Exhibit
10.1


 


MICROS-TO-MAINFRAMES, INC.


 


PURCHASE AGREEMENT


 


THIS PURCHASE AGREEMENT (this “Agreement”) is
made on the 29th day of January, 2004, by and among Micros-to-Mainframes, Inc.,
a New York corporation (the “Company”), and the purchasers listed on Schedule
I hereto, each of which is herein referred to as a “Purchaser” and,
collectively, as the “Purchasers”. 
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to such terms in Section 8 herein.


 


W I T N E S S E T H:


 


WHEREAS, prior to the Initial Closing Date, the Board
of Directors will create and designate (i) a series of preferred stock to be
known as Series A-1 Convertible Preferred Stock, $0.001 par value per share
(the “Series A-1 Preferred Stock”); (ii) a series of preferred stock to
be known as Series A-2 Convertible Preferred Stock, $0.001 par value per share
(the “Series A-2 Preferred Stock”); and (iii) a series of preferred
stock to be known as Series A-3 Convertible Preferred Stock, $0.001 par value
per share (the “Series A-3 Preferred Stock”, and together with the
Series A-1 Preferred Stock and the Series A-2 Preferred Stock, the “Series A
Preferred Stock”), the preferences, limitations and relative rights of
which are set forth in the form of the Amended and Restated Certificate of
Incorporation attached hereto as Exhibit A (the “Restated Certificate”);


 


WHEREAS, subject to the conditions and terms hereof,
on the Initial Closing Date the Company will issue and sell to the Purchasers
and the Purchasers will purchase from the Company (i) an aggregate of 3,255,814
shares of Series A-1 Preferred Stock (the “Series A-1 Purchased Shares”)
at a purchase price of $2.15 per share (the “Series A-1 Purchased Shares
Purchase Price”) and (ii) detachable warrants to purchase 500,000 shares of
newly issued common stock, $0.001 par value per share (the “Common Stock”),
of the Company, at an exercise price equal to $2.46 per share (the “Series
A-1 Warrants”);


 


WHEREAS, subject to the conditions and terms hereof,
on any Series A-2 Closing Date the Company will issue and sell to the
Purchasers and the Purchasers will purchase from the Company (i) shares of
Series A-2 Preferred Stock in an amount to be determined in accordance with the
provisions and conditions set forth in Section 1.3 herein, but, in any event,
not to exceed an aggregate amount of 2,000,000 shares of Series A-2 Preferred
Stock (the “Series A-2 Purchased Shares”) at a purchase price of $2.75
per share (the “Series A-2 Purchased Shares Purchase Price”) and (ii)
detachable warrants to purchase that number of shares of Common Stock equal to
20% of the number of shares of Series A-2 Purchased Shares being purchased at
such time at an exercise price equal to $3.44 per share (the “Series A-2
Warrants”);


 


WHEREAS, subject to the conditions and terms hereof,
on any Series A-3 Closing Date the Company will issue and sell to the
Purchasers and the Purchasers will purchase from the Company (i) shares of
Series A-3 Preferred Stock in an amount and at a purchase price to be determined
in accordance with the provisions and conditions set forth in Section 1.4
herein 


 

















 


(the “Series A-3 Purchased Shares”) and (ii) detachable warrants
to purchase that number of shares of Common Stock equal to 20% of the number of
shares of Series A-3 Purchased Shares being purchased at such time at an
exercise price equal to 125% of the per share purchase price of such Series A-3
Purchased Shares (the “Series A-3 Warrants”);


 


WHEREAS, the Company and the Purchasers are executing
and delivering simultaneously herewith a voting agreement with certain
shareholders of the Company pursuant to which such shareholders have agreed,
among other things, to vote in favor of the transactions contemplated hereby;


 


NOW, THEREFORE, in consideration of the premises and
agreements contained in this Agreement, and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
THE PARTIES HEREBY AGREE AS FOLLOWS:


 


1.                                       Purchase
and Sale of the Purchased Shares and the Warrants.


 


1.1                                 Authorization
of Issuance of Series A Preferred Stock and Warrants.  Subject to the terms and conditions of this
Agreement, on or prior to the Initial Closing Date, the Company shall have
authorized the issuance and sale to the Purchasers of (i) the Purchased Shares
and (ii) the Warrants, substantially in the form attached hereto as Exhibit
B.


 


1.2                                 Purchase
and Sale of Series A-1 Purchased Shares and Series A-1 Warrants.


 


(a)                                  Subject
to the terms and conditions of this Agreement, each Purchaser, severally and
not jointly, agrees to purchase at the Initial Closing, and the Company agrees
to issue and sell to each such Purchaser at the Initial Closing (i) the number
of shares of Series A-1 Purchased Shares set forth opposite such Purchaser’s
name under the heading “Number of Series A-1 Purchased Shares” on Schedule
I hereto and (ii) Series A-1 Warrants for the number of shares of Common
Stock set forth opposite such Purchaser’s name under the heading “Number of
Series A-1 Warrant Shares” on Schedule I hereto, in exchange for the
amount set forth opposite such Purchaser’s name under the heading “Series
A-1 Purchased Shares Purchase Price” on Schedule I hereto.


 


(b)                                 The
Company shall reimburse the Purchasers for the costs and expenses described in
Section 11.7 by wire transfer of immediately available funds on the Initial
Closing Date.  An invoice for all such
costs and expenses setting forth in reasonable detail such costs and expenses
shall be furnished by the Purchasers to the Company prior to the Initial Closing
Date.


 


1.3                                 Purchase
and Sale of Series A-2 Purchased Shares and Series A-2 Warrants.


 


(a)                                  At
any time and from time to time, but in no event later than twenty-four (24)
months after the Initial Closing Date, each Purchaser may, in its sole
discretion, purchase, and the Company agrees to issue and sell to each such
Purchaser at a Series A-2 Closing, (i) shares of Series A-2 Purchased Shares
and (ii) Series A-2 Warrants as herein provided. A Purchaser may exercise its
right to purchase such Series A-2 Purchased Shares and Series A-2 Warrants by
delivering a written request to the Company prior to the expiration of such
twenty-


 


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four (24) month period
requesting that the Company issue and sell the Series A-2 Purchased Shares and
Series A-2 Warrants to such Purchaser in the amounts specified in such request;
provided, however, that no Purchaser may purchase more than its
Pro Rata Share of any Series A-2 Purchased Shares and Series A-2 Warrants
without the written consent of the other Purchasers, which written consent
shall be provided to the Company with the request submitted hereunder.  The Company shall issue and sell to such
Purchaser at a Series A-2 Closing pursuant to Section 1.7, the number of Series
A-2 Purchased Shares and Series A-2 Warrants set forth in its request at the
Series A-2 Purchased Shares Purchase Price; provided, that the Company
has satisfied the conditions set forth in Section 4.1 and Section 4.3 hereto,
and such Purchaser has satisfied the conditions set forth in Section 4.4
hereto.


 


(b)                                 The
Company may issue and the Purchasers may purchase pursuant to this Section 1.3
an aggregate of up to 2,000,000 shares of Series A-2 Purchased Shares and up to
400,000 Series A-2 Warrants; provided, however, that in no event
shall the Purchasers purchase in the aggregate less than 1,000,000 Series A-2
Purchased Shares and 200,000 Series A-2 Warrants on any Series A-2 Closing Date
(or the then remaining balance of the Series A-2 Purchased Shares and Series
A-2 Warrants if there are fewer then remaining).


 


(c)                                  The
Company shall reimburse the Purchasers for the costs and expenses described in
Section 11.7 incurred in connection with each Series A-2 Closing by wire
transfer of immediately available funds on each Series A-2 Closing Date. An
invoice for all such costs and expenses setting forth in reasonable detail such
costs and expenses shall be furnished by the Purchasers to the Company prior to
any such Series A-2 Closing Date.


 


1.4                                 Purchase
and Sale of Series A-3 Purchased Shares and Series A-3 Warrants.


 


(a)                                  At
any time and from time to time, but in no event later than thirty-six (36)
months after the Initial Closing Date, each Purchaser may, in its sole
discretion, purchase, and the Company agrees to issue and sell to each such
Purchaser at a Series A-3 Closing; (i) a number of Series A-3 Purchased Shares
that is equal to the quotient of (1) the amount specified in such Purchaser’s
notice provided for in the next sentence, divided by (2) the lesser of (x)
$5.00 or (y) seventy five percent of the daily Volume Weighted Average Price of
the Common Stock during the 20-day trading period ending one trading day
(including such day) immediately prior to any such Series A-3 Closing Date, but
in no event shall such divisor be less than $3.25 per share (the “Series A-3
Purchased Shares Purchase Price”), at a per share purchase price equal to
the Series A-3 Purchased Shares Purchase Price and (ii) Series A-3 Warrants as
herein provided. A Purchaser may exercise its right to purchase such Series A-3
Purchased Shares and Series A-3 Warrants by delivering prior to the expiration
of such thirty-six (36) month period a written request to the Company
requesting that the Company issue and sell the Series A-3 Purchased Shares and
Series A-3 Warrants to such Purchaser in the amounts specified in such request;
provided, however, that no Purchaser may purchase more that its
Pro Rata Share of any Series A-3 Purchased Shares and Series A-3 Warrants
without the written consent of the other Purchasers, which consent shall be
provided to the Company with the request submitted hereunder.  The Company shall issue and sell to such
Purchaser at a Series A-3 Closing pursuant to Section 1.8, the number of Series
A-3 Purchased Shares and Series A-3 Warrants set forth in its request at the
Series A-3 Purchased Shares Purchase Price; provided, that the Company
has 


 


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satisfied the conditions
set forth in Section 4.1 and Section 4.3 hereto, and such Purchaser has
satisfied the conditions set forth in Section 4.4 hereto.


 


(b)                                 Notwithstanding
anything contained in this Agreement to the contrary, if the Purchasers have
not exercised their right to purchase all of the authorized Series A-2 Preferred
Stock that such Purchasers were entitled to purchase under Section 1.3(a), the
Purchasers may in their sole discretion, purchase, and the Company agrees to
issue and sell to each such Purchaser at a Series A-3 Closing, additional
shares of Series A-3 Purchased Shares and Series A-3 Warrants having a total
purchase price equal to $5,500,000 minus the total Series A-2 Purchased Shares
Purchase Price of all Series A-2 Purchased Shares and Series A-2 Warrants
purchased by the Purchasers under Section 1.3 (the “Series A-3 Additional
Amount”).  A Purchaser may exercise
its right to purchase such additional Series A-3 Purchased Shares and Series
A-3 Warrants and the number of additional Series A-3 Purchased Shares and
Series A-3 Warrants each Purchaser may purchase shall be determined in the same
manner as provided in Section 1.4(a).


 


(c)                                  The
Company may issue and the Purchasers may purchase pursuant to this Section 1.4
an aggregate of up to the sum of (x) $12,500,000 plus (y) the Series A-3
Additional Amount, if any, of Series A-3 Purchased Shares and Series A-3
Warrants at the applicable Series A-3 Purchased Shares Purchase Price per
share; provided, however, that in no event shall the Purchasers purchase less
than the aggregate amount of $5,000,000 of Series A-3 Purchased Shares and
Series A-3 Warrants on any Series A-3 Closing Date (or the then remaining
balance of the Series A-3 Purchased Shares and Series A-3 Warrants available
for purchase, if a lower amount is then remaining).


 


(d)                                 The
Company shall reimburse the Purchasers for the costs and expenses described in
Section 11.7 incurred in connection with each Series A-3 Closing by wire
transfer of immediately available funds on each Series A-3 Closing Date. An
invoice for all such costs and expenses setting forth in reasonable detail such
costs and expenses shall be furnished by the Purchasers to the Company prior to
any such Series A-3 Closing Date.


 


1.5                                 Use
of Proceeds.  The Company agrees to
use the net proceeds from the sale and issuance of the Purchased Shares and the
Warrants (together, the “Purchased Securities”) pursuant to this
Agreement for working capital, acquisition of assets or equity interests in
other entities and other general corporate purposes.


 


1.6                                 Initial
Closing.  The purchase and sale of the
Series A-1 Purchased Shares and the Series A-1 Warrants shall take place at the
offices of Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New
York 10019, promptly upon the satisfaction or waiver of the closing conditions
set forth in Section 4.1 and Section 4.2, but not more than five (5) business
days following approval of the transactions contemplated herein by the
shareholders of the Company, or on such other date and at such other time as
the Company and Purchasers hereto mutually agree upon in writing (which time
and place are designated as the “Initial Closing”).  The date of the Initial Closing is referred
to herein as the “Initial Closing Date.”  At the Initial Closing, the Company shall deliver to each
Purchaser (x) certificates for the number of Series A-1 Purchased Shares set
forth opposite such Purchaser’s name under the heading “Number of Series A-1
Purchased Shares” on Schedule I hereto and (y) Series A-1 Warrants 


 


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entitling such Purchaser to purchase the number of shares of Common
Stock set forth opposite such Purchaser’s name under the heading “Number of
Series A-1 Warrant Shares” in Schedule I hereto, against payment of
the Series A-1 Purchased Shares Purchase Price set forth on Schedule I
hereto by wire transfer of immediately available funds to such account as the
Company designates.  The Initial Closing
shall not occur, and the Company shall have no obligation to make such
deliveries, unless the Purchasers purchase and pay for the aggregate number of
Series A-1 Purchased Shares and Series A-1 Warrants set forth on Schedule I
hereto.  The Company shall pay any
documentary stamp or similar issue or transfer taxes due as a result of the
issuance and sale of the Series A-1 Purchased Shares and Series A-1 Warrants.


 


1.7                                 Series
A-2 Closing.


 


Subject to Section 1.3(a), the purchase and sale of
any Series A-2 Purchased Shares and Series A-2 Warrants (each, a “Series A-2
Closing”), shall take place at the offices of Dewey Ballantine LLP, 1301
Avenue of the Americas, New York, New York 10019, on a date specified by the
Company in writing that is not less than twenty Business Days following the
later of (a) satisfaction of the conditions set forth in Section 4.1 and
Section 4.3(a) of this Agreement and (b) the date on which written notice has
been given to the Company by the Purchasers requesting that the Company issue
and sell Series A-2 Preferred Stock and Series A-2 Warrants (each date and time
of a Series A-2 Closing are referred to herein as a “Series A-2 Closing Date”).  At any Series A-2 Closing, the Company shall
deliver to each Purchaser (x) certificates for the number of Series A-2
Purchased Shares set forth opposite such Purchaser’s name under the heading “Number
of Additional Series A-2 Purchased Shares” on a supplement to Schedule I
to this Agreement, as provided in Section 4.3(a) hereto, and (y) Series A-2
Warrants entitling such Purchaser to purchase the number of shares of Common
Stock set forth opposite such Purchaser’s name under the heading “Number of
Series A-2 Warrant Shares” on a supplement to Schedule I to this
Agreement, as provided in Section 4.3(a) hereto, against such Purchaser’s
payment of the Series A-2 Purchased Shares Purchase Price set forth on such
supplement to Schedule I, in each case, by wire transfer of immediately
available funds to such account as the Company designates.  If any Purchaser exercises its right to
purchase Series A-2 Purchased Shares under Section 1.3(a), then a Series A-2
Closing shall not occur, and the Company shall have no obligation to make such
deliveries, unless the total aggregate number of Series A-2 Purchased Shares
and Series A-2 Warrants specified in the supplement to Schedule I provided to
the Company as herein required are purchased and paid for.  The Company shall pay any documentary stamp
or similar issue or transfer taxes due as a result of the issuance and sale of
such Series A-2 Purchased Shares and Series A-2 Warrants.


