect an adjustment  to the net  realizable  value of
inventories at July 31, 1999 relating to the domestic video conferencing  (MINX)
operation.  Net revenues from this domestic  operation were  approximately  $2.1
million during 1999. Due to the Company's  limited financial  resources,  it was
not able to continue  making the  investment  required,  both in  marketing  and
product development, to sustain consistent profitability for this portion of the
business.  The Company does intend to honor its existing warranty obligations as
well as its existing  maintenance  support contracts and other contracts related
to this business.

Markets

Customers

    Datapoint  sells generally to business and government  customers,  including
the U.S. government,  financial institutions,  insurance companies,  educational
institutions,  and manufacturers.  During fiscal years 1997 through 1999, no one
customer accounted for 10 percent or more of consolidated revenues.

Domestic

    Datapoint  markets its  products in the United  States  through  independent
sales representatives who, on a commission basis, solicit orders for Datapoint's
products;  through value-added resellers,  who purchase Datapoint's products for
resale;  original equipment  manufacturers,  who integrate  Datapoint's products
into their overall offerings;  and through Datapoint's own end-user sales force.
Independent sales representatives, value-added resellers, and original equipment
manufacturers   generally  market  Datapoint's   products  in  conjunction  with
application software and other products developed and marketed by such firms.


<PAGE>

International

    Datapoint's  products  are  marketed to  end-users  in over forty  countries
through a network of wholly-owned  subsidiaries  and  independent  distributors.
Datapoint  distributes its products  internationally  through wholly-owned sales
and service operations in Belgium,  France,  Germany,  Holland,  Italy,  Norway,
Spain,  Sweden,  Switzerland  and the  United  Kingdom  and  through  authorized
distributors  worldwide.  During each of the fiscal  years 1999,  1998 and 1997,
approximately 99 percent of Datapoint's  international  revenue was derived from
customers in Western Europe.

Customer Service

    In the United States,  Datapoint has entered into an agreement with Decision
Servcom, Inc. ("DSI"),  whereby DSI would serve as the non-exclusive  authorized
service agent for Datapoint's proprietary data processing products.  Maintenance
of equipment outside the United States is provided by Datapoint's  international
subsidiaries  and  distributors.   The  service   operations  of  the  Company's
international  subsidiaries,  which are  included  in the  proposed  sale of the
European  Operations,  produced  42 percent  of total  company  revenues  and 48
percent of total  company  gross profit for the fiscal year ended July 31, 1999.
In fiscal year 1996,  Datapoint  entered into a  subcontract  with  Kalamazoo to
provide hardware  maintenance service to Kalamazoo's  European Automotive Dealer
System network.

Manufacturing, Raw Materials, and Supplies

    The majority of Datapoint's  products are purchased from third parties.  The
products are then resold  badged/unbadged  within Datapoint  configurations upon
the completion of testing and packaging.

    Datapoint seeks,  and maintains where practical,  multiple sources of supply
for the products,  components, and raw materials which it uses. However, certain
products and components are purchased  only from single  sources,  and Datapoint
could  experience  product shipment delays if such suppliers should fail to meet
Datapoint's  requirements.  The delay of any  components,  whether for supply or
quality  reasons,  can become critical to product flows.  The Company's  general
experience has been good in terms of minimizing  exposure;  however,  guarantees
regarding  possible  future  situations and rectifying  actions that could arise
cannot be made.

Research and Product Development

    Datapoint incurred expense of $2.0 million,  $2.5 million,  and $2.1 million
in the fiscal  years ended July 31,  1999,  August 1, 1998,  and August 2, 1997,
respectively,  on research and development  activities.  Datapoint maintains its
principal research and development facility in San Antonio, Texas.

Competition

    Datapoint  operates in the intensely  competitive  computer data processing,
video  conferencing  (MINX)  and  telephony  industries.  These  industries  are
characterized   by  the  frequent   introduction  of  new  products  based  upon
technological  advances.  Datapoint  competes,  domestically and abroad,  with a
substantial  number of  companies,  many of which are  larger  and have  greater
resources than Datapoint. Such companies,  considered in the aggregate,  compete
in the entire line of products  manufactured  and marketed by  Datapoint.  These
competitors  differ  somewhat  depending  on the market  segment,  customer  and
geographic area involved.

    Competition in this market is based  primarily on the  relationship  between
price and  performance;  the ability to offer a variety of  products  and unique
functional   capabilities;   the   strength   of  sales,   service  and  support
organizations;  upgradability,  flexibility,  and ease of use of  products.  The
Company   could   be   adversely   affected   if  its   competitors   introduced
technologically superior products or substantial price reductions.

Backlog

    The backlog of firm orders for the sale or lease of the  Company's  products
as of July 31,  1999 and  August  1,  1998 was $7.6  million  and $8.5  million,
respectively.  Calculations were based on then existing end-user purchase prices
for products and gave effect to  appropriate  discounts for products to be sold.
The backlog  amounts are not  necessarily  indicative  of the  Company's  future
results,  since an increasing amount of the Company's  revenues are derived from
orders  obtained  in the  period of  shipment.  Furthermore,  a  portion  of the
Company's  backlog may be cancelable  at the  customer's  option,  under certain
conditions,  without  financial  penalty.  All orders included in the backlog at
July 31, 1999,  are currently  scheduled for delivery  during the  subsequent 12
months.  All  orders  are  subject to the  Company's  ability  to meet  delivery
commitments. The Company records only firm orders as backlog, and generally such
orders are  cancelable  only by the Company.  In the event that a new product is
released,  a customer is allowed to upgrade (i.e., cancel) an existing order and
place a new order for the new product.  This is done at the Company's discretion
with no financial penalty to the customer.

    Backlog is also not a reliable  indicator of future  results,  as changes in
product mix and costs may significantly impact reported results.  Therefore, the
Company  believes that the backlog data is not meaningful to an understanding of
the Company's business or future reported results.
<PAGE>

Patents and Trademarks

     Datapoint owns certain patents, copyrights, trademarks and trade secrets in
network technologies, which it considers valuable proprietary assets.

Video Conferencing Patents

     Datapoint,  along with John  Frassanito  and David A.  Monroe,  owns United
States Patent Nos.  4,710,917 and  4,847,829  related to video  teleconferencing
technology. Datapoint has filed infringement actions against several companies.

The status of the patent infringement litigation is as follows:

     (1) Datapoint  Corporation v. PictureTel  Corporation,  No.  3:93-CV-2381-D
(N.D.  Texas).  This case was  tried in March and April of 1998 with an  adverse
result. Notice of Appeal had been filed and the case has since been dismissed.

     (2) Datapoint  Corporation v.  Compression  Labs,  Inc. No.  3:93-CV-2522-D
(N.D.  Texas);   Datapoint  Corporation  v.  Teleos  Communications,   Inc.  No.
95-4455-AET  (D.N.J.);  Datapoint  Corporation v. Videolan  Technologies,  Inc.;
Videolan  Technologies,  Inc. v.  Datapoint  Corporation,  No. 96 CV-604-H (W.D.
Kentucky) et al;  Datapoint  Corporation  v. Intel Corp.  No.  97-CV-2581  (N.D.
Texas).  These cases have been  dismissed and were subject to being  reopened if
the  Company  was  successful  in its appeal of certain of the issues  adversely
determined in the PictureTel litigation described above.  Datapoint's appeal was
unsuccessful.

Multi-speed Networking Patents

     Datapoint  is also the owner of United  States  Patent Nos.  5,008,879  and
5,077,732  related to network  technology.  The Company  believes  these patents
cover most products  introduced by various suppliers to the networking  industry
and  dominates  certain types of  dual-speed  technology on networking  recently
introduced by various  industry  leaders.  Datapoint has asserted one or both of
these patents in the United States  District  Court for the Eastern  District of
New York against a number of parties:

     (1)  Datapoint  Corporation  v.  Standard  Micro-Systems,  Inc.  and  Intel
Corporation, No. C.V.-96-1685;

     (2) Datapoint Corporation v. Cisco Systems, Plaintree Systems Corp., Accton
Technologies Corp., Cabletron Systems, Inc., Bay Networks,  Inc., Crosscom Corp.
and Assante Technologies, Inc. No. CV 96 4534;

     (3) Datapoint Corporation v. Dayna Communications,  Inc., Sun Microsystems,
Inc.,  Adaptec,  Inc.  International  Business Machines Corp.,  Lantronix,  SVEC
America Computer Corporation, and Nbase Communications, No. CV 96 6334; and

     (4) Datapoint  Corporation v. Standard  Microsystems Corp. and Intel Corp.,
individually, and as representatives of the class of all manufacturers,  vendors
and users of Fast Ethernet-compliant, dual protocol local-area network products,
No. CV-96-03819.

     These actions have been  consolidated  for  discovery,  and for purposes of
claim  construction.  On January 20,  1998,  a hearing  commenced  in the United
States  District  Court that  concluded  on January 23, 1998 during  which claim
construction was submitted to a Special Master.  The Special Master's report was
issued  April of 1998  adverse  to  Datapoint.  The  Company  had filed two sets
objections to certain  portions of this report.  The objections  were overruled.
These  objections will now have to be resolved at the Appellate Court level. The
briefing is  completed.  The Company is awaiting a date to be scheduled for oral
arguments.

     The above actions represent the Company's continuing efforts to license and
enforce  its  multi-speed   networking  patents  through   negotiations   and/or
litigation.  The Company  believes that these patents  provide broad coverage in
multi-speed  networking  technology  and  present  the  opportunity  for further
royalty bearing licenses. While such royalty bearing licenses and enforcement of
its  patents  may create  long-term  value for its  shareholders,  the  ultimate
outcome of the above litigation, appeals with respect to the litigation, and /or
negotiations cannot be determined at this time.

    The Company utilizes a number of trademarks,  most importantly  "DATAPOINT",
"ARCNET"  and  "MINX".   The  Company  registers  or  otherwise  protects  those
trademarks  it deems  valuable to its business and  anticipates  no  significant
impairment  of  its  ability  to  continue  to use  and  protect  its  important
trademarks.  Datapoint,  the "D" logo,  ARC,  ARCNET,  RMS,  MINX,  and Resource
Management System are trademarks of Datapoint Corporation registered in the U.S.
Patent and Trademark office. Attached Resource Computer, ARCNETPLUS, and DATALAN
are  trademarks  of the  Company.  (AT&T is a  registered  trademark of American
Telephone  and   Telegraph.   Ethernet  is  a  registered   trademark  of  Xerox
Corporation. Intel is a registered trademark of Intel Corporation. Microsoft and
MS-DOS are registered trademarks of Microsoft Corporation.  UNIX is a registered
trademark of UNIX System Laboratories, Inc.)

Employees

    At July 31, 1999, the Company had 639 employees.  The Company  considers its
relations  with its employees to be  satisfactory.  In the event the sale of the
European  Operations  is  consummated,  the Company will have  approximately  10
Datapoint and 5 Corebyte Inc.
employees.

Environmental Matters

    Compliance with current federal,  state, and local  regulations  relating to
the  protection of the  environment  has not had, and is not expected to have, a
material effect upon the capital expenditures, earnings, or competitive position
of Datapoint.
<PAGE>

ITEM 2.  Properties.

    Datapoint's  principal executive offices are located in Paris, France and in
San Antonio,  Texas.  Datapoint  believes that its facilities are generally well
maintained,  in good operating  condition and are adequately  equipped for their
present  use.  Information   regarding  the  principal  plants  and  properties,
excluding leases assigned or subleased, as of July 31, 1999, is as follows:

                                Approximate
                                 Facility
      Location        Use        Sq. Footage     Owned or Leased Land Area

San Antonio, Texas    Office      38,000       Leased; expires October 1, 2002
Gouda, Netherlands    Office      38,709       Leased; expires October 25, 1999
                                                  and 2003
Paris, France         Office       2,900       Leased; expires June 16, 2008

    Additionally,  at July 31, 1999, excluding leases assigned or subleased, the
Company  leased sales and service  offices having an aggregate of 232,004 square
feet in metropolitan  areas worldwide,  pursuant to lease agreements that expire
between 1999 and 2012.  The  aggregate  annual  rental of all of these sales and
service  offices is  approximately  $2.9  million  and most of these  leases are
subject to rental increases under certain escalation  provisions and renewals on
similar terms.

    During the first quarter of 1999,  the Company sold the building it owned in
Gouda,  Netherlands  to a  private  unaffiliated  group for  approximately  $2.1
million (net of mortgage  obligations  and closing  costs).  The sales  contract
provided for the  leaseback by the Company of  approximately  18,000 square feet
for an initial lease term of five years and approximately 12,000 square feet for
an initial lease term of one year. The Company recorded in non-operating  income
a gain of  approximately  $.3  million  during the first  quarter  of 1999.  The
remainder of the gain ($.9 million) was deferred and is being amortized over the
lease terms.
<PAGE>

ITEM 3.  Legal Proceedings.

     In John  Frassanito and David A. Monroe v. Datapoint  Corp.,  No.  H-95-812
(S.D.  Tex)  plaintiffs  alleged  that the Company  usurped  various  patentable
inventions  and trade secrets in  connection  with the  development  of its MINX
systems.  They also  asserted a cause of action for patent  infringement,  and a
cause of action requiring Datapoint to assign certain  MINX-related  patents and
other  intellectual  property.  On August 16,  1996,  the Court  dismissed  with
prejudice  plaintiffs'  claims  of patent  infringement  against  Datapoint  and
dismissed without prejudice plaintiff's pendent State law claims and Datapoint's
State law counter-claims for lack of subject matter jurisdiction.  Plaintiffs in
this action moved to intervene in the Picturetel  and CLI actions.  In September
1997,  the Company  announced  that it had  received a court  order  approving a
confidential agreement between the parties resolving this matter without further
proceedings.

    From  time to  time,  the  Company  is a  defendant  in  lawsuits  generally
incidental to its business. The Company is not currently aware of any such suit,
which if decided adversely to the Company, would result in a material liability.

ITEM 4.  Submission of Matters to a Vote of Security Holders.

Not applicable.

PART II

ITEM 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

Datapoint  Corporation  announced  in August 1998 that its  securities  would no
longer  be  listed  on the New York  Stock  Exchange  under  the  symbol  "DPT",
effective at the end of business  Friday,  August 21,  1998.  The New York Stock
Exchange's  decision  was an  administrative  event  for  Datapoint  and did not
reflect any material change in the Company's financial health.  Beginning August
24,  1998,  the common  stock has been  quoted on the  National  Association  of
Securities  Dealers' Over-the Counter Bulletin Board under the symbol "DTPT". As
of  November  1, 1999,  there  were  approximately  2,824  holders of record and
18,348,229  outstanding  shares of Common Stock.  The prices below represent the
high and low prices  for  composite  transactions  for stock  traded  during the
applicable period. The Company has not paid cash dividends to date on its common
stock and has no present  intention to pay cash dividends on its common stock in
the near  future.  As of  November 1, 1999,  the closing  price of the stock was
$0.53.

             Fiscal
              year              High              Low
              ----              ----              ---
             1999   Q4           1.69             .59
                    Q3           2.06             .56
                    Q2            .84             .50
                    Q1           1.25             .50

                                 High             Low
             1998   Q4           2.25            1.13
                    Q3           3.13            1.50
                    Q2           3.44            2.50
                    Q1           4.13            2.06

<PAGE>

ITEM 6.  Selected Financial Data.

Selected Financial Data
Five-Year Comparison
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
<S>                                                          <C>           <C>           <C>             <C>            <C>

                                                                 1999          1998          1997            1996           1995
----------------------------------------------------------------------------------------------------------------------------------

Operating Results for the Fiscal Year
Total revenue                                                $138,285      $151,445      $142,121        $179,541       $174,901
Operating income (loss)                                        (2,886)        5,074         2,033           1,017        (18,232)
Income (loss) before extraordinary credit
  and effect of change in accounting principle                 (9,256)       (1,224)        1,173          19,015        (28,343)
Net income (loss)                                              (7,549)         (669)        2,383          19,342        (28,343)
Basic earnings (loss) per common share:
   Income (loss) before extraordinary credit                     (.55)         (.11)          .01            1.28         (2.29)
   Gain on the exchange and retirement of preferred stock         .02            --           .24              --             --
   Extraordinary credit                                           .09           .03           .07             .02             --
     Net income (loss) per share                                 (.44)         (.08)          .32            1.30         (2.29)
Diluted earnings (loss) per common share:
    Income (loss) before extraordinary credit                    (.55)         (.11)          .01            1.11         (2.29)
   Gain on the exchange and retirement of preferred stock         .02            --           .24              --             --
   Extraordinary credit                                           .09           .03           .07             .02             --
     Net income (loss) per share                                 (.44)         (.08)          .32            1.13         (2.29)


Financial Position at End of Fiscal Year
Current assets                                                $40,930       $50,807         $45,340       $69,995        $67,506
Fixed assets, net                                               5,928         9,468          11,764        14,625         18,877
Total assets                                                   49,333        66,816          62,388        93,818        101,751
Current liabilities                                            60,463        64,491          53,679        76,965        100,256
Long-term debt                                                 50,000        55,000          60,875        63,945         64,923
Stockholders' equity (deficit)                                (72,128)      (64,437)        (64,084)      (55,202)       (74,116)

Other Information
Average common shares outstanding                          18,225,790    17,967,924      16,109,774    13,455,878     13,194,667
Number of common stockholders of record                         2,860         2,966           3,070         3,142          3,274
Preferred shares outstanding                                  661,967       721,976         721,976     1,868,071      1,846,456
Dividends paid or accumulated on preferred stock                 $684          $722          $1,009        $1,885         $1,815
Number of employees                                               639           652             641           705            991
</TABLE>

No cash  dividends  on common  stock have been  declared  during  the  five-year
period.
Net income for 1996 includes a gain of $32.2 million  resulting  from a
divestiture.
See notes to  Consolidated  Financial  Statements and Management  Discussion and
Analysis of Financial Condition and Results of Operations.

<PAGE>


     ITEM 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations.

Overview

During 1999, the Company had a net loss of $7.5 million compared with a net loss
of $669  thousand for the  previous  year.  During  1999,  the Company had total
revenue of $138.3 million, a decrease of $13.2 million from the previous year.

Operating   expenses   (research  and  development   plus  selling,   general  &
administrative)  for 1999 were $37.7  million,  an increase of $1.9 million from
the $35.8 million recorded in 1998. The Company recorded  restructuring  charges
of $813 thousand in 1999, compared with $96 thousand recorded in the prior year.

During 1999, 1998 and 1997, the Company repurchased  approximately $3.2 million,
$2.7  million  and $2.9  million,  respectively,  in face  value,  of its 8 7/8%
convertible subordinated  debentures.  This resulted in an extraordinary gain of
$1.7 million, $555 thousand and $1.2 million, respectively.

Prior to fiscal year 1998,  included in  non-operating  income and expense  were
certain  transaction  gains  or  losses  resulting  from  the  strengthening  or
weakening of the U.S. dollar against foreign currencies. These exchange gains or
losses related to short term  intercompany  notes and  international  subsidiary
U.S.  dollar  denominated  cash were offset by  translation  adjustment to Other
Comprehensive  Income and  therefore,  had no impact on the Company's  financial
position.  During fiscal year 1998, management reassessed the characteristics of
its  intercompany  notes with  international  subsidiaries  (payable by the U.S.
parent) and determined  that a substantial  portion were long-term in nature and
not payable in the foreseeable future. As a result, during fiscal 1999 and 1998,
transaction  gains of $1.6 million and $57 thousand,  respectively,  relating to
these loans are included as a foreign currency adjustment to Other Comprehensive
Income,  which in prior years, would have been included in non-operating  income
and expense,  as described above. During fiscal year 1997, a transaction gain of
approximately  $6.2 million was included in non-operating  income but was offset
by translation adjustment to Other Comprehensive Income.

In addition,  on October 27, 1997, the Company sold the three buildings it owned
in San Antonio,  Texas to a private  unaffiliated  group for approximately  $3.2
million (net of mortgage  obligations  and closing  costs).  The sales  contract
provided for the leaseback by the Company of one of the buildings (approximately
38,000 square feet) for an initial lease term of five years.  An initial gain of
$1.2 million was  recognized on the sale. The remaining gain of $1.1 million was
deferred to be amortized over the lease term.

During 1997, the Company  accepted  1,145,945  shares of its $1.00  Exchangeable
Preferred  Stock,  having a  liquidation  preference  $20 per share  ("the $1.00
Preferred  Stock"),  which was  tendered in its  exchange  offer (the  "exchange
offer") described in the proxy statement/prospectus  delivered to the holders of
the Company's common stock,  par value $.25 per share (the "Common Stock"),  and
to the holders of $1.00 Preferred Stock.  Under the terms of the exchange offer,
each share of $1.00  Preferred  Stock  tendered was exchanged for 3.25 shares of
Common Stock.  The exchange offer expired December 10, 1996. The tendered shares
approximated  61.34% of the total  outstanding  shares of $1.00  Preferred Stock
immediately  prior to the  expiration  of the  exchange  offer.  For purposes of
calculating  net income  applicable to common  shareholders in 1997, and related
per  share  amounts,  a gain of $3.8  million  on  exchange  and  retirement  of
preferred  stock was added to net income.  This gain  includes the excess of the
carrying  value of preferred  stock accepted in the exchange over the fair value
of the common stock issued. In addition, the gain includes accumulated dividends
on the retired preferred stock.

During the first  quarter of 1999,  the  Company  sold the  building it owned in
Gouda,  Netherlands  to a  private  unaffiliated  group for  approximately  $2.1
million (net of mortgage  obligations  and closing  costs).  The sales  contract
provided for the  leaseback by the Company of  approximately  18,000 square feet
for an initial lease term of five years and approximately 12,000 square feet for
an initial lease term of one year. The Company recorded in non-operating  income
a gain of  approximately  $.3  million  during the first  quarter  of 1999.  The
remainder of the gain ($.9 million) was deferred and is being amortized over the
lease terms.
<PAGE>

Financial Condition and Liquidity

On May 17, 1999,  the Company and its  wholly-owned  subsidiary,  Datapoint
International,  Inc., entered into a letter of intent for a proposed sale of its
European  subsidiaries  which  comprise   substantially  all  of  the  Company's
operations (the "European Operations").  The European Operations represented 96%
of the Company's total revenue during 1999.  Excluding the European  Operations,
the Company's  consolidated  revenue and operating loss were $5 million and $6.1
million,  respectively,  in 1999.  Under the  terms of the  proposed  sale,  the
European  Operations  will be purchased for $49.5 million plus the assumption of
certain  liabilities,  less fees and  expenses,  by  Reboot  Systems,  Inc.,  an
investor  group  headed by Blake  Thomas,  the  Company's  president,  and which
includes key management employees of the European Operations (collectively,  the
"Buyer").  Subsequently,  a Stock  Purchase  Agreement for the proposed sale was
signed on July 31, 1999 and  subsequently  amended on  November 1, 1999  ("Stock
Purchase  Agreement").  The proposed sale is contingent upon certain conditions,
including the Buyer's ability to secure acquisition  financing,  necessary third
party consents, the consent of at least two thirds of the debentureholders,  and
common shareholder  majority approval.  On November 1, 1999, the Company and the
Buyer  entered into the First  Amendment to the Stock  Purchase  Agreement  (the
"First  Amendment").  The First Amendment  provided for a refundable  deposit of
$750  thousand  (the  "Deposit")  which was paid by the Buyer to the  Company on
November 8, 1999. The Deposit will be used primarily to fund  transaction  costs
including  the  engagement  of BNY  Capital  Markets,  Inc.  to issue a fairness
opinion in connection with the transaction.

The First Amendment also obligates the Buyer to loan to the Company,  on or
prior to December 1, 1999, approximately $2.5 million (the "December 1 Funding")
which  represent  the funds  necessary for the Company to make the December 1999
interest  payment  on  its 8  7/8 %  convertible  subordinated  debentures  (the
"Debentures").  The  Deposit,  the  December 1 Funding,  a fixed  amount of $375
thousand,  and repayment of commitment  fees (the  "Commitment  Fees") as may be
incurred by the Buyer in connection  with the  transaction in the event that the
Company  does not  receive the  requisite  approval  to the  transaction  by its
shareholders  and  holders  of  the  Debentures  will  be  secured  by  accounts
receivable of certain of the European subsidiaries.

Although the termination  date pursuant to the First Amendment was extended
to March 31, 2000, if the December 1 Funding is not completed by the Buyer,  the
Stock Purchase  Agreement,  as amended,  will terminate on December 1, 1999. If
the transaction is consummated,  the Deposit and the December 1 Funding shall be
applied toward the purchase price. If the  transaction is not  consummated,  the
Company  would be required to repay to the Buyer (i) the  December 1 Funding and
(ii) the Deposit, and the payment of the Commitment Fees and the fixed amount of
$375 thousand if the  transaction  did not close as a result of the inability of
the Company to obtain the requisite  consents of its shareholders and holders of
the  Debentures.  In the event  that the Buyer  does not  obtain  the  financing
commitment  by February 1, 2000,  the Company is required to reimburse the Buyer
for the December 1 Funding, but retains the Deposit.

The closing under the Stock Purchase  Agreement,  as amended,  requires majority
shareholder   approval   and  the   consent  of  at  least  two  thirds  of  the
debentureholders  of the Company.  In connection  with obtaining such approvals,
the  Company  expects to file  shortly  with the U.S.  Securities  and  Exchange
Commission proxy materials  soliciting such approvals and tender offer documents
to repurchase  some portion of the Debentures.  In this regard,  the Company has
engaged  BNY  Capital  Markets,  Inc.  to deliver a  fairness  opinion as to the
fairness of the transaction to the  shareholders of the Company from a financial
point of view.

On November 11, 1998, the Company engaged Dain Rauscher  Wessels,  a division of
Dain Rauscher Incorporated ("Dain Rauscher"), as its investment banker to assist
the Company in marketing and  negotiating  the sale of the European  Operations.
Dain Rauscher solicited  indications of interest from a broad array of strategic
and  financial  prospective  purchasers.  In addition to the Buyer,  the Company
entered into preliminary  negotiations  with two groups.  One such group made an
inferior offer to purchase the European  Operations which the Company  rejected.
The other such group initially  indicated a willingness to pay a higher purchase
price than the Buyer and the Company  engaged in active  negotiations  with this
group.  However,  when such group failed to make an adequate offer,  the Company
then  resumed  negotiations  with the  Buyer.  Based upon the  Buyer's  proposed
purchase  price,  the  Company's  familiarity  with  certain of the entities and
individuals  comprising the Buyer, and the Buyer's familiarity with the European
Operations,  among other factors,  the Company believed the transaction with the
Buyer  represented  the most favorable  available  opportunity to consummate the
sale of the European Operations on the most favorable terms, including price.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. At July 31, 1999 and for the year then
ended,  the Company  experienced a net loss of $7.5 million and it has a working
capital  deficiency  of $19.5  million  and a net  capital  deficiency  of $72.1
million which raise  substantial  doubt about its ability to continue as a going
concern.  The  Company's  ability  to  continue  operations  will  depend on the
consummation  of the announced  sale of European  Operations,  and positive cash
flow from future operations.
<PAGE>

 Based on  current  trends in its  business  and its  financial  forecasts,  the
Company  believes if the December 1 Funding is not made and if the proposed sale
of the European Operations is not consummated,  that it will not be able to make
the  scheduled  December  1999  interest  payment of $2.4  million on its 8 7/8%
convertible  subordinated debentures and a $5.0 million sinking fund payment due
in March 2000, respectively, from internal cash flow resources. In the event the
interest  payment is not made  within the 30-day  period  following  December 1,
1999, the resulting default would entitle the holders of the Debentures to elect
to declare  the entire  indebtedness  of $55.0  million as  immediately  due and
payable.

If the proposed sale of the Company's European  Operations is not consummated as
intended, management plans to continue restructuring efforts as necessary in the
future which may include the  reduction  of  personnel,  closure of  facilities,
disposal of subsidiaries,  or the discontinuance of product lines. The financial
statements do not include any adjustments  that might result from the outcome of
the going concern uncertainty.

During 1999, the Company's cash and cash equivalents  decreased $8.5 million due
primarily to the usage of cash in operations.

During  1999,   the  Company's  net  cash  used  in  investing   activities  was
approximately  $790  thousand.  Included in this amount is $2.1 million from the
sale of the Gouda, Holland office buildings offset by approximately $3.3 million
of fixed asset purchases (primarily test equipment,  spares, and internally-used
equipment).

Net cash used in  financing  activities  was $629  thousand  in 1999,  primarily
related to the net paydown of the Company's borrowings. As of July 31, 1999, the
Company had restricted cash of $328 thousand as compared to $352 thousand in the
prior  year.  The 1999 and 1998  balances  were  restricted  primarily  to cover
various lines of credits, reflected as payables to banks.

As of July 31,  1999,  the  Company  had  included  in payables to banks an
amount of $1,623,  payable by the U.K. subsidiary,  to International Factors "De
Factorij" B.V., a subsidiary of ABN-AMRO Bank of the Netherlands.  The U.K. loan
is secured by certain receivables of the U.K. subsidiary.

The Company has  available  lines of credit  from  foreign  banks to its foreign
subsidiaries.  The  availability  of the  unused  lines of credit is  subject to
certain  collateral  restrictions.  The unused lines of credit at July 31, 1999,
totaled $8.0 million after borrowings of $6.7 million.

As a result of the Company's capital deficiency which existed at the end of 1994
and throughout 1995,  1996, 1997, 1998, and 1999, the Company  determined not to
pay the quarterly  preferred  dividend  payments due to shareholders  during the
period of October 15, 1994 through  October 15, 1999.  On January 16, 1996,  the
Company  announced  that it was in  arrears on its $1.00  preferred  stock in an
aggregate amount equal to six full quarterly dividends. As a result, each holder
of $1.00 preferred stock has the right to exchange each such share (inclusive of
all accrued and unpaid dividends) into two shares of the Company's common stock.
As a result of the dividend arrearages, the number of directors constituting the
Board of  Directors  of the  Company was  increased  by two with the vote of the
holders of the $1.00  preferred  stock (not  including  those who have exchanged
$1.00  preferred  stock for the Company's  common stock).  These rights continue
until such time as the arrearages have been paid in full.

At July 31, 1999,  the Company had available  federal tax net  operating  losses
aggregating approximately $192 million, expiring in various amounts beginning in
2001.  In the event that the  Company's  ability to  utilize  its net  operating
losses to reduce its federal tax  liability  with  respect to current and future
income becomes subject to limitation, the Company may be required to pay, sooner
than it otherwise  might have to, any amounts owing with respect to such federal
tax liability,  which would reduce the amount of cash otherwise available to the
Company (see note 5 to Consolidated Financial Statements).

Reorganization/Restructuring Costs
(In thousands)

During 1999, 1998, and 1997, the Company incurred restructuring costs as follows
in connection with employee termination programs implemented in these years:

                                1999         1998          1997
---------------------------------------------------------------

Employee termination costs      $813          $96        $2,425
===============================================================
<PAGE>

The Company's 1999,  1998, and 1997  restructuring  charges  primarily have been
driven by  management's  efforts to implement cost cutting  measures in light of
its  overall  plan to return to  profitability.  At July 31,  1999,  accrued but
unpaid  restructuring costs were $133.  Restructuring costs incurred during 1999
included $650 for the  termination  of 25 employees at the Company's San Antonio
headquarters and $163 for the termination of 5 employees at the Company's French
subsidiary.

Restructuring  charges are not recorded until specific  employees are determined
(and notified of  termination)  by  management  in  accordance  with its overall
restructuring plan. Employee  termination payments are generally paid out over a
period of time rather than as one lump sum.

A rollforward of the  restructuring  accrual from July 27, 1996 through July 31,
1999 is as follows:

                                                              TOTAL
Restructuring accrual as of July 27, 1996                    $    655
Fiscal 1997 additions                                           2,425
Fiscal 1997 payments                                           (2,572)
----------------------------------------------------------------------
Restructuring accrual as of August 2, 1997                       $508
Fiscal 1998 additions                                              96
Fiscal 1998 payments                                             (422)
----------------------------------------------------------------------
Restructuring accrual as of August 1, 1998                       $182
Fiscal 1999 additions                                             813
Fiscal 1999 payments                                             (862)
----------------------------------------------------------------------
Restructuring accrual as of July 31, 1999                        $133
                                                                 ====
Subsequent  to year end, in October 1999 the Company  discontinued  its domestic
video   conferencing   (MINX)  operations.   As  a  result,   severance  pay  of
approximately   $624  will  be  paid  to  28  employees  in  regular   bi-weekly
installments.  The severance  obligations have not been reflected in fiscal year
1999 results.  In connection with the discontinuance of this domestic operation,
the Company  recognized a charge to cost of revenue during the fourth quarter of
1999 of $613 to reflect an adjustment to the net realizable value of inventories
at July 31, 1999 relating to the domestic video  conferencing  (MINX) operation.
Net revenues from this operation were approximately $2,100 during 1999.

Results of Operations

The  following  is a summary of the  Company's  sources  of revenue  for each of
fiscal 1999, 1998 and 1997:

(In thousands)
                                           1999           1998           1997
                                           ----           ----           ----
Sales:
   U.S.                                  $3,057         $3,182         $4,241
   Foreign                               75,630         85,742         74,127
                                         ------         ------         ------
                                         78,687         88,924         78,368
Service and other:
   U.S.                                   1,074          1,123          1,185
   Foreign                               58,524         61,398         62,568
                                         ------         ------         ------
                                         59,598         62,521         63,753
                                         ------         ------         ------

Total revenue                          $138,285       $151,445       $142,121
                                       ========       ========       ========
<PAGE>

1999 Compared to 1998

During  1999,  the Company had total  revenue of $138.3  million,  a decrease of
$13.2 million from the previous  year.  The decrease was primarily the result of
weak 1999 sales in the Company's  Spanish and Italian  subsidiaries  and a large
volume of personal computer sales to the Swedish  government in fiscal year 1998
which did not repeat in fiscal year 1999.  This  revenue  decrease  reflects the
impact of approximately $1.2 million,  resulting from a stronger U.S. dollar, on
average, during fiscal 1999, as compared to the same period of 1998.

Gross profit  margins  during 1999 were 25.7%  compared with 27.0% for 1998. The
decrease was evidenced in the service  business as margins  decreased from 35.3%
in 1998 to 29.6% in 1999.  This  decrease was primarily the result of an erosion
of the  maintenance  base in Western Europe as customers  upgrade their hardware
with non-Datapoint equipment.

During the first  quarter of 1999,  the  Company  sold the  building it owned in
Gouda,  Netherlands  to a  private  unaffiliated  group for  approximately  $2.1
million (net of mortgage  obligations  and closing  costs).  The sales  contract
provided for the  leaseback by the Company of  approximately  18,000 square feet
for an initial lease term of five years and approximately 12,000 square feet for
an initial lease term of one year. The Company recorded in non-operating  income
a gain of  approximately  $.3  million  during the first  quarter  of 1999.  The
remainder of the gain ($.9 million) was deferred and is being amortized over the
lease terms.

During  fiscal  year 1998,  management  reassessed  the  characteristics  of its
intercompany notes with international  subsidiaries (payable by the U.S. parent)
and  determined  that a  substantial  portion  was  long-term  in nature and not
payable in the  foreseeable  future.  As a result,  during  fiscal year 1999 and
1998, transaction gains of $1.6 million and $57 thousand, respectively, relating
to these loans are  included as a foreign  currency  adjustment  to  accumulated
other  comprehensive  income included in Stockholders'  Deficit,  which in prior
years, would have been included in non-operating income and expense.

Operating   expenses   (research  and  development   plus  selling,   general  &
administrative)  for 1999 were $37.7  million,  an increase of $1.9 million from
the $35.8  million  recorded in 1998.  Principally  this is due to the increased
year over year expense  associated  with the  amortization  of the  unrecognized
actuarial  losses with regard to the Company's  United Kingdom pension plan. The
Company recorded  restructuring  charges of $813 thousand during 1999,  compared
with $96 thousand recorded in the prior year. Research and development  expenses
decreased from $2.5 million in 1998 to $2.0 million in 1999.

1998 Compared to 1997

During 1998,  the Company had total  revenue of $151.4  million,  an increase of
$9.3 million from the previous  year.  The increase in revenue was primarily due
to the  receipt of several  new  contracts  awarded  to the  Company's  Spanish,
Italian and British  subsidiaries  and continued  strong  hardware  sales in the
Swedish  subsidiary.  This revenue increase reflects the offset of approximately
$8.7 million,  resulting from a stronger U.S. dollar, on average,  during fiscal
1998, as compared to the same period of 1997.

Gross profit  margins  during 1998 were 27.0%  compared with 29.5% for 1997. The
decrease  was  primarily  the  result of a large  volume of sales by a  Northern
European  subsidiary of lower margin product and competitive  pricing  pressures
worldwide  partially  offset by higher  service  margins due to  continued  cost
cutting actions.

On October  27,  1997,  the  Company  sold the three  buildings  it owned in San
Antonio,  Texas to a private  unaffiliated  group for approximately $3.2 million
(net of mortgage obligations and closing costs). The sales contract provided for
the  leaseback  by the  Company of one of the  buildings  (approximately  38,000
square feet) for an initial lease term of five years.
<PAGE>

In previous  fiscal  years,  included in  non-operating  income and expense were
transaction gains or losses resulting from the strengthening or weakening of the
U.S. dollar against foreign  currencies.  These exchange gains or losses related
to short  term  intercompany  notes and  international  subsidiary  U.S.  dollar
denominated  cash were offset by  translation  adjustment to  accumulated  other
comprehensive  income included in  Stockholders'  Deficit and therefore,  had no
impact on the Company's financial position.

During  fiscal  year 1998,  management  reassessed  the  characteristics  of its
intercompany notes with international  subsidiaries (payable by the U.S. parent)
and  determined  that a  substantial  portion  was  long-term  in nature and not
payable  in the  foreseeable  future.  As a result,  during  fiscal  year  1998,
transaction  gains of $57  thousand  relating to these  loans are  included as a
foreign currency adjustment to Stockholders' Deficit, which in prior years would
have been  included in  non-operating  income and expense,  as described  above.
During fiscal year 1997, a transaction  gain of  approximately  $6.2 million was
included in  non-operating  income but was offset by  translation  adjustment to
accumulated other comprehensive income included in Stockholders' Deficit.

Operating   expenses   (research  and  development   plus  selling,   general  &
administrative) for 1998 were $35.8 million, a decrease of $1.7 million from the
$37.5 million  recorded in 1997.  Approximately  $1.5 million of the decrease is
related to the effect of the  strengthening  U.S.  dollar when compared with the
same  period a year ago.  The  Company  recorded  restructuring  charges  of $96
thousand  during 1998,  compared  with $2.4 million  recorded in the prior year.
Research and  development  expenses  increased from $2.1 million in 1997 to $2.5
million in 1998.

YEAR 2000 COMPLIANCE

The Year 2000 Issue is the result of computer  programs  being written using two
digits  rather than four to define the  applicable  year.  Any of the  Company's
computer  programs or  hardware  that have  date-sensitive  software or embedded
chips may  recognize  a date  using "00" as the year 1900  rather  than the year
2000.  This  could  result  in  a  system  failure  or  miscalculations  causing
disruptions of operations,  including, among other things, a temporary inability
to process transactions, generate invoices, or engage in similar normal business
activities.

Based on the Company's assessments, it determined that it was required to modify
or replace  significant  portions of hardware and software so that those systems
will properly  utilize  dates beyond  December 31, 1999.  The Company  presently
believes  that with  modifications  and  replacement  of existing  hardware  and
software,  the Year 2000 Issue can be mitigated.  However, if such modifications
and  replacements are not made, or are not completed on a timely basis, the Year
2000 Issue could have a material  impact on the  operations of the Company.  The
Company's  plan to  resolve  the Year 2000 Issue  involves  the  following  four
phases:  assessment,  remediation,  testing,  and  implementation.  To date, the
Company has substantially completed its assessment of all Information Technology
("IT")  systems  that could be  significantly  affected  by the Year  2000.  The
completed   assessment   indicated  that  most  of  the  company's   significant
information  technology systems could be affected,  particularly  general ledger
and the remaining financial systems (Billing, Inventory, etc.).
<PAGE>

The  Company  has  also  assessed  its non  "IT"  operating  systems  to  insure
compliance with Year 2000.  Affected systems included those primarily related to
the office and facilities'  environment  (telephone  systems,  security systems,
etc.).  While the Company has determined that some of these systems are not Year
2000 compliant,  the Company intends to  replace/modify  these prior to December
31, 1999, and does not expect to have a material exposure with these systems.

The majority of the Company's  products are purchased  from third  parties,  who
furnish products meeting the Company's specifications.  The Company has obtained
information about the Year 2000 compliance  status of its significant  suppliers
and  subcontractors  and continues to monitor  their  compliance.  To date,  the
Company  is not aware of any  supplier/subcontractor  Year 2000 issue that would
materially  impact the Company's  results of operations,  liquidity,  or capital
resources.  However,  the Company has no means of ensuring that their  suppliers
will be Year 2000 ready. The inability of  suppliers/sub-contractors to complete
their Year 2000 resolution  process in a timely fashion could materially  impact
the Company.  The effect of  non-compliance  by suppliers is not determinable at
this time.

The Company also sells a variety of  proprietary  software  products,  which the
Company developed. The Company is substantially completed with the assessment of
Year 2000  compatibility  of these  software  products  and has made the results
available  on the  Company's  Internet  "web" page and have  communicated  these
results to customers on a demand basis.

For its information technology exposures,  to date, the Company is substantially
complete  on the  remediation  phase  and  expects  to  complete  most  software
reprogramming  and replacement no later than November 30, 1999. Once software is
reprogrammed  and  replaced  for  a  system,  the  Company  begins  testing  and
implementation.  These phases run concurrently for different systems. Completion
of the testing and  implementation  phases for most significant  systems is also
expected by November 30, 1999.

For operating  equipment,  the Company is beginning the  remediation  phases and
expects to complete its remediation efforts by December 31, 1999.

The Company  will  continue to utilize both  internal and external  resources to
reprogram,  or replace, test, and implement the software and operating equipment
for Year  2000  modifications.  The  total  cost of the  Year  2000  project  is
estimated at $1.2 million and is being funded through  operating cash flows.  To
date,  the  Company  has  incurred  approximately  $.8  million  (  $.7  million
capitalized  and $.1  million  expensed)  related to all phases of the Year 2000
project.  Of the total  remaining  project costs,  approximately  $.4 million is
attributable to the purchase of new software and operating equipment, which will
be capitalized.

The Company  believes  that it has an effective  program in place to resolve the
Year 2000 issue in a timely  manner.  As noted  above,  the  Company has not yet
fully completed all necessary phases of the Year 2000 program. In the event that
the Company does not complete all phases,  there could be circumstances in which
the  Company  would be unable to  automatically  accept  customer  orders,  ship
products,  invoice customers or collect payments.  In these events,  the Company
would  resort to a previously  identified  list of problem  solving  priorities,
revert to some previous or manual operation and/or rely on previously identified
outsourcing or incremental staffing opportunities.

In  addition,  disruptions  in the economy  generally  resulting  from Year 2000
issues could also materially  adversely affect the Company. The Company could be
subject to litigation for computer system product  failure,  such as,  equipment
shutdown,  or failure to properly date business records. The amount of potential
liability or lost revenue cannot be reasonable estimated at this time.

The  Company  plans  to  complete  the  Year  2000  modifications  are  based on
management's best estimates,  which were derived utilizing numerous  assumptions
of future events including the continued availability of certain resources,  and
other factors. Estimates on the status of completion and the expected completion
dates are based on costs  incurred  to date  compared to total  expected  costs.
However,  there can be no guarantee  that these  estimates  will be achieved and
actual results could differ  materially from those plans.  Specific factors that
might  cause such  material  differences  include,  but are not  limited to, the
availability  and cost of personnel  trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.

<PAGE>

NEW EUROPEAN CURRENCY

In January  1999,  certain  European  countries  introduced a new currency  unit
called the `euro'.  In conjunction  with the  preparation for the year 2000, the
Company is also modifying  and/or adapting  systems  designed to properly handle
the euro.  The costs  required to be able to  accommodate  the euro are combined
with  costs  of  becoming  year  2000   compliant,   and  therefore  not  easily
identifiable.  However,  they are not  considered to be so  significant so as to
have a  material  effect on the  Company's  business.  The  projected  costs and
completion  dates  for  the  euro  project  are  based  upon  management's  best
estimates. Actual results could differ materially from these estimates.

Market Risk Sensitive Instruments

Management has determined that all of the Company's foreign subsidiaries operate
primarily in local currencies,  which represent the functional currencies of the
subsidiaries.  All assets and liabilities of foreign subsidiaries are translated
into U.S.  dollars using the exchange rate prevailing at the balance sheet date,
while  income and expense  accounts are  translated  at average  exchange  rates
during the year.  As such,  the  Company's  operating  results  are  affected by
fluctuations  in the  value of the U.S.  dollar as  compared  to  currencies  in
European  countries,  as a result of the sales of its  products  and services in
these foreign markets.  A hypothetical,  uniform 10% strengthening of the dollar
relative to the currencies in which the Company's sales were  denominated  would
have  resulted in a decrease to gross profit of  approximately  $3.0 million for
the year ending July 31, 1999. This calculation  assumes that each exchange rate
would  have  changed  in the same  direction  relative  to the U.S.  dollar.  In
addition to the direct effects of changes in exchange rates, which are a changed
dollar value of the resulting  sales,  changes in exchange rates also affect the
volume of sales or the foreign  currency  sales price as  competitors'  products
become  more or less  attractive.  The  Company's  sensitivity  analysis  of the
effects in foreign currency exchange rates does not factor in a potential change
in sales levels or local currency prices.

In addition,  the Company has cash and  intercompany  receivables  and payables,
which are denominated in various  functional  currencies of the subsidiaries and
parent.  At July 31,  1999,  the result of a uniform  10%  strengthening  of the
dollar relative to the currencies in which the Company's  intercompany  balances
are  denominated  would result in $4.1 million of foreign  currency  transaction
gains  that would be  reported  as a  translation  adjustment  to  stockholders'
deficit.

The  Company's  long  term  debt  consists   entirely  of  8  7/8%   convertible
subordinated  debentures.  As of July 31,  1999  the  carrying  amount  of these
debentures was $54,960,  with a fair value of $22,259,  after  consideration  of
repurchases through July 31, 1999.

The following table presents the aggregate maturities and carrying amount of the
debt principal.