 


1.8                                 Series
A-3 Closing.


 


Subject to Section 1.4(a), the purchase and sale of
any Series A-3 Purchased Shares and Series A-3 Warrants (each, a “Series A-3
Closing”), shall take place at the offices of Dewey Ballantine LLP, 1301
Avenue of the Americas, New York, New York 10019, on a date specified by the
Company in writing that is not less than twenty Business Days following the
later of (a) satisfaction of the conditions set forth in Section 4.1 and
Section 4.3(a) of this Agreement and (b) the date on which written notice has
been given to the Company by the Purchasers requesting that the Company issue
and sell Series A-3 Preferred Stock and Series A-3 Warrants (each date and time
of a Series A-3 Closing are referred to herein as a “Series A-3 Closing Date”).  At any


 


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Series A-3
Closing, the Company shall deliver to each Purchaser (x) certificates for the
number of Series A-3 Purchased Shares set forth opposite such Purchaser’s name
under the heading “Number of Additional Series A-3 Purchased Shares” on
a supplement to Schedule I to this Agreement, as provided in Section
4.3(a) hereto, and (y) Series A-3 Warrants entitling such Purchaser to purchase
the number of shares of Common Stock set forth opposite such Purchaser’s name
under the heading “Number of Series A-3 Warrant Shares” on a supplement
to Schedule I to this Agreement, as provided in Section 4.3(a) hereto,
against such Purchaser’s payment of the Series A-3 Purchased Shares Purchase
Price set forth on such supplement to Schedule I, in each case, by wire
transfer of immediately available funds to such account as the Company
designates.  If any Purchaser exercises
its right to purchase Series A-3 Purchased Shares under Section 1.4(a) or (b),
then a Series A-3 Closing shall not occur, and the Company shall have no
obligation to make such deliveries, unless the total aggregate number of Series
A-3 Purchased Shares and Series A-3 Warrants specified in the supplement to
Schedule I provided to the Company as herein required are purchased and paid
for.  The Company shall pay any
documentary stamp or similar issue or transfer taxes due as a result of the
issuance and sale of such Series A-3 Purchased Shares and Series A-3 Warrants.


 


2.                                       Representations
and Warranties of the Company.


 


The Company hereby represents and warrants to each
Purchaser the following, except as set forth on the Disclosure Schedule,
specifically identifying or cross-referencing the relevant Sections hereof,
which Disclosure Schedule shall be deemed to be part of the representations and
warranties as if made hereunder:


 


2.1                                 Organization
and Qualification.  Each of the
Company and the Subsidiaries is duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation or
organization as set forth in Section 2.1 of the Disclosure Schedule and has the
requisite power and authority to own, lease and operate its assets, properties
and business and to carry on its business as it is now being conducted or
proposed to be conducted.  Each of the
Company and the Subsidiaries is duly qualified as a foreign corporation to
transact business, and is in good standing, in each jurisdiction where it owns
or leases real property or maintains employees or where the nature of its
activities make such qualification necessary, except where such failure to
qualify would not have a Material Adverse Effect.


 


2.2                                 Certificate
of Incorporation and Bylaws.  The
Company has delivered to the Purchasers true, correct, and complete copies of
the Company’s certificate of incorporation as in effect on the date hereof (the
“Existing Certificate”) and the Company’s bylaws as in effect on the
date hereof (the “Existing Bylaws”).


 


2.3                                 Corporate
Power and Authority.  The Company
has all requisite corporate power and authority to execute and deliver the
Transaction Documents to which it is a party, to issue and sell the Purchased
Securities to the Purchasers hereunder, to carry out and perform its
obligations under the terms of the Transaction Documents, and to sell and issue
the Common Stock issuable upon conversion of the Series A-1 Purchased Shares,
the Series A-2 Purchased Shares and the Series A-3 Purchased Shares, and
exercise of the Warrants (such Common Stock, the “Conversion Shares”).


 


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2.4                                 Capitalization.


 


(a)                                  Immediately
prior to the date hereof, the authorized capital stock of the Company consists
of 12,000,000 shares all of which 10,000,000 are designated as Common Stock and
2,000,000 are designated as preferred stock, par value $.001 per share, none of
such preferred stock is issued and outstanding.


 


(b)                                 As
of the Initial Closing, the authorized capital stock of the Company shall
consist of 100,000,000 shares, of which (i) 80,000,000 are designated as Common
Stock; and (ii) 20,000,000 shares are designated as Series A Preferred Stock,
4,200,000 of which are designated Series A-1 Preferred Stock, 2,600,000 of
which are designated Series A-2 Preferred Stock and 7,200,000 of which are
designated Series A-3 Preferred Stock, none of which are issued and
outstanding.  Shares of the authorized
Common Stock have been reserved as follows: 
(i) 250,000 shares of the authorized Common Stock have been reserved for
issuance pursuant to the exercise of stock options granted or to be granted
after the date hereof under the 1993 Stock Option Plan of the Company, (ii)
350,000 shares of the authorized Common Stock have been reserved for issuance
pursuant to the exercise of stock options granted or to be granted after the
date hereof under the 1996 Stock Option Plan of the Company, (iii) 250,000
shares of the authorized Common Stock have been reserved for issuance pursuant
to the exercise of stock options granted or to be granted after the date hereof
under the 1998 Stock Option Plan of the Company, (iv) 350,000 shares of the
authorized Common Stock have been reserved for issuance pursuant to the
exercise of stock options granted or to be granted after the date hereof under
the 2000 Long-Term Performance Plan of the Company, (v) 250,000 shares of the
authorized Common Stock have been reserved for issuance pursuant to the
exercise of stock options granted or to be granted after the date hereof under
the 2002 Long-Term Performance Plan of the Company, (vi) 2,000,000 shares of
the authorized Common Stock have been reserved for issuance pursuant to the
exercise of stock options granted or to be granted after the date hereof under
the 2004 Equity Incentive Plan of the Company (the stock options described in
clauses (i) through (vi), collectively, the “Options”), (vii) 4,200,000
shares of the authorized Common Stock have been reserved for issuance upon
conversion of the Series A-1 Preferred Stock, (viii) 2,600,000 shares of the
authorized Common Stock have been reserved for issuance upon conversion of the
Series A-2 Preferred Stock, (ix) 7,200,000 shares of the authorized Common
Stock have been reserved for issuance upon conversion of the Series A-3
Preferred Stock, (x) 500,000 shares of the authorized Common Stock have been
reserved for issuance pursuant to the exercise of the Series A-1 Warrants, (xi)
400,000 shares of the authorized Common Stock have been reserved for issuance
pursuant to the exercise of the Series A-2 Warrants, (xii) 1,107,692 shares of
the authorized Common Stock have been reserved for issuance pursuant to the
exercise of the Series A-3 Warrants, (xiii) 408,631 shares of Series A-1
Preferred Stock have been reserved for issuance as dividends with respect to
the Series A-1 Preferred Stock, (xiv) 251,017 shares of Series A-2 Preferred
Stock have been reserved for issuance as dividends with respect to the Series
A-2 Preferred Stock and (xv) 695,123 shares of Series A-3 Preferred Stock have
been reserved for issuance as dividends with respect to the Series A-3
Preferred Stock.  The rights, privileges
and preferences of the Series A-1 Preferred Stock, Series A-2 Preferred Stock
and Series A-3 Preferred Stock are as stated in the Restated Certificate.  The terms of the Warrants are as stated in
the forms thereof contained in Exhibits B-1, B-2 and B-3.  As of the date hereof, all issued and
outstanding shares of the Company’s capital stock are duly authorized and
validly issued, are fully paid and nonassessable and are owned of record, and
to the Company’s


 


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Knowledge, beneficially, by the shareholders and in the amounts set
forth in Section 2.4 of the Disclosure Schedule and have been issued in
accordance with applicable federal and state securities laws; a pro forma
capitalization table reflecting the issued and outstanding Common Stock, Series
A-1 Preferred Stock and Series A-2 Preferred Stock and all options and warrants
with respect thereto on a fully diluted basis immediately after the Initial
Closing Date (assuming no additional issuances of securities between the date
hereof and the Initial Closing Date) is attached hereto as Exhibit D.  Except as set forth in Section 2.4 of the
Disclosure Schedule or as provided in the Restated Certificate, there are no
options, warrants, conversion privileges, or preemptive or other rights or
agreements presently outstanding to purchase or otherwise acquire from the
Company any shares of the capital stock or other securities of the
Company.  Except for the voting
agreement described in the last paragraph of the recitals to this Agreement,
the Company has not entered into any agreements with any of its shareholders
with respect to the voting of capital shares of the Company and to the
Knowledge of the Company none of its shareholders are parties to such
agreements. Except as aforesaid and as contemplated in the Transaction
Documents, the Company is not a party to any agreement or understanding, and to
its Knowledge, no shareholders are a party to such an agreement or
understanding, that affects or relates to the voting or giving of written
consents with respect to any security, or the voting by a director, of the
Company.  Except as aforesaid, to the
Company’s Knowledge, no shareholder has granted options or other rights to any
entity (other than the Company) to purchase any shares of Common Stock or other
equity securities of the Company from such shareholder.  Except as aforesaid or as set forth in
Section 2.4 of the Disclosure Schedule, the Company is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise to acquire or
retire any shares of its capital stock. 
Except as set forth in Section 2.4 of the Disclosure Schedule, the
Company has not declared or paid any dividend or made any other distribution of
cash, stock or other property to its shareholders.  The Company has no Subsidiaries other than as set forth in
Section 2.1 of the Disclosure Schedule. 
Except as set forth in Section 2.4 of the Disclosure Schedule, no stock
plan, stock purchase, stock option or other agreement or understanding between
the Company and any holder of any equity securities or rights to purchase
equity securities provides for acceleration or other changes in the vesting
provisions or other terms of such agreement or understanding (including any
reduction in the exercise price of any option, warrant or similar security) as
the result of any merger, consolidation or sale of stock.


 


2.5                                 Authorization.  The execution, delivery and performance by
the Company and each Subsidiary of the Transaction Documents to which the Company
and any such Subsidiary is a party, the sale, issuance and delivery of the
Purchased Securities and the performance of all of the obligations of the
Company and the Subsidiaries under each of the Transaction Documents have been
authorized by the Company’s Board of Directors, and, other than shareholder
approval and approvals required by the Nasdaq Stock Market (“Nasdaq”),
no other corporate action on the part of the Company or any Subsidiary and no
other corporate or other approval or authorization is required on the part of
the Company, any Subsidiary or any Person by Law or otherwise in order to make
the Transaction Documents the valid, binding and enforceable obligations
(subject to (i) laws of general application relating to bankruptcy, insolvency,
and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief, or other equitable remedies) of the Company and
each Subsidiary that is a party thereto. 
Each of the Transaction Documents, when executed and delivered by each
of the Company and each Subsidiary that is a party thereto, will constitute a
valid and legally binding obligation of the Company and each Subsidiary that is
a party thereto, enforceable against the


 


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Company and such Subsidiaries that are parties thereto in accordance
with its respective terms, subject to (i) laws of general application relating
to bankruptcy, insolvency, and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief, or other equitable remedies.


 


2.6                                 Title
to Properties and Assets; Leases; Insurance.


 


(a)                                  Neither
the Company nor any Subsidiary currently owns any real property and has never
owned any real property.  Each of the
Company and each Subsidiary has good and marketable title to or has, or will
have, concurrently with the execution hereof, a valid leasehold interest in, or
license to use, all of the property or assets used by it or located on its
premises and necessary for the conduct of business as presently conducted, free
and clear of all Liens, other than as set forth on Section 2.6(a) of the
Disclosure Schedule (the “Permitted Liens”), which together do not have
a Material Adverse Effect.


 


(b)                                 With
respect to the insurance policies and fidelity bonds covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Company and each Subsidiary, there is no claim by the Company pending
under any of such policies or bonds as to which coverage has been denied or
disputed by the underwriters of such policies or bonds which would have a
Material Adverse Effect.  All premiums
due and payable under all such policies and bonds have been paid and the
Company and each Subsidiary is otherwise in compliance in all material respects
with the terms of such policies and bonds. 
The Company has no Knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.  The Company and each Subsidiary maintains
insurance in such amounts, including (as applicable) self-insurance, retainage
and deductible arrangements, and of such a character as is reasonable for
companies engaged in the same or similar business similarly situated.  Section 2.6(b) of the Disclosure Schedule
sets forth a list of all insurance coverage carried by the Company and each
Subsidiary, identifying the carrier and the amount of coverage.


 


2.7                                 Related-Party
Transactions.  Except as set forth
in Section 2.7 of the Disclosure Schedule, no employee, officer, shareholder,
director or consultant of the Company or any Subsidiary or member of the
immediate family (defined as parents, spouse, siblings or lineal descendants)
of any such officer or director is indebted to the Company or any Subsidiary
for borrowed money, and neither the Company nor any Subsidiary is indebted for
borrowed money (or committed to make loans or extend or guarantee credit) to
any of them other than for reimbursement of expenses incurred in connection
with their service to the Company, and amounts accrued but not yet due to
employees and other service providers. To the Company’s Knowledge, except as
provided for in the Transaction Documents and except as set forth in Section
2.7 of the Disclosure Schedule, (a) no employee, officer, shareholder, director
or consultant of the Company or any Subsidiary or any member of the immediate
family of any such officer or director is, directly or indirectly, interested
in any Material Contract or has any other material business relationship with
the Company or any Subsidiary, except stock ownership in and employment by the
Company and (b) no officer, director of the Company or any Subsidiary or any
member of the immediate family of such officer or director has any material
business relationship with any competitor of the Company or any Subsidiary.


 


9

















 


2.8                                 Permits;
Compliance with Applicable Law. 
Except as set forth on Section 2.8 of the Disclosure Schedule, the
Company and each Subsidiary has all material franchises, permits, licenses,
authorizations, approvals, registrations and any similar authority (“Permits”)
necessary for the conduct of its business as now being conducted by it and
believes it can obtain any similar authority for the conduct of its business as
currently planned by the Company and the Subsidiaries to be conducted.  The Permits shall include, without
limitation, export control-related licenses and registrations and industrial
security clearances (facility and personnel clearances) as appropriate for
conduct of the Company’s and Subsidiaries’ businesses the absence of which
would have a Material Adverse Effect. 
Neither the Company nor any Subsidiary is in violation in any material
respect of, or default in any material respect under, any such Permits. All
such Permits are in full force and effect, and to the Company’s Knowledge, no
violations in any material respect have been recorded in respect of any such
Permits; no proceeding is pending or, to the Company’s Knowledge, threatened to
revoke or limit any such Permit; and no such Permit will be suspended,
cancelled or adversely modified as a result of the execution and delivery of
Transaction Documents.  The Company and
each Subsidiary is in compliance in all respects with all applicable laws,
except where the failure to so comply would not have a Material Adverse Effect.