                      Principal Amount by Expected Maturity
                          Fixed Interest Rate (8 7/8%)


                     2000   2001   2002   2003   2004  Thereafter   Total
Long Term Debt
   Fixed Rate        $5.0   $5.0   $5.0   $5.0   $5.0     $30.0     $55.0

     Cautionary  Statement  Regarding  Risks and  Uncertainties  That May Affect
Future Results

This Annual Report on Form 10-K contains  forward-looking  statements  about the
business,  financial condition and prospects of the Company.  The actual results
of  the  Company   could  differ   materially   from  those   indicated  by  the
forward-looking  statements because of various risks and uncertainties including
without  limitation  changes in product  demand,  the  availability of products,
changes in competition,  economic conditions,  new product development,  various
inventory  risks due to changes in market  conditions,  changes in tax and other
governmental  rules and regulations  applicable to the Company,  and other risks
indicated in the Company's filings with the Securities and Exchange  Commission.
These risks and  uncertainties are beyond the ability of the Company to control,
and in many cases, the Company cannot predict the risks and  uncertainties  that
could cause its actual results to differ  materially from those indicated by the
forward-looking  statements.  When used in this Annual Report on Form 10-K,  the
words "believes," "estimates," "plans," "expects," and "anticipates" and similar
expressions  as they relate to the  Company or its  management  are  intended to
identify forward- looking statements.

<PAGE>


ITEM 8.  Financial Statements and Supplementary Data.


              INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                                                  Page

Report of Ernst & Young LLP
     Independent Auditors                                          20

Consolidated Financial Statements

    Consolidated Statements of Operations
       for the fiscal years 1999, 1998 and 1997                    21

    Consolidated Balance Sheets as of
       July 31, 1999 and August 1, 1998                            22

    Consolidated Statements of Cash Flows for
       the fiscal years 1999, 1998 and 1997                        23

    Consolidated Statements of Stockholders'
       Deficit for the fiscal years 1999, 1998 and 1997            24

    Notes to Consolidated Financial Statements                     25


<PAGE>


REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS

The Board of Directors
Datapoint Corporation

We have  audited  the  accompanying  consolidated  balance  sheets of  Datapoint
Corporation  and  subsidiaries  (the Company) as of July 31, 1999, and August 1,
1998  and the  related  consolidated  statements  of  operations,  stockholders'
deficit and cash flows for each of the three  fiscal  years in the period  ended
July 31, 1999. Our audits also included the financial  statement schedule listed
in the index at Item 14(a).  These  financial  statements  and  schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of the
Company at July 31, 1999, and August 1, 1998 and the consolidated results of its
operations  and its cash flows for each of the three  fiscal years in the period
ended July 31, 1999 in conformity with generally accepted accounting principles.
Also, in our opinion the related financial statement  schedule,  when considered
in relation to the basic financial statements taken as a whole,  presents fairly
in all material respects the information set forth therein.

The  accompanying  consolidated  financial  statements  and  schedule  have been
prepared  assuming  that the Company will continue as a going  concern.  As more
fully described in Note 1, the Company has incurred recurring net losses and has
a working capital and net capital  deficiency at July 31, 1999. These conditions
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  The financial statements do not include any adjustments to reflect the
possible future effects on the  recoverability  and  classification of assets or
the amounts and  classification  of liabilities that may result from the outcome
of this uncertainty.





                                                       Ernst & Young LLP



Dallas, Texas
November 1, 1999



<PAGE>


CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint  Corporation  and  Subsidiaries  Fiscal Years 1999,  1998 and 1997 (In
thousands, except share and per share data)
<TABLE>
<CAPTION>
<S>                                                               <C>              <C>               <C>

                                                                      1999             1998              1997
-------------------------------------------------------------------------------------------------------------------
Revenue:
Sales                                                                $78,687          $88,924           $78,368
Service and other                                                     59,598           62,521            63,753
-------------------------------------------------------------------------------------------------------------------
    Total revenue                                                    138,285          151,445           142,121

Operating costs and expenses:
Cost of sales                                                         60,740           70,029            58,060
Cost of service and other                                             41,958           40,480            42,120
Research and development                                               1,965            2,466             2,146
Selling, general and administrative                                   35,695           33,300            35,337
Reorganization/restructuring costs                                       813               96             2,425
-------------------------------------------------------------------------------------------------------------------
    Total operating costs and expenses                               141,171          146,371           140,088
-------------------------------------------------------------------------------------------------------------------

Operating income (loss)                                               (2,886)           5,074             2,033

Non-operating income (expense):
Interest expense                                                      (5,731)          (6,148)           (6,776)
Other, net                                                               196            1,195             5,924
--------------------------------------------------------------------------------------------------------------
    Income (loss) before income taxes and
       extraordinary credit                                           (8,421)             121             1,181
Income taxes                                                             835            1,345                 8
-------------------------------------------------------------------------------------------------------------------
    Income (loss) before extraordinary credit                         (9,256)          (1,224)            1,173

Extraordinary credit-debt extinguishment                               1,707              555             1,210
-------------------------------------------------------------------------------------------------------------------

Net income (loss)                                                    $(7,549)           $(669)           $2,383
===================================================================================================================
Net income (loss), adjusted for preferred stock dividends
    paid or accumulated plus gain on exchange and retirement
    of preferred stock - Net Income (loss) applicable to common      $(7,927)         $(1,391)           $5,184
===================================================================================================================

Basic and diluted income (loss) per common share:
Income (loss) before extraordinary credit                             $ (.55)           $(.11)             $.01
Gain on the exchange and retirement of preferred stock                   .02               --               .24
Extraordinary credit-debt extinguishment                                 .09              .03               .07
-------------------------------------------------------------------------------------------------------------------
     Net income (loss) per common share                                $(.44)           $(.08)             $.32
===================================================================================================================


Average common shares outstanding:
      Basic                                                       18,225,790       17,967,924        16,109,774
      Diluted                                                     18,225,790       17,967,924        16,337,163
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

<PAGE>

CONSOLIDATED BALANCE SHEETS
Datapoint  Corporation  and  Subsidiaries  July 31,  1999 and August 1, 1998 (In
thousands, except share data)
<TABLE>
<CAPTION>
<S>                                                                  <C>               <C>

                                                                        1999               1998
---------------------------------------------------------------------------------------------------
Assets

Current assets:
Cash and cash equivalents                                              $3,568           $12,101
Restricted cash and cash equivalents                                      328               352
Accounts receivable, net of allowance for doubtful
  accounts of $880 and $1,305, respectively                            32,130            32,138
Inventories                                                             2,632             2,957
Prepaid expenses and other current assets                               2,272             3,259
---------------------------------------------------------------------------------------------------
    Total current assets                                               40,930            50,807

Fixed assets, net                                                       5,928             9,468
Other assets, net                                                       2,475             6,541
---------------------------------------------------------------------------------------------------
                                                                      $49,333           $66,816
===================================================================================================
Liabilities and Stockholders' Deficit

Current liabilities:
Payables to banks                                                      $6,676            $7,902
Current maturities of long-term debt                                    4,960             3,115
Accounts payable                                                       14,451            17,341
Accrued expenses                                                       22,890            22,592
Deferred revenue                                                        9,311            11,643
Income taxes payable                                                    2,175             1,898
---------------------------------------------------------------------------------------------------
    Total current liabilities                                          60,463            64,491

Long-term debt, exclusive of current maturities                        50,000            55,000
Other liabilities                                                      10,998            11,762

Commitments and contingencies

Stockholders' deficit:
Preferred stock of $1.00 par value. Shares authorized
10,000,000;  shares issued and outstanding 661,967 in
1999 and 721,976 in 1998  (aggregate liquidation
preference, including dividends in arrears,
$16,549 in 1999 and $17,327 in 1998).                                     662               722
Common stock of $0.25 par value.  Shares authorized
40,000,000; shares issued 20,991,217, including
treasury shares of 2,655,985 in 1999
and 2,951,909 in 1998.                                                  5,248             5,248
Paid in capital                                                       212,733           212,655
Accumulated other comprehensive income                                   (354)              158
Retained deficit                                                     (288,292)         (278,655)
Treasury stock, at cost                                                (2,125)           (4,565)
----------------------------------------------------------------------------------------------------
   Total stockholders' deficit                                        (72,128)          (64,437)
----------------------------------------------------------- -----------------------------------------
                                                                      $49,333           $66,816
===================================================================================================
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries Fiscal Years 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
<S>                                                                      <C>            <C>            <C>

                                                                            1999           1998           1997
--------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
    Net income (loss)                                                    $(7,549)         $(669)        $2,383
    Adjustments to reconcile net income (loss) to net cash
    provided from (used in) operating activities:
      Depreciation and amortization                                        3,179          3,785          5,861
      Provision for losses (recoveries) on accounts receivable              (299)            33           (164)
      Realized gain on sale of property                                     (273)        (1,205)            --
      Gain on debt extinguishment                                         (1,707)          (555)        (1,210)
      Non-cash pension expense                                             2,761          2,047          1,059
      Deferred income taxes                                                 (616)           836           (546)
      Changes in assets and liabilities:
       (Increase) Decrease in receivables                                   (406)        (7,515)         5,792
       (Increase) decrease in inventory                                      354          1,139           (969)
       Increase (Decrease) in accounts payable and accrued expenses       (1,960)         2,359        (14,472)
       Increase (Decrease) in other liabilities and deferred credits      (1,948)          (470)         5,496
       Other, net                                                          1,302         (2,058)          (610)
        ------------------------------------------------------------------------------------------------------
      Net cash provided from (used in) operating activities               (7,162)        (2,273)         2,620

Cash flows from investing activities:
    Payments for fixed assets                                             (3,312)        (2,354)        (3,580)
    Proceeds from disposition of fixed assets                              2,111          3,200             --
    Other, net                                                               411            108           (612)
---------------------------------------------------------------------------------------------------------------
      Net cash provided from (used in) investing activities                 (790)           954         (4,192)

Cash flows from financing activities:
    Payments on borrowings                                               (90,289)       (84,939)       (18,272)
    Proceeds from borrowings                                              89,636         82,637         13,799
    Restricted cash for letters of credit                                     24           (198)           710
--------------------------------------------------------------------------------------------------------------
      Net cash used in financing activities                                 (629)        (2,500)        (3,763)

Effect of foreign currency translation on cash                                48            430         (2,359)
---------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                 (8,533)        (3,389)        (7,694)
Cash and cash equivalents at beginning of year                            12,101         15,490         23,184
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                  $3,568        $12,101        $15,490
==============================================================================================================

Cash payments for:
Interest                                                                  $5,778         $6,188         $6,823
Income taxes                                                                 778            807            891
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Datapoint Corporation and Subsidiaries Fiscal Years 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
<S>                                           <C>        <C>         <C>         <C>          <C>          <C>           <C>

                                                                                                            Accumulated
                                                           $1.00                                               Other
                                              Common     Preferred     Paid In      Retained    Treasury   Comprehensive
                                              Stock        Stock       Capital       Deficit     Stock     Income (Loss)    Total
                                           -----------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Balance at July 27, 1996                      $ 5,248     $ 1,868    $ 212,655   $ (248,226)  $ (38,314)    $ 11,567     $(55,202)
------------------------------------------------------------------------------------------------------------------------------------
Net income                                          -           -            -        2,383           -            -        2,383
Foreign currency translation adjustment             -           -            -            -           -       (6,954)      (6,954)
Pension liability adjustment                        -           -            -            -           -       (4,488)      (4,488)
                                                                                                                        ----------
   Comprehensive loss                                                                                                      (9,059)
Preferred Stock conversion                          -      (1,146)           -      (29,582)     30,728            -            -
Common issued to 401(k) plan                        -           -            -         (213)        241            -           28
Other                                               -           -            -         (564)        713            -          149
----------------------------------------------------------------------------------------------------------------------------------
Balance at August 2, 1997                     $ 5,248       $ 722    $ 212,655   $ (276,202)   $ (6,632)       $ 125     $(64,084)
----------------------------------------------------------------------------------------------------------------------------------
Net loss                                            -           -            -         (669)          -            -         (669)
Foreign currency translation adjustment             -           -            -            -           -        1,629        1,629
Pension liability adjustment                        -           -            -            -           -       (1,596)      (1,596)
                                                                                                                        ----------
   Comprehensive loss                                                                                                        (636)
Stock options exercised                             -           -            -       (1,078)      1,312            -          234
Common issued to 401(k) plan                        -           -            -          (59)         84            -           25
Executive retirement contribution                   -           -            -         (658)        658            -            -
Other                                               -           -            -           11          13            -           24
----------------------------------------------------------------------------------------------------------------------------------
Balance at August 1, 1998                     $ 5,248       $ 722    $ 212,655   $ (278,655)   $ (4,565)       $ 158     $(64,437)
----------------------------------------------------------------------------------------------------------------------------------
Net loss                                            -           -            -       (7,549)          -            -       (7,549)
Foreign currency translation adjustment             -           -            -            -           -           60           60
Pension liability adjustment                        -           -            -            -           -         (572)        (572)
                                                                                                                        ----------
   Comprehensive loss                                                                                                      (8,061)
Preferred Stock conversion                          -         (60)           -         (929)        989            -            -
Stock options exercised                             -           -            -         (162)        184            -           22
Common issued to 401(k) plan                        -           -            -       (1,167)      1,267            -          100
Other                                               -           -           78          170           -            -          248
----------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1999                      $ 5,248       $ 662    $ 212,733   $ (288,292)   $ (2,125)      $ (354)    $(72,128)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Datapoint Corporation and Subsidiaries July 31, 1999, August 1, 1998, and August
2, 1997 (Dollars in thousands, except share data)


1.  Basis of Presentation and Sale of European Operations

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. At July 31, 1999 and for the year then
ended, the Company experienced a net loss of $7,549 and it has a working capital
deficiency  of $19,533  and a net  capital  deficiency  of $72,128  which  raise
substantial  doubt  about  its  ability  to  continue  as a going  concern.  The
Company's  ability to continue  operations  will depend on the  availability  of
sufficient  cash  resources to meet the Company's  obligations in the near term.
Without  the  successful  consummation  of the  announced  sale of the  European
Operations,  described  below,  and  positive  cash flow,  if any,  from  future
operations,  there  can be no  assurances  that the  Company's  operations  will
continue.

     On May 17, 1999,  the Company and its  wholly-owned  subsidiary,  Datapoint
International,  Inc., entered into a letter of intent for a proposed sale of its
European  subsidiaries  which  comprise   substantially  all  of  the  Company's
operations (the "European Operations"),  The European Operations represented 96%
of the Company's total revenue during 1999.  Excluding the European  Operations,
the Company's  consolidated  revenue and operating  loss were $5,000 and $6,100,
respectively,  in 1999.  Under  the terms of the  proposed  sale,  the  European
Operations  will be  purchased  for  $49,500  plus  the  assumption  of  certain
liabilities,  less fees and expenses, by Reboot Systems, Inc., an investor group
headed  by Blake  Thomas,  the  Company's  president,  and  which  includes  key
management  employees of the European  Operations  (collectively,  the "Buyer").
Subsequently,  a Stock  Purchase  Agreement  for the proposed sale was signed on
July 31, 1999,  and  subsequently  amended on November 1, 1999 ("Stock  Purchase
Agreement"). The proposed sale is contingent upon certain conditions,  including
the  Buyer's  ability to secure  acquisition  financing,  necessary  third party
consents,  the  consent  of at least  two  thirds  of the  debentureholders  and
shareholder  majority  approval.  On November 1, 1999, the Company and the Buyer
entered into the First  Amendment to the Stock  Purchase  Agreement  (the "First
Amendment").  The First Amendment provided for a refundable deposit of $750 (the
"Deposit") which was paid by the Buyer to the Company.  The Deposit will be used
primarily to fund  transaction  costs  including  the  engagement of BNY Capital
Markets, Inc. to issue a fairness opinion in connection with the transaction.

     The First Amendment also obligates the Buyer to loan to the Company,  on or
prior to December 1, 1999, approximately $2,500 (the "December 1 Funding") which
represent the funds necessary for the Company to make the December 1999 interest
payment on its 8 7/8 % convertible  subordinated  debentures (the "Debentures").
The Deposit,  the December 1 Funding,  a fixed amount of $375,  and repayment of
commitment  fees  (the  "Commitment  Fees") as may be  incurred  by the Buyer in
connection  with the  transaction in the event that the Company does not receive
the requisite approval to the transaction by its shareholders and consent of the
holders of the Debentures  will be secured by accounts  receivable of certain of
the European subsidiaries.

     Although the termination  date pursuant to the First Amendment was extended
to March 31, 2000, if the December 1 Funding is not completed by the Buyer,  the
Stock Purchase  Agreement,  as amended,  will terminate on December 1, 1999. If
the transaction is consummated,  the Deposit and the December 1 Funding shall be
applied toward the purchase price. If the  transaction is not  consummated,  the
Company  would be required to repay to the Buyer (i) the  December 1 Funding and
(ii) the  Deposit,  and payment of the  Commitment  Fees and the fixed amount of
$375 thousand if the  transaction  did not close as a result of the inability of
the Company to obtain the requisite  consents of its shareholders and holders of
the  Debentures.  In the event  that the Buyer  does not  obtain  the  financing
commitment  by February 1, 2000,  the Company is required to reimburse the Buyer
for the December 1 Funding, but retains the Deposit.

The closing under the Stock Purchase Agreement, as amended, requires shareholder
majority approval and the consent of at least two thirds of the debentureholders
of the Company. In connection with obtaining such approvals, the Company expects
to file shortly with the U.S. Securities and Exchange Commission proxy materials
soliciting  such approvals and tender offer documents to repurchase some portion
of the Debentures.  In this regard, the Company has engaged BNY Capital Markets,
Inc. to deliver a fairness  opinion as to the fairness of the transaction to the
shareholders of the Company from a financial point of view.
<PAGE>

Based on current trends in its business and its financial forecasts, the Company
believes if the December 1 Funding is not made and if the  proposed  sale of the
European  Operations  is not  consummated,  that it will not be able to make the
scheduled  December  1999 interest  payment of $2,400 on its 8 7/8%  convertible
subordinated  debentures  and a $5,000  sinking  fund payment due in March 2000,
respectively,  from  internal  cash flow  resources.  In the event the  interest
payment is not made within the 30-day  period  following  December 1, 1999,  the
resulting  default  would  entitle  the  holders of the  Debentures  to elect to
declare the entire indebtedness of $55,000 as immediately due and payable.

If the proposed sale of the Company's European  Operations is not consummated as
intended,  management plans to continue restructuring efforts as necessary which
may include the  reduction  of  personnel,  closure of  facilities,  disposal of
subsidiaries,  or the discontinuance of product lines. The financial  statements
do not include any  adjustments  that might result from the outcome of the going
concern uncertainty.

2.       Summary of Significant Accounting Policies

Fiscal Year

     The Company utilizes a 52-53 week fiscal year. References to 1999, 1998 and
1997 are for the fiscal years ended July 31, 1999, August 1, 1998, and August 2,
1997, respectively.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned subsidiaries.  Intercompany accounts and transactions have been
eliminated upon consolidation.

Cash and Cash Equivalents

Cash equivalents include short-term,  highly-liquid  investments with maturities
of three months or less from date of acquisition and, as a result,  the carrying
value   approximates   fair  value  because  of  the  short  maturity  of  those
instruments.

Inventories

Inventories  are stated at the lower of standard  cost  (approximates  first-in,
first-out) or market  (replacement  cost as to raw materials and net  realizable
value as to work in process and finished products).

Fixed Assets

Fixed assets are carried at cost and  depreciated  for financial  purposes using
straight-line  and  accelerated  methods at rates based on the economic lives of
the assets or the related lease terms for leasehold improvements:

        Leasehold improvements                               3-5   years
        Machinery, equipment, furniture and fixtures         3-10  years
        Equipment leased to customers                           4  years
        Field support spares                                    3  years

Major improvements that add to the productive  capacity or extend the life of an
asset are  capitalized  while repairs and  maintenance are charged to expense as
incurred.

Risk Concentration

Financial instruments which potentially subject the Company to concentrations of
credit risk are accounts receivable.  Concentrations of credit risk with respect
to the  receivables  are limited  due to the large  number of  customers  in the
Company's  customer base and their  dispersion  across  industries.  The Company
primarily sells to customers in Europe within,  but not limited to, the banking,
automotive,   government,  libraries,  and  telecommunications  industries.  The
Company maintains an allowance for losses based upon the expected collectibility
of accounts receivable.

Debt

The carrying  amount and the fair value of the  Company's  debt at July 31, 1999
are:
                                                                  Estimated
                                              Carrying Amount    Fair Value
8-7/8% convertible subordinated debentures       $54,960          $22,259

The fair value of the Company's 8-7/8%  convertible  subordinated  debentures is
based on a quoted market price at July 31, 1999.
<PAGE>

Translation of Foreign Currencies

Management has determined that all of the Company's foreign subsidiaries operate
primarily in local currencies  which represent the functional  currencies of the
subsidiaries.  All assets and liabilities of foreign subsidiaries are translated
into U.S.  dollars using the exchange rate prevailing at the balance sheet date,
while  income and expense  accounts are  translated  at average  exchange  rates
during the year.

Reclassifications

Certain  reclassifications to the financial statements for prior years have been
made to conform to the 1999 presentation.

Revenue Recognition

The Company  derives  revenue from hardware and software  products and services.
Services  provided by the Company  include  hardware and  software  maintenance,
installation, and basic consulting services. Revenue is recognized in accordance
with following criteria:

Hardware  Products.  Sales  revenue  is  generally  recognized  at the  time  of
shipment,  provided  no  future  vendor  obligations  exist  and  collection  is
probable.  If such  obligations  are  present  in the  contract,  revenue is not
recognized until such time as the contractual obligations are met.

Software  Products.  The  Company  generates  software  license  revenue  as  an
authorized  reseller of  third-party  software  products.  Revenue from software
license fees are generally  recognized  upon delivery,  provided  payment is due
within one year and is  probable  of  collection.  If  acceptance  is  required,
software license revenue is recognized upon customer acceptance.

In fiscal 1999 the Company  adopted,  American  Institute  of  Certified  Public
Accountants Statement of Position 97-2, Software Revenue Recognition,  which set
forth new guidelines for recognizing  revenue on software  sales.  The statement
did not have a material  effect on the Company's  1999  financial  statements as
compared to prior years presented. In December 1998, Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue Recognition,  with Respect to Certain
Transactions"  ("SOP 98-9") was released.  SOP 98-9 amends certain provisions of
SOP 97-2 relating to revenue recognition for multiple element arrangements.  SOP
98-9 will be effective  for  transactions  that are entered into in fiscal years
beginning after March 15, 1999. The requirements of SOP 98-9 are not expected to
materially change the Company's financial reporting.

Services.  Revenue from  installation and consulting  services are recognized as
services  are  performed  or ratably  over the  contract  period.  Hardware  and
software  maintenance revenue is deferred at the time of product shipment and is
recognized ratably over the term of the support period.

Income Taxes

The Company  accounts for income taxes under the liability  method in accordance
with  FASB   Statement  No.  109.  No  tax  provision  has  been  made  for  the
undistributed  earnings of foreign  subsidiaries  as  management  expects  these
earnings  to be  reinvested  indefinitely  or  received  substantially  free  of
additional tax.
<PAGE>

Net Income (Loss) per Common Share

Basic and diluted net income (loss) per common share is computed as follows:
<TABLE>
<CAPTION>

                                      1999                     1998                        1997
                                      ----                     ----                        ----
                               Income            Per      Income           Per      Income             Per
                               (Loss)   Shares   Share    (Loss)  Shares   Share    (Loss)    Shares  Share
<S>                          <C>       <C>       <C>     <C>       <C>    <C>      <C>        <C>       <C>

Income (loss)  before
  extraordinary credit       $(9,256)                    $(1,224)                  $1,173
Preferred stock dividends
  accumulated                   (684)                       (722)                  (1,009)
Gain on the exchange and
  retirement of preferred stock  306                          --                    3,810
Extraordinary credit           1,707                         555                    1,210                 __
-------------------------------------------------------------------------------------------------------------
Basic                        $(7,927)  18,226    $(.44)  $(1,391)  17,968 $(.08)   $5,184     16,110    $.32
-----------------------------------------------------------------------------------------------------------

Dilutives:
  Stock Options                   --      --                  --       --              --        227
----------------------------------------------------------------------------------------------------------
Diluted                      $(7,927)  18,226    $(.44)  $(1,391)  17,968 $(.08)   $5,184     16,337    $.32
----------------------------------------------------------------------------------------------------------
</TABLE>

The per share  computations  for fiscal  years 1999,  1998 and 1997  exclude the
following  shares for stock  options and  convertible  debentures  because their
effect would have been antidilutive:

                                      1999        1998            1997
                                      ----        ----            ----
    Stock options                     3,537        3,711         1,183
    Convertible preferred stock       1,323        1,444         1,444
    Convertible debentures            3,035        3,210         3,357

Comprehensive Income

     In June 1997, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement No. 130, Reporting Comprehensive Income. Statement No. 130 established
new  rules  for the  reporting  and  display  of  comprehensive  income  and its
components.  Comprehensive  income is net income,  plus certain other items that
are recorded  directly to  stockholders'  equity.  The only such items currently
applicable  to the Company  are  foreign  currency  translation  adjustment  and
minimum pension liability adjustments. The Company adopted this Statement in the
first quarter of fiscal 1999.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

3.  Reorganization/Restructuring Costs

During 1999, 1998, and 1997, the Company incurred restructuring costs as follows
in connection with employee termination programs implemented in these years:
                                  1999         1998          1997
-----------------------------------------------------------------

Employee termination costs        $813          $96        $2,425
=================================================================

The Company's 1999,  1998, and 1997  restructuring  charges  primarily have been
driven by management's  efforts to implement cost cutting measures.  At July 31,
1999,  accrued but unpaid  restructuring  costs were $133.  Restructuring  costs
incurred  during 1999 included $650 for the  termination  of 25 employees at the
Company's San Antonio  headquarters  and $163 for the termination of 5 employees
at the Company's French subsidiary.
<PAGE>

Restructuring  charges are not recorded until specific  employees are determined
(and notified of  termination)  by  management  in  accordance  with its overall
restructuring plan. Employee  termination payments are generally paid out over a
period of time rather than as one lump sum.

Subsequent  to year end, in October 1999 the Company  discontinued  its domestic
video   conferencing   (MINX)  operations.   As  a  result,   severance  pay  of
approximately   $624  will  be  paid  to  28  employees  in  regular   bi-weekly
installments.  The severance  obligations have not been reflected in fiscal year
1999 results.  In connection with the discontinuance of this domestic operation,
the Company  recognized a charge to cost of revenue during the fourth quarter of
1999 of $613 to reflect an adjustment to the net realizable value of inventories
at July 31, 1999 relating to the domestic video  conferencing  (MINX) operation.
Net revenues from this domestic operation were approximately $2,100 during 1999.

4.  Non-operating Income (Expense)
                                     1999          1998         1997
--------------------------------------------------------------------
Interest earned                      $313          $518         $526
Foreign currency gains (losses)       (89)         (104)       6,195
Gain on the sale of  buildings        273         1,205           --
Other                                (301)         (424)        (797)
---------------------------------------------------------------------
                                     $196        $1,195       $5,924
====================================================================

During  fiscal  year 1998,  management  reassessed  the  characteristics  of its
intercompany notes with international  subsidiaries (payable by the U.S. parent)
and  determined  that a  substantial  portion  was  long-term  in nature and not
payable in the  foreseeable  future.  As a result,  during  fiscal year 1999 and
1998,  transaction  gains of $1.6  million  and of $57  thousand,  respectively,
relating  to these  loans are  included  as a  foreign  currency  adjustment  to
accumulated other comprehensive income included in Stockholders'  Deficit, which
in prior years,  would have been included in  non-operating  income and expense.
During fiscal year 1997, a transaction  gain of  approximately  $6.2 million was
included in non-operating  income but was offset by a translation  adjustment in
accumulated other comprehensive income included in Stockholders' deficit.
<PAGE>

5.  Income Taxes

The provision for taxes consisted of the following:
                                             1999         1998         1997
---------------------------------------------------------------------------
Income (loss) before income taxes
   and extraordinary credit:
    U.S.                                  $(8,275)     $(5,655)     $(3,262)
    Outside the U.S.                         (146)       5,776        4,443
---------------------------------------------------------------------------
                                          $(8,421)        $121       $1,181
===========================================================================

Provision for income taxes:                  1999          1998        1997
---------------------------------------------------------------------------
U.S. federal:
    Current                                    $--          $--          $--
Outside the U.S.:
    Current                                 1,451          509          554
    Deferred                                 (616)         836         (546)
----------------------------------------------------------------------------
                                              835        1,345            8
---------------------------------------------------------------------------
Total provision                              $835       $1,345           $8
===========================================================================

     The differences  between the tax provision in the financial  statements and
the tax benefit computed at the U.S. federal statutory rates are:
<TABLE>
<CAPTION>

                                                          1999         1998         1997
----------------------------------------------------------------------------------------
<S>                                                    <C>           <C>          <C>

Income taxes  at statutory rate                        $(2,947)         $42         $413
Increase in taxes resulting from:
    Benefit of U.S. tax loss not recognized              2,895        2,057        1,137
    Foreign losses and other transactions on which
      a tax benefit could not be recognized                753           33           14
    Effect of federal tax rate less than (greater than)
      foreign tax rates                                    325          190          152
    Benefit of operating loss carryforwards               (192)        (979)      (1,713)
    Other, net                                               1            2            5
----------------------------------------------------------------------------------------
Provision for income taxes                                $835       $1,345           $8
========================================================================================
</TABLE>
<PAGE>

The undistributed  earnings,  indefinitely reinvested in international business,
of the Company's foreign subsidiaries  aggregated  approximately $34,400 at July
31, 1999.  Determination of the amount of unrecognized deferred tax liability on
these unremitted earnings is not practicable.

The primary  components  of deferred  income tax assets and  liabilities  are as
follows:

                                                          1999         1998
Deferred income tax assets:
   Property, plant and equipment                        $1,711       $1,769
   Loss and credit carryforwards                        76,206       74,641
   Minimum pension liability adjustments                     --        3,000
   Other                                                 1,592        1,135
---------------------------------------------------------------------------
                                                        79,509       80,545
Less:  valuation allowance                              78,035       76,854
---------------------------------------------------------------------------
                                                         1,474        3,691
Deferred income tax liabilities:
   Accrued retirement costs                               (679)        (461)
   Foreign exchange gains                                 (943)        (837)
   Other                                                  (539)        (716)
---------------------------------------------------------------------------
                                                        (2,161)      (2,014)
Net deferred income tax asset (liability)                $(687)      $1,677
===========================================================================

At July 31, 1999, the net deferred income tax liability of $687 was presented in
the balance sheet, based on tax jurisdiction,  as other assets of $549 and other
liabilities  of $1,236.  Realization  of the  Company's  deferred  tax assets is
dependent  on   generating   sufficient   taxable   income  in  certain   taxing
jurisdictions prior to the expiration of loss and credit carryforwards.  In this
regard,  the Company intends to utilize  qualified tax planning  strategies,  if
necessary,  to utilize  deferred tax assets where valuation  allowances have not
been provided.  Management  believes that more likely than not, certain deferred
tax assets  will not be fully  realized  in the near  future  and has  therefore
provided a  valuation  allowance  to reserve for those  deferred  tax assets not
considered realizable.

At July 31, 1999, the Company had tax operating loss carryforwards approximating
$192,000 and $13,000 for U.S.  federal and foreign tax  purposes,  respectively,
expiring  in various  amounts  beginning  in 2001 and 2000,  respectively.  U.S.
federal long-term capital loss carryforwards of $1,703 expire in various amounts
beginning   in  2000.   Utilization   of  the  ordinary  and  capital  tax  loss
carryforwards is subject to limitation in the event of a more than 50% change in
ownership of the Company.

The Company had unused investment, research, and alternative minimum tax credits
for income tax  purposes at July 31, 1999 of  approximately  $2,900  expiring at
various dates through 2001 which may be used to offset future tax liabilities of
the Company.  Utilization of these credits is subject to limitation in the event
of a more than 50% change in ownership of the Company.

6.  Inventories
                                                 1999         1998
Finished and purchased products                $2,305       $1,911
Work in process                                   234          972
Raw materials                                      93           74
------------------------------------------------------------------
                                               $2,632       $2,957

<PAGE>

7.  Fixed Assets
<TABLE>
<CAPTION>

                                                                  Accumulated
                                                          Cost   Depreciation        Net
<S>                                                    <C>          <C>           <C>

July 31, 1999 Property, plant and equipment:
    Leasehold improvements                              $5,650       $4,477       $1,173
    Machinery, equipment, furniture and fixtures        16,621       13,288        3,333
    ------------------------------------------------------------------------------------
                                                        22,271       17,765        4,506
Field support spares                                    10,872        9,605        1,267
Equipment leased to customers                              304          149          155
----------------------------------------------------------------------------------------
                                                       $33,447      $27,519       $5,928
========================================================================================

August 1, 1998 Property, plant and equipment:
    Building and leasehold improvements                $11,723       $7,433       $4,290
    Machinery, equipment, furniture and fixtures        21,821       18,558        3,263
    ------------------------------------------------------------------------------------
                                                        33,544       25,991        7,553
Field support spares                                    12,360       10,463        1,897
Equipment leased to customers                              383          365           18
----------------------------------------------------------------------------------------
                                                       $46,287      $36,819       $9,468
========================================================================================
</TABLE>

During the first  quarter of 1999,  the  Company  sold the  building it owned in
Gouda,  Netherlands  to a  private  unaffiliated  group for  approximately  $2.1
million (net of mortgage  obligations  and closing  costs).  The sales  contract
provided for the  leaseback by the Company of  approximately  18,000 square feet
for an initial lease term of five years and approximately 12,000 square feet for
an initial lease term of one year. The Company recorded in non-operating  income
a gain of  approximately  $.3  million  during the first  quarter  of 1999.  The
remainder of the gain ($.9 million) was deferred and is being amortized over the
lease terms.

On October  27,  1997,  the  Company  sold the three  buildings  it owned in San
Antonio,  Texas to a private  unaffiliated  group for approximately $3.2 million
(net of mortgage obligations and closing costs). The sales contract provided for
the  leaseback  by the  Company of one of the  buildings  (approximately  38,000
square feet) for an initial lease term of five years.

8.  Lease Commitments

The Company  leases  certain  facilities  and equipment  under  various  leases.
Substantially  all of the leases are  classified  as  operating  leases.  Rental
expense for operating  leases for 1999,  1998 and 1997 was $4,908,  $4,419,  and
$5,933,  respectively.  Most of the leases contain  renewal  options for various
periods and require the Company to maintain the property. Certain leases contain
provisions  for  periodic  rate  adjustments  to reflect  Consumer  Price  Index
changes.

     At July 31, 1999,  future  minimum  lease  payments  for all  noncancelable
leases  totaled  $15,529 and are payable as follows:  2000-$4,194;  2001-$3,776;
2002-$2,512; 2003-$1,837; 2004-$1,645 and $1,565 thereafter.

9.  Payables to Bank

The Company's  foreign  subsidiaries have available lines of credit from foreign
banks, which are generally secured by accounts  receivable.  The unused lines of
credit to the foreign  subsidiaries at July 31, 1999, totaled $8.0 million after
borrowings of $6.7 million.  The  availability  of the unused lines of credit is
subject to certain collateral  restrictions.  The weighted average interest rate
for these short term  borrowings as of the fiscal year end was 5.7% , 7.2%, 7.7%
for 1999, 1998, and 1997, respectively.
<PAGE>

10.  Accrued Expenses
                                                          1999            1998
------------------------------------------------------------------------------
Salaries, commissions, bonuses and other benefits      $12,204         $11,955
Taxes other than income taxes                            3,769           4,147
Other                                                    6,917           6,490
------------------------------------------------------------------------------
                                                       $22,890         $22,592

11.  Long-Term Debt
                                                          1999            1998
------------------------------------------------------------------------------
8-7/8% convertible subordinated debentures             $54,960         $58,115
Less: current maturities of long-term debt               4,960           3,115
------------------------------------------------------------------------------
                                                       $50,000         $55,000

Interest  on  the  8-7/8%   convertible   subordinated   debentures  is  payable
semiannually on June 1 and December 1. The debentures are  subordinated in right
of payments to all senior  indebtedness,  as defined,  and are convertible  into
common  stock of the  Company at any time prior to the close of business on June
1, 2006, unless previously  redeemed.  Each one thousand dollar principal amount
debenture is convertible  into 55.231 shares of common stock and, as of July 31,
1999, there were 3,035,496 shares reserved for possible issuance. The debentures
are entitled to a mandatory  sinking  fund,  which  commenced  June 1, 1991,  of
$5,000  annually.  The  Company,  at its option,  may  increase the sinking fund
payment to $10,000 and may also receive  credit against  mandatory  sinking fund
payments for debentures  acquired through means other than the sinking fund. The
Company  has  applied  $45,000 in  previous  debenture  retirements  against the
sinking fund  requirements  for 1991 through  1999.  The Company also intends to
apply previous  debenture  retirements of $40 through July 31, 1999, against the
sinking fund  requirements  for 2000. The debentures are also  redeemable at the
option of the Company, in whole or in part, at any time at 100% of the principal
amount together with accrued  interest to the date of redemption.  During fiscal
1999,  the  Company  repurchased  debentures  with a total face value of $3,155,
resulting in an extraordinary gain of $1,707.

Aggregate scheduled maturities,  after consideration of repurchases through July
31,  1999,  of  long-term  debt  are  as  follows:  2000--$4,960;  2001--$5,000;
2002--$5,000; 2003--$5,000; 2004--$5,000, and $30,000 thereafter.


12.  Stockholders' Deficit

Throughout 1999, employees of the Company exercised 22,266 options for shares of
common stock. Additionally,  the Company issued 153,640 shares from common stock
held in treasury to participants in the U.S. 401(k)  retirement and savings plan
and 120,018 shares were issued for preferred stock conversions.

The $1.00 preferred  stock has a liquidation  preference of $20.00 per share and
cumulative  dividends  of $1.00  annually.  On January  16,  1996,  the  Company
announced  that it was in arrears on its $1.00  preferred  stock in an aggregate
amount equal to six full quarterly dividends.  As a result, each holder of $1.00
preferred  stock has the right to  exchange  each such share  (inclusive  of all
accrued and unpaid  dividends) into two shares of the Company's common stock. In
addition,  as a result  of the  dividend  arrearages  the  number  of  directors
constituting the Board of Directors of the Company was increased by two with the
vote of the holders of the $1.00  preferred  stock (not including those who have
exchanged $1.00 preferred  stock for the Company's  common stock).  These rights
continue until such time as the arrearages have been paid in full.  Dividends of
$3,310 and $2,888 were  accumulated  and unpaid at July 31, 1999,  and August 1,
1998, respectively.

During 1997, the Company  accepted  1,145,945  shares of its $1.00  Exchangeable
Preferred  Stock,  having a  liquidation  preference  $20 per share  ("the $1.00
Preferred  Stock"),  which was  tendered in its  exchange  offer (the  "exchange
offer") described in the proxy statement/prospectus  delivered to the holders of
the Company's common stock,  par value $.25 per share (the "Common Stock"),  and
to the holders of $1.00 Preferred Stock.  Under the terms of the exchange offer,
each share of $1.00  Preferred  Stock  tendered was exchanged for 3.25 shares of
Common Stock. The tendered shares  approximated  61.34% of the total outstanding
shares of $1.00  Preferred  Stock  immediately  prior to the  expiration  of the
exchange  offer.  For purposes of  calculating  net income  applicable to common
shareholders  in 1997 and related per share  amounts,  a gain of $3.8 million on
exchange and  retirement of preferred  stock was added to net income.  This gain
includes the excess of the carrying  value of  preferred  stock  accepted in the
exchange over the fair value of the common stock issued.  In addition,  the gain
includes accumulated dividends on the retired preferred stock.
<PAGE>

Changes in other comprehensive income are as follows:


                                  Pension       Foreign Currency
                                Liability          Translation
                               Adjustment          Adjustment         Total


Balance at July 27, 1996          $     -               $11,567      $11,567
Annual adjustments                 (6,698)               (6,954)     (13,652)
Tax effect                          2,210                     -        2,210
----------------------------------------------------------------------------
Balance at August 2, 1997         $(4,488)               $4,613         $125
Annual adjustments                 (2,386)                1,629         (757)
Tax effect                            790                     -          790
----------------------------------------------------------------------------
Balance at August 1, 1998         $(6,084)               $6,242         $158
Annual adjustments                  2,428                    60        2,488
Tax effect                         (3,000)                    -       (3,000)
-----------------------------------------------------------------------------
Balance at July 31, 1999          $(6,656)               $6,302        $(354)
                                  ===========================================
13.  Stock Option Plans

At July 31, 1999, 5,572,207 shares were reserved for issuance in connection with
the Company's employee stock option plans.  Total options  outstanding for these
plans total 3,261,903.

On January 28, 1998,  the  stockholders  approved a 1997  Employee  Stock Option
Plan. The plan is similar to the Company's previous employee stock option plans.
Under  the  Company's  employee  stock  option  plans,  officers  and  other key
employees  may be granted  options to purchase  common  stock and related  stock
appreciation  rights.  Under the terms of these plans, options may be granted at
no less than 75% of fair  market  value and  expire no later than ten years from
the date of  grant.  The  Board  may  grant  options  exercisable  in full or in
installments, and has generally granted options at fair market value exercisable
in two to four  installments  beginning one year from the date of grant.  In the
event of a change of control in the Company, all stock options would fully vest.
As of July 31, 1999,  and August 1, 1998,  options for  1,896,780  and 1,083,067
shares,  respectively,  under the employee plans were  exercisable  and no stock
appreciation  rights had been granted.  Options outstanding as of July 31, 1999,
have an average  exercise price of $2.88 and expire during the period  September
2001 through March 2008.

                                             Employee Stock Option Plans
                                       Price Range        Number of Shares
                                         of Shares        Under      Available
                                      Under Option       Option     for Option
Outstanding at July 27, 1996            $1.06-8.00    1,188,171        570,233
------------------------------------------------------------------------------
Authorized                                      --           --      2,000,000
Granted                                  $.94-1.44    1,022,800     (1,022,800)
Exercised                                     1.38       (5,000)            --
------------------------------------------------------------------------------
Outstanding at August 2, 1997            $.94-8.00    2,205,971       1,547,433
-------------------------------------------------------------------------------
Authorized                                      --           --      2,000,000
Granted                                 $2.56-4.00    1,718,300     (1,718,300)
Exercised                                 .94-2.69     (158,931)            --
Canceled                                  .94-8.00     (354,171)       354,171
------------------------------------------------------------------------------
Outstanding at August 1, 1998            $.94-7.25    3,411,169       2,183,304
-------------------------------------------------------------------------------
Exercised                                 $.94-.97     (22,266)              --
Canceled                                 1.44-5.25    (127,000)         127,000
-------------------------------------------------------------------------------
Outstanding at July 31, 1999            $.94-$7.25    3,261,903       2,310,304
===============================================================================
<PAGE>

On December 10, 1996,  the  stockholders  approved a 1996 Director  Stock Option
Plan. The plan is similar to the Company's previous director stock option plans.
The 1996 Director  Plan provides for a one-time  grant of an option to purchase,
at fair market value as of the date of the grant,  25,000 shares of common stock
to each director,  and an additional  50,000 shares to the present and any newly
elected  Chairman of the Board.  A maximum of 500,000 shares of common stock are
reserved  for the  issuance  of grants  under the 1996  Director  Plan,  and the
options,  which vest immediately upon grant,  expire five years from the date of
grant.  Total director  options  outstanding as of July 31, 1999,  total 275,000
with a weighted  average  exercise  price of $1.23 and expire  during the period
December 1998 through June 2002.  Stock option grants were not made to directors
in 1999 nor in 1998.

                                           Director Stock Option Plans
                                    Price Range            Number of Shares
                                    of Shares            Under      Available
                                    Under Option        Option     for Option
Outstanding at July 27, 1996           $2.50-6.31      190,000        300,000
-----------------------------------------------------------------------------
Authorized                                     --           --        500,000
Granted                                $1.19-1.63      275,000       (275,000)
Expired                                $1.88-2.50     (165,000)            --
-----------------------------------------------------------------------------
Outstanding at August 2, 1997          $1.19-6.31      300,000        525,000
-----------------------------------------------------------------------------
Authorized                                     --           --             --
Granted                                        --           --             --
Expired                                        --           --             --
-----------------------------------------------------------------------------
Outstanding at August 1, 1998          $1.19-6.31      300,000         525,000
------------------------------------------------------------------------------
Authorized                                     --           --              --
Granted                                        --           --              --
Expired                                     $6.31     (25,000)              --
------------------------------------------------------------------------------
Outstanding July 31, 1999              $1.19-1.63      275,000         525,000
------------------------------------------------------------------------------
<PAGE>

     The  FASB  has  issued  Statement  No.  123,  "Accounting  for  Stock-Based
Compensation",  ("SFAS No. 123") which requires either recognition or disclosure
of a charge for the value of stock  options  granted.  The Company  adopted this
statement  in 1997 and has  elected  to  continue  to apply  the  provisions  of
Accounting  Principles  Board  Opinion No. 25 and make the footnote  disclosures
required by SFAS No. 123.

Accordingly,  no  compensation  cost has been  recognized  for the stock  option
plans.  Had  compensation  cost been  determined  based on the fair value of the
options  at the  grant  date for  awards  in 1998 and 1997  consistent  with the
provisions  of SFAS No. 123, the  Company's  net earnings and earnings per share
would have been the pro forma amounts indicated below. Because options vest over
several  years  and  additional   grants  are  expected,   the  effects  of  the
calculations  below  are not  likely  to be  representative  of  similar  future
calculations:

(In thousands, except per share amounts)
                                                  1999      1998       1997
                                                 --------------------------
Net income (loss)--As reported                $(7,549)      $(669)      $2,383
                 --Pro forma                   (8,444)     (1,395)       2,046
Basic earnings (loss) per share--As reported    $(.44)      $(.08)        $.32
                               --Pro forma       (.48)       (.12)         .30

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions. No options were granted during 1999.

                                                         1998        1997
Risk-free interest rate
     Employee stock option                              5.85%        6.20%
     Board of director stock option                       --%        6.23%
Expected dividend yield
     Employee stock option                                 0            0
     Board of director stock option                       --            0
Expected volatility
     Employee stock option                               .653        .668
     Board of director stock option                        --        .668
Expected lives
     Employee stock option                                  6           6
     Board of director stock option                        --           3
Weighted average remaining contractual life
     Employee stock option                                 10          10
     Board of director stock option                        --           5

     The weighted  average fair value of options  granted for the employee stock
option plans in 1998 and 1997 was $1.84 and $.99,  and for the board of director
options in 1997 was $1.23.