 


2.9                                 Proprietary
Rights.


 


(a)                                  The
Company and the Subsidiaries are the sole owners, free and clear of any Liens,
other than (x) as set forth on Section 2.6(a) of the Disclosure Schedule and
(y) Permitted Liens which shall not have a Material Adverse Effect, or have a
valid license, without the payment of any royalty (except with respect to
off-the-shelf software that is licensed by the Company or a Subsidiary) and
otherwise on commercially reasonable terms, to, all material Proprietary
Rights.  As used herein, the term “Proprietary
Rights” means the Company’s or the Subsidiaries’ patents, trademarks, trade
names, service marks, logos, designs, formulations, copyrights, and other trade
rights and all registrations and applications therefor, all know-how, trade
secrets, technology or processes, research and development, all Internet domain
addresses, Web sites and computer programs, data bases and software
documentation and all other intellectual property owned, licensed or otherwise
used by the Company and the Subsidiaries (other than off-the-shelf software
that is licensed by the Company or a Subsidiary).  Set forth in Section 2.9(a) of the Disclosure Schedule is a true
and correct list of all patents, trademarks, trade names, service marks, logos,
and registered copyrights, as well as a list of all material proprietary
software owned or licensed by the Company and the Subsidiaries.  Section 2.9(a) of the Disclosure Schedule
also indicates which of such items have been patented or registered or are in
the process of application for the same. The Company and each Subsidiary have
taken all reasonable actions to protect its rights in material Proprietary
Rights owned by it. The rights of the Company and each Subsidiary in the
material Proprietary Rights are valid and enforceable.  Except as disclosed in Schedule 2.9(a) of
the Disclosure Schedule, neither the Company nor any Subsidiary has received
any written demand, claim, notice or inquiry from any person or entity in
respect of the material Proprietary Rights which challenges, threatens to
challenge or inquires as to whether there is any basis to challenge, the
validity of, or the rights of the Company and the Subsidiaries in the material
Proprietary Rights, and the Company has no Knowledge of any basis for any such
challenge.  To the Company’s Knowledge,
neither the Company nor any Subsidiary is in violation or infringement of, and
has not violated or infringed, any intellectual property rights of any other
person or entity.  To the Company’s
Knowledge, except as set forth in Section 2.9(a)


 


10

















 


of the Disclosure
Schedule, no third party is infringing on the rights of the Company and the
Subsidiaries in and to the material Proprietary Rights. Except on an
arm’s-length basis for value and other commercially reasonable terms, neither
the Company nor any Subsidiary has granted any license with respect to the
material Proprietary Rights to any person or entity.


 


(b)                                 Also
set forth in Section 2.9(b) of the Disclosure Schedule is a true and complete
list of all material software currently licensed or used by the Company and the
Subsidiaries in operating and maintaining its business, excluding all off-the-shelf
or shrink-wrap licensed software (collectively the “Company Software”).  The Company and the Subsidiaries either owns
or has valid, royalty free and fully paid licenses for all of the Company
Software.


 


(c)                                  Neither
the Company nor any Subsidiary is aware that any of its employees is obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
that would conflict with the Company’s or any Subsidiaries’ businesses, as
presently proposed to be conducted.  The
current and former employees and consultants of the Company described in
Section 2.9(c) of the Disclosure Schedule have entered into a valid and binding
written agreements with the Company sufficient to vest title in the Company of
all Proprietary Rights created by such employee in the scope of his or her
employment with the Company.  Neither
the Company nor any Subsidiary generally requires any of its respective
employees, other than employees and consultants in the information technology
area, to enter into a proprietary information and inventions agreement.  Neither the Company nor any Subsidiary is
aware that any of its current or former officers or consultants are in
violation thereof, and the Company and each Subsidiary will use its diligent
efforts to prevent any such violation. 
No employee, officer or consultant of the Company or any Subsidiary has
excluded works or inventions made prior to his or her employment with the
Company or such Subsidiary from his or her assignment of inventions pursuant to
such employee, officer or consultant’s proprietary information and inventions
agreement.  Neither the Company nor any
Subsidiary believes it is or will be necessary to utilize any inventions, trade
secrets or proprietary information of any of its employees (or persons it
intends to hire) made prior to their employment by the Company or any
Subsidiary, except for inventions, trade secrets or proprietary information
that have been assigned to the Company or such Subsidiary.  If any Proprietary Rights have been
conceived, developed or created by any person or entity acting as an
independent contractor, the Company and each Subsidiary has irrevocably
obtained worldwide, perpetual (except as otherwise provided under any
applicable laws) ownership of, and is the exclusive owner of, all such
Proprietary Rights by operation of law or by valid assignment.


 


(d)                                 The
Company and each Subsidiary takes reasonable measures to protect the
confidentiality of the Proprietary Rights, including requiring employees and
independent contractors having access thereto to execute written non-disclosure
agreements.  To the Knowledge of the Company,
no Proprietary Rights have been disclosed or authorized to be disclosed to any
person or entity, including any employee, agent or contractor, other than
pursuant to a non-disclosure agreement that adequately protects the proprietary
interests of the Company and the Subsidiaries in and to such Proprietary
Rights.  To the Knowledge of the
Company, no party to any non-disclosure agreement relating to the Proprietary
Rights is in breach thereof.


 


11

















 


(e)                                  Neither
the execution nor delivery of this Agreement or the Transaction Documents, nor
the carrying on of the Company’s business by the employees of the Company, nor
the conduct of the Company’s business as presently proposed will, to the
Knowledge of the Company, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated.


 


(f)                                    Section
2.9(f) of the Disclosure Schedule contains a complete and accurate list of all
license and other agreements relating to the material Proprietary Rights.


 


2.10                           Material
Contracts.   (a)  Set
forth in Section 2.10(a) of the Disclosure Schedule is a true and complete list
of all material vendor and customer agreements, licenses, distribution
agreements, confidentiality agreements, agreements prohibiting or limiting the
ability of the Company and the Subsidiaries to freely complete purchase and
sales orders, powers of attorney, undertakings, commitments, notes, loan
agreements, indentures, mortgages, guarantees, pledges, instruments, leases,
decrees or obligations to which the Company and any of the Subsidiaries is a
party and which relate to the business of the Company and the Subsidiaries or
agreements by which the Company and the Subsidiaries are bound, including,
without limitation, (i) any material agreement which requires future
expenditures by the Company or any Subsidiary or which might result in payments
to the Company or any Subsidiary, (ii) any material purchase or task order
which might result in payments to the Company or any Subsidiary, (iii) any
employment and consulting agreements, (iv) any material agreement with any
current or former shareholder (except for the Transaction Documents), officer
or director of the Company or any Subsidiary, or any “affiliate” or “associate”
of such persons (as such terms are defined in the rules and regulations
promulgated under the Securities Act of 1933, as amended (the “Securities
Act”)), including, without limitation, any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal
property from, or otherwise requiring payments to, any such person or entity,
(v) any agreement relating to the development, manufacture, marketing or
distribution of the products or services of the Company and the Subsidiaries
and (vi) any other agreement material to the business of the Company or any
Subsidiary, regardless of the dollar value of the amounts receivable by or
payment obligations of the Company or any Subsidiary thereunder (collectively,
the “Material Contracts”).  The
SEC Reports (as hereinafter defined) include all of the current assets of the
Company and all financing arrangements of the Company relating to current
assets or current liabilities of the Company.


 


(b)                                 Assuming
the due execution and delivery by the other parties thereto, each of such
Material Contracts is as of the date hereof legal, valid and binding, and in
full force and effect, and enforceable in accordance with its terms, subject to
(i) laws of general application relating to bankruptcy, insolvency, and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief, or other equitable remedies.  There is no material breach, violation or default by the Company
or any of the Subsidiaries (or any other party) under any such Material
Contract, and to the Company’s Knowledge, no event (including, without
limitation, the transactions contemplated by this Agreement) has occurred which,
with notice or lapse of time or both, would (A) constitute a material breach,
violation or default by the Company or any Subsidiary (or any other party)
under any such Material Contract, or (B) give rise to any Lien (other than a
Permitted Lien) or right of termination, modification, cancellation, 


 


12

















 


prepayment, suspension,
limitation, revocation or acceleration against the Company or any Subsidiary
under any such Material Contract. 
Except as set forth in Section 2.10(b) of the Disclosure Schedule,
neither the Company nor any Subsidiary is and, to the Company’s Knowledge, no
other party to any of such Material Contract is in arrears in respect of the
performance or satisfaction of any material terms or conditions on its part to
be performed or satisfied under any of such Material Contract, and neither the
Company nor any Subsidiary has and, to the Company’s Knowledge, no other party
thereto has granted or been granted any material waiver or indulgence under any
of such Material Contract or repudiated any provision thereof.


 


2.11                           Absence
of Undisclosed Liabilities.  Except
as set forth in Section 2.11 of the Disclosure Schedule, the Company does
not have any liabilities of any type, whether absolute or contingent to the
Company’s Knowledge.


 


2.12                           Absence
of Conflicts.  The Company is not in
violation of or default under any provision of its Existing Certificate or
Existing Bylaws.  Except as set forth in
Section 2.12 of the Disclosure Schedule, the execution, delivery, and
performance of, and compliance with the Transaction Documents and the
consummation of the transactions contemplated hereby and thereby, have not and
will not:


 


(a)                                  violate,
conflict with or result in a breach of any provision of or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in the creation of any Lien (other than a Permitted
Lien) upon any of the assets, properties or business of the Company and the
Subsidiaries under, any of the terms, conditions or provisions of (i) the
Existing Certificate or the Existing Bylaws, or (ii) any Material Contract; or


 


(b)                                 violate
any judgment, ruling, order, writ, injunction, award, decree, or any Law or
regulation of any court or federal, state, county or local government or any
other governmental, regulatory or administrative agency or authority which is
applicable to the Company or any Subsidiary or any of their assets, properties
or businesses, which violation would have a Material Adverse Effect.


 


2.13                           Litigation.  Except as set forth in Section 2.13 of the
Disclosure Schedule, there is no action, claim, litigation, tax or compliance
audit, suit or proceeding, regulatory or administrative enforcement action or
governmental inquiry or investigation (including, without limitation, a
defective pricing investigation or claim or other proceeding in connection with
the Company’s contracts), pending, or, to the Company’s Knowledge, any threat
thereof, against the Company or any Subsidiary or any of their officers or
directors or the assets of the Company or any Subsidiary.  To the Company’s Knowledge, there is no
reason to believe that any of the foregoing may occur which, in the aggregate,
would have a Material Adverse Effect. 
Neither the Company nor any Subsidiary is subject to any outstanding
judgment, order or decree directed against the Company or any Subsidiary or any
officer or director of any thereof.  Except as set forth in Section 2.13 of the Disclosure Schedule,
there is no action, suit, proceeding or investigation into the possibility
thereof by the Company or any Subsidiary currently pending or that the Company
or any Subsidiary presently intends to initiate against a third party.


 


13

















 


2.14                           Consents.  No consent, approval, waiver or
authorization, or designation, declaration, notification, or filing with any
person or entity (governmental or private), on the part of the Company or any
Subsidiary is required in connection with the valid execution, delivery and
performance of the Transaction Documents, the offer, sale or issuance of the
Purchased Securities or the consummation of any other transaction contemplated
hereby or by the Purchased Shares or the Warrants (other than such
notifications or filings required under applicable federal or state securities
laws, if any), except for such consents, approvals, waivers, authorizations,
designations, declarations, notifications, or filings that will be received
prior to or as of the Initial Closing Date.


 


2.15                           Labor
Relations; Employees.  Set forth in
Section 2.15 of the Disclosure Schedule is a true and correct list of the
employees of the Company, which list provides, among other things, the name,
title, job description and salary information concerning each such employee, as
well a true and correct list of each employee who holds an H-1B “Specialty
Occupation” Visa, if any, all as of November 30, 2003.  Except as set forth in Section 2.15 of the
Disclosure Schedule, neither the Company nor any Subsidiary is delinquent in
payments with respect to any such employee, for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
the date hereof or amounts required to be reimbursed to any employee as of the
date hereof.  The Company and each
Subsidiary is in compliance in all material respects with all laws and orders
relating to the employment of labor and classification of persons as employees,
including, without limitation, all such laws and orders relating to wages,
hours, discrimination, civil rights, safety and the collection and payment of
withholding and/or Social Security taxes and similar taxes and the provision of
employee benefits.  To the Company’s
Knowledge, no officer, division leader or other significant employee of the
Company or any Subsidiary has any current plans to terminate his employment
with the Company or such Subsidiary. 
Except as set forth in Section 2.15 of the Disclosure Schedule, to the
Company’s Knowledge neither the Company nor any Subsidiary employs members of
any labor union.  Except for the
employment agreements listed on Section 2.15 of the Disclosure Schedule, no
employee of the Company or any Subsidiary has been granted the right to
continued employment by the Company or any such Subsidiary or to any material
compensation following termination of employment with the Company or any such
Subsidiary.


 


2.16                           Employee
Benefit Plans.   (a) 
Except as set forth in Section 2.10 or Section 2.16(a) of the Disclosure
Schedule, the Company and the Subsidiaries have no employment agreements or
labor or collective bargaining agreements and there are no employee benefit or
compensation plans, agreements, arrangements or commitments (including “employee
benefit plans,” as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”)) maintained by the
Company or any Subsidiary for any employees of the Company or any Subsidiary or
with respect to which the Company or any Subsidiary has liability, or makes or
has an obligation to make contributions (each a “Company Employee Plan”
and together the “Company Employee Plans”).


 


(b)                                 Except
as set forth in Section 2.16(b) of the Disclosure Schedule, each Company
Employee Plan that is an employee welfare benefit plan as defined under Section
3(l) of ERISA is funded through an insurance company contract.  Except as set forth in Section 2.15(b) of
the Disclosure Schedule, each Company Employee Plan by its terms and operation
is 


 


14

















 


in compliance in all
material respects with all applicable laws and all required filings, if any,
with respect to such Company Employee Plan has been made.  Except as set forth in Section 2.15(b) of
the Disclosure Schedule, neither the Company nor any entity that is or was at
any time treated as a single employer with the Company under Section 414(b),
(c), (m) or (o) of the Code has at any time maintained, contributed to or been
required to contribute to or has any liability with respect to, any plan
subject to Title IV of ERISA (including, without limitation, any Multiemployer
Plan). Except as set forth in Section 2.16(b) of the Disclosure Schedule, the events
contemplated by this Agreement (either alone or together with any other event)
will not (i) entitle any employees to severance pay, unemployment compensation,
or other similar payments under any Company Employee Plan or law, (ii)
accelerate the time of payment or vesting or increase the amount of benefits
due under any Company Employee Plan or compensation to any employees of the
Company or any Subsidiary or (iii) result in any payments (including parachute
payments) under any Company Employee Plan or Law becoming due to any employee.


 


2.17                           Tax
Returns, Payments and Elections. 
The Company and each Subsidiary has filed all tax returns and reports
(including information returns and reports) as required by law except to the
extent that the failure to so file did not and does not have a Material Adverse
Effect.  These returns and reports are
true and correct in all material respects. 
The Company and each Subsidiary has paid or made provision for payment
of all taxes and other assessments shown as due on such returns.  The provision for taxes of the Company and
the Subsidiaries as shown in the Financial Statements (as hereinafter defined)
is adequate in all material respects for all taxes, assessments and
governmental charges due or accrued as of the date thereof with respect to its
business, properties and operations. 
Neither the Company nor any Subsidiary has elected pursuant to the
Internal Revenue Code of 1986, as amended (the “Code”), to be treated as
a Subchapter S corporation pursuant to Section 1362(a) or a collapsible
corporation pursuant to Section 341(f) of the Code, nor has the Company or any
Subsidiary made any other elections pursuant to the Code (other than elections
that relate solely to methods of accounting, depreciation or amortization) that
would have a Material Adverse Effect. 
Neither the Company nor any Subsidiary has had any tax deficiency
proposed or assessed against it by the Internal Revenue Service or any other
foreign, federal, state or local taxing authority and none have been asserted
in writing or, to the Company’s Knowledge, threatened at any time for
additional taxes.  Neither the Company
nor any Subsidiary has executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge and none of the
foreign, federal, state or local income or franchise tax or sales or use tax
returns have ever been audited by governmental authorities.  Since the date of the Financial Statements,
neither the Company nor any Subsidiary has incurred any taxes, assessments or
governmental charges other than in the ordinary course of business.  The Company and each Subsidiary has withheld
or collected from each payment made to each of its respective employees, the
amount of all taxes (including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act
taxes) and foreign taxes required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized depositories.


 


2.18                           Brokers
or Finders.  Except as set forth in
Section 2.18 of the Disclosure Schedule, neither the Company nor any Subsidiary
has incurred, or will incur, directly or indirectly, as a result of any action
taken by the Company or any Subsidiary, any liability for brokerage or finders’
fees or agents’ commissions or any similar charges in connection with this 


 


15

















 


Agreement or the issuance of the Purchased Securities or any
transaction contemplated hereby or thereby. 
The Company agrees to indemnify and hold harmless each Purchaser from
any liability for any commission or compensation in the nature of a finder’s
fee (and the costs and expenses of defending against such liability or asserted
liability) for which the Company, any Subsidiary or any of their respective
officers, employees or representatives is responsible.


 


2.19                           Offering
Exemption.  Assuming the truth and
accuracy of the representations and warranties contained in Section 3, the
offer and sale of the Purchased Securities as contemplated hereby and the
issuance and delivery to the Purchasers of the Purchased Securities and, if
applicable, the Conversion Shares, are exempt from registration under the
Securities Act, and will be registered or qualified (or exempt from
registration or qualification) under applicable state securities and “blue sky”
laws, as currently in effect.


 


2.20                           Environmental
Matters.   (a)  The
Company and each Subsidiary complies and has at all times complied with all
federal, state and local laws, judgments, decrees, orders, consent agreements,
authorizations, permits, licenses, rules, regulations, common or decision law
(including, without limitation, principles of negligence and strict liability)
relating to the protection, investigation or restoration of the environment
(including, without limitation, natural resources) or the health or safety
matters of humans and other living organisms, including the Resource
Conservation and Recovery Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Federal Clean Water
Act, as amended, the Federal Clean Air Act, as amended, the Toxic Substances
Control Act, or any state and local analogue (hereinafter “Environmental
Laws”), except where the failure to comply would not reasonably be expected
to have a Material Adverse Effect.


 


(b)                                 Except
as set forth in Section 2.20(b) of the Disclosure Schedule, (i) the Company has
no Knowledge of any claim, and has not received notice of a written complaint,
order, directive, claim, request for information or citation, and to the
Company’s Knowledge no proceeding has been instituted raising a claim against
the Company or any Subsidiary or any predecessor or any of their respective
real properties now or formerly owned, leased or operated or other assets
indicating or alleging any damage to the environment or any liability or
obligation under or violation of any Environmental Law and (ii) neither the
Company nor any Subsidiary is subject to any order, decree, injunction or other
directive of any Governmental Authority.


 


(c)                                  Except
as set forth in Section 2.20(c) of the Disclosure Schedule, (i) neither the
Company nor any Subsidiary has used and, to the Company’s Knowledge, no other
person has used any portion of any property currently or previously owned,
operated or leased by the Company or any Subsidiary for the generation,
handling, processing, treatment, storage or disposal of Hazardous Materials
except in accordance with applicable Environmental Laws; (ii) neither the
Company nor any Subsidiary owns or operates any underground tank or other
underground storage receptacle for Hazardous Materials, any asbestos-containing
materials or polychlorinated biphenyls, and, to the Company’s Knowledge, no
underground tank or other underground storage receptacle for Hazardous
Materials, asbestos-containing materials or polychlorinated biphenyls are
located on any portion of any property currently owned, operated or leased by
the Company or any Subsidiary and (iii) to the Company’s Knowledge, neither the
Company nor any Subsidiary has caused or suffered to occur any Releases or
threatened 


 


16

















 


Releases of Hazardous
Materials on, at, in, under, above, to, from or about any property currently or
previously owned, operated or leased by the Company or any Subsidiary.


 


(d)                                 The
execution, delivery and performance of this Agreement is not subject to any
Environmental Laws which condition, restrict or prohibit the sale, lease or
other transfer of property or operations, including any so-called
“environmental cleanup responsibility acts” or requirements for the transfer of
permits, approvals, or licenses.  To the
Company’s Knowledge, there have been no environmentally related audits,
studies, reports, analyses (including soil and groundwater analyses), or
investigations of any kind performed with respect to the currently or
previously owned, leased, or operated properties of the Company or any
Subsidiary.


 


2.21                           Offering
of Purchased Shares and Warrants. 
No form of general solicitation or general advertising was used by the
Company or any of its agents or representatives in connection with the offer and
sale of the Purchased Securities. 
Neither the Company nor, to the Company’s Knowledge, any agent acting on
the Company’s behalf has, directly or indirectly, offered the Purchased
Securities of the Company for sale to or solicited any offers to buy the Purchased
Securities of the Company from, or otherwise approached or negotiated with
respect thereto with any other potential purchaser.


 


2.22                           SEC
Reports; Disclosure.   (a) The Company has filed all
required forms, reports and documents with the Securities and Exchange
Commission (the “SEC”) since April 1, 2000, each of which has complied
in all material respects with all applicable requirements of the Securities Act
of 1933, as amended (the “33 Act”) and the Securities Exchange Act of
1934, as amended (the “34 Act”), and the rules and regulations
promulgated thereunder, each as in effect on the date such forms, reports and
documents were filed.  The Company has
heretofore delivered to the Purchasers, in the form filed with the SEC
(including any amendments thereto) (i) its Annual Report on Form 10-K for the
years ended March 31, 2003, 2002 and 2001, (ii) all definitive proxy statements
relating to the Company’s meeting of shareholders (whether annual or special)
held since April 1, 2001 and (iii) all other reports or registration statements
filed by the Company with the SEC since April 1, 2003 (the items in clauses
(i), (ii) and (iii) collectively, the “SEC Reports”).


 


(b)                                 Except
as set forth in Section 2.22(b) of the Disclosure Schedule, none of (a) this Agreement
(including, without limitation, the Disclosure Schedule and the Schedules and
Exhibits attached hereto), (b) any other Transaction Documents, or (c) the SEC
Reports contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein in
light of the circumstances under which they were made not misleading.  There is no fact which, to the Knowledge of
the Company, has not been disclosed to the Purchasers, which could be expected to
have a Material Adverse Effect on the ability of the Company and each
Subsidiary to perform its obligations under the Transaction Documents.


 


(c)                                  Except
as disclosed in the SEC Reports, since April 1, 2003, there has not been any
change, or any application or any request for any change, by the Company or any
of its Subsidiaries in accounting principles, methods or policies for financial
accounting or tax purposes.


 


17

















 


(d)                                 Except
as set forth in Section 2.22(d) of the Disclosure Schedule, the Company is not
aware of any correspondence (other than routine communications), action or
proposed or threatened action by the SEC or Nasdaq with regard to the Company.


 


2.23                           Financial
Statements.  The Company has delivered
to each Purchaser the audited financial statements of the Company and its
Subsidiaries as at and for the years ended March 31, 2003, 2002 and 2001 and
unaudited financial statements as at and for the fiscal quarters ended June 30
and September 30, 2003 (the “Financial Statements”).  The Company has delivered to each Purchaser
the monthly financial statements of the Company and its Subsidiaries for the
months ended October 31, 2003 and November 30, 2003 in the form prepared by the
Company.  Except as set forth on
Schedule 2.23 of the Disclosure Schedule, the Financial Statements have been
prepared in accordance with GAAP and fairly present the financial condition and
operating results of the Company and its Subsidiaries as of the date, and for
the period, indicated therein, except that the unaudited financial statements
as at and for the fiscal quarters ended June 30 and September 30, 2003 and the
months ended October 31, 2003 and November 30, 2003 are subject to normal
year-end adjustments and do not contain all notes required under GAAP.  Except as set forth in the Financial
Statements, the Company and its Subsidiaries have no liabilities, obligations
or commitments of any nature (whether accrued, absolute, contingent,
unliquidated or otherwise, due or to become due and regardless of when
addressed), which are required to be included in the Financial Statements in
accordance with GAAP other than (a) liabilities that are listed on Section 2.23
of the Disclosure Schedule, (b) liabilities that have arisen in the ordinary
course of business since November 30, 2003 and have not had and could not
reasonably be expected to have a Material Adverse Effect and (c) obligations to
perform after the date hereof any contracts or agreement which have been
disclosed on Section 2.10 of the Disclosure Schedule or which are not required
to be disclosed Section 2.10 of the Disclosure Schedule because such contracts
and agreements do not meet the disclosure thresholds under Section 2.10 of the
Disclosure Schedule. Except as disclosed in the Financial Statements, neither
the Company nor any Subsidiary is a direct or indirect guarantor or indemnitor
of any indebtedness of any other person or entity.


 


2.24                           Changes.    Except
as expressly contemplated by the Transaction Documents or as set forth in
Section 2.24 of the Disclosure Schedule or as disclosed in the SEC Reports,
since March 31, 2003 there has not been:


 


(a)                                  any
change in the assets, liabilities, financial condition or operating results of
the Company or any Subsidiary from that reflected in the Financial Statements,
except changes in the ordinary course of business that have not created, in the
aggregate, a Material Adverse Effect,


 


(b)                                 any
intentional waiver or cancellation of any material right of the Company or any
Subsidiary, or the cancellation of any material debt or claim held by the
Company or any Subsidiary,


 


(c)                                  any
payment, discharge or satisfaction of any material claim, liability or
obligation of the Company or any Subsidiary other than in the ordinary course of
business,


 


18

















 


(d)                                 any
Lien (other than Permitted Liens) upon the assets of the Company or any
Subsidiary that would be prohibited by the terms of the Restated Certificate if
it were to arise after the Closing Date,


 


(e)                                  any
declaration or payment of dividends on, or other distribution with respect to,
or any direct or indirect redemption or acquisition of, any securities of the
Company or any Subsidiary other than the Purchased Securities,


 


(f)                                    any
sale, assignment or transfer of any material, tangible or intangible assets of
the Company or any Subsidiary except in the ordinary course of business,


 


(g)                                 any
loan by the Company or any Subsidiary to any officer, director, employee,
consultant or shareholder of the Company or any Subsidiary (other than advances
to such persons in the case of travel, entertainment or other similar advances
in the ordinary course of business),


 


(h)                                 any
material increase, direct or indirect, in the compensation paid or payable to any
officer or director of the Company or any Subsidiary or, other than in the
ordinary course of business, to any other employee, consultant or agent of the
Company or any Subsidiary,


 


(i)                                     any
material change in the accounting methods, practices or policies of the Company
or any Subsidiary,


 


(j)                                     any
indebtedness incurred for borrowed money by the Company or any Subsidiary other
than in the ordinary course of business,


 


(k)                                  any
material adverse change in the manner of business or operations of the Company
or any Subsidiary (including, without limitation, any accelerations or deferral
of the payment of any material accounts payable or other current, material
liabilities or deferral of the collection of any material accounts or notes
receivable),


 


(l)                                     any
capital expenditures or commitments therefor by the Company or any Subsidiary
that aggregate in excess of $25,000 for any twelve-month period,


 


(m)                               any
issuance of any stock, bonds or other securities of the Company or any
Subsidiary,


 


(n)                                 any
amendment to the Existing Certificate, Existing Bylaws or other organizational
documents of the Company or any amendment of the organizational or formation
documents of any Subsidiary, other than the Restated Certificate and Restated
Bylaws, or


 


(o)                                 except
for the transactions contemplated by this Agreement, any agreement or
commitment (contingent or otherwise) by the Company or any Subsidiary to do any
of the foregoing.


 


2.25                           Existing
Registration Rights.  Except as set
forth in Section 2.25 of the Disclosure Schedule the Company has not granted or
agreed to grant rights to require the


 


19

















 


registration of the
Company’s equity securities under the Securities Act, including piggyback
rights, to any person or entity.


 


2.26                           Suppliers
and Customers.  Except as set forth
in Section 2.26 of the Disclosure Schedule, since the date of the Company’s
most recent audited financial statements, none of the Company’s or any
Subsidiaries’ suppliers, vendors, or customers has:  (i) terminated or cancelled a Material Contract or material
business relationship; (ii) threatened in writing to terminate or cancel a
Material Contract or material business relationship; (iii) expressed
dissatisfaction in writing with the performance of the Company or any
Subsidiary with respect to a Material Contract or material business
relationship; or (iv) demanded in writing any material modification,
termination or limitation of a Material Contract or material business
relationship with the Company or any Subsidiary (excluding any contracts or
business relationship which, if so terminated, cancelled, modified or limited,
would not result in a Material Adverse Effect), nor does the Company have
Knowledge that any of the events described in clauses (i) — (iv), whether in
writing or otherwise, will occur after the Closing Date.  Set forth in Section 2.26 of the Disclosure
Schedule is a list describing the sales derived from each of the Company’s
major customers for the period of April 1, 2003 through December 31, 2003 (determined
by amount of revenue) and such list is true and correct in all material
respects.


 


2.27                           Foreign
Corrupt Practices Act.  Neither the
Company, any Subsidiary nor, to the Company’s Knowledge after reasonable
inquiry by each of the individuals referred to in the definition of the term
“Knowledge” in Section 8, any employee of the Company or any Subsidiary has
violated the United States Foreign Corrupt Practices Act, as amended, in any
material respect.  To the Company’s
Knowledge, no shareholder, director, officer, employee or agent of the Company
or of a Subsidiary has, directly or indirectly, made or agreed to make, any
unlawful or illegal payment, gift or political contribution to, or taken any
other unlawful or illegal action, for the benefit of any customer, supplier,
governmental employee or other Person who is or may be in a position to assist
or hinder the business of the Company or a Subsidiary.


 


2.28                           Work
in Progress.  Section 2.28 of the
Disclosure Schedule contains a complete list of all contracts on which the
Company and its Subsidiaries are currently working or which have not been
completed, the customer for whom the work is being performed, and the amount
and basis for payment and the status of the contract and the work being
performed thereunder.   Except as set
forth in Section 2.28 of the Disclosure Schedule, there is currently no
material work being performed for which there is no written agreement or
purchase order signed by the customer.


 


2.29                           Warranty
and Related Matters.  Section 2.29
of the Disclosure Schedule sets forth a complete list of all outstanding
product and service warranties and guarantees on any of the products or
services that the Company or its Subsidiaries distributes, services, markets or
sells for itself, a customer or a third party (each such product or service
shall be referred to herein as a “Company Product”). There are no
existing or, to the Company’s Knowledge, threatened in writing, product
liability, warranty or other similar claims against the Company or any of its
Subsidiaries alleging that any Company Product is defective or fails to meet
any product or services warranties except as set forth in Section 2.29 of the
Disclosure Schedule.


 


20

















 


2.30                           No
Discussions of Dispositions.  Except
as set forth in Section 2.30 of the Disclosure Schedule, Company has not
entered into discussions of any nature with any potential third party purchaser
of the Company or broker therefor with respect to a proposed merger, acquisition
or sale of all or substantially all of the assets of the Company (a “Disposition”)
during the period of three months immediately prior to the date hereof.


 


3.                                       Representations
and Warranties of the Purchasers. 
Each Purchaser hereby represents and warrants that:


 


3.1                                 Organization
and Qualification.  Each Purchaser
is duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization and its Agreement of Limited
Partnership to carry on its business as it is now being conducted or proposed
to be conducted.


 


3.2                                 Power
and Authority.  Each Purchaser has
all requisite power and authority as a limited partnership to execute and
deliver the Transaction Documents to which it is a party, to purchase the Purchased
Securities from the Company hereunder, and to carry out and perform its
obligations under the terms of the Transaction Documents.