Summarized  information about stock options  outstanding as of July 31, 1999, is
as follows:

Range of Exercise Prices             $0.94-$1.94     $2.56-$4.94    $5.25-$7.25
--------------------------------------------------------------------------------
Number of shares outstanding          1,268,103       2,062,300      206,500

Weighted average exercise price
    of shares outstanding             $1.10           $3.47          $5.70

Weighted average remaining
   contractual life                   5.9 years       7.9 years     4.0 years

Number of shares exercisable          1,019,847       945,433        206,500

Weighted average exercise
   price of shares exercisable        $1.13           $3.28          $5.70
<PAGE>

14.   Operating Segments and Geographic Operations

Operating Segment Information

In fiscal  1999,  the Company  has adopted  Statement  of  Financial  Accounting
Standards  (SFAS) No. 131,  "Disclosures  about  Segments of an  Enterprise  and
Related   Information,"  which  requires  the  reporting  of  certain  financial
information by operating segment and geographical area. Datapoint is principally
engaged  in the  development,  acquisition,  marketing,  servicing,  and  system
integration of computer and communication products - both hardware and software.
These products and services are for integrated computer,  telecommunication  and
video conferencing network systems. The Company's Chief Operating Decision Maker
(CODM)  assesses  performance  and  allocates  resources  based on a  geographic
reporting  structure.  Substantially all of the Company's  operations consist of
ten European subsidiaries and to a lesser extent domestic operations. Reportable
operating  segments  under  SFAS No.  131  include  the  Company's  subsidiaries
residing in Sweden,  the United  Kingdom,  France,  and  Belgium.  Each of these
subsidiaries function as value-added  resellers of products and services,  which
principally  consist of  networking  products such as monitors,  servers,  etc.,
provided  by  Computer  2000,  Actebis,  Hewlett  Packard,  Taxan and Acer.  For
telephony   applications,   the  Company's  chief  product   suppliers   include
International   Management   Associates,   Ltd.,  ("IMA"),  which  provides  the
Electronic Data Gathering Expertise ("EDGE") telebusiness  software,  and Lucent
Technology,  Vocalcom and Davox,  which provide  automatic call distributors and
other hardware.

Included in "Corporate and Other" are general  corporate  activities and related
expenses and  activities  from other foreign  subsidiaries,  including non-cash
pension  expense of $2.3,  $1.7 and $.9 for 1999,  1998 and 1997,  respectively,
related to the reported segments' defined benefit plans. The CODM uses operating
income (loss) before  non-cash  pension expense to measure results of operations
from segments.  Assets are those that are used or generated  exclusively by each
operating  segment.  The  eliminations  required to determine  the  consolidated
amounts shown below  consist  principally  of the  elimination  of  intercompany
receivables for loans provided by the operating segments to the parent entity.
<PAGE>

The  following  table  presents  certain  information  regarding  the  Company's
reportable operating segments for fiscal years 1997-1999:

Revenue                                      1999         1998       1997
----------------------------------------------------------------
Sweden                                     $41,868       $49,538     $42,844
United Kingdom                              35,814        37,602      32,814
France                                      17,419        15,750      14,889
Belgium                                     15,749        11,323      10,959
Corporate and Other                         28,184        38,507      43,146
Eliminations                                  (749)       (1,275)     (2,531)
-----------------------------------------------------------------------------
   Total                                  $138,285      $151,445    $142,121
                                          ==================================

Segment Profit (Loss)                         1999          1998        1997
----------------------------------------------------------------------------
Sweden                                      $2,834        $4,044      $2,933
United Kingdom                               4,547         4,930       4,831
France                                       1,102         1,981       2,238
Belgium                                      1,339         1,709       1,954
Corporate and Other                        (12,708)       (7,590)     (9,923)
-----------------------------------------------------------------------------
  Operating Income (Loss)                   (2,886)        5,074       2,033
Interest Expense                            (5,731)       (6,148)     (6,776)
Other Non-Operating Income, net                196         1,195       5,924
----------------------------------------------------------------------------
   Income Before Income Taxes
      and Extraordinary Credit             $(8,421)         $121      $1,181
                                           ====================================

Capital Expenditures:                         1999          1998        1997
--------------------------------------------------------------------------------
Sweden                                        $238           $93      $1,178
United Kingdom                               1,732         1,619       1,519
France                                         231            87         147
Belgium                                        346           200         315
Corporate and Other                            765           355         421
-------------------------------------------------------------------------------
   Total                                    $3,312        $2,354      $3,580
                                            ====================================

Depreciation:                                 1999          1998        1997
--------------------------------------------------------------------------------
Sweden                                        $292          $419        $496
United Kingdom                               1,655         1,679       2,096
France                                         123           103         246
Belgium                                        291           253         641
Corporate and Other                            818         1,331       2,382
--------------------------------------------------------------------------------
   Total                                    $3,179        $3,785      $5,861
                                            ===================================

Assets:                                       1999          1998        1997
--------------------------------------------------------------------------------
Sweden                                     $12,786       $12,213     $10,151
United Kingdom                              18,838        26,622      24,736
France                                      13,870        15,913      12,946
Belgium                                     15,677        13,996      14,052
Corporate and Other                         44,614        51,862      48,272
Eliminations                               (56,452)      (53,790)    (47,769)
--------------------------------------------------------------------------------
   Total                                   $49,333       $66,816     $62,388
                                           ====================================
<PAGE>

Geographic Operations

The following geographic area data includes trade revenues and fixed assets:

                                               1999         1998          1997
                                               -------------------------------
Revenue - unaffiliated customers:
United States - domestic                     $4,131       $4,305        $5,426
             -- export sales                    977        3,157         2,088
Europe                                      133,143      143,471       133,845
Other International                              34          512           762
------------------------------------------------------------------------------
   Total revenue from unaffiliated
        customers                           138,285      151,445       142,121

Revenue - Intercompany:
United States                                   719        1,219         2,450
Europe                                           30           56            81
Eliminations                                   (749)      (1,275)       (2,531)
-------------------------------------------------------------------------------
  Total consolidated revenue               $138,285     $151,445      $142,121
                                           ===================================


Fixed Assets:                                  1999         1998          1997
------------------------------------------------------------------------------
United States                                  $133         $402        $2,132
Europe                                        5,795        9,066         9,632
------------------------------------------------------------------------------
  Total fixed assets                         $5,928       $9,468       $11,764
                                             =================================


15.  Retirement Income Plans

Retirement expenses incurred by the Company were as follows:

                                       1999         1998          1997
----------------------------------------------------------------------
U.S.:
  Matching contributions                $81          $51           $47
Outside the U.S.:
  Defined benefit plans               2,761        2,047         1,059
  Other plans                           543          712           730
----------------------------------------------------------------------
                                      3,304        2,759         1,789
----------------------------------------------------------------------
                                     $3,385       $2,810        $1,836
======================================================================

U.S. Plans

The Company has adopted a 401(k)  retirement  and savings  plan which covers all
full-time employees who have been employed for at least 12 months. The Company's
retirement and savings plan  contribution  has been a 25% matching  contribution
for employee  contributions  up to 5% of each  employee's  compensation.  At the
Board's  discretion,  the Company may also contribute a profit sharing amount to
the plan that is contingent upon the performance level of the Company.
<PAGE>

The  Company  maintains a  Supplemental  Executive  Retirement  Plan for certain
executive  employees  selected by the Board of Directors.  The plan provides for
employee contributions of up to 10% of applicable compensation.  In addition, at
the Board's  discretion,  the Company may also make  contributions on an annual,
individual  basis,  allocated on a pro-rata  basis  according  to  participant's
applicable  compensation  up to a  maximum  contribution  of 15%  of  applicable
compensation per employee.  For the fiscal years ended July 31, 1999, and August
1, 1998,  the Company did not make a  contribution,  however for the fiscal year
ended August 2, 1997, the Company  approved the contribution of 92,500 shares of
its common  stock to the plan for credit to the  accounts  of various  executive
officers.  Under the terms of the plan, benefits accrue to the various executive
officers upon satisfaction of the plan's vesting  criteria,  which is based upon
length of employment with the Company.

Plans Outside the U.S.

Most of the Company's foreign subsidiaries provide retirement income plans which
conform to the practice of the country in which they do business,  some of which
are government sponsored plans. The types of company-sponsored  plans in use are
defined benefit and defined contribution.

Five of the  Company's  subsidiaries,  including  the  United  Kingdom,  utilize
defined benefit plans with employee  benefits  generally being based on years of
service and wages near retirement.  The plans cover all full-time  employees who
have been employed for at least 12 months. Obligations under the Company's plans
are  funded  primarily  through  (a) fixed  rate of return  investments,  mostly
insurance  policies,  (b) equity  funds for the portion of the United  Kingdom's
plan assets  which are  invested in the Edelman  Value Fund,  Ltd.,  and (c) for
Germany, where reserves are established for the obligations. The Trustees of the
Company's  United  Kingdom   subsidiary's  defined  benefit  pension  plan  have
implemented an investment strategy which includes an investment of approximately
$7.2 million and $6.7 million,  respectively, in the Edelman Value Fund, Ltd., a
related  party,  as of July 31,  1999 and August 1, 1998.  The United  Kingdom's
defined benefit plan was capped and was converted to a defined contribution plan
in fiscal year 1993.  During 1997, the Belgian  defined benefit pension plan was
closed to new employees and a defined contribution plan initiated.  During 1999,
the Swiss defined benefit plan was terminated.

The Company's  United Kingdom  subsidiary has a defined  contribution  plan. The
plan covers all full-time salaried employees who have been employed for at least
12  months  and  contributions  are based  upon a  percentage  of  compensation.
Obligations  under this plan are funded  primarily  through  deposits  in pooled
investments.
<PAGE>

Expenses of the defined benefit plans were as follows:

                                              1999        1998        1997
--------------------------------------------------------------------------
Service Cost                                   $217        $275        $417
Interest Cost                                 2,291       2,325       2,255
Expected return on plan assets               (1,690)     (1,964)     (2,411)
Amortization of transition obligation            33          36          35
Amortization of net actuarial  loss           1,910       1,375         763
---------------------------------------------------------------------------
Total                                        $2,761      $2,047      $1,059
                                             ==============================


Obligation  and asset data for the  defined  benefit  plans at July 31, 1999 and
August 1, 1998 were as follows:

                                                       1999            1998
------------------------------------------------------------------------------
Change in benefit obligations
Benefit obligation at beginning of year             $35,671         $31,207
     Service cost                                       217             275
     Interest cost                                    2,291           2,325
     Benefits paid                                   (1,112)         (2,529)
     Actuarial (gain) loss                            2,001           4,393
---------------------------------------------------------------------------
Benefit obligation at end of year                   $39,068         $35,671
---------------------------------------------------------------------------

Change in plan assets
Fair value of plan assets at beginning of year      $25,154         $24,786
    Actual return on plan assets                      4,318           2,388
    Benefits paid from plan assets                     (662)         (2,020)
----------------------------------------------------------------------------
Fair value of plan assets at end of year            $28,810         $25,154
---------------------------------------------------------------------------

Funded Status                                      $(10,258)       $(10,517)
    Unrecognized net actuarial (gain) loss            6,611           8,986
    Unrecognized prior service cost                     300             334
    Unrecognized transition obligation                  491             599
---------------------------------------------------------------------------
Net amount recognized                               $(2,856)          $(598)
                                                    ========================

Amounts recognized in the balance sheet consist of:
     Accrued retirement, non-current                $(10,035)       $(10,394)
     Prepaid benefit cost                                523             712
     Deferred tax asset                                   --           3,000
     Accumulated other comprehensive loss              6,656           6,084
-----------------------------------------------------------------------
Total                                                $(2,856)          $(598)
                                                     ========================
<PAGE>

The range of assumptions used for the non-U.S. defined benefit plans reflect the
different  economic  environments  within the  various  countries.  The  defined
benefit  obligations  were determined as of the end of fiscal year 1999 and 1998
using a range of  assumed  discount  rates of 5.75% to 6.25% in 1999 and 4.5% to
7.6% in 1998, an assumed average  long-term pay  progression  rate of 3%, and an
assumed  weighted  average  expected  rate of return on plan assets of 6 1/2% in
both 1999 and 1998.  Benefit  obligations  exceed  plan  assets  for each of the
Company's plans at the end of 1999 and 1998. Accrued pension costs at the end of
1999 and 1998 include  accumulated  benefit  obligations of $34,807 and $31,532,
respectively,  versus plan assets of $28,810  and  $25,154,  for the plans whose
accumulated benefit obligations exceeded their assets.

16.  Certain Relationships and Related Transactions

Director Agranoff is the Company's Vice President, General Counsel and Corporate
Secretary, and a member of the law firm Pryor, Cashman, Sherman, & Flynn. During
the fiscal years 1999,  1998,  and 1997,  Datapoint paid legal fees of $265, $0,
and $374, respectively, to the law firm of Pryor, Cashman, Sherman, & Flynn, for
legal services provided by attorneys other than Mr. Agranoff.

During  fiscal  year 1999,  1998,  and 1997,  the  Company  paid office rent and
secretarial  expenses  of $64,  $69,  and $73,  respectively,  to Canal  Capital
Corporation.  Chief Executive  Officer  Edelman and Director  Agranoff are Canal
Capital Corporation board members,  with Chief Executive Officer Edelman serving
as Chairman of the Board.

The  Trustees of the  Company's  United  Kingdom  subsidiary's  defined  benefit
pension  plan  have  implemented  an  investment   strategy  which  includes  an
investment of approximately $7.2 million and $6.7 million,  respectively, in the
Edelman  Value Fund,  Ltd., a related  party,  as of July 31, 1999 and August 1,
1998.

On June 29, 1998, the Company had signed a letter of intent,  which subsequently
expired on August 20, 1998, to acquire Dimensional Media Associates ("DMA"). Mr.
Robert D. Summer is the  president  of DMA and a board member of  Datapoint.  In
addition to the letter, Datapoint advanced DMA $200. This advance was secured by
a promissory  note,  payment of which had been guaranteed by a principal of DMA.
The principal payment of $200 was repaid on July 20, 1999.


17.  Contingencies

From time to time, the Company is a defendant in lawsuits  generally  incidental
to its business.  The Company is not currently aware of any such suit,  which if
decided  adversely  to the  Company,  would  result in a material  liability  in
relation to the financial position and results of operations.

18.  Acquisition

On July 27, 1999, the Company, through a newly formed subsidiary, Corebyte Inc.,
of  which  the  Company  owns  80%,  acquired  the  Corebyte  communication  and
networking software product family. The acquisition was accomplished pursuant to
an Asset Purchase Agreement,  by and among the Company, SF Digital, LLC and John
Engstrom,  dated July 27,  1999.  The  purchase  price for the  Corebyte  assets
comprised  the  following:  (1) options to purchase up to one million  shares of
common  stock of the  Company  at an  exercise  price of $1.00 per  share,  (ii)
options to purchase an  additional  one  million  shares of common  stock of the
Company at an  exercise  price  equal to 80% of the  closing  price per share of
common  stock of the  Company on July 27,  2000,  the first  anniversary  of the
acquisition, provided that Mr. Engstrom is still employed by the Company on such
date; (iii) up to twenty-five percent of the common stock in Corebyte, Inc.; and
(iv)  $75,000 in cash as  reimbursement  for certain  research  and  development
expenses.  All  such  consideration  is to  be  held  in  escrow  pending  final
resolution of Engstrom v. Futureshare.com, LLC, a litigation which is pending in
the  United  States  District  Court  for  the  Southern  District  of New  York
concerning  the  ownership  status  of the  intellectual  property  which is the
subject of the acquisition.  The discovery  process has begun in connection with
such litigation and depositions are scheduled to be held in November 1999.

Corebyte is an  intelligent  browser-based  enterprise-to-enterprise  networking
system.  With a single  interface,  and based  upon beta  testing  of the system
performed to date, the end-user directly accesses every application necessary to
manage  their  enterprise  from basic  e-mail to advanced  e-commerce.  Users of
Corebyte  seamlessly share and exchange  valuable  information,  selectively and
securely, within their network community and across enterprises. Corebyte is led
by John Engstrom, a pioneer of online and accomplished  enterprise groupware and
e-mail service provider.
<PAGE>

     ITEM 9. Changes in and  Disagreements  with  Accountants  on Accounting and
Financial Disclosure.

    Not Applicable.


PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The names,  ages,  positions  and  offices  with the  Company of the current
directors and executive officers of the Company are set forth below.

                                                                    Director/
                    Age as of                                        Officer
    Name          July 31, 1999          Position                     Since
A. B. Edelman            59     Director-Chairman of the Board
                                 and Chief Executive Officer             1985
B. D. Thomas             48     President , Chief Operating Officer
                                 and Director                            1992
P. P. Krumb              57     Vice President, Special Assistant to
                                 the Chairman, Director, and
                                 Acting Chief Financial Officer          1994
G. N. Agranoff           52     Vice President, General Counsel,
                                 Corporate Secretary and Director        1994
I. J. Garfinkel          62     Director                                 1991
D. R. Kail               64     Director                                 1985
C. F. Robinson           53     Director                                 1996
D. M. M. Ruffat          63     Director                                 1993
R. D. Summer             66     Director                                 1996
R. Edmonds               54     Vice President, Technical Services       1996
W. Gevers                62     Vice President, OSN                      1996
J. R.  Perkins           51     Vice President, Development              1996


    The  principal  occupations  and business  experience of each of the current
directors and executive officers of the Company are described below.
<PAGE>

     ASHER B.  EDELMAN,  age 59,  joined  Datapoint's  Board of Directors as its
Chairman in March 1985,  and has served in that  capacity and as Chairman of its
Executive  Committee to the present date, and as Chief  Executive  Officer since
February  1993. Mr.  Edelman has served as General  Partner of Asco Partners,  a
general partner of Edelman  Securities Company L.P. since June 1984. Mr. Edelman
is a director,  Chairman of the Board and Chairman of the Executive Committee of
Canal  Capital  Corporation,  and is a General  Partner  and  Manager of various
investment partnerships and funds. The principal business address of Mr. Edelman
is Ch. Pecholettaz 9, 1066 EPALINGES, Switzerland.

    BLAKE D. THOMAS,  age 48, is currently  the  President  and Chief  Operating
Officer of the Company. He is President of Blake D. Thomas,  Inc., a corporation
that,  until 1991,  published The Thomas  Report,  an investment  newspaper that
specialized  in  evaluating  stocks traded on the New York Stock  Exchange,  was
General Partner of Mainsail Limited  Partnership from 1990 until its dissolution
in December  1992;  has been since  1990,  General  Partner of Foresail  Limited
Partnership, which is engaged in the business of investing in listed securities;
and has been since  November 1991  President of Symba,  Inc.,  which until April
1996 was the  General  Partner of Windward  Limited  Partnership.  Windward  was
engaged in the business of investing in listed  securities  and was dissolved in
April 1996. He has served as a director of Datapoint  since 1992. He also served
from August 1994 through December 1995 as a special  consultant for the Board on
Datapoint general  management and business affairs.  In December 1995 he assumed
the position of Chief Operating Officer and in 1997 was appointed President,  as
well.  The  principal  business  address of Mr.  Thomas is 7 rue d'Anjou  75008,
Paris, France.

     PHILLIP P. KRUMB, age 57, is currently Vice President and Special Assistant
to the  Chairman.  Mr. Krumb  joined the Company in September  1994 and was Vice
President and Chief Financial Officer from September 1994 to June 1997. Prior to
joining the Company he was employed by IOMEGA  Corporation for 7 years as Senior
Vice  President  Finance and Chief  Financial  Officer.  The principal  business
address of Mr. Krumb is 8410 Datapoint Drive, San Antonio, Texas 78229-8500.

     GERALD N. AGRANOFF,  age 52, is currently Vice  President,  General Counsel
and Corporate Secretary of Datapoint.  Mr. Agranoff is a General Partner of Asco
Partners,  the General  Partner of Edelman  Securities  Company  L.P.  (formerly
Arbitrage Securities Company) and a General Partner of Plaza Securities Company.
He has been  affiliated  with  these  companies  for more than five  years.  Mr.
Agranoff is a director of Bull Run Corporation,  Atlantic Gulf Communities,  The
American  Energy  Group,  Ltd.,  and Canal  Capital  Corporation,  and AgriFoods
International,  Inc. Mr.  Agranoff has also been the General  Counsel to Edelman
Securities  Company L.P. and Plaza Securities  Company for more than five years.
The principal  business  address of Mr.  Agranoff is 8410 Datapoint  Drive,  San
Antonio, Texas 78229-8500.

    IRVING J. GARFINKEL,  age 62, has been a General Partner of Asco Partners, a
general  partner  of  Edelman  Securities   Company  L.P.  (formerly   Arbitrage
Securities  Company)  for more than five years.  Mr.  Garfinkel  also has been a
General  Partner and  controller of Plaza  Securities  Company for more than the
past five years.  He has served as a director of  Datapoint  since 1991,  and is
Chairman of the Audit Committee and serves on the  Compensation  Committee.  The
principal  business  address of Mr.  Garfinkel is 717 Fifth  Avenue,  4th Floor,
Suite 407, New York, New York 10022.

    DANIEL R. KAIL, age 64, has been Managing  Trustee of Management  Assistance
Inc. Liquidating Trust from January 1986 to December 31, 1996, and prior thereto
had been a director,  Executive Vice President and Chief Operating Officer since
October  1984 of  Management  Assistance  Inc.,  a  computer  manufacturing  and
servicing company.  He also was a director and Executive Vice President of Canal
Capital  Corporation  from 1987  until  1991.  He has  served as a  director  of
Datapoint since 1985 and is Chairman of the Compensation  Committee and a member
of the Audit Committee.  The principal business address of Mr. Kail is 105 North
Avenue, Westport, Connecticut 06880.

    CHARLES F.  ROBINSON,  age 53, has been  General  Partner of  Anglo-American
Financial   since  its   inception  in  1979.   He  is  a  Director  and  Senior
Vice-President   of  Anglo-American   Investor  Services  Corp.   Anglo-American
Financial  was one of the first  market  makers in stripped  bonds.  Through its
subsidiaries,  Anglo-American  Financial has also acted as an options  broker on
the London Stock Exchange, an SEC registered Investment Advisor, and an NASD and
SIPC broker-dealer selling fixed-income securities to financial institutions and
individuals.  He was a Chartered Accountant with Arthur Young in London where he
was responsible for developing the firm's  computer  auditing  procedures in the
United  Kingdom.  Mr.  Robinson  obtained  a Senior  Optima  in  mathematics  at
Cambridge  University and is a Fellow of the Institute of Chartered  Accountants
in  England  and Wales.  The  principal  business  address  of Mr.  Robinson  is
FSI/Anglo-American  Financial,  675  Berkmar  Court,  Charlottesville,  Virginia
22901.
<PAGE>

    DIDIER M. M. RUFFAT, age 63, was most recently the Vice President of Digital
Equipment Europe and the Managing  Director of Digital  Equipment France. He has
served for 25 years in various  capacities  with France's  BULL computer  group,
most  recently as President  and Chief  Executive  Officer of BULL  Europe,  and
previously in senior executive positions in sales, marketing and finance. He has
served as a director of  Datapoint  since  December  1993 and is a member of the
Compensation Committee. The principal business address of Mr.
Ruffat is 37, rue de Chezy, 92200 Neuilly, S/Seine, France.

    ROBERT D. SUMMER, age 66, is currently President and Chief Executive Officer
of  Dimensional  Media  Associates,  Inc.  ("DMA").  Mr. Summer joined DMA after
holding a series of high level positions in the music industry. As President and
Chief Executive  Officer,  he guides DMA's transition from invention and product
development to full  operations,  including the rollout of consumer,  commercial
and medical products.  The company markets proprietary 3D optical  technologies.
Before joining DMA in 1995, Mr. Summer served as Executive Vice President,  Sony
Music Entertainment;  and concurrently as President, Sony Entertainment European
Community  Affairs,   representing  the  corporation's   software  interests  to
international  government groups. He joined CBS Records International in 1986 as
President and continued in that position  through the company's  acquisition  by
Sony in 1988.  Mr. Summer joined CBS Records after nearly three decades with RCA
Records, where he served in key executive posts including President,  RCA/Ariola
(now BMG);  President,  RCA  Records;  Vice  President,  RCA Records  USA;  Vice
President, RCA Records International; and President, RCA Red Seal, the company's
classical  music  division.  Mr.  Summer has served as Chairman of the Recording
Industry  Association  of American  (RIAA) and Vice  President and member of The
Board of Directors of the International  Federation of the Phonographic Industry
(IFPI) where he served as a key  negotiator  for the  industry.  He received his
bachelor's  degree in engineering  from Carnegie Mellon  University in 1955. The
principal business address of Mr. Summer is Dimensional Media Associates,  Inc.,
22 West 19th Street, New York, New York 10011.

     ROGER EDMONDS,  age 54, was promoted to Vice President,  Technical Services
in February 1996. Mr. Edmonds joined the Company's United Kingdom  subsidiary in
1972 as Project Leader,  and has held various  management  positions  within the
Company.   Mr.  Edmonds  is  also  currently  Technical  Director  of  the  U.K.
subsidiary.  The principal  business  address of Mr. Edmonds is Datapoint House,
400 North Circular Road, London NW10 0JG.

    WALTER GEVERS,  age 62, was promoted to Vice  President,  OSN in March 1996.
Mr. Gevers joined the Company as Managing Director, Datapoint Belgium in January
1983. Prior to joining the Company, Mr. Gevers was employed by SAIT Electronics,
Datapoint's  distributor in Belgium,  for nineteen  years as Sales Manager.  The
principal business address of Mr. Gevers is rue de la Fusee 100, 1130 Bruxelles,
Belgium.

     JOHN R.  PERKINS,  age 51, was promoted to Vice  President,  Development  &
Production in May 1996. Mr. Perkins joined the Company as Director,  Engineering
in 1981.  Prior to joining the  Company,  Mr.  Perkins  was  employed by General
Electric  Information Services Company as Market Planner. The principal business
address of Mr. Perkins is 8410 Datapoint Drive, San Antonio, Texas 78229-8500.

    There are no family  relationships  between any of the executive officers of
the Company.
<PAGE>

Audit, Compensation and Executive Committees

     The Company has Audit,  Compensation and Executive  Committees of the Board
of  Directors.  The Company  does not have a Nominating  Committee.  The current
members of the Audit  Committee are Irving J.  Garfinkel  (Chairman),  Daniel R.
Kail and Charles F. Robinson.  The current members of the Compensation Committee
are Daniel R. Kail  (Chairman),  Didier M. M. Ruffat,  Irving J.  Garfinkel  and
Robert D. Summer.  The members of the  Executive  Committee are Asher B. Edelman
(Chairman) and Blake D. Thomas.

The  Audit  Committee  annually   recommends  to  the  Board  of  Directors  the
independent  auditors for the Company and its  subsidiaries.  They meet with the
independent  auditors concerning the audit;  evaluate non-audit services and the
financial  statements and accounting  developments  that may affect the Company;
meet with  management  concerning  matters  similar to those  discussed with the
outside auditors; and make reports and recommendations to the Board of Directors
and the Company's  management and  independent  auditors from time to time as it
deems  appropriate.  The Committee met 6 times during the fiscal year ended July
31, 1999.

The  Compensation  Committee  makes  salary  recommendations   regarding  senior
management to the Board of Directors  and  administers  the Company's  Bonus and
Stock  Option Plan as described  below.  The  Committee  did not meet during the
fiscal year ended July 31, 1999.

Meetings of the Board of Directors and Committees

The Board of Directors  met 10 times during the fiscal year ended July 31, 1999.
Each director  attended at least 75% of the aggregate of (a) the total number of
meetings of the Board of  Directors  (held during the period of his service) and
(b) the total number of meetings held by all committees of the Board on which he
served (during the period that he served).


COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Datapoint  believes  that,  during the fiscal  year  ended  July 31,  1999,  its
officers and directors complied with all filing requirements under Section 16(a)
of the Securities Exchange Act of 1934


ITEM 11  EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS

Directors who are employees of Datapoint receive no additional  compensation for
serving on the Board of Directors or its committees. Each director who is not an
employee of  Datapoint  receives  fees as follows:  Each  non-employee  director
receives an annual fee of $15,000, payable in quarterly installments.  Executive
Committee  members receive an additional $5,000 annual fee.  Committee  Chairmen
receive an  additional  $2,000 annual fee.  Board members  receive an additional
$1,000 annual fee for each  committee  they serve on plus an  additional  $1,000
annual fee for serving on more than one committee.  Each  non-employee  director
also  receives  a fee of $750 for each  Board  meeting  attended,  $500 for each
committee   meeting  attended  and  $500  for  attendance  at  each  meeting  on
Datapoint's business other than a Board of Directors or committee meeting.  Each
non-employee director has the option to purchase,  at his own expense,  coverage
for  himself  and his  dependents  under  Datapoint's  group  medical and dental
insurance plan.

Datapoint  maintains a  retirement  plan and a  retirement  medical care plan to
cover  non-employee  Board members.  Both plans presently are purely contractual
rather than funded,  and are  self-insured  except that retirees are required to
participate  in  Medicare  parts A and B. The  retirement  plan  provides  for a
maximum  annual benefit equal to a director's  annual  retainer in effect on the
date of retirement.  A partial  benefit will be paid to directors with less than
five years'  service,  and a full benefit will be paid to directors with five or
more years of service.  The benefit will be payable for the greater of ten years
or life,  and in the event a retiree  should die within ten years of retirement,
the remaining  benefit will be paid to his estate.  The retirement  medical care
plan affords  non-employee  directors,  upon  retirement,  benefits and premiums
equivalent  to COBRA  coverage  available  to certain  former  employees  and/or
dependents under  Datapoint's  group medical plan. Only directors elected to the
Board prior to March 25,  1996 are  eligible to  participate  in the  retirement
plan.

<PAGE>

EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE REPORT

Datapoint's  executive  compensation  program  is  based  on  three  fundamental
principles.

Datapoint must offer compensation  opportunities  sufficient to attract,  retain
and reward talented  executives who are  sufficiently  capable of addressing the
challenges of a worldwide business in a difficult industry.

Compensation  should  include a  substantial  component  of  pay-for-performance
sufficiently  related  to the  financial  results  of  the  Company  and/or  the
executive's  performance  to  financially  motivate the  executive's  efforts to
increase  stockholder value. This may cause individual  compensation  amounts to
change significantly from year to year.

Compensation  should  provide a direct link between the  long-term  interests of
executives  and  stockholders.  Through the use of stock-based  incentives,  the
Compensation  Committee  focuses the  attention  of  executives  on managing the
Company from the perspective of an owner with an equity stake.

For executive  officers,  compensation now consists  primarily of base salary, a
short-term  performance  incentive  opportunity  in the form of a variable  cash
bonus based on either the financial  performance of the Company or of their area
of  responsibility,  and a  long-term  incentive  opportunity  provided by stock
options.  The committee also obtains ratification by the non-employee members of
the Board on most aspects of compensation and long-term incentives for executive
officers.

The  remainder of this Report  reviews the annual and  long-term  components  of
Datapoint's executive compensation program, along with the decisions made by the
committee regarding fiscal year 1999 compensation for both the CEO and the other
named executive officers.

Total Annual Compensation

Annual cash compensation  consists of two components;  a fixed base salary and a
variable annual bonus  opportunity.  As an executive's  level of  responsibility
increases,  a larger  portion of total  annual pay is based on bonus and less on
salary.  None of the named  executives  received a salary change during the past
year,  and Mr.  Edelman's  salary  was last  increased  in  December  1990.  The
Committee  sets the base salary of  executive  officers  based upon a subjective
analysis of competitive salaries of equally qualified  executives,  occasionally
confirmed by reference to general  salary  surveys;  prior  compensation  of the
individual  or  of  previous   holders  of  the  position  is  also  considered.
Contractual   minimum  base  salaries  are   customarily   negotiated  with  the
executives.

The short-term  performance incentive bonus opportunity is established either as
a percentage,  unique for each individual,  of a numerical corporate performance
indicia, or as a target percentage of pay which is the amount that can be earned
based upon assigned  objectives being met.  Performance is measured as a percent
of attainment against these objectives.  When performance exceeds objectives, an
executive's  incentive pay can exceed the target rate,  and when it falls below,
as was the case in fiscal  years  1995 and  1994,  individual  incentive  pay is
reduced accordingly.

Messrs.  Edelman's,  Thomas's,  Agranoff's,  and Krumb's  bonuses are based on a
contractually  specified  percentage of Datapoint's  pre-tax profits,  which are
defined as net pre-tax  earnings,  excluding  the excess over $10 million of the
net of any extraordinary gains, due to debt repurchase or exchange,  against all
extraordinary  losses.  During fiscal years 1999 and 1998, the Company  incurred
net losses and  therefore  no  bonuses  were paid in either  1999 nor 1998 under
these  contractual  arrangements.   For  fiscal  years  1997,  an  aggregate  of
approximately $0.4 million, was paid under these contractual arrangements.
<PAGE>

The  remainder of the named  executives  have been  assigned  bonus targets of a
percentage of their base salary upon 100%  achievement of  individualized  goals
and  objectives;  a  substantial  portion of which are related to the  financial
performance   of   corporate    functions    relevant   to   their    respective
responsibilities.

Long Term Incentives

The committee believes that stock options appropriately link executive interests
to the  enhancement  of  stockholder  value and utilizes  them as its  long-term
incentive  program;  no additional  long-term  incentive  programs are utilized.
Stock  options  generally  are  granted at fair  market  value as of the date of
grant,  become  exercisable  over three years, and have a term of ten years. The
stock options  provide value to the recipients  only when the price of Datapoint
stock  increases  above the option grant price.  In 1999,  the committee did not
grant stock options to executive officers,  nor to other executives and selected
key employees. In prior years, determining the size of the grant for Mr. Edelman
and other  named  executive  officers,  the  committee  assessed  the  following
factors:  their  potential  by position  and ability  (i) to  contribute  to the
creation of long-term  stockholder  value;  (ii) to contribute to the successful
execution  of  Datapoint's  product  line  broadening  strategy;  and  (iii)  to
implement Datapoint's cost reduction  objectives;  (iv) their relative levels of
responsibility; and (v) the number of options they already held.

This report has been provided by the Compensation Committee.

Daniel R. Kail, Chairman
Irving J. Garfinkel
Didier M.M. Ruffat
Robert D. Summer

Supplemental Executive Retirement Plan

The  Company  maintains a  Supplemental  Executive  Retirement  Plan for certain
executive  employees  selected by the Board of Directors.  The plan provides for
employee contributions of up to 10% of applicable compensation.  In addition, at
the Board's  discretion,  the Company may also make  contributions on an annual,
individual  basis,  allocated on a pro-rata  basis  according  to  participant's
applicable  compensation  up to a  maximum  contribution  of 15%  of  applicable
compensation per employee. During the fiscal year ended July 31, 1999 and August
1, 1998, the Company did not make a contribution,  however,  for the fiscal year
ended August 2, 1997, the Company  approved the contribution of 92,500 shares of
its common  stock to the plan for credit to the  accounts  of various  executive
officers.  Under the terms of the plan, benefits accrue to the various executive
officers upon  satisfaction  of the plan's vesting  criteria which is based upon
length of employment with the Company.

<PAGE>

Summary Compensation Table

The  following  table  sets  forth  certain   information   regarding  all  cash
compensation  paid or accrued for services  rendered by the Company's  five most
highly compensated executive officers for the last three fiscal years

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------------
                                                    Annual Compensation
                                           -----------------------------------          Long-Term
                                                                                       Compensation
Name and                                                                 Other      --------------------       All
Principal                    Fiscal                                     Annual         Stock Options         Other
Position                      Year        Salary         Bonus       Compensation     Granted (#)(11)     Compensation
-------------------------------------------------------------------------------------------------------------------------
<S>                           <C>       <C>          <C>            <C>                  <C>              <C>

Asher B. Edelman   (1)        1999      $300,534          -         $101,628 (3)            -                 -
Chairman of the Board and     1998       300,534          -          110,987 (3)         225,000              -
Chief Executive Officer       1997       300,534     $196,126 (2)    134,613 (3)          60,000          $30,000 (10)

Blake D. Thomas (4)           1999      $250,000          -          $57,545 (3)             -                -
President and                 1998       250,000          -           51,354 (3)          180,000             -
Chief Operating Officer       1997       250,000     $117,676 (2)     56,178 (3)           50,000             -

Ronald G. Conn (5) (12)       1999       $87,500          -         $103,931(12)             -                -
Chief Financial Officer       1998       175,000          -           30,602 (3)           25,000             -
                              1997        20,254 (6)      -              -                 50,000             -

Gerald N. Agranoff (7)        1999      $200,000          -           $7,200 (9)             -                -
Vice President, General       1998       200,000          -            7,200 (9)          180,000             -
Counsel
and Corp. Secretary           1997       200,000     $ 78,450 (2)      7,200 (9)           50,000          $4,000 (10)

Roger Edmonds                 1999      $159,025      $40,892 (8)          -                 -                -
Vice President,  Technical    1998       138,020       41,406 (8)          -               37,500             -
   Services                   1997       136,735       41,021 (8)          -               25,000             -

<FN>
Table Footnotes
(1)   Asher B. Edelman was named Chief Executive Officer in February 1993.
(2)   Represents contractual bonus based on the Company's net pre-tax earnings.
(3)   Represents payments incident to foreign assignment.
(4)   Blake D. Thomas commenced  employment with the Company in December of fiscal
1996 as Executive Vice President and Chief Operating Officer.  On June 12, 1997,
he was promoted to President in addition to Chief Operating Officer.
(5)   Ronald G. Conn  commenced  employment  with the Company in June of fiscal
1997 as Chief Financial Officer.
(6)   Amount reflects partial year of employment.
(7)   Gerald N. Agranoff commenced employment with the Company in October of fiscal 1995 as Vice
President, General Counsel and Corporate Secretary.
(8)   Represents a performance bonus.
(9)   Represents  auto allowance.
(10)  Represents  vested portion of the Company's common stock contributions to
the Supplemental  Executive  Retirement Plan on behalf of named employee.
(11)  Excludes  options granted as a member of
the Company's  Board of Directors.
(12)  Mr. Conn resigned his position with the
Company  effective  January 15, 1999. This amount includes  $87,500 of severance
and $16,431 of payments incident to foreign assignment.
</FN>
</TABLE>

<PAGE>

Stock Option Grants in Last Fiscal Year (1)

The following  table sets forth certain  information  regarding all stock option
grants made to five of the Company's most highly compensated  executive officers
for the last fiscal year.

<TABLE>
<CAPTION>


                    --------------------------------------------------------
                                Options Granted in Fiscal 1999
                    --------------------------------------------------------
                                     % of
                                      Options                                Potential Gain at Assumed
                      Number of      Granted to     Exercise                Annual Rates of Stock Price
                       Options      Employees in     Price      Expiration  Appreciation for Option Term
       Name          Granted (1)    Fiscal Year    Per Share       Date          5%           10%
--------------------------------------------------------------------------------------------------------
<S>                        <C>        <C>              <C>          <C>          <C>            <C>

Asher B. Edelman           0          0.00%            0            -            $0             $0
Blake D. Thomas            0          0.00%            0            -            $0             $0
Ronald G. Conn             0          0.00%            0            -            $0             $0
Gerald N. Agranoff         0          0.00%            0            -            $0             $0
Roger Edmonds              0          0.00%            0            -            $0             $0
--------------------------------------------------------------------------------------------------------
</TABLE>


     (1)  No  Stock  Appreciation  Rights  (SARs)  have  ever  been  granted  by
Datapoint. Also, no stock options were granted fiscal year 1999.

     Aggregated  Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values

The  following  table sets forth  certain  information  regarding  stock options
exercised by the Company's five most highly  compensated  executive officers for
the last fiscal year.


<TABLE>
<CAPTION>

                        Number of                                                   Value of Unexercised
                          Shares                      Number of Unexercised         In-the-Money Options
                       Acquired on      Value        Options at July 31, 1999        at July 31, 1999
        Name             Exercise      Realized     Exercisable   Unexercisable  Exercisable   Unexercisable
--------------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>           <C>            <C>           <C>         <C>

Asher B. Edelman            0             0             400,000        100,000       $0          $0
Blake D. Thomas             0             0             275,000         80,000       $0          $0
Ronald G. Conn              0             0                   0              0       $0          $0
Gerald N. Agranoff          0             0             225,000         80,000       $0          $0
Roger Edmonds               0             0              60,834         16,666       $0          $0
--------------------------------------------------------------------------------------------------------------

</TABLE>


Performance Table

Set forth below is a table comparing the five-year  cumulative total return
for  Datapoint  common stock with the Dow Jones  65-Composite  Average,  a broad
equity market index, and the Dow Jones computer systems index, excluding IBM.

                             DATAPOINT CORPORATION
                              STOCK PRICE ANALYSIS

                          Dow Jones Computer
        Datapoint           systems index               Dow Jones 65-Computer
      Common Stock           (w/o IBM)                  Composite average

       Actual   Base       Actual       Base          Actual          Base
        YE       YE          YE          YE             YE              YE

1999   0.75     20.00    1,916.16      1,053.41      3,187.75           194.96
1998   1.25     17.86    1,201.56       810.39       2,786.06           173.10
1997   2.25     32.14      971.17       655.00       2,538.86           157.74
1996   1.13     16.07      477.75       322.22       1,746.32           108.50
1995   1.50     21.43      460.48       310.57       1,577.65            98.02
1994   3.75    100.00      181.90       100.00       1,635.12           100.00

The graph assumes $100 invested on August 1, 1994, in Datapoint common stock and
each of the Dow Jones indexes,  and that all dividends were  reinvested.  During
the five-year period Datapoint did not pay any dividends on its common stock.
<PAGE>

EMPLOYMENT AGREEMENTS

Effective April 25, 1990,  Datapoint entered into a written employment agreement
memorializing an existing understanding concerning the employment of Mr. Edelman
as Chairman of the Board of Directors and the Executive  Committee of Datapoint.
The agreement, as amended, now provides for a base salary of $300,000, an annual
bonus  opportunity  of 5% of the Company's net pre-tax  earnings  (excluding the
excess  over  $10  million  of the net of any  extraordinary  gains  due to debt
repurchase or exchange against all extraordinary  losses) and payment of certain
of his expenses,  subject to  limitations,  including  expenses  relating to his
presence at Datapoint's European offices. The amended agreement further provides
for a lump-sum  payment of two years salary and benefits  plus one year of bonus
at plan should Mr. Edelman's  employment  involuntarily  terminate other than by
death or disability, or for "cause" as strictly defined therein.

Effective October 1, 1994, Datapoint entered into an agreement with Mr. Agranoff
providing for his employment as Vice  President,  General  Counsel and Corporate
Secretary.  This agreement,  as amended,  now provides for a minimum annual base
salary of  $200,000,  an annual bonus  opportunity  of 2% of the  Company's  net
pre-tax  earnings  (excluding  the  excess  over $10  million  of the net of any
extraordinary gains due to debt repurchase or exchange against all extraordinary
losses), certain executive benefits, and continuation of base salary payments of
up to $100,000,  plus any performance  bonus he may be entitled to, as well as a
continuation  of  benefits  for  six  months  should  Datapoint   terminate  his
employment other than for cause.

Effective December 5, 1995,  Datapoint entered into an agreement with Mr. Thomas
providing for his  employment as Executive  Vice  President and Chief  Operating
Officer at a minimum annual base salary of $250,000.  The agreement provides for
an  annual  bonus  opportunity  of 3% of  the  Company's  net  pre-tax  earnings
(excluding the excess over $10 million of the net of any extraordinary gains due
to debt  repurchase  or exchange  against  all  extraordinary  losses),  certain
executive benefits,  and continuation of base salary payments of up to $100,000,
plus any  performance  bonus he may be entitled to, as well as a continuation of
benefits for six months should Datapoint terminate his employment other than for
cause.  The agreement  also provides for expatriate  accommodations  incident to
foreign  assignment.  Mr.  Thomas was promoted to President on June 12, 1997, in
addition to his position as Chief Operating Officer.

Effective  June 12, 1997,  Datapoint  entered  into an  agreement  with Mr. Conn
providing for his employment as Vice President and Chief Financial  Officer at a
minimum  annual base salary of $175,000.  The  agreement  provided for an annual
bonus  opportunity  of 1% of the Company's net pre-tax  earnings  (excluding the
excess  over  $10  million  of the net of any  extraordinary  gains  due to debt
repurchase or exchange  against all  extraordinary  losses),  certain  executive
benefits,  and continuation of base salary payments of up to $100,000,  plus any
performance  bonus he may have been  entitled to, as well as a  continuation  of
benefits for six months should Datapoint terminate his employment other than for
cause.  The agreement also provided for certain  relocation  accommodations  and
provided for expatriate accommodations incident to foreign assignment.  Mr. Conn
resigned his position with the Company effective January 15, 1999.

Effective September 19, 1994, Datapoint entered into an agreement with Mr. Krumb
providing for his employment as Vice President and Chief Financial  Officer at a
minimum  annual base salary of $175,000.  The  agreement  provided for an annual
bonus  opportunity  of 1% of the Company's net pre-tax  earnings  (excluding the
excess  over  $10  million  of the net of any  extraordinary  gains  due to debt
repurchase or exchange  against all  extraordinary  losses),  certain  executive
benefits,  and continuation of base salary payments of up to $100,000,  plus any
performance  bonus he may be entitled to, as well as a continuation  of benefits
for six months should  Datapoint  terminate his employment other than for cause.
The agreement  also provided for certain  relocation  accommodations  which were
terminated at the end of 1995.  Effective  June 12, 1997,  Mr. Krumb resigned as
Chief  Financial  Officer,  but remained as a Vice  President of the Company and
Special  Assistant to the  Chairman.  Effective  November 8, 1997,  Mr.  Krumb's
annual  base  salary was  $60,000.  For the  period  September  1, 1998  through
December 31, 1998,  Mr.  Krumb's salary was adjusted to an annual base salary of
$120,000  due to the extra time and effort  that Mr.  Krumb is  devoting  to the
Company's  special projects and business.  The agreement  provides for an annual
bonus  opportunity  equal to 1/4 of 1% of the  Company's  net  pre-tax  earnings
(excluding the excess over $10 million of the net of any extraordinary gains due
to debt repurchase or exchange against all  extraordinary  losses),  and certain
executive benefits.

<PAGE>

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


(a) Security  Ownership of Certain  Beneficial Owners. The following persons are
known to the Company to be  beneficial  owners of more than five percent (5%) of
the Company's securities as defined under Exchange Act Rule 13(d)(3).

                                    Common Stock      Preferred Stock
                                    Beneficially      Beneficially     Percent
Name and Address                       Owned              Owned        of Class

Asher B. Edelman (1)           (See Table under
c/o Datapoint Corporation       Security Ownership
717 Fifth Avenue                of Management) (1)
New York, NY 10222

Lloyd I. Miller (2)                                      69,900 (2)     10.6%(2)

    (1) Mr.  Edelman is part of a "group" as that term is used in  Exchange  Act
Section  13(d)(3).  See subsection (b) below for detailed  description as to the
amount and nature of beneficial ownership by the members of the group.

    (2) Mr. Miller filed an amended Schedule 13D/A on August 4, 1997,  reporting
69,900  Preferred  shares,  37,500 of which are  owned by LIM,  Inc.,  a Florida
corporation  of which he is sole  shareholder,  and 32,400 of which are owned by
Trust C under a September  20, 1983 Amended and  Restated  Trust  Agreement  for
which Trust Mr.  Miller  serves as Investment  Advisor.  Mr.  Miller  reported a
percentage  ownership  of  9.7%,  but  that  percentage,  based  upon  currently
outstanding Preferred shares of 661,967 as of November 1, 1999 is now 10.6%.