 


3.3                                 Authorization.  The execution, delivery and performance by
such Purchaser of the Transaction Documents to which it is a party, and the
performance of all of the obligations of such Purchaser under each of such
Transaction Documents have been duly and validly authorized, and no other
action, approval or authorization is required on the part of such Purchaser or
any Person by Law or otherwise in order to make the Transaction Documents the
valid, binding and enforceable obligations (subject to (i) laws of general
application relating to bankruptcy, insolvency, and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief, or other
equitable remedies) of such Purchaser that is a party thereto.  Each of the Transaction Documents, when
executed and delivered by such Purchaser that is a party thereto, will
constitute a valid and legally binding obligation of such Purchaser that is a
party thereto, enforceable against such Purchaser that is a party thereto in
accordance with its terms subject to: (i) laws of general application relating
to bankruptcy, insolvency, and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief, or other equitable remedies.


 


3.4                                 Purchase
Entirely for Own Account.  The
Purchased Securities and the Conversion Shares (collectively, the “New
Securities”) will be acquired for investment for such Purchaser’s own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof.  Such
Purchaser’s principal office is located in the State of Connecticut for purposes
of state securities laws.  Such Purchaser
is aware that the Company is issuing the New Securities pursuant to Section
4(2) of the Securities Act and Regulation D promulgated thereunder without
complying with the registration provisions of the Securities Act or other
applicable federal or state securities laws. 
Such Purchaser is also aware that the Company is relying upon, among
other things, the representations and warranties of the Purchasers contained in
this Agreement for purposes of complying with Regulation D.


 


3.5                                 Disclosure
of Information.  Such Purchaser has
received and carefully reviewed all the information it considers necessary or
appropriate for deciding whether to 


 


21

















 


purchase the New Securities. 
Such Purchaser further represents that the Company has made available to
such Purchaser, at a reasonable time prior to the date of this Agreement, an
opportunity to (a) ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the New Securities and the
business, properties and financial condition of the Company, all of which
questions (if any) have been answered to the reasonable satisfaction of such
Purchaser, and (b) obtain additional information, all of which was furnished by
the Company to the reasonable satisfaction of such Purchaser.  The foregoing, however, does not limit or
modify the representations and warranties of the Company in Section 2 of this
Agreement or the right of the Purchasers to rely thereon.


 


3.6                                 Investment
Experience.  Such Purchaser
acknowledges that it is able to fend for itself, can bear the economic risk of
its investment, and has such knowledge and experience in investing in companies
similar to the Company and in financial or business matters such that it is
capable of evaluating the merits and risks of the investment in the New
Securities.  Such Purchaser has made the
determination to enter into this Agreement and the other agreements
contemplated hereby and to acquire the New Securities based upon its own independent
evaluation and assessment of the value of the Company and its present and
prospective business prospects.


 


3.7                                 Accredited
Investor.  Such Purchaser is an “accredited
investor” within the meaning of SEC Rule 501 of Regulation D, as presently
in effect.


 


3.8                                 Restricted
Securities; Legends.  Such Purchaser
recognizes that the New Securities will not be registered under the Securities
Act or other applicable federal or state securities laws.  Such Purchaser understands that the New
Securities it is purchasing are characterized as “restricted securities” under
the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering.  Such Purchaser acknowledges that it may not
to sell or transfer the New Securities unless such New Securities are
registered under the Securities Act and under any other applicable securities
laws and that certificates evidencing the New Securities will bear the
following legend or similar legend:


 


THIS SECURITY HAS AND THE
SHARES OF STOCK WHICH MAY BE PURCHASED PURSUANT TO THE EXERCISE OF THIS
SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”), AND SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED OR DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
UNDER THE ACT AND THE RULES AND REGULATIONS THEREUNDER.


 


3.9                                 No
General Solicitation.  Such
Purchaser acknowledges that the New Securities were not offered to such
Purchaser means of: (a) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar medium, or
broadcast over television or radio, or (b) any other form of general
solicitation or advertising.


 


22

















 


3.10                           Absence
of Conflicts.  Such Purchaser’s
execution, delivery, and performance of, and compliance with the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby, have not and will not:


 


(a)                                  violate,
conflict with or result in a breach of any provision of or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in the creation of any Lien upon any of the assets,
properties or business of such Purchaser under, any of the terms, conditions or
provisions of (i) its certificate/articles of formation or organization or any
of its other formation or organizational documents, or (ii) any material
contract to which it is a party; or


 


(b)                                 violate
any judgment, ruling, order, writ, injunction, award, decree, or any Law or
regulation of any court or federal, state, county or local government or any
other governmental, regulatory or administrative agency or authority which is
applicable to such Purchaser or any of its assets, properties or businesses,
which violation would have a Material Adverse Effect.


 


3.11                           Brokers
or Finders.  Such Purchaser has not
incurred, nor will it incur, directly or indirectly, as a result of any action
taken by such Purchaser, any liability for brokerage or finders’ fees or
agents’ commissions or any similar charges in connection with this Agreement or
the issuance of the New Securities or any transaction contemplated hereby or
thereby.  Such Purchaser agrees to
indemnify and hold harmless the Company and each Subsidiary from any liability
for any commission or compensation in the nature of a finders’ fee (and the
costs and expenses of defending against such liability or asserted liability)
for which such Purchaser, or any of its respective officers, employees or
representatives is responsible.


 


4.                                       Conditions
of the Parties.


 


4.1                                 Conditions
of Purchasers’ Obligations at any Closing. 
The obligations of each Purchaser under Section 1 of this Agreement are
subject to the satisfaction by the Company on or before any Closing of each of
the following conditions:


 


(a)                                  Representations
and Warranties.  The representations
and warranties of the Company contained in Section 2 shall be true and correct
on and as of such Closing with the same force and effect as though such
representations and warranties had been made on and as of the date of such
Closing except as a result of events and changes thereto that do not result in
a Material Adverse Effect (except where such representation is made as of a
specific date, it shall be true and correct as of such date except as a result
of events and changes thereto that do not result in a Material Adverse Effect).


 


(b)                                 Performance.  The Company shall have performed and
complied with all conditions contained in this Agreement that are required to
be performed or complied with by it on or before such Closing.


 


(c)                                  No
Material Adverse Effect; Compliance Certificate.  No Material Adverse Effect shall have occurred between the date
hereof and such Closing Date and the President and/or Chief Executive Officer
of the Company shall deliver to each Purchaser at each 


 


23

















 


such Closing a
certificate stating that the conditions specified in Sections 4.1(a) and (b)
have been fulfilled and stating that no Material Adverse Effect has occurred
between the date hereof and such Closing Date.


 


(d)                                 Consents
and Approvals.  All authorizations,
approvals, permits, or consents, if any, of any governmental authority or
regulatory body of the United States or of any state or any creditor of the
Company or any other Person (including the consent of the Company’s
shareholders and any authorizations, consents, approvals or permits of the
Nasdaq) that are required in connection with the lawful issuance and sale of
the Purchased Securities pursuant to this Agreement shall be duly obtained and
effective as of each such Closing and the purchase and payment of the Purchased
Securities to be purchased by the Purchasers at each such Closing on the terms
and conditions as provided herein shall not violate any applicable Law.


 


(e)                                  Warrants.  The Company shall deliver to each Purchaser
its Warrants that are being issued and sold to such Purchasers on such Closing
Date.


 


(f)                                    Certificates.  The Company shall deliver to each Purchaser
a certificate representing the Purchased Shares that are being issued and sold
to such Purchaser on such Closing Date.


 


(g)                                 Good
Standing; Qualification to do Business. 
The Company shall have delivered to the Purchasers a certificate of good
standing from the State of New York and each jurisdiction in which is has
qualified to do business dated as of a date no earlier than 7 days prior to
such Closing and evidence of telephone confirmation thereof as of the close of
business immediately prior to such Closing Date.


 


(h)                                 Secretary’s
Certificate.  The Company shall have
delivered to the Purchasers a certificate executed by its Secretary dated such
Closing Date certifying with respect to (i) a copy of its Restated Certificate
and the Restated Bylaws as amended to and in effect on such Closing Date and
that the Company is not in violation of or default under any provision of its
Restated Certificate or Restated Bylaws as of and on such Closing Date,  (ii) board resolutions authorizing the
transactions contemplated by this Agreement and the Transaction Documents,
(iii) copies of all minutes of all meetings (or excerpts thereof) and all
actions by written consent of the shareholders of the Company authorizing the
transactions contemplated in this Agreement and the Transaction Documents and
(iv) incumbency matters and such other proceedings relating to the
authorization, execution and delivery of this Agreement and the other
Transaction Documents as may be reasonably requested by the Purchasers.


 


(i)                                     Opinion
of Company Counsel.  Each Purchaser
shall have received from counsel to the Company (reasonably acceptable to the
Purchasers), an opinion, dated such Closing Date, in the form attached hereto
as Exhibit H.


 


(j)                                     Cross-Receipts
of the Purchasers.  The Company and
the Purchasers shall have executed and delivered a cross-receipt acknowledging
the Company’s delivery to the Purchasers of the certificates representing the
Purchased Securities issued and sold to the Purchasers on such Closing Date to
the Purchasers and the Purchasers’ payment therefor.


 


24

















 


(k)                                  No
Acceleration of Vesting, etc.  The
Company shall not have made any determination or taken any other actions that
could result in the, and there shall have been no, acceleration of the vesting
or rights to exercise Options or warrants or cause an accelerated pay-out of
any such Options.


 


(l)                                     Compliance
with Covenants.  On any such Closing
Date, the Company shall be in compliance with each of the covenants set forth
in Section 6.


 


(m)                               Pro-Forma
Capitalization Table.  The Company
shall have delivered to the Purchasers a revised Exhibit D reflecting
the issued and outstanding Common Stock, Series A-1 Preferred Stock and Series
A-2 Preferred Stock and all options and warrants with respect thereto on a
fully diluted basis immediately after such Closing Date.


 


(n)                                 Disclosure
Schedule.  The Company shall have
delivered to the Purchasers a revised Disclosure Schedule accurately reflecting
any additional information required to be provided to the Purchasers pursuant
to this Agreement between the date hereof and any such Closing Date.


 


(o)                                 Conversion
Shares.  The Conversion Shares have
been duly reserved for issuance and when issued will be duly and validly
issued, fully paid and nonassessable.


 


(p)                                 Listing
on Stock Exchange.  The Common Stock
shall be listed on Nasdaq, any other national securities exchange as identified
under the 34 Act, or the Nasdaq OTC Bulletin Board (or comparable substitute
quotation system) as of such Closing and no action shall have been taken by
Nasdaq or such national securities exchange to terminate such listing prior to
any such Closing.


 


4.2                                 Conditions
of Purchasers’ Obligations at the Initial Closing.  In addition to the conditions set forth in
Section 4.1, the obligations of each Purchaser under Section 1.2 of this
Agreement are subject to the satisfaction by the Company on the Initial Closing
Date of each of the following conditions:


 


(a)                                  Shareholders’
Agreement; Registration Rights Agreement; etc.  The Company shall have executed (i) a Shareholders’ Agreement,
substantially in the form attached hereto as Exhibit E (the “Shareholders’
Agreement”), (ii) a Registration Rights Agreement, substantially in the
form attached hereto as Exhibit F (the “Registration Rights
Agreement”) and (iii) a Management Rights Agreement between the Company and
Pequot Private Equity Fund III, substantially in the form attached hereto as Exhibit
G (the “Management Rights Agreement”).


 


(b)                                 Certificate
of Incorporation.  On or prior to
the Initial Closing, there shall have been filed with the Secretary of State of
the State of New York, the Restated Certificate, substantially in the form
attached hereto as Exhibit A and the Restated Certificate shall be in
full force and effect.


 


(c)                                  Election
of Directors.  The Company shall
have taken all necessary corporate action to effect the election of the
Purchasers’ designees (as provided in the Shareholders’ Agreement) as directors
of the Company to take office immediately following the Initial Closing.


 


25

















 


(d)                                 Employment
Agreements.  (i) On or prior to the
Initial Closing Date, the Company shall have terminated the (x) Employment
Agreement, dated as of September 1, 1996 between the Company and Steven
Rothman, as amended and (y) Employment Agreement, dated September 1, 1996,
between the Company and Howard Pavony, as amended.  The Company shall deliver evidence of such terminations to the
Purchasers on or prior to the Initial Closing Date.


 


(ii)  Effective
as of the Initial Closing Date, the Company shall have entered into employment
agreements with Messrs. Steven Rothman, Howard Pavony and Frank Alfano in
substantially the forms attached hereto as Exhibit I-1, I-2 and I-3,
respectively, and shall have delivered executed copies of such employment
agreements to the Purchasers on the Initial Closing Date.


 


(e)                                  Confidential
Information, Non-Disclosure, Non-Competition Agreement.  On or prior to the Initial Closing Date,
each of Messrs. Steven Rothman and Howard Pavony shall have entered into a
Confidential Information, Assignment of Rights, Non-Solicitation and
Non-Competition Agreement in substantially the form attached hereto as Exhibit
J.


 


(f)                                    Amendment
of Bylaws.  On or prior to the
Initial Closing Date, the Company shall have taken all necessary corporate
action to adopt the Amended and Restated Bylaws attached hereto as Exhibit C
(the “Restated Bylaws”).


 


(g)                                 Fairness
Opinion.  The Company shall have
delivered to the Purchasers a copy of the fairness opinion rendered by Kaufman
Bros., L.P. to the Special Committee of the Board of Directors as to the
fairness, from a financial point of view, to the shareholders of the Company of
the consideration to be paid by the Purchasers in connection with the proposed
purchase by the Purchasers of Series A Preferred Stock to be issued by the
Company and any bringdowns and supplements to such opinion; provided, that the
Company shall not be required to obtain any such bringdowns or supplements.


 


(h)                                 Landlord
Waiver.  The Company shall provide
to the Purchasers, in form and substance satisfactory to the Purchasers, such
estoppel letters, waivers and consents as may be required from landlords of
each premises that is leased by the Company.


 


(i)                                     Closing
Capitalization Table.  The Company
shall have delivered to the Purchasers a revised Exhibit D accurately
reflecting any additional issuances of securities between the date hereof and
the Initial Closing Date.


 


(j)                                     Cash
Payment to Mr. Rothman and Mr. Pavony. 
In consideration for their entering into the Shareholders Agreement and
concurrent with the Initial Closing, the Company shall pay each of Steven
Rothman and Howard Pavony the sum of $150,000 in cash.


 


(k)                                  Qualified
Small Business Corporation Status. The Company has not purchased any of the
Company’s capital stock during the one year period ending on the Initial
Closing Date and to the best of the Company’s Knowledge, the Purchased
Securities will qualify as “Qualified Small Business Stock” as defined
in Section 1202(c) of the Code as of the Initial Closing Date.


 


26

















 


(l)                                     Accounts
Receivable. The Company shall have provided the Purchasers with evidence,
reasonably satisfactory to such Purchasers, that the Company has collected in
full all aged accounts receivable payable to the Company by the City of
Bridgeport, Connecticut, that were outstanding on the date of this Agreement
for a period of more than ninety (90) days.


 


(m)                               Amendments
to Borrowing Arrangements. The Company shall have caused an amendment to
any document evidencing a borrowing arrangement by the Company as may be
reasonably necessary (x) so as to not conflict in any way with the transactions
contemplated in this Agreement and (y) to accomplish the Company’s business
plan as currently contemplated.


 


(n)                                 Release
from Amtech Associates. Upon payment to Amtech Associates (“Amtech”)
of the amount set forth in Section 2.18 of the Disclosure Schedule, Amtech
shall have released the Company, each Subsidiary and the officers, directors,
shareholders and employees of each of the Company and each Subsidiary from any
and all obligations and/or liabilities to Amtech.