(b)  Security Ownership of Management

The following  table sets forth  certain  information  regarding the  beneficial
ownership of the Common Stock,  Preferred  Stock and  Convertible  Debentures by
each director,  by each of the executive officers named in the table, and by the
directors and executive officers as a group as of November 1, 1999.
<TABLE>
<CAPTION>
                                                                                                   Convertible
                                    Common Stock                                Preferred Stock    Debentures
                                    Beneficially              Percent           Beneficially        Beneficially
 Name of Officer/Director           Owned (1)                 of Class(13)      Owned(2)            Owned(3)
-------------------------           -----------------         ------------      ----------       ---------------
<S>                                 <C>                         <C>               <C>               <C>

 Gerald N. Agranoff (O&D)             225,000(4)(5)(7)             *                  - 0 -          - 0 -
 Asher B. Edelman (O&D)             3,836,238(4)(5)(6)(13)       20.9%            14,200**          $141,000*
 Roger Edmonds (O)                        60,834(4)                *                 - 0 -            - 0 -
 Irving J. Garfinkel (D)                 25,000(4)(5)(7)           *                 - 0 -            - 0 -
 Walter Gevers (O)                       98,334(4)                 *                 - 0 -            - 0 -
 Daniel R. Kail (D)                      25,000(4)                 *                 - 0 -            - 0 -
 Phillip P. Krumb (O&D)                  138,000(4)(8)             *                 - 0 -            - 0 -
 John Perkins (O)                        51,128(4)(9)              *                 - 0 -            - 0 -
 Charles F. Robinson (D)                 25,000(4)(10)(13)         *                 3,000*(10)      $47,000*(10)
 Didier Ruffat (D)                       50,000(4)                 *                 - 0 -             - 0 -
 Robert D. Summer (D)                    32,300(4)(11)             *                 - 0 -             - 0 -
 Blake D. Thomas (O&D)                 428,847(4)(12)(13)         2.3%               - 0 -             - 0 -

 Executive Officers and
    Directors of Datapoint as
    a group (13 persons)             4,995,681                   27.2%
</TABLE>

* Indicates  less than 1%  ownership as a percent of the outstanding class (13)
**The percent of the outstanding class is 2.2% (13)
<PAGE>


(1)      Information  relating to beneficial  ownership is based upon  ownership
         information  furnished  by each  person  using  "beneficial  ownership"
         definitions  set forth in Section 13 of the Securities  Exchange Act of
         1934, as amended (the "Exchange  Act").  Under those rules, a person is
         deemed to be a  "beneficial  owner" of a security if that person has or
         shares  "voting  power",  which includes the power to vote or to direct
         the voting of such security,  or "investment power", which includes the
         power to dispose or to direct the  disposition  of such  security.  The
         person is also deemed to be a beneficial owner of any security of which
         that  person has a right to acquire  beneficial  ownership  (such as by
         exercise of options)  within 60 days.  Under such rules,  more than one
         person may be deemed to be a beneficial  owner of the same  securities,
         and a person may be deemed to be a beneficial owner of securities as to
         which  he or she  may  disclaim  any  beneficial  interest.  Except  as
         otherwise  indicated in other table footnotes,  the indicated directors
         and executive  officers possessed sole voting and investment power with
         respect to all shares of Common Stock and Preferred Stock attributed.

(2)      The Company's $1.00 Preferred Stock ("Preferred Stock") is a non-voting
         class of security.  Each share may be  exchanged,  at the option of the
         holder,  for two (2) shares of Common Stock so long as six (6) quarters
         of accrued dividends remain outstanding and unpaid.

(3)      The Company's  8-7/8  Convertible  Subordinated  Debentures Due June 1,
         2006 ("Convertible Debentures") is a non-voting class of security. Each
         one thousand dollar ($1,000.00)  principal amount may be exchanged,  at
         the option of the holder, into 55.231 shares of Common Stock.

     (4) The tabulation  includes  shares of Common Stock which may be deemed to
be  beneficially  owned by such  persons  by reason of stock  options  currently
exercisable  or which may become  exercisable  within sixty (60) days after that
date.  The number of shares  deemed to be  beneficially  owned by reason of such
options is: Mr. Edelman,  400,000; Mr. Agranoff,  225,000; Mr. Thomas,  275,000;
Mr. Krumb,  125,000;  Mr. Ruffat,  50,000;  Mr. Summer,  25,000;  Mr. Garfinkel,
25,000; Mr. Kail, 25,000; Mr. Robinson, 25,000; Mr. Edmonds, 60,834; Mr. Gevers,
98,334;  Mr.  Perkins  50,834;  and  all  officers  and  directors  as a  group,
1,385,002.

(5)      Gerald N. Agranoff,  Asher B. Edelman and Irving Garfinkel are Trustees
         of the Datapoint  Corporation  Supplemental  Executive  Retirement Plan
         (the "Datapoint  Plan") which owns 316,435 Common shares.  In the above
         tabulation,  such shares have been excluded  within each party's Common
         shares listing and the listing for the directors and executive officers
         as a group.  Messrs.  Agranoff,  Edelman and  Garfinkel  each  disclaim
         beneficial  ownership of these shares except to the extent of pecuniary
         interests in such shares with which each party may  currently be vested
         under the Plan. Mr.  Edelman has a current  vested  interest in 145,288
         shares under the Datapoint Plan which have been excluded.  Mr. Agranoff
         is currently vested with 21,402 Common shares under the Datapoint Plan.
         Mr.  Garfinkel has no current vested interest under the Datapoint Plan.
         Mr.  Thomas is vested with 13,376  Common  shares,  Mr. Krumb is vested
         with 18,567  Common  shares and Mr.  Perkins with 4,344  Common  shares
         under the  Datapoint  Plan which have not been included in their listed
         beneficial ownership.

     (6) Mr. Edelman's listed beneficial ownership of 3,836,238 shares of Common
Stock is explained in detail in this paragraph, and is based upon his beneficial
ownership  reported on Schedule 13D. Mr. Edelman  reports  beneficial  ownership
jointly,  as a group, with the following named persons or entities.  Those whose
shares have been  included  within Mr.  Edelman's  listed  total are reported as
beneficially  owned pursuant to Rule 13d-3 by Mr.  Edelman.  As the  controlling
general  partner  of each of Plaza  Securities  Company,  A.B.  Edelman  Limited
Partnership  and Citas Partners  (which is the sole general partner of Felicitas
Partners,  L.P.),  Mr.  Edelman may be deemed to own  beneficially  the 441,348,
994,383  and 6,290  shares  held,  respectively,  by each of such  entities  for
purposes of Rule 13d-3 under the Exchange  Act, and these shares are included in
the listed  ownership.  Also  included  are the  361,267  shares  owned by Canal
Capital Corporation ("Canal"),  in which company Mr. Edelman and various persons
and entities with which he is affiliated own interests.  By virtue of investment
management  agreements  between A. B. Edelman Management Company Inc. and Canal,
A. B. Edelman  Management  Company Inc. has the authority to purchase,  sell and
trade in securities on behalf of Canal.  A. B. Edelman  Management  Company Inc.
therefore may be deemed to be the  beneficial  owner of the 361,267 shares owned
by Canal.  Mr.  Edelman  is the sole  stockholder  of A. B.  Edelman  Management
Company Inc. and these shares are included.  A. B. Edelman  Management  Company,
Inc. is also the sole general  partner of Edelman  Value  Partners,  L.P.  which
currently owns 494,175 shares of Common Stock which are included.  Also included
are the 201,460  shares owned by Mr.  Edelman's  spouse Maria Regina M. Edelman,
5,000 shares held by Mr. Edelman in a Keough account, 31,000 shares beneficially
owned by Mr. Edelman's  children in accounts for which he is the custodian,  and
859,900  shares owned by Edelman Value Fund,  Ltd., for which Mr. Edelman serves
as the sole  investment  manager.  Also  included  are Mr.  Edelman's  presently
exercisable  options to purchase  400,000  shares.  Also included are the 41,415
shares owned by Edelman Family Partners,  L.P. for which Mr. Edelman serves as a
general partner. As a Trustee of the Canal Capital  Corporation  Retirement Plan
("Canal Plan") which owns 121,181 shares and the Datapoint Plan described  above
which owns 316,435 shares,  Mr. Edelman may be deemed to own  beneficially,  and
share voting and investment power over the shares owned by each such Plan, which
are  excluded.  Also  excluded  from the  listed  ownership  are  57,507  shares
beneficially  owned by Mr.  Edelman's  daughters  in  accounts  for which  their
mother,  Penelope C.  Edelman,  is the  custodian  and the 17,204  shares  owned
directly by Penelope C. Edelman.  Mr. Edelman disclaims  beneficial ownership of
these  excluded  shares.  Although  disclaimed and excluded for purposes of Rule
13d-3,  certain of the disclaimed and excluded shares are nevertheless  reported
by Mr.  Edelman  as  beneficially  owned on his Form 4's  pursuant  to the rules
promulgated  under  Section 16 of the  Exchange  Act. Mr.  Edelman's  beneficial
ownership  total does not include  the  additional  Common  Stock which would be
acquired  upon  the  conversion  of the  Preferred  Stock  and  the  Convertible
Debentures  as  described  below.  Upon  such  exchange,  Mr.  Edelman's  listed
beneficial  ownership  would  increase to 3,872,426  and his  percentage  of the
outstanding  class would be 21.1%.  This  percentage upon exchange is the listed
percentage above pursuant to Rule 13d-3(d)(1).
<PAGE>

     Mr.  Edelman's  listed  beneficial  ownership of 14,200 shares of Preferred
Stock is based upon the 5,100 Preferred  shares owned by Edelman Value Partners,
L.P.,  and the 9,100  Preferred  shares  owned by Edelman  Value Fund,  Ltd. Mr.
Edelman disclaims  beneficial  ownership of the Edelman Value Fund, Ltd. shares.
If exchanged for Common Stock, Mr.  Edelman's Common Stock beneficial  ownership
total listed above would increase by 28,400 shares.

     Mr.  Edelman's  listed  beneficial  ownership of $141,000.00 of Convertible
Debentures  is based upon the  $44,000.00  of  Convertible  Debentures  owned by
Edelman Value Partners,  L.P. and the $97,000.00 of Convertible Debentures owned
by Edelman Value Fund, Ltd. Mr. Edelman  disclaims  beneficial  ownership of the
Edelman Value Fund, Ltd. Convertible Debentures.  If exchanged for Common Stock,
Mr.  Edelman's  Common  Stock  beneficial  ownership  total  listed  above would
increase by 7,788 shares.

(7)      Messrs. Agranoff and Garfinkel are general partners of Plaza Securities
         Company,  which owns 441,348  shares of Common  Stock.  Each  disclaims
         beneficial ownership of these shares which are excluded in each party's
         listing in the beneficial  ownership table above due to the sole voting
         and dispositive  powers  attributed to Mr. Edelman in his Schedule 13D.
         Mr. Agranoff is also a director of Canal which owns 361,267 shares. Mr.
         Agranoff  disclaims  beneficial  ownership of these shares and they are
         excluded from his beneficial  ownership  listing due to the sole voting
         and dispositive powers attributed to Mr. Edelman.

     (8) Mr. Krumb owns 13,000 Common shares directly in addition to the 125,000
shares represented by exercisable options.

     (9) Mr.  Perkins owns 294 Common shares  directly in addition to the 50,834
shares represented by exercisable options.

(10)     Mr. Robinson owns 3,000 Preferred  shares and $47,000.00 in Convertible
         Debentures  directly in addition to the 25,000  shares  represented  by
         exercisable options. These Preferred shares and Convertible Debentures,
         if converted to Common Stock,  represent  8,596 Common shares and would
         increase Mr. Robinson's total listed above to 33,596 shares.

     (11) Mr. Summer owns 7,300 Common shares directly in addition to the 25,000
shares represented by exercisable options.

(12)     Mr.  Thomas  owns  135,447  Common  shares  directly in addition to the
         275,000 shares represented by exercisable  options.  Mr. Thomas is also
         attributed  beneficial  ownership  of  16,500  Common  shares  owned by
         Foresail  Limited  Partnership  as its sole  general  partner and 1,900
         Common shares held in Mr. Thomas' self-employed pension plan.

(13)     The percentage of the  outstanding  class  calculations  are based upon
         18,348,229  Common shares,  661,967  Preferred  shares and  $54,960,000
         Convertible Debentures outstanding as of November 1, 1999. For purposes
         of  calculating  Mr.  Edelman's,   Mr.  Thomas',   and  Mr.  Robinson's
         percentages  of Common  shares under Rule  13d-3(d)(1),  as well as the
         percentage  of officers  and  directors as a group,  the common  shares
         underlying  their  respective  Preferred  Stock  and  their  respective
         Convertible Debentures upon exchange are added to the outstanding share
         total as if the exchange has occurred.


ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Director  Agranoff had provided  various tax,  legal and real estate  consulting
services  prior to serving as Vice  President,  General  Counsel  and  Corporate
Secretary  for the  Company.  During  the fiscal  years  1999,  1998,  and 1997,
Datapoint paid legal fees of $265, $0, and $374,  respectively,  to the law firm
of Pryor,  Cashman,  Sherman,  & Flynn, for legal services provided by attorneys
other than Mr. Agranoff.
<PAGE>

During  fiscal  year 1999,  1998,  and 1997,  the  Company  paid office rent and
secretarial  expenses  of $64,  $69,  and $73,  respectively,  to Canal  Capital
Corporation.  Chief Executive  Officer  Edelman and Director  Agranoff are Canal
Capital Corporation board members,  with Chief Executive Officer Edelman serving
as Chairman of the Board.

The  Trustees of the  Company's  United  Kingdom  subsidiary's  defined  benefit
pension  plan  have  implemented  an  investment   strategy  which  includes  an
investment  of  approximately  $7.2 million in the Edelman  Value Fund,  Ltd., a
related party, as of July 31, 1999.

On June 29, 1998, the Company had signed a letter of intent,  which subsequently
expired on August 20, 1998, to acquire Dimensional Media Associates ("DMA"). Mr.
Robert D. Summer is the  president  of DMA and a board member of  Datapoint.  In
addition to the letter, Datapoint advanced DMA $200. This advance was secured by
a promissory  note,  payment of which has been guaranteed by a principal of DMA.
The principal payment of $200 was repaid on July 20, 1999.

PART IV

ITEM 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

    (a)1 Financial Statements

         The consolidated  financial statements listed in the accompanying index
to the financial statements are filed as part of this report.

    (a)2 Financial Statement Schedules

         Schedule II - Valuation and Qualifying Accounts and Reserves

         All other schedules are omitted since they are either not applicable or
         the required information is shown in the Company's financial statements
         or notes thereto.  Individual  financial  statements of the Company are
         omitted  because the Company is primarily an operating  company and all
         subsidiaries  included in the Consolidated  Financial  Statements being
         filed,  in the aggregate,  do not have minority  equity interest and/or
         indebtedness  to any person other than the Company or its  consolidated
         subsidiaries   in  amounts  which  together  exceed  5%  of  the  total
         consolidated  assets as shown by the most recent year-end  Consolidated
         Balance Sheet.

    (a)3 Exhibits

         The exhibits listed on the accompanying  index to exhibits are filed as
part of this report.

(b)      Reports on Form 8-K: In a report  filed on Form 8-K dated May 19, 1999,
         the Company  reported  that it had  entered  into a letter of intent to
         sell its European operations.

         Subsequent  to year end, in a report  filed on Form 8-K dated August 3,
         1999, the Company reported that its newly formed  subsidiary,  Corebyte
         Inc.,  had acquired  the Corebyte  (TM)  communication  and  networking
         software product family.

         See Exhibit Index included herein on page 54.


<PAGE>


                                INDEX TO EXHIBITS

                                                                   Sequentially
Exhibit                                                              Numbered
Number            Description of Exhibits                              Pages

 (3)(a)  Certificate of Incorporation of Datapoint  Corporation,
         as amended (filed as Exhibit (3)(a) to the Company's
         Annual Report on Form 10K for the year ended
         July 31, 1993, and incorporated herein by reference).

 (3)(b)  Bylaws of Datapoint Corporation, as amended (filed as
         Exhibit (3)(b) to the  Company's  Annual Report on
         Form 10-K for the year ended
         August 1, 1992, and incorporated herein by reference).

 (4)(a)  Debenture  holder Notice of  Adjustment  to  Conversion  Rate,
         dated July 11, 1985, under Indenture dated as of June 1, 1981,
         between   Datapoint   Corporation  and  Continental   Illinois
         National  Bank and  Trust  Company  of  Chicago,  as  Trustee,
         providing for 8-7/8% Convertible  Subordinated  Debentures Due
         2006 (filed as Exhibit  (4)(a) to the Company's  Annual Report
         on Form  10-K  for the  year  ended  July  27,  1985  and said
         Indenture  filed as  Exhibit 4 to the  Company's  Registration
         Statement on Form S-16 (No. 2-72395), each incorporated herein
         by reference).

 (4)(b)  Certificate of Designation,  Preferences,  Rights and
         Limitations of Series of $1.00  Preferred  Stock  (filed  as
         Exhibit  (4)(e) to the Company's Registration  Statement on
         Form S-4 dated April 30, 1992 and
         incorporated herein by reference).

(10)(a)  1983 Employee Stock Option Plan (filed as Exhibit (4)(a)(4) to
         the  Company's   Registration  Statement  on  Form  S-8  dated
         November 9, 1983 and incorporated herein by reference).

(10)(b)  1985 Director  Stock Option Plan (filed as Exhibit  (10)(i) to
         the  Company's  Annual  Report on Form 10-K for the year ended
         August 1, 1987 and incorporated herein by reference).

(10)(c)  1986 Employee  Stock Option Plan (filed as Exhibit  (10)(h) to
         the  Company's  Annual  Report on Form 10-K for the year ended
         August 1, 1987 and incorporated herein by reference).

(10)(d)  1991 Director  Stock Option Plan (filed as Exhibit  (10)(b)(2)
         to  Amendment  No. 1 dated  February 6, 1992 to the  Company's
         Registration Statement on Form S-4 (Registration No.
         33-44097) and incorporated herein by reference).

(10)(e)  1992 Employee Stock Option Plan (filed as Exhibit (4)(a)(4) to
         the Company's Registration Statement on Form S-8 dated January
         19, 1993 and incorporated herein by reference).

(10)(f)  Agreement for Transfer of Assets and  Liabilities  in Exchange
         for Stock,  dated as of June 28, 1985, between the Company and
         Intelogic  Trace,  Inc.  (filed  as  Exhibit  (10)(a)  to  the
         Company's  Current  Report on Form 8-K dated July 28, 1985 and
         incorporated herein by reference).

(10)(g)  Master  Maintenance  Agreement,  dated as of June 28, 1985, between
         the Company and Intelogic Trace, Inc. (filed as Exhibit (10)(b) to
         the Company's Current  Report  on Form 8-K  dated  July 28,  1985
         and incorporated  herein by reference).

(10)(h)  Maintenance  Agreement regarding open systems products between the
         Company and Intelogic Trace, Inc., (filed as Exhibit (10)(g) to the
         Company's Annual Report on Form 10-K for the year ended
         August 1, 1992, and  incorporated herein by reference).
<PAGE>

                               INDEX TO EXHIBITS


Exhibit                                                            Sequentially
Number            Description of Exhibits                              Numbered
                                                                        Pages
(10)(i)  Agreement between the Company and Arbitrage Securities Company,
         as amended (filed as Exhibit (10)(f) to the Company's Annual
         Report on Form 10-K for the year ended July 29, 1989 and
         incorporated herein by reference).

(10)(j)  Indemnity Agreements with Officers and Directors (filed as Exhibit
         (10)(f) to the Company's Annual Report on Form 10-K for the year
         ended August 1, 1987 and incorporated herein by reference).

(10)(k)  First  Amendment  to  Indemnification  Agreement  with certain
         Officers  and  Directors.  (filed as  Exhibit  (10)(h)  to the
         Company's  Annual  Report on Form 10-K for the year ended July
         28, 1990 and incorporated herein by reference).

(10)(l)  Second  Amendment to Employment  Agreement with A. B. Edelman (said
         amendment filed as Exhibit (10)(h)(3) to the Company's Registration
         Statement on Form S-4 dated April 30, 1992),  amending Employment
         Agreement dated January 9, 1991 (said agreement filed as
         Exhibit (10)(j) to the Company's  Annual Report on Form 10-K for the
         year ended July 28, 1990), as amended by Amendment No. 1 dated
         December  1, 1990  (said  amendment  filed as Exhibit  (10)(i) to the
         Company's Annual Report on Form 10-K for the year ended July 27, 1991),
         each of which are incorporated herein by reference.

(10)(m)  Employment  Agreement with D. Berger (filed as Exhibit  (10)(m) to
         the  Company's  Annual  report on Form 10-K for the Year ended
         July 31, 1993 and incorporated herein by reference).

(10)(n)  Employment  Agreement with J. Berger (filed as Exhibit  (10)(l) to
         the  company's  Annual Report on Form 10-K for the year ended
         August 1, 1992 and incorporated herein by reference).

(10)(o)  Employment  Agreement with K. L. Thrower (filed as Exhibit (10)(o)
         to the  company's Annual Report on Form 10-K for the year ended
         August 1, 1992 and incorporated herein by reference).

(10)(p)  First Amendment to the Grantor Trust Agreement dated June 18, 1991.
         (filed as exhibit  (10)(n) to the  Company's  Annual Report on
         Form 10-K for the year ended July 27, 1991 and incorporated herein
         by reference).

(10)(q)  Manufacturing facilities Agreement of Lease between the Company and
         Willis and Cox Associates dated June 21, 1991 (filed as Exhibit (10)(q)
         to the Company's  Annual  Report on Form 10-K for the year ended
         August 1, 1992 and incorporated herein by reference).

(10)(r)  Employment  Agreement with D. Bencsik (filed as exhibit (10)(r) to
         the  Company's  Annual  Report on the Form 10-K for the year
         ended July 30, 1994 and incorporated herein by reference).

(10)(s)  Employment  Agreement  with G.  Agranoff  and  Amendment  No. 1 to
         Employment  Agreement (filed  as Exhibit  (10) (s) to Amendment  No. 2
         to the Company's  Registration  Statement on Form S-4 filed on
         September  27, 1996 and incorporated herein by reference).

(10)(t)  Employment  Agreement with B. Thomas (filed as Exhibit (10) (t) to
         Amendment  No. 2 to the  Company's Registration Statement on Form S-4
         filed on September 27, 1996 and incorporated herein by reference).
<PAGE>

                               INDEX TO EXHIBITS


                                                                    Sequentially
Exhibit                                                               Numbered
Number            Description of Exhibits                               Pages

(10)(u)  Employment Agreement with P. Krumb (filed as Exhibit (10) (u)
         to Amendment  No. 2 to the  Company's Registration Statement
         on Form S-4 filed on September 27, 1996 and incorporated herein
         by reference).

(10)(v)  Settlement  Agreement  with  NTI  (filed as Exhibit (10)(v) to
         Amendment No. 2 to the  Company's Registration Statement on
         Form S-4 filed on September 27, 1996 and incorporated herein
         by reference).

(10)(w)  Umbrella Acquisition Agreement between Kalamazoo and Datapoint
         (filed as Exhibit 2 to the Company's Current Report on Form 8-K
         dated June 25, 1996 and incorporated herein by reference).

(10)(x)  Form of Agreement for sale of assets of Datapoint Group Vendor
         and Kalamazoo (filed as Exhibit 3 to the Company's Current
         Report on Form 8-K dated June 25, 1996 and incorporated
         herein by reference).

(10)(y)  Agreement  for sale of DARTS  Software  (filed as Exhibit 4 to
         the Company's  Current  Report on Form 8-K dated June 25, 1996
         and incorporated herein by reference).

(10)(z)  1996 Director  Stock Option Plan (filed as Annex D to Amendment No.
         3 dated  October 31, 1996 to the Company's Registration Statement
         on Form S-4 (Registration No. 333-9627) and incorporated herein
         by reference).

(10)(aa) 1996 Employee Stock Option Plan (filed as Annex E to Amendment No.
         3 dated  October 31, 1996 to the  Company's  Registration
         Statement on Form S-4 (Registration No. 333-9627) and incorporated
         herein by reference).

(10)(bb) Employment Agreement with R. Conn.

(10)(cc) Employment Agreement with R. Edmonds.

(10)(dd) Employment Agreement with J. Perkins.

(10)(ee) Amendment  No. 2 to Employment Agreement with G. Agranoff.

(10)(ff) Amendment No. 1 to Summary of Modified Employment Agreement - with
         P. Krumb.

(10)(gg) 1997 Employee Stock Option Plan (filed as Annex A to the Company's
         Definitive  Proxy  Statement on Schedule  14(a) dated
         December  23,  1997,  and incorporated herein by reference).

(10)(hh) Announcement  of the  Letter  of  Intent  to Sell  the  Company's
         European  Operations  (filed as Exhibit 99 to the Company's
         Current Report Form 8-K dated May 19, 1999 and incorporated
         by reference).

(10)(ii) Announcement  of the  Acquisition  of  Corebyte(TM)  (filed as
         Exhibit  99 to the  Company's  Current  Report  Form 8-K dated
         August 3, 1999 and incorporated by reference).

(10)(jj) Stock  Purchase  Agreement  between  Reboot  Systems,   Inc.  and
         Datapoint Corporation dated July 31, 1999 and as amended on
         November 1, 1999.

(10)(kk) Asset  Purchase  Agreement  between  Datapoint  Corporation,   SF
         Digital,  LLC and  John  Engstrom,  and  John  Engstrom  d/b/a
         SF  Digital  and Corebyte(TM) dated July 27, 1999.

(23)     Consent of Independent Auditors.

(27)     Article 5, Financial Data Schedule.


<PAGE>


                                   SIGNATURES


    Pursuant  to the  requirements  of  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.



                                          DATAPOINT CORPORATION
                                              (Registrant)

                                          BY:/s/Phillip K. Krumb
                                                Asher B. Edelman
                                            Chief Executive Officer and
                                                Chairman of The Board
                                          By Phillip P. Krumb, Attorney In Fact


DATED:  November 11, 1999


    Pursuant to the  requirements  of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.

         Signature                       Title                       Date


/s/ Phillip P. Krumb         Acting Chief Financial Officer     November 11,1999
    Phillip P. Krumb       (Acting Principal Accounting Officer)



Phillip P. Krumb, pursuant to powers of attorney which are being filed with this
report, has signed below as attorney-in-fact  for the following directors of the
Registrant:

                   Gerald N. Agranoff          Charles F. Robinson
                   Irving Garfinkel            Daniel Kail
                   Robert D. Summer            Didier M.M. Ruffat
                   Blake D. Thomas



/s/  Phillip P. Krumb                                   November  11, 1999
---------------------
     Phillip P. Krumb



<PAGE>


                                   Schedule II

                     DATAPOINT CORPORATION AND SUBSIDIARIES
                 Valuation and Qualifying Accounts and Reserves
                                 (In thousands)


<TABLE>
<CAPTION>

                                                                      (a)          (b)
                                   Balance          Charged        Charged
                                        at             to        (to) from        Other            Balance
                                  Beginning       Costs  and        Other        Additions         at End
    Classification                   of Year       Expenses        Accounts     (Deductions)      of Year

<S>                                 <C>              <C>           <C>             <C>              <C>


Allowance for doubtful accounts:

Year ended July 31, 1999            $1,305           $(299)        $(69)            $(57)             $880

Year ended August 1, 1998           $1,654             $33         $179            $(561)           $1,305

Year ended August 2, 1997           $2,791           $(164)        $(18)           $(955)           $1,654

</TABLE>

(a) Transfers to and from other balance sheet reserve accounts.
(b)  Accounts  written-off  net  of  recoveries,   other  expense  accounts  and
translation adjustments.


<PAGE>



                                   EXHIBIT 23


                         CONSENT OF INDEPENDENT AUDITORS


     We consent to the incorporation by reference in the following  registration
statements  of  our  report  dated  November  1,  1999,   with  respect  to  the
consolidated financial statements and schedule of Datapoint Corporation included
in  this  Annual  Report  on Form  10-K  for  the  year  ended  July  31,  1999:
Registration  Statement  No.  2-60374 on Form S-8,  Registration  Statement  No.
2-87765  on  Form  S-8,  Registration   Statement  No.  33-19328  on  Form  S-8,
Registration  Statement No. 33-19427 on Form S-8, and Registration Statement No.
33-57102 on Form S-8,  Registration  Statement  No.  333-53265  on Form S-8, and
Registration Statement No. 333-53267 on Form S-8.







                                                        Ernst & Young  LLP



Dallas, Texas
November 1, 1999

<PAGE>



                                                                EXHIBIT (10)(jj)



                            STOCK PURCHASE AGREEMENT


         THIS  STOCK  PURCHASE  AGREEMENT  is  dated as of the 31st day of July,
1999,  by and among (i)  REBOOT  SYSTEMS,  INC.,  a  Delaware  corporation  (the
"Buyer"),  (ii) the  entities  listed on  Schedule A hereto  (collectively,  the
"Sellers"  and  individually,  a "Seller,"  which terms  shall be  qualified  as
provided in Section 13(c) hereof), and (iii) DATAPOINT  CORPORATION,  a Delaware
corporation  and the direct or indirect  corporate  parent of all of the Sellers
(the "Parent").

         WHEREAS,  the Sellers are  collectively the owners of all of the issued
and outstanding shares of the capital stock (collectively, the "Shares") of each
of the entities listed on Schedule B hereto  (collectively,  the "Companies" and
individually,  a  "Company"),  with each Seller  owning such  percentage  of the
Companies as more particularly set forth on Schedule C hereto; and

         WHEREAS,  the Buyer  desires to  purchase  all of the  Shares  from the
Sellers,  and the Sellers desire to sell all of the Shares to the Buyer, and the
Buyer and the Parent have agreed to certain other matters ancillary thereto, all
on the terms and conditions set forth herein.

         NOW, THEREFORE,  in consideration of the mutual promises and agreements
set forth herein, the Buyer, the Sellers and the Parent agree as follows:

         1.  PURCHASE AND SALE OF SHARES.

         1.1.  Purchase and Sale.  Subject to the terms and conditions set forth
in this Agreement,  at the Closing (as defined in Section 3 hereof), each Seller
agrees to sell to the Buyer,  and the Buyer agrees to purchase from each Seller,
such  Shares as are set forth  opposite  the name of each  Seller on  Schedule C
hereto,  in exchange for the purchase  price therefor as provided in Section 1.2
hereof.

         1.2.  Purchase Price.

                  (a) The Buyer  shall pay to the Sellers and the Parent by wire
transfer of immediately available funds, as the aggregate purchase price for the
Shares and the other assets being  acquired or utilized by the Buyer pursuant to
Section 2 hereof,  as the case may be,  $49,500,000 (the "Base Purchase Price").
The Base Purchase  Price shall be adjusted  pursuant to the provisions set forth
on Exhibit A hereto (the "Purchase Price Adjustment Provisions"), which Purchase
Price Adjustment  Provisions shall be agreed upon by the parties as contemplated
under Section 2.2 hereof.

                  (b) At the Closing,  a portion of the Closing  Purchase  Price
(as defined and  determined in accordance  with Exhibit A hereto) (the "Escrowed
Purchase  Price"),  shall be withheld from the Closing  Purchase Price otherwise
payable to the  Sellers and the Parent and placed in escrow with a bank or trust
company (the "Escrow  Agent")  mutually  acceptable  to the Buyer and the Parent
pursuant  to an escrow  agreement  in a form to be agreed to by the  parties  as
contemplated  under  Section 2.2 hereof,  with such changes as may be reasonably
requested by the Escrow Agent (the "Indemnity Escrow  Agreement").  The Escrowed
Purchase  Price  shall be held in escrow,  in  accordance  with the terms of the
Indemnity  Escrow  Agreement,  to  satisfy  the  obligations  more  particularly
described in Exhibit B hereto (the "Escrow  Items").  The amount of the Escrowed
Purchase Price and the terms and  conditions  relating to the Escrow Items shall
also be agreed upon by the parties as contemplated under Section 2.2 hereof.

         1.3.     Allocations.

                  (a) The Final  Purchase  Price (as defined and  determined  in
accordance  with Exhibit A hereto) shall be allocated  among the Shares relating
to each Company and the other assets being  acquired or utilized by the Buyer as
provided  in Section 2 hereof in the manner to be agreed  upon by the parties on
or prior to the Closing Date.

                  (b) The Final  Purchase  Price shall be allocated  among,  and
distributed  to, the  Sellers  and the Parent  pro rata in  accordance  with the
percentages  set  forth  opposite  the name of each  Seller  and the  Parent  on
Schedule C hereto (as to each such party, such party's "Pro Rata Share").

         2.  LICENSING AND OTHER MATTERS.

         2.1.  Datapoint Name.

                  (a) On the Closing Date (as defined in Section 3 hereof), each
of the Parent and any other entity which is a direct or indirect  Subsidiary  of
the Parent and which has included in its corporate name the name  "Datapoint" or
any  derivative or variation  thereof,  shall (i) have delivered to the Buyer an
executed  Certificate of Amendment or other amending  document to its respective
Certificate of  Incorporation  or other charter or  constitutional  documents in
form and substance satisfactory to the parties  (collectively,  the "Name Change
Certificates"), suitable for filing with the Office of the Secretary of State of
the State of  Delaware  or the  particular  governmental  office  located in the
country or jurisdiction  of  organization of any such other entity,  as the case
may be,  effecting a change of its  respective  corporate name to a new name not
including the name "Datapoint" or any derivative or variation thereof,  and (ii)
have  executed and  delivered to the Buyer an  Assignment  in form and substance
satisfactory to the parties (the "Name Assignment") pursuant to which the Parent
and each such other  entity shall  transfer  and assign all of their  respective
right, title and interest in and to the name "Datapoint" to the Buyer.
<PAGE>

                  (b) On the Closing  Date,  the Buyer shall grant to the Parent
and any other entity which is a direct or indirect  Subsidiary of the Parent and
which has included in its corporate name the name  "Datapoint" or any derivative
or variation  thereof,  a limited license in form and substance  satisfactory to
the parties (the  "Datapoint  License") for the  "Datapoint"  name to permit the
Parent and each such other  entity to utilize the  "Datapoint"  name on existing
stationery,  inventory and marketing and  promotional  materials for the limited
purpose of enabling the Parent and each such other entity to dispose of existing
stationery, inventory and marketing and promotional materials which utilize such
trademark, as more particularly provided in the Datapoint License.

         2.2. Outstanding  Ancillary Issues. The parties shall negotiate in good
faith so that on or prior to the  Closing  Date they shall have  agreed upon the
following matters:

                  (a) the Purchase Price Adjustment Provisions;

                  (b) the  terms  and  conditions  of the  Indemnity  Escrow
                      Agreement, the Escrowed Purchase Price and
                      the Escrow Items;

                  (c) the terms and conditions of a license  agreement  relating
                      to the so-called "RMS Operating System" and certain other
                      intellectual property utilized by the Parent and its
                      Affiliates (the "IP License Agreement");

                  (d) the matters described on Exhibits C and D hereto; and

                  (e) the arrangement regarding the entities listed on Exhibit E
                      hereto,  the  outstanding  capital stock of which is not
                      being  purchased by the Buyer hereunder.

     2.3. European Distribution  Business. On the Closing Date, included as part
of the  transactions  contemplated  hereby,  the Buyer is  acquiring  all of the
assets relating to the so-called "European Distribution Business."

         3.  CLOSING.

         3.1. Time and Place. The closing of the purchase and sale of the Shares
and the delivery of the other assets being  acquired or utilized by the Buyer as
provided in Sections  2.1 and 2.2 hereof  (the  "Closing")  shall be held at the
offices of Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts, at 10:00
a.m. on a mutually  acceptable date not later than December 31, 1999, or at such
other place as the Buyer and the Parent may agree. The date on which the Closing
is actually  held  hereunder  is  sometimes  referred to herein as the  "Closing
Date."

     3.2.  Transactions  at Closing.  At the  Closing,  in addition to any other
instruments or documents referred to herein:

                  (a) Each Seller shall deliver to the Buyer,  free and clear of
any lien, claim or encumbrance, the Shares for each Company owned by such Seller
in accordance with the procedures set forth on Schedule 3.2 hereto.

                  (b) The Parent and its  appropriate  Affiliates  shall execute
and deliver to the Buyer such bills of sale or other instruments of transfer and
assignment as the Buyer may reasonably request in order to transfer to the Buyer
any of the other  assets  being  acquired  by the Buyer  pursuant  to  Section 2
hereof.

                  (c) The Buyer shall deliver the Escrowed Purchase Price to the
Escrow Agent by wire transfer.

                  (d) The Buyer shall deliver to each Seller and the Parent such
party's Pro Rata Share of the  remainder of the Closing  Purchase  Price by wire
transfer.

                  (e) The Buyer  shall pay to the Parent  the  $650,000  amount
contemplated under Section 12.2(b) hereof.

                  (f) Each of the parties  hereto shall execute and deliver each
of the agreements and documents  required to be signed by such party pursuant to
Sections 7 and 8 hereof.
<PAGE>

         4.  REPRESENTATIONS  AND WARRANTIES OF THE SELLERS AND THE PARENT.  The
parties hereto agree as follows with respect to this Section 4:

                  (a) In connection with the  representations and warranties set
forth in this Section 4,  attached to this  Agreement  is a Disclosure  Schedule
setting forth certain  information  and  exceptions to the  representations  and
warranties  relating to each  Company.  For ease of  reference,  the  Disclosure
Schedule is  organized  in a manner to provide all  disclosure  information  and
materials  relating to each Company in a separate Part, and each Section of each
Part corresponds to the identical subsection of this Section 4.

                  (b) Notwithstanding anything to the contrary set forth in this
Agreement,  all of the  representations  and  warranties  set forth in  Sections
4.6(b), 4.7(b), 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19,
4.20,  4.21,  4.22,  4.23,  4.24,  4.25,  4.27,  4.28, 4.29, 4.30, 4.31 and 4.34
(herein collectively,  the "Operational Reps and Warranties"), are being made by
the Parent and the Sellers only to, and are qualified in their  entirety by, the
Knowledge  of the Parent (as  defined in Section 13  hereof).  None of the other
representations  and warranties set forth in this Section 4 is being made by the
Parent and the Sellers to, or is qualified  in any respect by, the  Knowledge of
the Parent.

     (c) Subject to the qualifications set forth in clause (b) above:

     (i) As  they  relate  to  each  Company,  all of  the  representations  and
warranties  set forth in this Section 4 are being made jointly and  severally by
the Parent and each Seller which is the holder of any Shares of such Company and
not by any other Seller;

     (ii)  As  they  relate  to  each  Seller,  all of the  representations  and
warranties  set forth in this Section 4 are being made jointly and  severally by
the Parent and such Seller and not by any other Seller; and

     (iii)  As  they  relate  to the  Parent,  all of  the  representations  and
warranties set forth in this Section 4 are being made solely by the Parent.

         Accordingly,  subject  to the  terms  and  conditions  set forth in the
preamble to this Section 4, the Sellers and the Parent  represent and warrant to
the Buyer as follows:

         4.1. Organization of Companies;  Authority. The Parent, each Seller and
each Company is a corporation duly organized,  validly existing and in corporate
good  standing  (if  applicable)  under the laws of its  respective  country  of
organization  as set  forth  in  Section  4.1 of  each  Part  of the  Disclosure
Schedule.  Each  Company is duly  qualified  and in good  standing  as a foreign
corporation in all  jurisdictions in which the character of the properties owned
or  leased  or  the  nature  of  the  activities  conducted  by  it  makes  such
qualification  necessary,  except where the failure to be so qualified would not
have a Material  Adverse  Effect (as defined in Section 13 hereof).  The Sellers
have  delivered  to the Buyer  complete  and  correct  copies of the  respective
charter or other constitutional documents and By-Laws, to the extent applicable,
and all  amendments  thereto,  of each  Company.  Each Company has all requisite
power and authority to own or lease and operate its  properties  and to carry on
its business as such business is now conducted.

         4.2. Corporate Approval; Binding Effect. The Parent and each Seller has
obtained all necessary authorizations and approvals from its respective Board of
Directors or other governing body required for the execution and delivery of the
Transaction  Documents  (as defined in Section 13 hereof) to which it is a party
and the  consummation  of the  transactions  contemplated  hereby  and  thereby.
Subject to obtaining the  requisite  approval of the Parent's  stockholders  and
bondholders  as  contemplated  under  Section  6 hereof  or  other  governmental
approvals  set  forth in  Section  4.2 of each part of the  Disclosure  Schedule
("Governmental  Approvals"),  each of the  Transaction  Documents  to which each
Seller and the Parent is a party has been or will be duly executed and delivered
by each Seller and the Parent and  constitutes or will  constitute when executed
and  delivered  the legal,  valid and binding  obligation of such Seller and the
Parent,  enforceable  against them in accordance  with its terms,  except as the
enforceability   thereof   may  be   limited  by  any   applicable   bankruptcy,
reorganization,  insolvency or other laws affecting  creditors' rights generally
or by general principles of equity.

         4.3.  Subsidiaries.  Except as set forth in Section 4.3 of each Part of
the Disclosure Schedule,  no Company has any Subsidiaries (as defined in Section
13  hereof),  owns or holds  legally  and/or  beneficially  any  shares or other
securities  of any class in the capital of any  corporations,  or owns any legal
and/or beneficial  interests in any partnerships,  limited liability  companies,
business  trusts  or joint  ventures  or in any  other  unincorporated  trade or
business enterprises.

         4.4. Capitalization. The authorized and/or registered share capital, as
applicable, of each Company, and the issued and outstanding shares of which, are
set forth in Section  4.4 of each Part of the  Disclosure  Schedule.  All of the
Shares are owned legally and  beneficially  by the Sellers as set forth opposite
the names of such Sellers on Schedule C hereto,  and all such Shares are validly
issued and outstanding, fully paid and non-assessable.  There are no commitments
for the  purchase  or sale of,  and no  options,  warrants  or other  rights  to
subscribe  for or purchase any,  shares of capital stock or other  securities of
any Company.

         4.5.  Title to  Stock,  Liens,  etc.  Each  Seller  has,  and as of the
consummation  of the  Closing  the  Buyer  will  have,  full and sole  legal and
beneficial  ownership  of all of the Shares set forth  opposite the name of such
Seller on  Schedule  C hereto,  free and clear of any  mortgage,  lien,  pledge,
charge,  security  interest,  encumbrance,  title retention  agreement,  option,
equity or other  adverse  claim  thereto,  except  as set forth in the  Parent's
Indenture (as defined in Section  6.15(a) hereof) or Section 4.5 of each Part of
the Disclosure Schedule.
<PAGE>

         4.6.  Non-Contravention.

         (a)  Subject  to  obtaining  the  requisite  approval  of the  Parent's
stockholders  and  bondholders  as  contemplated  under  Section 6 hereof or any
Governmental  Approvals,  the  execution  and delivery by each of the Parent and
each  Seller  of the  Transaction  Documents  to which  each is a party  and the
consummation  by  each  of the  Parent  and  each  Seller  of  the  transactions
contemplated  thereby will not (i) violate or conflict with any provision of the
Certificate  of  Incorporation,  other  charter or  constitutional  documents or
By-Laws of the Parent or any Seller, each as amended to date; or (ii) constitute
a violation of, or be in conflict with, or constitute or create a default under,
or result in the creation or imposition of any encumbrance  upon any property of
any of the Parent or any Seller  pursuant to (A) any  agreement or instrument to
which  any  such  party is a party  or by  which  any  such  party or any of its
properties is bound or subject,  or (B) any statute,  judgment,  decree,  order,
regulation  or  rule  of any  court  or  governmental  or  regulatory  authority
applicable to the Parent or any Seller.

         (b)  Subject  to  obtaining  the  requisite  approval  of the  Parent's
stockholders  and  bondholders  as  contemplated  under  Section 6 hereof or any
Governmental  Approvals,  except as set forth on Section  4.6(b) of each Part of
the  Disclosure  Schedule,  the execution and delivery by each of the Parent and
each  Seller  of the  Transaction  Documents  to which  each is a party  and the
consummation  by  each  of the  Parent  and  each  Seller  of  the  transactions
contemplated  thereby will not (i) violate or conflict with any provision of the
charter or constitutional  documents or By-Laws or any Company,  each as amended
to  date;  or (ii)  constitute  a  violation  of,  or be in  conflict  with,  or
constitute or create a default under, or result in the creation or imposition of
any encumbrance  upon any property of any Company  pursuant to (A) any agreement
or  instrument to which any Company is a party or by which any Company or any of
its properties is bound or subject, or (B) any statute, judgment, decree, order,
regulation  or  rule  of any  court  or  governmental  or  regulatory  authority
applicable to any Company.

         4.7.  Governmental Consents; Transferability of Licenses, Etc.

         (a) Except as set forth on Section  4.2 of each Part of the  Disclosure
Schedule,  and  assuming  the  accuracy  of  the  Buyer's   representations  and
warranties   set  forth  in  Section  5.6  hereof,   no  consent,   approval  or
authorization   of,  or   registration,   qualification   or  filing  with,  any
governmental agency or authority,  is required for the execution and delivery by
each Seller and the Parent of the Transaction Documents to which each is a party
or for the  consummation  by each  Seller  and the  Parent  of the  transactions
contemplated thereby.

         (b) Each Company has and maintains, and Section 4.7 of each Part of the
Disclosure Schedule lists as to each Company, all material licenses, permits and
other authorizations from all governmental  authorities as are necessary for the
conduct  by  each  Company  of  it  respective  business.  Except  as  expressly
designated  in Section  4.7 of each Part of the  Disclosure  Schedule,  all such
licenses,  permits  and  authorizations  will  remain in full  force and  effect
immediately following the consummation of the transactions contemplated hereby.

         4.8.  Financial  Statements.  The Parent has  delivered  the  following
financial  statements (the "Financial  Statements") to the Buyer,  and there are
included  in  Section  4.8 of each  Part  of the  Disclosure  Schedule:  (a) the
separately  unaudited  balance sheet of each Company as of January 31, 1999, and
the related  statements of income and retained  earnings of each Company for the
six-month period then ended, and (b) the separately  unaudited  balance sheet of
each  Company as of May 1, 1999,  and the  related  consolidated  statements  of
income and  retained  earnings of each  Company for the  nine-month  period then
ended;  provided,  that (i) with respect to the Financial Statements relating to
Datapoint  Nederland B.V., such statements are  consolidated  with its corporate
parent, Datapoint Beheer B.V., and (ii) with respect to the Financial Statements
relating to Datapoint  U.K. Ltd.,  such  statements  are  consolidated  with its
corporate parent Datapoint Holdings,  Ltd. Each of the Financial  Statements has
been prepared in accordance  with United States  generally  accepted  accounting
principles  applied on a basis consistent with historical  practice  (subject to
the absence of footnotes and to normal  recurring  year-end audit  adjustments);
each of such balance  sheets  fairly  presents the  financial  condition of each
Company as of its respective  date;  and such  statements of income and retained
earnings  fairly  present the  results of  operations  for the  periods  covered
thereby.