 


4.3                                 Conditions
of Purchasers’ Obligations at any Subsequent Closing.  In addition to the conditions set forth in
Section 4.1, the obligations of each Purchaser under Section 1.3 and Section
1.4 of this Agreement are subject to the satisfaction by the Company on each
Subsequent Closing Date of the following condition:


 


(a)                                  Amendments.  On or before any Subsequent Closing Date,
the Company and each Purchaser shall have executed an amendment to this
Agreement. Such amendment shall include a supplement to Schedule I reflecting
the amount of Purchased Securities that the Company will issue to each
Purchaser on such Subsequent Closing Date and the aggregate purchase price
therefor and any other amendments to this Agreement that may be necessary to
effectuate the sale of such Purchased Securities.


 


4.4                                 Conditions
of Company’s Obligations at any Closing. 
The obligations of the Company to consummate the transactions
contemplated by this Agreement are subject to the satisfaction by the
Purchasers on or before any such Closing of each of the following conditions:


 


(a)                                  Representations
and Warranties.  The representations
and warranties of the Purchasers contained in Section 3 shall be true and
correct in all material respects on and as of such Closing (except where another
date or period of time is specifically stated herein for a representation or
warranty and in such case such representation or warranty shall be true and
correct in all material respects on and as of such date) with the same force and effect as though such representations
and warranties had been made on and as of the date of such Closing; provided,
however, that representations and warranties that contain a materiality
qualification shall be true and correct in all respects.


 


(b)                                 Performance.  The Purchasers shall have performed and
complied with all conditions contained in this Agreement that are required to
be performed or complied with by it on or before such Closing.


 


(c)                                  Consents
and Approvals.  All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state or any 


 


27

















 


other Person (including
the consent of the Company’s shareholders and any authorizations, consents,
approvals or permits of the Nasdaq) that are required in connection with the
lawful issuance and sale of the Purchased Securities pursuant to this Agreement
shall be duly obtained and effective as of such Closing and the purchase and
payment of the Purchased Securities to be purchased by the Purchasers at such
Closing on the terms and conditions as provided herein shall not violate any
applicable Law.


 


(d)                                 Cross-Receipts
of the Purchasers.  The Company and
the Purchasers shall have executed and delivered a cross-receipt acknowledging
the Company’s delivery to the Purchasers of the certificates representing the
Purchased Securities issued and sold to the Purchasers on such Closing Date to
the Purchasers and the Purchasers’ payment therefor.


 


(e)                                  Purchase
Price.  The Purchasers shall have
delivered to the Company the applicable Series A Purchased Share Purchase Price
for the Purchased Securities being purchased on such Closing Date as provided
in Section 1.6, 1.7 or 1.8, as applicable.


 


(f)                                    Complete
Purchase.  If more than one
Purchaser is purchasing Series A Stock and Series A Warrants at any such
Closing, then each such Purchaser shall have satisfied all of the foregoing
conditions in this Section 4.4 and shall have purchased the Series A Stock and
Series A Warrants that each such Purchaser has agreed to purchase.


 


5.                                       Reserved.


 


6.                                       Affirmative
Covenants.


 


So long as any Purchaser together with any entity
affiliated with it owns at least 750,000 shares of Purchased Shares (as appropriately
adjusted for any stock splits, stock dividends, combinations, and the like) and
for a period of six (6) months thereafter, the Company covenants and
agrees that it will comply with each of the following covenants.


 


6.1                                 Financial
Statements.  The Company shall
furnish to each Purchaser, within five Business Days after filing, a true and
complete signed copy of its Form 10-Q as filed with the SEC pursuant to the 34
Act, all in such form, and together with such other information with respect to
the business of the Company, as the Purchasers may request, which shall present
fairly, in all material respects, the financial position of the Company as of
the end of each such period and the results of its operations and cash flows
during such period, all in accordance with GAAP.  Annually, but not later than five Business Days after filing, the
Company shall deliver to the Purchasers (i) a true and complete signed copy of
its Form 10-K as filed with the SEC pursuant to the 34 Act and (ii) audited
financial statements which shall present fairly, in all material respects, the
financial position of the Company as of the end of each such period and the
results of its operations and cash flows during such period, all in accordance
with GAAP and accompanied by the unqualified report and opinion thereon of the Company’s
independent certified public accountant.


 


28

















 


6.2                                 Certain
Other Reports and Information.  The
Company shall deliver to the Purchasers, within 30 days of issuance, all
accountants’ management letters (including a management letter stamped “draft”)
pertaining to, all other reports submitted by accountants in connection with
any audit of, and all other reports from outside accountants with respect to,
the Company and its Subsidiaries (and, in any event, any independent auditors’
annual management letters, if issued, will be delivered to the Purchasers
concurrently with the financial statements referred to in Section 6.1(a)).


 


6.3                                 Further
Information; Further Assurances. 
The Company will, with reasonable promptness, provide to the Purchasers
such further assurances and additional information, reports and statements
respecting its business, operations, properties and financial condition and
respecting its Affiliates and investments, as the Purchasers may from time to
time reasonably request.


 


6.4                                 Notice
of Certain Events.  Promptly upon
becoming aware of any of the following, the Company shall give the Purchasers
notice thereof, together with a written statement of a Responsible Officer of
the Company setting forth the details thereof and any action with respect
thereto taken or proposed to be taken by the Company:


 


(i)                                     Any
pending action, suit, proceeding or investigation by or before any Governmental
Authority against or affecting the Company (or any such action, suit,
proceeding or investigation threatened in writing) to the extent that it would
result in a Material Adverse Effect.


 


(ii)                                  Any
material violation, breach or default by the Company or any of its Subsidiaries
of or under any agreement or instrument material to its business, assets,
properties, operations or condition, financial or otherwise (it being expressly
understood and agreed that the Company need not provide notice to the
Purchasers pursuant to this Section 6.4(ii) of the termination of any such
agreement or instrument in accordance with its terms).


 


(iii)                               (A) Any Environmental
Claim made or threatened in writing against the Company, or (B) the Company’s
becoming aware of any past or present acts, omissions, events or circumstances
(including any Release, disposition, removal, abandonment or escape of any
Hazardous Materials on, at, in, under, above, to, from or about any facility or
property now or previously owned, operated or leased by the Company or any of
its Subsidiaries) which could form the basis of any such Environmental Claim,
which Environmental Claim, in the case of either clause (A) or (B), if
adversely resolved, would reasonably be expected, either individually or in the
aggregate, to have a Material Adverse Effect.


 


(iv)                              The
occurrence of any Material Adverse Effect or any deviation in or change from
the representations, warranties or covenants of the Company in this Agreement
or in the other Transaction Documents.


 


6.5                                 Visitation;
Verification.  The Company and its
Subsidiaries shall permit such Persons as the Purchasers may designate from
time to time to visit and inspect any of the properties of the Company and its
Subsidiaries to examine their respective assets, properties, offices and other
facilities, and books and records and take copies and extracts therefrom, and 


 


29

















 


access to the outside auditors of the Company and their work papers
relating thereto, in each case, as the Purchasers may from time to time
reasonably request, and to discuss their affairs with their directors,
officers, employees and independent accountants at such times and as often as
the Purchasers may reasonably request; provided that (i) any such Person
shall provide at least two days’ prior advance notice to the Company of its
intention to visit or inspect any of the properties of the Company and its
Subsidiaries; and (ii) all such visits or inspections shall be conducted during
the normal business hours of the Company and without undue interference with
the conduct of the Company’s business. 
The Company shall reimburse the Purchasers for reasonable out-of-pocket
costs and expenses of for all inspections in any calendar year; for all other
times all such visits or inspections shall be at the sole cost and expense of
the Purchasers.  The parties hereto
agree that no investigation by the Purchasers or their representatives shall
affect or limit the scope of the representations and warranties of the Company
contained herein or in any Transaction Document delivered pursuant hereto or
limit liability for breach of any such representation or warranty.


 


The Purchasers shall have the right to examine and
verify accounts, inventory and other properties and liabilities of the Company
and its Subsidiaries from time to time, and the Company shall cooperate with
the Purchasers in such verification. 
Without limitation of the foregoing, subject to limitations required due
to the nature of any classified work, contracts or customer relationships, the
Company hereby authorizes its officers, employees and independent accountants
to discuss with the Purchasers the affairs of the Company and its Subsidiaries.


 


6.6                                 Insurance.


 


(a)                                  The
Company shall, and shall cause each of its Subsidiaries to (i) maintain with
financially sound and reputable insurers insurance with respect to its
properties and business and against such liabilities, workers’ compensation,
casualties and contingencies and of such types and in such amounts as are
customary in the case of corporations engaged in the same or similar businesses
or having similar properties similarly situated and naming each Purchaser as an
additional insured and a loss payee, (ii) furnish to the Purchasers from time
to time upon request copies of the policies under which such insurance is
issued, original certificates of insurance and such other information relating
to such insurance as the Purchasers may reasonably request, and (iii) provide
such other insurance and endorsements as are required by this Agreement and the
other Transaction Documents.


 


(b)                                 The
Company shall maintain in effect an errors and omissions insurance policy for
the Company and its Subsidiaries with (i) coverage extending to all officers
and directors of the Company, (ii) policy limits not less than those maintained
by the Company and Subsidiaries on the date hereof, and (iii) deductibles not
greater than those as are reasonable for companies engaged in the same or
similar businesses and similarly situated.


 


6.7                                 Payment
of Taxes and Other Potential Charges and Priority Claims.  The Company shall, and shall cause each of
its Subsidiaries to, pay or discharge:


 


(i)                                     on
or prior to the date on which material penalties attach thereto, all taxes,
assessments and other governmental charges imposed upon it or any of its properties;


 


30

















 


(ii)                                  on
or prior to the date when due, all lawful claims of materialmen, mechanics,
carriers, warehousemen, landlords and other like Persons which, if unpaid,
might result in the creation of a material Lien upon any such property; and


 


(iii)                               on or prior to the date
when due, all other lawful claims which, if unpaid, might result in the
creation of a Lien upon any such property or which, if unpaid, might give rise
to a claim entitled to priority over general creditors of the Company in a case
under Title 11 (Bankruptcy) of the United States Code, as amended;


 


provided
that unless and until foreclosure, distraint, levy, sale or similar proceedings
shall have been commenced it need not pay or discharge any such tax,
assessment, charge or claim so long as (x) the validity thereof is contested in
good faith and by appropriate proceedings diligently conducted, and (y) such
reserves or other appropriate provisions as may be required by GAAP shall have
been made therefor.


 


6.8                                 Preservation
of Corporate Status.  The Company
shall, and shall cause each of its Subsidiaries to, maintain its status as a
corporation or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or formation, and
to be duly qualified to do business as a foreign entity and in good standing in
all jurisdictions in which the ownership of its properties or the nature of its
business or both make such qualification necessary.


 


6.9                                 Governmental
Approvals and Filings.  The Company
shall, and shall cause each of its Subsidiaries to obtain, keep and maintain in
full force and effect all Governmental Approvals necessary in connection with
or to facilitate the execution and delivery of this Agreement or any other
Transaction Document, consummation of the transactions herein or therein
contemplated, performance of or compliance with the terms and conditions hereof
or thereof or to ensure the legality, validity, binding effect, enforceability
or admissibility in evidence hereof or thereof.


 


6.10                           Maintenance
of Properties.  The Company shall,
and shall cause each of its Subsidiaries to (a) maintain or cause to be
maintained in good repair, working order and condition the properties now or
hereafter owned, leased or otherwise possessed by it (and make or cause to be
made all needed and proper repairs, renewals, replacements and improvements
thereto) which are necessary so that the business carried on in connection
therewith may be properly conducted at all times and (b) maintain and hold in
full force and effect all franchises, licenses, permits, certificates,
authorizations, qualification, accreditations and other rights, consents and
approvals (whether issued, made or given by a Governmental Authority or
otherwise), necessary to own and operate its properties and to carry on its
business as presently conducted and as presently planned to be conducted,
except for any failure to comply with any of the foregoing which would not,
either individually or in the aggregate, have a Material Adverse Effect.  The Company shall use its commercially
reasonable efforts to preserve its favorable business relationships with the
clients, lenders, suppliers, customers, licensors and licensees and others
having business dealings with the Company and to preserve the goodwill and
ongoing operations of the Company.


 


31

















 


6.11                           Financial
Accounting Practices.  The Company
shall, and shall cause each of its Subsidiaries to, make and keep books,
records and accounts which, in reasonable detail, accurately and fairly reflect
its transactions and dispositions of its assets and maintain systems of
internal accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management’s general or specific
authorization, (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with GAAP and (ii) to
maintain accountability for assets, (c) access to assets is permitted only in
accordance with management’s general or specific authorization and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.


 


7.                                       Indemnification.


 


7.1                                 General
Indemnification.  The Company shall
indemnify, defend and hold each Purchaser, its affiliates and their respective
officers, directors, partners (general and limited), employees, agents, attorneys
successors and assigns (each a “Purchaser Entity”) harmless from and
against all Losses incurred or suffered by a Purchaser Entity as a result of
the breach of any of the representations, warranties, covenants or agreements
made by the Company in this Agreement or any of the other Transaction
Documents, except to the extent that such Losses are the result of the gross
negligence, willful misconduct or fraud of such Purchaser Entity.  Each Purchaser, severally and not jointly,
shall indemnify, defend and hold the Company, its affiliates, their respective
officers, directors, employees, agents, attorneys, successors and assigns (each
a “Company Entity”) harmless against all Losses as a result of the
breach of any of the representations, warranties, covenants or agreements made
by such Purchaser in this Agreement or any of the other Transaction Documents,
except to the extent that such Losses are a result of the gross negligence,
willful misconduct or fraud of such Company Entity.


 


7.2                                 Indemnification
Principles.  For purposes of this
Section 7, “Losses” shall mean each and all of the following items:  claims, losses (including, without
limitation, losses of earnings), liabilities, obligations, payments, damages
(actual, punitive or consequential to the extent provided in this Section 7.2),
charges, judgments, fines, penalties, amounts paid in settlement, costs and
expenses (including, without limitation, interest which may be imposed in
connection therewith, costs and expenses of investigation, actions, suits,
proceedings, demands, assessments and reasonable fees, expenses and
disbursements of counsel, consultants and other experts).  Each Purchaser and the Company hereby agree
that Losses shall not include punitive or consequential damages except to the
extent that such Losses are the result of the gross negligence, willful
misconduct or fraud of the party from whom the indemnification is being sought
(the “Indemnifying Party”).