         4.9. Absence of Certain Changes.  Except as set forth in Section 4.9 of
each Part of the  Disclosure  Schedule or in any other Section of the Disclosure
Schedule,  since  January 31, 1999 each Company has carried on its business only
in the  ordinary  course,  and there has not been (a) any change in the  assets,
liabilities,  sales,  income or business of any Company or in its  relationships
with suppliers,  customers or lessors, other than changes which were both in the
ordinary course of business and have not had a Material Adverse Effect;  (b) any
acquisition or disposition by any Company of any asset or property other than in
the  ordinary  course of  business  that is  material  to the  business  of such
Company;  (c) any  damage,  destruction  or  loss,  whether  or not  covered  by
insurance, having a Material Adverse Effect; (d) any declaration,  setting aside
or  payment  of any  dividend  or any  other  distributions  in  respect  of any
Company's capital stock; (e) any increase in the compensation,  pension or other
benefits  payable or to become  payable by any Company to any of its officers or
employees,  or any bonus  payments or  arrangements  made to or with any of them
(other than pursuant to the terms of any existing  written  agreement or plan of
which the Buyer has been supplied complete and correct copies or in the ordinary
course of such Company's  business);  (f) any forgiveness or cancellation of any
debt or claim by any Company or any waiver of any right of material  value other
than compromises of accounts receivable in the ordinary course of business;  (g)
any entry by any Company into any transaction  other than in the ordinary course
of  business;   (h)  any  incurrence  by  any  Company  of  any  obligations  or
liabilities,  whether  absolute,  accrued,  contingent or otherwise  (including,
without  limitation,  liabilities  as  guarantor  or  otherwise  with respect to
obligations of others),  other than obligations and liabilities  incurred in the
ordinary course of business;  (i) any mortgage,  pledge,  lien, lease,  security
interest  or other  charge or  encumbrance  on any of the  assets,  tangible  or
intangible, of any Company (other than liens for Taxes (as defined in Section 13
hereof) which are not yet due and payable); or (j) any discharge or satisfaction
by any  Company of any lien or  encumbrance  or  payment by such  Company of any
obligation or liability (fixed or contingent) other than (A) current liabilities
included in the Financial Statements, and (B) current liabilities incurred since
the date of the Financial Statements in the ordinary course of business.

         4.10. Litigation, Etc. Except as set forth in Section 4.10 of each Part
of the Disclosure  Schedule,  no action,  suit,  proceeding or  investigation is
pending or overtly threatened,  relating to or affecting the business, assets or
financial  condition  of any  Company,  or which  questions  the validity of the
Transaction Documents or challenges any of the transactions  contemplated hereby
or thereby,  nor is there any basis for any such  action,  suit,  proceeding  or
investigation.

         4.11.  Conformity  to Law.  Except as set forth in Section 4.11 of each
Part of the Disclosure Schedule,  each Company has substantially complied in all
material  respects with, and is in compliance in all material respects with, all
foreign,  federal, state and local laws, statutes,  governmental regulations and
all judicial or administrative tribunal orders,  judgments,  writs, injunctions,
decrees or similar  commands  applicable  to its  business  (including,  without
limitation,  any labor,  occupational health, zoning or other law, regulation or
ordinance  but  excluding  environmental  laws which are covered in Section 4.13
hereof).  Except as set  forth in  Section  4.11 of each Part of the  Disclosure
Schedule,   no  Company  has  committed,   been  charged  with,  or  been  under
investigation  with  respect  to, nor does there  exist,  any  violation  of any
provision  of any  foreign,  federal,  state  or  local  law  or  administrative
regulation  in respect of such  Company or its  respective  business,  assets or
operations.
<PAGE>

         4.12. Title to Assets. Except as set forth in Section 4.12 of each Part
of the  Disclosure  Schedule and except for liens for Taxes that are not yet due
and payable or  delinquent  or are being  contested  in good faith and for which
adequate  reserves have been established on a Company's  financial  books,  each
Company is the  lawful  owner of and has good and valid  record  and  marketable
title  to  all of its  respective  properties  and  assets,  including,  without
limitation, all those reflected on the balance sheets contained in the Financial
Statements of such Company (other than any such properties or assets sold in the
ordinary  course of such  Company's  business  after  the dates of such  balance
sheets),  free and clear of any  security  interests,  liens,  claims,  charges,
options, mortgages, debts, leases (or subleases),  conditional sales agreements,
title retention  agreements,  encumbrances of any kind,  material  defects as to
title or  restrictions  against the  transfer or  assignment  thereof.  All such
properties and assets are in good condition and repair (reasonable wear and tear
excepted)  and are  adequate  and  sufficient  to carry on the  business of each
Company as presently conducted.

         4.13.  Real Property and Environmental Matters.

                  (a) Section 4.13 of each Part of the Disclosure  Schedule sets
forth complete and accurate legal  descriptions  of all real property  leased by
each  Company (the "Real  Property").  No Company  owns any Real  Property.  The
Sellers have  delivered to the Buyer a true,  correct and complete  copy of each
lease of Real Property,  and except as set forth in Section 4.13 of each Part of
the Disclosure  Schedule,  no material  defaults by any Company exist under such
leases.  None of the Parent,  the Seller or any Company has  received any notice
that  either the whole or any portion of the Real  Property is to be  condemned,
requisitioned or otherwise taken by any applicable governmental, local or public
authority.  There  are no  public  improvements  which  may  result  in  special
assessments against or otherwise affect the Real Property.

     (b)  Except as set  forth in  Section  4.13 of each Part of the  Disclosure
Schedule:

                           (i) No Company nor any operator of any real  property
         presently  leased or operated by any Company is in violation or alleged
         violation  of any  judgment,  decree,  order,  law,  license,  rule  or
         regulation  pertaining  to  environmental   matters,  or  any  foreign,
         federal, state or local statute, regulation, ordinance, order or decree
         relating   to   health,   safety   or  the   environment   (hereinafter
         "Environmental Laws");

                           (ii) None of the  Parent,  any Seller or any  Company
         has  received   notice  from  any  third  party,   including,   without
         limitation,   any  foreign,   federal,   state  or  local  governmental
         authority,  (A) that any hazardous waste, any hazardous substance,  any
         pollutant  or  contaminant  or any toxic  substance,  oil or  hazardous
         material or other chemical or substance (including, without limitation,
         asbestos in any form, urea formaldehyde or  polychlorinated  biphenyls)
         regulated by any Environmental Laws ("Hazardous Substances"), which any
         Company or any  predecessor in interest has  generated,  transported or
         disposed  of has been  found at any site at which a  foreign,  federal,
         state or local agency or other third party has conducted or has ordered
         that the  Seller or any  predecessor  in  interest  conduct a  remedial
         investigation,  removal  or  other  response  action  pursuant  to  any
         Environmental  Law;  or (B)  that any  Company  or any  predecessor  in
         interest  is or shall be a named party to any claim,  action,  cause of
         action,  complaint,  (contingent or otherwise) legal or  administrative
         proceeding  arising  out of any  third  party's  incurrence  of  costs,
         expenses,  losses or damages of any kind  whatsoever in connection with
         the release of Hazardous Substances;

                           (iii) (A) No portion of any real  property  presently
         or formerly owned,  leased or operated by any Company has been used for
         the  handling,  manufacturing,   processing,  storage  or  disposal  of
         Hazardous Substances except in accordance with applicable Environmental
         Laws;  and no  underground  storage tank for  Hazardous  Substances  is
         located  on  such  properties;  (B) in  the  course  of any  activities
         conducted by each Company or operators of any real  property  presently
         or formerly  owned,  leased or operated by each  Company,  no Hazardous
         Substances  have been  generated  or are being used on such  properties
         except in accordance with applicable  Environmental  Laws; (C) all real
         properties  presently  or  formerly  owned,  leased or operated by each
         Company are free from  contamination  by Hazardous  Substances of every
         kind, including, without limitation,  groundwater, surface water, soil,
         sediment and air contamination,  and such properties do not contain any
         Hazardous  Substances,  except  in each  case to the  extent  that  the
         presence of Hazardous  Substances on such  properties  does not violate
         any  applicable  Environmental  Laws;  (D) there have been no  releases
         (i.e.,  any past or  present  releasing,  spilling,  leaking,  pumping,
         pouring,  emitting,   emptying,   discharging,   injecting,   escaping,
         disposing or dumping) or  threatened  releases of Hazardous  Substances
         on, upon,  into or from any real property  presently or formerly owned,
         leased or operated by any Company except in accordance  with applicable
         Environmental  Laws;  (E) there  have  been no  releases  of  Hazardous
         Substances on, upon,  from or into any real property in the vicinity of
         any real property  presently  leased or operated by any Company  which,
         through soil or groundwater contamination,  may have come to be located
         on such real property except for Hazardous Substances whose presence on
         such real property does not violate any applicable  Environmental Laws;
         and (F) in addition,  any Hazardous Substances that have been generated
         on any real property  presently leased or operated by each Company have
         been transported offsite only by carriers having identification numbers
         issued by the applicable governmental authorities and have been treated
         or disposed of only by  treatment  or disposal  facilities  maintaining
         valid permits as required under  applicable  Environmental  Laws, which
         transporters  and facilities  have been and are operating in compliance
         with such permits and applicable Environmental Laws; and
<PAGE>

                           (iv) No Real Property  presently or formerly owned or
         leased  by any  Company  is or  shall  be  subject  to  any  applicable
         environmental cleanup  responsibility law or environmental  restrictive
         transfer law or  regulation,  by virtue of the  transactions  set forth
         herein and contemplated hereby.

                  (c)  Attached  as part  of  Section  4.13 of each  Part of the
Disclosure Schedule is a list of all documents, reports, site assessments, data,
communications or other materials,  in the possession of the Parent,  any Seller
or any Company or to which it has access, which contain any material information
with respect to potential  environmental  liabilities  associated  with any real
property  presently  or  formerly  owned,  leased or operated by any Company and
relating to compliance with Environmental Laws or the environmental condition of
such properties and adjacent properties. The Sellers have furnished to the Buyer
complete and accurate copies of all of the documents, reports, site assessments,
data,  communications and other materials listed in Section 4.13 of each Part of
the Disclosure Schedule.

         4.14.  Equipment.  Section 4.14 of each Part of the Disclosure Schedule
sets  forth a  complete  and  accurate  list of all of the fixed  assets of each
Company other than items having a book or market value individually of less than
$1,000.  All such fixed  assets are  utilized  by each  Company in the  ordinary
course of business.

         4.15.  Insurance.  Section 4.15 of each Part of the Disclosure Schedule
lists all policies of fire, liability,  workmen's  compensation,  life, property
and  casualty  and  other  insurance  owned  or held by each  Company.  All such
policies of insurance (a) are maintained  with  financially  sound and reputable
insurance  companies,  funds or underwriters and are of the kinds and cover such
risks and are in such amounts and with such  deductibles  and  exclusions as are
consistent with prudent business practice, (b) are in full force and effect, (c)
are sufficient for material  compliance by each Company with all requirements of
law and all  agreements to which each Company is a party,  (d) provide that they
will remain in full force and effect through the  respective  dates set forth in
Section 4.15 of each Part of the  Disclosure  Schedule,  and (e) will not in any
way be  affected  by, or  terminate  or lapse by  reason  of,  the  transactions
contemplated  by this  Agreement.  No Company is in default  with respect to its
obligations  under  any of such  insurance  policies  and has not  received  any
notification  of  cancellation  of any such  insurance  policies.  No  insurance
carrier has denied  coverage for any claim asserted by any Company since January
1, 1997.

         4.16.  Contracts.  Section 4.16 of each Part of the Disclosure Schedule
sets forth a complete and accurate  list of all  contracts to which each Company
is a party or by which  each  Company  is bound  or to  which  each  Company  is
subject,  except (a) contracts  entered into in the ordinary  course of business
after the date hereof and prior to the Closing,  which will be identified to the
Buyer in writing prior to the Closing,  (b) contracts  terminable by any Company
upon thirty (30) days' notice or less without the payment of any termination fee
or  penalty,  and (c)  contracts  listed  in other  Sections  of the  Disclosure
Schedule.  As used in this Section 4.16, the word "contract"  means and includes
every agreement or understanding of any kind,  written or oral, which is legally
enforceable by or against any Company,  and specifically  includes (a) contracts
and other  agreements  with any current or former officer,  director,  employee,
consultant or shareholder or any partnership,  corporation, joint venture or any
other entity in which any such person has an interest;  (b) agreements  with any
labor union or association  representing  any employee;  (c) contracts and other
agreements  for the  provision of services by each  Company;  (d) bonds or other
security  agreements  provided by any party in  connection  with the business of
each  Company;  (e) contracts  and other  agreements  for the sale of any of any
Company's  material  assets or properties  other than in the ordinary  course of
business or for the grant to any person of any  preferential  rights to purchase
any of the assets or  properties of any Company;  (f) joint  venture  agreements
relating to the assets, properties or business of each Company or by or to which
each  Company  or any of its  assets or  properties  are bound or  subject;  (g)
contracts or other  agreements  under which each Company agrees to indemnify any
party,  to share Tax liability of any party,  or to refrain from  competing with
any party; (h) any contracts or other agreements with regard to Indebtedness (as
defined in Section 13  hereof);  or (i) any other  contract  or other  agreement
whether  or not made in the  ordinary  course  of  business.  The  Sellers  have
delivered to the Buyer true,  correct and complete copies of all such contracts,
together with all modifications and supplements  thereto.  Each of the contracts
listed in Section  4.16 of each Part of the  Disclosure  Schedule  or any of the
other  Sections  in the  Disclosure  Schedule  is in full force and  effect,  no
Company is in breach of any of the material provisions of any such contract, nor
is any other  party to any such  contract  in default  thereunder,  nor does any
event or condition  exist which with notice or the passage of time or both would
constitute  a default  thereunder.  Each  Company has in all  material  respects
performed all obligations required to be performed by it to date under each such
contract.  Subject to  obtaining  any  necessary  consents by the other party or
parties  to any  such  contract  (the  requirement  of any  such  consent  being
reflected in Section 4.16 of each Part of the Disclosure Schedule),  no contract
includes any provision  the effect of which may be to enlarge or accelerate  any
obligations of the Buyer after the consumption of the transactions  contemplated
hereby or give additional rights to any other party thereto or will in any other
way be  affected  by, or  terminate  or lapse by  reason  of,  the  transactions
contemplated by this Agreement.
<PAGE>

         4.17.  Compensation  of and Contracts with  Employees.  Section 4.17 of
each Part of the Disclosure  Schedule sets forth a complete and accurate list in
all material  respects of each full-time  employee of each Company and the rate,
character and amount of the  compensation  being provided to such employee as of
July 31, 1999.  Except as listed in Section 4.17 of each Part of the  Disclosure
Schedule,  no Company has any employment  agreement,  written or oral,  with any
currently  active  employee,  including  any  agreement  to provide any bonus or
benefit to any such  employee.  Except as set forth in Section 4.17 of each Part
of the  Disclosure  Schedule,  since  January 31, 1999,  no Company has made any
pension, bonus or other payment, other than base salary or pursuant to the terms
of any existing  written  agreement or plan to which such Company is a party, or
become  obligated  to make any such  payment,  to any  employee of any  Company.
Except as set forth in Section 4.17 of each Part of the Disclosure Schedule,  no
Company has outstanding loans or advances to employees.

         4.18.  Employee Benefit Plans.

                  (a) Except for the  arrangements  set forth in Section 4.18 of
each Part of the  Disclosure  Schedule,  no Company now maintains or contributes
to, and has not in the current or preceding six (6) calendar years maintained or
contributed to, any pension, profit-sharing, deferred compensation, bonus, stock
option, share appreciation right, severance, group or individual health, dental,
medical,   life  insurance,   survivor  benefit,  or  similar  plan,  policy  or
arrangement,  whether  formal or  informal,  for the  benefit  of any  director,
officer,  consultant or employee,  whether active or terminated,  of any Seller.
Each  of the  arrangements  set  forth  in  Section  4.18  of  each  Part of the
Disclosure Schedule is hereinafter referred to as an "Employee Benefit Plan."

                  (b) The Sellers have  heretofore  delivered to the Buyer true,
correct and complete copies of each Employee  Benefit Plan of each Company,  and
with respect to each such Plan (i) any associated trust, custodial, insurance or
service agreements,  and (ii) any annual report, actuarial report, or disclosure
materials  (including  specifically any summary plan descriptions)  submitted to
any  governmental   agency  or  distributed  to  participants  or  beneficiaries
thereunder in the current or the preceding calendar year.

                  (c) Each  Employee  Benefit  Plan is and has  heretofore  been
maintained  and operated in compliance  with the terms of such Plan and with the
requirements  prescribed (whether as a matter of substantive law or as necessary
to secure  favorable tax  treatment) by any and all  statutes,  governmental  or
court orders,  or governmental  rules or regulations in effect from time to time
and applicable to such Plan.

     (d)  Except as set  forth in  Section  4.18 of each Part of the  Disclosure
Schedule:

                           (i) there is no pending or  threatened  legal action,
         proceeding or  investigation,  other than routine  claims for benefits,
         concerning  any  Employee  Benefit  Plan or any  fiduciary  or  service
         provider  thereof,  and there is no basis for any such legal  action or
         proceeding;

                           (ii) no communication,  report or disclosure has been
         made which, at the time made, did not accurately  reflect the terms and
         operations of any Employee Benefit Plan;

                           (iii)  no  Employee  Benefit  Plan  provides  welfare
         benefits  subsequent to termination of employment to employees or their
         beneficiaries; and

                           (iv)  no  Company  has  undertaken  to  maintain  any
         Employee  Benefit  Plan for any  period  of time and each  such Plan is
         terminable at the sole discretion of the sponsor thereof,  subject only
         to such constraints as may be imposed by applicable law.

                  (e) With  respect to each  Employee  Benefit  Plan for which a
separate  fund of assets is or is required to be  maintained,  full  payment has
been made of all amounts that each Company is required,  under the terms of each
such Plan, to have paid as  contributions to that Plan as of the end of the most
recently ended plan year of that Plan, and no  accumulated  funding  deficiency,
whether or not waived,  exists with respect to any such Plan.  The current value
of the  assets of each such  Employee  Benefit  Plan,  as of the end of the most
recently ended plan year of that Plan, exceeded the current value of all accrued
benefits under that Plan.

                  (f) The execution of this  Agreement and the  consummation  of
the transactions  contemplated hereby will not result in any payment (whether of
severance pay or otherwise)  becoming due from any Employee  Benefit Plan to any
current or former  director,  officer,  consultant or employee of any Company or
result in the vesting, acceleration of payment or increases in the amount of any
benefit  payable  to or in  respect  of any such  current  or  former  director,
officer, consultant or employee.
<PAGE>

                  (g)      No Employee Benefit Plan is a multi-employer plan.

         4.19. Labor Relations. Except as set forth in Section 4.19 of each Part
of the  Disclosure  Schedule,  each  Company is in  compliance  in all  material
respects with all foreign,  federal,  state and local laws respecting employment
and employment  practices,  terms and conditions of employment,  wages and hours
and  nondiscrimination  in  employment,  and is not engaged in any unfair  labor
practice.  Except as set forth in  Section  4.19 of each Part of the  Disclosure
Schedule,  there is no charge pending or threatened against any Company alleging
unlawful  discrimination in employment practices before any court or agency, and
there is no charge of or  proceeding  with regard to any unfair  labor  practice
against  any  Company  pending  before  any  court,  regulatory  agency or other
authority.  There  is no  labor  strike,  dispute,  slow-down  or work  stoppage
actually pending or, threatened against or involving any Company.  Except as set
forth in Section  4.19 of each Part of the  Disclosure  Schedule,  no person has
petitioned  within the last three (3) years,  and no person is now  petitioning,
for union representation of any employees of any Company. Except as set forth in
Section  4.19  of  each  Part  of  the  Disclosure  Schedule,  no  grievance  or
arbitration  proceeding  arising  out  of or  under  any  collective  bargaining
agreement  is  pending  against  any  Company  and no  claim  therefor  has been
asserted.  Except as described  in Section  4.19 of each Part of the  Disclosure
Schedule,  none of the  employees  of any  Company is covered by any  collective
bargaining agreement,  and no collective bargaining agreement is currently being
negotiated  by any  Company.  Except as fully  described in Section 4.19 of each
Part of the Disclosure  Schedule,  no Company has  experienced any work stoppage
during the last five (5) years.

         4.20.  Trademarks,  Patents,  Etc.  Section  4.20 of  each  Part of the
Disclosure  Schedule sets forth a complete and accurate list of (a) all patents,
trademarks,  trade names, service marks and copyrights registered in the name of
each Company or used or proposed to be used by each  Company,  all  applications
therefor,  and all  licenses  (as  licensee or  licensor)  and other  agreements
relating thereto,  and (b) all written agreements  relating to other technology,
know-how and processes which each Company is licensed or authorized by others to
use or which each Company has licensed or authorized  for use by others.  Except
to the extent set forth in Section 4.20 of each Part of the Disclosure  Schedule
and except as otherwise  contemplated under Section 2 hereof,  each Company owns
or has the sole and exclusive right to use all patents,  trademarks, trade names
and  copyrights,  and has the right without  restrictions to use all technology,
know-how and processes, used or necessary for the ordinary course of business as
presently  conducted  or proposed to be  conducted,  and such rights will not be
adversely affected by the consummation of the transactions  contemplated hereby.
No claims have been asserted, and no claims are pending, by any Person regarding
the use of any such patents,  trademarks,  trade names, copyrights,  technology,
know-how  or  processes,   or  challenging   or  questioning   the  validity  or
effectiveness  of any  license  or  agreement,  and,  there is no basis for such
claim.  The use by  each  Company  of such  patents,  trademarks,  trade  names,
copyrights, technology, know-how or processes in the ordinary course of business
does not infringe on the rights of any Person.

         4.21.  Suppliers  and  Customers.  Section  4.21  of  each  Part of the
Disclosure  Schedule  sets  forth the ten (10)  largest  suppliers  and ten (10)
largest  customers of each  Company as of the date  hereof,  based on the dollar
amount of sales for each Company's 1998 fiscal year. The  relationships  of each
Company  with  such  suppliers  and  customers  are  good   commercial   working
relationships.  Except  as set  forth  in  Section  4.21  of  each  Part  of the
Disclosure  Schedule,  no supplier or  customer  of material  importance  to any
Company's  business has  cancelled or otherwise  terminated,  or  threatened  to
cancel or otherwise to terminate,  its  relationship  with such Company,  or has
during the last twelve (12) months decreased  materially,  or overtly threatened
to decrease or limit materially, its services,  supplies or materials for use in
such Company's business, or its usage or purchase of the services or products of
such  Company  except  for  normal   cyclical   changes  related  to  customers'
businesses.  No such  supplier  or  customer  intends  to  cancel  or  otherwise
substantially modify its relationship with any Company or to decrease materially
or limit its  services,  supplies or materials  to any Company,  or its usage or
purchase of any Company's  services or products,  and the  communication  of the
transactions  contemplated  hereby will not adversely affect the relationship of
any Company with any such supplier or customer.

         4.22. Accounts Receivable.  Except as set forth in Section 4.22 of each
Part of the Disclosure  Schedule and with respect to the  Intercompany  Accounts
(as defined in Section 13 hereof),  all accounts and notes receivable  reflected
in the  Financial  Statements,  and all  accounts and notes  receivable  arising
subsequent to the respective  dates thereof,  have arisen in the ordinary course
of business,  represent valid obligations  owing to each Company,  and have been
collected or are  collectible in the aggregate  recorded  amounts  thereof (less
amounts for doubtful accounts reflected in the Financial  Statements,  or in the
case of any accounts and notes receivable  arising  subsequent to the respective
dates thereof, less amounts for doubtful accounts consistent with each Company's
past practice) in accordance with their terms.

         4.23. No Undisclosed Liabilities. Except to the extent (a) reflected or
reserved  against in the  Financial  Statements,  (b)  incurred in the  ordinary
course of business after the dates of the Financial Statements, (c) described in
the Disclosure  Schedule,  including Section 4.23 of each Part of the Disclosure
Schedule,  or (d) with respect to the Intercompany  Accounts, no Company has any
liabilities or obligations of any nature, whether accrued, absolute,  contingent
or otherwise  (including  without  limitation  as  guarantor  or otherwise  with
respect to  obligations  of others),  other than  performance  obligations  with
respect to each  Company's  contracts that would not be required to be reflected
or reserved against on a balance sheet prepared in accordance with United States
generally accepted accounting principles, or in the footnotes thereto.
<PAGE>

         4.24.   Taxes.  Each  Company  has  duly  filed  with  the  appropriate
government  agencies all of the income,  sales,  use,  employment  and other Tax
returns  and  reports  required  to be filed by it. No waiver of any  statute of
limitations  relating to Taxes has been  executed or given by any  Company.  All
Taxes, assessments, fees and other governmental charges upon any Company or upon
any of their properties,  assets, revenues, income and franchises which are owed
by each Company with respect to any period  ending on or before the Closing Date
have been paid,  other than those  Taxes not due and  payable as of the  Closing
Date.  Each Company has  withheld and paid all Taxes  required to be withheld or
paid in  connection  with  amounts  paid or  owing  to any  employee,  creditor,
independent  contractor  or third party.  Except as disclosed in Section 4.24 of
each Part of the Disclosure Schedule,  no Tax return of any Company is currently
under audit by any taxing  authority.  No taxing  authority is now  asserting or
threatening  to  assert  against  any  Company,  any  deficiency  or  claim  for
additional Taxes or interest thereon or penalties in connection therewith or any
adjustment that would have an adverse effect on any Company.

         4.25. Inventory.  The inventory and supplies of each Company are within
normal inventory "turn" levels  consistent with past practice,  are adequate for
such Company's present needs, and are in usable and applicable  condition in the
ordinary course of business.

         4.26. Broker. Except for Dain Rauscher Wessels,  neither the Seller nor
the Parent has  retained,  utilized or been  represented  by any broker,  agent,
finder or intermediary in connection with the negotiation or consummation of the
transactions contemplated by this Agreement.

         4.27.  Potential Conflicts of Interest.  Except as set forth in Section
4.27  of  each  Part  of  the  Disclosure  Schedule,  no  officer,  director  or
stockholder  (or  Affiliate  thereof)  of any  Company  (a)  owns,  directly  or
indirectly,  any  interest in  (excepting  not more than 5% stock  holdings  for
investment  purposes in securities of publicly held and traded  companies) or is
an  officer,  director,  employee  or  consultant  of  any  Person  which  is  a
competitor,  lessor,  lessee,  customer or supplier of such  Company;  (b) owns,
directly or indirectly, in whole or in part, any tangible or intangible property
which such Company is using or the use of which is necessary for the business of
such Company;  or (c) has any cause of action or other claim whatsoever against,
or owes any amount to, such Company, except for claims in the ordinary course of
business,  such as for accrued  vacation pay,  accrued  benefits  under Employee
Benefit Plans and similar matters and agreements.

         4.28.  Indebtedness.  Except for Indebtedness described in Section 4.28
of  each  Part of the  Disclosure  Schedule,  no  Company  has any  Indebtedness
outstanding  as of the date hereof.  Except as disclosed in Section 4.28 of each
Part of the  Disclosure  Schedule,  no Company is in default with respect to any
outstanding  Indebtedness  or any  instrument  relating  thereto.  Complete  and
correct  copies  of all  instruments  (including  all  amendments,  supplements,
waivers and  consents)  relating to any  Indebtedness  of each Company have been
furnished to the Buyer.

         4.29. Bank Accounts,  Signing Authority,  Powers of Attorney. Except as
set forth in Section 4.29 of each Part of the  Disclosure  Schedule,  no Company
has an account  or safe  deposit  box in any bank,  and no Person has any power,
whether  singly or  jointly,  to sign any  checks on behalf of any  Company,  to
withdraw any money or other  property from any bank,  brokerage or other account
of any Company,  or to act under any power of attorney granted by any Company at
any time for any purpose.  Section 4.29 of each Part of the Disclosure  Schedule
hereto also sets forth,  the names of all persons  authorized to borrow money or
sign notes on behalf of each Company.

         4.30.  Year 2000 Warranty.  Except as described on Section 4.30 of each
Part of the  Disclosure  Schedule,  Year  2000  Processing  by any  software  or
computer-controlled  device that is owned,  operated or used for purposes of the
internal management information systems of each Company's business will not have
a Material  Adverse Effect;  provided,  however,  that this  representation  and
warranty  shall not  apply to any  hardware  or  software  which has been  sold,
serviced or  maintained  by any Company to or for any customer of such  Company.
For purposes of this Section 4.30,  the term "Year 2000  Processing"  shall mean
the processing  (including  calculating,  comparing,  sequencing,  displaying or
storing),  transmitting  or receiving of date data,  from,  into and between the
20th and 21st countries, and during years 1999 and 2000 leap year calculations.

         4.31.  Minute Books. The minute books of each Company made available to
the Buyer for  inspection,  to the extent each such  Company  maintains a minute
book,  accurately  record  therein all material  actions  taken by the Boards of
Directors and shareholders of each Company.
<PAGE>

         4.32. Ancillary Assets and Business. Except for the respective business
conducted  by the  Companies  and the  Shares,  and except  with  respect to the
businesses  conducted  by the entities  listed on Exhibit E hereto,  none of the
Parent,  any  Seller  or any of  their  respective  Affiliates  (other  than the
Companies) has any material assets used in or relating to the business conducted
by the Companies, nor do they conduct any material business in Europe.

         4.33. Sophistication of the Sellers and the Parent. The Sellers and the
Parent are  represented  by legal counsel in connection  with this Agreement and
the transactions  contemplated hereby, and the Sellers and the Parent are not in
a disparate bargaining position relative to the Buyer.

         4.34.  Disclosure.  No  representation or warranty by the Parent or any
Seller  in  this  Agreement  or in any  exhibit,  schedule,  written  statement,
certificate or other document delivered or to be delivered to the Buyer pursuant
hereto or in connection with the consummation of the  transactions  contemplated
hereby contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact required to be stated therein or necessary
to make the statements contained therein not misleading or necessary in order to
provide  the Buyer with  proper and  complete  information  as to the  business,
condition, operations and prospects of each Company. Notwithstanding anything to
the contrary set forth herein, the Sellers and the Parent make no representation
or  warranty  with  respect  to any  projections,  forecasts  or  business  plan
information  with respect to the Companies  relating to periods  before or after
the date of this Agreement,  except as otherwise made in the representations and
warranties set forth in Section 4 hereof or in the Disclosure  Schedule relating
thereto.

     5.  REPRESENTATIONS  AND WARRANTIES OF THE BUYER.  The Buyer represents and
warrants to the Sellers as follows:

         5.1. Organization of Buyer; Authority.  The Buyer is a corporation duly
organized, validly existing and in corporate good standing under the laws of the
State of Delaware.  The Buyer has all  requisite  power and authority to execute
and deliver the  Transaction  Documents  to which it is a party and to carry out
all of the actions  required  of it  pursuant  to the terms of such  Transaction
Documents.

         5.2.  Corporate  Approval;  Binding Effect.  The Buyer has obtained all
necessary   authorizations  and  approvals  from  its  Board  of  Directors  and
stockholders  required  for  the  execution  and  delivery  of  the  Transaction
Documents  to  which  it is a party  and the  consummation  of the  transactions
contemplated hereby and thereby.  Each of the Transaction Documents to which the
Buyer is a party has been or will be duly  executed  and  delivered by the Buyer
and constitutes or will constitute when executed and delivered the legal,  valid
and binding obligation of the Buyer, enforceable against the Buyer in accordance
with  its  terms,  except  as  enforceability  thereof  may  be  limited  by any
applicable  bankruptcy,  reorganization,  insolvency  or  other  laws  affecting
creditors' rights generally or by general principles of equity.
<PAGE>

         5.3. Non-Contravention.  The execution and delivery by the Buyer of the
Transaction  Documents to which it is a party and the  consummation by the Buyer
of the transactions  contemplated  thereby will not (a) violate or conflict with
any provisions of the Certificate of Incorporation or By-Laws of the Buyer, each
as amended to date; or (b)  constitute a violation  of, or be in conflict  with,
constitute or create a default under, or result in the creation or imposition of
any lien  upon any  property  of the  Buyer  pursuant  to (i) any  agreement  or
instrument  to which  the  Buyer is a party or by which  the Buyer or any of its
properties  is bound or to which the Buyer or any of its  properties is subject,
or (ii) any statute, judgment, decree, order, regulation or rule of any court or
governmental or regulatory authority applicable to the Buyer.

         5.4. Governmental  Consents. No consent,  approval or authorization of,
or  registration,  qualification  or filing  with,  any  governmental  agency or
authority  is  required  for the  execution  and  delivery  by the  Buyer of the
Transaction  Documents  to which it is a party  or for the  consummation  by the
Buyer of the transactions contemplated hereby or thereby.

         5.5. Broker.  The Buyer has not retained,  utilized or been represented
by any  broker,  agent,  finder or other  intermediary  in  connection  with the
negotiation or consummation of the transactions contemplated by this Agreement.

5.6. Securities Law Matters. The Buyer (a) has assets of $5,000,000 or more; (b)
has knowledge of and  experience  in financial and business  matters that enable
the Buyer to evaluate the merits and risks of the  transactions  contemplated by
this  Agreement;  (c) has had  access  to all  financial,  corporate  and  other
information related to the Companies and their businesses and operations and has
had the  opportunity  to interview and question the  management of the Companies
concerning the Companies and their businesses and operations; (d) is represented
by legal counsel in connection  with this Agreement and such  transactions;  and
(e) is not in a disparate  bargaining  position  relative to the Sellers and the
Parent.

5.7. Information Relating to Companies. Notwithstanding anything to the contrary
set forth in this Agreement, in connection with the Buyer's investigation of the
Companies, the Buyer has received from the Parent, the Sellers and the Companies
certain projections, forecasts and business plan information relating to periods
before or after the date of this  Agreement.  The Buyer agrees and  acknowledges
that there are uncertainties inherent in attempting to make such projections and
other forecasts and plans,  that the Buyer is familiar with such  uncertainties,
that the Buyer is taking full  responsibility  for making its own  evaluation of
the adequacy and accuracy of all  projections  and other  forecasts and plans so
furnished  to it, and that the Buyer  shall have no claim  against any Seller or
the Parent or any other Person with  respect  thereto in the absence of fraud by
such Seller or the Parent,  except in the case of any of the foregoing contained
in the  representations  and  warranties set forth in Section 4 hereof or in the
Disclosure Schedule relating thereto.

         6. CONDUCT OF BUSINESS BY THE COMPANIES  PENDING  CLOSING.  The Sellers
and the  Parent  covenant  and  agree  that,  from  and  after  the date of this
Agreement and until the Closing,  except as otherwise  specifically consented to
or approved by the Buyer in writing:

         6.1. Full Access. The Sellers and the Parent shall use their reasonable
best  efforts  to cause each  Company to afford to the Buyer and its  authorized
representatives  full access during  normal  business  hours to all  properties,
books,  records,  contracts and documents of each Company and a full opportunity
to make such  reasonable  investigations  as they  shall  desire to make of each
Company,  and the Sellers and the Parent shall  furnish or cause to be furnished
to the  Buyer  and its  authorized  representatives  all such  information  with
respect  to the  affairs  and  businesses  of  each  Company  as the  Buyer  may
reasonably  request;  provided,  that such access shall not be disruptive to the
conduct of business by the Companies;  and, provided further, that any access to
any employee of any Company who is not a member of the senior management of such
Company is conducted in the presence of an individual  who is part of the senior
management of such Company.

         6.2. Carry on in Regular  Course.  The Sellers and the Parent shall use
their  reasonable  best  efforts to cause each Company to maintain its owned and
leased  properties  in good  operating  condition  and  repair,  and to make all
necessary  renewals,  additions and  replacements  thereto,  and to carry on its
business  diligently and  substantially in the same manner as heretofore and not
make or institute any unusual or novel methods of manufacture,  purchase,  sale,
lease, management, accounting or operation.
<PAGE>

         6.3. No General  Increases.  The Sellers and the Parent shall use their
reasonable best efforts to not permit, other than as described on the Disclosure
Schedule  or in the  ordinary  course of  business  pursuant to the terms of any
existing written  agreement or plan to which any Company is a party, any Company
to grant any  general or uniform  increase in the rates of pay of  employees  of
such Company,  nor grant any general or uniform  increase in the benefits  under
any bonus or pension plan or other  contract or  commitment  to, for or with any
employees;  and the  Sellers  and the  Parent  shall use their  reasonable  best
efforts to not permit any Company to  increase  the  compensation  payable or to
become payable to officers,  key salaried  employees or agents,  or increase any
bonus, insurance, pension or other benefit plan, payment or arrangement made to,
for or with any such officers, key salaried employees or agents.

         6.4. No  Dividends,  Issuances,  Repurchases,  etc. The Sellers and the
Parent  shall use their  reasonable  best  efforts to not permit any  Company to
declare or pay any dividends (whether in cash, shares of stock or otherwise) on,
or make any other  distribution  in respect of, any shares of its capital stock,
or issue, purchase, redeem or acquire for value any shares of its capital stock.

         6.5.  Contracts and  Commitments.  The Sellers and the Parent shall use
their  reasonable  best  efforts  to not  permit  any  Company to enter into any
contract  or  commitment  or  engage  in any  transaction  not in the  usual and
ordinary  course of  business  or not  consistent  with the  customary  business
practices of such Company.

         6.6.  Purchase and Sale of Capital  Assets.  Other than in the ordinary
course of business,  the Sellers and the Parent shall use their  reasonable best
efforts to not permit any Company to purchase  or sell or  otherwise  dispose of
any capital asset with a market value in excess of $1,000,  or of capital assets
of market value aggregating in excess of $5,000.

         6.7.  Insurance.  The Sellers and the Parent shall use their reasonable
best  efforts to cause each  Company to  maintain  the  insurance  described  in
Section 4.15 of each Part of the Disclosure Schedule.

         6.8. Preservation of Organization. The Sellers and the Parent shall use
their  reasonable  best efforts to cause each Company to use its reasonable best
efforts (which shall not include (a) any obligation to pay any additional  money
unless such  obligation is triggered,  pursuant to the express terms of any then
binding  agreement  (which  agreement  provides for a liquidated  amount of such
obligation,  or the exact amount of such obligation is determinable  pursuant to
an express  formula  contained  therein or the  application of the express terms
thereof), by the transactions  contemplated  hereunder, or (b) any obligation to
restructure the terms of any then existing customer or supplier relationship) to
preserve its business organization intact consistent with past practice, to keep
available to the Buyer the present key  officers  and  employees of such Company
consistent  with past  practice,  and to  preserve  for the  Buyer  the  present
relationships  of such  Company's  key suppliers and customers and others having
key business relations with such Company consistent with past practice.
<PAGE>

         6.9. No Default.  The Sellers and the Parent shall use their reasonable
best  efforts to not permit any  Company to do any act or omit to do any act, or
permit any act or  omission  to act,  which will cause a material  breach of any
contract, commitment or obligation of such Company.

         6.10.  Compliance with Laws. The Sellers and the Parent shall use their
reasonable best efforts to cause each Company to comply in all material respects
with all laws,  regulations and orders applicable with respect to its respective
business.

         6.11.  Advice of Change.  The  Sellers  and the  Parent  will use their
reasonable  best  efforts to  promptly  advise the Buyer in writing of any event
which has a Material Adverse Effect.

         6.12. No Shopping.  The Sellers and the Parent shall not, and shall use
their  reasonable  best  efforts to not permit any  Company to,  negotiate  for,
solicit or enter into any agreement  with respect to the sale or transfer of the
Shares, or any substantial  portion of the assets of any Company,  or any merger
or other  business  combination  of any Company to or with any Person other than
the Buyer.

         6.13. Consents of Third Parties. The Sellers and the Parent will employ
their reasonable best efforts (which shall not include (a) any obligation to pay
any  additional  money  unless such  obligation  is  triggered,  pursuant to the
express  terms of any then binding  agreement  (which  agreement  provides for a
liquidated amount of such obligation,  or the exact amount of such obligation is
determinable pursuant to an express formula contained therein or the application
of the express terms thereof), by the transactions  contemplated  hereunder,  or
(b) any  obligation to restructure  the terms of any then binding  agreement) to
secure, before the Closing Date, the consent, in form and substance satisfactory
to  the  Buyer  and  its  counsel,  to  the  consummation  of  the  transactions
contemplated  by  this  Agreement  by  each  party  to  any  material  contract,
commitment or obligation of each Company,  under which such  transactions  would
constitute  a default,  would  accelerate  obligations  of such Company or would
permit cancellation of any such contract.

         6.14. Satisfaction of Conditions Precedent.  The Sellers and the Parent
will use  their  reasonable  best  efforts  (which  shall  not  include  (a) any
obligation  to pay any  additional  money unless such  obligation  is triggered,
pursuant to the express  terms of any then binding  agreement  (which  agreement
provides for a liquidated amount of such obligation, or the exact amount of such
obligation is determinable  pursuant to an express formula  contained therein or
the application of the express terms thereof), by the transactions  contemplated
hereunder,  or (b) any obligation to  restructure  the terms of any then binding
agreement)  to cause the  satisfaction  of the  conditions  precedent  contained
herein.

     6.15. Stockholder and Bondholder Meeting and Proxy Statement of Parent.

                  (a) As  promptly as  practicable  after the date  hereof,  the
Parent shall  schedule a meeting of the Parent's  stockholders  and  bondholders
(the "Parent  Meeting") to seek approval from (i) the Parent's  stockholders  to
approve (A) the  Parent's  Name  Change  Certificate,  and (B) the  transactions
contemplated by the Transaction Documents,  and (ii) the Parent's bondholders to
approve the amendments to that certain Indenture (the "Indenture") in connection
with  those  certain  debentures  of  the  Parent  dated  as  of  June  1,  1981
(collectively, the "Meeting Purpose").
<PAGE>

                  (b) As  promptly as  practicable  after the date  hereof,  the
Parent  shall  prepare and file with the  Securities  Exchange  Commission  (the
"SEC")  under  the  Securities  Exchange  Act  of  1934  (the  "Exchange  Act"),
preliminary   proxy  materials  for  the  purpose  of  soliciting   proxies  for
stockholder  and  bondholder  approval  of the  Meeting  Purpose  at the  Parent
Meeting.  Such  proxy  materials,  together  with  any  accompanying  letter  to
stockholders  and  bondholders,  notice of meeting  and form of proxy,  shall be
referred to herein as the "Proxy Statement." The Parent shall respond to any SEC
comments on the Proxy  Statement  and shall  otherwise use its  reasonable  best
efforts (which shall not include (i) any obligation to pay any additional  money
unless such  obligation is triggered,  pursuant to the express terms of any then
binding  agreement  (which  agreement  provides for a liquidated  amount of such
obligation,  or the exact amount of such obligation is determinable  pursuant to
an express  formula  contained  therein or the  application of the express terms
thereof), by the transactions  contemplated hereunder, or (ii) any obligation to
restructure  the terms of any then binding  agreement) to resolve as promptly as
practicable all SEC comments on the Proxy  Statement to the  satisfaction of the
SEC and the reasonable  satisfaction  of the Parent.  If the SEC comments on the
Proxy Statement cannot be resolved to the reasonable satisfaction of the Parent,
the  Parent  shall be  entitled  to  withdraw  the  Proxy  Statement.  The Proxy
Statement shall be reasonably acceptable in form and substance to the Buyer.

                  (c) The Buyer shall supply all information regarding the Buyer
required to be included with respect to the Buyer in the Proxy  Statement  under
the Exchange Act and applicable rules and regulations  thereunder and applicable
provisions of the Delaware General Corporation Law (the "Proxy Rules").

                  (d) Promptly  following the resolution to the  satisfaction of
the SEC and the reasonable satisfaction of the Parent of all SEC comments on the
Proxy  Statement (or the  expiration  of the ten-day  period under Rule 14a-6(a)
under the  Exchange  Act, if no SEC  comments  are  received by such date),  the
Parent shall  distribute the Proxy Statement to its stockholders and bondholders
and,  pursuant  thereto,  call the Parent  Meeting in accordance  with the Proxy
Rules and solicit  proxies from the Parent's  stockholders  and  bondholders  to
obtain  approval of the Meeting  Purpose.  The Proxy Statement shall include the
recommendation  of the Board of  Directors of the Parent in favor of the Meeting
Purpose;  provided,  however,  that the Board of  Directors  of the  Parent  may
withdraw or modify  such  recommendation  if it  believes  in good faith,  after
consultation  with  its  outside  legal  counsel,  that the  withdrawal  of such
recommendation  is necessary  for it to comply with its  fiduciary  duties under
applicable law.

                  (e) The Parent shall comply in all material  respects with all
Proxy Rules in the preparation,  filing and distribution of the Proxy Statement,
the solicitation of proxies thereunder and the calling and holding of the Parent
Meeting.  Without limiting the foregoing, the Parent shall ensure that the Proxy
Statement  does not, as of the date on which it is  distributed  to the Parent's
stockholders  and bondholders and as of the date of the Parent Meeting,  contain
any  untrue  statement  of a  material  fact or omit to  state a  material  fact
necessary in order to make the  statements  made, in light of the  circumstances
under which they were made, not  misleading  (provided that the Parent shall not
be responsible for the accuracy or completeness of any information  furnished in
writing by or on behalf of the Buyer for inclusion in the Proxy Statement).  The
Buyer  shall  supply  the  information  reasonably  requested  by the Parent for
inclusion  in the Proxy  Statement.  The  information  supplied by the Buyer for
inclusion in the Proxy  Statement  shall not, on the date filed with the SEC and
on the date first  published,  sent or given to the  Parent's  stockholders  and
bondholders,  contain any untrue  statement of a material  fact or omit to state
any material  fact  required to be stated  therein or necessary in order to make
the  statements  therein,  in light of the  circumstances  under which they were
made, not misleading. Each of the Buyer, on the one hand, and the Parent and the
Sellers, on the other hand, agrees promptly to correct any information  provided
by it for use in the Proxy  Statement  if and to the  extent  that it shall have
become false and  misleading  in any material  respect,  and the Parent  further
agrees to take all steps  necessary to cause the Proxy Statement as so corrected
to be  filed  with the SEC and to be  disseminated  to the  stockholders  of the
Parent,  in each  case  as and to the  extent  required  by  applicable  federal
securities laws.
<PAGE>

         7. CONDITIONS PRECEDENT TO BUYER'S  OBLIGATIONS.  The obligation of the
Buyer to consummate the Closing shall be subject to the satisfaction at or prior
to the Closing of each of the following  conditions (to the extent noncompliance
is not waived in writing by the Buyer):

         7.1.    Representations   and   Warranties   True   at   Closing.   The
representations and warranties made by the Sellers and the Parent in or pursuant
to this Agreement  shall be true and correct in all material  respects at and as
of the  Closing  Date with the same effect as though  such  representations  and
warranties had been made or given at and as of the Closing Date; it being agreed
that for  purposes of this  Section  7.1 only (and for no other  purpose of this
Agreement,  including, without limitation, the provisions of Section 10 hereof),
such  representations  and warranties  shall be deemed to be true and correct in
all material respects at and as of the Closing Date, notwithstanding that one or
more of such  representations  and  warranties may be untrue or incorrect in any
material  respect  at and as of  such  time,  unless  any  one or  more  of such
representations  and warranties  being so untrue or incorrect  shall result in a
Material Adverse Effect.

         7.2.  Compliance with Agreement.  The Sellers and the Parent shall have
performed  and complied in all material  respects  with all of their  respective
obligations  under this  Agreement to be performed or complied  with by it on or
prior to the Closing Date.

         7.3. No Material Adverse Change. The business,  assets or properties of
all of the  Companies,  taken as a whole,  shall not have been, and shall not be
threatened  to be,  adversely  affected in any material way as a result of fire,
explosion,  earthquake,  disaster,  labor trouble or dispute, change in business
organization,  any action by the United States or any other foreign governmental
authority,   change  in  technology,   flood,  drought,   embargo,  riot,  civil
disturbance,  uprising,  activity of armed forces or act of God or public enemy.
Since  January 31, 1999,  there shall not have  occurred  any  material  adverse
change in the condition (financial or otherwise), operations, business or assets
of all of the Companies,  taken as a whole, or the imposition of any laws, rules
or regulations which would materially  adversely affect the condition (financial
or otherwise), operations, business or assets of all of the Companies taken as a
whole.

         7.4.  Closing  Certificate.  The  Parent  and each  Seller  shall  have
delivered to the Buyer in writing,  at and as of the Closing, a certificate duly
executed by each such party, in form and substance satisfactory to the Buyer and
the Buyer's counsel, certifying that the conditions in each of Sections 7.1, 7.2
and 7.3 hereof have been satisfied.

         7.5.  Opinion of Counsel.  Pryor Cashman  Sherman & Flynn LLP,  special
counsel to the Sellers, the Parent and the Companies,  and certain other special
European  counsel to the  Companies,  shall have  delivered to the Buyer written
opinions,  addressed  to the  Buyer  and dated  the  Closing  Date,  in form and
substance satisfactory to the parties.

         7.6.  Approvals;   Consents.  All  corporate  and  other  approvals  in
connection with the transactions contemplated by this Agreement and the form and
substance of all certificates and other documents  delivered  hereunder shall be
reasonably satisfactory in form and substance to the Buyer and its counsel.

         7.7. No Litigation.  No restraining  order or injunction  shall prevent
the  transactions  contemplated  by  this  Agreement  and  no  action,  suit  or
proceeding  shall be pending or  threatened  before any court or  administrative
body (a) in which it will be or is  sought to  restrain  or  prohibit  or obtain
damages or other relief in connection with this Agreement or the consummation of
the transactions  contemplated  hereby,  or (b) in connection with any claim for
damages in excess of $100,000  (after the  application  of  available  insurance
proceeds)  against any Company (except for the matters disclosed in Section 4.10
of each Part of the Disclosure Schedule).

         7.8. Financing. The Buyer shall have obtained debt and equity financing
on  terms  satisfactory  to it and  customary  for  transactions  of the  nature
contemplated by this Agreement, providing the Buyer with sufficient funds to pay
the Purchase  Price and all fees and expenses of the Buyer arising in connection
with transactions  contemplated by this Agreement,  and all conditions precedent
to funding under such financing  arrangements  (other than the purchase and sale
contemplated hereby) shall have been satisfied or waived.
<PAGE>

         7.9. Indemnity Escrow Agreement. The Sellers and the Escrow Agent shall
have executed and delivered to the Buyer the Indemnity Escrow  Agreement,  which
Indemnity Escrow Agreement shall be in full force and effect.

         7.10.  Datapoint  Name. The Parent and such of its  Subsidiaries  as is
contemplated  under Section  2.1(a) hereof shall have executed and delivered the
Name Change Certificates and the Name Assignment to the Buyer, which Name Change
Certificates and Name Assignment shall be in full force and effect.

         7.11.  Intentionally Deleted.

         7.12.  Consents of Third Parties.  The Sellers and the Parent will have
obtained the consent, in form and substance reasonably satisfactory to the Buyer
and the Buyer's counsel, to the consummation of the transactions contemplated by
this Agreement by (a) each party to any material contracts or agreement to which
any Company is a party under which such transactions would constitute a default,
would accelerate obligations of any such Company or would permit cancellation of
any such contract or agreement,  and (b) the stockholders and bondholders of the
Parent as contemplated under Section 6.15 hereof.

         7.13.  Proceedings  and  Documents  Satisfactory.  All  proceedings  in
connection  with  the  transactions  contemplated  by  this  Agreement  and  all
certificates  and  documents  delivered  to the  Buyer  in  connection  with the
transactions  contemplated  by  this  Agreement  shall  be  satisfactory  in all
reasonable  respects to the Buyer and the Buyer's  counsel,  and the Buyer shall
have received the originals or certified or other copies of all such records and
documents as the Buyer may reasonably request.

         7.14.  Termination of Intercompany  Accounts.  Any and all Intercompany
Accounts  shall  be  eliminated  in such a  manner  that  results  in no cost or
liability of any nature to the Buyer, the Companies, the Parent and the Sellers.

         7.15.  Termination of Agreements.  Except as  contemplated by Section 2
hereof,  any and all agreements and contracts  between any Seller and the Parent
on the  one  hand,  and  any  Company  on the  other  hand,  including,  without
limitation, all management fee agreements, shall be terminated.

         7.16. Support Agreement.  Each of Asher B. Edelman ("Edelman"),  Gerald
N. Agranoff  ("Agranoff") and Irving Garfinkel shall have executed  delivered to
the Buyer as of the execution and delivery of this Agreement a support agreement
in the form of Exhibit F hereto  pursuant  to which  they shall have  agreed (a)
that at the Parent Meeting they shall vote, and cause to be voted, all shares of
the  Parent's  voting  capital  stock of which he is the record  and  beneficial
owner,  and  all  shares  of he  Parent's  voting  capital  stock  owned  by his
Affiliates,  to approve  the  Meeting  Purpose,  and (b) to be bound by the same
covenants  and  agreements  set  forth in  Sections  9.1 and 9.2  hereof  as are
applicable to the Sellers and the Parent.

         7.17.  Resolution of Outstanding Issues. The Parent and the Buyer shall
have reached  agreement as to the matters set forth in Section 2.2 hereof.  Upon
such agreement, Exhibits A, B, C, D and E hereto shall be completed and shall be
attached as exhibits to this Agreement,  and shall thereupon be binding upon the
parties for all purposes hereof.

         8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS.  The obligation of the
Sellers to consummate  the Closing shall be subject to the  satisfaction,  at or
prior  to the  Closing,  of  each of the  following  conditions  (to the  extent
noncompliance is not waived in writing by the Parent):

         8.1.    Representations   and   Warranties   True   at   Closing.   The
representations and warranties made by the Buyer in this Agreement shall be true
and correct in all material respects at and as of the Closing Date with the same
effect as though such  representations  and warranties had been made or given at
and as of the Closing Date.

         8.2.  Compliance  with  Agreement.  The Buyer shall have  performed and
complied  in all  material  respects  with  all of its  obligations  under  this
Agreement  that are to be  performed  or complied  with by it at or prior to the
Closing.

         8.3. Closing Certificate. The Buyer shall have delivered to the Sellers
in  writing,  at and as of the  Closing,  a  certificate  duly  executed  by the
President of the Buyer, in form and substance satisfactory to the Parent and the
Parent's counsel,  to the effect that the conditions in each of Sections 8.1 and
8.2 hereof have been satisfied.
<PAGE>

         8.4. Opinion of Counsel.  Bingham Dana LLP, counsel to the Buyer, shall
have  delivered  to the Sellers a written  opinion,  dated the Closing  Date and
addressed to the Sellers, in form and substance satisfactory to the parties.

         8.5. No Litigation.  No restraining  order or injunction  shall prevent
the  transactions  contemplated  by  this  Agreement  and  no  action,  suit  or
proceeding  shall be pending or  threatened  before any court or  administrative
body in which it will be or is sought to restrain or prohibit or obtain  damages
or other relief in connection  with this  Agreement or the  consummation  of the
transactions contemplated hereby.

         8.6.  Indemnity  Escrow  Agreement.  The Buyer shall have  executed and
delivered the Escrow  Agreement,  which Indemnity  Escrow  Agreement shall be in
full force and effect.

         8.7.  Proceedings  and  Documents  Satisfactory.   All  proceedings  in
connection  with  the  transactions  contemplated  by  this  Agreement  and  all
certificates  and  documents  delivered  to the Sellers in  connection  with the
transactions  contemplated  by  this  Agreement  shall  be  satisfactory  in all
reasonable  respects to the Parent and its counsel,  and the Sellers  shall have
received  the  originals  or  certified  or other copies of all such records and
documents as the Seller may reasonably request.

         8.8. Management  Representation Letters. The Buyer shall have caused to
be delivered to the Parent (a) on the date hereof,  (i) a Representation  Letter
in the form of Exhibit G-1 hereto from each member of Management  (as defined in
Section  13  hereof),  and  (ii) a  Representation  Letter  and  Indemnification
Agreement in the form of Exhibit H-1 hereto from Mr. Blake Thomas, the President
of the Parent  ("Thomas"),  and (b) on the Closing Date, (i) a bring-down letter
in the form of Exhibit  G-2 hereto from each  member of  Management,  and (ii) a
bring-down  letter in the form of  Exhibit  H-2  hereto  from  Thomas;  it being
agreed,  however, by the Parent and the Sellers that they shall have no recourse
against any member of Management or any Company  solely on account of any breach
of the Representation  Letters and bring-down letters delivered to the Parent by
the members of Management as described above.

         8.9.  Datapoint  License.  The Buyer shall have delivered to the Parent
and such of its Subsidiaries as is contemplated  under Section 2.1(b) hereof the
Datapoint License, which Datapoint License shall be in full force and effect.

         8.10.  Termination of Intercompany  Accounts.  Any and all Intercompany
Accounts  shall  be  eliminated  in such a  manner  that  results  in no cost or
liability of any nature to the Buyer, the Companies, the Parent and the Sellers.

         8.11.   Stockholder  and  Bondholder  Approval.  The  stockholders  and
bondholders of the Parent shall have approved the transactions set forth in this
Agreement as contemplated under Section 6.15 hereof.

         8.12.  Resolution of Outstanding Issues. The Parent and the Buyer shall
have reached  agreement as to the matters set forth in Section 2.2 hereof.  Upon
such agreement, Exhibits A, B, C, D and E hereto shall be completed and shall be
attached as exhibits to this Agreement,  and shall thereupon be binding upon the
parties for all purposes hereof.
<PAGE>

         9.  CERTAIN COVENANTS.

         9.1.  Confidentiality.  Each of the Sellers  and the Parent  recognizes
that by reason of the Sellers'  ownership of the Companies,  the Sellers and the
Parent have  acquired and possess  confidential  information  and trade  secrets
concerning the  operations and business of the Companies,  the use or disclosure
of which could cause the Companies  substantial  loss and damages that could not
be  readily  calculated  and for  which no  remedy  at law  would  be  adequate.
Accordingly,  each of the Sellers and the Parent shall not, and shall not permit
any of their  Subsidiaries or Affiliates to, at any time after the Closing Date,
except with the prior  written  consent of the Buyer,  directly  or  indirectly,
disclose any trade secret or confidential information relating to the Companies,
or use any such  information  in a manner  detrimental  to the  interests of any
Company or the Buyer,  unless (a) such  information  becomes known to the public
generally  through  no  fault  of any  Seller  or the  Parent,  or any of  their
Subsidiaries  or  Affiliates,  (b) disclosure is required by law or the order of
any governmental authority, or (c) the disclosing party reasonably believes that
such  disclosure is required in  connection  with the  preparation  of the Proxy
Statement or the defense of a lawsuit  against the disclosing  party;  provided,
that prior to  disclosing  any  information  pursuant to clause (a),  (b) or (c)
above,  except with respect to  information  included in the Proxy  Statement or
disclosed to the SEC in connection  therewith,  the Sellers and the Parent shall
give prior  written  notice  thereof to the Buyer and provide the Buyer with the
opportunity  to contest  such  disclosure  and shall  cooperate  with efforts to
prevent such disclosure.  As used herein,  the term  "confidential  information"
includes,  without  limitation,   information  with  respect  to  any  Company's
products, services and facilities, methods, trade secrets and other intellectual
property,  software,  source code, systems,  procedures,  manuals,  confidential
reports,  product and service price lists, customer lists, financial information
(including the revenues,  costs or profits  associated with any of the Company's
products or services),  business plans,  prospects or  opportunities,  but shall
specifically exclude any information already in the public domain.

         9.2.  Non-Competition.  Each of the Sellers and the Parent acknowledges
that the covenants and agreements in this Section 9.2 are a condition  precedent
to the Buyer's  obligations  to acquire  the Shares from the Sellers  under this
Agreement,  and  that  the  Buyer  would  not  acquire  the  Shares  but for the
agreements  of the Sellers and the Parent  with the Buyer in this  Section  9.2.
Each of the Sellers,  the Parent and the Buyer  acknowledges that from and after
the Closing Date the Buyer will sell products and services to customers  located
in markets throughout  Europe,  North America and South America (the "Prohibited
Area"),  and that any  engagement  by any  Seller,  the  Parent  or any of their
Subsidiaries or Affiliates in the Designated  Industry (as hereinafter  defined)
could cause the Buyer and the Companies irreparable damage.  Accordingly,  for a
period from the Closing Date until the fifth  anniversary  of the Closing  Date,
each of the Sellers and the Parent  shall not, and shall not permit any of their
Subsidiaries  or Affiliates to, without the prior written  consent of the Buyer,
(i) engage anywhere in the Prohibited Area, directly or indirectly,  alone or as
a  shareholder  (other than as a holder of less than 5% of the capital  stock of
any  publicly-traded  corporation),  partner,  officer,  director,  employee  or
consultant,  in any business  organization that is engaged or becomes engaged in
the business of selling or providing (x) telephony, call-center,  dataprocessing
or networking products or services,  including,  without  limitation,  telephone
switches and dialers, personal computers, servers, printers and other peripheral
hardware and software used in connection  therewith,  or (y) business consulting
services with respect to the foregoing (the  "Designated  Industry");  provided,
that the  Designated  Industry  shall not  include  the  business  of  providing
internet  or  cybernet  networking  solutions,  including,  without  limitation,
hardware,  software and consulting services related thereto,  (ii) divert to any
competitor of any Company,  the Buyer or any of their Affiliates or Subsidiaries
any customer of any Company,  the Buyer or such Affiliates or  Subsidiaries,  or
(iii) solicit or encourage  any officer,  employee or consultant of any Company,
the Buyer or any of their  Affiliates or  Subsidiaries to leave their employ for
employment  by  or  with  any  Seller,  the  Parent  or  their  Subsidiaries  or
Affiliates,  or any  competitor  of any  Company  or any of the  Buyer's  or any
Company's  Affiliates  or  Subsidiaries.  If at any time the  provisions of this
Section 9.2 shall be  determined  to be invalid or  unenforceable,  by reason of
being vague or  unreasonable  as to area,  duration or scope of  activity,  this
Section 9.2 shall be considered  divisible  and shall become and be  immediately
amended to only such area, duration and scope of activity as shall be determined
to be reasonable and enforceable by the court or other body having  jurisdiction
over the matter;  and the Sellers and the Parent  agree that this Section 9.2 as
so amended  shall be valid and  binding as though any  invalid or  unenforceable
provision had not been included herein. Notwithstanding anything to the contrary
set forth in this Section 9.2,  Edelman and his Affiliates shall not be bound or
restricted  by the  provisions  of this  Section  9.2 so long as  Edelman is not
involved in any manner, directly or indirectly, in any operational capacity with
any Person which is engaged in the Designated  Industry in the Prohibited  Area;
it being agreed that for purposes  hereof,  if Edelman serves as a non-executive
director or a non-executive chairman of any Person, he shall not be deemed to be
involved in any operational capacity with such Person.

         9.3.  San  Antonio  Employees.  At the  Closing,  the Buyer shall offer
employment to those persons  listed on Schedule E hereto upon the same terms and
conditions  as are in effect and  applicable  to such  persons as of the date of
this Agreement.
<PAGE>

         10.  INDEMNIFICATION.

         10.1.  Indemnity by the Sellers and the Parent.  Subject to the overall
limitations,  minimum  amounts and time  limitations  set forth in Section  10.5
hereof, each Seller and the Parent agree to indemnify and hold the Buyer and the
Companies  harmless  from and with  respect to any and all claims,  liabilities,
losses,  damages,  costs  and  expenses,   including,  without  limitation,  the
reasonable  fees and  disbursements  of counsel  (collectively,  the  "Losses"),
related to or arising directly or indirectly out of any of the following:

                  (a) any  failure  or any breach by any Seller or the Parent of
         any  representation  or warranty,  covenant,  obligation or undertaking
         made by any  Seller or the  Parent  in or  pursuant  to this  Agreement
         (including the Disclosure  Schedules,  or other  Schedules and Exhibits
         hereto)  or  any  other  statement,  certificate  or  other  instrument
         delivered pursuant hereto; and

                  (b) any acts or  omissions  by any  Seller,  the Parent or any
         directors,  officers,  employees  or agents of any Seller or the Parent
         (but not of the Companies) within the Knowledge of the Parent occurring
         on or prior to the Closing Date which causes a Material Adverse Effect.

     With  respect to the nature of the  liability of the Parent and the Sellers
under this Section 10.1 , the parties agree as follows:

                           (i) to the extent  that there are Losses  suffered or
         incurred by the Buyer or any  Company  which arise out of a breach of a
         representation and warranty relating to such Company,  and a particular
         Seller is the sole  holder,  directly or  indirectly,  of the Shares of
         such Company,  such Seller shall be jointly and  severally  liable with
         the Parent for all such Losses;

                           (ii) to the extent that there are Losses  suffered or
         incurred by the Buyer or any  Company  which arise out of a breach of a
         representation  and  warranty  relating to such  Company,  and multiple
         Sellers are the holders,  directly or indirectly, of the Shares of such
         Company,  such Sellers shall be jointly and  severally  liable with the
         Parent for all such Losses;

                           (iii) to the extent that there are Losses suffered or
         incurred  by  the  Buyer  which  do not  arise  out  of a  breach  of a
         representation  and warranty  relating to a Company,  but instead arise
         out of a  breach  of any  representation  and  warranty  set  forth  in
         Sections 4.26, 4.32 or 4.33 hereof),  the Parent shall be solely liable
         for all such Losses;

                           (iv) to the extent that there are Losses  suffered or
         incurred by the Buyer or any  Company  which arise out of a breach by a
         particular  Seller of a covenant,  obligation or undertaking under this
         Agreement,  such Seller shall be jointly and severally  liable with the
         Parent for all such Losses;

                           (v) to the extent  that there are Losses  suffered or
         incurred by the Buyer or any  Company  which arise out of a breach by a
         particular  Seller of a  representation  and warranty  relating to such
         Seller,  such  Seller  shall be jointly and  severally  liable with the
         Parent for all such Losses;

                           (vi) to the extent that there are Losses  suffered or
         incurred  by the Buyer or any  Company  which  arise out of a breach by
         multiple  Sellers of a covenant,  obligation or undertaking  under this
         Agreement,  such Sellers shall be jointly and severally liable with the
         Parent for all such Losses;

                           (vii) to the extent that there are Losses suffered or
         incurred by the Buyer or any Company which arise out of a breach by the
         Parent  alone of a  covenant,  obligation  or  undertaking  under  this
         Agreement, the Parent shall be solely liable for all such Losses; and

                           (viii)  notwithstanding  anything to the contrary set
         forth in the  Section  10,  the  Parent  shall in all  cases be  liable
         (irrespective  of whether one or more Sellers shall also be liable) for
         all Losses  suffered or incurred by the Buyer and the  Companies  under
         this Section 10.
<PAGE>

         10.2.  Indemnity  by the  Buyer.  Subject to the  overall  limitations,
minimum amounts and time limitations set forth in Section 10.5 hereof, the Buyer
agrees to indemnify  and hold the Sellers  harmless from and with respect to any
and all Losses,  related to or arising directly or indirectly out of any failure
or breach by the Buyer of any representation or warranty,  covenant,  obligation
or undertaking made by the Buyer in this Agreement  (including the Schedules and
Exhibits  hereto)  or any  other  statement,  certificate  or  other  instrument
delivered pursuant hereto.

         10.3.  Claims.

                  (a) Notice. Any party seeking  indemnification  hereunder (the
"Indemnified  Party") shall  promptly  notify the other party or parties  hereto
from which such Indemnified Party is entitled to indemnification  hereunder (the
"Indemnifying  Party")  of any  action,  suit,  proceeding,  demand or breach (a
"Claim")  with respect to which the  Indemnified  Party  claims  indemnification
hereunder,  provided that failure of the  Indemnified  Party to give such notice
shall not relieve the Indemnifying  Party of its obligations  under this Section
10 except to the extent, if at all, that such Indemnifying Party shall have been
prejudiced thereby.

(b)      Third Party Claims.

(i) If any Claim relates to any action,  suit,  proceeding or demand  instituted
against the  Indemnified  Party by a third party (a "Third  Party  Claim"),  the
Indemnifying Party shall be entitled to participate in the defense of such Third
Party Claim after  receipt of notice of such claim from the  Indemnified  Party.
Subject to clause (iv) hereof,  within  thirty (30) days after receipt of notice
of a particular  matter from the Indemnified  Party, the Indemnifying  Party may
assume the defense of such Third Party Claim.

     (ii) The Indemnified Party shall retain the right to employ its own counsel
and to participate in the defense of any Third Party Claim, the defense of which
has been assumed by the Indemnifying  Party pursuant hereto, but the Indemnified
Party shall bear and shall be solely  responsible for its own costs and expenses
in connection with such participation.

     (iii) In the event that the Indemnifying  Party, within the thirty (30) day
period provided for in Section 10.3(b)(i) hereof,  does not so elect to defend a
Third Party  Claim,  the  Indemnified  Party will have the right  (upon  further
notice to the  Indemnifying  Party) to  undertake  the  defense,  compromise  or
settlement of such Third Party Claim for the account of the Indemnifying  Party;
provided,  that the Indemnifying  Party shall only be responsible for the amount
paid in respect of the defense,  compromise  or  settlement  of such Third Party
Claim if the Indemnifying Party is ultimately  responsible  therefor pursuant to
the provisions of Section 10.1 hereof.

     (iv) The  Indemnifying  Party may not settle or compromise  any Third Party
Claim over the  objection of the  Indemnified  Party unless such  settlement  or
compromise  fully and  unconditionally  releases the Indemnified  Party from any
restriction,  liability or obligation  related to such Third Party Claim. If the
Indemnifying Party chooses to defend any such Third Party Claim, the Indemnified
Party shall make available to the Indemnifying Party any books, records or other
documents or personnel  within its control that are necessary or appropriate for
such defense.

     (v) The  Indemnifying  Party,  the Indemnified  Party and their  respective
counsel  shall  cooperate in the defense,  compromise or settlement of any Third
Party Claim.

         10.4.  Method and Manner of Paying  Claims.  In the event of any claims
under this  Section 10, the  claimant  shall advise the party or parties who are
required  to  provide  indemnification  therefor  in  writing  of the amount and
circumstances  surrounding  such claim.  With respect to liquidated  claims,  if
within thirty (30) days the other party has not contested such claim in writing,
the other party will pay the full amount  thereof within ten (10) days after the
expiration of such period.  Any amount owed by an  Indemnifying  Party hereunder
with respect to any Claim may be set-off by the  Indemnified  Party  against any
amounts owed by the  Indemnified  Party to any  Indemnifying  Party.  The unpaid
balance of a Claim  shall bear  interest  at a rate per annum  equal to the rate
announced by  BankBoston,  N.A. (or its  successor)  as its "Base Rate" plus two
percent (2%) from the date notice thereof is given by the  Indemnified  Party to
the Indemnifying Party.

         10.5.  Limitations on Indemnification.

                  (a) The Sellers and the Parent on the one hand,  and the Buyer
on the other hand,  shall not be  required to  indemnify  an  Indemnified  Party
hereunder  except to the extent  that the  aggregate  amount of Losses for which
such Indemnified Party is otherwise entitled to indemnification pursuant to this
Section 10 exceeds  $500,000,  whereupon the Indemnified Party shall be entitled
to be paid the excess of (i) the  aggregate  amount of all such Losses over (ii)
$500,000,  subject to the limitations on maximum amount of recovery set forth in
Section 10.5(b) hereof; provided, that Losses (x) related to or arising directly
or indirectly out of any inaccuracies in any  representation or warranty made by
the Sellers and the Parent in Sections 4.4, 4.5, 4.10,  4.13, 4.18, 4.24 or 4.26
hereof, (y) payable with respect to claims for indemnification made with respect
to  Section   10.1(b)   hereof  or  (z)  payable  with  respect  to  claims  for
indemnification under Section 10.1(a) with respect to any breach of any covenant
in this Agreement or in any other Transaction Document delivered pursuant hereto
(collectively,  "Purchase  Price  Limitation  Claims"),  shall be indemnified in
their  entirety  by the  Seller  and the  Parent and shall not be subject to the
limitations set forth in this Section 10.5(a).
<PAGE>

                  (b) The aggregate Losses payable by the Sellers and the Parent
on the one hand,  and the Buyer on the other hand,  pursuant to this  Section 10
with  respect to all  claims  for  indemnification  other  than  Purchase  Price
Limitation Claims shall not exceed $15,000,000.  The aggregate Losses payable by
the  Sellers  and the Parent on the one hand,  and the Buyer on the other  hand,
pursuant to this Section 10 with respect to all claims for indemnification shall
not exceed the Purchase Price.

                  (c) No  Indemnifying  Party  shall be  liable  for any  Losses
pursuant  to this  Section  10 unless a written  claim  for  indemnification  in
accordance  with  Section 10.4 hereof is given by the  Indemnified  Party to the
Indemnifying  Party with respect thereto on or before the date which is eighteen
(18) months after the Closing Date,  except that this time limitation  shall not
apply to any Losses  related to or arising  directly  or  indirectly  out of any
Purchase Price Limitation  Claims (other than any such claims arising out of any
inaccuracies  in the  representation  and  warranty  set forth in  Section  4.10
hereof, as to which the aforesaid eighteen (18) month period shall apply), as to
which in each case the applicable statute of limitations shall apply.

                  (d) After the consummation of the Closing,  neither the Parent
or the Sellers on the one hand, nor the Buyer on the other hand,  shall have any
liability to the other(s) or any of their respective Affiliates,  arising out of
or in connection with this Agreement and the transactions  contemplated  hereby,
except  pursuant  to and in  accordance  with the terms and  conditions  of this
Section 10, or in the case of the fraud of any such party.

         11.  TERMINATION.

         11.1.  Termination.  This Agreement may be terminated as follows:

                  (a) By mutual consent of the Buyer and the Parent at any time.

                  (b) By the  Buyer  giving  written  notice to the  Seller  if,
without fault on the Buyer's part,  the Closing does not occur prior to December
31, 1999 (the "Termination Date").

                  (c) By the  Buyer,  if any of the  conditions  to the  Buyer's
obligations  contained in Section 7 hereof  required to have been  fulfilled (i)
are not  fulfilled as of the  Closing,  or (ii) at any time prior to the Closing
become incapable of being fulfilled, and such failure has not been waived by the
Buyer or cured by the Parent; provided,  however, that the right of the Buyer to
terminate  this Agreement  under this Section  11.1(c) shall not be available to
the Buyer if its failure to fulfill any obligation under this Agreement has been
the cause of, or  resulted  in, the  failure of the  conditions  to the  Buyer's
obligations contained in Section 7 hereof to be fulfilled.

                  (d) By the  Parent  giving  written  notice  to the  Buyer if,
without fault on the Parent's or any Seller's  part,  the Closing does not occur
prior to the Termination Date.

                  (e) By the Parent,  if any of the  conditions  to the Sellers'
obligations  contained in Section 8 hereof  required to have been  fulfilled (i)
are not met as of the Closing,  or (ii) at any time prior to the Closing  become
incapable of being fulfilled,  and such breach or failure has not been waived by
the  Parent  or cured by the  Buyer;  provided,  however,  that the right of the
Parent to  terminate  this  Agreement  under this Section  11.1(e)  shall not be
available to the Parent if its or any Seller's failure to fulfill any obligation
under this  Agreement  has been the cause of, or resulted in, the failure of the
conditions  to the  Sellers'  obligations  contained  in  Section 8 hereof to be
fulfilled.

         11.2.  Effect of  Termination.  Upon the termination of this Agreement,
the  parties  shall have such  remedies  available  to them at law or in equity,
except as otherwise  set forth in this Section  11.2;  provided,  however,  that
neither the  Sellers and the Parent on the one hand,  nor the Buyer on the other
hand,  shall be liable to the other(s) for any  indirect,  special,  incidental,
consequential  or punitive  damages  claimed by the other(s)  resulting from any
such  party's  breach  of  its  obligations,   agreements,   representations  or
warranties hereunder, except in the case of the fraud of any such party(ies). In
the event of termination of this Agreement under any of the  circumstances  that
constitute a Break-Up  Event (as defined in Section 11.3  hereof),  the sole and
exclusive  remedy of the Buyer for the  breach or  failure  by the Seller or the
Parent giving rise to such  Break-Up  Event shall be as provided in Section 11.3
hereof.
<PAGE>

         11.3.  Break-Up Fee.  Promptly after the occurrence of a Break-Up Event
(as  hereinafter  defined),  the Sellers and the Parent,  jointly and severally,
shall pay  immediately  to an account  designated by the Buyer,  in  immediately
available funds, the sum of $2,000,000 (the "Break-Up Fee"). As used herein, the
term "Break-Up Event" shall mean any sale, directly or indirectly, by any Seller
or the Parent of any of the Shares or any assets or business of any Seller,  the
Parent or the Companies  related in any way to the European Business (as defined
in Section 13 hereof),  whether through a sale of assets, sale of stock, merger,
consolidation,  business  combination or otherwise,  or the entering into by any
Seller,  the Parent or any Company of any binding agreement to effectuate any of
the  foregoing,  to or with any Third Party Acquiror (as  hereinafter  defined),
during the period  commencing as of the date of this Agreement and ending on the
date  which  is six (6)  months  after  the  date on  which  this  Agreement  is
terminated  prior to the Closing as provided in Section 11.1 hereof (such period
being referred to herein as the "Break-Up Fee Period");  provided, however, that
notwithstanding the foregoing,  if the Closing is not consummated solely because
the Buyer is unable to obtain  the  financing  contemplated  under  Section  7.8
hereof  prior  to the  Termination  Date,  or if this  Agreement  is  terminated
pursuant to Section 11.1(e) hereof, then the Break-Up Fee Period shall terminate
as of the  Termination  Date.  As used herein,  the term "Third Party  Acquiror"
shall  mean any  party  who has,  directly  or  indirectly,  during  the  period
commencing as of May 17, 1999 and ending on the date on which this  Agreement is
terminated prior to the Closing as provided in Section 11.1 hereof,  (i) offered
to the Seller,  the Parent or any Company,  (ii)  indicated  to the Seller,  the
Parent or any Company  that it  considered  or is  considering  making an offer,
(iii) received an offer or other solicitation from the Seller, the Parent or any
Company to purchase, or (iv) requested any information relating to the potential
acquisition  of, the Shares or any other  assets or business of the Seller,  the
Parent  or  the  Companies  related  in  any  way  to  the  European   Business.
Notwithstanding  the foregoing,  the Buyer shall not be entitled to the Break-up
Fee if this  Agreement has been  terminated by the Seller or the Closing has not
been consummated on account of a breach of this Agreement by the Buyer.

         12.  GENERAL.

         12.1. Survival of Representations  and Warranties.  The representations
and  warranties of the parties  hereto  contained in this Agreement or otherwise
made in writing in connection with the transactions contemplated hereby (in each
case except as  affected by the  transactions  contemplated  by this  Agreement)
shall be deemed material and,  notwithstanding  any  investigation  by the Buyer
(subject to the limitation set forth in Section 10.5(d) hereof), shall be deemed
to have been  relied on by the Buyer and  shall  survive  the  Closing,  and the
consummation of the transactions  contemplated  hereby.  Each representation and
warranty made by the Sellers,  the Parent or the Buyer in this  Agreement  shall
expire on the last day, if any, that Claims for breaches of such  representation
or warranty may be made  pursuant to Section  10.5 hereof,  except that any such
representation  or  warranty  that has been made the subject of a Claim prior to
such  expiration  date shall  survive with respect to such Claim until the final
resolution of such Claim pursuant to Section 10 hereof.

         12.2.  Expenses.

                  (a) All transfer  and sales taxes  payable with respect to the
sale and  conveyance  of the Shares  shall be paid by the  particular  Seller or
Sellers transferring such Shares, as the case may be.

                  (b)  All   expenses   of  the   preparation,   execution   and
consummation  of this  Agreement and of the  transactions  contemplated  hereby,
including,  without limitation,  attorneys',  accountants' and outside advisors'
fees and  disbursements,  shall be borne by the party  incurring  such expenses;
provided,  that upon consummation of the transactions  contemplated  hereby, the
Buyer  shall  pay  to  the  Parent  an  amount,  not  to  exceed  $650,000,   as
reimbursement  to the Parent for the actual amount of fees paid to Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated.

                  (c)  On the  date  of  the  execution  and  delivery  of  this
Agreement,  the Buyer has  deposited the sum of $750,000  (the  "Purchase  Price
Deposit")  in escrow  with the Escrow  Agent  pursuant to the terms of an escrow
agreement,  of even date herewith,  among the Buyer, the Parent, the Sellers and
the Escrow Agent (the "Deposit Escrow Agreement").  Pursuant to the terms of the
Deposit  Escrow  Agreement,  in the event that the Buyer is unable to obtain the
financing  contemplated  under Section 7.8 hereof and solely as a result thereof
is unable to  consummate  the Closing,  and all other  conditions to the Buyer's
obligation to  consummate  the Closing were  otherwise  satisfied (or could have
been satisfied in the usual and customary course) and the Parent and the Sellers
were ready, willing and able to so close, then promptly after the termination of
this  Agreement,  the Buyer  shall  forfeit  to the Parent  the  Purchase  Price
Deposit.  If, however,  the Closing is  consummated,  the Purchase Price Deposit
shall be applied to the Closing Purchase Price otherwise  payable to the Sellers
hereunder.

                  (d) In the event  that the  Parent  is  unable  to obtain  the
approval  of  the  Meeting  Purpose  from  the  Parent's   stockholders   and/or
bondholders  and solely as a result thereof is unable to consummate the Closing,
and all other  conditions to the Sellers'  obligations to consummate the Closing
were  otherwise  satisfied  (or  could  have  been  satisfied  in the  usual and
customary  course) and the Buyer was ready,  willing and able to so close,  then
promptly after the termination of this Agreement, the Parent shall pay the Buyer
the fixed  amount of $375,000  (which  amount  shall be  independent  of, and in
addition to, any amount owing to the Buyer under Section 11.3 hereof).
<PAGE>

         12.3. Notices. All notices,  demands and other communications hereunder
shall be in writing or by written telecommunication, and shall be deemed to have
been duly given if delivered  personally or if mailed by certified mail,  return
receipt requested,  postage prepaid, or if sent by overnight courier, or sent by
written telecommunication, as follows:

         If to any Seller or the Parent, to

                  Datapoint Corporation
                  717 Fifth Avenue, 15th Floor
                  New York, New York 10022
                  Attention:  Gerald N. Agranoff, Esq.
                  Fax:  (212) 750-9329

         with a copy sent contemporaneously to:

                  Selig D. Sacks, Esq.
                  Pryor Cashman Sherman & Flynn LLP
                  410 Park Avenue, 10th Floor
                  New York, New York 10022
                  Fax:  (212) 326-0806

         If to the Buyer, to:

                  Reboot Systems, Inc.
                  c/o Aim High Enterprises
                  600 Longwater Drive, Suite 204
                  Norwell, MA 02061
                  Attention:  John White, President
                  Fax:  (781) 635-1110

         with a copy sent contemporaneously to:

                  Victor J. Paci, Esq.
                  Bingham Dana LLP
                  150 Federal Street
                  Boston, Massachusetts 02110
                  Fax:  (617) 951-8736

         Any such notice shall be effective  (a) if delivered  personally,  when
received,  (b) if sent by overnight courier,  when receipted for, (c) if mailed,
three (3) days after being mailed as described above, and (d) if sent by written
telecommunication, when dispatched.

         12.4.  Entire  Agreement.  This Agreement,  together with the Exhibits,
Schedules and  Disclosure  Schedule,  contains the entire  understanding  of the
parties,  supersedes  all prior  agreements and  understandings  relating to the
subject  matter hereof and shall not be amended  except by a written  instrument
hereafter signed by all of the parties hereto.
<PAGE>

         12.5.  Governing Law. The validity and  construction  of this Agreement
shall be governed by the internal laws (and not the choice-of-law  rules) of the
State of Delaware.

         12.6.  Sections  and Section  Headings.  The  headings of sections  and
subsections  are for  reference  only and shall not limit or control the meaning
thereof.

         12.7. Assigns.  This Agreement,  together with the Exhibits,  Schedules
and Disclosure  Schedule,  shall be binding upon and inure to the benefit of the
parties hereto and their  respective  heirs,  successors and permitted  assigns.
Neither this  Agreement  nor the  obligations  hereunder of the Buyer on the one
hand,  or the Parent or any Seller on the other  hand,  shall be  assignable  or
transferable  by any such party without the prior written  consent of the Buyer,
in the case of any such  assignment or transfer by the Parent or any Seller,  or
the  Parent,  in the case of any  such  assignment  or  transfer  by the  Buyer;
provided, however, that nothing contained in this Section 12.7 shall prevent the
Buyer,  without the consent of the Parent,  (a) from  transferring  or assigning
this  Agreement  or its  rights  or  obligations  hereunder  to  another  entity
controlling, under the control of, or under common control with, the Buyer or in
accordance with the sale of substantially  all of the assets of the Buyer or (b)
from  assigning  all or part of its rights or  obligations  hereunder  by way of
collateral  assignment to any bank or financing  institution providing financing
for the acquisition contemplated hereby, but no such transfer or assignment made
pursuant to clauses (a) or (b) shall relieve the Buyer of its  obligation  under
this Agreement.

         12.8. Severability. In the event that any covenant, condition, or other
provision herein contained is held to be invalid,  void, or illegal by any court
of competent  jurisdiction,  the same shall be deemed to be  severable  from the
remainder of this  Agreement and shall in no way affect,  impair,  or invalidate
any other covenant, condition, or other provision contained herein.

         12.9.  Further  Assurances.  The parties agree to take such  reasonable
steps and  execute  such other and  further  documents  as may be  necessary  or
appropriate  to cause the terms and  conditions  contained  herein to be carried
into effect.

         12.10.  No Implied  Rights or Remedies.  Except as otherwise  expressly
provided  herein,  nothing  herein  expressed or implied is intended or shall be
construed  to confer  upon or to give any  Person  other  than the  Parent,  the
Sellers and the Buyer and their respective shareholders,  any rights or remedies
under or by reason of this Agreement.

         12.11.  Counterparts.  This  Agreement  may  be  executed  in  multiple
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

         12.12.  Satisfaction of Conditions  Precedent.  Each of the Parent, the
Sellers  and the  Buyer  will use its  respective  best  efforts  to  cause  the
satisfaction of the conditions precedent contained in this Agreement;  provided,
however,  that nothing  contained in this Section  12.12 shall  obligate  either
party hereto to waive any right or condition under this Agreement.

         12.13. Public Statements or Releases. Each of the parties hereto agrees
that prior to the  consummation  of the Closing no party to this  Agreement will
make, issue or release any public  announcement,  statement or acknowledgment of
the  existence of, or reveal the status of, this  Agreement or the  transactions
provided  for herein,  without  first  obtaining  the consent of the other party
hereto.  Nothing contained in this Section 12.13 shall prevent either party from
making such disclosures as such party may consider  necessary in order to obtain
financing for the  transactions  contemplated  hereby or to satisfy such party's
legal or contractual obligations.
<PAGE>

         12.14.  Business  Records.  After the Closing Date, (a) the Buyer,  the
Sellers  and the Parent  shall  cooperate  with each other in the conduct of any
audit or  other  proceedings  with  respect  to any Tax  matters  involving  the
Companies,  and (b) the Buyer shall retain or cause to be retained all books and
records relating to the Companies for any period ending on or before the Closing
Date until the expiration of the  applicable Tax statute of limitations  (giving
effect  to  any  and  all  extensions  and  waivers).  In  addition,  the  Buyer
acknowledges  that the Sellers may from time to time require access to or copies
of the  business  records  of the  Companies  in  connection  with  Tax or other
matters, and the Buyer agrees that upon reasonable prior notice from any Seller,
it will, during normal business hours, provide such Seller with either access to
or, at the Buyer's option, copies of such records for such purposes. The Sellers
agree to hold any confidential  information so provided in confidence and to use
such information only for the purposes described above.

         13.  CERTAIN DEFINITIONS.

         (a) As used herein the following  terms not otherwise  defined have the
following respective meanings:

         "Affiliate":  As to any Person, any other Person directly or indirectly
controlling, controlled by or under direct or indirect common control with, such
Person,  and shall  include (a) any other Person who is a director or beneficial
holder of at least 10% of any class of the then  outstanding  capital  stock (or
other shares of beneficial  interest) and Family Members of such Person, (b) any
other  Person of which such Person or an  Affiliate of the kind listed in clause
(a) above shall, directly or indirectly, either beneficially own at least 10% of
any class of the then  outstanding  capital stock (or other shares of beneficial
interest) or constitute at least a 10% equity  participant,  and (c) in the case
of a specified Person who is an individual, Family Members of such Person.

     "European Business":  The business in the Designated Industry carried on in
Europe by any of the Parent, the Sellers and the Companies.

         "Family  Member":  As applied to any  individual,  any parent,  spouse,
child,  spouse of a child,  brother or sister of the individual,  and each trust
created for the benefit of one or more of such  Persons,  and each  custodian of
property of one or more such Persons.

         "Indebtedness":  As applied to any Person, (a) all indebtedness of such
Person for borrowed money,  whether current or funded,  or secured or unsecured,
(b) all indebtedness of such Person for the deferred  purchase price of property
or services  represented by a note, (c) all  indebtedness of such Person created
or arising under any conditional  sale or other title  retention  agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property),  (d) all  indebtedness of such Person
secured by a purchase  money mortgage or other lien to secure all or part of the
purchase price of property subject to such mortgage or lien, (e) all obligations
under  leases  which shall have been or must be, in  accordance  with  generally
accepted accounting  principles,  recorded as capital leases in respect of which
such Person is liable as lessee,  (f) any liability of such Person in respect of
banker's  acceptances  or letters of credit,  (g) all  interest,  fees and other
expenses owed with respect to  indebtedness  described in the  foregoing  clause
(a), (b), (c), (d), (e) or (f) above,  and (h) all  indebtedness  referred to in
clause (a), (b), (c), (d), (e), (f) or (g) above which is directly or indirectly
guaranteed  by such  Person or which such  Person has  agreed  (contingently  or
otherwise)  to  purchase  or  otherwise  acquire  or in  respect of which it has
otherwise assured a creditor against loss.
<PAGE>

     "Intercompany  Accounts":  All  intercompany  accounts  between  any Seller
and/or the Parent, on the one hand, and any of the Companies, on the other hand.

         "Knowledge of the Parent": The actual knowledge of Edelman,  Thomas and
Agranoff,  the executive  officers of the Parent and/or any Seller,  as the case
may be, and Messrs.  Phillip P. Krumb and Patrick  Dossey,  or such knowledge as
would have been  obtained  had  Thomas  conducted  a  reasonable  due  diligence
investigation,  but not  including  the  knowledge  of  Management  or any other
officers of any Company;  provided,  that for purposes  hereof,  Thomas shall be
deemed to have conducted a reasonable due diligence  investigation if he engaged
in discussions with each member of Management regarding the Operational Reps and
Warranties,  and reviewed the Disclosure  Schedule relating to the Companies and
discussed same with the members of Management.

     "Management":  The  individuals  (other than  Thomas)  listed on Schedule D
hereto.

         "Material  Adverse Effect":  A material adverse effect on the business,
results of operations or financial  condition of all of the Companies taken as a
whole.

         "Person":   A  corporation,   an   association,   a   partnership,   an
organization,  a  business,  an  individual,  a  limited  liability  company,  a
government or political subdivision thereof or a governmental agency.

         "Subsidiary":  With respect to any Person,  any  corporation a majority
(by number of votes) of the outstanding  shares of any class or classes of which
shall at the time be owned by such Person or by a Subsidiary of such Person,  if
the  holders of the shares of such class or classes (a) are  ordinarily,  in the
absence of contingencies, entitled to vote for the election of a majority of the
directors (or persons performing similar functions) of the issuer thereof,  even
though  the  right so to vote  has been  suspended  by the  happening  of such a
contingency,  or (b) are at the time entitled,  as such holders, to vote for the
election  of  a  majority  of  the  directors  (or  persons  performing  similar
functions) of the issuer thereof,  whether or not the right so to vote exists by
reason of the happening of a contingency.

         "Tax": Any federal,  state, local,  foreign and other income,  profits,
franchise,  capital,  withholding,   unemployment  insurance,  social  security,
occupational,  production,  severance,  gross receipts, value added, sales, use,
excise, real and personal property, ad valorem, occupancy, transfer, employment,
disability,   workers'   compensation  or  other  similar  tax,  duty  or  other
governmental  charge (including all interest and penalties thereon and additions
thereto).

     "Transaction  Documents":  This Agreement,  the Indemnity Escrow Agreement,
the Deposit  Escrow  Agreement,  the Name  Change  Certificates,  the  Datapoint
License and the IP License Agreement.

         (b) All  references  in this  Agreement  to any legal  term or  concept
(including, without limitation, those with respect to any action, remedy, method
of  judicial  proceeding,   document,  statute,  court  official,   governmental
authority or agency) shall in respect of any jurisdiction  other than the United
State of America be construed as  references  to the term or concept  which most
nearly corresponds to it in that jurisdiction.

         (c) For purposes of Sections 4 and 10 hereof,  as to any Company,  each
entity set forth opposite the name of such Company under the heading "Seller" on
Schedule F hereto shall constitute and be deemed a "Seller" of such Company.


                  [Remainder of Page Intentionally Left Blank]


<PAGE>


         IN WITNESS  WHEREOF,  and  intending to be legally  bound  hereby,  the
parties hereto have caused this Agreement to be duly executed and delivered as a
sealed instrument as of the date and year first above written.


                                       BUYER:

                                       REBOOT SYSTEMS, INC.


                                       By:  /s/John F White
                                       Name: John F White
                                       Title:  President


                                       SELLERS:

                                       DATAPOINT INTERNATIONAL, INC.


                                       By: /s/Asher B Edelman
                                       Name:  Asher B Edelman
                                       Title: Director


                                       DATAPOINT INTERNATIONAL INVESTMENTS, INC.