 


7.3                                 Claim
Notice; Right to Defend.  A party
seeking indemnification (the “Indemnified Party”) under this Section 7
shall promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the Indemnifying Party a claim notice
relating to such Loss (a “Claim Notice”).  Each Claim Notice shall specify the nature of the claim, the
applicable provision(s) of this Agreement or other instrument under which the
claim for indemnity arises, and, if possible, the amount or the estimated
amount thereof.  No failure or delay in
giving a Claim Notice (so long as the same is given prior to 


 


32

















 


expiration of the representation or warranty upon which the claim is
based) and no failure to include any specific information relating to the claim
(such as the amount or estimated amount thereof) or any reference to any
provision of this Agreement or other instrument under which the claim arises
shall affect the obligation of the Indemnifying Party unless such failure
materially and adversely prejudices the Indemnifying Party.  If such Loss relates to the commencement of
any action or proceeding by a third person, the Indemnified Party shall give a
Claim Notice to the Indemnifying Party regarding such action or proceeding and
the Indemnifying Party shall be entitled to participate therein to assume the
defense thereof with counsel reasonably satisfactory to the Indemnified
Party.  After the delivery of notice
from the Indemnifying Party to the Indemnified Party of its election to assume
the defense of such action or proceeding, the Indemnifying Party shall not be
liable (except to the extent the proviso to this sentence is applicable, in
which event it will be so liable) to the Indemnified Party under this Section 7
for any legal or other expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation, provided that each Indemnified Party shall have the right
to employ separate counsel to represent it and assume its defense (in which
case, the Indemnifying Party shall not represent it) if (i) upon the advice of
counsel, the representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them, (ii)
in the event the Indemnifying Party has not assumed the defense thereof within
10 days of receipt of notice of such claim or commencement of action, and in
which case the fees and expenses of one such separate counsel shall be paid by
the Indemnifying Party or (iii) if such Indemnified Party who is a defendant in
any action or proceeding which is also brought against the Indemnifying Party
reasonably shall have concluded that there may be one or more legal defenses
available to such Indemnified Party which are not available to the Indemnifying
Party.  If any Indemnified Party employs
such separate counsel it will not enter into any settlement agreement which is
not approved by the Indemnifying Party, such approval not to be unreasonably
withheld.  If the Indemnifying Party so
assumes the defense thereof, it may not agree to any settlement of any such
claim or action as the result of which any remedy or relief, other than
monetary damages for which the Indemnifying Party shall be responsible
hereunder, shall be applied to or against the Indemnified Party, without the
prior written consent of the Indemnified Party.  In any action hereunder as to which the Indemnifying Party has
assumed the defense thereof with counsel reasonably satisfactory to the
Indemnified Party, the Indemnified Party shall continue to be entitled to
participate in the defense thereof, with counsel of its own choice, but, except
as set forth above, the Indemnifying Party shall not be obligated hereunder to
reimburse the Indemnified Party for the costs thereof.


 


8.                                       Certain
Definitions.  For the purposes of
this Agreement the following terms will have the following meanings:


 


“Affiliate” shall mean, with respect to any
Person, any other Person directly or indirectly controlling (including but not
limited to all directors and executive officers of such Person), controlled by,
or under direct or indirect common control with such Person.  A Person shall be deemed to control a
corporation for the purposes of this definition if such Person possesses,
directly or indirectly, the power (i) to vote 10% or more of the securities
having ordinary voting power for the election of directors of such corporation
or (ii) to direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.


 


33

















 


“Agreement” shall have the meaning ascribed to
it in the preliminary paragraph.


 


“Amtech” shall have the meaning ascribed to it
in Section 4.2(n).


 


“Break-Up Fee” shall have the meaning ascribed
to it in Section 11.16.


 


“Business Day” shall mean any day other than a
Saturday, Sunday, public holiday under the laws of the State of New York or any
other day on which banking institutions are authorized to close in New York City.


 


“Claim Notice” shall have the meaning ascribed
to it in Section 7.3.


 


“Closing” shall mean each of the Initial
Closing and any Subsequent Closing.


 


“Closing Date” shall mean each of the Initial
Closing Date and any Subsequent Closing Date.


 


“Code” shall have the meaning ascribed to it in
Section 2.17.


 


“Company” shall have the meaning ascribed to it
in the preliminary paragraph.


 


“Company Employee Plan(s)” shall have the
meaning ascribed to it in Section 2.16.


 


“Company Entity” shall have the meaning ascribed
to it in Section 7.1.


 


“Company Software” shall have the meaning
ascribed to it in Section 2.9(b).


 


“Company Product” shall have the meaning
ascribed to it in Section 2.29.


 


“Common Stock” shall have the meaning ascribed
to it in the recitals.


 


“Confidential Information” shall have the
meaning ascribed to it in Section 11.18.


 


“Controlled Group Member” shall mean each trade
or business (whether or not incorporated) which together with the Company is
treated as a single employer under Section 4001(a)(14) or 4001(b)(1) of ERISA
or Section 414(b), (c), (m) or (o) of the Code.


 


“Consolidated” shall mean, when used with
reference to any financial term in this Agreement, the aggregate for two or
more Persons of the amounts signified by such term for all such Persons
determined on a consolidated basis in accordance with GAAP.  Unless otherwise specified herein,
references to consolidated financial statements or data of Company includes
consolidation with its Subsidiaries in accordance with GAAP.


 


“Conversion Shares” shall have the meaning
ascribed to it in Section 2.3.


 


“Disposition” shall have the meaning ascribed
to it in Section 2.30.


 


34

















 


“Environmental Claim” shall mean, with respect
to any Person, any action, suit, proceeding, notice, claim, complaint, demand,
request for information or other communication (written or oral) against, of or
to such Person by or from any other Person (including any Governmental
Authority, citizens’ group or present or former employee of such Person)
alleging, asserting or claiming any actual or potential (a) violation of or
liability under any Environmental Laws or (b) liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages, personal
injuries, fines or penalties arising out of, based on or resulting from the
presence, or release into the environment, of any Hazardous Materials at any
location, whether or not owned by such Person.


 


“Environmental Laws” shall have the meaning
ascribed to it in Section 2.20.


 


“ERISA” shall have the meaning ascribed to it
in Section 2.16.


 


“Existing Bylaws” shall have the meaning
ascribed to it in Section 2.2.


 


“Existing Certificate” shall have the meaning
ascribed to it in Section 2.2.


 


“Financial Statements” shall have the meaning
ascribed to it in Section 2.23.


 


“GAAP” shall mean generally accepted accounting
principles for financial reporting in the United States, applied on a
consistent basis.


 


“Government” shall mean the government of the
United States of America, its agencies and instrumentalities.


 


“Governmental Approval” shall mean any
approval, order, consent, waiver, authorization, certificate, license, permit
or validation of, or exemption or other action by, or filing, recording or
registration with, or notice to, any Governmental Authority.


 


“Governmental Authority” shall mean any
government or political subdivision or any agency, authority, bureau, central
bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.


 


“Hazardous Material” shall mean any element,
compound, substance or other material (including, without limitation, any
pollutant, contaminant, hazardous waste, hazardous substance, chemical
substance, or product) that is listed, classified or regulated pursuant to any
Environmental Law, including, without limitation, any petroleum product,
by-product or additive, asbestos, presumed asbestos-containing material,
asbestos-containing material, medical waste, chlorofluorocarbon,
hydrochlorofluorocarbon, lead-containing paint, polychlorinated biphenyls,
radioactive material or radon.


 


“Hereof”, “hereto”, “hereunder”
and similar terms shall refer to this Agreement and not to any particular
paragraph or provision of this Agreement.


 


“Indemnified Party” shall have the meaning
ascribed to it in Section 7.3.


 


“Indemnifying Party” shall have the meaning
ascribed to it in Section 7.2.


 


35

















 


“Initial Closing” shall have the meaning
ascribed to it in Section 1.6.


 


“Initial Closing Date” shall have the meaning
ascribed to it in Section 1.6.


 


“Internal Revenue Code” shall mean the Internal
Revenue Code of 1986, as amended from time to time, and the regulations promulgated
thereunder.


 


“Knowledge” shall mean with respect to the
Company, the knowledge, after diligent investigation, of the directors,
officers and senior management of the Company and of the person or persons in
such entity with responsibility for the matter with respect to which the
knowledge is applicable.


 


“Law” shall mean the Company’s certificate of
incorporation, as amended, the By-laws and any foreign, federal, state or local
law, statute, rule, regulation, ordinance, code, directive, writ, injunction,
decree, judgment or order applicable to the Company or the Subsidiaries.


 


“Losses” shall have the meaning ascribed to it
in Section 7.2.


 


“Lien” shall mean any mortgage, deed of trust,
pledge, lien, security interest, charge or other encumbrance or security
arrangement of any nature whatsoever, including any conditional sale or title
retention arrangement, and any assignment, deposit arrangement or lease
intended as, or having the effect of, security.


 


“Management Rights Agreement” shall have the meaning
ascribed to it in Section 4.2(a).


 


“Material Adverse Effect” shall mean an effect
which is materially adverse to the business, assets, properties, operations,
results of operations or condition (financial or otherwise) of the Company
individually or of the Company and the Subsidiaries taken as a whole (excluding
general economic conditions or acts of war or terrorism).


 


“Material Contracts” shall have the meaning
ascribed to it in Section 2.10.


 


“Multiemployer Plan”
shall mean any employee benefit plan which is a “multiemployer plan” within the meaning of Section 4001(a)(3) of
ERISA and to which the Company or any Controlled Group Member has or had an
obligation to contribute.


 


“Nasdaq” shall have the meaning ascribed to it
in Section 2.5.


 


“New Securities” shall have the meaning
ascribed to it in Section 3.4.


 


“Options” shall have the meaning ascribed to it
in Section 2.4.


 


“Permits” shall have the meaning ascribed to it
in Section 2.8.


 


“Permitted Liens” shall have the meaning
ascribed to it in Section 2.6.


 


36

















 


“Person” shall mean an individual, corporation,
limited liability company, partnership, trust, incorporated or unincorporated
organization, joint venture, joint stock company, or a government or any agency
or political subdivision thereof or other entity of any kind.


 


“Pro Rata Share” shall have the meaning
ascribed to it in Section 11.16.


 


“Proprietary Rights” shall have the meaning
ascribed to it in Section 2.9.


 


“Purchased Securities” shall have the meaning
ascribed to it in Section 1.5.


 


“Purchased Shares” shall mean the Series A-1
Purchased Shares, the Series A-2 Purchased Shares and the Series A-3 Purchased
Shares, collectively.


 


“Purchaser(s)” shall have the meaning ascribed
to it in the preliminary paragraph.


 


“Purchaser Entity” shall have the meaning
ascribed to it in Section 7.1.


 


“Registration Rights Agreement” shall have the
meaning ascribed to it in Section 4.2(a).


 


“Release” shall mean any past or present
release, spill, leak, leaching, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, disposing or dumping.


 


“Responsible Officer”  shall mean the President, Chief Executive Officer, Vice President
of Finance or Chief Financial Officer of the Company.


 


“Restated Bylaws” shall have the meaning
ascribed to it in Section 4.2(f).


 


“Restated Certificate” shall have the meaning
ascribed to it in the recitals.


 


“SEC” shall have the meaning ascribed to it in
Section 2.22.


 


“SEC Reports” shall have the meaning ascribed
to it in Section 2.22.


 


“Securities Act” shall have the meaning
ascribed to it in Section 2.10.


 


“Series A-2 Closing” shall have the meaning
ascribed to it in Section 1.7.


 


“Series A-2 Closing Date” shall have the
meaning ascribed to it in Section 1.7.


 


“Series A-3 Additional Amount” shall have the
meaning ascribed to it in Section 1.4(b).


 


“Series A-3 Closing” shall have the meaning
ascribed to it in Section 1.8.


 


“Series A-3 Closing Date” shall have the
meaning ascribed to it in Section 1.8.


 


“Series A Preferred Stock” shall have the
meaning ascribed to it in the recitals.


 


37

















 


“Series A-1 Preferred Stock” shall have the
meaning ascribed to it in the recitals.


 


“Series A-2 Preferred Stock” shall have the
meaning ascribed to it in the recitals.


 


“Series A-3 Preferred Stock” shall have the
meaning ascribed to it in the recitals.


 


“Series A-1 Purchased Shares” shall have the
meaning ascribed to it in the recitals.


 


“Series A-2 Purchased Shares” shall have the
meaning ascribed to it in the recitals.


 


“Series A-3 Purchased Shares” shall have the
meaning ascribed to it in the recitals.


 


“Series A Purchased Shares Purchase Price”
shall mean the Series A-1 Purchased Shares Purchase Price, the Series A-2
Purchase Shares Purchase Price and/or the Series A-3 Purchased Shares Purchase
Price, as applicable.


 


“Series A-1 Purchased Shares Purchase Price”
shall have the meaning ascribed to it in the recitals.


 


“Series A-2 Purchased Shares Purchase Price”
shall have the meaning ascribed to it in the recitals.


 


“Series A-3 Purchased Shares Purchase Price”
shall have the meaning ascribed to it in Section 1.4.


 


“Series A-1 Warrants” shall have the meaning
ascribed to it in the recitals.


 


“Series A-2 Warrants” shall have the meaning
ascribed to it in the recitals.


 


“Series A-3 Warrants” shall have the meaning
ascribed to it in the recitals.


 


“Shareholders’ Agreement” shall have the
meaning ascribed to it in Section 4.2(a).


 


“Subsidiary(ies)” shall mean any other
corporation, limited liability company, association, joint stock company, joint
venture or business trust of which, as of the date hereof or hereafter, (i)
more than fifty percent (50%) of the outstanding voting stock, share capital or
other equity interests is owned either directly or indirectly by any Person or
one or more of its Subsidiaries, or (ii) the management of which is otherwise
controlled, directly, or indirectly through one or more intermediaries, or
both, by any Person and/or its Subsidiaries. 
Unless otherwise specified to the contrary herein, Subsidiary(ies) shall
refer to the Company’s Subsidiary(ies).


 


“Subsequent Closing” shall mean each Series A-2
Closing and Series A-3 Closing.


 


38

















 


“Subsequent Closing Date” shall mean each
Series A-2 Closing Date and Series A-3 Closing Date.


 


“33 Act” shall have the meaning ascribed to it
in Section 2.22.


 


“34 Act” shall have the meaning ascribed to it
in Section 2.22.


 


“Termination Event” shall have the meaning
ascribed to it in Section 11.17


 


“Transaction Documents” shall mean,
collectively, this Agreement, the Purchased Securities, the Restated
Certificate, the Restated Bylaws, the Shareholders’ Agreement, the Registration
Rights Agreement and all other agreements and instruments and any other
documents, certificates, instruments or agreements executed pursuant to or in
connection with any such document or this Agreement, as such documents may be
amended from time to time.


 


“Volume-Weighted Average Price”  shall mean with respect to a security for
any period, the sum of a number of daily calculations for each day in such
period, and each daily calculation being equal to (i) the closing bid price for
such security on Nasdaq or an applicable national securities exchange on such
day multiplied by (ii) a fraction, the numerator of which the number of shares
of such security traded as reported by Nasdaq or such national securities
exchange for such day, and the denominator of which is the sum of all of the
daily number of shares of such security traded as reported by Nasdaq or such
national securities exchange during such period.


 


“Warrants” shall mean, collectively, the Series
A-1 Warrants, Series A-2 Warrants and Series A-3 Warrants.


 


9.                                       Post-Closing
Covenants.


 


9.1                                 Registration
of Common Stock Underlying Securities. 
The Company shall file with the SEC a registration statement or
amendment thereof following each Closing in accordance with the terms of the
Registration Rights Agreement.


 


9.2                                 Resolutions
of the Board of Directors Adopting Certain Committees.  Immediately following the Initial Closing
Date, the Board of Directors shall adopt certain resolutions, in substantially
the form of Exhibit K hereto, which, among other things, shall establish
the following standing committees of the Board of Directors: (i) audit
committee; (ii) nominating and corporate governance committee; and (iii)
compensation committee.  All members of
each committee shall meet the appropriate standards of independence in accordance
with the rules and regulations of Nasdaq (or any other recognized stock
exchange that the Company lists its capital stock on at the time of the Initial
Closing Date).  Each of the audit
committee and the compensation committee shall have no less than three (3)
members.  The nominating committee and
the corporate governance committee shall have no less than four (4) members;
two of which shall have been designated by the Purchasers and two of which
shall have been designated by those certain individuals who served as members
of the board of directors of the Company immediately prior to the Initial
Closing Date.


 


39

















 


9.3                                 Qualified
Small Business Stock Status.  The
Company will use its reasonable best efforts to comply with the reporting and
recordkeeping requirements of Section 1202 of the Code, any regulations
promulgated thereunder and any similar state laws and regulations for such
period as the Company is a “Qualified Small Business” as defined in
Section 1202(d) of the Code.