                                       By: /s/Asher B Edelman
                                       Name: Asher B Edelman
                                       Title: Director


                                       INFOREX INTERNATIONAL, INC.


                                       By: /s/Asher B Edelman
                                       Name: Asher B Edelman
                                       Title: Director


                                       DATAPOINT BEHEER B.V.

                                       By:/s/ Asher B Edelman
                                       Name:  Asher B Edelman
                                       Title: Director


                                       DATAPOINT HOLDINGS, LTD.


                                       By:  /s/Asher B Edelman
                                       Name:  Asher B Edelman
                                       Title: Director


                                       DATAPOINT INTERNATIONAL HOLDINGS, INC.


                                       By: /s/Asher B Edelman
                                       Name: Asher B Edelman
                                       Title: Director


                                       PARENT:

                                       DATAPOINT CORPORATION


                                       By: /s/Asher B Edelman
                                       Name: Asher B Edelman
                                       Title: Chairman of the Board and
                                              Chief Executive Officer




<PAGE>



                                   Schedule A

                                     Sellers



Datapoint International, Inc.
Datapoint International Investments, Inc.
Inforex International, Inc.
Datapoint Beheer B.V.
Datapoint Holdings, Ltd.
Datapoint International Holdings, Inc.


<PAGE>



                                   Schedule B


                                    Companies


Datapoint Belgium S.A.
Datapoint S.A. (France)
Datapoint Nederland B.V.
Datapoint Italia S.P.A.
Datapoint Iberica S.A. (Spain)
Datapoint Svenska AB (Sweden) (including Datapoint Norway)
Datapoint U.K. Ltd.



<PAGE>






                                   Schedule C

                               Ownership of Shares
<TABLE>
<CAPTION>

Company                               Seller                           No. of Shares             % Ownership
<S>                                   <C>                              <C>                       <C>

1.  Datapoint Belgium S.A.            Datapoint International
                                         Investments, Inc.
                                      Inforex International, Inc.

2.  Datapoint Iberica S.A.            Datapoint International
                                         Investments, Inc.
                                      Inforex International, Inc.

3.  Datapoint Italia S.P.A.            Datapoint International
                                         Investments, Inc.
                                      Inforex International, Inc.

4.  Datapoint Nederland B.V.          Datapoint Beheer B.V.

5.  Datapoint S.A. (France)           Datapoint International
                                         Investments, Inc.
                                      Inforex International, Inc.

6.  Datapoint Svenska AB              Datapoint International, Inc.

7.  Datapoint UK Ltd.                 Datapoint Holdings, Ltd.
</TABLE>

                                 Pro Rata Shares

                  Party                                    Pro Rata Share

1.  Datapoint International, Inc.                               %

2.  Datapoint International Investments, Inc.                   %

3.  Inforex International, Inc.                                 %

4.  Datapoint Beheer B.V.                                       %

5.  Datapoint Holdings, Ltd.                                    %

6.  Datapoint Corporation                                       %



                                                   TOTAL:    100%


<PAGE>



                                   Schedule D


                                   Management





<PAGE>



                                   Schedule E


                              San Antonio Employees


<PAGE>


                                   Schedule F

                     Direct/Indirect Ownership of Companies


Company                                              Seller

1.  Datapoint Belgium S.A.                           Datapoint International
                                                        Investments, Inc.
                                                     Inforex International, Inc.
                                                     Datapoint International
                                                        Holdings, Inc.

2.  Datapoint Iberica S.A.                           Datapoint International
                                                        Investments, Inc.
                                                     Inforex International, Inc.
                                                     Datapoint International
                                                        Holdings, Inc.

3.  Datapoint Italia S.P.A.                           Datapoint International
                                                        Investments, Inc.
                                                     Inforex International, Inc.
                                                     Datapoint International
                                                        Holdings, Inc.

4.  Datapoint Nederland B.V.                         Datapoint Beheer B.V.
                                                     Datapoint International
                                                        Investments, Inc.
                                                     Inforex International, Inc.
                                                     Datapoint International
                                                        Holdings, Inc.

5.  Datapoint S.A. (France)                          Datapoint International
                                                        Investments, Inc.
                                                     Inforex International, Inc.
                                                     Datapoint International
                                                        Holdings, Inc.

6.  Datapoint Svenska AB                           Datapoint International, Inc.

7.  Datapoint UK Ltd.                                Datapoint Holdings, Ltd.
                                                     Datapoint International
                                                        Investments, Inc.
                                                     Inforex International, Inc.
                                                     Datapoint International
                                                        Holdings, Inc.
<PAGE>

                  AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT

     THIS AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT,  dated as of November 1,
1999 (the  "Amendment"),  by and among (i)  REBOOT  SYSTEMS,  INC.,  a  Delaware
corporation  (the  "Buyer"),  (ii) the  entities  listed  on  Schedule  A hereto
(collectively,  the "Sellers" and individually, a "Seller"), and (iii) DATAPOINT
CORPORATION,  a Delaware corporation and the direct or indirect corporate parent
of all of the Sellers (the "Parent").

         WHEREAS,  the Buyer,  Sellers and Parent have  previously  entered into
that certain Stock Purchase Agreement,  dated as of July 31, 1999 (the "Purchase
Agreement"); and

         WHEREAS,  as reflected in that certain  letter,  dated August 18, 1999,
from the Parent to the Buyer,  [a copy of which is  attached  hereto as Appendix
2], several open issues remained unresolved at the time of the entering into the
Purchase Agreement and the parties hereto desire to resolve all such open issues
among the parties.

         NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and of other good and valuable consideration,  the receipt and sufficiency
of which are hereby  acknowledged,  the parties hereto,  intending to be legally
bound hereby, do hereby agree as follows:

         1.  Capitalized  terms  used  and not  defined  herein  shall  have the
meanings ascribed to them in the Purchase Agreement.

         2. The Purchase  Agreement is hereby amended by inserting the following
paragraph immediately after Section 4(c) and prior to the paragraph which begins
"Accordingly, subject to the terms":

                  "(d) The  information  set forth on the  Disclosure  Schedules
                  relating to the Companies has been compiled by Management  and
                  the process of compiling  such  information  was supervised by
                  Thomas  pursuant  to the  requests  of the  Buyer.  The  Buyer
                  acknowledges   that   neither  the  Parent  nor  Sellers  have
                  performed  an  independent  investigation  with respect to the
                  information set forth on the Disclosure  Schedules relating to
                  any of the Companies."

     3. The Purchase  Agreement is hereby amended by deleting Section 9.2 in its
entirety and replacing it with the
following:

                           "9.2  Non-Competition.  Each of the  Sellers  and the
                  Parent  acknowledges that the covenants and agreements in this
                  Section  9.2  are  a  condition   precedent   to  the  Buyer's
                  obligation  to acquire the Shares from the Sellers  under this
                  Agreement, and that the Buyer would not acquire the Shares but
                  for the  agreements  of the  Sellers  and the Parent  with the
                  Buyer in this Section 9.2. Each of the Sellers, the Parent and
                  the Buyer  acknowledges  that from and after the Closing  Date
                  the Buyer will sell products and services to customers located
                  in markets throughout Europe,  North America and South America
                  (the  "Prohibited  Area"),  and  that  any  engagement  by any
                  Seller,  the Parent or any of their Subsidiaries or Affiliates
                  in the  Designated  Industry (as  hereinafter  defined)  could
                  cause  the  Buyer  and  the  Companies   irreparable   damage.
                  Accordingly,  for a period  from the  Closing  Date  until the
                  fifth anniversary of the Closing Date, each of the Sellers and
                  the  Parent  shall  not,  and  shall not  permit  any of their
                  Subsidiaries  or  Affiliates  to,  without  the prior  written
                  consent of the Buyer,  (i) engage  anywhere in the  Prohibited
                  Area, directly or indirectly, alone or as a shareholder (other
                  than as a holder of less than 5% of the  capital  stock of any
                  publicly-traded  corporation),   partner,  officer,  director,
                  employee or consultant,  in any business  organization that is
                  engaged  or  becomes  engaged  in the  business  of selling or
                  providing  (x)  telephony,   call-center  or  data  processing
                  products or services, including, without limitation, telephone
                  switches and dialers,  personal computers,  servers,  printers
                  and other peripheral  hardware and software used in connection
                  therewith, or (y) business consulting services with respect to
                  the foregoing (the "Designated Industry");  provided, that the
                  Designated   Industry   shall  not  include  the  business  of
                  providing   internet   or   cybernet   networking   solutions,
                  including,  without limitation,  internal, external and hybrid
                  networking  solutions,   hardware,   software  and  consulting
                  services related thereto, (ii) divert to any competitor of any
                  Company,  the Buyer or any of their Affiliates or Subsidiaries
                  any customer of any Company,  the Buyer or such  Affiliates or
                  Subsidiaries,  or (iii)  solicit  or  encourage  any  officer,
                  employee or  consultant  of any  Company,  the Buyer or any of
                  their  Affiliates  or  Subsidiaries  to leave their employ for
                  employment  by  or  with  any  Seller,  the  Parent  or  their
                  Subsidiaries  or Affiliates,  or any competitor of any Company
                  or  any  of  the  Buyer's  or  any  Company's   Affiliates  or
                  Subsidiaries.  If at any time the  provisions  of this Section
                  9.2 shall be  determined  to be invalid or  unenforceable,  by
                  reason of being vague or unreasonable as to area,  duration or
                  scope of  activity,  this  Section  9.2  shall  be  considered
                  divisible and shall become and be immediately  amended to only
                  such  area,  duration  and  scope  of  activity  as  shall  be
                  determined to be reasonable  and  enforceable  by the court or
                  other  body  having  jurisdiction  over  the  matter;  and the
                  Sellers  and the  Parent  agree  that this  Section  9.2 as so
                  amended  shall be valid and  binding as though any  invalid or
                  unenforceable   provision  had  not  been   included   herein.
                  Notwithstanding  anything  to the  contrary  set forth in this
                  Section 9.2,  Edelman and his Affiliates shall not be bound or
                  restricted  by the  provisions  of this Section 9.2 so long as
                  Edelman is not involved in any manner, directly or indirectly,
                  in any  operational  capacity with any Person which is engaged
                  in the Designated  Industry in the  Prohibited  Area; it being
                  agreed  that for  purposes  hereof,  if  Edelman  serves  as a
                  non-executive director, non-executive member of a committee of
                  the  board  of  directors  or  non-executive  chairman  of any
                  Person,  he  shall  not  be  deemed  to  be  involved  in  any
                  operational capacity with such Person."
<PAGE>

     4. The Purchase  Agreement is hereby amended by deleting Section 10.1(b) in
its entirety and replacing it with the following:

                  "(b) any acts or  omissions  by any Seller,  the Parent or any
                  directors,  officers, employees or agents of any Seller or the
                  Parent (but not of the Companies)  within the Knowledge of the
                  Parent and not known by the Buyer or disclosed to the Buyer in
                  writing on or prior to the Closing Date, occurring on or prior
                  to the Closing  Date which causes a Material  Adverse  Effect.
                  For  purposes of this  Section  10.1(b)  disclosure  to Thomas
                  shall  be  deemed  to be  disclosure  to  the  Buyer  and  the
                  knowledge of Thomas is attributed to the Buyer."

     5. The Purchase Agreement is hereby amended by adding the following Section
10.6 at the end of Section 10:

                           "10.6 Tax Indemnification.  Notwithstanding  anything
                  herein to the contrary,  including,  without  limitation,  the
                  representation  and warranty set forth in Section 4.24 hereof,
                  provided  that  there  was no  knowledge  of the  Parent,  the
                  parties  hereto  acknowledge  and agree that after the Closing
                  neither  the Parent nor the Sellers  shall have any  liability
                  with respect to any tax of any of the  Companies  prior to the
                  Closing."

     6. The Purchase  Agreement is hereby amended by deleting Section 12.2(c) in
its entirety and replacing it with the following:

                  "(c) On the date of the execution of the Amendment,  the Buyer
                  has  deposited  the  sum  of  $750,000  (the  "Purchase  Price
                  Deposit")  in escrow  with the Escrow  Agent  pursuant  to the
                  terms  of an  escrow  agreement,  dated  as of the date of the
                  Amendment,  among the Buyer,  the Parent,  the Sellers and the
                  Escrow Agent (the "Deposit Escrow Agreement"). Pursuant to the
                  terms of the Deposit Escrow  Agreement,  in the event that the
                  Buyer is unable to obtain a Financing  Commitment prior to the
                  Termination  Date or if the  Financing  Commitment is obtained
                  prior to the  Termination  Date but the  Buyer  is  unable  to
                  consummate  the  Closing  and  the  Parent   terminates   this
                  Agreement  pursuant  to Section  11.1  hereof  then the Escrow
                  Agent shall promptly release the Purchase Price Deposit to the
                  Parent.  In the event  that (i) the  Financing  Commitment  is
                  obtained  prior to the  Termination  Date,  (ii) the  Buyer is
                  ready,  willing and able to consummate the Closing,  (iii) the
                  Parent or Sellers are unable or  unwilling to  consummate  the
                  Closing, and (iv) the Buyer terminates this Agreement pursuant
                  to Section 11.1 hereof,  then the Escrow Agent shall  promptly
                  release the Purchase Price Deposit to the Buyer.  If, however,
                  the Closing is  consummated,  the Purchase Price Deposit shall
                  be applied to the Closing Purchase Price otherwise  payable to
                  the Sellers hereunder."

         7. The Purchase Agreement is hereby amended as follows:

     (a) the following definitions to Section 13(a) in alphabetical order:

                           "Agreement":  This Stock Purchase Agreement, dated as
                           of July 31, 1999, by and among the Buyer, Sellers and
                           Parent  as  amended  by  Amendment  No.  1  to  Stock
                           Purchase  Agreement,  dated as of the date hereof, by
                           and among the Buyer, Sellers and Parent.

                           "Financing  Commitment":  A firm  commitment  letter,
                           from a financial institution reasonably acceptable to
                           the Parent and Sellers,  in  accordance  with Section
                           7.8  hereof,  subject  only to normal  and  customary
                           closing conditions."; and

     (b) deleting the  definition  of "Knowledge of the Parent" in Section 13(a)
and replacing it with the ------------------------- following:

     "Knowledge  of the  Parent":  The actual  knowledge  of Edelman,  Agranoff,
Phillip P. Krumb and Patrick Dossey."

         8. This Amendment may not be amended,  modified or supplemented  except
by a subsequent written agreement signed by the parties hereto.

         9. This  Amendment  may be  executed  simultaneously  in any  number of
counterparts.  Each counterpart shall be deemed to be an original,  and all such
counterparts shall constitute one in the same instrument

         10. This Amendment  shall be governed by the internal laws (and not the
choice-of-law rules) of the State of Delaware.

         11. Except for the terms,  conditions and  provisions  modified by this
Amendment, the Purchase Agreement shall remain in full force and affect pursuant
to the terms thereof.

[Signature page follows, remainder of page is intentionally blank]

<PAGE>


IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto
have  caused  this  Amendment  to be duly  executed  and  delivered  as a sealed
instrument as of the date and year first above written.


BUYER:

REBOOT SYSTEMS, INC.

By:/s/John F White
Name: John F White
Title: President


SELLERS:

DATAPOINT INTERNATIONAL, INC.

By:/s/ Asher B Edelman
Name: Asher B Edelman
Title: Director


DATAPOINT INTERNATIONAL
   INVESTMENTS, INC.

By: /s/ Asher B Edelman
Name:  Asher B Edelman
Title:   Director


INFOREX INTERNATIONAL, INC.

By: /s/ Asher B Edelman
Name:  Asher B Edelman
Title:  Director

DATAPOINT BEHEER B.V.

By: /s/ Asher B Edelman
Name: Asher B Edelman
Title: Director

DATAPOINT HOLDINGS, LTD.

By: /s/ Asher B Edelman
Name:  Asher B Edelman
Title:  Director

DATAPOINT INTERNATIONAL
 HOLDINGS, INC.

By: /s/ Asher B Edelman
Name:  Asher B Edelman
Title:   Director

PARENT:

DATAPOINT CORPORATION

By:/s/ Asher B Edelman
Name:   Asher B Edelman
Title:  Chairman of the Board and Chief Executive Officer
<PAGE>

                                                    EXHIBIT H

                              BOND INTEREST PAYMENT

     1. The Buyer agrees to provide to the Parent  approximately  $3.25  million
(the "total funding"), of which $750,000 is to be delivered by November 8, 1999.
The  balance of $2.5  million is to be used for the sole  purpose of funding the
Parent's  obligation to pay its bondholders the interest payment due December 1,
1999.

     2. The  Parent  agrees  to delete  Section  12.2(c)  of the Stock  Purchase
Agreement in its entirety.

     3. The  Parent  and Buyer  agree to use their  reasonable  best  efforts to
complete the actions as follows:

 Nov. 8, 1999      Datapoint to provide Reboot with draft Proxy. (reasonably
                   satisfactory to Buyer)
 Nov. 8, 1999      Initial advance of $750,000 due to Parent from Buyer.
 Nov. 15, 1999     Datapoint to file a preliminary Proxy with SEC. (must
                   include Fairness Opinion)
 Dec. 1, 1999      $2.5 million from Buyer for Interest Payment.
 Dec. 14, 1999     SEC questions/response due back to Datapoint.
 Dec. 23, 1999     Datapoint response back to SEC.
 Dec. 30, 1999     Datapoint to pay interest owed to Bondholders.
 Jan. 14, 2000     Datapoint to mail Proxy/Consent solicitations to
                   Shareholders/Bondholders.
 Feb. 1, 2000      Buyer to provide Parent with Buyers' Financing Commitment.
 Feb. 15, 2000     Shareholder/Bondholder approval completed.
 Mar. 15, 2000     Deal Closes.

     4. If the Buyer provides the total funding to the Parent, the Parent agrees
not to file a voluntary bankruptcy petition before March 31, 2000.

     5. If the Buyer provides the total funding to the Parent, the Parent agrees
to increase the breakup fee to $5.0 million.

     6. Both Buyer and Seller  acknowledge that it is the Buyer's Plan to secure
the total  funding  and  other  funds  due to Buyer  against  one or more of the
following:  a. Trade Accounts Receivables of Datapoint UK, Ltd., and/or b. Trade
Accounts   Receivables  of  Datapoint  Svenska  AB,  and/or  c.  Trade  Accounts
Receivable of the other Companies, if needed.

     7. If Buyer is unable to complete the transaction,  due to the inability to
obtain financing, Buyer will pay Seller $750,000.

     8. It is further agreed,  by the Parent and the Buyer that, the termination
date of December 31, 1999  contained in the Agreement  will be extended to March
31, 2000.  If the December 1, 1999  funding is not  completed by the Buyer,  the
Agreement will terminate on December 1, 1999.

     9. Attachment 1 outlines  potential outcomes and how Buyer and Seller agree
to operate in each instance.


     This Exhibit H will be added to the Stock Purchase Agreement dated July 31,
1999.

<PAGE>

                                                             Attachment 1
                                                             to EXHIBIT H


     Outcome  A. If the  transaction,  as  contemplated  in the  Stock  Purchase
Agreement dated July 31, 1999, is completed as outlined in Paragraph 3 above,

     The  Parent  agrees  that  the  total   funding   provided  by  the  Buyer,
approximately $3.25 million,  will reduce the $49.5 million Base Purchase Price,
as defined in the Stock Purchase Agreement.


     Outcome B. If the Parent is not able to secure the required approval of the
bondholders and shareholders by the date outlined in Paragraph 3 above,


The Buyer, to recover any funding provided to the Parent, at its option, will:

     Exercise its security  interest in, up to $3.625  million (plus  Commitment
Fees) of one or more of the following:

a.       Trade Accounts Receivables of Datapoint UK, Ltd., and/or
b.       Trade Accounts Receivables of Datapoint Svenska AB, and/or
c.       Trade Accounts Receivable of the other Companies, if needed.


Outcome C.
If the Buyer is unable to obtain a Financing Commitment by February 1, 2000,

     1. The Buyer  acknowledges  that, of the total funding  provided,  $750,000
will be deducted as compensation to the Parent.

     2. The Buyer,  to recover any remaining  funding  provided,  at its option,
will:

     Exercise its security  interest in, up to $2.5  million,  of one or more of
the following:

a.       Trade Accounts Receivables of Datapoint UK, Ltd., and/or
b.       Trade Accounts Receivables of Datapoint Svenska AB, and/or
c.       Trade Accounts Receivable of the other Companies, if needed.

<PAGE>

                                                                EXHIBIT (10)(kk)





                            ASSET PURCHASE AGREEMENT


                                  By and Among

                             DATAPOINT CORPORATION,

                                 SF DIGITAL, LLC

                                       and

                                  JOHN ENGSTROM

                                       and

                         JOHN ENGSTROM d/b/a SF DIGITAL

                                and COREBYTE(TM)

                                  July 27, 1999

<PAGE>


                                TABLE OF CONTENTS


                                    [To come]


<PAGE>


                                    SCHEDULES

                                    To Come



                                    EXHIBITS


Exhibit A          List of Acquired Assets

Exhibit B          Corebyte Business Plan and Financial Projections

Exhibit C          John Engstrom Employment Agreement

Exhibit D          Form of Stock Option

Exhibit E1         Assignment of Copyright

Exhibit E2         Assignment of Corebyte Trademark

Exhibit E3         Executed Document Transferring Domain Name www.corebyte.com

Exhibit E4         Executed Document Transferring Domain Name www.sfd.com

Exhibit E5         Executed Document Transferring Domain Name www.nyemail.com


<PAGE>

                            ASSET PURCHASE AGREEMENT


              AGREEMENT dated as of July 27, 1999 between Datapoint Corporation,
a Delaware  corporation (the "Purchaser") and SF Digital,  LLC,  ("SFDLLC") John
Engstom  and  John  Engstrom  d/b/a SF  Digital  and  Corebyte(TM)  ("Engstrom")
(collectively referred to as, "Sellers").

              WHEREAS,  this  Agreement  contemplates a transaction in which the
Purchaser  will  purchase  substantially  all of the  Intellectual  Property and
attendant  assets of the Sellers in connection  with the  Corebyte(TM)  software
communications  property and business, in return for stock options, a guaranteed
employment  contract  and a  commitment  to the  Business  Plan as  submitted by
Sellers.

              NOW,  THEREFORE,   in  consideration  of  the  foregoing  and  the
respective  representations,  warranties,  covenants  and  agreements  set forth
herein, Purchaser and the Sellers agree as follows:


                                    ARTICLE I

                                   DEFINITIONS

1.1  Definitions.  The  Following  terms  as used  herein,  have  the  following
meanings:

"Acquired  Assets"  means all right,  title,  and  interest in and to all of the
Corebyte(TM)  communications and networking software product family and computer
related consulting business of the Sellers,  including all of their (a) tangible
personal  property  (such as  inventories  of  supplies,  packaging  goods,  and
finished goods, equipment, manufactured and purchased parts, machinery, goods in
process,  office  furniture and tools)  ("Personal  Property")  (b)  agreements,
contracts, indentures,  mortgages,  instruments, Security Interests, guaranties,
other similar arrangements,  and rights thereunder,  (c) franchises,  approvals,
permits, licenses, orders, registrations,  certificates,  variances, exemptions,
and similar rights  obtained from  governments  and  governmental  agencies (the
"Permits") (d) Intellectual  Property,  goodwill associated therewith,  licenses
and  sublicenses   granted  and  obtained  with  respect  thereto,   and  rights
thereunder,  remedies against infringements thereof, and rights to protection of
interests therein under the laws of all jurisdictions, (e) leases and subleases,
held for business purposes and rights thereunder,  excluding any leaseholds held
for personal  reasons (f)  prepayments,  prepaid  expenses,  and deferred items,
claims,  deposits,  refunds,  causes of action,  chooses  in  action,  rights of
recovery,  rights of set off, and rights of recoupment  (including any such item
relating to the payment of Taxes),  (g) accounts,  notes, and other receivables,
(h) books, records, ledgers, files, documents, correspondence,  lists, drawings,
and specifications,  creative materials,  advertising and promotional materials,
studies,  reports,  and  other  printed  or  written  materials,  and (k)  Cash;
provided,  however,  that any item not listed as an Acquired  Asset in Exhibit A
shall remain the sole property of Sellers. "Affiliate" has the meaning set forth
in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.

"Assumed  Liabilities" means (a) Research and Development  Expenses as set forth
in Article 2, herein.  (b) all  obligations of the Sellers under the agreements,
contracts,   leases,  licenses,  and  other  arrangements  referred  to  in  the
definition  of  Acquired  Assets,  and are set  forth  in  Schedule  1.2 of this
Agreement to furnish goods,  services,  and other  non-Cash  benefits to another
party after the Closing and (c) all other  Liabilities  and  obligations  of the
Sellers set forth in Schedule 1.3 of this Agreement; provided, however, that the
Assumed  Liabilities  shall not  include  (i) any  Liability  of the Sellers for
unpaid Taxes or for income,  transfer,  sales,  use, and other Taxes  arising in
connection with the consummation of the transactions  contemplated  hereby, (ii)
any obligation of the Sellers to indemnify any Person by reason of the fact that
such  Person was a Manager,  officer,  employee,  or agent of the Sellers or was
serving at the  request  of any such  entity as a  partner,  trustee,  director,
officer,   manager,   employee,   or  agent  of  another  entity  (whether  such
indemnification is for judgments, damages, penalties, fines, costs, amounts paid
in settlement,  losses,  expenses, or otherwise and whether such indemnification
is pursuant to any statute,  charter document,  bylaw, agreement, or otherwise),
(iii) all  Liabilities  and  obligations of the Sellers to any former or present
Employees or independent contractors, whether or not for salary, profit share or
benefits  unless such  Liabilities are expressly set forth in Schedules 1.1 ,1.2
or 1.3 (iv) all  Liabilities  and  obligations  relating to the Excluded  Assets
(including  accounts  payable and accrued  expenses),  (v) all  liabilities  and
obligations relating to personal indebtedness or personal agreements, contracts,
leases,  licenses,  and  other  personal  arrangements  of  Engstrom,  (vi)  any
Liability of the Sellers for costs and expenses incurred in connection with this
Agreement and the transactions  contemplated  hereby, (vii) any Liability of the
Sellers in connection with the  Futureshare  Litigation as set forth on Schedule
4.8 or (viii) any obligation of the Sellers under this Agreement.

"Business  Plan" means the  document  appended to this  Agreement  as Exhibit B,
describing  the  Corebyte(TM)  software and  marketing  plans,  inclusive of the
financial projections. (the "Financial Projections").

"Cash" means cash and cash  equivalents  (including  marketable  securities  and
short term  investments)  calculated in accordance  with GAAP applied on a basis
consistent with the preparation of the Financial Projections.
<PAGE>

"Closing" means the consummation of  transaction contemplated by this Agreement.

"Closing Date" means the date of the Closing.

"Corebyte(TM)"  means the communications and networking  software product family
described in the Business Plan.

"Corebyte,  Inc." means the new  Subsidiary of Purchaser,  in which the Acquired
Assets and Assumed Liabilities shall be transferred.

"Disclosure Schedule" means the Schedule attached to this Agreement.

"Employment  Agreement"  means the  employment  agreement  entered  into between
Engstrom and Purchaser  concurrently with this Agreement and attached as Exhibit
C.

"Employee  Benefit Plan" means any (a)  nonqualified  deferred  compensation  or
retirement  plan or arrangement  which is an Employee  Pension Benefit Plan, (b)
qualified  defined  contribution  retirement  plan or  arrangement  which  is an
Employee Pension Benefit Plan, (c) qualified defined benefit  retirement plan or
arrangement   which  is  an  Employee   Pension   Benefit  Plan  (including  any
Multiemployer  Plan) , (d)  Employee  Welfare  Benefit  Plan,  or (e) any bonus,
incentive,  severance, stock option, stock purchase,  short-term disability plan
or other  material  fringe  benefit  plan,  program  or  arrangement,  including
policies  concerning  holidays,  vacations and salary  continuation during short
absences for illness or otherwise.

"Environmental  Laws" means all applicable  federal,  state and local  statutes,
rules, regulations,  ordinances,  orders, decrees and common law relating in any
manner to contamination,  pollution or protection of the environment,  including
without limitation the Comprehensive  Environmental  Response,  Compensation and
Liability  Act, the Solid Waste Disposal Act, the Clean Air Act, the Clean Water
Act, the Toxic Substances  Control Act, the Occupational  Safety and Health Act,
the Emergency Planning and Community-Right-to-Know  Act, the Safe Drinking Water
Act, all as amended, and similar state laws.

     "Excluded  Assets"  are all of Sellers'  assets  that are not  specifically
listed as Acquired Assets.

"Financial  Projections" mean the Financial  Projections as of the Closing Date,
included in the Business Plan, inclusive of Revenues and Expenses and the budget
for the final research and  development and launch of the  Corebyte(TM)  product
family (the "Budget").

     "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino  Antitrust Improvements
Act of 1976, as amended.

"Hazardous Materials" means all hazardous or toxic substances, wastes, materials
or  chemicals,  petroleum  (including  crude oil or any  fraction  thereof)  and
petroleum   products,   solid  waste,   special  waste,   friable  asbestos  and
asbestos-containing materials, pollutants, contaminants and all other materials,
and substances  regulated  pursuant to, or that could  reasonably be expected to
provide the basis of liability under, any Environmental Law.

"Indemnified Party" has the meaning set forth in ss.9.4 herein.

"Indemnifying Party" has the meaning set forth in ss.9.4 herein.
<PAGE>

"Intellectual  Property" means (a) all trade secrets and  confidential  business
information   (including  customer  and  supplier  lists,  ideas,  research  and
development,  know-how,  formulas,  compositions,  manufacturing  and production
processes and techniques,  technical data,  designs,  drawings,  specifications,
pricing and cost  information,  and business and marketing plans and proposals),
(b) all trademarks,  service marks, trade dress,  logos,  trade names,  together
with all translations,  adaptations,  derivations,  and combinations thereof and
including   all   goodwill   associated   therewith,   and   all   applications,
registrations, and renewals in connection therewith, (c) all inventions (whether
patentable  or  unpatentable  and  whether  or not  reduced  to  practice),  all
improvements  thereto,  and  all  patents,   patent  applications,   and  patent
disclosures,      together     with     all     reissuances,      continuations,
continuations-in-part,  revisions,  extensions,  and reexaminations thereof, (d)
all copyrightable  works, all copyrights,  and all applications,  registrations,
and renewals in connection  therewith,  (e) all mask works and all applications,
registrations,  and renewals in  connection  therewith,  all  computer  software
(including data and related documentation),  (f) all computer software in object
or source code, (g) all other proprietary  rights, (h) all proprietary  material
and  protectable  material  owned by third  parties  that is used by the Sellers
pursuant to license, sublicense, agreement, or permission and (h) all copies and
tangible embodiments thereof (in whatever form or medium).

"Liability" means any liability  (whether known or unknown,  whether assessed or
unassessed,  whether  absolute  or  contingent,  whether  accrued or  unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.

"Material Adverse Effect" means any adverse change, circumstance or effect that,
individually or in the aggregate with all other adverse  changes,  circumstances
and effects,  has had or will have a material  adverse  effect on the  business,
financial  condition,  prospects,  properties  or results of  operations  of the
Sellers taken as a whole.

"Permits" has the meaning set forth in the definition of Acquired Assets.

"Person" means an individual, a partnership,  a corporation,  an association,  a
joint stock company,  a limited  liability  company or  partnership,  a trust, a
joint venture, an unincorporated organization, or a governmental entity ( or any
department, agency, or political subdivision thereof).

     "Personal Property" has the meaning set forth in the definition of Acquired
Assets.

"Proprietary   Information"  means  every  trade  secret,   know-how,   process,
discovery,   development,   design,  technique,   customer  and  supplier  list,
promotional  idea,  marketing  and  purchasing  strategy,   invention,  process,
confidential data and or other information regarding the business of the Sellers
as set forth in the Business Plan.

"Purchase Price" has the meaning set forth in ss.2.4 below.

"Research and Development Expenses" has the meaning set forth in Article 2.

"Securities Act" means the Securities Act of 1933, as amended.

"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Subsidiary"  means any corporation with respect to which a specified Person (or
a  Subsidiary  thereof)  owns a majority of the common stock or has the power to
vote or direct the voting of  sufficient  securities  to elect a majority of the
directors.
<PAGE>

"Seller" has the meaning set forth in the preface above.

"Security Interest", means any lien, pledge, charge, or other security interest.

"Tax" means any  federal,  state,  local,  or foreign  income,  gross  receipts,
license, payroll,  employment,  excise, severance,  stamp, occupation,  premium,
windfall profit,  environmental  (including taxes under Code Sec. 59A), customs,
duties,  capital stock,  franchise,  profits,  withholding,  social security (or
similar),  unemployment,  disability,  real property,  personal property, sales,
use,  transfer,  registration,  value  added,  alternative  or  add-on  minimum,
estimated, or other tax of any kind whatsoever, including and interest, penalty,
or addition thereof whether disputed or not.

"Tax  Return"  means any  return,  declaration,  report,  claim for  refund,  or
information  return or statement  relating to Taxes,  including  any schedule or
attachment thereto, and including any amendment thereof.

"Third Party Claim" has the meaning set forth in ss.9.4, herein.

                                   ARTICLE II

                                PURCHASE AND SALE


2.1 Purchase and Sale of Assets.  On and subject to the terms and  conditions of
this  Agreement,  the  Purchaser  agrees to purchase  from the Sellers,  and the
Sellers agree to sell,  transfer,  convey, and deliver to the Purchaser,  all of
the Acquired Assets at the Closing free and clear of any Security  Interests for
the  consideration  with respect to the Acquired Assets  specified below in this
Article 2.

2.2  Assumption of  Liabilities.  On and subject to the terms and  conditions of
this Agreement, the Purchaser agrees to assume and become responsible for all of
the Assumed  Liabilities  at the closing.  The Purchaser will not assume or have
any responsibility,  however,  with respect to any other obligation or Liability
of the Sellers not included within the definition of Assumed Liabilities.

     2.3 New Subsidiary.  Purchaser shall form a Subsidiary named Corebyte, Inc.
and shall transfer all of the Acquired Assets and Assumed  Liabilities  into the
Subsidiary.
<PAGE>

     2.4  Purchase  Price.  The  Purchaser  agrees to pay to the  Sellers at the
Closing as follows:

(a)               Purchaser  will grant to Engstrom or Person(s)  designated  by
                  him in writing,  one million stock options to purchase  common
                  stock of Purchaser at the price of $1.00 per share.  The stock
                  option  shall be in the form set forth in Exhibit D. All stock
                  options  delivered  in  connection  with the Closing  shall be
                  subject to the applicable  legal  restrictions,  including but
                  not limited to Section 144 of the Securities Act.

(b)               On the year anniversary of the Closing, provided that Engstrom
                  remains  in  the  full  time  employment  of  Purchaser  or  a
                  Subsidiary of Purchaser, Purchaser will grant to John Engstrom
                  or Person(s)  designated by him in writing,  an additional one
                  million  additional  stock options to purchase common stock of
                  Purchaser at twenty  percent  (20%) less than  closing  market
                  price  on the  date  of  issue  (the  anniversary  date of the
                  Closing).

                  All stock  options  to be  granted to  Engstrom  or  Person(s)
                  designated by him in writing,  pursuant to subsection  (a) and
                  subsection  (b) of Article  2.4 shall be held in escrow,  with
                  Purchaser's  counsel  until the  pending  litigation  entitled
                  Engstrom v. Futureshare.com, LLC in the United States District
                  Court  for the  Southern  District  of New  York  (hereinafter
                  "Engstrom v.  Futureshare")has been fully and finally decided,
                  whether by judgement and an  exhaustion of all appeals,  or by
                  settlement.  In the event that any final judgement in Engstrom
                  v.  Futureshare  awards  any  ownership  of  the  Intellectual
                  Property  or  Corebyte  products  to any entity or  individual
                  other than the Sellers,  all stock options granted pursuant to
                  this Article shall immediately expire and shall revert to sole
                  ownership by the Purchaser.

     (c) The above  referenced  stock option grants shall  immediately vest upon
issue and shall be valid for a term of five (5) years from the date of issue. In
the event that Engstrom's  full time  employment  terminates with Purchaser or a
subsidiary  of  Purchaser,  the  options  shall  expire one year  following  the
termination  of  the  full  time  employment,  unless  Engstrom  terminates  his
employment  without  good  reason,  in which event the options  shall expire six
months following the termination of his employment.  Any stock options issued to
Person(s) other than Engstrom,  in connection with the Closing,  shall terminate
six months  following the  termination of Engstrom's full time  employment.  All
stock  options  issued to employees  of the new  subsidiary,  Corebyte,  Inc. as
incentive compensation shall be subject to the employee stock option plan.

(d)               On the Closing  Date,  Purchaser  shall  deliver to  Engstrom,
                  certificates  representing  an equity interest in the Corebyte
                  Inc.  Subsidiary  equal to  twenty  percent  (20%) of the then
                  authorized  shares.  An additional  five percent (5%) shall be
                  transferred  to Engstrom  upon the  occurrence  of a corporate
                  event (sale of Purchaser  or  Corebyte,  Inc. IPO of Corebyte,
                  Inc.  or any  other  event  materially  impacting  the  equity
                  structure  of  Corebyte,   Inc.).   All  stock   delivered  in
                  connection with the Closing shall be subject to the applicable
                  legal  restrictions,  including but not limited to Section 144
                  of the Securities Act.
<PAGE>

                  All  stock   certificates  to  be  delivered  to  Engstrom  or
                  Person(s)  designated  by him in  writing,  pursuant  to  this
                  subsection  (d) of this  Article  2.4 shall be held in escrow,
                  with  Purchaser's   counsel  until  the  litigation   entitled
                  Engstrom v.  Futureshare,  has been fully and finally decided,
                  whether by judgement and an  exhaustion of all appeals,  or by
                  settlement.  In the event that any final judgement Engstrom v.
                  Futureshare awards any percentage of the Intellectual Property
                  or Corebyte  products  to any entity or person  other than the
                  Sellers,  all stock  certificates  delivered  pursuant to this
                  Article shall immediately  revert to the sole ownership by the
                  Purchaser.

(e)               Six months  following  the  Closing,  provided  that  Engstrom
                  remains  in  the  full  time  employment  of  Purchaser  or  a
                  Subsidiary of Purchaser, Purchaser shall pay to Seller $75,000
                  representing  certain  expenses  incurred  by  Seller  in  the
                  development  of  the  Intellectual   Property  ("Research  and
                  Development Expenses").  In no event shall Purchaser be liable
                  to any  creditor  of Seller  for  payment of any past debts or
                  obligations incurred in connection with the development of the
                  Intellectual Property prior to the date of the Closing.

                  In  the  event  that,  six  months  following   closing,   the
                  litigation  entitled  Engstrom  v.  Futureshare,  has not been
                  fully  and  finally  decided,  whether  by  judgement  and  an
                  exhaustion of all appeals, or by settlement,  any monies to be
                  paid to Seller  pursuant to this  subsection (e) shall be held
                  in   escrow,   with   Purchaser's   counsel   until   a  final
                  determination  of  the  litigation.  In  the  event  that  the
                  decision Engstrom v. Futureshare  awards any percentage of the
                  Intellectual  Property or  Corebyte  products to any entity or
                  person  other than the Sellers,  Purchaser  shall by fully and
                  finally  released  from  any  obligation  to  pay  any  monies
                  representing Research and Development Expenses to Seller.

2.5 Closing. The Closing shall be held at the New York offices of Purchaser, 717
Fifth Avenue,  15th floor,  New York, New York 10022, or such other place as the
parties  hereto shall agree at 12:00 on July 27, 1999, or at such other time and
place as the Purchaser and Sellers may agree. At the Closing,

(a)      Purchaser shall pay the Purchase Price due pursuant to ss.2.4.

(b)               Sellers  shall  deliver  to  the  Purchaser  the  Intellectual
                  Property and asset  transfer  documents in the Forms  attached
                  hereto as Exhibit E1-E5 and.

(c)               Sellers shall deliver the appropriate waivers.
<PAGE>

(d)               Without  prejudice  to  Purchaser's  rights set forth  herein,
                  Sellers  shall  deliver  to  Purchaser,   revised   Disclosure
                  Schedules updating the information shown thereon.

(e)               Engstrom shall execute the Employment Agreement.

(f)               Sellers shall deliver to Purchaser one reproducible version of
                  the source code for the entire  Corebyte(TM)  software product
                  family.

(g)               Purchaser  and Sellers shall also execute and deliver all such
                  instruments,  documents and  certificates as may be reasonably
                  requested by the other party that are  necessary,  appropriate
                  and  desirable  for  the   consummation  of  the  transactions
                  contemplated by this Agreement.

2.6 Allocation.  The purchase price shall be allocated by Seller as follows: 1/2
to the purchase of the business  name and  goodwill,  and 1/2 to the purchase of
the intangible intellectual property.


                                   ARTICLE III

                                 COREBYTE, INC.

3.1 Certificate of Incorporation. Purchaser shall incorporate Corebyte, Inc. and
shall own eighty  percent  (80%) of the  authorized  and  outstanding  shares at
inception.

     3.2 Directors.  Engstrom shall be one of the initial directors of Corebyte,
Inc.

     3.3 By-Laws.  The Board of  Directors  shall adopt the By-laws of Corebyte,
Inc.

3.4 Officers.  Engstrom shall be the initial  President of Corebyte.  Additional
officers shall be subject to the approval of the Chairman of the Board.

3.5

<PAGE>

                                   ARTICLE IV

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Sellers,  jointly and severally,  hereby  represent and warrant to Purchaser
that the statements  contained in this Article IV are correct and complete as of
the date of this  Agreement  and will be correct and  complete as of the Closing
Date (as though made then and as though the Closing  Date were  substituted  for
the date of this Agreement  throughout  this Article IV), except as set forth in
the Disclosure  Schedule  accompanying this Agreement.  The Disclosure  Schedule
will be  arranged in  paragraphs  corresponding  to the  lettered  and  numbered
paragraphs contained in this Article IV.

4.1      Organization and Qualification:

         (a) SFDLLC is a limited  liability  company,  duly  organized,  validly
         existing,  under  the  laws of the  jurisdiction  of its  organization.
         ss.4.1(a)  of  the  Disclosure   Schedule  accurately  sets  forth  the
         authorized  and  outstanding  Members and  Managers of SFDLLC and their
         respective membership interests.  There are no other outstanding equity
         interests in SFDLLC.  There are no outstanding  or authorized  options,
         warrants,  purchase rights,  subscription  rights,  exchange rights, or
         other contracts or commitments that require the SFDLLC to issue,  sell,
         or otherwise cause to become  outstanding any of its capital membership
         interests. SFDLLC has heretofore made available to Purchaser a complete
         and correct copy of the certificate of organization  and the By-laws or
         comparable  organizational  documents,  each as  amended as of the date
         hereof, of SFDLLC.

(b)      John  Engstrom  individually  and d/b/a/ SF Digital is authorized to do
         business  in New  York  State  and any  other  state  in  which it does
         business.  ss.4.1(b) of the Disclosure  Schedule lists any other Person
         claiming an ownership interest or right to an ownership interest in the
         business of John Engstrom individually and d/b/a/ SF Digital.

         (c) There are no  Subsidiaries  of any of the  Sellers  and none of the
         Sellers  controls  directly or indirectly or has any direct or indirect
         equity  participation in any corporation,  partnership,  trust or other
         business  association which is not a Subsidiary of the Sellers,  except
         as set forth in ss.4.1(c) of the Disclosure Schedule

4.2 Authorization of Transaction.  Collectively, the Sellers have full power and
authority  (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations  hereunder.  Without  limiting the
generality  of the  foregoing,  any and all  managers,  executives or members of
SFDLLC,  and any other  executive of Engstrom  agree to the  performance of this
Agreement  by the  Sellers.  This  Agreement  constitutes  the valid and legally
binding obligation of the Sellers,  enforceable in accordance with its terms and
conditions.

 4.3 Noncontravention. Neither the execution and the delivery of this Agreement,
 nor the consummation of the  transactions  contemplated  hereby  (including the
 assignments and assumptions referred to in Article II above and the sale of the
 Excluded Assets) will, (a) violate any Constitution, statute, regulation, rule,
 injunction,  judgment,  order, decree,  ruling, charge, or other restriction of
 any government,  governmental agency, or court to which the Sellers are subject
 or any provision of the organizational  agreements of any of the Sellers or (b)
 conflict with,  result in a breach of,  constitute a violation of, constitute a
 default  under,  result  in the  acceleration  of, or result in any loss of any
 material benefit,  or the creation of any Lien on any of the property or assets
 of the Sellers, create in any party the right to accelerate,  terminate, amend,
 modify, or cancel, or require any notice under any agreement,  contract, lease,
 license,  instrument,  or other  arrangement  to which any of the Sellers are a
 party or by which it is bound or to which  any of its  assets  is  subject  (or
 result in the  imposition  of any  Security  Interest  upon any of its assets).
 Except as set forth on ss. 4.3 of the  Disclosure  Schedule,  the  delivery  or
 performance of this Agreement by the Sellers,  the  consummation by the Sellers
 of the transactions  contemplated  hereby or the compliance by the Sellers with
 any of the provisions  hereof will not require any consent,  waiver,  approval,
 authorization  or permit of, or  registration or filing with or notification to
 any government or subdivision  thereof,  domestic,  foreign or supranational or
 any administrative,  governmental or regulatory authority,  agency, commission,
 tribunal  or  body,   domestic,   foreign  or  supranational,   (including  the
 assignments and assumptions referred to in Article II above).

4.4 Brokers' Fees. Except for any legal fees payable by the Sellers, and the fee
payable  by Sellers  after the  Closing  to Chris  Bren in  connection  with the
transactions  contemplated by this  Agreement,  the Sellers have no Liability or
obligation to pay any fees or commissions to any broker,  finder,  or agent with
respect to the transaction contemplated by this Agreement.

4.5 Title to Assets.  Except as claimed by Futureshare.com LLC, the Sellers have
good and  marketable  title to, or a valid  leasehold  interest in, or valid and
current  licenses to use and distribute the properties,  assets and Intellectual
Property used by them, located on their premises,  or shown in the Business Plan
and Financial Projections, or acquired after the date thereof, free and clear of
all Security  Interests.  Without limiting the generality of the foregoing,  the
Sellers has good and marketable  title to all of the Acquired  Assets,  free and
clear of any Security Interest or restriction on transfer.

4.6  Financial   Projections  and  Budget.   The  Business  Plan  the  Financial
Projections  and  Budget  stating  the good faith  estimated  of  launching  the
Corebyte(TM)  software and  communications  product and revenues  expected to be
earned  during  the  time  period  covered  by the  Financial  Projections.  The
estimations contained therein are accurate as of the Closing Date.