 


9.4                                 Conversion
Shares.  The Conversion Shares shall
be duly reserved for issuance and when issued will be duly and validly issued,
fully paid and nonassessable.


 


10.                                 Pre-Closing
Covenants


 


10.1                           Proxy;
Shareholders Meeting.  As soon as
practicable after the date hereof, the Company shall use its best efforts to
call a meeting of the Company’s shareholders to approve the transactions
contemplated hereby and shall make all appropriate filings related thereto
(including, without limitation, the filing of a proxy statement) with the SEC
to give effect thereto.  The Company
shall use its best efforts to deliver to the Purchasers a copy of such proxy
statement and any amendments and supplements thereto at least 10 days prior to
the filing thereof with the SEC.


 


10.2                           Operation
of Business Prior to Closing.  The
Company shall operate its business and the business of its Subsidiaries in the
ordinary course and in a manner consistent with past practices between the date
hereof and the Initial Closing Date.


 


10.3                           Restriction
on Issuance of Options and Warrants. 
From the date hereof until the Initial Closing Date, the Company shall
not authorize the issuance of any capital stock of the Company except for
shares of capital stock issuable upon the exercise of Options and warrants
outstanding as of the date hereof, as set forth in Section 2.4 of the
Disclosure Schedule, or granted after the date hereof and approved by the Board
of Directors of the Company.


 


10.4                           Restriction
on Dispositions.  From the date
hereof until the Initial Closing Date, the Company shall not consummate any
form of Disposition without the prior written consent of each of the
Purchasers.


 


11.                                 Miscellaneous.


 


11.1                           Survival
of Representations and Warranties. 
The representations and warranties of the Company and Purchasers
contained in or made pursuant to this Agreement (other than those made in
Sections 2.17 and 2.20) shall survive the execution and delivery of this
Agreement and the other Transaction Documents (a) in connection with the
Initial Closing, until the date that is three months following the end of the
second fiscal year of the Company ending after the Initial Closing Date and (b)
in connection with any Subsequent Closing, until eighteen months after any such
Subsequent Closing Date, but in no event, earlier than the time period set
forth in clause (a) above. The representations and warranties of the Company
made in Sections 2.17 and 2.20 shall survive the execution and delivery of this
Agreement and the other Transaction Documents and the Initial Closing for a
period of six months after the applicable statute of limitations has expired,
and, in each case, such representations and warranties shall in no way be
affected by any investigation of the subject matter thereof made by or on
behalf of the Purchasers or the Company.


 


40

















 


11.2                           Successors
and Assigns.  Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties (including transferees of any Purchased Securities).  Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.  Each Purchaser shall
have the right to assign all of the rights, title and interest of such Purchaser
pursuant to this Agreement, including, without limitation, the right to
purchase the Series A-2 Purchased Shares and the Series A-2 Warrants and the
Series A-3 Purchased Shares and the Series A-3 Warrants, to any third party
reasonably acceptable to the independent directors of the Company without the
prior written consent of the Company.


 


11.3                           Governing
Law.  This Agreement shall be
governed by and construed under the laws of the State of New York, excluding
the application of any conflicts of laws principles which would require the
application of the laws of another state.


 


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


 


11.5                           Titles
and Subtitles.  The titles and
subtitles used in this Agreement are used for convenience only and are not to
be considered in construing or interpreting this Agreement.


 


11.6                           Notices.  All notices and other communications
required or permitted hereunder shall be in writing.  Notices shall be delivered personally, via recognized overnight
courier (such as Federal Express, DHL or Airborne Express) or via certified or
registered mail.  Notices may be
delivered via facsimile or e-mail, provided that by no later than two days thereafter
such notice is confirmed in writing and sent via one of the methods described
in the previous sentence.  Notices shall
be addressed as follows:


 


(a)                                  if
to a Purchaser, to such Purchaser’s address set forth on Schedule I
hereto, or at such other address or facsimile number as such Purchaser shall
have furnished to the Company in writing, with a copy to Dewey Ballantine LLP,
1301 Avenue of the Americas, New York, New York 10019, Attention: E. Ann Gill,
facsimile number (212) 259-6333 or


 


(b)                                 if
to the Company, to Micros-to-Mainframes, Inc., 614 Corporate Way, Valley
Cottage, New York 10989, Attention: Chief Executive Officer, facsimile number
(845) 268-9495, or at such other address or facsimile number as the Company
shall have furnished in writing to the Purchasers, with a copy to the general
counsel of the Company.


 


All notices shall be effective upon receipt.


 


11.7                           Expenses.  The Company shall pay all costs and expenses
that it incurs with respect to the negotiation, execution, delivery and performance
of this Agreement and the transactions contemplated hereby and shall reimburse
the Purchasers for the reasonable out-of-pocket expenses (including legal fees
and disbursements paid to counsel to the Purchasers), which the Purchasers have
incurred with respect to the negotiation, execution, delivery and 


 


41

















 


performance of this Agreement, the other Transaction Documents and the
transactions contemplated hereby and thereby in an amount not exceeding seventy-five
thousand dollars ($75,000) with respect to the Initial Closing and, for each
Subsequent Closing, an amount not to exceed twenty thousand dollars ($20,000); provided
however, that the Company shall not be liable for any such expenses (x)
if the Initial Closing does not occur and (y) incurred by the Purchasers in
connection with the Management Rights Agreement.  The Company shall pay all costs and expenses (including
reasonable legal fees and expenses) incurred by the Purchasers in connection
with, and, to the extent the Purchasers prevail in, the enforcement of this
Agreement and the Transaction Documents and in connection with any filing
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, that may be incurred by the Purchasers as a result of the purchase or
ownership of the Purchased Securities. The Company shall pay all reasonable
expenses incurred by all Company directors who are not officers or employees of
the Company in connection with their attendance at meetings of the Company’s
Board of Directors (including all reasonable travel and lodging expenses
related thereto).


 


11.8                           Amendments
and Waivers.  Any term of this
Agreement may be amended, and the observance of any term hereof may be waived
(either generally or in a particular instance), only with the written consent
of each of the Purchasers and the written consent of the Company.  Any amendment or waiver effected in
accordance with this Section 11.8 shall be binding upon each of the parties
hereto.


 


11.9                           Severability.  Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable Law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction to the greatest extent
possible to carry out the intentions of the parties hereto.


 


11.10                     Entire Agreement.  Each party hereby acknowledges that no other
party or any other person or entity has made any promises, warranties,
understandings or representations whatsoever, express or implied, not contained
in the Transaction Documents and acknowledges that it has not executed the
Transaction Documents in reliance upon any such promises, representations,
understandings or warranties not contained herein or therein and that the Transaction
Documents supersede all prior agreements and understandings between the parties
with respect thereto.  There are no
promises, covenants or undertakings other than those expressly set forth or
provided for in the Transaction Documents.


 


11.11                     Delays or Omissions.  No delay or omission to exercise any right,
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such nonbreaching or nondefaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring.


 


42

















 


11.12                     Facsimile Signatures.  Any signature page delivered by a fax
machine shall be binding to the same extent as an original signature page, with
regard to any agreement subject to the terms hereof or any amendment
thereto.  Any party who delivers such a
signature page agrees to deliver promptly an original counterpart to each party
to whom the faxed signature page was sent.


 


11.13                     Other Remedies.  In addition to those remedies specifically
set forth herein and in the Transaction Documents, if any, each party may
proceed to protect and enforce its rights under this Agreement and the
Transaction Documents either by suit in equity and/or by action at law,
including, but not limited to, an action for damages as a result of any such
breach and/or an action for specific performance of any such covenant or
agreement contained in this Agreement or in the Transaction Documents.  No right or remedy conferred upon or
reserved to any party under this Agreement or the Transaction Documents is
intended to be exclusive of any other right or remedy, and every right and
remedy shall be cumulative and in addition to every other right and remedy
given under this Agreement and the Transaction Documents or now and hereafter
existing under applicable law.


 


11.14                     Further Assurances.  At any time or from time to time after any
Closing, the Company, on the one hand, and the Purchasers, on the other hand,
agree to cooperate with each other, and at the request of the other party, to
execute and deliver any further instruments or documents and to take all such
further action as the other party may reasonably request in order to evidence
or effectuate the consummation of the transactions contemplated hereby relating
to the purchase contemplated herein and to otherwise carry out the intent of
the parties hereunder.


 


11.15                     Exchanges; Lost, Stolen or
Mutilated Stock Certificates and Warrants. 
Upon surrender by any Purchaser to the Company of any stock certificate
or Warrant, the Company at its expense shall issue in exchange therefor, and
deliver to such Purchaser, a replacement stock certificate or Warrant. Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any stock certificate or Warrant and in case of any such loss,
theft or destruction, upon delivery of an indemnity agreement, satisfactory to
the Company, or in case of any such mutilation, upon surrender and cancellation
of such stock certificate or Warrant, the Company shall issue and deliver to
such Purchaser a new stock certificate or Warrant of like tenor, in lieu of
such lost, stolen or mutilated stock certificate or Warrant.


 


11.16                     Break-Up
Fee.(a)   (a)  If the Company is unable to consummate the
transactions contemplated in Section 1.2 hereof on the Initial Closing Date due
to (i) a determination by the board of directors of the Company that the
consummation of such transactions conflict with its exercise of its fiduciary
duties under applicable Law including, without limitation, the New York
Business Corporation Law or (ii) a Termination Event, the Company shall pay to
the Purchasers a “break-up” fee in the amount of one hundred fifty thousand
dollars ($150,000) (the “Break Up Fee”).  The Break Up Fee shall by paid by the Company to the Purchasers
by certified check, made payable to each Purchaser, or wire transfer of
immediately available funds to such account as each Purchaser designates, in an
amount equal to each Purchaser’s pro rata share (based on the Series A-1
Purchased Shares Purchase Price to be paid by such Purchaser over the aggregate
Series A-1 Purchased Shares Purchase Price to be paid by all Purchasers (“Pro
Rata Share”)) of the Break Up Fee. 
If the Purchasers are unable to 


 


43

















 


consummate the transactions contemplated in Section 1.2 on the Closing
Date for any reason other than as a result of the failure of the Company to
comply with its obligations hereunder or to satisfy the closing conditions set
forth in Section 4.1 or Section 4.2, each Purchaser shall pay to the Company
its Pro Rata Share of the Break Up Fee. 
The Break Up Fee referenced in the immediately preceding sentence shall
by paid by the Purchasers to the Company by certified check, made payable to
the Company, or wire transfer of immediately available funds to such account as
the Company designates.


 


(b)                                 The
Company and the Purchasers agree that if the Break Up Fee is payable hereunder,
the right of the Company or the Purchasers, as the case may be, to receive such
amount shall constitute the sole and exclusive remedy for, and such amount
shall constitute liquidated damages in respect of, termination of this
Agreement regardless of the circumstances giving rise to such termination.


 


11.17                     Termination.  This Agreement may be terminated and the
transactions contemplated herein may be abandoned at any time prior to or on
the Initial Closing Date (A) by the Purchasers if (i) approval of the transactions
contemplated hereby is not obtained by the Company from its shareholders within
150 days after the date hereof or (ii) the Company breaches this Agreement in
any material respect, or (B) by the Company if any Purchaser breaches this
Agreement in any material respect (each of (A) and (B), a “Termination Event”).  This Agreement may be terminated at any time
prior to the Closing by mutual agreement of the Company and all Purchasers set
forth in writing.  Each provision hereof
expressly stated to survive the termination, shall survive the termination of
this Agreement.


 


11.18                     Confidentiality.  Each Purchaser hereby acknowledges that the
information it receives pursuant to Section 6.2, Section 6.3 and Section 6.4
may include certain non-public information with respect to the Company and its
Subsidiaries (the “Confidential Information”).  Each Purchaser hereby (a) acknowledges that it shall not trade
any Series A Preferred Stock or Common Stock on the basis of such Confidential
Information and (b) agrees that it will not disclose without the prior written
consent of the Company (other than to its employees, its affiliated entities,
another Purchaser and its auditors and counsel who have a legitimate need to
receive such Confidential Information and who are informed of its confidential
nature) any Confidential Information; provided, that any Purchaser may
disclose such information (i) as has generally become available to the public
or has been lawfully obtained by such Purchaser from any third party under no
duty of confidentiality to the Company, (ii) as may be required in any report,
statement or testimony submitted to, or in respect to any inquiry, by, any
municipal, state, federal or foreign regulatory body having or claiming to have
jurisdiction over such Purchaser, (iii) as may be required in respect to any
summons or subpoena or in connection with any litigation or arbitration, (iv)
in order to comply with any law, order regulation or ruling applicable to such
Purchaser, and (v) to any permitted transferee or assignee or to any approved
participant of, or with respect to, the Purchased Shares or Warrants.


 


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


 


44

















 


IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.


 


 


	
   

  	
  The Company:

  
	
   

  	
   

  
	
   

  	
  MICROS-TO-MAINFRAMES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Howard Pavony

  	
   

  
	
   

  	
   

  	
  Name:  Howard Pavony

  
	
   

  	
   

  	
  Title:  President and CEO

  



 


Signature Page to
Purchase Agreement


 

















 


	
   

  	
  The Purchasers:

  
	
   

  	
   

  
	
   

  	
  PEQUOT PRIVATE EQUITY FUND III, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Pequot Capital
  Management, Inc.,

  its Investment Manager

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Harold Kahn

  	
   

  
	
   

  	
   

  	
  Name:  Harold
  Kahn

  
	
   

  	
   

  	
  Title: 
  Principal

  
	
   

  	
   

  
	
   

  	
  PEQUOT OFFSHORE PRIVATE EQUITY PARTNERS III, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Pequot Capital
  Management, Inc.,

  its Investment Manager

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Harold Kahn

  	
   

  
	
   

  	
   

  	
  Name:  Harold
  Kahn

  
	
   

  	
   

  	
  Title: 
  Principal

  
					



 

















 


Schedule
I


 


Schedule of Purchasers


 


	
  NAME AND
  ADDRESS 

  OF

  PURCHASER

  	
   

  	
  NUMBER OF SHARES

  OF SERIES A-1

  PURCHASED SHARES

  	
   

  	
  SERIES A-1 

  PURCHASED 

  SHARES 

  PURCHASE PRICE

  ($2.15/SHARE)

  	
   

  	
  NUMBER OF

  SERIES A-1

  WARRANT SHARES(1)

  	
   

  
	
  Pequot Private
  Equity Fund III, L.P.

  c/o Pequot Capital Management, Inc.

  500 Nyala Farm Road

  Westport, Connecticut 06880

  Attention: Carlos Rodrigues

  Fax:  (203) 429-2420

  with a copy to

  Aryeh Davis

  c/o Pequot Capital Management, Inc.

  153 East 53rd Street

  New York, New York 10022

  Fax: (212) 651-3481

  	
   

  	
  2,853,555

  	
   

  	
  $

  	
  6,135,143.25

  	
   

  	
  438,225

  	
   

  
	
  Pequot Offshore
  Private Equity Partners III, L.P.

  c/o Pequot Capital Management, Inc.

  500 Nyala Farm Road

  Westport, Connecticut 06880

  Attention: Carlos Rodrigues

  Fax:  (203) 429-2420

  with a copy to

  Aryeh Davis

  c/o Pequot Capital Management, Inc.

  153 East 53rd Street New York, New York 10022

  Fax: (212) 651-3481

  	
   

  	
  402,259

  	
   

  	
  $

  	
  864,856.85

  	
   

  	
  61,775

  	
   

  
	
  Totals

  	
   

  	
  3,255,814

  	
   

  	
  7,000,000.10

  	
   

  	
  500,000

  	
   

  



 












(1)  Subject to the adjustments
described in the Series A-1 Warrants and the Certificate of Incorporation.