4.7 Taxes. The Sellers have (a) filed all Tax Returns which they are required to
file under  applicable laws and regulations  (including  statements of estimated
Taxes owed), and (b) paid all Taxes which have become due and payable, including
all  withholding  taxes.  All such Tax returns  were correct and complete in all
respects.  None of the Sellers are currently a  beneficiary  of any extension of
time  within  which  to  file a tax  return.  No  deficiencies  for  any Tax are
currently  assessed against the Sellers and no Tax Returns of any of the Sellers
have ever been audited,  and, to the knowledge of the Sellers,  there is no such
audit  pending or  contemplated.  The Sellers have not granted any waiver of any
statute  of  limitation  with  respect  to,  or any  extension  for a period  of
assessment  of, any Tax,  nor has any such  waiver or  request  been made to the
Sellers by any Federal,  state,  local or foreign taxing authority,  outstanding
against the assets, properties or business of the Sellers. There are no Security
Interests  on any of the assets of any of the Sellers  that arose in  connection
with any  failure  (or  alleged  failure)  to pay any tax.  There is no  pending
dispute with any authority concerning any past, present or future Taxes. Sellers
have delivered to Purchaser correct and complete copies of all federal and state
Income Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by any of the Sellers since December 31, 1989.
<PAGE>

4.8  Undisclosed  Liabilities  and  Litigation.  (a) None of the Sellers has any
Liability  (and  there is no basis  for any  present  or  future  action,  suit,
proceeding, hearing, investigation,  charge, complaint, claim, or demand against
any of them  giving  rise to any  Liability),  except  for  certain  Liabilities
arising  in the  course  of the  development  of the  software,  and  listed  on
Disclosure  Schedule ss.4.8 (none of which results from,  arises out of, relates
to, is in the  nature of, or was  caused by any  breach of  contract,  breach of
warranty, tort,  infringement,  or violation of law). (b) Except as set forth in
Disclosure  Schedule ss.4.8 there are no suits,  claims,  actions,  proceedings,
including,  without limitation,  arbitration  proceedings or alternative dispute
resolution  proceedings,  or investigations  pending or, to the knowledge of the
Sellers,  threatened  against the Sellers or which  questions or challenges  the
validity of this Agreement or the transactions contemplated hereby.

4.9 Legal-Compliance. Each of the Sellers, and their respective predecessors and
Affiliates has complied with all applicable laws (including rules,  regulations,
codes, plans,  injunctions,  judgments,  orders,  decrees,  rulings, and charges
thereunder) of federal,  state, local, and foreign governments (and all agencies
thereof) , and no action,  suit,  proceeding,  hearing,  investigation,  charge,
complaint,  claim,  demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.

4.10 Changes. Since January 1, 1999, except as otherwise disclosed in Disclosure
Schedule ss.4.10:

         (a) there has been no event, effect or change (including the incurrence
of  any  liabilities  or  obligations  of any  nature  whether  or not  accrued,
contingent or otherwise) having a Material Adverse Effect on the Sellers.

     (b) none of the Sellers has adopted any  amendment  to its  Certificate  of
Incorporation or By-laws;

         (c) none the Sellers has, reissued,  pledged or sold, or authorized the
issuance,  reissuance,  pledge or sale of (i) additional equity of any class, or
securities  convertible  into,  exchangeable  for or  evidencing  the  right  to
substitute for, equity of any class, or any rights,  warrants,  options,  calls,
commitments or any other agreements of any character, to purchase or acquire any
capital stock or any securities or rights convertible into, exchangeable for, or
evidencing the right to subscribe for, equity.

          (d) none the Sellers has entered  into any  employment,  severance  or
similar  agreement  with any employee of the Sellers which does not by its terms
terminate,  or cannot be terminated or satisfied by Purchaser without premium or
penalty, prior to or at the Closing;

     (e) none the  Sellers has made any loans to any of the  Sellers,  managers,
officers or directors;

4.11 Real Property.  Disclosure Schedule ss.4.11 contains descriptions of all of
the Sellers  ownership  interests,  leasehold  interests,  easements,  licenses,
rights of access,  and  rights-of-way  in all real  property  which are owned or
leased by the  Sellers,  and are which  included in the  definition  of Acquired
Assets,  which are used in the  operation  of the  Acquired  Assets.  (the "Real
Property") (including name of lessor, expiration date and monthly rent). Each of
the leases in  connection  with the Real  Property  is in full force and effect.
Except as set forth on  Disclosure  Schedule  ss.4.11,  there are no  parties in
possession  of all or any portion of the Real  Property  other than the Sellers,
whether  as  lessees,  tenants at will,  trespassers  or  otherwise.  No zoning,
building or other  federal,  state or municipal  law,  ordinance,  regulation or
restriction  is violated by the continued  maintenance,  operation or use of the
Real Property or any tract or portion thereof or interest therein in its present
manner.  The current use of the Real Property and all parts thereof as aforesaid
does  not  violate  any  restrictive  covenants  of  record  affecting  the Real
Property.  All necessary  licenses,  permits and authorizations  required by any
governmental  authority  with respect to the Real Property  have been  obtained,
have been validly  issued and are in full force and effect.  Except as otherwise
disclosed on Disclosure Schedule ss.4.11, none of the Company, any Subsidiary or
any other party is in default under any lease or other instrument of conveyance.
All leasehold interests  (including the improvements  thereon) are available for
immediate use in the conduct and operation of the business of the Sellers.
<PAGE>

4.12 Title to and Condition of Personal  Property.  Disclosure  Schedule ss.4.12
hereto  contains a description of the items of Personal  Property which comprise
all Personal  Property  used in  connection  with the business of the Sellers or
which  permits  the  operation  of the  business  of the  Sellers  as now  being
conducted.  Sellers  have good title to all  Personal  Property  and none of the
Personal  Property  is  subject  to any  security  interest,  mortgage,  pledge,
conditional sales agreement or other lien or encumbrance, except for liens which
shall be discharged  or removed by the Sellers  prior to or at Closing.  None of
the  Sellers,  and to the  Sellers'  knowledge  no other  party is, in  material
default under any of the leases,  licenses and other agreements  relating to the
Personal Property.  Except as otherwise disclosed in Disclosure Schedule ss.4.12
hereto,  the  Personal  Property  is in  good  operating  condition  and  repair
(ordinary wear and tear excepted),  permits the operation of the business of the
Sellers as currently conducted without any immediate need for replacement and is
available for immediate use in the business of the Sellers.  The term  "Personal
Property" means all of the machinery,  equipment,  computer  programs,  computer
software,  tools,  motor vehicles,  furniture,  leasehold  improvements,  office
equipment,  supplies,  plant,  spare  parts and  other  tangible  or  intangible
personal property which are owned or leased by the Sellers.

4.13. Intellectual Property.

     (a) Disclosure  Scheduless.4.13(a) contains a true and complete list of all
Intellectual Property owned or licensed by the Sellers including but not limited
to: letters patent, patent applications, trade names, trademark and service mark
registrations  and  applications,   copyrights,   copyright   registrations  and
applications,  licenses in and/or  rights to the  foregoing,  both  domestic and
foreign,  claimed by the Sellers in its  business,  whether  registered  or not.
Disclosure  Schedule  ss.4.13(a),  lists each  geographic  location in which the
Intellectual  Property has been filed and each  geographic  location  where such
Intellectual Property is used is intended to be used. In each case to the extent
such  Intellectual  Property is used or  intended to be used in such  geographic
locations,  the  Intellectual  Property  has been  adequately  protected  by the
Sellers to the greatest extent provided by law in each geographic location.  The
Sellers  have taken all  reasonable  security  measures to protect the  secrecy,
confidentiality   and  value  of  all  Intellectual   Property  and  Proprietary
Information.

(b)               Except as described in  Disclosure  Schedule  ss.4.13(b),  the
                  Sellers  own or have the  right to use  pursuant  to  license,
                  sublicense,  agreement,  or permission to use all Intellectual
                  Property  necessary,  required or desirable for or incident to
                  the design, development,  manufacture, operation, distribution
                  sale and use of all products and services  sold or rendered or
                  proposed to be sold or rendered by the Sellers in the Business
                  Plan, free and clear of any right, equity or claim of others.

(c)               Disclosure  Schedule   ss.4.13(c)   identifies  each  item  of
                  Intellectual  Property  that any third party owns and that any
                  of the Sellers use pursuant to license, sublicense, agreement,
                  or  permission  in the course of its  business as described in
                  the  Business  Plan and in  connection  with the  Corebyte(TM)
                  product  family.  The Sellers has  delivered to the  Purchaser
                  correct and complete copies of all such licenses, sublicenses,
                  agreements,  and  permissions  (as  amended  to  date)  . With
                  respect  to  each  such  item of  used  Intellectual  Property
                  required to be identified in Disclosure Schedule ss.4.13(c):


<PAGE>

                           (i) the license, sublicense, agreement, or permission
                           covering   the  item  is   legal,   valid,   binding,
                           enforceable, and in full force and effect;

                           (ii)   the   license,   sublicense,   agreement,   or
                           permission will continue to be legal, valid, binding,
                           enforceable,   and  in  full   force  and  effect  on
                           identical  terms  following the  consummation  of the
                           transactions   contemplated   hereby  (including  the
                           assignments and assumptions referred to in Article II
                           above);

                           (iii) no party to the license, sublicense, agreement,
                           or permission  is in breach or default,  and no event
                           has occurred which with notice or lapse of time would
                           constitute a breach or default or permit termination,
                           modification, or acceleration thereunder;

     (iv) no party to the license,  sublicense,  agreement,  or  permission  has
repudiated any provision thereof;

                           (v)   with   respect   to   each   sublicense,    the
                           representations   and   warranties   set   forth   in
                           subsections  4.13(c)(i) through 4.13(c)(iv) above are
                           true  and  correct  with  respect  to the  underlying
                           license;

                           (vi) the underlying item of Intellectual  Property is
                           not subject to any outstanding injunction,  judgment,
                           order, decree, ruling, or charge;

                           (vii)   no   action,   suit,   proceeding,   hearing,
                           investigation, charge, complaint, claim, or demand is
                           pending or threatened  which challenges the legality,
                           validity, or enforceability of the underlying item of
                           Intellectual Property; and

                           (viii) none of the Sellers has granted any sublicense
                           or  similar   right  with  respect  to  the  license,
                           sublicense, agreement, or permission.

         (d)      Each item of Intellectual Property owned or used by any of the
                  immediately  prior to the Closing  hereunder  will be owned by
                  the  Purchaser  or  its  Subsidiary  on  identical  terms  and
                  conditions immediately subsequent to the Closing hereunder.
<PAGE>

         (e)      Except as described in  Disclosure  Schedule  ss.4.13(e),  (i)
                  none of the Sellers has sold, transferred,  assigned, licensed
                  or  subjected  to  any  Lien,  any  Intellectual  Property  or
                  Proprietary Information or any interest therein, and (ii) none
                  of the Sellers are obligated or under any  liability  whatever
                  to make any payments by way of royalties, fees or otherwise to
                  any  owner  or  licensor   of,  or  other   claimant  to,  any
                  Intellectual Property or Proprietary Information.

     (f) Except for the claims made by  Futureshare,  LLC, to the best knowledge
of  the  Sellers,   there  is  no   unauthorized   or   infringing   use  of  or
misappropriation   with  respect  to,  any  of  the  Intellectual   Property  or
Proprietary  Information.  To the best  knowledge  of the  Sellers,  neither the
Intellectual  Property  nor  the  Proprietary   Information  infringes  upon  or
misappropriates  the rights of any third party. None of the Sellers has received
from any person or entity, any notice,  charge,  claim or assertion that the any
of  the  Sellers'  use  of  any of  the  Intellectual  Property  or  Proprietary
Information  constitutes   infringement,   misappropriation  or  act  of  unfair
competition;  and has not,  within  any time  period  as to which  liability  of
another  person  or  entity  is  not  barred  by  statute,   sent  or  otherwise
communicated  to such other  person or entity any notice,  charge claim or other
assertion of, or has knowledge of any present or threatened  infringement of the
Intellectual Property or Proprietary Information by such other person or entity,
or misappropriation of any Intellectual  Property or Proprietary  Information by
such  other  person or entity or any acts of unfair  competition  by such  other
person or entity.  The Sellers have the absolute  right to bring actions for the
infringement of the Intellectual Property or Proprietary  Information.  There is
no claim or demand of any person or entity  pertaining to, or any action that is
pending or, to the Sellers' knowledge,  threatened,  which challenges the rights
of the  Sellers in  respect  of any  Intellectual  Property  or any  Proprietary
Information.

     (h) A list of the  beta-testers  for the  Corebyte  products is attached to
Disclosure Schedule 4.13 (g).

(i)               Seller warrants and represents  that the Corebyte  software is
                  an  original   creation  which  was  initially  affixed  to  a
                  permanent medium as of July, 1996.
<PAGE>

4.14 Contracts.

     (a) Disclosure Scheduless.4.14(a) hereto contains a list and description of
all  agreements,  written or oral  (including  any  amendments or  modifications
thereto) to which any of the Sellers are or have been a party (the  "Contracts")
since  January 1, 1997,  relating to the business of the Sellers,  including but
not limited to agreements for the lease of personal  property,  purchase or sale
of materials, furnishing of services,  partnerships,  joint ventures, alliances,
indebtedness or security,  confidentiality  or  noncompetition,  profit sharing,
stock options,  employment,  severance,  collective bargaining agreement and any
agreement under which the  consequences  of a default or termination  could have
any adverse  effect in the financial  condition,  operations,  results or future
prospects  of the  business as  Described  in the  Business  Plan and  Financial
Projections  and  Budget.  On or prior  to the date  hereof,  the  Sellers  have
provided  Purchaser  with true and complete  copies of the  Contracts,  Contract
Affirmations  or  Intellectual  Property  Releases  for all Clients set forth in
Disclosure  Scheduless.4.14(a).  All  of  the  Contracts  listed  on  Disclosure
Scheduless.4.14(a)  are in full force and  effect,  and are valid,  binding  and
enforceable  in accordance  with their terms.  Except as otherwise  disclosed on
Disclosure  Scheduless.4.14(a),  there is no  default  or  breach  by any of the
Sellers, or to the Sellers' knowledge, any other party to any Contract set forth
on Disclosure  Scheduless.4.14(a)  and there are no  negotiations  pending or in
progress to revise, modify, terminate or extend any such Contracts. Purchaser is
only  assuming  the Seller's  obligations  underracts  specifically  included in
Exhibit A and listed in Disclosure Scheduless.4.14(a).

        (b)       Except as expressly  contemplated  by this Agreement or as set
                  forth on Disclosure  Schedule  ss.4.14(a) hereto,  none of the
                  Sellers are a party to or bound by any written or oral:

                           (i)      pension,   profit  sharing,   stock  option,
                                    employee  stock  purchase  or other  plan or
                                    arrangement  providing for deferred or other
                                    compensation   to  employees  or  any  other
                                    employee benefit plan or arrangement, or any
                                    collective bargaining agreement or any other
                                    contract with any labor union,  or severance
                                    agreements,     programs,     policies    or
                                    arrangements;

                           (ii)     contract for the  employment of any officer,
                                    individual  employee  or other  Person  on a
                                    full-time,  part-time,  consulting  or other
                                    basis  or  contract  relating  to  loans  to
                                    officers, directors or Affiliates;

                           (iii)    contract   under  which  the  Sellers   have
                                    advanced or loaned any other Person  amounts
                                    in the aggregate exceeding $1,000;

                           (iv)     agreement or indenture  relating to borrowed
                                    money   or   other   indebtedness   or   the
                                    mortgaging,  pledging or otherwise placing a
                                    Lien on any  asset or group of assets of the

<PAGE>

                                    Sellers;

                           (v)      guarantee of any obligation;

                           (vi)     lease or  agreement  under  which any of the
                                    Sellers  are lessee of or holds or  operates
                                    any  personal  property  owned by any  other
                                    party;

                           (vii)    lease or  agreement  under  which any of the
                                    Sellers  are lessor of or permits  any third
                                    party to hold or operate any property,  real
                                    or  personal,  owned  or  controlled  by the
                                    Sellers;

                           (viii)   assignment,   license,   indemnification  or
                                    agreement  with  respect  to any  intangible
                                    property (including, without limitation, any
                                    Intellectual  Property  listed in Disclosure
                                    Schedule ss.4.13)

                           (ix)     express warranties with respect to its
                                    services rendered or its products sold
                                    or leased;

                           (x)      contract or agreement prohibiting it from
                                    freely engaging in any business or
                                    competing anywhere in the world; or

                          (xi)     any other agreement which is material to its
                                   operations and involves a consideration in
                                   excess of $2,000 annually.

         (c) No party may claim ownership rights in any of the Corebyte software
         by virtue of their status as former employer or independent  contractor
         with the Sellers. Sellers have provided Purchaser with limited releases
         documenting this representation. Copies of these releases are set forth
         in Disclosure  Schedule 4.14 (c). A breach of this  representation will
         entitle  Purchase  to seek a return of the  Purchase  Price and damages
         flowing form such breach.
<PAGE>

4.15 Notes and Accounts  Receivable.  All notes and accounts  receivable  of the
Sellers are reflected  properly on the Financial  Projections  and are listed in
Disclosure  Schedule ss.4.15 and , are valid receivables subject to no setoff or
counterclaims,  are current and collectible, and will be collected in accordance
with their terms at their  recorded  amounts in accordance  with the past custom
and practice of the Sellers.

4.16     Powers of Attorney. There are no outstanding powers of attorney
 executed on behalf any of the Sellers.

4.17 Insurance.  Disclosure Schedule ss.4.17 sets forth an accurate  description
of each insurance  policy  (including  policies  providing  property,  casualty,
liability, and workers,  compensation coverage and bond and surety arrangements)
to which any of the Sellers has been a party, a named insured,  or otherwise the
beneficiary of coverage at any time within the past five years.  With respect to
each  such  insurance  policy:  (a)  the  policy  is  legal,   valid,   binding,
enforceable,  and in full force and effect;  (b) the policy will  continue to be
legal, valid,  binding,  enforceable,  and in full force and effect on identical
terms  following  the  consummation  of  the  transactions  contemplated  hereby
(including the assignments and assumptions referred to in S2 above); (c) none of
the Sellers nor any other party to the policy is in breach or default (including
with respect to the payment of premiums or the giving of notices) , and no event
has occurred which,  with notice or the lapse of time,  would  constitute such a
breach or default, or permit termination,  modification, or acceleration,  under
the policy; and (d) no party to the policy has repudiated any provision thereof.
Each of the Sellers has been covered  during the past five years by insurance in
scope and amount  customary and  reasonable  for the  businesses in which it has
engaged during the  aforementioned  period.  ss.4.17 of the Disclosure  Schedule
describes any self-insurance arrangements affecting any of the Sellers.

4.18  Employees.  None of the Sellers have  implemented or provided any Employee
Benefit  Plan  to any  employee.  None  of the  employees  of  the  Sellers  are
represented  by a  union  or  subject  to  a  collective  bargaining  agreement.
Disclosure  Schedule 4.18 lists (i) all employment  agreements,  whether oral or
written,  between the Sellers and any of their respective  directors or officers
and  between  the  Sellers  its or their  employees  and  (ii) all  consultants,
independent contractors, employees, officers, directors or Persons who have ever
been  engaged  in any  capacity  at any time  since  January  1, 1997 to perform
services of any nature or connection  with the  Corebyte(TM)  product  family as
described in the Business Plan.

4.19     Environmental Laws and Regulations: Environment, Health, and Safety.

         (a)      Each of the  Sellers  and their  respective  predecessors  and
                  Affiliates has complied with all  Environmental,  Health,  and
                  Safety  Laws,  and  no  action,  suit,  proceeding,   hearing,
                  investigation, charge, complaint, claim, demand, or notice has
                  been served,  filed, or commenced against any of them alleging
                  any failure so to comply.  The Sellers have  complied with all
                  other  limitations,   restrictions,   conditions,   standards,
                  prohibitions,   requirements,   obligations,   schedules,  and
                  timetables which are contained in, all Environmental,  Health,
                  and Safety Laws.
<PAGE>

     (b) None of the Sellers has any  Liability  (and none of the  Sellers,  and
their  respective  predecessors  and  Affiliates  has handled or disposed of any
substance,  arranged for the disposal of any substance,  exposed any employee or
other  individual  to any  substance  or  condition,  or owned or  operated  any
property  or facility in any manner that could form the basis for any present or
future action, suit,  proceeding,  hearing,  investigation,  charge,  complaint,
claim,  or demand  against any of the Sellers  giving rise to any Liability) for
damage to any site, location, or body of water (surface or subsurface),  for any
illness of or personal  injury to any employee or other  individual,  or for any
reason under any Environmental, Health, and Safety Law.

         (c)      All  properties  and  equipment  used in the  business  of the
                  Sellers and their respective  predecessors and Affiliates have
                  been and are free of Hazardous Substances.

         (d)      No  underground  storage  tanks,  as defined  in the  Resource
                  Conservation  and Recovery Act of 1970,  as amended;  or under
                  any applicable state law, are present on any of the properties
                  used  by  the  Sellers,  and no  such  tanks  were  previously
                  abandoned or removed.

                                    ARTICLE V

                         REPRESENTATIONS AND WARRANTIES
                                  OF PURCHASER

Purchaser represent and warrants to the Sellers that:

5.1 Organization and  Qualification.  Purchaser is a corporation duly organized,
validly  existing and in good  standing  under the laws of the State of Delaware
Purchaser has the  requisite  corporate  power and authority to own,  operate or
lease its properties and to carry on its business as it is now being  conducted,
and is duly qualified or licensed to do business,  and is in good  standing,  in
each  jurisdiction in which the nature of its business or the properties  owned,
operated or leased by it makes such  qualification,  licensing or good  standing
necessary.

5.2 Authority Relative to this Agreement.  Purchaser has all necessary corporate
power and authority to execute and deliver this Agreement, and to consummate the
transactions  contemplated  hereby. The execution and delivery of this Agreement
by Purchaser and the consummation by Purchaser of the transactions  contemplated
hereby  have been duly and  validly  authorized  and  approved  by the Boards of
Directors  of  Purchaser  and no  other  corporate  proceedings  on the  part of
Purchaser are necessary to authorize or approve this Agreement, or to consummate
the transactions  contemplated hereby. This Agreement has been duly executed and
delivered by Purchaser and, assuming the due and valid authorization,  execution
and  delivery  by the  Sellers,  constitutes  a  valid  and  binding  obligation
Purchaser  enforceable against it in accordance with its terms, except that such
enforceability (a) may be limited by bankruptcy, insolvency, moratorium or other
similar  laws  affecting or relating to the  enforcement  of  creditors'  rights
generally and (b) is subject to general principles of equity.
<PAGE>

5.3  No Conflict: Required Filings and Consents.

     (a) Neither the  execution,  delivery or  performance  of this Agreement by
Purchaser, the consummation by Purchaser of the transactions contemplated hereby
or compliance by Purchaser with any of the  provisions  hereof will (i) conflict
with or violate the organizational documents of Purchaser, (ii) conflict with or
violate any statute,  ordinance,  rule,  regulation,  order,  judgment or decree
applicable to Purchaser,  or any of their Subsidiaries,  or by which any of them
or any of their  respective  properties  or assets may be bound or affected,  or
(iii) result in a violation  pursuant to any note,  bond,  mortgage,  indenture,
contract,  agreement,  lease, license,  permit, franchise or other instrument or
obligation to which Purchaser,  or any of their  Subsidiaries,  is a party or by
which any of their respective properties or assets may be bound or affected.

         (b)      None  of the  execution  and  delivery  of this  Agreement  by
                  Purchaser,  the  consummation by Purchaser of the transactions
                  contemplated hereby or compliance by Purchaser with any of the
                  provisions hereof will require any Consent of any Governmental
                  Entity.

5.4 Brokers. Neither Purchaser, nor any of their Subsidiaries,  nor any of their
respective officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage  fees,  commissions or finder's fees in
connection with the transactions contemplated by this Agreement.

                                   ARTICLE VI

                              PRE-CLOSING COVENANTS

The Parties agree as follows with respect to the period between the execution of
this Agreement and the Closing.

     6.1  General.  Each of the  Parties  will use its best  efforts to take all
action  and  to do all  things  necessary,  proper  or  advisable  in  order  to
consummate and make effective the  transactions  contemplated  by this Agreement
(including,  satisfaction,  but not waiver, of the closing conditions set forth,
in Article VII, below).

6.2 Notices and  Consents.  The Sellers will give any notices to third  parties,
and,  Sellers  will  obtain  any third  party  consents  and  waivers,  that the
Purchaser may request in connection with the matters referred to in the relevant
Disclosure  Schedules.  =Each of the Parties will) give any notices to, make any
filings with, and use its best efforts to obtain any  authorizations,  consents,
and approvals of governments  and  governmental  agencies in connection with the
matters referred to in the relevant Disclosure Schedules above. Without limiting
the generality of the foregoing,  each of the Parties will file any Notification
and Report Forms and related  material  that it may be required to file with the
Federal  Trade  Commission  and the  Antitrust  Division  of the  United  States
Department of Justice under the Hart-Scott-Rodino Act.
<PAGE>

6.3  Operation of  Business.  Except for the sale of the  Excluded  Assets,  the
Sellers  will not engage in any  practice,  take any  action,  or enter into any
transaction  outside the  ordinary  course of  business.  Without  limiting  the
generality of the foregoing and except for the sale of the Excluded Assets,  the
Sellers  will  not (a)  declare,  set  aside,  or pay any  dividend  or make any
distribution  with respect to its capital stock  (whether in cash or in kind) or
redeem,  purchase,  or  otherwise  acquire any of its capital  stock;  (b) sell,
lease,  transfer,  or assign any of its assets,  tangible or intangible,  to any
third  party  (including  any  intercompany  transfer)  other  than  for a  fair
consideration in the ordinary course of business;  (c) enter into any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and  licenses);  (d)  accelerate,  terminate,  modify,  or cancel any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) to which any of the Sellers are a party or by which any of them is
bound; (e) incur,  assume or pre-pay any debt, (f) assume guarantee,  endorse or
otherwise  become  liable or  responsible  (whether  directly,  contingently  or
otherwise)  for the  obligations  of any other  Person or (g) make any  advances
loans or capital  contributions  to, or  investments  in,  any other  Person (h)
settle or compromise any suit or claim or threatened suit or claim; or (i) agree
in writing or otherwise to take any of the foregoing  actions  prohibited  under
Section 6.1 or any action  which would cause any  representation  or warranty in
this  Agreement to be or become untrue or incorrect in any material  respect (j)
make or pledge to make any charitable or other capital  contribution outside the
ordinary  course of business.  Except for the sale of the Excluded  Assets,  the
Sellers will keep its business and properties  substantially  intact,  including
its  present  operations,   physical   facilities,   working   conditions,   and
relationships with lessors, licensers, suppliers, customers, and employees.

6.4 Full Access.  The Sellers will permit  representatives  of the  Purchaser to
have  full  access  to  all  premises,  properties,  personnel,  books,  records
(including  Tax  records),  contracts,  and  documents of or  pertaining  to the
Sellers.  This access includes access for the Purchaser to conduct environmental
assessment investigations of the premises and properties. The Sellers will fully
cooperate with such environmental assessment investigation.

6.5 Notice of  Developments.  Each Party will give prompt  written notice to the
other party of any breach of any of its own  representations  and  warranties in
Articles IV and V above.  No  disclosure  by any Party  pursuant to this Section
6.5, however,  shall be deemed to amend or supplement the Disclosure Schedule or
to  prevent  or cure any  misrepresentation,  breach of  warranty,  or breach of
covenant.

6.6 Exclusivity.  Except with respect to the Excluded Assets herein, the Sellers
will  not  (and  will  not  cause or  permit  any of its,  directors,  officers,
employees,  or agents to) (a) solicit,  initiate, or encourage the submission of
any proposal or offer from any Person  relating to the acquisition of any equity
or other voting securities,  or any substantial portion of the assets, of any of
the Sellers (including any acquisition structured as a merger, consolidation, or
share  exchange),   or  (b)  participate  in  any  discussions  or  negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing.  The Sellers will notify the Purchaser  immediately if any
Person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.

6.5 Public Announcements. The mutual press release with respect to the execution
of this  Agreement  shall be a press  release  acceptable to the Sellers and the
Purchaser.  Thereafter,  so long as this  Agreement is in effect,  the Purchaser
shall have sole  discretion  to issue any press  release or  otherwise  make any
public  statement  with  respect  to  the  transactions   contemplated  by  this
Agreement.
<PAGE>

                                   ARTICLE VII

                        CONDITIONS TO OBLIGATION TO CLOSE

7.1  Conditions to  Obligations  of Purchaser.  The  obligations of Purchaser to
consummate the transactions to be performed by it in connection with the Closing
is subject to the satisfaction of the following conditions:

(a)               Representations   and  Warranties.   All  representations  and
                  warranties  of the Sellers  shall be true and  complete in all
                  material respects at and as of the Closing Date as though such
                  representations  and  warranties  were  made at and as of such
                  time.

(b)  Purchaser  and Sellers  shall have executed a Bill of Sale for the Acquired
Assets.

(c)               Covenants  and  Conditions.  The  Sellers  shall  have  in all
                  material  respects  performed and complied with all covenants,
                  agreements  and  conditions  required by this  Agreement to be
                  performed or complied  with by them prior to or on the Closing
                  Date.

(d)               Adverse Change.  Since April 1, 1999, there shall have been no
                  material  adverse  change in the business,  assets,  condition
                  (financial or otherwise),  prospects, or results of operations
                  of the Sellers.

          (e)     Consents. All necessary third party Consents and waivers shall
                  have been duly obtained and delivered to Purchaser.

         (f)      Employment  Agreement.  Engstrom  shall have  entered  into an
                  Employment  Agreement with Purchaser form and substance as set
                  forth in Exhibit C, hereto.

     (g) Legalities.  Except for the Futureshare Litigation, no action, suit, or
proceeding shall be pending before any court or quasi-judicial or administrative
agency  of any  federal,  state,  local,  or  foreign  jurisdiction  wherein  an
unfavorable  injunction,  judgment,  order, decree,  ruling, or charge would (i)
prevent consummation of any of the transactions  contemplated by this Agreement,
(ii)  cause  any  of the  transactions  contemplated  by  this  Agreement  to be
rescinded  following  consummation,  (iii)  affect  adversely  the  right of the
Purchaser to own any of the Acquired Assets, to operate the former businesses of
the Sellers, or (iv) affect adversely the right of the Sellers to own its assets
and to operate its businesses (and no such injunction,  judgment, order, decree,
ruling, or charge shall be in effect).
<PAGE>

7.2 Conditions to Obligations  of the Company and  Shareholders.  The respective
obligations of the Sellers to consummate the  transactions to be performed by it
in  connection  with the  closing is subject to  satisfaction  of the  following
conditions:

           (a)    Representations   and  Warranties.   All  representations  and
                  warranties  of  Purchaser  shall be true and  complete  in all
                  material respects at and as of the Closing Date as though such
                  representations  and  warranties  were  made at and as of such
                  time.

           (b)    Covenants and Conditions. Purchaser shall have in all material
                  respects performed and complied with all covenants, agreements
                  and  conditions  required by this Agreement to be performed or
                  complied with by them prior to or on the Closing Date.

         (c)      Board Approval.  The Board of Directors of Purchaser shall
                  have duly approved the transactions contemplated by this
                  Agreement.

         (d)      Consents.  All necessary  Purchaser  Consents  shall have been
                  duly obtained and delivered to the Company.

          (e)     Legality.  No action,  suit, or proceeding shall be pending
                  before any court or quasi-judicial or administrative  agency
                  of  any  federal,  state,  local,  or  foreign  jurisdiction
                  wherein  an unfavorable   injunction,   judgment,   order,
                  decree,  ruling,  or  charge  would  (i)  prevent
                  consummation of any of the  transactions  contemplated  by
                  this Agreement,  (ii) cause any of the transactions
                  contemplated  by this  Agreement  to be  rescinded  following
                  consummation,  (iii) affect  adversely  the right of the
                  Purchaser to own any of the Acquired  Assets,  to operate the
                  former  businesses of the Sellers,  or (iv) affect  adversely
                  the right of the Sellers to own its assets and to operate its
                  businesses (and no such injunction,  judgment,  order, decree,
                  ruling, or charge shall be in effect).


                                  ARTICLE VIII

                         TERMINATION; AMENDMENTS; WAIVER

8.1   Termination.   This  Agreement  may  be  terminated  and  the  transaction
contemplated  hereby  may  be  abandoned  at any  time  prior  to  the  Closing,
notwithstanding approval thereof by the Purchaser's Board of Directors:

         (a)      by mutual consent of  the Parties;

         (b)      by the  Sellers  if  Purchaser  shall  have  made  a  material
                  misrepresentation or have breached in any material respect any
                  of  their  respective  representations,   covenants  or  other
                  agreements contained in this Agreement, which breach cannot be
                  or has not been  cured  within  30 days  after  the  giving of
                  written notice to Purchaser, as applicable; or

         (c)      by   Purchaser  if  the  Sellers   shall  have   breached  any
                  representation,   warranty,   covenant   or  other   agreement
                  contained in this Agreement  which breach cannot be or has not
                  been cured  within 30 days after the giving of written  notice
                  to the Sellers; or
<PAGE>

         (d)      by  Purchaser if the Purchaser's Board of Directors shall not
                  have approved the transactions contemplated by this
                  Agreement;
                  or

         (e)      by  the Sellers if Closing shall not have occurred by
                  September 1, 1999.

8.2 Effect of  Termination.  In the event of the  termination  of this Agreement
pursuant to Section 8.1, this Agreement shall forthwith  become void and have no
effect,  without  any  liability  on the  part of any  Party  or its  directors,
officers, employees or stockholders. Nothing contained in this Section 8.2 shall
relieve any party from liability for any breach of this Agreement.

8.3  Specific  Performance.  Notwithstanding  anything in this  Agreement to the
contrary,  if, on the Closing  Date,  the Purchaser (a) has complied with all of
the  conditions to Closing  contained in Article has notified the Sellers of its
intention to consummate the transactions  contemplated under this Agreement, and
(iii) is ready and able to pay the Purchase Price and furnishes evidence to that
effect to the Sellers, and if the Closing does not then occur due to the refusal
of the  Sellers  to so  consummate  the  transactions  contemplated  under  this
Agreement,  the Purchaser will be entitled to specifically  enforce the terms of
this Agreement in a court of competent jurisdiction,  it being acknowledged that
monetary damages due the Purchaser in such case cannot be adequately  determined
at law.

8.4 Extension;  Waiver.  At any time prior to the Closing,  any party hereto may
(i) extend the time for the  performance of any of the obligations or other acts
of any other party hereto,  (ii) waive any  inaccuracies in the  representations
and  warranties  contained  herein  by  any  other  party  or in  any  document,
certificate  or writing  delivered  pursuant  hereto by any other party or (iii)
waive  compliance  with any of the  agreements  of any  other  party or with any
conditions to its own obligations. Any agreement on the part of any party to any
such  extension or waiver shall be valid only if set forth in an  instrument  in
writing signed on behalf of such party.


                                   ARTICLE IX

                         SURVIVAL OF REPRESENTATIONS AND
                         WARRANTIES AND INDEMNIFICATION

9.1 Survival of  Representations  and  Warranties.  All of the  representations,
warranties,  covenants,  and  agreements  contained in this Agreement and in any
certificate, schedule, document, or other writing delivered pursuant hereto have
been  relied  upon  and  shall   survive  the   Closing;   provided,   that  any
representation  and  warranty  contained  in  Articles  IV and V shall  be fully
effective  and  enforceable  only for a period from the Closing Date through and
until the second  anniversary of the Closing Date and shall  thereafter be of no
further  force or effect,  except as to claims for  indemnification  timely made
pursuant to this Article IX which shall  survive  until  resolved or  judicially
determined.
<PAGE>

9.2      Indemnification Provisions for the Benefit of the Purchaser

     (a) Subject to the  provisions  of Article 9.6 (notice)  and 9.1  (survival
period),  the Sellers agrees to indemnify the Purchaser from and against any all
claims,  demands,   assessments,   judgments,  costs  and  expenses,   including
reasonable  legal fees and  expenses,  imposed  upon  Purchaser as a result of a
final  adjudicated  determination  of a  claim,  action  or suit,  inclusive  of
reasonable  appeals,  (collectively  "Adverse  Consequences")  the Purchaser may
suffer  through and after the date of the claim for  indemnification  (including
any  Adverse  Consequences  the  Purchaser  may  suffer  after  the  end  of any
applicable  survival period) resulting from, arising out of, relating to, in the
nature  of, or caused by The  Sellers'  misrepresentation  or breach  any of the
Sellers' representations, warranties, and covenants contained in this Agreement.

         (b)      The Sellers agree to indemnify the Purchaser  from and against
                  any Adverse  Consequences  the Purchaser may suffer  resulting
                  from, arising out of, relating to, in the nature of, or caused
                  by:

                           (i)      any Liability of the Sellers which is not an
                                    Assumed  Liability  (including any Liability
                                    of the Sellers  that  becomes a Liability of
                                    the Purchaser under any bulk transfer law of
                                    any  jurisdiction,   under  any  common  law
                                    doctrine  of de facto  merger  or  successor
                                    liability,  or  otherwise  by  operation  of
                                    law); or

     (ii) any  Liability  of any of the  Sellers'  for the  unpaid  Taxes of any
Person (other than any of the Sellers)  under Treas.  Reg.  ss.1.1502-6  (or any
similar  provision  of  state,  local,  or  foreign  law),  as a  transferee  or
successor, by contract, or otherwise.

(iii)                               any  Liability  of  the  Sellers  (including
                                    costs  and  attorneys  fees)  imposed  as an
                                    outcome   of   any   litigation    involving
                                    Futureshare.com LLC or any of the principals
                                    of   Futureshare.com,   LLC,   unless   such
                                    Liability is expressly  agreed to be assumed
                                    by Purchaser, in writing, at a later date.

9.3      Indemnification  Provisions for the Benefit the  Sellers.

     (a) Subject to the  provisions  of Article 9.6 (notice)  and 9.1  (survival
period),  the Purchaser agrees to indemnify the Sellers from and against any all
claims,  demands,   assessments,   judgments,  costs  and  expenses,   including
reasonable legal fees and expenses,  imposed upon Sellers as a result of a final
adjudicated  determination of a claim,  action or suit,  inclusive of reasonable
appeals,  (collectively  "Adverse  Consequences") the Sellers may suffer through
and  after  the date of the claim for  indemnification  (including  any  Adverse
Consequences  the  Seller may suffer  after the end of any  applicable  survival
period) resulting from, arising out of, relating to, in the nature of, or caused
by  the   Purchasers'   misrepresentation   or  breach   any  of  the   Sellers'
representations, warranties, and covenants contained in this Agreement.

          (b)     The Purchaser agrees to indemnify the Sellers from and against
                  any Adverse  Consequences  the  Sellers  may suffer  resulting
                  from, arising out of, relating to, in the nature of, or caused
                  by any Assumed Liability.
<PAGE>

  9.4     Matters Involving Third Parties.

          (a)     If any third  party shall  notify any Party (the  "Indemnified
                  Party")  with  respect to any matter (a "Third  Party  Claim")
                  which may give rise to a claim for indemnification against the
                  other Party (the  "Indemnifying  Party") under this Article 9,
                  then  the   Indemnified   Party  shall  promptly   notify  the
                  Indemnifying Party thereof in writing; provided, however, that
                  no delay on the part of the Indemnified Party in notifying the
                  Indemnifying  Party shall relieve the Indemnifying  Party from
                  any  obligation  hereunder  unless  (and  then  solely  to the
                  extent) the Indemnifying Party thereby is prejudiced.

     (b) The  Indemnifying  Party will have the option to defend the Indemnified
Party against the Third Party Claim with counsel of its choice  satisfactory  to
the  Indemnified  Party  so long  as (i) the  Indemnifying  Party  notifies  the
Indemnified Party in writing within 10 business days after the Indemnified Party
has given  notice of the Third  Party  Claim  that the  Indemnifying  Party will
indemnify the Indemnified  Party from and against any Adverse  Consequences  the
Indemnified Party may suffer resulting from, arising out of, relating to, in the
nature  of, or  caused by the Third  Party  Claim,  (ii) the Third  Party  Claim
involves only money  damages and does not seek an injunction or other  equitable
relief,  (iii)  settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party,  likely
to  establish  a  precedential  custom of  practice  adverse  to the  continuing
business  interests of the Indemnified  Party, and (iv) the  Indemnifying  Party
conducts the defense of the Third Party Claim actively and diligently.

         (c)      So long as the Indemnifying Party is conducting the defense of
                  the Third Party Claim in accordance with Section 9.4(b) above,
                  (i) the Indemnified  Party may retain  separate  co-counsel at
                  its sole cost and expense and participate in the
                     defense  of the Third  Party  Claim,  (ii) the  Indemnified
                  Party will not consent to the entry of any  judgement or enter
                  into any  settlement  with  respect to the Third  Party  Claim
                  without the prior written  consent of the  Indemnifying  Party
                  (not to be withheld unreasonably) , and (iii) the Indemnifying
                  Party will not  consent to the entry of any  judgment or enter
                  into any settlement with respect to the Third Party
                  Claim  without the prior  written  consent of the  Indemnified
                  Party (not to be withheld unreasonably).
<PAGE>

     (e) In the  event  any of the  conditions  in  Section  9.4(b)  above is or
becomes unsatisfied,  however, (i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any  settlement  with respect
to, the Third Party Claim in any manner it reasonably may deem  appropriate (and
the  Indemnified  Party need not consult with,  or obtain any consent from,  any
Indemnifying  Party in connection  therewith),  (ii) the Indemnifying Party will
reimburse  the  Indemnified  Party  promptly and  periodically  for the costs of
defending  against the Third Party Claim (including  reasonable  attorneys' fees
and expenses),  and (iii) the Indemnifying Party will remain responsible for any
Adverse  Consequences the Indemnified  Party may suffer resulting from,  arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Article IX.

9.5 Other Indemnification  Provisions.  The foregoing indemnification provisions
under this S8 are in  addition  to,  and not in  derogation  of, any  statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant.

9.6 Procedure for Indemnification.  Following receipt of written notice from the
either the  Indemnified  Party or a Third Party,  of a claim,  the  Indemnifying
Party shall have twenty (20) days (or such shorter period of time as is required
to respond to the subject  litigation or proceeding) to make such  investigation
of the claim as the  Indemnifying  Party deems  necessary or desirable.  For the
purposes of such  investigation,  the Indemnified Party agrees to make available
to the Indemnifying  Party or its authorized  representative(s)  the information
relied  upon  by  the  Indemnified  Party  to  substantiate  the  claim.  If the
Indemnified Party and the Indemnifying Party agree at or prior to the expiration
of said 20 day period (or any  mutually  agreed upon  extension  thereof) to the
validity and amount of such claim, the Indemnifying  Party shall immediately pay
to the Indemnified  Party the full amount of the claim. If the Indemnified Party
and the  Indemnifying  Party do not agree  within said  period (or any  mutually
agreed upon extension thereof), the Indemnified Party may seek appropriate legal
remedy.  If a claim,  whether between the parties or by a third party,  requires
immediate  action,  the parties will make every effort to reach a decision  with
respect thereto as expeditiously as possible.

<PAGE>

                                    ARTICLE X

                                  MISCELLANEOUS

10.1     Legal Representation

                  Sellers  represent  that Purchaser has informed of their right
to be  represented by counsel and have advised them to retain  counsel.  Sellers
voluntarily and have elected to proceed without formal  representation  but have
consulted with counsel and are satisfied with all of the agreements constituting
the transaction.  Sellers waive any claims that they may have against  Purchaser
involving their lack of legal representation.

10.2    Entire Agreement; Assignment.

                  (a)  This   Agreement   (including   the   documents  and  the
instruments  referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral among the parties
with respect to the subject matter hereof and thereof.

                  (b) Neither this Agreement nor any of the rights, interests or
obligations  hereunder will be assigned by any of the parties hereto (whether by
operation of law or otherwise)  without the prior  written  consent of the other
party  (except  that Parent may assign its rights and  Purchaser  may assign its
rights,  interest  and  obligations  to any  affiliate  or  direct  or  indirect
subsidiary  of Parent  without  the  consent  of the  Company).  Subject  to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.

10.3  Severability.  Any term or provision of this  Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or  enforceability  of the remaining terms and provisions hereof or the validity
or  enforceability  of the offending term or provision in any other situation or
in any other jurisdiction.

10.4 Notices. All notices,  requests,  claims,  demands and other communications
hereunder  shall be in writing  and shall be deemed to have been duly given when
delivered in person, by overnight courier or facsimile to the respective parties
as follows:

         If to  Purchaser:

                  Datapoint Corporation
                  8410 Datapoint Drive
                  San Antonio, Texas 78229
                  Attention:
                  Fax #:  (210) 593-7921

         with a copy to:

                  Povich  Kelly/ Associates
                  417 Canal Street, 6th Floor
                  New York, New York 10022
                  Attention:   Susan A. Povich, Esq.
                  Fax #: (212)  271-0363

         If to the Sellers:

                  SF Digital
                  John Engstrom
                  Corebyte
                  60 Barry Street, #2F
                  Brooklyn, New York 11211
                  Fax #:

         with copies to:


or to such  other  address  as the  person  to whom  notice  is  given  may have
previously  furnished  to the other in writing  in the  manner  set forth  above
provided  that  notice of any change of  address  shall be  effective  only upon
receipt thereof).
<PAGE>

10.5  Governing  Law.  This  Agreement  shall be  governed by and  construed  in
accordance  with the laws of the State of New York,  regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.

10.6 Consent to  Jurisdiction:  Waiver of Immunities.  The Purchaser and Sellers
irrevocably  submit to the  jurisdiction  of any New York state or federal court
thereof  in any  action  or  proceeding  arising  out  of or  relating  to  this
Agreement,  and the  Purchaser  and Sellers  hereby  irrevocably  agree that all
claims in respect of such action or  proceeding  may be heard and  determined in
such New York state court or in such federal  court.  Each of the parties hereto
irrevocably and  unconditionally  consents to the service of any and all process
in any such action or  proceeding  by the  mailing of copies of such  process by
certified  mail to such  party and its  counsel  at their  respective  addresses
specified in Section 10.3 above.

10.7  Descriptive  Headings.  The  descriptive  headings and captions herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.

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

10.9 Parties in Interest.  This Agreement shall be binding upon and inure solely
to the benefit of each party  hereto and nothing in this  Agreement,  express or
implied,  is intended to confer upon any other  person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.

10.10  Incorporation  of Exhibits and  Schedules.  The  Exhibits  and  Schedules
(including   the   Disclosure   Schedule)   identified  in  this  Agreement  are
incorporated herein by reference and made a part hereof.
<PAGE>

IN WITNESS WHEREOF, each of the parties has caused this Asset Purchase Agreement
to  be  executed  on  its  behalf  by  its  respective  officer  thereunto  duly
authorized, all as of the day and year first above written.


                                                     DATAPOINT CORPORATION



                                                     Name: /s/Asher B. Edelman
                                                     Title:   Chairman


                                                     SF Digital, LLC



                                                     Name: /s/John Engstrom
                                                     Title: Manager

                                                     John Engstrom, Individually
                                                     and d/b/a SF Digital



                                                     Name: /s/John Engstrom
                                                     Title: