Document:

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                                                                     EXHIBIT 4.4

                            B.I. SYSTEMS CORPORATION

                  SERIES M PREFERRED STOCK PURCHASE AGREEMENT

                            Dated as of May 7, 1997

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                               TABLE OF CONTENTS

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SECTION 1 AUTHORIZATION AND SALE ............................................... 1
     1.1 Authorization of the Series M Preferred Stock ......................... 1
     1.2 Purchase and Sale of Series M Preferred Stock ......................... 1

SECTION 2 CLOSING DATE; DELIVERY ............................................... 1
     2.1 Closing Date........................................................... 1
     2.2 Delivery............................................................... 1

SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY ........................ 1
     3.1 Organization and Standing; Charter and By-laws......................... 2
     3.2 Capitalization......................................................... 2
     3.3 Corporate Power; Authorization......................................... 2
     3.4 Validity of Securities................................................. 3
     3.5 Litigation............................................................. 3
     3.6 Employee Benefit Plans................................................. 3

SECTION 4 REPRESENTATIONS, WARRANTIES OF THE PURCHASER
          AND RESTRICTIONS ON TRANSFER IMPOSED BY THE ACT....................... 3
     4.1 Representations and Warranties......................................... 3
         4.1.1 Authorization.................................................... 3
         4.1.2 Investment ...................................................... 4
         4.1.3 Federal Securities Law .......................................... 4
     4.2 Transfer of Securities ................................................ 4
         4.2.1 Legend .......................................................... 5
         4.2.2 Restrictions on Transfer......................................... 5
         4.2.3 Termination of Restrictions and Removal of Legend................ 6

SECTION 5 CONDITIONS TO OBLIGATIONS OF THE PURCHASER ........................... 6
     5.1  Representations and Warranties Correct; Performance of Obligations.... 6
     5.2  Consents and Waivers.................................................. 6
     5.3  Certificate of Incorporation.......................................... 6
     5.4  Minimum Proceeds...................................................... 6
     5.5  Recapitalization...................................................... 7

SECTION 6 CONDITIONS TO OBLIGATIONS OF THE COMPANY ............................. 7

SECTION 7 RIGHT OF FIRST OFFER AND COVENANTS OF THE COMPANY..................... 7
     7.1  Right of First Offer.................................................. 7
     7.2  Covenants............................................................. 9
     7.3  Termination........................................................... 9
     7.4  Right of First Refusal on the Purchaser's Shares......................10
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SECTION 8 REGISTRATION RIGHTS......................................................... 11
     8.1  Definitions................................................................. 11
     8.2  Company Registration........................................................ 12
     8.3  Demand Registration......................................................... 12
     8.4  Obligations of the Company.................................................. 13
     8.5  Furnish Information......................................................... 14
     8.6  Underwriting Requirements................................................... 14
     8.7  Delay of Registration....................................................... 14
     8.8  Indemnification ............................................................ 14
     8.9  Reports Under Securities Exchange Act of 1934............................... 16
     8.10 Form S-3 Registration....................................................... 17
     8.11 Expenses of Registration.................................................... 17
     8.12 Assignment of Registration Rights........................................... 18
     8.13 "Market Stand-Off" Agreement................................................ 18
     8.14 Limitations on Subsequent Registration Rights............................... 18
     8.15 Amendment of Registration Rights............................................ 18
     8.16 Termination................................................................. 18

SECTION 9 MISCELLANEOUS............................................................... 19
     9.1  Waivers and Amendments...................................................... 19
     9.2  Governing Law............................................................... 19
     9.3  Successors and Assigns...................................................... 19
     9.4  Entire Agreement............................................................ 19
     9.5  Notices, Etc................................................................ 20
     9.6  Delays or Omissions......................................................... 20
     9.7  Severability................................................................ 20
     9.8  Titles and Subtitles........................................................ 20
     9.9  Counterparts................................................................ 20
     9.10 Expenses.................................................................... 20
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EXHIBITS

     A.   Form of Amended and Restated Certificate of Incorporation

     B.   Termination and Release Agreement

     C.   Description of Recapitalization

SCHEDULE

     4.1.3     Definition of Accredited Investor

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SERIES M PREFERRED STOCK PURCHASE AGREEMENT

THIS SERIES M PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is dated as
of the 7th day of May, 1997 by and among B.I. Systems Corporation, a Delaware
corporation (the "Company"), and Millipore Corporation, a Massachusetts
corporation (the "Purchaser").

SECTION 1
AUTHORIZATION AND SALE

1.1 Authorization of the Series M Preferred Stock. The Company has authorized
the sale and issuance of up to 50,000 shares of its Series M Preferred Stock
(the "Series M Shares") to the Purchaser. The Series M Shares shall have the
rights, privileges and preferences set forth in the Company's Amended and
Restated Certificate of Incorporation attached as Exhibit A hereto (the
"Certificate of Incorporation").

1.2 Purchase and Sale of Series M Preferred Stock. Subject to the terms and
conditions hereof and in reliance upon the representations, warranties and
agreements contained herein, the Company agrees to issue and sell to the
Purchaser, and the Purchaser agrees to purchase from the Company, 50,000 Series
M Shares in consideration for the termination of the Note and related Security
Agreement, as such terms are defined in the Termination and Release Agreement
attached hereto as Exhibit B (the "Release Agreement").

SECTION 2
CLOSING DATE; DELIVERY

2.1 Closing Date. The purchase and sale of the Series M Shares hereunder
shall occur at a closing (the "Closing") to be held at Mackowski & Shepler, 343
Sansome Street, Suite 1215, San Francisco, California, on May 9, 1997 or at such
other time and place as shall be mutually agreed upon by the Company and the
Purchaser (the "Closing Date").

   2.2 Delivery. Subject to the terms of this Agreement, at the Closing, the
Company will deliver to the Purchaser a certificate representing 50,000 Series M
Shares registered in the Purchaser's name.

SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as otherwise expressly indicated in the Schedules attached hereto, the
Company hereby represents and warrants to the Purchaser as follows:
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3.1 Organization and Standing: Charter and By-laws. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and the company is authorized to exercise all of its
corporate powers, rights and privileges. True and accurate copies of the
Certificate of Incorporation and the by-laws of the Company, each as it will be
in effect at the Closing, have been delivered to the Purchaser.

3.2 Capitalization. The authorized capital Stock of the Company on the date of
the Closing will consist of 15,000,000 shares of $.001 par value common stock
("Common Stock") and 4,000,000 shares of $.001 par value Preferred Stock (The
"Preferred Stock"), 2,000,000 of which have been designated Series B Preferred
Stock (The "Series B Shares") and 50,000 of which have been designated Series M
Preferred Stock. Assuming the completion of the recapitalization described in
Exhibit C attached hereto (the "Recapitalization"), no Preferred Stock will be
outstanding at the date of the Closing. The Series M Shares will have the
rights,  preferences  and  privileges  set forth in the  Certificate of
Incorporation. Upon completion of the Recapitalization, there will be 31,280
shares of Common Stock issued and outstanding. The Company has reserved
6,060,000 shares of Common Stock for issuance upon conversion of the Series B
Preferred Stock, 270,027 shares of Common Stock for issuance upon conversion of
the Series M Preferred Stock and 1,590,000 shares of Common Stock for issuance
to employees, consultants and directors under its 1994 Omnibus Equity Incentive
Plan (the "Stock Plan") pursuant to which, prior to the Recapitalization,
options to acquire an aggregate of 194,500 shares were outstanding. The Company
intends to offer the holders of such options the right to exchange their
existing options for new options which, upon completion of the Recapitalization,
will entitle them to acquire the number of shares of Common Stock specified in
their existing option agreement, but at an exercise price of $0.33 per share.
The Stock Plan was adopted by the Board of Directors and stockholders of the
Company in July 1994 and amended in April 1997. Except as set forth herein or as
described in the description of the Recapitalization and except for the proposed
sale of Series B Preferred Stock, there are no outstanding rights, options,
warrants, preemptive rights, conversion rights or agreements for the purchase,
acquisition or receipt from the Company of any shares of capital stock or any
other securities of the Company. The Company is not a party to any existing
agreement with any person or entity which requires the Company to purchase from
such person or entity any of its capital stock, any securities convertible into
or exchangeable or exercisable for any of its capital stock, or any right,
options or warrants for its capital stock. All outstanding securities of the
Company, including the Series M Shares, have been issued in accordance with all
applicable state and federal securities laws.

3.3 Corporate Power; Authorization. The Company has all requisite legal and
corporate power to enter into this Agreement, to issue and sell the Series M
Shares as provided hereunder, and to carry out and perform its obligations under
the terms of this Agreement. All corporate action on the part of the Company and
its  officers,  directors  and  stockholders  that is necessary for the
authorization, execution and delivery of this Agreement by the Company, for the
performance of the Company's obligations hereunder and for the issuance and
delivery of the Series M Shares has been taken; and this Agreement constitutes a
legal and binding obligation of the Company, enforceable against the Company in

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accordance with its terms, subject to: (i) judicial principles respecting or
limiting the availability of specific performance, injunctive relief and other
equitable remedies; and (ii) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect generally relating to or
affecting creditors' rights.

   3.4 Validity of Securities. The Series M Shares, when issued, sold and
delivered in accordance with the terms of this Agreement, will be duly and
validly issued, fully paid and nonassessable and will be free and clear of any
liens, encumbrances or restrictions of any kind; provided, however, that the
Series M Shares may be subject to restrictions on transfer under state and
federal securities laws. The Common Stock issuable upon conversion of the Series
M Shares has been duly and validly reserved and, upon issuance in accordance
with the terms of this Agreement and the Certificate of Incorporation, will be
duly and validly issued, fully paid and nonassessable and will be free and
clear of any liens, encumbrances or restrictions of any kind; provided, however,
that the Common Stock may be subject to restrictions on transfer under state and
federal securities laws.

   3.5 Litigation. There is no action, suit or proceeding pending or, to the
knowledge of the Company, threatened against the Company or related to the
business conducted by the Company. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.

   3.6 Employee Benefit Plans. Except for the Company's 401(k) Plan, short-term
and long-term disability plans, prescription drug plans, and medical, dental and
life insurance plans, the Company does not have any Employee Benefit Plan as
defined in the Employee Retirement Income Security Act of 1974.

                                   SECTION 4
                  REPRESENTATIONS, WARRANTIES OF THE PURCHASER
                AND RESTRICTIONS ON TRANSFER IMPOSED BY THE ACT

   4.1 Representations and Warranties. The Purchaser hereby represents and
warrants to the Company as follows:

     4. 1.1 Authorization. (a) All action on the part of the Purchaser
necessary for the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby has been taken and,
assuming due execution and delivery by the Company, this Agreement constitutes a
legal, valid, binding and enforceable obligation of the Purchaser, subject to:
(i) judicial principles respecting or limiting the availability of specific
performance,  injunctive relief, and other equitable remedies;  and (ii)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors' rights.

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          (b) The Purchaser  represents  and warrants that: (i) the Purchaser is
an existing entity, and has not been organized or reorganized for the purpose of
making this  investment,  (ii) the undersigned has the authority to execute this
Agreement and any other documents in connection with an investment in the Series
M Shares on the Purchaser's behalf, and (iii) the Purchaser has the power, right
and  authority to invest in the Series M Shares and enter into the  transactions
contemplated  hereby,  and the  investment is suitable and  appropriate  for the
Purchaser (given the risks and illiquid nature of the investment).

          4.1.2 Investment.

          (a) The  Purchaser  has been advised that the Series M Shares have not
been  registered  under the Securities  Act of 1933, as amended (the "Act"),  or
registered or qualified under any applicable state securities laws on the ground
that no  distribution  or  public  offering  of the  Series  M  Shares  is to be
effected,  and that in this  connection  the  Company  is relying in part on the
representations of the Purchaser set forth in this Section 4;

          (b) The Purchaser  has been further  advised that no public market now
exists for any of the securities  issued by the Company and that a public market
may never exist for the Series M Shares;

          (c) The  Purchaser  is  purchasing  the  Series M  Shares  for its own
account and not for any other person;

          (d) By reason of its business or financial  experience,  the Purchaser
has the capacity to protect its own interest in connection with the transactions
contemplated  hereunder,  is able to bear  the  risks  of an  investment  in the
Company, and could afford a complete loss of such investment;

          (e) The  Purchaser  is aware of the  Company's  business  affairs  and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Series M Shares; and

          (f) The Purchaser has had the  opportunity to ask questions  regarding
the  Company  and the  Company  has  provided  information  in  response  to the
questions.

          4.1.3  Federal  Securities  Law.  In order to enable  the  Company  to
determine  whether the sale of the Series M Shares is exempt  from  registration
under the Act, such Purchaser  represents that it is an Accredited  Investor (as
defined in Schedule  4.1.3  hereof) and is acquiring the Series M Shares for its
own account,  for investment,  and not with a view to, or for sale in connection
with, any distribution thereof.

       4.2 Transfer of Securities. Neither the Series M Shares nor the shares of
Common  Stock issuable  upon  conversion  of the  Series  M  Shares  shall  be
transferable  except upon the  conditions  specified in this Section 4.2,  which
conditions are intended to insure compliance with the provisions of the Act with
respect to the transfer of such securities.

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     4.2.1 Legend. Unless and until otherwise permitted by this Section
4.2, each certificate representing (i) the Series M Shares or (ii) the Company's
Common Stock issued upon conversion of the Series M Shares, will be endorsed
with a legend substantially in the following form:

        "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
          ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
          LAWS, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
        UNLESS, (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER
        THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
         SECURITIES LAWS, OR (B) THE COMPANY HAS BEEN FURNISHED WITH AN
        OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT
         SUCH SALE, PLEDGE OR TRANSFER IS EXEMPT FROM THE REGISTRATION
        AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID SECURITIES ACT AND
                     ANY APPLICABLE STATE SECURITIES LAWS."

     4.2.2 Restrictions on Transfer. The Series M Shares and the Common
Stock issuable upon the conversion of the Series M Shares shall not be sold,
assigned, pledged or transferred, and the Company shall not be required to
register any such sale, assignment, pledge or transfer, unless and until one of
the following events shall have occurred:

     (a) the Company shall have received an opinion of counsel, in form and
substance reasonably acceptable to the Company and its counsel, stating that the
contemplated transfer is exempt from registration under the Act as then in
effect, and the Rules and Regulations of the Securities and Exchange Commission
(the "Commission") thereunder and any applicable state securities laws;

     (b) the Company shall have been furnished with a letter from the
Commission in response to a written request in form and substance acceptable to
counsel for the Company setting forth all of the facts and circumstances
surrounding the contemplated sale, assignment, pledge or transfer, stating that
the Commission will take no action with regard to the contemplated sale,
assignment, pledge or transfer; or

     (c) the Series M Shares, or the Common Stock issuable upon conversion
of the Series M Shares, are transferred pursuant to a registration statement
which has been filed with the Commission and has become effective.

Within five business days after delivery to the Company and its counsel
of an opinion described in clause (a) above, the Company either shall deliver to
the proposed transferor a statement to the effect that such opinion is not
satisfactory in the reasonable opinion of its counsel (and shall specify in
detail the legal analysis supporting any such

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conclusion) or shall authorize the Company's transfer agent to make the
requested transfer.

     4.2.3  Termination of Restrictions and Removal of Legend.  The
restrictions on transfer imposed by this Section 4.2 shall cease and terminate
as to the Series M Shares and the Common Stock issuable upon conversion of the
Series M Shares, when (i) such securities (as applicable) shall have been
effectively registered under the Act and sold by the holder thereof in
accordance with such registration, or (ii) an acceptable opinion as described in
Section 4.2.2(a) or a "no action" letter described in Section 4.2.2(b) states
that all future transfers of such securities by the TRANSFEROR OR THE
CONTEMPLATED transferee would be exempt from registration under the Act. When
the restrictions on transfer contained in this Section 4.2 have terminated as
provided above, the holder of the securities as to which such restrictions shall
have terminated or the transferee of such holder shall be entitled to receive
promptly from the Company, without expense to him, new certificates not bearing
the legends set forth in Section 4.2.1 hereof.

                                   SECTION 5
                   CONDITIONS TO OBLIGATIONS OF THE PURCHASER

    The obligation of the Purchaser to purchase the Series M Shares at the
Closing is subject to each of the following conditions having been fulfilled on
or prior to the Closing Date or waived by the Purchaser in accordance with the
provisions of Section 9.1 hereof:

    5.1  Representations and Warranties Correct; Performance of Obligations.
The representations and warranties made by the Company in Section 3 hereof shall
be true and correct when made, and shall be true and correct on the Closing Date
with the same force and effect as if they had been made on and as of the Closing
Date; and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Closing Date.

    5.2  Consents and Waivers. The Company shall have obtained any and all
consents, permits and waivers and made all filings necessary or appropriate for
consummation of the transactions contemplated by this Agreement.

    5.3  Certificate of Incorporation. The Certificate of Incorporation
shall have been filed with the Secretary of State of the State of Delaware.

    5.4  Minimum Proceeds. The Company shall have raised at least $850,000
pursuant to its proposed sale of the Series B Shares.

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       5.5 Recapitalization. The Recapitalization shall have been completed such
that immediately prior to or simultaneously with the Closing the Company shall
have no outstanding Series A Preferred Stock and the Company shall have no
further obligations pursuant to its 15.0% Subordinated Debentures or the
promissory note issued to Millipore Corporation.

                                    SECTION 6
                    CONDITIONS TO OBLIGATIONS OF THE COMPANY

       The Company's obligation to issue, sell and deliver the series M Shares
at the Closing is subject to the following conditions having been fulfilled on
or prior to the Closing Date or waived by the Company in accordance with the
provisions of Section 9.1 hereof: The representations and warranties made by the
Purchaser in Section 4 hereof shall be true and correct when made, and shall be
true and correct on the Closing Date with the same force and effect as if they
had been made on and as of the Closing Date, the conditions set forth in
Sections 5.2, 5.3, 5.4 and 5.5 hereof shall have been satisfied and the
Purchaser shall have executed and delivered to the Company the Release Agreement
substantially in the form of Exhibit B attached thereto and shall have complied
with all of the terms of the Release Agreement.

                                    SECTION 7
                RIGHT OF FIRST OFFER AND COVENANTS OF THE COMPANY

       7.1 Right of First Offer.

          (a)  Subject to the terms and conditions specified in this Section 7.
1, the Company hereby grants to the Purchaser a right to participate in future
sales by the Company of its Shares (as hereinafter defined).

          (b)  Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of a portion
of such Shares (as determined in subsection (2) below) to the Purchaser in
accordance with the following provisions:

                   (1) The Company shall deliver a written notice ("Notice") to
              the Purchaser stating (i) its bona fide intention to offer such
              Shares, (ii) the number of such Shares to be offered, and (iii)
              the price and terms, if any, upon which it proposes to offer such
              Shares.

                   (2) Within 10 calendar days after receipt of the Notice, the
              Purchaser may elect to purchase or obtain, at the price and on the
              terms specified in the Notice, up to that portion of such Shares
              which equals the proportion that the number of shares of Common
              Stock

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       held by such Purchaser (including for such calculation any shares
       issuable upon conversion of any capital stock convertible into
       Common Stock) bears to the total number of shares of Common Stock
       of the Company then outstanding held by the Purchaser and all
       other persons who have been granted a right of first offer
       (assuming for such calculation any shares issuable upon conversion
       of any capital stock convertible into common stock).

          (3) The Company may during the 10-day period following the
       expiration of the 10-day period provided in subsection (2)
       hereof, offer the remaining unsubscribed portion of such Shares
       which the Purchaser has not elected to purchase to any person or
       persons at a price not less than, and upon terms no more favorable
       to the offeree than those specified in the Notice. If the Company
       does not enter into an agreement for the sale of the Shares within
       90 days of the expiration of such 10-day period, or if such
       agreement is not consummated within 120 days following the
       expiration of such 10-day period, the right provided hereunder
       shall be deemed to be revived and such Shares shall not be offered
       unless first reoffered to the Purchaser in accordance herewith.

          (4) The right of first offer in this Section 7. 1 shall not
       be applicable (i) to the issuance or sale of shares of Common
       Stock (as adjusted to reflect any stock splits, combinations or
       other events involving the Common Stock) to employees, consultants
       or members of the Board of Directors pursuant to employee or
       director stock plans which are approved in writing by the
       Company's Board of Directors, (ii) to the Public Offering (as
       defined in Section 7.3 hereof) or to any offering of Shares after
       consummation of the Public Offering, (iii) to the issuance of
       securities pursuant to the conversion or exercise of presently
       outstanding convertible or exercisable securities, (iv) to any
       Common Stock issued upon conversion of the Series B Preferred
       Stock, the Series M Preferred Stock or other series of Preferred
       Stock issued pursuant to the Certificate of Incorporation, (v) to
       securities issued in connection with any acquisition or business
       combination transaction approved by the Board of Directors of the
       Company, or (vi) to securities issued in connection with equipment
       lease financings or other financings with commercial lenders or in
       strategic transactions involving, the Company and other entities
       including joint ventures or marketing, distribution or development
       arrangements, in each case provided that any issuance pursuant to
       subsection (vi) has been approved by the Board of Directors of the
       Company.

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          7.2 Covenants.

              (a) Taxes.  The Company will promptly pay and discharge,  or cause
to be paid and discharged,  when due and payable, all lawful taxes, assessments,
and governmental charges or levies imposed upon the income,  profits,  property,
or business of the Company;  provided,  however,  that any such tax, assessment,
charge,  or levy need not be paid if the  validity  thereof  shall  currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereof.

              (b) Maintain  Properties.  The company will keep its properties in
good repair,  working order,  and condition,  reasonable wear and tear excepted,
and from time to time will make all  necessary  and  proper  repairs,  renewals,
replacements, additions, and improvements thereto.

              (c) Maintain  Corporate  Existence.  The Company shall maintain in
full force and effect its corporate  existence,  rights,  and franchises and all
material  licenses  and  other  material  rights  to  use  processes,  licenses,
trademarks,  trade names,  or copyrights  owned or possessed by it and deemed by
the Company to be necessary to the conduct of its business.

              (d)  Insurance.  The Company will maintain  insurance of the types
and in the amounts generally deemed adequate for its business.

              (e) Limit on Expenditures. Without the approval in writing, of the
Company's Board of Directors, the Company will not make or incur any expenditure
(including,   without  limitation,   capital   expenditures,   acquisitions  and
capitalized  leases)  or  guarantee,  assume or  otherwise  become  directly  or
indirectly  liable for any indebtedness  (including  capitalized  leases) which,
individually  or  in  combination  with  related  expenditures,   guarantees  or
assumptions subject to a common commitment, exceed $250,000.

              (f) Financial  Information.  As long as the Purchaser continues to
hold Series M Shares or Common Stock issued upon conversion thereof, the Company
shall  deliver as soon as  practicable  (i) after the end of each fiscal year of
the Company,  and in any event with 90 days thereafter,  an audited consolidated
balance sheet of the Company as of the end of such year and audited consolidated
statements of income,  stockholders'  equity and cash flows for such year, which
year-end  financial  reports  shall be prepared  in  accordance  with  generally
accepted accounting principles and (ii) after the end of each of the first three
fiscal  quarters of each year,  and in any event within 45 days after the end of
each such  fiscal  quarter,  unaudited  quarterly  financial  statements,  which
quarterly  statements  shall be prepared in accordance  with generally  accepted
accounting principles.

          7.3 Termination. The right of first offer set forth in Section 7.1 and
the covenants set forth in Section 7.2 hereof shall  terminate  upon the earlier
to occur  of (i) the  closing  of a public  offering  pursuant  to an  effective
registration statement under the

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Securities Act of 1933, as amended, covering the offer and sale of the
Company's Common Stock where the gross proceeds to the Company are not
less than $7,500,000, where the public offering price is not less than $0.75
per share (adjusted to reflect any stock splits, combinations or similar events
after the date hereof) and which results in the Company's Common Stock being
traded on an exchange or quoted on the National Association of Securities
Dealers, Inc. Automated quotation ("NASDAQ") or quoted on the NASDAQ National
Market System (the "Public Offering") and (ii) the closing of the Company's
sale of all or substantially all of its assets or the acquisition of the
Company by another entity by means of merger or consolidation resulting in the
exchange of the outstanding  shares of the Company's capital  stock for
securities or consideration issued, or caused to be issued, by the acquiring
entity or its subsidiary.

     7.4 Right of First Refusal on the Purchaser's Shares.

       7.4.1 If the Purchaser wishes to transfer any securities of the
Company issued to such person at any time except in a Permitted Transfer, the
Purchaser shall do so only for cash,  unsecured promissory notes, cash
equivalents, or a combination of the foregoing, and shall first give written
notice (the "Offer Notice") to the Company, identifying the securities proposed
to be transferred (the "Offered  Securities"),  identifying the proposed
transferee, and stating the price at which, and other material terms on which,
the Purchaser wishes to transfer the Offered Securities, including the date of
the proposed transfer.

       7.4.2 Delivery of an Offer Notice to the Company shall constitute
an offer to transfer the Offered Securities, in whole but not in part (the
"Offer"), to the Company pursuant to this Section 7.4, at the price and on the
other material terms described in the Offer Notice.

       7.4.3 The Company may elect, by written notice delivered to the
Purchaser not later than fourteen calendar days after the Company receives the
Offer Notice, to accept the Offer with respect to all of the Offered Securities.

       7.4.4 If the Company elects to accept an Offer in its entirety,
then the Purchaser shall transfer the Offered Securities to the Company and the
Company shall acquire the Offered Securities, at the price and on the other
material terms described in the Offer Notice. The consummation of the transfer
shall take place at the chief executive offices of the Company, on the date
specified for the proposed transfer in the Offer Notice (but not earlier than
thirty-four calendar days after the Company shall have received the Offer
Notice), or at such other location or date on which the participants in the
transaction agree in writing.

       7.4.5 If the Company does not accept an Offer in its entirety,
then the Purchaser may transfer the Offered Securities (subject to the
provisions of this Agreement other than this Section 7.4 and to any other
agreements binding on the Purchaser) to the transferee named in the Offer
Notice, at any time within the period of ninety calendar days beginning on the
date the Company received the Offer Notice. The

                                       10
<PAGE>   14

provisions  of this  Section 7.4 shall  again  apply to any  transfer of Offered
Securities not transferred within such period.

              7.4.6 A  "Permitted  Transfer"  is a transfer of  securities  to a
Permitted  Transferee  if,  prior  to  the  consummation  of the  transfer,  the
Permitted Transferee shall have agreed in writing to be bound as a party to this
Agreement by all the terms of this  Agreement  applicable  to the  Purchaser.  A
"Permitted Transferee" means any of:

                   (a) the spouse or a lineal  ancestor or  descendant  (whether
              natural or adopted) of the transferor;

                   (b) a trust all the beneficiaries (primary and contingent) of
              which are either the transferor or the spouse or a lineal ancestor
              or descendant (natural or adopted) of the transferor; or

                   (c) a partner in a transferor  which is a  partnership,  or a
              stockholder of a transferor which is a limited liability  company,
              which person receives the transfer as part of a distribution among
              partners,  stockholders,  or  members,  as the case may be, of the
              transferor.

                                    SECTION 8
                               REGISTRATION RIGHTS

              The Company covenants and agrees as follows:

              8.1 Definitions. For purposes of this Section 8:

                   (a) The term  "register",  "registered,"  and  "registration"
refer  to a  registration  effected  by  preparing  and  filing  a  registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document;

                   (b) The term  "Registrable  Securities"  means (i) the Common
Stock issuable or issued upon  conversion of the Series B Preferred Stock or the
Series M Preferred  Stock and (ii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend  or other  distribution  with  respect  to, or in
exchange  for or in  replacement  of, such Series B Preferred  Stock or Series M
Preferred Stock, other Preferred Stock or Common Stock; provided,  however, that
Common Stock or other securities shall only be treated as Registrable Securities
if and so long as (1) they have not been  sold to or  through a broker or dealer
or underwriter in a public distribution or a public securities transaction,  and
(2) they have not been sold in a transaction exempt from the  registration and
prospectus  delivery  requirements of the Act under Section 4(1) thereof so that
all transfer restrictions

                                       11
<PAGE>   15

and restrictive legends with respect thereto are removed upon the consummation
of such sale;

          (c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities;

          (d) The term "Holder" means any person who is the record owner of
Registrable Securities, the Series B Shares Or the Series M Shares, or any
assignee thereof in accordance with Section 8.12 hereof; and

          (e) The term "SEC" means the  Securities and Exchange Commission or
any other federal agency at the time administering the Act.

       8.2 Company Registration. If (but without any obligation to do so) the
Company proposes to register any of its stock or other securities under the Act
in connection with the public offering of such securities solely for cash (other
than a registration relating solely to the sale of securities to participants in
a Company stock plan, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities or a SEC
Rule 145 transaction), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within fifteen (15) days after mailing of such notice by the
Company in accordance with Section 9.5, the Company shall, subject to the
provisions of Sections 8.4, 8.5, 8.6 and 8.7, cause to be registered under the
Act all of the Registrable Securities that each such Holder has requested to be
registered. Notwithstanding the foregoing, after the Company's initial public
offering, the Company will not be required to give notice to the Holders of
Registrable Securities if the underwriters managing the proposed offering have
advised the Company in writing that in their judgment market conditions will not
allow the inclusion of any secondary shares in such offering. In the event the
managing underwriters and the Company subsequently determine to add any
secondary shares in the offering, such notice shall be provided, and each Holder
shall have the registration rights provided in this Section 8.

       8.3 Demand Registration. Subject to the terms of this Agreement, in the
event that the Company shall receive from the Holders of at least thirty percent
(30%) of the Registrable Securities then outstanding, at any time after six (6)
months after the effective date of the registration statement covering the
Company's initial public offering, a written notice that it or they intend to
offer or cause to be offered for public sale at least twenty-five percent (25 %)
of the Registrable Securities then outstanding (or any lesser percentage if the
aggregate offering price to the public is greater than $5,000,000), the Company
will so notify all Holders. Upon written request of any Holder given within
fifteen (15) days after the receipt by such Holder from the Company of such
notification, the Company will use its best efforts to cause such of the
Registrable Securities as may be requested by any Holder (including the Holder
giving the initial notice of intent to offer) to

                                       12
<PAGE>   16

be registered under the Securities Act as expeditiously as possible (a "Demand
Registration"). The Company shall not be required to effect more than one (1)
Demand Registration. If (i) in the good faith judgment of the Board of Directors
of the Company, a Demand Registration would be materially detrimental to the
Company and the Board of Directors of the Company concludes, as a result, that
it is essential to defer the filing of such registration statement at such time,
and (ii) the company shall furnish to each Holder a certificate signed by the
President of the Company stating that, in the good faith judgment of the Board
of Directors of the Company, it would be materially detrimental to the Company
for such registration statement to be filed in the near future, then the Company
shall have the right to defer such filing for the period during which such
Demand Registration would be materially detrimental, provided that the Company
may not defer the filing for a period of more than ninety (90) days after
receipt of the request for a Demand Registration, and more than once in any
12-month period.

       8.4 Obligations of the Company. Whenever required under Section 8.2 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:

           (a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 90 days or until all of the
securities registered thereunder are sold, whichever occurs sooner.

           (b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.

           (c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus,  in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.

           (d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.

           (e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in Such underwriting shall also enter into and perform its obligations under
such an agreement.

                                       13
<PAGE>   17

              (f) Notify each Holder of Registrable  Securities  covered by such
registration  statement  at any  time  when a  prospectus  relating  thereto  is
required to be delivered under the Act of the happening of any event as a result
of which the  prospectus  included in such  registration  statement,  as then in
effect,  includes  an untrue  statement  of a material  fact or omits to state a
material fact required to be stated  therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.

          8.5  Furnish  Information.  It shall be a condition  precedent  to the
obligations  of the Company to take any action  pursuant to this  Section 8 with
respect to the  Registrable  Securities  of any selling  Holder that such Holder
shall furnish to the Company such information  regarding itself, the Registrable
Securities  held by it and the intended method of disposition of such securities
as shall be required to effect the  registration  of such  Holder's  Registrable
Securities.

8.6  Underwriting  Requirements.   In  connection  with  any  offering involving
an underwriting of shares of the Company's  capital stock, the Company shall
not be  required  under  Section  8.2  to  include  any  of the  Holders'
securities   in  such   underwriting   unless  they  accept  the  terms  of  the
underwriting as agreed upon between the Company and the  underwriters  selected
by the  persons  entitled  to  select  the  underwriters,  and then only in such
quantity  as the  underwriters  determine  in  their  sole  discretion  will not
jeopardize  the success of the offering by the  Company.  If the total amount of
securities,  including  Registrable  Securities,  requested  by  Holders  to be
included in such offering  exceeds the amount of  securities  sold other than by
the  Company  that the  underwriters  determine  in  their  sole  discretion  is
compatible with the success of the offering,  then the Company shall be required
to include  in the  offering  only that  number of such  securities,  including
Registrable   Securities,   which  the  underwriters  determine  in  their  sole
discretion  will not jeopardize  the success of the offering (the  securities so
included to be apportioned pro rata among all selling stockholders  according to
the total  amount of  securities  owned by each selling  stockholder  or in such
other proportions as shall mutually be agreed to by such selling  stockholders).
For purposes of the preceding parenthetical  concerning  apportionment,  for any
selling  stockholder which is a holder of Registrable  Securities and which is a
partnership or corporation, the partners, retired partners and stockholders of
such holder,  or the  estates  and family  members of any such  partners  and
retired partners and any trusts for the benefit of any of the foregoing persons
shall be deemed to be a single  "selling  stockholder"  and any pro-rata
reduction  with respect to such "selling  stockholder"  shall be based upon the
aggregate amount of shares  owned by all  entities  and  individuals  included
in such  "selling stockholder," as defined in this sentence.

          8.7 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction  restraining or otherwise  delaying any such  registration as
the  result  of  any   controversy   that  might  arise  with  respect  to the
interpretation or implementation of this Section 8.

          8.8  Indemnification.  In the event  any  Registrable  Securities  are
included in a registration statement under this Section 8:

                                       14
<PAGE>   18

   (a) To the extent permitted by law, tile Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following  statements,  omissions or violations  (collectively  a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or '
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, or the 1934 Act or any state securities
law; and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by one law
firm retained by them (or such additional law firms retained by a Holder or
Holders if such Holder or Holders reasonably believe there exists a conflict of
interest among them) in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection 8.8(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.

   (b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder against any losses, claims,
damages or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 8.8(b), in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
8.8(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity

        15
<PAGE>   19

under this subsection 8.8(b) exceed the net proceeds from the offering received
by such Holder.

              (c)  Promptly after receipt by an indemnified party under this
Section 8.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 8.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed,  to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying  party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
8.8, but the failure to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 8.8.

              (d)  The obligations of the Company and Holders under this Section
8.8 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 8, and otherwise.

          8.9 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:

              (a)  make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;

              (b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and

              (c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), (ii) a copy of
the most recent annual or quarterly report of the Company and

                                       16
<PAGE>   20

such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or pursuant to such form.

         8.10 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders of the Registrable Securities then Outstanding a written
request or requests that the Company effect a registration on Form S-3 for a
public offering the aggregate offering price of which would exceed $1,000,000,
the Company will:

              (a)  promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and

              (b)  as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 8.10: (i) if
Form S-3 is not available for such offering by the Holders; (ii) if the Company
shall furnish to the Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors of the
Company it would be detrimental to the Company and its stockholders for such
Form S-3 Registration to be effected at such time, in which event the Company
shall have the right to defer the filing of the Form S-3 registration statement
for a period of not more than ninety (90) days after receipt of the request of
the Holder or Holders under this Section 8.10; (iii) if the Company has, within
the twelve (12) month period preceding the date of such request, already
effected two registrations for the Holders pursuant to Section 8.2, 8.3 or this
Section 8.10; or (iv) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of process in effecting such registration, qualification or compliance.

              (c)  Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders.

         8.11 Expenses of Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to a total of three registrations,
whether pursuant to Section 8.2, 8.3 or 8.10 or a combination thereof, including
(without limitation) all registration, filing, and qualification fees, printers
and accounting fees relating or apportionable thereto and the fees and
disbursements of one counsel for the selling Holders selected by them (which the
Company may request be the Company's counsel if such counsel is reasonably
acceptable to

                                       17
<PAGE>   21

such selling Holders), but excluding underwriting discounts and commissions and
stock transfer taxes relating to Registrable Securities.

         8.12 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 8 may only be
assigned to a purchaser, assignee or transferee of the underlying Registrable
Securities.

         8.13 "Market Stand-Off' Agreement. Each Purchaser hereby agrees that
for a period of 180 days following the effective date of the first registration
statement of the Company covering common stock filed on Form S-1 under the Act
and for any registration effected pursuant to Sections 8.2, 8.3 or 8.10
(provided the Holders are given written notice of the offering at least fifteen
(15) days prior to the Company's filing with the SEC of a registration statement
relating thereto), it shall not, unless otherwise agreed by the Company and the
managing I underwriters, directly or indirectly sell, offer to sell,' contract
to sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to donees who agree to
be similarly bound) any securities of the Company held by it at any time during
such period except Common Stock included in such registration; provided,
however, that all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.

         In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Purchaser (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.

         8.14 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder to include such
securities in any registration filed under Section 8.2, 8.3 or 8.10 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included.

         8.15 Amendment of Registration Rights. Any provision of this Section 8
may be amended and the observance thereof may be waived (either generally *or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of a majority of the Registrable
Securities then outstanding. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of all such Registrable Securities, and the
Company.

         8.16 Termination. The rights provided in this Section 8 shall terminate
on the fifth anniversary of the closing of the Company's initial public offering
pursuant to

                                       18
<PAGE>   22

which the Company registers shares of Common Stock under the Act and following
shortly thereafter or concurrently therewith registers its Common Stock under
the 1934 Act.

                                   SECTION 9
                                 MISCELLANEOUS

         9.1 Waivers and Amendments. Except as to Section 8 in which case the
provisions of Section 8.15 shall apply, with the written consent of the record
or beneficial holders of more than 50% of the aggregate of (i) the then
outstanding number of shares of the Series M Shares (treated as if converted to
Common Stock) and (ii) all shares of Common Stock obtained upon conversion of
the Series M Shares, the obligations of the Company and the rights of the
holders of Series M Shares and the Common Stock obtained upon conversion of the
Series M Shares under this Agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its board of directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such waiver or supplemental agreement shall reduce
the aforesaid percentages which are required to consent to any waiver or
supplemental agreement, without the unanimous consent of the record or
beneficial holders of all of the then outstanding number of shares of the Series
M Shares or the shares of Common Stock obtained upon conversion of the Series M
Shares. Upon the effectuation of each such waiver, consent, agreement of
amendment or modification, the Company promptly shall give written notice
thereof to the record holders of the then outstanding Series M Shares and the
shares of Common Stock obtained upon conversion of the Series M Shares. This
Agreement or any provision hereof may not be changed, waived, discharged or
terminated orally, but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, except to the extent provided in this Section 9.1; provided, however,
that the conditions to Closing contained in Section 5 of this Agreement may only
be waived by the Purchaser for itself.

         9.2 Governing Law. This Agreement shall be governed in all respect's by
the laws of the State of Delaware as such laws are applied to agreements between
Delaware residents entered into and to be performed entirely within Delaware.

         9.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.

         9.4 Entire Agreement. This Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.

                                       19
<PAGE>   23
         9.5 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon the seventh day following mailing by registered
air mail, postage prepaid, addressed (a) if to the Purchaser, as indicated on
the signature page hereto, or at such other address as it shall have furnished
to the Company, (b) if to the Company, to B.I. Systems Corporation, 525 Avis
Drive, Ann Arbor, Michigan, 48108, and addressed to the attention of the
corporate secretary, or at such other address as the Company shall have
furnished to the Purchaser, or (c) if to any other holder of the Series M Shares
or of Common Stock issued upon conversion of the Series M Shares at such address
as such holder shall have furnished to the Company in writing, or, until such
holder so furnishes an address to the Company, then to and at the address of the
last holder of such Series M Shares or shares of Common Stock issued upon
conversion of the Series M Shares, who so furnished an address to the Company.
In addition, any notice delivered to an address outside the United States shall
be duplicated by counterpart telex notice (if available).

         9.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any securities issued or sold or to be
issued or sold hereunder, upon any breach or default of the Company under this
Agreement shall impair any such right, power or remedy of such holder nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or in any similar breach or default thereafter occurring, nor shall any
waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any holder of any breach or
default under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.

         9.7 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, it shall be modified in such manner as to be
valid, legal, and enforceable but so as to most nearly retain the intent of the
parties, and the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.

         9.8 Titles and Subtitles. The titles and subtitles of this Agreement
are intended for reference and shall not by themselves determine the
construction or interpretation of this Agreement.

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

         9.10 Expenses. The Company and each Purchaser shall pay its own costs
and expenses in connection with the negotiation, execution, delivery and
performance of this Agreement.

                                       20
<PAGE>   24

         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective representatives thereunto duly authorized as of the
day and year first above written.

                            B.I. SYSTEMS CORPORATION

                            By:         /s/ Jeffrey S. Williams
                                    -------------------------------------
                                            Jeffrey S. Williams
                                    President and Chief Executive Officer

                            MILLIPORE CORPORATION

                            By:     /s/ Michael P. Carroll
                                    -------------------------------------
                                    Name:
                                    Title:
                                    Address:

               SIGNATURE PAGE TO SERIES M STOCK PURCHASE AGREEMENT

                                       21
<PAGE>   25

                              AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                           OF B.I. SYSTEMS CORPORATION
                             a Delaware Corporation

             B.I. SYSTEMS CORPORATION, a corporation organized and existing
under the laws of the State of Delaware, hereby certifies that:

             ONE: The corporation's original Certificate of Incorporation was
filed with the Secretary of State of Delaware on June 27, 1994. The
corporation's Amended and Restated Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on July 19, 1994.

             TWO: This Amended and Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Certificate of
Incorporation of this corporation and has been duly adopted in accordance with
Section 245 of the General Corporation Law of the State of Delaware. This
Amended and Restated Certificate of Incorporation shall become effective on the
date of filing of this Amended and Restated Certificate of Incorporation with
the Secretary of State of the State of Delaware.

             THIRD: The text of the Certificate of Incorporation is hereby
amended and restated in its entirety as follows:

                                  ARTICLE I.

             The name of this corporation is B.I. Systems Corporation.

                                  ARTICLE II.

             The address of the registered office of the corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle, and the name of its registered agent at
that address is The Corporation Trust Company.

                                  ARTICLE III.

             The name and mailing address of the incorporator of the corporation
is: J. Matthew Mackowski, c/o Mackowski & Shepler, 343 Sansome Street, Suite
1215, San Francisco, California 94104.

                                  ARTICLE IV.

             The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.

<PAGE>   26

                                   ARTICLE V.

                  A. Classes of Stock. This corporation is authorized to issue
two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the corporation is
authorized to issue is Nineteen Million (19,000,000) of which Fifteen Million
(15,000,000) shares shall be Common Stock, par value $.001 per share, and Four
Million (4,000,000) shares shall be Preferred Stock, par value $.001 per share.

                  Each outstanding share of Common Stock as of the date of
effectiveness of this Amended and Restated Certificate of Incorporation shall be
converted into and reconstituted as .0103 shares of Common Stock (thereby
effecting a 1-for-97.103 reverse stock split). No fractional shares shall be
issued upon such conversion and reconstitution, and the number of shares of
Common Stock to be issued shall be rounded down to the nearest whole share.

                  B. Rights, Preferences and Restrictions of Preferred Stock.
The Preferred Stock authorized by these Articles of Incorporation shall be
divided into series. The first series of stock shall consist of Two Million
(2,000,000) shares and is designated "Series B Preferred Stock." The second
series shall consist of Fifty Thousand (50,000) shares and is designated "Series
M Preferred Stock." The rights, preferences, privileges and restrictions granted
to and imposed on the Series B Preferred Stock and the Series M Preferred Stock
are as set forth below in this Article V(B). Any shares of authorized and
unissued shares of Preferred Stock which have not been designated in a series
may be issued from time to time in one or more series. The Board of Directors of
the corporation (the "Board of Directors") is hereby authorized to provide for
the issuance of all or any of the authorized and unissued shares of the
Preferred Stock (which have not been designated in a series) in one or more
series, and to fix the number of shares and to determine or alter for each such
series, such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other rights,
and such qualifications, Limitations or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such shares (a "Preferred Stock Designation") and
as may be permitted by the General Corporation Law of the State of Delaware.
Subject to compliance with applicable protective voting rights which have been
or may be granted to the Preferred Stock or series thereof in a Preferred Stock
Designation or the corporation's Certificate of Incorporation ("Protective
Provisions"), the rights, privileges, preferences and restrictions of any such
additional series may be subordinated to, pari passu with (including, without
limitation, inclusion of provisions with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote or written consent),
or senior to any of those of any present or future class or series of Preferred
Stock or Common Stock. Subject to compliance with applicable Protective
Provisions, the Board of Directors is also authorized to increase or decrease
the number of shares of any series, prior or subsequent to the issuance of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.

                                       2
<PAGE>   27

       1.    Dividend Provisions. The holders of shares of Series B Preferred
Stock and Series M Preferred Stock shall not be entitled to receive any
dividends.

       2.    Liquidation Preference.

             a. In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock which may from time to time come into existence, the
holders of Series B Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to (i) $1.00 for each outstanding share of Series B Preferred Stock
(the "Original Series B Issue Price"), as adjusted to reflect any share split,
dividend, combination, reclassification or similar event involving the Series B
Preferred Stock plus (ii) an amount per share equal to eight (8) percent of the
Original Series B Issue Price compounded annually. The holders of Series M
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of Common
Stock by reason of their ownership thereof, an amount per share equal to $6.00
for each outstanding share of Series M Preferred Stock (the "Original Series M
Issue Price"), as adjusted to reflect any share split, dividend, combination,
reclassification or similar event involving the Series M Preferred Stock. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series B Preferred Stock and Series M Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, subject to the rights of series of Preferred Stock
which may from time to time come into existence, the entire assets and funds of
the corporation legally available for distribution shall be distributed ratably
among the holders of the Series B Preferred Stock and Series M Preferred Stock
in proportion to the preferential amount each such holder is otherwise entitled
to receive.

             b. After the completion of the distribution required by
subparagraph (a) of this Section 2 and any other distribution which may be
required with respect to series of Preferred Stock which may from time to time
come into existence, the assets of this corporation available for distribution
to stockholders shall be distributed among the holders of Common Stock pro rata
based on the number of shares of Common Stock held by each.

             c. Whenever the distribution provided for in this Section 2 shall
be payable in property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the Board
of Directors.

             d. Any acquisition of the corporation by means of merger or other
form of corporate reorganization in which outstanding shares of the corporation
are exchanged for securities or other consideration issued by the acquiring
corporation or its subsidiary (other than a mere reincorporation transaction),
or a sale, conveyance or disposition of all or substantially all of the assets
of this corporation or the effectuation by the corporation of a transaction or
series of related transactions in which more than 50% of the voting power of the
corporation is disposed of (other than the Public Offering as defined

                                        3

<PAGE>   28

herein), shall be deemed to be a liquidation, dissolution or winding up within
the meaning of this Section 2.

    3. Conversion. The holders of the Series B Preferred Stock and Series M
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):

       a. Right to Convert.

          (i) Each share of Series B Preferred Stock and Series M Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of this corporation or
any transfer agent for the Series B Preferred Stock or Series M Preferred Stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Original Series B Issue Price or Series M Issue
Price, as applicable, by the Conversion Price at the time in effect for such
share. The initial Conversion Price per share for shares of Series B Preferred
Stock shall be thirty three cents ($0.33). The initial Conversion Price per
share for shares of Series M Preferred Stock shall be one dollar and one hundred
and eleven hundredths of a cent ($1.111). The Conversion Price for the Series
B Preferred Stock and the Series M Preferred Stock shall be subject to
adjustment as set forth in subsection 3(c).

          (ii) Each share of Series B Preferred Stock and Series M Preferred
Stock shall automatically be converted into shares of Common Stock at the
applicable Conversion Price at the time in effect for such Series B Preferred
Stock or Series M Preferred Stock, respectively, immediately upon the
consummation of the corporation's sale of its Common Stock in a firm commitment
underwriting pursuant to a registration statement on Form S-1, Form SB-1, Form
SB-2, or their then equivalents, filed under the Securities Act of 1933, as
amended (the "Public Offering").

       b. Mechanics of Conversion. Before any holder of Series B Preferred Stock
or Series M Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he or she shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this corporation or of any transfer
agent for the Series B Preferred Stock or the Series M Preferred Stock, as
applicable, and shall give written notice by mail, postage prepaid, to this
corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Series B Preferred Stock or Series M Preferred Stock, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series B Preferred
Stock or Series M Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, as amended, the conversion may, at the option of any holder

                                       4
<PAGE>   29

tendering Series B Preferred Stock or Series M Preferred Stock for conversion,
be conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of the Series B Preferred Stock or
Series M Preferred Stock shall not be deemed to have converted such stock until
immediately prior to the closing of such sale of securities.

       c. Conversion Price Adjustments of Preferred Stock. If at any time or
from time to time after the date of effectiveness of this Amended and Restated
Certificate of Incorporation there shall be a recapitalization of the Common
Stock (including, without limitation, any stock split or stock dividend)
provision shall be made so that the holders of the Series B Preferred Stock and
Series M Preferred Stock shall thereafter be entitled to receive upon conversion
of the Series B Preferred or Series M Preferred Stock, as applicable, the number
of shares of stock or other securities or property of the Company or otherwise,
to which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 3 with
respect to the rights of the holders of the Series B Preferred Stock and Series
M Preferred Stock after the recapitalization to the end that the provisions of
this Section 3 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of the Series B Preferred Stock
and Series M Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.

       d. No Impairment. This corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series B Preferred Stock and Series M Preferred Stock against
impairment.

       e. No Fractional Shares and Certificate as to Adjustments.

          (i) No fractional shares shall be issued upon conversion of the Series
B Preferred Stock or the Series M Preferred Stock, and the number of shares of
Common Stock to be issued shall be rounded to the nearest whole share. Whether
or not fractional shares are issuable upon such conversion shall be determined
on the basis of the total number of shares of Series B Preferred Stock or Series
M Preferred Stock, as applicable, the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.

          (ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series B Preferred Stock or Series M Preferred Stock
pursuant to this Section 3, this corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of

                                        5

<PAGE>   30

Series B Preferred Stock or Series M Preferred Stock, as applicable, a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. This corporation
shall, upon the written request at any time of any holder of Series B Preferred
Stock or Series M Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of Series B Preferred Stock or Series
M Preferred Stock, as applicable.

          f. Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series B Preferred Stock and Series M
Preferred Stock, at least 20 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.

          g. Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series B Preferred Stock and Series M Preferred Stock such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Series B Preferred Stock and
Series M Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series B Preferred Stock and Series M
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such Preferred Stock, this corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.

          h. Notices. Any notice required by the provisions of this Section 3 to
be given to the holders of shares of Series B Preferred Stock or Series M
Preferred Stock shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his address appearing
on the books of this corporation.

     4. Mandatory Redemption. The shares of Series M Preferred Stock shall be
subject to mandatory redemption as set forth below in this Section 4.

          a. Redemption Events. Except as prohibited by applicable Delaware
corporate law and the corporation's then existing agreements with its lenders
and provided the corporation has generated net income for its most recent
quarterly interim period, the corporation shall redeem all outstanding shares of
Series M Preferred Stock on the date which is five (5) years from the date of
effectiveness of this Amended and Restated

                                        6

<PAGE>   31

Certificate of Incorporation. The corporation shall effect the redemption by
paying in cash, out of any source of funds legally available therefor, an amount
per share of Series M Preferred Stock equal to the Original Series M Issue Price
(the "Redemption Price").

          b. Redemption Notice. At least thirty (30) but no more than sixty (60)
days prior to the date fixed for redemption of the Series M Preferred Stock (the
"Redemption Date"), the corporation shall mail, postage prepaid, written notice
thereof (the "Redemption Notice"), to each holder of record (at the close of
business on the business day next preceding the day on which notice is given) of
shares of Series M Preferred Stock, at the address last shown on the records of
the corporation for such holder or if no address appears or is given at the
place where the principal executive office of the corporation is located,
specifying the number of shares to be redeemed from such holder, the Redemption
Date, the Redemption Price, the place at which payment may be obtained, and
calling upon such holder to surrender to the corporation, in the manner and at
the place designated, its certificate or certificates representing all of such
holders shares of Series M Preferred Stock.

          C. Surrender of Certificates; Payment. Except as prohibited by
applicable Delaware corporate law, on or before the Redemption Date, each holder
of shares of Series M Preferred Stock to be redeemed on such Redemption Date
shall surrender the certificate or certificates representing such shares to the
corporation, in the manner and at the place designated in the Redemption Notice,
and thereupon the Redemption Price for such shares shall be payable to the order
of the person whose name appears on such certificate or certificates as the
owner thereof, and each surrendered certificate shall be cancelled and retired.
In the event that, due to restrictions imposed by applicable Delaware corporate
law, fewer than all of the shares represented by such certificate are redeemed,
a new certificate representing the unredeemed shares shall be issued forthwith.

          d. Rights Subsequent to Redemption. If the Redemption Notice shall
have been duly given, and if on the Redemption Date the Redemption Price
therefor is either paid or made available for payment through the deposit
arrangement specified in subparagraph (a) below, then notwithstanding that the
certificates evidencing any of the shares of Series M Preferred Stock so called
for redemption shall not have been surrendered, all rights with respect to such
shares shall forthwith terminate after such Redemption Date, except for the
right of the holders to receive the Redemption Price without interest upon
surrender of their certificate or certificates therefor, and such shares shall
not thereafter be transferred on the books of the corporation or be deemed to be
outstanding whatsoever. If the funds of the corporation legally available for
redemption of shares of Series M Preferred Stock on the Redemption Date are
insufficient to redeem the total number of shares of Series M Preferred Stock to
be redeemed on such date, those funds which are legally available will be used
to redeem the maximum possible number of such shares ratably among the holders
of such shares to be redeemed based upon their holdings of Series M Preferred
Stock. The shares of Series M Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein. At
any time thereafter when additional funds of the corporation are legally
available for the redemption of shares of Series M Preferred Stock such funds
will immediately be used to redeem the balance of the shares which the

                                        7

<PAGE>   32

corporation has become obliged to redeem on the Redemption Date, but which it
has not redeemed.

          e. Deposit of Funds. On or prior to the Redemption Date, the
corporation shall deposit in a trust fund with any bank or trust company having
a capital and surplus of at least $100,000,000, a sum equal to the aggregate
Redemption Price of all shares of Series M Preferred Stock, with irrevocable
instructions and authority to the bank or trust company to pay, on and after the
Redemption Date, the Redemption Price to the respective holders upon the
surrender of their stock certificates. From and after the date of such deposit
(but not prior to the Redemption Date), the shares so called for redemption on
the Redemption Date shall be deemed to have been redeemed. The deposit shall
constitute full payment of the shares to their holders, and from and after the
Redemption Date the shares redeemed on the Redemption Date shall be deemed to be
no longer outstanding, and the holders thereof shall cease to be stockholders
with respect to such shares and shall have no rights with respect thereto except
the rights to receive, from the bank or trust company, payment of the Redemption
Price, without interest, upon surrender of their certificates therefor. Any
funds so deposited and unclaimed at the end of one year from the Redemption Date
shall be released or repaid to the corporation, after which the holders of
shares called for redemption shall be entitled to receive payment of the
Redemption Price only from the corporation.

     5. Voting Rights.

     The holder of each share of Series B Preferred Stock shall have the right
to one vote for each share of Common Stock into which such Series B Preferred
Stock could then be converted (with any fractional share determined on an
aggregate conversion basis being rounded to the nearest whole share), and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the bylaws of this corporation, and shall be
entitled to vote (except as otherwise expressly provided herein or as required
by law), together with holders of Common Stock as a single class, with respect
to any question upon which holders of Common Stock have the right to vote.
Election of directors need not be by written ballot, unless the bylaws of the
corporation shall so provide.

     Except as required by law, the holders of Series M Preferred Stock shall
have no voting rights.

     6. Protective Provisions.

     a. Subject to the rights of series of Preferred Stock which may from time
to time come into existence, so long as shares of Series B Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of a majority of the
then outstanding shares of Series B Preferred Stock:

                                        8

<PAGE>   33

          (i) alter or change the rights, preferences or privileges of the
shares of Series B Preferred Stock in a manner that adversely affects the
holders of the Series B Preferred Stock; or

          (ii) increase the authorized number of shares of Series B Preferred
Stock.

     b. Subject to the rights of series of Preferred Stock which may from time
to time come into existence, so long as shares of Series M Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of a majority of the
then outstanding shares of Series M Preferred Stock:

          (i) alter or change the rights, preferences or privileges of the
shares of Series M Preferred Stock in a manner that adversely affects the
holders of the Series M Preferred Stock; or

          (ii) increase the authorized number of shares of Series M Preferred
Stock.

     7. Status of Converted Stock. In the event any shares of Series B Preferred
Stock or Series M Preferred Stock shall be converted pursuant to Section 3
hereof, the shares so converted shall be cancelled and shall not be issuable by
the corporation. The Certificate of Incorporation of this corporation shall be
appropriately amended to effect the corresponding reduction in the corporation's
authorized capital stock.

     C. Common Stock.

     1. Dividend Rights. Subject to the prior rights of holders of all classes
of stock at the time outstanding having prior rights as to dividends, the
holders of the Common Stock shall be entitled to receive, when and as declared
by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.

     2. Liquidation Rights. Upon the liquidation, dissolution or winding up of
the corporation, the assets of the corporation shall be distributed as provided
in Section 2 of this Article V.

     3. Voting Rights. The holder of each share of Common Stock shall have the
right to one vote, and shall be entitled to notice of any stockholders' meeting
in accordance with the by-laws of this corporation, and shall be entitled to
vote upon such matters and in such manner as may be provided by law.

                                       9

<PAGE>   34

                                  ARTICLE VI.

     1. Number of Directors. The number of directors which shall constitute the
whole Board of Directors of this corporation shall be as specified in the
by-laws of this corporation.

     2. Limited Liability. To the fullest extent permitted by the General
Corporation Law of the State of Delaware (as such law currently exists or may
hereafter be amended so long as any such amendment authorizes action further
eliminating or limiting the personal liabilities of directors), a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of this paragraph by the stockholders of the
corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation with
respect to any act or omission occurring prior to the time of such repeal or
modification.

                                 ARTICLE VII.

     Meetings of stockholders may be held within or without the State of
Delaware as the by-laws may provide. The books of the corporation may be kept,
subject to any provision contained in the statutes, outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the by-laws of the corporation. Stockholders shall not
be entitled to request the election of directors by written ballot unless a
by-law of the corporation shall authorize such a vote by written ballot.

                                 ARTICLE VIII.

     Except as otherwise provided in this Certificate of Incorporation, the
corporation reserves the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred on stockholders herein are
granted subject to this reservation. In furtherance and not in limitation of the
powers conferred by statute, except as otherwise provided in this Certificate of
Incorporation, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind from time to time any or all of the by-laws of the
corporation; including by-law amendments increasing or reducing the authorized
number of directors.

     IN WITNESS WHEREOF, the undersigned has executed this certificate on
May 7, 1997.

                                         /s/ Jeffrey S. Williams
                                         -------------------------------------
                                         Jeffrey S. Williams
                                         President and Chief Executive Officer

                                       10

<PAGE>   35

                        TERMINATION AND RELEASE AGREEMENT

         THIS TERMINATION AND RELEASE AGREEMENT, dated as of May       , 1997
(this "Agreement"), is executed by and between B.I. SYSTEMS CORPORATION, a
Delaware corporation (the "Borrower"), and MILLIPORE CORPORATION, a
Massachusetts corporation (the "Lender").

                                    RECITALS

         WHEREAS, on July 26, 1994, the Borrower executed and delivered to the
Lender an $850,000 Secured Promissory Note (a copy of which is attached hereto
as Exhibit A, the "Note") in partial consideration for certain assets that were
being transferred by the Lender to the Borrower pursuant to a Purchase and Sale
Agreement dated as of July 26, 1994; and

         WHEREAS, to secure payment of the Note, the Borrower and the Lender
entered into a Security Agreement, dated as of July 26, 1994 (a copy of which is
attached hereto as Exhibit B, the "Security Agreement") pursuant to which the
Borrower granted to the Lender a security interest in all right, title and
interest of the Borrower in and to the source code for BIO IMAGE software
products coded in ASCII (the "Security"); and

         WHEREAS, the Borrower wishes to offer the Lender 50,000 shares of the
Borrower's Series M Preferred Stock (the "Series M Preferred Stock") with the
rights and preferences described in the Borrower's Amended and Restated
Certificate of Incorporation attached hereto as Exhibit C as consideration in
full for all principal, interest and all other amounts owing under the Note and
in consideration of the release by the Lender of its security interest in the
Security; and

         WHEREAS, the Lender is willing to accept the 50,000 shares of Series M
Preferred Stock from the Borrower as consideration in full for all principal,
interest and all other amounts owing under the Note and in consideration of the
release by the Lender of its security interest in the Security upon the terms
and subject to the conditions set forth herein.

         NOW, THEREFORE, the Borrower and the Lender hereby agree as follows:

         1. Payment and Termination of Note. The Lender hereby acknowledges
receipt of 50,000 shares of Series M Preferred Stock as consideration in full of
all principal, interest and all other amounts owing under the Note and further
acknowledges the termination of the Note and all related documents, instruments
and agreements.

         2. Termination of Security Agreement, Release of Liens. (a) The
Security Agreement and all documents, instruments and agreements related thereto
are hereby terminated and the Borrower is hereby released therefrom, AND THE
LENDER hereby releases, assigns, transfers and delivers to the Borrower, without
recourse and without

<PAGE>   36

representation or warranty, all of its right, title and interest in the
Security. The Lender represents that there are no liens, claims or encumbrances
on any of the Security arising by, through, or under the Lender.

         (b) From time to time, upon request by the Borrower, the Lender shall,
without further consideration other than reimbursement for any reasonable and
necessary costs and expenses, execute, deliver and acknowledge all such further
documents, agreements, certificates and instruments and do such further acts as
the Borrower may reasonably require to more effectively evidence or effectuate
the transactions contemplated by this Agreement, including, but not limited to,
the release and termination of the Security Agreement and the release and
discharge of all security interests and all other rights and interests that the
Lender has or may have had in the Security.

         3. Miscellaneous. This Agreement may not be amended, modified or waived
except in writing signed by the party against whom enforcement of such
amendment, modification or waiver is sought. THIS AGREEMENT SHALL BE CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MASSACHUSETTS. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which, when taken together, shall constitute one
and the same instrument.

         4. Effectiveness. This Agreement shall become effective (i) when the
Borrower and the Lender shall have executed and delivered a counterpart hereof
(including by way of facsimile transmission) and (ii) the Lender has received
stock certificates representing the shares of Series M Preferred Stock referred
to in Section 1 hereof.

         IN WITNESS WHEREOF, the undersigned have entered into this Agreement as
of the day and year first above written.

                                        B.I. SYSTEMS CORPORATION

                                        By
                                           ----------------------------------
                                        Name:
                                             --------------------------------
                                        Title:
                                              -------------------------------

                                        MILLIPORE CORPORATION

                                        By
                                           --------------------------------
                                        Name:
                                             ------------------------------
                                        Title:
                                              -----------------------------

                                        2

<PAGE>   37

                                    EXHIBIT A

                             Secured Promissory Not

                                  See Attached

                                      A-1

<PAGE>   38
EXHIBIT A - 1

                            SECURED PROMISSORY NOTE

                                                          July 26, 1994
($850,000)                                                Bedford, Massachusetts

     The undersigned, B.I. SYSTEMS CORPORATION, a Delaware corporation ("B.I.
SYSTEMS") referred to herein as the "Debtor" hereby promises to pay to the
order of MILLIPORE CORPORATION, a Massachusetts corporation, its assigns or
successors ("MILLIPORE"), on July 31, 1999, the principal amount of Eight
Hundred, Fifty Thousand Dollars ($850,000) or such portion thereof as then
remains unpaid, with interest from July 31, 1994 on the principal amount
remaining from time to time unpaid, at the rate of 8.50% per annum and at the
rate of 10.50% per annum (so far as the same may be legally enforceable) on all
overdue payments of principal (including any overdue partial prepayment) and
installments of interest. Interest (other than overdue interest as described in
the preceding sentence, which shall be payable upon demand) shall be payable in
arrears on the earlier of (i) the stated or accelerated maturity of this Note
and (ii) the last day of June and December in each year, commencing on December
31, 1994 (each an "Interest Payment Date").

     Principal and interest shall be payable in lawful money of the United
States of America and shall be paid by wire transfer of federal funds to the
account designated by the holder of this Note. Whenever any payment of
principal or interest to be made hereunder shall become due on a Saturday,
Sunday or legal holiday under the laws of The Commonwealth of Massachusetts,
such payment shall be made on the succeeding business day and such extension of
time shall be included in computing interest in connection with such payment;
provided, however, that in the event there is a payment default by the Debtor
occurring with respect to its bank indebtedness, the Debtor shall not be
required to pay interest on any Interest Payment Date until such time as the
payment default has either been cured by the Debtor or waived by the bank, at
which time the Debtor shall immediately pay all such overdue interest.

     The Debtor may prepay this Note at any time and from time to time, in
whole or in part, with accrued interest on the amount being prepaid through the
date of prepayment without premium or penalty.
<PAGE>   39
Secured Promissory Note                                            July 26, 1994
B.I. Systems Corporation
Page 3

     This Note shall be governed by and construed in accordance with the laws
(other than the conflict of law rules) of the Commonwealth of Massachusetts.

     The Debtor and all endorsers or guarantors of this Note hereby waive
presentment, demand, notice of nonpayment and protest.

     IN WITNESS WHEREOF, the Debtor has caused this Note to be executed under
seal of its duly authorized representative effective the day and year first
above written.

                                           B.I. SYSTEMS CORPORATION

                                           BY:
                                             -----------------------------------

                                           TITLE:
                                                --------------------------------

<PAGE>   40

                                    EXHIBIT B

                               Security Agreement

                                  See Attached

                                      B-1

<PAGE>   41

EXHIBIT A-2

                               SECURITY AGREEMENT

     This Agreement (this "Agreement" or "Security Agreement") is made this 26th
day of July, 1994 among B.I. SYSTEMS CORPORATION, a Delaware corporation ("BIO
IMAGE") referred to herein as "DEBTOR" AND MILLIPORE CORPORATION, a
Massachusetts corporation (the "Secured Party").

     In order to induce the Secured Party to accept the execution and delivery
by the Debtor of its Secured Promissory Note dated July __, 1994 in the original
principal amount of Eight Hundred Fifty Thousand Dollars ($850,000) (as from
time to time amended) (referred to herein as the "Note") in partial
consideration for the assets being transferred by the Secured Party to the
Debtor pursuant to the Agreement of Purchase and Sale dated as of July__, 1994
(the "Purchase and Sale Agreement") between the Secured Party and the Debtor,
the Debtor hereby agrees with the Secured Party, as follows:

     1.0 Definitions; Certain Rules of Construction. Terms defined in the Note
or the Purchase and Sale Agreement and not otherwise defined herein are used
herein with the meanings so defined. Except as the context otherwise explicitly
requires, (i) the capitalized term "Section" refers to sections of this
Agreement and (ii) references to a particular Section shall include all
subsections thereof.

     2.0 Security.

     2.1. Credit Security. As security for the payment and performance of its
obligations under the Note, the Debtor hereby mortgages, pledges and
collaterally grants and assigns to the Secured Party, and creates a security
interest in favor of the Secured Party in, all of the Debtor's right, title and
interest in and to (but none of its obligations or liabilities with respect to)
the source code for BIO IMAGE software products coded in ASCII (the "Security").
Notwithstanding the foregoing, the payment and performance of the Note shall
not be secured by, and the term "Security" shall not include any rights & or
property to the extent that any valid and enforceable law or regulation
applicable to such rights or property prohibits the creation of a security
interest therein.

     2.2 Representations Warranties and Covenants with Respect to Security.
The Debtor hereby represents, warrants and covenants that:

          2.2.1. No Liens or Restrictions on Transfer or Change of Control. All
Security shall be free and clear of any Liens and restrictions on the transfer
thereof except for the provisions of licensing and confidentiality and other
like agreements respecting third party software under license to the Debtor.

                                      A-2-1

<PAGE>   42

B.I. SYSTEMS CORPORATION SECURITY AGREEMENT
Page 2

          2.2.2. Trade Names. The Debtor will not adopt or do business under any
name other than the names as set forth on the signature lines of this Security
Agreement or any other name(s) specified by notice actually received by the
Secured Party not less than 15 business days prior to the conduct of business
under such additional name and for which the Debtor shall have taken all steps
reasonably necessary to the perfection of the Security with respect to such
name.

          2.2.3. Conduct of Business and Ownership of Security Only by Debtor.
The Debtor shall at all times own those assets constituting the Security
hereunder, directly and not through, by means of, or in a joint venture,
partnership or other arrangement with, any other person, firm, corporation or
other entity, whether wholly or partially owned or controlled by the Debtor or
any affiliate of the Debtor.

          2.2.4. Notice of Loss. The Debtor will promptly give the Secured Party
written notice of any material loss or damage to any Security.

     2.3. Perfection of Security. Upon the Secured Party's request from time to
time, the Debtor will make, execute, acknowledge and deliver, and file and
record in the proper filing and recording places, all such instruments and
financing statements, and will take all such other action, as the Secured Party
may reasonably deem advisable to carry out the purposes of this Agreement or for
confirming to it the Security provided for hereunder.

     2.4. Administration of Credit Security. The Security shall be administered
as follows, and if a Default under the Note shall be continuing, Section 2.5
shall also apply.

          2.4.1. General Authority. To the extent specified in a notice from
the Secured Party to the Debtor during the continuance of a Default under the
Note, the Debtor hereby gives the Secured Party full and exclusive power and
authority, subject to the other terms hereof and applicable law (for the sole
benefit of the Secured Party, but at the Debtor's expense) to use, sell,
transfer, assign or otherwise deal in or with any Security or the proceeds
thereof, as fully as the Debtor otherwise could do.

          2.4.2. Custody of Security. Except as provided by applicable law that
cannot be waived, the Secured Party will have no duty as to the custody and
protection of the Security or the preservation or exercise of any rights
pertaining thereto, including rights against prior parties, beyond acting in
good faith in a commercially reasonable manner in the custody and preservation
of any Security in its possession. The Secured Party will not be liable or
responsible for any loss or damage to any Security, or for any diminution in the
value thereof, by reason

                                     A-2-2

<PAGE>   43

B.I. SYSTEMS CORPORATION SECURITY AGREEMENT
Page 3

of the act or omission of any agent selected by the Secured Party in good
faith.

     2.5. Right to Realize upon Security. Except to the extent prohibited by
applicable law that cannot be waived, this Section 2.5 shall govern the Secured
Party's right to realize upon the Security if a Default under the Note shall be
continuing. The provisions of this Section 2.5 are in addition to any rights and
remedies available at law or in equity and in addition to the provisions of the
Purchase and Sale Agreement and the Note. In the case of a conflict between this
Section 2.5 and any other instrument or document, this Section 2.5 shall govern.

          2.5.1. Marshaling etc. The Debtor shall, upon the Secured Party's
request, assemble the Security and otherwise make it available to the Secured
Party. The Secured Party shall not be required to make any demand upon, or
pursue or exhaust any of its rights or remedies against, the Debtor, or any
guarantor, pledgor or any other person or entity with respect to the payment and
performance of the Note or to pursue or exhaust any of its rights or remedies
with respect to any of the collateral therefor or any direct or indirect
guarantee thereof. The Secured Party shall not be required to marshal the
Security or any guarantee of the Note or to resort to the Security or any such
guarantee in any particular order, and all of its rights hereunder shall be
cumulative. The Debtor absolutely and irrevocably waives and relinquishes the
benefit and advantage of, and covenants not to assert against the Secured Party,
any valuation, stay, appraisement, extension, redemption or similar laws now or
hereafter existing which, but for this provision, might be applicable to the
sale of any Security made under the judgment, order or decree of any court, or
privately under the power of sale conferred by this Agreement, or otherwise.
Without limiting the generality of the foregoing and except as otherwise
provided in this Agreement, the Debtor agrees that it will not invoke or raise
as a defense to any enforcement by the Secured Party of any of its rights and
remedies relating to the Security or the Note any legal or contractual
requirement with which the Secured Party may have in good faith failed to
comply, the consequence of which would prevent or materially delay or otherwise
impede the enforcement of the Secured Party's rights under this Agreement and
waive the same. In addition, the Debtor waives any right to prior notice (except
to the extent expressly required by this Agreement) or judicial hearing in
connection with foreclosure on or disposition of any Security, including any
such right which the Debtor would otherwise have under the Constitution of the
United States of America, any state or territory thereof or any other
jurisdiction.

          2.5.2. Sales of Security. Any Security may be sold by the Secured
Party as it, in its sole discretion, may elect for cash or other value in any
number of lots at any commercially reasonable public or private sale, without
demand, advertisement

                                     A-2-3

<PAGE>   44

B.I. SYSTEMS CORPORATION SECURITY AGREEMENT
Page 4

or notice; provided, however, that the Secured Party shall give the Debtor 30
days' prior written notice of the time and place of any public sale, or the time
after which a private sale may be made, which notice the Debtor hereby agrees to
be reasonable. At any sale or sales of Security (except to the extent prohibited
by applicable law that cannot be waived) the Secured Party, or the Secured
Party's assigns, may bid for and purchase all or any part of the property and
rights so sold and upon compliance with the terms of such sale may hold and
dispose of such property and rights without further accountability to the
Debtor, except for the proceeds of such sale or sales pursuant to Section 2.5.3.
The Debtor acknowledges that any such sale will be made by the Secured Party on
an "as is" basis with disclaimers of all warranties, whether express or implied,
to the extent permitted by applicable law. The Debtor will execute and deliver
or cause to be executed and delivered such instruments, documents, assignments,
waivers, certificates and affidavits, will supply or cause to be supplied such
further information and will take such further action as the Secured Party shall
reasonably require in connection with any such sale.

          2.5.3. Application of Proceeds. The proceeds received by the Secured
Party of all sales and collections in respect of any Security or other assets of
the Debtor, all funds collected by the Secured Party from the Debtor or any
guarantor and any cash included in the Security, the application of which is not
otherwise specifically provided for herein, shall be applied by the Secured
Party as follows:

          First, to the payment of the costs and expenses of such sales and
collections, the reasonable expenses of the Secured Party and the reasonable
fees and expenses of its special counsel;

          Second, any surplus then remaining to the payment and performance of
the Note in such order and manner as the Secured Party may in its sole
discretion determine;

          Third, any surplus then remaining shall be paid to the Debtor,
subject, however, to the rights of the holder of any then existing lien of which
the Secured Party has actual notice.

     3.0 Notices. Except as otherwise specified in this Agreement, any notice
required to be given pursuant to this Agreement shall be given in writing. Any
notice, demand or other communication in connection with this Agreement shall be
deemed to be given if given in writing (including telex, telecopy or similar
teletransmission) addressed as provided below (or to the addressee at such other
address as the addressee shall have specified by notice actually received by the
addressor), and if either (i) actually delivered in fully legible form to such
address (evidenced in the case of a telex by receipt of the correct answer back)
or (ii) in the case of a letter, five days

                                      A-2-4

<PAGE>   45

B.I. SYSTEMS CORPORATION SECURITY AGREEMENT
Page 5

shall have elapsed after the same shall have been deposited in the United States
mails, with first-class postage prepaid and registered or certified:

     If to the Debtor, to B.I. Systems Corporation, 777 East Eisenhower Parkway,
Ann Arbor, Michigan 48180, to the attention of the President.

     If to the Secured Party, to it c/o Millipore Corporation, 80 Ashby Road,
Bedford, Massachusetts 01730, to the attention of General Counsel.

     4.0 Successors and Assigns. The provisions of this Agreement shall inure to
the benefit of the Secured Party and its successors and assigns (including
specifically but without limitation, any assignee, endorsee, transferee or other
subsequent holder of the Note) and shall be binding upon the Debtor and its
respective successors and assigns. The Debtor agrees that, upon request, it will
execute and deliver any amendment or supplement to this Agreement (and to any
financing statement or other document executed in connection with this
Agreement) for the purpose of providing further assurance to any such successor
or assign that it is entitled to the benefits of this Agreement.

     5.0 Defeasance. When all of the obligations under the Note have been paid,
performed and discharged in full, this Agreement shall terminate and, at the
Debtor's written request, accompanied by such certificates as the Secured Party
shall reasonably deem necessary, the Security shall revert to the Debtor, and
the right, title and interest of the Secured Party therein shall terminate.
Thereupon, on the Debtor's demand and at its cost and expense, the Secured Party
shall execute proper instruments, acknowledging satisfaction of and discharging
this Agreement, and shall redeliver to the Debtor any Security then in its
possession.

     6.0 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
THAT CANNOT BE WAIVED, EACH OF THE DEBTOR AND THE SECURED PARTY HEREBY WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND OR ACTION ARISING OUT OF THIS AGREEMENT OR THE NOTE OR THE SUBJECT
MATTER HEREOF OR THEREOF OR ANY OBLIGATION HEREUNDER OR UNDER THE NOTE OR IN ANY
WAY CONNECTED WITH THE DEALINGS OF THE DEBTOR OR THE SECURED PARTY OR IN
CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE. The Debtor acknowledges
that it has been informed by the Secured Party that the provisions of this
Section 6 constitute a material inducement upon which the Secured Party has
relied, is relying and will rely in accepting the Note and entering into this
Agreement and the Purchase and Sale Agreement, and that such Obligor has
reviewed

                                      A-2-5
<PAGE>   46

B.I. SYSTEMS CORPORATION SECURITY AGREEMENT
Page 6

the provisions of this Section 6 with its counsel. The Debtor or the Secured
Party may file an original counterpart or a copy of this Section 6 with any
court as written evidence of the consent of the Debtor or the Secured Party to
the waiver of their rights to trial by jury.

     General. The headings in this Agreement are for convenience of reference
only and shall not limit, alter or otherwise affect the meaning hereof. The
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of any other term or provision hereof. This
Agreement, the Note and the Purchase and Sale Agreement constitute the entire
understanding of the parties with respect to the subject matter hereof and
thereof and supersede all prior and current understandings and agreements,
whether written or oral. This Agreement may be executed in any number of
counterparts which together shall constitute one instrument. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN THE
CONFLICT OF LAWS RULES) OF THE COMMONWEALTH OF MASSACHUSETTS.

         Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized representative as an agreement under seal as of
the date first written above.

         B.I. SYSTEMS CORPORATION

         By
           ---------------------------
         Title:
               -----------------------

         MILLIPORE CORPORATION

         By
           ---------------------------
         Title:
               -----------------------

                                      A-2-6

<PAGE>   47

                                    EXHIBIT C

                Amended and Restated Certificate of Incorporation

                                  See Attached

                                      C-1
<PAGE>   48
March 18, 1997

To:                Bio Image Shareholders

From:              Bob Shepler and Matt Mackowski

Re:                Bio Image

--------------------------------------------------------------------------------

We would like to inform you of two important events that have transpired at Bio
Image. First, we have hired a new President and Chief Executive Officer, Jeff
Williams, who brings a significant track record of success in life sciences
software and imaging. Second, we have embarked on a financing and
recapitalization of the company that will position it to restore revenue growth
and an increase in value to its investors.

Within the next two weeks you will be receiving legal documentation from our
counsel relating to the equity financing and recapitalization. This letter to
you, along with the enclosed business plan prepared by Jeff Williams, is
intended to bring you up to date on the events leading up to the financing and
recapitalization, and provide a perspective on why we continue to be
enthusiastic about the investment opportunity provided by Bio Image.

BACKGROUND

Following our acquisition of Bio Image from Millipore in 1994 several factors
combined to cause poor financial performance by the business. First, the
company's development of PC-based software took much longer than expected. Bio
Image's image analysis software, written in Unix and requiring expensive
engineering workstations to operate, became difficult to sell in the U.S. in the
face of lower cost PC-based alternatives. Second, a major portion of the
company's revenue stream under Millipore was lost as Bio Image took a
software-only strategy and exited the hardware side of electrophoresis imaging
systems. The shift to a software only strategy also hurt sales as customers
desired turnkey systems and were resistant to integrating disparate system
components. The result was a significant revenue shortfall versus plan.
Exacerbating the impact of the revenue shortfall on the bottom line was the
expense impact of replacing the direct sales channel that was left behind upon
separation from Millipore. The result was a relatively small business having a
high-cost worldwide direct sales force without enough product in the bag to
cover operating expense. In fiscal 1996 (FYE July,) revenue dropped to $3.1MM
from $5.2MM, producing an operating loss of ($859M) in FY 1996 versus operating
income of $560M in FY 1995.

<PAGE>   49

Bio Image has now achieved conversion of products to PC environments that
represent approximately 75% of its historical software volume, and has leveled
out at a $2.5 to $3MM annual revenue rate. While operating expenses have been
significantly reduced, the business continues to operate at a loss. The cash
shortfall since early 1996 has been covered by a revolving line from NBD Bank
and loans totaling $400M from Capital Health Venture Partners and Mackowski &
Shepler.

In early 1996, the board concluded that Bio Image's software-only strategy was
insufficient to compete effectively in the life sciences systems market,
resulting in a plan to either merge with other firms in this field to achieve
critical mass or find a buyer for Bio Image altogether. This process led to
discussions with over 20 firms and in-depth negotiations with three life
sciences instrument companies that expressed interest in acquiring Bio Image.
Two of the finalists were unwilling to offer adequate consideration for Bio
Image's software assets; the third was ultimately rejected by us due to concerns
about this company's capitalization.

In December, 1996 we were approached by Jeff Williams, who was Chief Operating
Officer of IRIS a AMEX-listed manufacturer of clinical imaging systems. Jeff had
become aware of Bio Image through our marketing process, and was intrigued with
the company's software assets and its market opportunity. Though relatively
young, Jeff had racked-up excellent track records at Boehringer Mannheim
Diagnostics and IRIS. In each situation, his responsibilities included strategic
development, product development, sales and marketing, and operations. At each
company, revenues and earnings grew significantly under his direction, derived
from both internal product development and acquisition of other businesses.
Besides viewing Bio Image as a business vehicle he could grow to sizable value,
Jeff was also attracted by its Ann Arbor location. A Michigan native, Jeff and
his wife had concluded that Los Angeles was an unsuitable location for raising
their young family.

Jeff joined Bio Image as its President and CEO on February 1, 1997. Since that
date, Jeff has spent a considerable amount of time speaking with Bio Image's
customers, staff, distribution partners, and vendors of related products. His
observations and strategies towards bringing Bio Image to a successful operating
position are expressed in the enclosed business plan. Beyond your review of this
plan, we encourage you to call Jeff directly (800-BIO-IMAG, ext. 202) and
discuss his perspective on the opportunity. Speaking for ourselves, we believe
that Jeff has the capability to bring the leadership, drive and execution in
product development, sales and acquisitions to make Bio Image a very successful
organization.

RESTRUCTURING

Bio Image's capitalization at the time of its purchase from Millipore included
debt of $2,050,000, $300,000 of convertible preferred stock and common stock
purchased for an aggregate of $200,000. Since that time, interest exceeding
$575,000 has accrued on the debt and bank debt of $820,000 has been incurred. In
the face of the company's reduced

<PAGE>   50

operating performance, the current capital structure is untenable. Without a
change of the capital structure, the company is not financeable. Consequently,
it is essential that Bio Image restructure its capital obligations in order to
complete a financing that enables Jeff Williams and his management team to
reestablish the Company's growth and profitability.

To accomplish the restructuring, Capital Health Venture Partners, Bio Image's
largest owner of the Company's sub debt and preferred, has devised and
negotiated terms by which the company's current investor obligations are
converted to common stock and a financing (targeted at $1.1 million with a range
of $1 million to $2 million) is offered pro rata to current stakeholders. The
restructuring begins with a 1:97 reverse stock split, which diminishes the
ownership of the common stock holders (Van Dyke, Mackowski, Shepler, and Welsh)
from 3,037,500 shares (61.5% fully diluted) to 31,281 shares (0.5% fully diluted
after the $1.1 million financing). Two share pools are then established: 1)
540,000 shares to allocate among all existing investors; and 2) 3,333,333 shares
to be sold in the $1.1 million financing. Pro-rata allocation of the financing
and restructuring pools are determined by calculating dollars invested, giving a
preference to the bridge loans made in 1996 and 1997.

All existing investors in Bio Image, with the exception of the prior common
stock holders, will have the opportunity to increase their ownership position in
the company through investment at their full pro-rata allocation. As further
detailed in the attached schedules, investors are being asked to make an
additional investment of approximately 40% of their initial investment in the
company. Based on a $1.1 million financing and pro-rata participation, an
investor would own a fully-diluted percentage of the company that is 50% higher
than his or her pre-restructuring ownership position. For example, an investor
who originally invested $60,000 to purchase sub debt and preferred stock having
a 1.0% ownership position in Bio Image would, upon subscription for his/her full
pro rata of $24,000 (of a $1,100,000 financing), own 1.5% of the company.
Because of the large proportion of shares reserved for the financing,
non-participation in the financing will cause significant dilution to an
investor's ownership position: using the same example as above, the prior 1%
holder would have a 0.2% fully diluted position if he or she did not participate
in a $1.1 million financing.

In addition to the sub debt, preferred and common classes being restructured, it
is important that the NBD bank debt and Millipore's debt also be amended. To
this end, NBD has agreed to extend Bio Image's bank facility one year with no
principal reduction, despite the fact that the permitted borrowings under the
credit line are significantly below the outstanding, balance. Millipore has
verbally agreed to convert their $965,000 secured debt obligation to a
non-dividend paying preferred stock with a face amount of $300,000 convertible
into 270,000 shares (representing a fully diluted ownership position of 4.7%
after the restructuring and a $ 1,100,000 financing.)

<PAGE>   51

FINANCING

An equity financing is necessary to provide Bio Image with capital for growth.
In reviewing the Bio Image situation with prospective financing sources, it
became clear that the pre-financing valuation needed to be extraordinarily
attractive. To meet this objective, Bio Image's current financing is based upon
a pre-money equity valuation of $792,000. Given historical valuations of life
science systems and software companies of one to five times revenues, we believe
a pre-money equity valuation of 25% of last year's revenues is a compelling
investment opportunity.

Capital Health Venture Partners has committed to taking its full pro rata of
$353,000 and Mackowski & Shepler is subscribing for its full pro rata totaling
$362,000. The amount of each investor's pro rata is contained in the addendum
attached. In the offering documents to be distributed shortly, investors will be
asked to indicate their amount of participation in the financing. Individual
investment indications may be equal to, below, or above one's pro-rata. While
there is no requirement that any shareholder invest, please keep in mind that
not doing so will lead to significant percentage dilution due to the terms of
the financing.

Despite the difficulties faced by Bio Image up to this point, we believe that
this investment represents an excellent upside opportunity. We strongly
encourage you to review the enclosed material and to call us at (415) 765-6980
or Jeff Williams (800) BIO IMAGE with any questions you may have or for further
perspective on the situation. Regardless of your ultimate decision on the new
investment, we wish to close the financing and restructuring as quickly as
possible - please let us know the best way to reach you during the week of March
24.

<PAGE>   52

                                 SCHEDULE 4.1.3

                       Definition of Accredited Investor

(1) Any bank as defined in Section 3(a)(2) of the Act or any savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the Act
whether acting in its individual or fiduciary capacity; any broker dealer
registered pursuant to Section 15 of the Securities Exchange Act of 1934; any
insurance company as defined in Section 2(13) of the Act; any investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that Act; any Small Business
Investment Company licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan
established and maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions, for the benefit of
its employees, if such plan has total assets in excess of $5,000,000; any
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000, or, if a
self-directed plan, with investment decisions made solely by persons that are
accredited investors;

(2) Any private business development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1940;

(3) Any organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;

(4) Any director or executive officer of the Company;

(5) Any trust with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii) of the Act;

(6) Any natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of purchase of the Series B Shares exceeds
$1,000,000;

(7) Any natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same level in the current year; or

(8) Any entity in which all of the equity owners are accredited investors.

<PAGE>   53
                                                             [TO BE COMPLETED BY
                                                                  ALL INVESTORS]

                            B.I. SYSTEMS CORPORATION

                 CONFIDENTIAL STATEMENT OF INVESTOR SUITABILITY

         In order to comply with the requirements of federal and state
securities laws, securities of the Company may be sold only to persons or
entities meeting the suitability standards established by B.I. Systems
Corporation (the "Company").

         The purpose of this Confidential Statement of Investor Suitability
(this "Statement") is to obtain information from each prospective investor
relating to the investor's knowledge and experience in financial and business
matters and to the investor's ability to bear the economic risks of the proposed
investment. Such information is required in order to determine whether or not
the suitability standards have been met by the prospective investor. Please
answer questions concerning prior business and financial experience and
investment decision-making in detail.

         By signing this Statement you agree that it may be shown to such
authorized persons as the Company may deem appropriate to establish that the
offer and/or sale of this investment in the Company will not result in any
violation of any laws or regulations of any jurisdiction.

         A separate Statement must be completed for each co-owner of securities,
except that spouses may complete a joint Statement.

         You make the following representations with the intent that they may be
relied upon by the Company and other persons designated by the Company.

                    (Please Print or Type. Attach additional
               sheets if necessary to answer fully any question.)

I.       BIOGRAPHICAL INFORMATION (If Joint Subscriber, provide information for
         both.)

  A. Name(s):                                Birthdate
             -------------------------------           ------------------------
                         (Print)

                                             Birthdate
             -------------------------------           ------------------------
                         (Print)

  B. State of Residency:
                        -------------------------------------------------------
  C. Employer or business association and position:
                                                    ---------------------------
  D. Business address and telephone no.:
                                         --------------------------------------

--------------------------------------------------------------------------------

<PAGE>   54

  E. Business and/or professional education and degrees:

<TABLE>
<CAPTION>

     School                   Location                 Degree              Year Rec'd
<S><C>

-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>

  F. Employment during the past five years:
<TABLE>
<CAPTION>

       Employer                 Position,
       or other                 nature of
     association              responsibility           From           To
<S><C>

-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>

II.      ACCREDITED INVESTOR STATUS

Please check or initial all that apply:

-        the investor is a natural person whose net worth, or joint net worth
         with spouse, at the time of purchase, exceeds $1,000,000 (including the
         value of home, home furnishings and automobiles).

-        the investor is a natural person whose individual gross income
         (excluding that of spouse) exceeded $200,000 in the last two calendar
         years, and who reasonably expects individual gross income exceeding
         $200,000 in the current calendar year; or for such periods, the
         combined income of the investor with spouse exceeded and is expected to
         exceed $300,000.

-        the investor is a trust, and the grantor

-        (i) has the power to revoke the trust at any time and regain title to
         the trust assets; and

-        (ii) has an individual (or, together with his spouse a joint) net worth
         in excess of $1,000,000, or had and expects to have a gross income (not
         including spouse's income) for the last two years and the current year
         in excess of $200,000, or for such periods, had and expects to have all
         gross income including that of a spouse in excess of $300,000.

-        the investor (or beneficiary if IRA or pension money is invested) is an
         executive officer of the Company.

                                       2

<PAGE>   55

-        the investor is a corporation, partnership, or Massachusetts or similar
         business trust, not formed for the specific purpose of acquiring the
         securities offered, with total assets in excess of $5,000,000.

-        the investor is otherwise an accredited investor as follows (if
         applicable, please review Schedule 4.1.1. of the Series B Preferred
         Stock Purchase Agreement and describe qualification for accredited
         status):

-------------------------------------------------------------------------------

-------------------------------------------------------------------------------

III.     PRIOR INVESTMENT EXPERIENCE OF INVESTOR

         A. Indicate by check mark which of the following categories best
            describes the extent of your prior experience in the areas of
            investment listed below:
<TABLE>
<CAPTION>

                         More than
                          5 years       2 to 5 years      1 year           No
                         Experience      Experience     Experience     Experience
<S>                     <C>            <C>             <C>            <C>
Corporate Stocks         ----------      ----------     ----------     ----------
Corporate Bonds          ----------      ----------     ----------     ----------
Real Estate              ----------      ----------     ----------     ----------
Limited Partnerships     ----------      ----------     ----------     ----------
Stock in Privately       ----------      ----------     ----------     ----------
Held Companies           ----------      ----------     ----------     ----------
</TABLE>

         B. Do you make your own investment decisions with respect to the
            investments listed above?

                         Yes               No
                              --------         --------

         C. What are the principal sources of your investment knowledge or
            advice? (check all that apply)

     First hand experience                   Financial publications
----                                    ----
     Broker(s)                               Investment Adviser(s)
----                                    ----
     Attorney(s)                             Accountant(s)
----                                    ----

                                       3

<PAGE>   56

         D. Please briefly describe any additional investment experience in
            business ventures, experience with the Company or any other
            investment experience which would indicate your ability to evaluate
            an investment in this business venture.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

IV.      OTHER MATTERS

         1. Do any significant contingent liabilities exist for which you may be
            obligated?

            Yes                No
                -------            ------

            If yes, please indicate type and amount:

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

         2. Are you involved in any litigation which if an adverse decision
            occurred would affect your financial condition adversely?

            Yes                No            If yes, provide details:
                -------            ------

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

         3. Is this a suitable and appropriate investment for you?

            Yes                No
                -------            ------

VI.      SIGNATURE PAGE

         The signature pages for this document are located on pages 6 (for
         individuals) and 7 (for non-individuals).

                                       4

<PAGE>   57

                                                  [TO BE COMPLETED AND SIGNED BY
                                                       ALL INDIVIDUAL INVESTORS]

                                 SIGNATURE PAGE
                                (FOR INDIVIDUALS)

         This page constitutes the signature page for INDIVIDUALS for the
Confidential Statement of Investor Suitability. Execution of this Signature Page
constitutes execution of such document.

         IN WITNESS WHEREOF, the undersigned has executed the Confidential
Statement of Investor Suitability this          day of April, 1997.

----------------------------------         --------------------------------
Signature of Investor                      Signature of Spouse
                                           (or Joint Investor, if any)

----------------------------------         --------------------------------
Print Name of Investor                     Print Name of Spouse
                                           (or Joint Investor, if any)
----------------------------------         --------------------------------
Social Security Number                     Social Security Number of Spouse
                                           (or Joint Investor, if any)

Address:                                   Address:
         --------------------------                    -----------------------
         --------------------------                    -----------------------
         --------------------------                    -----------------------

                                        5

<PAGE>   58

                                              [TO BE COMPLETED AND SIGNED BY ALL
                                             INVESTORS THAT ARE NOT INDIVIDUALS]

                                 SIGNATURE PAGE
                             (FOR NON-INDIVIDUALS)

         This page constitutes the signature page for the Confidential Statement
of Investor Suitability. Execution of this Signature Page constitutes execution
of such document.

         IN WITNESS WHEREOF, the undersigned has executed the Confidential
Statement of Investor Suitability this   day of April, 1997.

                                    Address:
----------------------------------           ----------------------------------
Print Name of Entity                         ----------------------------------
                                             ----------------------------------

----------------------------------           ----------------------------
Describe Entity (i.e., corporation,          Tax Identification Number
trust, LLC, partnership, etc.)

By:
    ------------------------------           -----------------------------------
    Name:                                    State of Organization
         -------------------------
    Title:
          ------------------------

                                       6<PAGE>   1
                                                                     EXHIBIT 4.5

             SERIES C PREFERRED STOCK PURCHASE AGREEMENT dated as of December
29, 1997, among GENOMIC SOLUTIONS INC., a Delaware corporation (the
"Corporation"), and each of the investors identified on Schedule I, (each, an
"Investor", and, collectively, the "Investors").

         The Corporation desires to sell to the Investors and the Investors
desire to purchase from the Corporation an aggregate of up to 4,070,339 shares
of the Corporation's Series C Convertible Preferred Stock, $.001 par value (the
"Series C Preferred Stock"), with the voting powers, designations, preferences,
limitations, and relative participating, optional or other rights set forth in
the Amended and Restated Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation") attached as EXHIBIT A, on the terms and subject
to the conditions set forth in this Agreement.

         NOW, THEREFORE, the parties agree as follows:

                                    ARTICLE I

                       ISSUANCE AND SALE OF THE PREFERRED
                                     SHARES

1.1      AUTHORIZATION OF ISSUANCE OF PREFERRED STOCK; RESERVATION OF COMMON
         STOCK.

                       (a) (a) Subject to the terms and conditions hereof, the
Corporation has authorized the issuance of an aggregate of up to 4,070,339
shares of Series C Preferred Stock (the "Securities") at a per share price of
$1.75.

                       (b) (b) The Corporation shall reserve 4,070,339 shares of
Common Stock, $.001 par value ("Common Stock"), for issuance upon conversion of
the Securities.

1.2      SALE OF SECURITIES.

         Simultaneously with the execution and delivery of this Agreement, the
Corporation is issuing and selling that number of Securities to the Investors,
as set forth on Schedule I attached hereto at a per share price of $1.75;
provided however, that in the case of Chase Venture Capital Associates, L.P.,
3,015,375 shares of Series C Preferred Stock shall be issued and sold on the
date hereof and 356,053 shares of Series C Preferred Stock shall be issued and
sold on January 6, 1998.

<PAGE>   2

                                   ARTICLE II

                          DELIVERY; ADDITIONAL CLOSINGS

2.1      Delivery.

         Except as set forth in Section 1.2 hereof, concurrent with execution
and delivery of this Agreement by an Investor hereunder, the Corporation is
delivering to such Investor a certificate representing the Securities registered
in such Investor's name equal to the number of Securities set forth opposite the
name of such Investor on Schedule I attached hereto, against payment of the
purchase price for such Securities by (at the option of the Corporation) either
cashier's check payable in immediately available funds to the order of the
Corporation or by a wire transfer of funds to the order of the Corporation.

2.2      ADDITIONAL CLOSINGS.

         Subject to Section 1.2 hereof, the Corporation may sell up to the
balance of the authorized shares of Series C Preferred Stock not sold on the
date hereof, as it shall elect, at a price not less than $1.75 per share. Upon
execution of a signature page counterpart and without need for an amendment
hereto except to add such investor's name to Schedule I attached hereto, any
such investor shall become a party to this Agreement, shall be deemed an
"Investor" for purposes of this Agreement and shall have the rights and
obligations of an Investor hereunder. At each additional closing hereunder, at
the request of the Investor, the Corporation shall deliver to the Investor
acquiring Securities at such closing an officer's certificate certifying to such
Investor that there has been no material adverse change in the business,
operations or conditions of the Corporation since the date hereof.

                                   ARTICLE III

         REPRESENTATIONS AND WARRANTIES OF THE CORPORATION

         Except as otherwise expressly indicated in the Schedules attached
hereto, the Corporation hereby represents and warrants to the Investors as
follows:

3.1      ORGANIZATION AND STANDING; CHARTER AND BY-LAWS.

         The Corporation is a corporation duly organized, validly exiting and in
good standing under the laws of the State of Delaware, and the Corporation is
authorized to exercise all of its corporate powers, rights and privileges. The
Corporation has all required corporate power and authority to own its property,
to carry on its business as presently conducted or contemplated. True and
accurate copies of the Certificate of Incorporation and the By-laws of the
Corporation, each as in effect on the date hereof, have been delivered to the
Investors.

                                    -2-

<PAGE>   3

3.2      CAPITALIZATION.

         The authorized capital stock of the Corporation on the date hereof
consists of 40,000,000 shares of Common Stock, par value $.001 per share
("Common Stock") and 10,000,000 shares of Preferred Stock, par value $.001 per
share (the "Preferred Stock"). On the date hereof, 625,448 shares of Common
Stock will be outstanding. Of the authorized Preferred Stock, 4,070,339 shares
have been designated Series C Preferred Stock, 1,680,880 shares have been
designated Series B Preferred Stock and 50,000 have been designated Series M
Preferred Stock. On the date hereof, giving effect to the issuance of the
Securities hereunder, 4,070,339 shares of Series C Preferred Stock are
outstanding, 1,680,880 shares of Series B Preferred stock are outstanding and
50,000 shares of Series M Preferred Stock are outstanding. The Securities have
the rights, preferences and privileges set forth in the Certificate of
Incorporation. The Corporation has reserved 4,070,339 shares of Common Stock for
issuance upon conversion of the Series C Preferred Stock, 5,093,576 shares of
Common Stock for issuance upon conversion of the Series B Preferred Stock, and
270,027 shares of Common Stock for issuance upon conversion of the Series M
Preferred Stock and 1,590,000 shares of Common Stock for issuance to employees,
consultants and directors under its 1994 Omnibus Equity Incentive Plan (the
"Stock Plan"). On the date of the closing, options to acquire an aggregate of
1,582,100 shares of Genomic Solutions Inc. Common Stock are outstanding. The
Stock Plan was adopted by the Board of Directors and shareholders of the
Corporation in July 1994 and amended in April 1997. In addition, the Corporation
has committed to issue shares of Common Stock to shareholders of PBA Technology
Ltd. ("PBA") in the event the Corporation consummates the acquisition of PBA
(the "PBA Acquisition"). Additionally, the Corporation expects to grant options
to acquire Common Stock to executive officers and directors of the Company and
employees of PBA after consummation of the PBA Acquisition. Except as set forth
herein, there are no outstanding rights, options, warrants, preemptive rights,
conversion rights or agreements for the purchase, acquisition or receipt from
the Corporation of any shares of capital stock or any other securities of the
Corporation. The Corporation is not a party to any existing agreement with any
person or entity which requires the Corporation to purchase from such person or
entity any of its capital stock, any securities convertible into or exchangeable
or exercisable for any of its capital stock, or any right, options or warrants
for its capital stock. All outstanding securities of the Corporation, including
the Securities, have been issued in accordance with all applicable state and
Federal securities laws.

3.3      CORPORATE POWER: AUTHORIZATION.

         The Corporation has all requisite legal and corporate power to enter
into this Agreement, to issue and sell the Securities as provided hereunder, and
to carry out and perform its obligations under the terms of this Agreement. All
corporate action on the part of the Corporation and its officers, directors and
shareholders that is necessary for the authorization, execution and delivery of
this Agreement by the Corporation, for the performance of the Corporation's
obligations hereunder and for the issuance and delivery of the Securities has
been taken; and this Agreement constitutes a legal and binding

                                     -3-

<PAGE>   4

obligation of the Corporation, enforceable against the Corporation in accordance
with its terms subject to: (i) judicial principles respecting or limiting the
availability of specific performance, injunctive relief and other equitable
remedies; and (ii) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect generally relating to or affecting
creditors' rights. The Corporation is not in violation of any term of its
Certificate of Incorporation or By-laws, or in violation of any term of any
judgment, decree, order, statute, rule or government regulation applicable to
the Corporation or to which the Corporation is a party. The Corporation is not
in violation of any term of any agreement or instrument applicable to the
Corporation or to which the Corporation is a party where such violation is
likely to be materially adverse to the Corporation's financial condition,
business or operations.

3.4      VALIDITY OF SECURITIES.

         The Securities, when issued, sold and delivered in accordance with the
terms of this Agreement, will be duly and validly issued, fully paid and
non-assessable and will be free and clear of any liens, encumbrances or
restrictions of any kind; provided, however, that the Securities may be subject
to restrictions on transfer under state and federal securities laws and the
Shareholders Agreement dated as of December 24, 1997 (the "Shareholders
Agreement"), among the Corporation and the Shareholders (as defined therein).
The Common Stock issuable upon conversion of the Securities has been duly and
validly reserved and, upon issuance in accordance with the terms of the
Certificate of Incorporation, will be duly and validly issued, fully paid and
non-assessable and will be free and clear of any liens, encumbrances or
restrictions of any kind; provided, however, that the Common Stock may be
subject to restrictions on transfer under state and federal securities laws.

3.5      CONSENTS AND WAIVERS.

         The Corporation has obtained any and all consents, permits and waivers
and made all filings necessary or appropriate for consummation of the
transactions contemplated by this Agreement.

3.6      LITIGATION.

         There is no action, suit or proceeding pending or, to the knowledge of
the Corporation, threatened against the Corporation or related to the business
conducted by the Corporation. The Corporation is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Corporation currently pending or which the Corporation
intends to initiate.

3.7      SHAREHOLDER LISTS AND AGREEMENTS.

         Set forth on Schedule 3.7 is a true and complete list of all
shareholders of the Corporation and persons holding options or warrants to
acquire shares of the Corporation,

                                       -4-

<PAGE>   5

showing the number of shares of capital stock held, or acquirable upon exercise
of the option or warrant, by each such person in each case as of the date of
this Agreement.

3.8      SUBSIDIARIES.

         Except as set forth on Schedule 3.8, the Corporation has no
subsidiaries and does not own, directly or indirectly, any interest in any
corporation, association or business entity.

3.9      FINANCIAL STATEMENTS.

                   (a) (c) Schedule 3.9 attached hereto contains true, correct
and complete copies of:

                        (i) the balance sheet of the Corporation, as of July 31,
         1997, and the related statements of operations, shareholders' deficit
         and cash flows of the Corporation for the period covered thereby,
         including the footnotes thereto (all of foregoing being hereinafter
         collectively called the "Annual Financial Statements"); and

                        (ii) the interim balance sheet of the Company (the
         "Interim Balance Sheet") as of November 30, 1997 (the "Interim Balance
         Sheet Date"), and the interim statements of operations and cash flows
         of the Corporation for the four month period then ended, including any
         footnotes thereto (all of the foregoing, including the Interim Balance
         Sheet, being hereinafter collectively referred to as the "Interim
         Financial Statements" and together with the Annual Financial Statements
         collectively, the "Financial Statements").

                   (b) The Financial Statements taken as a whole (A) fairly
present in all material respects (subject, in the case of the Interim Financial
Statements, to normal, recurring year-end adjustments which are not material
individually or in the aggregate) the financial position of the Corporation as
of the dates indicated and the results of operations of the Corporation for the
periods indicated, (B) (x) have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") consistently applied throughout the
periods covered thereby (subject, in the case of the Interim Financial
Statements, to normal, recurring year-end adjustments which are not material
individually or in the aggregate) or (y) to the extent not prepared in
accordance with GAAP, then footnotes to the Financial Statements will be
provided describing in reasonable detail the differences, if any, between the
generally accepted accounting principles pursuant to which such Financial
Statements were in fact prepared and GAAP and (C) are in accordance with the
books and records of the Corporation which have been maintained in a manner
consistent with historical practice. All reserves established and set forth in
the Interim Balance Sheet are reasonable and adequate.

                                       -6-

<PAGE>   6

3.10     ABSENCE OF UNDISCLOSED LIABILITIES.

         The Corporation has no liabilities or obligations of any nature,
whether matured or unmatured, known or unknown, or fixed or contingent, except
(a) to the extent expressly reflected or reserved against on the Interim Balance
Sheet or expressly disclosed in the notes thereto and (b) liabilities and
obligations arising since the Interim Balance Sheet Date in the ordinary course
of business consistent with past practice (other than any such liability or
obligation arising from breach of contract, breach of warranty, tort,
infringement, or violation of any Legal Requirement).

3.11     ABSENCE OF CERTAIN DEVELOPMENTS.

         Except as reflected in the Financial Statements, in the Business Plan
or in Schedule 3.11, since the Interim Balance Sheet Date, there has been (i) no
material adverse change in the condition (financial or otherwise) of the
Corporation or in the assets, liabilities, or properties of the Corporation,
(ii) no declaration, setting aside or payment of any dividend or other
distribution with respect to, or any direct or indirect redemption or
acquisition of, any of the capital stock of the Corporation, (iii) no waiver of
any valuable right of the Corporation or cancellation of any debt or claim held
by the Corporation, (iv) no loan by the Corporation to any officer, director,
employee or shareholder of the Corporation, or any agreement or commitment
therefor, (v) no increase, direct or indirect, in the compensation paid or
payable to any officer, director, employee or agent of the Corporation, (vi) no
material loss, destruction or damage to any property of the Corporation, whether
or not insured, (vii) no labor disputes involving the Corporation and no
material change in the personnel of the Corporation or the terms and conditions
of their employment, and (viii) no acquisition or disposition of any assets (or
any contract or arrangement therefor), nor any other transaction by the
Corporation otherwise than for fair value in the ordinary course of business.

3.12     TITLE TO ASSETS.

         The Corporation has good and marketable title to all of the assets,
reflected as being owned by the Corporation on the Interim Balance Sheet or
acquired subsequent thereto (except for inventory sold or otherwise disposed of
in the ordinary course of business for fair value and accounts and notes
receivable paid in full since the date of the Interim Balance Sheet), free and
clear of all Encumbrances, except for those Encumbrances set forth on Schedule
3.12 and Permitted Liens. Such assets are in good operating condition and repair
(normal wear and tear excepted), are adequate and suitable for the uses for
which they are used in the Corporation' business, are not subject to any
condition which interferes with the economic value or use thereof, and
constitute all assets necessary to permit the Corporation to carry on its
business after the consummation of the transactions contemplated by this
Agreement as generally conducted by the Corporation prior thereto. The term
"Permitted Liens" means (i) liens arising by operation of law in the ordinary
course of business that, individually and in the aggregate, do not in any
material respect interfere with the use of any of the assets subject thereto,
(ii) minor imperfections of title which do not materially detract from the value
of the

                                     -6-
<PAGE>   7

property affected or materially impair the operations of either Corporation, and
(iii) liens for taxes not yet due and payable; and (iv) landlords liens, if any,
relating to leases.

3.13     REAL PROPERTY

         The Corporation does not own directly or indirectly any real property.

3.14     TAX MATTERS.

         The Corporation has filed all federal, state and local income, excise
or franchise tax returns, real estate and personal property tax returns, sales
and use tax returns and other tax returns required to be flied by it and has
paid all taxes owed by it, except taxes which have not yet accrued or otherwise
become due or for which adequate provision has been made in the pertinent
Financial Statements. The provision for taxes on the Interim Balance Sheet is
sufficient as of its date for the payment of all accrued and unpaid federal,
state, county and local taxes of any nature of the Corporation whether or not
assessed or disputed. All taxes and other assessments and levies which the
Corporation is required to withhold or collect have been withheld and collected
and have been paid over when due to the proper governmental authorities. With
regard to the income tax returns of the Corporation, the Corporation has not
received notice of any audit or of any proposed deficiencies from any taxing
authority and no controversy with respect to taxes of any type is pending or, to
the knowledge of the Corporation, threatened. There are in effect no waivers of
applicable statutes of limitations with respect to any taxes owed by the
Corporation for any year. The Corporation does not conduct any foreign or
international operations that would ordinarily subject it to taxation in any
jurisdiction outside of the United States.

3.15     CONTRACTS AND COMMITMENTS.

         Except as set forth in Schedule 3.15, the Corporation (i) is not a
party to any contract, obligation or commitment which involves a potential
commitment in excess of $ 100,000 or which is otherwise material and not entered
into in the ordinary course of business, and (ii) does not have any employment
contracts; stock redemption or purchase agreements; financing agreements;
licenses; distributor or sales representative agreements; agreements with
officers, directors, employees or shareholders of the Corporation or persons or
organizations related to or affiliated with any such persons; leases; agreements
relating to product development; or pension, profit-sharing, retirement or stock
option plans. Each agreement or understanding set forth on Schedule 3.15 is in
full force and effect and constitutes a valid and binding obligation of the
Corporation and to the best knowledge of the Corporation, the other party
thereto. The Corporation has in all material respects performed the obligations
required to be performed by them except for obligations not yet due to be
performed and are not in default or have received notices that they are in
default in any material respect under any such agreement or understanding. There
exists no known event or condition which, after notice or lapse of time, or
both, would constitute such a default. There are no material defaults by any
other party to any such agreement or understanding as to which any notice of
default has been

                                      -7-

<PAGE>   8

given. The Corporation has made available to the Investors correct and complete
copies of all documents set forth on such Schedule.

3.16     PROPRIETARY RIGHTS;  EMPLOYEE RESTRICTION.

         The Corporation has disclosed on Schedule 3.16, all copyright
registrations, trademark registrations and applications for registration,
patents and patent applications, trademarks, trade secrets or other proprietary
rights (collectively, "Intellectual Property Rights") used or, to the best of
the Corporation's knowledge, to be used in the Corporation's business as
presently conducted or contemplated and all licenses, assignments and leases
relating to Intellectual Property Rights of others embodied in products of the
Corporation. The Corporation has exclusive ownership of or license to use, all
Intellectual Property Rights identified in Schedule 3.16 and, to the best
knowledge of the Corporation, it has obtained any licenses, releases or
assignments to use all third parties' Intellectual Property Rights embodied in
products of the Corporation. To best knowledge of the Corporation, neither the
present nor contemplated business activities or products of the Corporation
infringe any Intellectual Property Rights of others. The Corporation has not
received any notice or other claim from any person asserting that any of the
Corporation's present or contemplated activities infringe or may infringe any
Intellectual Property Rights of such person. The Corporation has the right to
use, free and clear of claims or rights of others, all trade secrets, customer
lists, manufacturing processes, hardware designs, programming processes,
software and other information required for or incident to its products or its
business as presently conducted or contemplated. The Corporation has taken all
commercially reasonable steps to establish and preserve its ownership of all
copyright, trade secret and other proprietary rights with respect to its
products and technology, except such rights as the Corporation has reasonably
determined are not material to the Corporation's continuing business operations.
The Corporation is not aware of any infringement by others of its copyrights or
other Intellectual Property Rights to which it has exclusive use in any of its
products, technology or services, or any violation of the confidentiality of any
of its proprietary information. The Corporation is not making unlawful use of
any confidential information or trade secrets of any past or present employees
of the Corporation. Except as set forth in Schedule 3.16, neither the
Corporation nor, to the Corporation's knowledge, any of the key employees of the
Corporation have any agreements or arrangements with former employers of such
employees relating to confidential information or trade secrets of such
employers. The activities of the Corporation's employees on behalf of the
Corporation do not violate any agreements or arrangements known to the
Corporation which any such employees have with former employers.

3.17     EFFECT OF TRANSACTIONS.

         The execution, delivery and performance by the Corporation of this
Agreement and the documents executed and delivered in connection therewith will
not conflict with or result in any default under any material contract,
obligation or commitment of the Corporation, or any charter provision, by-law or
corporate restriction of the Corporation or the creation of any lien, charge or
encumbrance of any nature upon any of the

                                      -8-

<PAGE>   9

properties or assets of the Corporation, except pursuant to this Agreement. The
Corporation's execution and delivery of this Agreement and the documents
executed and delivered in connection therewith and its performance of the
transactions contemplated thereby will not violate any instrument, agreement,
judgment, decree, order, statute, rule or regulation of any federal, state or
local government or agency applicable to the Corporation.

3.18     INSURANCE.

         The Corporation maintains valid and effective insurance policies,
issued by financially sound and reputable insurers, to insure it against all
risks usually insured against by persons or entities conducting businesses
similar to that of the Corporation in the locality in which such businesses are
conducted. The Corporation has paid all due premiums with respect to all
policies of insurance currently maintained by the Corporation.

3.19     SECURITIES ACT REGISTRATION.

         Assuming that the representations and warranties of the Investor
contained herein are true, the offer, sale and delivery of the Securities in the
manner contemplated by this Agreement are each exempt from registration under
the Securities Act and are exempt or will be exempt under applicable state
securities or Blue Sky laws regulating the issuance or sale of securities upon
the timely filing of notices with the appropriate states.

3.20     BUSINESS; COMPLIANCE WITH LAWS.

         The Corporation (i) is in compliance with, in all respects all Legal
Requirements applicable to it and its business and (ii) has all material
federal, state, local and foreign governmental licenses and permits
(collectively, "Permits") used or necessary in the conduct of its business. Such
Permits are in full force and effect, no violations with respect to any thereof
are recorded, no legal proceeding is pending or, to the best knowledge of the
Corporation, threatened to revoke or limit any thereof.

3.21     BOOKS AND RECORDS.

         The minute books of the Corporation contain complete and accurate
records of all meetings and other corporate actions of its shareholders and its
board of directors (the "Board of Directors") and committees thereof. The stock
ledger of the Corporation is complete and reflects all issuances, transfers,
repurchases and cancellations of shares of capital stock of the Corporation.

3.22     EMPLOYEE BENEFIT PLANS.

         Each employee benefit plan, program, arrangement, practice or contract,
whether formal or informal, maintained or contributed to by the Corporation
providing current or retirement benefits or compensation to or on behalf of
employees or former employees of

                                      -9-

<PAGE>   10

such Persons (the "Benefits Plans"), are in compliance in all material respects
with the presently applicable laws.

3.23     SMALL BUSINESS MATTERS.

         The Corporation is a "small business concern" within the meaning of the
Small Business Investment Act of 1958 and the regulations thereunder (the "SBIC
Act"), including Title 13, Code of Federal Regulations, ss. 121.301. The
information set forth in the Small Business Administration Forms 480, 652 and
Sections A and B of Form 1031, which have been delivered on or prior to the
date hereof to the Investor regarding the Corporation is accurate and complete.
The Corporation does not presently engage in, and it shall not hereafter engage
in, any activities, nor shall the Corporation use directly or indirectly the
proceeds from the sale of the Securities for any purpose for which a Small
Business Investment Corporation is prohibited from providing funds by the SBIC
Act, including Title 13, Code of Federal Regulations, ss. 107.720. The
Corporation acknowledges that it has been declared by the Investor that the
Investor is a federal licensee under the SBIC Act.

3.24    INFORMATION SUPPLIED TO THE INVESTOR.

                (a) (e) Neither this Agreement, or the Schedules and Exhibits
attached hereto, nor any written document (including the Business Plan),
certificate, projection or statement furnished to the Investor by or on behalf
of the Corporation pursuant to this Agreement contains any untrue statement of a
material fact, and none of this Agreement, the Schedules and Exhibits attached
hereto or such other written documents, projections, certificates and statements
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no material fact relating
to the business, prospects, operations, affairs or conditions of the Corporation
which adversely affects or in the future may, in the reasonable business
judgment of the Corporation, adversely affect the same which has not been set
forth in this Agreement or in the Schedules or Exhibits attached hereto or other
materials delivered pursuant to this Agreement.

                (b) The projections contained in the Business Plan are based
upon assumptions believed by the Corporation to be reasonable as of the date
hereof, however the Corporation gives no assurance that the actual operations of
the Company will conform to such projections.

                (c) Any disclosure contained in any of the Schedules delivered
hereunder, which on its face is clearly and unequivocally applicable to another
Schedule to this Agreement, shall be deemed made with respect to such other
Schedule.

                                      -10-

<PAGE>   11

3.25     BROKERAGE.

         No person or entity acting on behalf or under the authority of the
Corporation is or will be entitled to any broker's, finder's, or similar fee or
commission in connection with the sale of the Securities.

3.26     EMPLOYEES.

         The Corporation has no collective bargaining agreement with any of its
employees. There is no labor union organizing activity pending nor, to the best
knowledge of the Corporation, threatened with respect to the Corporation. The
Corporation is not aware that any officer or key employee intends to terminate
his or her relationship with the Corporation, nor does the Corporation have any
present intention of terminating the employment of any officer or key employee.

                                   ARTICLE IV

                 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

4.1      REPRESENTATIONS AND WARRANTIES

         Each Investor hereby represents and warrants to the Corporation,
severally and not jointly, and only as to itself, as follows:

                (a) All action on the part of such Investor necessary for the
execution, delivery and performance of this Agreement, and the consummation of
the transactions contemplated hereby has been taken and, assuming due execution
and delivery by the Corporation, this Agreement constitutes a legal, valid,
binding and enforceable obligation of such Investor, subject to: (i) judicial
principles respecting or limiting the availability of specific performance,
injunctive relief and other equitable remedies; and (ii) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
generally relating to or affecting creditors' rights.

                (b) If the Investor is an entity, trust, pension fund or IRA
account (and "Entity"), the Entity represents and warrants that: (i) such Entity
is an existing entity, and has not been organized or reorganized for the purpose
of making this investment (or if not true, such fact shall be disclosed to the
Corporation in writing along with information concerning the beneficial owners
of the Entity), (ii) the undersigned has the authority to execute this Agreement
and the Confidential Statement of Investor Suitability attached as Exhibit B
hereto and any other documents in connection with an investment in the
Securities on the Entity's behalf, and (iii) the Entity has the power, right and
authority to invest in the Securities and enter into the transactions
contemplated hereby, and the investment is suitable and appropriate for the
Entity and its beneficiaries (given the risks and illiquid nature of the
investment).

                                      -11-

<PAGE>   12

4.2     INVESTMENT.

                (a) Such Investor has been advised that the Securities have not
been registered under the Securities Act of 1933, as amended (the "Act"), or
registered or qualified under any applicable state securities laws on the ground
that no distribution or public offering of the Securities is to be effected, and
that in this connection the Corporation is relying in part on the
representations of such Investor set forth in this Article IV;

                (b) Such Investor has been further advised that no public market
now exists for any of the securities issued by the Corporation and that a public
market may never exist for the Securities;

                (c) Such Investor is purchasing the Securities for its own
account and not for any other person;

                (d) By reason of its business or financial experience, such
Investor has the capacity to protect its own interest in connection with the
transactions contemplated hereunder, is able to bear the risks of an investment
in the Corporation, and can afford a complete loss of such investment;

                (e) Such Investor is aware of the Corporation's business affairs
and financial condition an has acquired sufficient information about the
Corporation to reach an informed and knowledgeable decision to acquire the
Securities; and

                (f) Such Investor has had the opportunity to ask questions
regarding the Corporation and the Corporation has provided information in
response to the questions.

4.3      FEDERAL SECURITIES LAWS.

         In order to enable the Corporation to determine whether the sale of the
Securities is exempt from registration under the Act, such Investor represents
that it is an Accredited Investor (as defined in Schedule 4.3 hereof), has
completed truthfully the appropriate items in the Confidential Statement of
Investor Suitability attached as Exhibit B hereto, and is acquiring the
Securities for its own account, for investment, and not with a view to, or for
sale in connection with, any distribution thereof.

4.4      STATE SECURITIES LAWS.

         The address of such Investor set forth on Schedule I attached hereto is
the Investor's true and correct residence or place of business.

                                    -12-

<PAGE>   13

                                    ARTICLE V

                          PRIOR OR SIMULTANEOUS ACTIONS

          Before or at the closing of the issuance of the Securities hereunder,
the following actions have been or are being taken:

                (a) Certificate of Incorporation. The Certificate of
Incorporation is being filed with and accepted by the Secretary of State of the
State of Delaware.

                (b) Shareholders Agreement. Each Investor that is not currently
a party to the Shareholders Agreement is executing and delivering a Joinder
Agreement in a form acceptable to the Corporation pursuant to which such
Investor shall agree to be bound by the terms of the Shareholders Agreement.

                (c) Merger. The merger of B.I. Systems Corporation with and into
the Corporation shall have become effective.

                (d) Authorizing Actions of the Corporation. The Investors are
receiving certified copies of all requisite corporate actions taken by the
Corporation to authorize its adoption of the Certificate of Incorporation, its
execution and delivery of the Documents, its performance of its obligations
thereunder, and its consummation of the transactions contemplated thereby.

                                   ARTICLE VI

                          COVENANTS OF THE CORPORATION

6.1      OPERATING PLAN; OTHER REPORTING.

         The Corporation shall prepare and deliver to each Investor holding,
together with its affiliate, Securities with an aggregate purchase price
exceeding $ 1,000,000 (each a "Qualified Investor") within 30 days after the
start of each fiscal year, an operating plan prepared on an annual basis and,
promptly after preparation, any material revisions to such operating plan;
provided, however that with respect to fiscal year 1998, the operating plan
shall be delivered to the Qualified Investor when such plan has been made
available to the Board of Directors. In addition, the Corporation shall promptly
provide to Qualified Investors other customary information and materials,
including, without limitation, reports of material adverse developments,
management letters, communications with shareholders or directors, press
releases and registration statements.

6.2      AFFILIATED TRANSACTION.

         All transactions by and between the Corporation and any officer,
employee or shareholder of the Corporation or Persons controlled by or
affiliated with such officer, employee or shareholder, shall be conducted on an
arms-length basis, shall be on terms and conditions no less favorable to the
Corporation than could be obtained from unrelated

                                   -13-

<PAGE>   14

Persons and shall be approved by the Board after full disclosure of the terms
thereof, for which purpose the interested party, if a director, and any
affiliate of the interested party who is a director, shall not be entitled to
vote.

6.3      INSPECTION.

         The Corporation shall, upon reasonable prior notice, permit authorized
representatives of each Qualified Investor to visit and inspect any of the
properties of the Corporation including its books of account (and to make copies
thereof and take extracts therefrom), and to discuss the affairs, finances and
accounts of the Corporation with its officers, administrative employees and
independent auditors, all at the expense of the Investors and at such reasonable
times and as often as may be reasonably requested.

6.4      MATERIAL CHANGES AND LITIGATION.

         The Corporation shall promptly (and, in any event, not later than the
date of release of such information to the public generally) notify the
Investors or its transferees of any material adverse change in the business,
properties, assets, or condition (financial or otherwise) of the Corporation and
of any litigation or governmental proceeding or investigation pending (or, to
the best knowledge of the Corporation, threatened) against the Corporation or
against any officer, director, key employee, or principal shareholder of the
Corporation, that materially adversely affects (or if adversely determined,
could materially adversely affect) its present or proposed business, properties,
assets, or condition (financial or otherwise) taken as a whole.

6.5      EMPLOYEE SHARES.

         The officers and employees of the Corporation to whom, and the times at
which, stock options shall be granted by the Corporation, the type of options to
be granted, the duration of each option, the price and method of payment for
each option, and the vesting schedule of each option shall be determined by the
compensation committee of the Board.

6.6      INTEGRATION

         The Corporation shall not offer, sell or solicit offers to buy or
otherwise negotiate with respect to any security (as defined in the Securities
Act) that will be integrated with the sale of the Common Stock in a manner that
would require the registration of any of the Common Stock under the Securities
Act, except in connection with an initial public offering by the Corporation
under the Securities Act.

6.7      USE OF PROCEEDS.

         The Corporation shall use the proceeds from the sale of the Securities
solely for working capital and other general corporate purposes consistent with
the strategic business plan of the Corporation (the "Business Plan"); provided,
however, that the proceeds of the purchase of Securities by Chase Venture
Capital Associates, L.P., shall

                                      -14-

<PAGE>   15

not be used by the Corporation to finance the costs incurred in connection with
the PBA Acquisition.

6.8      NEGATIVE COVENANTS.

         Without the prior consent of the holders of no less than 66 2/3% of the
then outstanding Securities, the Corporation shall not:

                (a) amend the Corporation's Certificate of Incorporation or
By-laws in a manner which adversely affects the rights of the holders of the
Securities;

                (b) pay dividends on or make other distributions with respect to
any capital stock of the Corporation;

                (c) engage in any business other than the business engaged in by
the Corporation as of the date hereof or as contemplated by the Business Plan;
or

                (d) increase the number of directors constituting the Board of
Directors of the Corporation to more than nine members.

6.9      SHAREHOLDERS AGREEMENT.

                (a) The Corporation hereby agrees to use its best efforts to
cause the shareholders of the Corporation that are currently party to the
Shareholders Agreement to execute and deliver an amendment to the Shareholders
Agreement, pursuant to which the Shareholders Agreement will be amended to
include drag-along rights.

                (b) The Corporation hereby agrees to use its best efforts to
cause any employee of the Corporation or a subsidiary thereof that is a
shareholder of the Corporation that is not currently a party to the Shareholders
Agreement to execute and deliver a joinder agreement pursuant to which such
employee agrees to be bound by the terms of the Shareholders Agreement.

                (c) The Corporation hereby agrees that any future issuance of
shares of capital stock, or options to acquire shares of capital stock, of the
Corporation, to any employee of the Corporation or any subsidiary thereof shall
be conditioned upon such employee executing and delivering a joinder agreement
pursuant to which such employee agrees to be bound by the terms of the
Shareholders Agreement, as amended from time to time.

6.10     TERMINATION.

         The covenants set forth in Article VI hereof shall terminate upon the
consummation of a public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of the Corporation's Common Stock where the aggregate offering price to the
public is no less than

                                       -15-

<PAGE>   16

$20,000,000.00, and the public offering price is not less than $5.00 per share
(adjusted to reflect any stock splits, combinations or similar events after the
date hereof).

                                   ARTICLE VII

                               REGULATORY MATTERS

7.1     REGULATORY COMPLIANCE COOPERATION.

                (a) If a Regulated Holder determines that it has a Regulatory
Problem, the Corporation agrees to take all such actions as are reasonably
requested by such Regulated Holder (x) to effectuate and facilitate any transfer
by such Regulated Holder of any securities of the Corporation then held by such
Regulated Holder to any person designated by such Regulated Holder, (y) to
permit such Regulated Holder (or any Affiliate of such Regulated Holder) to
exchange all or any portion of the voting securities of the Corporation then
held by such person on a share-for-share basis for shares of a class of
nonvoting securities of the Corporation, which nonvoting securities of the
Corporation shall be identical in all respect to such voting securities, except
that such new securities shall be nonvoting and shall be convertible into voting
securities on such terms as are requested by such Regulated Holder in light of
regulatory considerations then prevailing, and (z) to continue and preserve the
respective allocation of the voting interests with respect to the Corporation
provided for in the Certificate of Incorporation of the Corporation and this
Agreement and with respect to such Regulated Holder's ownership of the
Corporation's voting securities. Such actions may include, without limitation,
(x) entering into such additional agreements as are reasonably requested by such
Regulated Holder to permit any person(s) designated by such Regulated Holder to
exercise any voting power which is relinquished by such Regulated Holder upon
any exchange of voting securities for nonvoting securities of the Corporation;
and (y) entering into such additional agreements, adopting such amendments to
this Agreement, the Certificate of Incorporation and the By-laws of the
Corporation and taking such additional actions as are reasonably requested by
such Regulated Holder in order to effectuate the intent of the foregoing. As
used herein, "Regulated Holder" means any Investor that is (i) a "small business
investment corporation" licensed by the United States Small Business
Administration under the Small Business Investment Act of 1958, as amended, (ii)
a Regulation Y Holder (as defined below), and/or (iii) subject to any similar,
related or successor laws and regulations regulating banks, bank holding
companies, small business investment companies and their respective
subsidiaries.

                (b) If a Regulated Holder elects to transfer securities of the
Corporation to an Affiliate who is, or upon such transfer would become, a
Regulation Y Holder (as defined below) in order to avoid or cure a Regulatory
Problem, the Corporation shall enter into such agreements with such Regulated
Holder and its Affiliates as it may reasonably request in order to assist such
Regulated Holder and its Affiliates in complying with all applicable laws. Such
agreements may include restrictions on the conversion, redemption, repurchase or
retirement of securities of the Corporation that would result or be reasonably
expected to result in such Regulated

                                      -16-

<PAGE>   17

Holder or its Affiliates holding more voting securities or total equity than it
is permitted to hold under such applicable laws. As used herein, "Regulation Y
Holder" means any Investor that is (or that is a subsidiary of a bank holding
corporation that is) subject to the various provisions of Regulation Y of the
Board of Governors of the Federal Reserve Systems, 12 C.F.R., Part 225 (or any
successor to Regulation Y), so long as such Regulation Y Holder shall hold such
securities.

                (c) If a Regulated Holder has the right or opportunity to
acquire any of the Corporation's securities from the Corporation, any other
Regulated Holder or any other person or entity (as the result of a preemptive
offer, pro rata offer or otherwise), at such Regulated Holder's request the
Corporation shall offer to sell (or if the Corporation is not the seller, to
cooperate with the seller and such Regulated Holder to permit such seller to
sell) such non-voting securities on the same terms as would have existed had
such Regulated Holder acquired the securities so offered and immediately
requested their exchange for non-voting securities pursuant to Section 7. 1 (a)
above.

                (d) (ad) Before the Corporation redeems, purchases or otherwise
acquires, directly or indirectly, or converts or takes any action with respect
to the voting rights of, any securities, the Corporation shall give written
notice of such pending action to each Regulated Holder. Upon the written request
of any Regulated Holder made within 10 days after its receipt of such notice
stating that after giving effect to such action such Regulated Holder would have
a Voting Regulatory Problem, the Corporation shall defer taking such action for
such period (not to extend beyond 45 days after such Regulated Holder's receipt
of the Corporation's original notice) as such Regulated Holder requests to
permit it and its Affiliates to reduce the quantity of the Corporation's
securities they own or take other appropriate action in order to avoid the
Voting Regulatory Problem. In addition, the Corporation shall not be a party to
any merger, consolidation, recapitalization or other transaction pursuant to
which any Regulated Holder would be required to take any voting securities, or
any securities convertible into, or exchangeable or exercisable for, voting
securities, which might reasonably be expected to cause such Regulated Holder to
have a Voting Regulatory Problem. In no event shall the Corporation be required
to cause securities to be registered under the Securities Act or the Securities
Exchange Act of 1934, as amended, pursuant to this Section 7. 1.

7.2      COVENANT NOT TO AMEND.

         The Corporation agrees not to amend or waive the voting or other
provisions of this Agreement or the Certificate of Incorporation or By-laws of
the Corporation if such amendment or waiver would cause any Investor to have a
Regulatory Problem, provided that any such Investor notifies the Corporation
that it would have a Regulatory Problem promptly after it has notice of such
amendment or waiver.

7.3      CERTAIN INFORMATION RIGHTS AND RELATED COVENANTS.

                (a) Upon the request of any Regulated Holder, the Corporation
shall promptly:

                                     -17-

<PAGE>   18

                (i) provide to such person and the U.S. Small Business
Administration (the "SBA") access to its books and records for the purpose of
confirming the use of the proceeds of such person's financing and for all other
purposes required by the SBA;

                (ii) provide to such person and the SBA a certificate of its
chief financial officer (1) verifying the use of such proceeds and (2)
certifying compliance by the Corporation with the provisions of this Agreement
(provided that such certificate may be truthfully given);

                (iii) provide to such person an assessment, in form and
substance satisfactory to such person, of the economic impact of such person's
financing, specifying the full-time equivalent jobs created or retained, the
impact of the financing on the Corporation's business in terms of expanded
revenue and taxes and other appropriate economic benefits, including, but not
limited to, technology development or commercialization, minority business
development, urban or rural business development, expansion of exports and
assistance to manufacturing firms;

                (iv) provide to such person such financial statements and other
information as such Person may from time to time reasonably request for the
purpose of assessing the Corporation's financial condition; and

                (v) furnish to such person all information requested by it in
order for it to prepare and file SBA Form 468 or to prepare an assessment of the
economic impact of such Person's financing, and any other information requested
or required by any governmental agency asserting jurisdiction over such Person.

         (b) For a period of one year following the date hereof, neither the
Corporation nor any of its subsidiaries shall change its business activity if
such change would render the Corporation ineligible as a "Small Concern" under
the Small Business Investment Act and the regulations thereunder.

         (c) The Corporation shall at all times comply with the
nondiscrimination requirements of 13 C.F.R., Parts 112, 113 and 117.

7.4      CERTAIN DEFINITIONS

         "Affiliate" means any other person or entity that directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with such person or entity.

         "securities" means, with respect to any person, such Person's
"securities" as defined in Section 2(l) of the Securities Act of 1933, as
amended, and includes such person's capital stock or other equity interests or
any options, warrants or other securities or rights that are directly or
indirectly convertible into, or exercisable or exchangeable for, such person's
capital stock or other equity interests.

                                  -18-

<PAGE>   19

         "Regulatory Problem" means, with respect to any Investor, (i) any set
of facts or circumstance wherein it has been asserted by any governmental
regulatory agency (or a Investor believes that there is a substantial risk of
such assertion) that such Investor is not entitled to hold, or exercise any
significant right with respect to, the capital stock of the Corporation which it
holds or (ii) a Voting Regulatory Problem.

         "Voting Regulatory Problem" shall exist when a person and such person's
affiliates would own, control or have the power (including voting rights) over a
greater quantity of securities of any kind issued by the Corporation or any
other person than are permitted under any applicable law.

                                  ARTICLE VIII

                   SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
                                 INDEMNIFICATION

8.1      SURVIVAL OF REPRESENTATIONS AND WARRANTIES.

         The representations, warranties, covenants, promises and agreements
contained in this Agreement shall survive the Closings and shall remain in full
force and effect until the second anniversary of the date of this Agreement.

8.2      INDEMNIFICATION.

         In addition to all other rights and remedies available to the
Investors, the Corporation shall indemnify, defend and hold harmless the
Investors and its affiliates and their respective partners, officers, directors,
employees, agents and representatives against any loss, liability, demand,
claim, action, cause of action, cost, damage, deficiency, tax, penalty, fine or
expense (including legal and accounting fees and expenses related thereto or
incurred in enforcing this Article VIII, but excluding punitive damages) arising
from the untruth, inaccuracy or breach of any of the representations,
warranties, covenants or agreements of the Corporation contained in any Document
or any facts or circumstances constituting any such untruth, inaccuracy or
breach.

                                   ARTICLE IX

                            RESTRICTIONS ON TRANSFER

9.1      NONTRANSFERABLE SECURITIES.

         The Securities shall not be transferable except in accordance with the
conditions set forth in the Shareholders Agreement.

                                       -19-

<PAGE>   20

9.2     RESTRICTIVE LEGEND.

                (a) Each certificate representing Securities issued hereunder
shall (unless otherwise permitted by the provisions of paragraph (b) and (c)
below) be stamped or otherwise imprinted with a legend in substantially the
following form:

             "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
             FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
             ACT OF 1933. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
             ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH
             ACT."

                (b) The holder of any Securities by acceptance thereof agrees,
prior to any transfer of any Securities, to give written notice to the
Corporation of such holder's intention to effect such transfer and to comply in
all other respects with the provisions of this Section. Each such notice shall
describe the manner and circumstances of the proposed transfer. Upon request by
the Corporation, the holder delivering such notice shall deliver a written
opinion, addressed to the Corporation, of counsel for the holder of such
Securities, stating that in the opinion of such counsel (which opinion and
counsel shall be reasonable satisfactory to the Corporation) such proposed
transfer does not involve a transaction requiring registration or qualification
of such Securities under the Securities Act or the securities or "blue sky" laws
of any state of the United States. Such holder of Securities shall be entitled
to transfer such Securities in accordance with the terms of the notice delivered
to the Corporation, if the Corporation does not reasonably object to such
transfer on the basis that such proposed transfer involves a transaction
requiring registration or qualification of such securities under the Securities
Act or the securities or "blue sky" laws of any state of the United States and
requests an opinion with respect to such issue within five days after delivery
of such notice, or, if it requests such opinion, does not reasonably object to
such transfer within five days after delivery of such opinion. Each certificate
or other instrument evidencing the securities issued upon the transfer of any
Securities (and each certificate or other instrument evidencing any
untransferred balance of such Securities) shall bear the legend set forth in
paragraph (a) above unless (i) in such opinion of counsel registration of any
future transfer is not required by the applicable provisions of the Securities
Act or (ii) the Corporation shall have waived the requirement of such legends.

                (c) Notwithstanding the foregoing provisions of this Section,
the restrictions imposed by this Section upon the transferability of any
Securities shall cease and terminate when (i) any such Securities are sold or
otherwise disposed of (A) pursuant to an effective registration statement under
the Securities Act or (B) in a transaction contemplated by paragraph (b) above
which does not require that the Securities so transferred bear the legend set
forth in paragraph (a) hereof, or (ii) the holder of such Securities has met
the requirements for transfer of such Securities under Rule 144(k) or any
successor statute. Whenever the restrictions imposed by this Section

                                       -20-

<PAGE>   21

shall terminate, the holder of any Securities as to which such restrictions have
terminated shall be entitled to receive from the Corporation, without expense, a
new certificate not bearing the restrictive legend set forth in paragraph (a)
above and not containing any other reference to the restrictions imposed by this
Section.

                                    ARTICLE X

                                 MISCELLANEOUS

10.1     EXPENSES

         The Corporation shall pay the legal fees of O'Sullivan, Graev &
Karabell, LLP, counsel to the Investors and all other reasonable out-of-pocket
expenses incurred by the Investors in connection with this transaction, its due
diligence investigation of the Corporation, the negotiation and preparation of
the Documents and the closing of the transactions contemplated by the Documents;
provided however; that the amount of such payment or reimbursement by the
Company shall not exceed $100,000. In addition, the Corporation shall reimburse
the Investors for all reasonable costs and expenses (including reasonable
attorney's fees) incurred in connection with any modifications or amendments to
or any waiver or consent under any of the Documents.

10.2     ENTIRE AGREEMENT.

         This Agreement and the other writings and agreements referred to herein
or delivered pursuant hereto contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto.

10.3     NOTICES ETC.

         All notices and other communications required or permitted hereunder
shall be in writing and shall be deemed effectively given upon personal delivery
or upon the seventh day following mailing by registered air mail, postage
prepaid, addressed (a) if to the Investor, as indicated on Schedule I attached
hereto, or at such other address as it shall have furnished to the Corporation,
(b) if to the Corporation, to Genomic Solutions Inc., 525 Avis Drive, Ann Arbor,
Michigan, 48108, and addressed to the attention of the corporate secretary, or
at such other address as the Corporation shall have furnished to the Investors,
or (c) if to any other holder of the Securities or of Common Stock issued upon
conversion of the Securities at such address as such holder shall have furnished
to the Corporation in writing, or, until such holder so furnishes an address to
the Corporation, then to and at the address of the last holder of such
Securities or shares of Common Stock issued upon conversion of the Securities,
who so furnished an address to the Corporation. In addition, any notice
delivered to an address outside the United States shall be duplicated by
counterpart telex, internet e-mail or facsimile notice (if available).

                                      -21-

<PAGE>   22

10.4     DELAYS OR OMISSIONS.

         No delay or omission to exercise any right, power or remedy accruing to
any holder of any securities issued or sold or to be issued or sold hereunder,
upon any breach or default of the Corporation under this Agreement shall impair
any such right, power or remedy of such holder nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or in any
similar breach or default thereafter occurring, nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any breach or default under
this Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.

10.5     ASSIGNMENTS; SUCCESSORS AND ASSIGNS.

         Except in connection with any transfer of Securities in accordance with
this Agreement, the rights of each party under this Agreement may not be
assigned. The provisions of this Agreement shall bind and inure to the benefit
of the respective successors, assigns, heirs, executors, and administrators of
the parties hereto.

10.6     AMENDMENTS.

         The terms and provisions of this Agreement may not be modified or
amended, except pursuant to an instrument signed by the Corporation and the
Investors holding 66 2/3% of the Securities.

10.7     COUNTERPARTS.

         This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.

10.8     HEADINGS.

         The section and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

10.9     GOVERNING LAW.

         This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware (without giving effect to principles of
conflicts of laws).

                                   * * * * *

                                      -22-

<PAGE>   23

         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed themselves or by their respective representatives thereunto duly
authorized as of the date first above written.

                                                  GENOMIC SOLUTIONS, INC.

                                                  By:  /s/ Jeffrey S. Williams
                                                     --------------------------
                                                  Name:   Jeffrey S. Williams

                                        Title: President and Chief Executive
                                                       Officer

                     THE INVESTORS SIGNATURES ARE
               ON THE ATTACHED INVESTOR SIGNATURE PAGES

                                      -23-

<PAGE>   24

                                                                      SCHEDULE I

                                   INVESTORS
                                   ---------

                                        SHARES OF SERIES           DOLLAR VALUE
                                                C                       C
   NAME AND ADDRESS                      PREFERRED STOCK         PREFERRED STOCK
   Chase Capital Partners                  3,015,375               $5,276,906
   380 Madison Avenue, 12th Floor            356,053                  623,094
   New York, New York 10017                3,371,428                5,900,000

   American Healthcare Fund II               342,857                  600,000
   Capital Health Venture Partners
   4430 Arapahoe Ave., Suite 220
   Boulder, CO 80303

   J. Matthew Mackowski                      142,857                  250,000
   343 Sansome Street, Suite 1215
   San Francisco, CA 94104

   Ian R. N. Bund                            104,924                  183,617
   2401 Plymouth Rd., Suite B
   Ann Arbor, MI 48105

   Grove Investment Partners                  50,378                  88,162
   336 Essex Road
   Kenilworth, IL 60043

   James B. Hoover                            17,143                  30,000
   Ivy Hill - Cleft Road
   Mill Neck, NY 11765

   Murray G. Bodine                           15,467                  27,067
   353 Sacramento, l0th Floor
   San Francisco, CA 94111

   Robert G. Shepler                          15,285                  26,750
   343 Sansome Street
   San Francisco, CA 94104

   John J. Mackowski                          10,000                  17,500
   1506 Birkdale Lane
   Ponte Verde Beach, FL 32082
   Total                                   4,070,339               $7,123,096

                                      -25-
<PAGE>   25

                                                                       EXHIBIT A

                          Certificate of Incorporation

                                  See Attached.

<PAGE>   26

                AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
                            OF GENOMIC SOLUTIONS INC.
                             A DELAWARE CORPORATION

     GENOMIC SOLUTIONS INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware, as amended, does hereby
certify:

     ONE: The corporation's original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on December 5, 1997.

     TWO: This Amended and Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation of this corporation
and has been duly adopted in accordance with Section 241 and Section 245 of the
General Corporation Law of the State of Delaware, as amended. This Amended and
Restated Certificate of Incorporation shall become effective on the date of its
filing with the Secretary of State of the State of Delaware.

     THREE: The text of the Certificate of Incorporation is hereby amended and
restated in its entirety as follows:

                                   ARTICLE I.

     The name of this corporation is Genomic Solutions Inc.

                                   ARTICLE II.

     The address of the registered office of the corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, and the name of its registered agent at that
address is The Corporation Trust Company.

                                  ARTICLE III.

     The name and mailing address of the incorporator of the corporation is:
Sara M. Kruse, Jaffe, Raitt, Heuer & Weiss, Professional Corporation, One
Woodward Avenue, Suite 2400, Detroit, Michigan 48226.

                                   ARTICLE IV.

     The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware, as amended.

<PAGE>   27

                                   ARTICLE V.

     A. Classes of Stock. This corporation shall have authority to issue the
following classes of stock in the number of shares and at the par value
indicated below:

<TABLE>
<CAPTION>
           CLASS                                NUMBER OF SHARES AUTHORIZED               PAR VALUE PER SHARE
           -----                                ---------------------------               --------------------
          <S>                                   <C>                                      <C>
           Common Stock                                 40,000,000                              $0.001
           Preferred Stock                              10,000,000                              $0.001
</TABLE>

     B. Preferred Stock. Preferred Stock may be issued from time to time in one
or more series in addition to those created pursuant to Section C of this
Article V. below. Subject to the other provisions of this Certificate of
Incorporation, the Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of and to issue shares of the
Preferred Stock in series, and by filing a certificate pursuant to the laws of
the State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and any qualifications, limitations
or restrictions thereof. Subject to compliance with the applicable protective
provisions listed in Section C.6 of this Article V. below, the Board of
Directors is also authorized to increase or decrease the number of shares of any
series (other than Series B Preferred Stock, Series C Preferred Stock and Series
M Preferred Stock, as provided below), prior or subsequent to the issuance of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.

     C. Rights, Preferences and Restrictions of Series B, Series C and Series M
Preferred Stock. Five Million Eight Hundred One Thousand Two Hundred Nineteen
(5,801,219) shares of the Preferred Stock authorized by this Certificate of
Incorporation shall be divided into three (3) series. The first series of stock
shall consist of One Million Six Hundred Eighty Thousand Eight Hundred Eighty
(1,680,880) shares and is designated "Series B Preferred Stock." The second
series of stock shall consist of Four Million Seventy Thousand Three Hundred
Thirty Nine (4,070,339) shares and is designated "Series C Preferred Stock." The
third series shall consist of Fifty Thousand (50,000) shares and is designated
"Series M Preferred Stock." The rights, preferences, privileges and restrictions
granted to and imposed on the Series B Preferred Stock, the Series C Preferred
Stock and the Series M Preferred Stock are as set forth below in this Article
V.C.

     1. Dividend Provisions. The holders of shares of Series B Preferred Stock,
Series C Preferred Stock and Series M Preferred Stock shall not be entitled to
receive any dividends.

     2. Liquidation Preference.

          a. In the event of any liquidation, dissolution or winding up of this
     corporation, either voluntary or involuntary, the holders of shares of
     Series B Preferred Stock shall be entitled to receive-, prior and in
     preference to any distribution of any of the

                                        2

<PAGE>   28

     assets of this corporation available for distribution to the stockholders,
     to the holders of shares of Common Stock or any other class of capital
     stock ranking junior to the Series B Preferred Stock by reason of their
     ownership thereof, an amount per share equal to (i) $1.00 for each
     outstanding share of Series B Preferred Stock (the "Original Series B Issue
     Price"), as adjusted to reflect any share split, dividend, combination,
     reclassification or similar event involving the Series B Preferred Stock,
     plus (ii) an amount per share equal to eight percent (8%) of the Original
     Series B Issue Price, from the date of issuance to the date of
     distribution, compounded annually. The holders of shares of Series C
     Preferred Stock shall be entitled to receive, prior and in preference to
     any distribution of any of the assets of this corporation available for
     distribution to the stockholders, to the holders of shares of Common Stock
     or any other class of capital stock ranking junior to the Series C
     Preferred Stock by reason of their ownership thereof, an amount per share
     equal to (i) $1.75 for each outstanding share of Series C Preferred Stock
     (the "Original Series C Issue Price"), as adjusted to reflect any share
     split, dividend, combination, reclassification or similar event involving
     the Series C Preferred Stock, plus (ii) an amount per share equal to eight
     percent (8%) of the Original Series C Issue Price, from the date of
     issuance to the date of distribution, compounded annually. The holders of
     shares of Series M Preferred Stock shall be entitled to receive, prior and
     in preference to any distribution of any of the assets of this corporation
     available for distribution to the stockholders, to the holders of shares of
     Common Stock or any other class of capital stock ranking junior to the
     Series M Preferred Stock by reason of their ownership thereof, an amount
     per share equal to $6.00 for each outstanding share of Series M Preferred
     Stock (the "Original Series M Issue Price"), as adjusted to reflect any
     share split, dividend, combination, reclassification or similar event
     involving the Series M Preferred Stock. If upon the occurrence of such
     event, the assets and funds to be distributed hereunder among the holders
     of shares of the Series B Preferred Stock, Series C Preferred Stock and
     Series M Preferred Stock shall be insufficient to permit the payment to
     such holders of the full aforesaid preferential amounts, then the entire
     assets and funds of the corporation legally available for distribution
     shall be distributed ratably among the holders of shares of the Series B
     Preferred Stock, Series C Preferred Stock and Series M Preferred Stock in
     proportion to the preferential amount each such holder is entitled to
     receive pursuant to this Section C.2.a.

          b. After the completion of the distribution required by subparagraph
     (a) of this Section C.2 and any other distribution which may be required
     with respect to series of Preferred Stock which may from time to time come
     into existence, the assets of this corporation available for distribution
     to stockholders shall be distributed among the holders of shares of Common
     Stock pro rata based on the number of shares of Common Stock held by each.

          c. Whenever the distribution provided for in this Section C.2. shall
     be payable in property other than cash, the dollar amount of such
     distribution shall be the fair market value of such property at the time of
     distribution as determined in good faith by the Board of Directors.

                                        3

<PAGE>   29

          d. The Corporation shall mail written notice of any liquidation or
     dissolution or winding down not less than thirty days prior to the payment
     date stated therein to each record holder of shares of Preferred Stock. Any
     (i) acquisition of the corporation by means of merger or other form of
     corporate reorganization in which outstanding shares of the corporation are
     exchanged for securities or other consideration issued by the acquiring
     corporation or its subsidiary (other than a mere reincorporation
     transaction), (ii) sale, conveyance or disposition of all or substantially
     all of the assets of this corporation or (iii) the effectuation by the
     corporation of a transaction or series of related transactions in which
     more than 50% of the voting power of the corporation is disposed of (other
     than the Public Offering as defined herein) (clauses (i), (ii) and (iii)
     are referred to herein as a "Sale of the Corporation"), shall be deemed to
     be a liquidation, dissolution or winding up within the meaning of this
     Section C.2.

     3. Conversion. The holders of the Series B Preferred Stock, Series C
Preferred Stock and Series M Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):

          a. Right to Convert.

               (i) Each share of Series B Preferred Stock, Series C Preferred
          Stock and Series M Preferred Stock shall be convertible, at the option
          of the holder thereof, at any time after the date of issuance of such
          share, at the office of this corporation or any transfer agent for the
          Series B Preferred Stock, Series C Preferred Stock or Series M
          Preferred Stock, into such number of fully paid and nonassessable
          shares of Common Stock as determined by dividing the Original Series B
          Issue Price, Original Series C Issue Price or Original Series M Issue
          Price, as applicable, by the Conversion Price (defined below) at the
          time in effect for such share. The initial Conversion Price per share
          for shares of Series B Preferred Stock shall be thirty-three cents
          ($0.33). The initial Conversion Price per share for shares of Series C
          Preferred Stock shall be one dollar and seventy five cents ($1.75).
          The initial Conversion Price per share for shares of Series M
          Preferred Stock shall be one dollar and one hundred and eleven
          thousandths of a cent ($ 1.111). The Conversion Price for the Series B
          Preferred Stock, Series C Preferred Stock and the Series M Preferred
          Stock shall be subject to adjustment as set forth in Section C.3.c.,
          Section C.3.d. and Section C.3.e.

               (ii) Each share of Series B Preferred Stock, Series C Preferred
          Stock and Series M Preferred Stock shall automatically be converted
          into shares of Common Stock at the applicable Conversion Price at the
          time in effect for such Series B Preferred Stock, Series C Preferred
          Stock or Series M Preferred Stock, respectively, immediately
          concurrent with the consummation of the corporation's sale of its
          Common Stock in a firm commitment underwriting pursuant to a
          registration statement on Form S-1, Form SB-1, Form SB-2, or their
          then equivalents, filed under the Securities Act of 1933, as amended,
          and resulting in

                                        4

<PAGE>   30

          an aggregate offering price to the public of at least $20,000,000, and
          where the offering price to the public is not less than $5.00 per
          share (the "Public Offering").

          b. Mechanics of Conversion. Any holder of shares of Series B Preferred
     Stock, Series C Preferred Stock or Series M Preferred Stock shall be
     entitled to convert the same into shares of Common Stock, by surrendering
     the certificate or certificates therefor, duly endorsed, at the office of
     this corporation or of any transfer agent for the Series B Preferred
     Stock, Series C Preferred Stock or Series M Preferred Stock, as
     applicable, and by giving written notice by mail, postage prepaid, to this
     corporation at its principal corporate office, of the election to convert
     the same and stating therein the name or names in which the certificate or
     certificates for shares of Common Stock are to be issued. This corporation
     shall, as soon as practicable thereafter, issue and deliver at such office
     to such holder of shares of Series B Preferred Stock, Series C Preferred
     Stock or Series M Preferred Stock, or to a nominee or nominees of such
     holder, a certificate or certificates for the number of shares of Common
     Stock to which such holder shall be entitled as aforesaid. Such conversion
     shall be deemed to have been made immediately prior to the close of
     business on the date of such surrender of the shares of Series B Preferred
     Stock, Series C Preferred Stock or Series M Preferred Stock to be
     converted, and the person or persons entitled to receive the shares of
     Common Stock issuable upon such conversion shall be treated for all
     purposes as the record holder or holders of such shares of Common Stock as
     of such date. If the conversion is in connection with an underwritten
     offering of securities registered pursuant to the Securities Act of 1933,
     as amended, other than in a Public Offering as set forth in Section
     C.3.a.(ii) above, the conversion may, at the option of any holder tendering
     Series B Preferred Stock, Series C Preferred Stock or Series M Preferred
     Stock for conversion, be conditioned upon the closing with the underwriter
     of the sale of securities pursuant to such offering, in which event the
     person(s) entitled to receive the Common Stock issuable upon such
     conversion of the Series B Preferred Stock, Series C Preferred Stock or
     Series M Preferred Stock shall not be deemed to have converted such stock
     until immediately prior to the closing of such sale of securities.

          c. Conversion Price Adjustments of Preferred Stock Upon Reorganization
     or Recapitalization. If at any time or from time to time there shall be any
     capital reorganization or recapitalization of the Common Stock (including,
     without limitation, any stock split or stock dividend), provision shall be
     made so that the holders of shares of Series B Preferred Stock, Series C
     Preferred Stock and Series M Preferred Stock shall thereafter be entitled
     to receive upon conversion of the Series B Preferred Stock, Series C
     Preferred Stock or Series M Preferred Stock, as applicable, the number of
     shares of stock or other securities or property of the corporation or
     otherwise, to which a holder of Common Stock deliverable upon conversion
     would have been entitled on such recapitalization. In any such case,
     appropriate adjustment shall be made in the application of the provisions
     of this Section C.3 with respect to the rights of the holders of the Series
     B Preferred Stock, Series C Preferred Stock and Series M Preferred Stock
     after the recapitalization to the end that the provisions of this Section
     C.3 (including adjustment of the Conversion Price then in effect and the
     number of shares which would

                                       5

<PAGE>   31

     be received upon conversion of the Series B Preferred Stock, Series C
     Preferred Stock and Series M Preferred Stock) shall be applicable after
     that event as nearly equivalent as may be practicable. The provisions of
     this clause shall similarly apply to successive reorganizations,
     reclassifications, consolidations or mergers.

          d. Conversion Upon Sale of the Corporation. In the event of a Sale of
     the Corporation, as defined in Section C.2.d., the holders of Series B
     Preferred Stock, Series C Preferred Stock and Series M Preferred Stock, as
     applicable, shall concurrently with the consummation of such sale, have
     the right to convert shares of Series B Preferred Stock, Series C Preferred
     Stock and Series M Preferred Stock into the kind and amount of stock,
     securities or other consideration (including cash) as are issued upon such
     Sale of the Corporation to a holder of the number of shares of Common Stock
     into which such shares of Series B Preferred Stock, Series C Preferred
     Stock and Series M Preferred Stock could have been converted immediately
     prior to such merger, consolidation or sale. The corporation shall provide
     holders of Series B Preferred Stock, Series C Preferred Stock and Series M
     Preferred Stock with at least five business days prior written notice of
     any event referred to in this paragraph.

          e. Conversion Price Adjustment Upon Sale of Securities. Each
     Conversion Price shall be subject to adjustment from time to time as
     follows:

               (i) If the corporation shall at any time or from time to time
          issue any shares of Common Stock, or securities convertible into or
          exercisable for Common Stock (including any shares of Common Stock
          deemed to have been issued pursuant to subdivision (iv)(c) below)
          other than Excluded Stock (as defined in clause (v) below) without
          consideration or for a consideration per share less than the
          Conversion Price for the Series B Preferred Stock, Series C Preferred
          Stock or Series M Preferred Stock, as applicable, in effect
          immediately prior to the issuance of such Common Stock, then any
          Conversion Price for the Series B Preferred Stock, Series C Preferred
          Stock or Series M Preferred Stock that is greater than the
          consideration per share of Common Stock or its equivalent received in
          such issuance or sale shall forthwith be lowered to be equal to the
          quotient obtained by dividing:

                    (a) an amount equal to the sum of (x) the total number of
               shares of Common Stock outstanding (including any shares of
               Common Stock deemed to have been issued pursuant to subdivision
               (iv)(c) below) immediately prior to such issuance, multiplied by
               the applicable Conversion Price for the Series B Preferred Stock,
               Series C Preferred Stock or Series M Preferred Stock, as
               applicable, in effect immediately prior to such issuance, and (y)
               the consideration received by the corporation upon such issuance;
               by

                    (b) the total number of shares of Common Stock outstanding
               (including any shares of Common Stock deemed to have been issued

                                        6

<PAGE>   32

               pursuant to subdivision (iv)(c) below) immediately after the
               issuance of such Common Stock.

               For the purposes of any adjustment of any Conversion Price for
          the Series B Preferred Stock, Series C Preferred Stock or Series M
          Preferred Stock pursuant to this clause, the following provisions
          shall be applicable:

               (ii) In the case of the issuance of Common Stock for cash, the
          consideration shall be deemed to be the amount of cash paid therefor
          after deducting therefrom any discounts, commissions or other expenses
          allowed, paid or incurred by the corporation for any underwriting or
          otherwise in connection with the issuance and sale thereof

               (iii) In the case of the issuance of Common Stock for a
          consideration in whole or in part other than cash, the consideration
          other than cash shall be deemed to be the fair market value thereof as
          determined in good faith by the Board of Directors of the corporation,
          irrespective of any accounting treatment.

               (iv) In the case of the issuance of options to purchase or rights
          to subscribe for Common Stock, securities by their terms convertible
          into or exchangeable for Common Stock, or options to purchase or
          rights to subscribe for such convertible or exchangeable securities:

                    (a) the aggregate maximum number of shares of Common Stock
               deliverable upon exercise of such options to purchase or rights
               to subscribe for Common Stock shall be deemed to have been issued
               at the time such options or rights were issued and for a
               consideration equal to the consideration (determined in the
               manner provided in subdivisions (ii) and (iii) above), if any,
               received by the corporation upon the issuance of such options or
               rights plus the minimum purchase price provided in such options
               or rights for the Common Stock covered thereby;

                    (b) the aggregate maximum number of shares of Common Stock
               deliverable upon conversion of or in exchange for any such
               convertible or exchangeable securities or upon the exercise of
               options to purchase or rights to subscribe for such convertible
               or exchangeable securities and subsequent conversion or exchange
               thereof shall be deemed to have been issued at the time such
               securities, options, or rights were issued and for a
               consideration equal to the consideration received by the
               corporation for any such securities and related options or rights
               (excluding any cash received on account of accrued interest or
               accrued dividends), plus the additional consideration, if any, to
               be received by the corporation upon the conversion or exchange of
               such securities or the exercise of any related options or rights
               (the consideration in each case to be determined in the manner
               provided in subdivisions (ii) and (iii) above);

                                       7
<PAGE>   33

                    (c) on any change in the number of shares or exercise price
               of Common Stock deliverable upon exercise of any such options or
               rights or conversions of or exchange for such securities, other
               than a change resulting from the antidilution provisions thereof,
               each Conversion Price previously adjusted shall forthwith be
               readjusted to such Conversion Price as would have been obtained
               had the adjustment made upon the issuance of such options, rights
               or securities not converted prior to such change or options or
               rights related to such securities not converted prior to such
               change been made upon the basis of such change; and

                    (d) on the expiration of any such options or rights, the
               termination of any such rights to convert or exchange or the
               expiration of any options or rights related to such convertible
               or exchangeable securities, each Conversion Price previously
               adjusted shall forthwith be readjusted to such Conversion Price
               as would have obtained had the adjustment made upon the issuance
               of such options, rights, securities or options or rights related
               to such securities been made upon the basis of the issuance of
               only the number of shares of Common Stock actually issued upon
               the exercise of such options or rights, upon the conversion or
               exchange of such securities, or upon the exercise of the options
               or rights related to such securities and subsequent conversion or
               exchange thereof.

               (v) "Excluded Stock" means (1) shares of Common Stock issued by
          the corporation as a stock dividend or upon any subdivision, split-up
          or combination of shares of Common Stock; (2) shares of Common Stock
          issued by the corporation upon conversion of shares of Preferred
          Stock; or (3) securities that are or were declared to be "Excluded
          Stock" for purposes of this Section by the holders of 66 2/3% of the
          outstanding shares of Series B Preferred Stock, Series C Preferred
          Stock and Series M Preferred Stock, as applicable, each voting as a
          separate class and only with respect to the shares held by such class.

               (vi) All calculations made pursuant to Section C.3.c., C.3.d. and
          C.3.e. shall be made to the nearest one hundredths (1/100) of one cent
          or the nearest one tenth (1/10) of a share, as the case may be.

               (vii) In any case in which the provisions of Sections C.3.c.,
          C.3.d. and C.3.e. shall require that an adjustment shall become
          effective immediately after a record date of an event, the corporation
          may defer until the occurrence of such event (i) issuing to the holder
          of any share of Preferred Stock converted after such record date and
          before the occurrence of such event the shares of capital stock
          issuable upon such conversion by reason of the adjustment required by
          such event in addition to the shares of capital stock issuable upon
          such conversion before giving effect to such adjustments, and (ii)
          paying to such holder any amount in cash in lieu of a fractional share
          of capital stock pursuant to paragraph (e) above;

                                        8

<PAGE>   34

          provided, however, that the corporation shall deliver to such
          holder an appropriate instrument evidencing such holder's right to
          receive such additional shares and such cash.

          f. No Impairment. This corporation will not, by amendment of its
     Certificate of Incorporation or through any reorganization,
     recapitalization, transfer of assets, consolidation, merger, dissolution,
     issue or sale of securities or any other voluntary action, avoid or seek to
     avoid the observance or performance of any of the terms to be observed or
     performed hereunder by this corporation, but will at all times in good
     faith assist in the carrying out of all the provisions of this Section C.3
     and in the taking of all such action as may be necessary or appropriate in
     order to protect the Conversion Rights of the holder of shares of the
     Series B Preferred Stock, Series C Preferred Stock and Series M Preferred
     Stock against impairment.

          g. No Fractional Shares and Certificate as to Adjustments.

               (i) No fractional shares shall be issued upon conversion of the
          Series B Preferred Stock, Series C Preferred Stock or the Series M
          Preferred Stock. The number of shares of Common Stock to be issued to
          each holder of shares of Series B Preferred Stock, Series C Preferred
          Stock and/or Series M Preferred Stock upon conversion shall be
          computed on the basis of the aggregate number of shares of Series B
          Preferred Stock, Series C Preferred Stock or Series M Preferred Stock
          to be converted. Instead of any fractional shares of Common Stock
          which would otherwise be issuable upon conversion of any shares of
          Series B Preferred Stock, Series C Preferred Stock or Series M
          Preferred Stock, the corporation shall pay a cash adjustment in
          respect of such fractional interest in an amount equal to the product
          of (i) the price of one share of Common Stock as determined in good
          faith by the Board of Directors of the corporation and (ii) such
          fractional interest. The holders of fractional interests shall not be
          entitled to any rights as stockholders of the corporation in respect
          of such fractional interests.

               (ii) Upon the corporation's awareness of an event that would
          cause an adjustment or readjustment of the Conversion Price of Series
          B Preferred Stock, Series C Preferred Stock or Series M Preferred
          Stock pursuant to this Section C.3, this corporation, at its expense,
          shall promptly compute such adjustment or readjustment in accordance
          with the terms hereof and prepare and furnish to each holder of shares
          of Series B Preferred Stock, Series C Preferred Stock or Series M
          Preferred Stock, as applicable, a certificate setting forth such
          adjustment or readjustment and showing in detail the facts upon which
          such adjustment or readjustment is based. This corporation shall, upon
          the written request at any time of any holder of shares of Series B
          Preferred Stock, Series C Preferred Stock or Series M Preferred Stock,
          furnish or cause to be furnished to such holder a like certificate
          setting forth (A) such adjustment and readjustment, (B) the Conversion
          Ratio at the time in effect, and (C) a number of shares of Common
          Stock and the value, if any, of other property which at the time would
          be received upon the

                                        9

<PAGE>   35

          conversion of a share of Series B Preferred Stock, Series C
          Preferred Stock or Series M Preferred Stock, as applicable.

          h. Notices of Record Date. In the event of any taking by this
     corporation of a record of the holders of any class of securities for the
     purpose of determining the holders thereof who are entitled to receive any
     dividend (other than a cash dividend) or other distribution, any right to
     subscribe for, purchase or otherwise acquire any shares of stock of any
     class or any other securities or property, or to receive any other right,
     this corporation shall mail to each holder of shares of Series B Preferred
     Stock, Series C Preferred Stock and Series M Preferred Stock, at least
     twenty (20) days prior to the date specified therein, a notice specifying
     the date on which any such record is to be taken for the purpose of such
     dividend, distribution or right, and the amount and character of such
     dividend, distribution or right.

          i. Reservation of Stock Issuable Upon Conversion. This corporation
     shall at all times reserve and keep available out of its authorized but
     unissued shares of Common Stock solely for the purpose of effecting the
     conversion of shares of the Series B Preferred Stock, Series C Preferred
     Stock and Series M Preferred Stock, such number of its shares of Common
     Stock as shall from time to time be sufficient to effect the conversion of
     all outstanding shares of the Series B Preferred Stock, Series C Preferred
     Stock and Series M Preferred Stock; and if at any time the number of
     authorized but unissued shares of Common Stock shall not be sufficient to
     effect the conversion of all the outstanding shares of the Series B
     Preferred Stock, Series C Preferred Stock and Series M Preferred Stock, in
     addition to such other remedies as shall be available to the holder of such
     shares of Preferred Stock, this corporation will take such corporate action
     as may, in the opinion of its counsel, be necessary to increase its
     authorized but unissued shares of Common Stock to such number of shares as
     shall be sufficient for such purposes.

          j. Notices. Any notice required by the provisions of this Section C.3
     to be given to the holders of shares of Series B Preferred Stock, Series C
     Preferred Stock or Series M Preferred Stock shall be deemed given if
     deposited in the United States mail, postage prepaid, and addressed to each
     holder of record at his address appearing on the books of this corporation.

     4. Mandatory Redemption. The shares of Series M Preferred Stock shall be
subject to mandatory redemption as set forth below in this Section C.4.

          a. Redemption Events. Except as prohibited by applicable law and the
     corporation's then existing agreements with its lenders and provided the
     corporation has generated net income for its most recent quarterly interim
     period, the corporation shall redeem all outstanding shares of Series M
     Preferred Stock on May 7, 2002. The corporation shall effect the redemption
     by paying in cash, out of any source of funds legally available therefor,
     an amount per share of Series M Preferred Stock equal to the Original
     Series M Issue Price (the "Redemption Price").

                                       10

<PAGE>   36

          b. Redemption Notice. At least thirty (30) but no more than sixty (60)
     days prior to the date fixed for redemption of the Series M Preferred Stock
     (the "Redemption Date"), - the corporation shall mail, postage prepaid,
     written notice thereof (the "Redemption Notice"), to each holder of record
     (at the close of business on the business day next preceding the day on
     which notice is given) of shares of Series M Preferred Stock, at the
     address last shown on the records of the corporation for such holder or if
     no address appears or is given at the place where the principal executive
     office of the corporation is located, specifying the number of shares to be
     redeemed from such holder, the Redemption Date, the Redemption Price, the
     place at which payment may be obtained, and calling upon such holder to
     surrender to the corporation, in the manner and at the place designated,
     its certificate or certificates representing all of such holders shares of
     Series M Preferred Stock.

          c. Surrender of Certificate Payment. Except as prohibited by
     applicable law, on or before the Redemption Date, each holder of shares of
     Series M Preferred Stock to be redeemed on such Redemption Date shall
     surrender the certificate or certificates representing such shares to the
     corporation, in the manner and at the place designated in the Redemption
     Notice, and thereupon the Redemption Price for such shares shall be payable
     to the order of the person whose name appears on such certificate or
     certificates as the owner thereof, and each surrendered certificate shall
     be canceled and retired. In the event that, due to restrictions imposed by
     applicable law, fewer than all of the shares represented by such
     certificate are redeemed, a new certificate representing the unredeemed
     shares shall be issued forthwith.

          d. Rights Subsequent to Redemption. If the Redemption Notice shall
     have been duly given, and if on the Redemption Date the Redemption Price
     therefor is either paid or made available for payment through the deposit
     arrangement specified in subparagraph (e) below, then notwithstanding that
     the certificates evidencing any of the shares of Series M Preferred Stock
     so called for redemption shall not have been surrendered, all rights with
     respect to such shares shall forthwith terminate after such Redemption
     Date, except for the right of the holders to receive the Redemption Price
     without interest upon surrender of their certificate or certificates
     therefor, and such shares shall not thereafter be transferred on the books
     of the corporation or be deemed to be outstanding whatsoever. If the funds
     of the corporation legally available for redemption of shares of Series M
     Preferred Stock on the Redemption Date are insufficient to redeem the total
     number of shares of Series M Preferred Stock to be redeemed on such date,
     those funds which are legally available will be used to redeem the maximum
     possible number of such shares ratably among the holders of such shares to
     be redeemed based upon the number of shares of Series M Preferred Stock
     held by each of them. The shares of Series M Preferred Stock not redeemed
     shall remain outstanding and shall be entitled to all the rights and
     preferences provided herein. At any time thereafter when additional funds
     of the corporation are legally available for the redemption of shares of
     Series M Preferred Stock such funds will immediately be used to redeem the
     balance of the shares which the

                                       11

<PAGE>   37

     corporation has become obliged to redeem on the Redemption Date, but
     which it has not redeemed.

          e. Deposit of Funds. On or prior to the Redemption Date, the
     corporation shall deposit in a trust fund with any bank or trust company
     having a capital and surplus of at least $100,000,000, a sum equal to the
     aggregate Redemption Price of all shares of Series M Preferred Stock, or a
     sum equal to the funds legally available pursuant to Section C.4.d above,
     with irrevocable instructions and authority to the bank or trust company to
     pay, on or after the Redemption Date, the Redemption Price to the
     respective holders upon the surrender of their stock certificates. The
     deposit shall constitute full payment of the shares to their holders, and
     from and after the Redemption Date the shares redeemed on the Redemption
     Date shall be deemed to be no longer outstanding, and the holders thereof
     shall cease to be stockholders with respect to such shares and shall have
     not rights with respect thereto except the rights to receive, from the bank
     or trust company, payment of the Redemption Price, without interest, upon
     surrender of their certificates therefor. Any funds so deposited and
     unclaimed at the end of one year from the Redemption Date shall be released
     or repaid to the corporation, after which the holders of shares called for
     redemption shall be entitled to receive payment of the Redemption Price
     only from the corporation.

     5. Voting.

          a. Voting Rights of Series B and Series C Preferred Stock. The holder
     of each share of Series B Preferred Stock or Series C Preferred Stock shall
     have the right to one vote for each share of Common Stock into which such
     Series B Preferred Stock or Series C Preferred Stock could then be
     converted (with any fractional shares, determined on an aggregate
     conversion basis, being rounded to the nearest whole share), and with
     respect to such vote, such holder shall have full voting rights and powers
     equal to the voting rights and powers of holders of shares of Common Stock,
     and shall be entitled, notwithstanding any provision hereof, to notice of
     any stockholders' meeting in accordance with the bylaws of this
     corporation, and shall be entitled to vote (except as otherwise expressly
     provided herein or as required by law), together with holders of shares of
     Common Stock as a single class, with respect to any question upon which
     holders of shares of Common Stock have the right to vote. Election of
     directors need not be by written ballot, unless the bylaws of the
     corporation shall so provide.

          b. Right to Vote on the Sale of the Corporation. The corporation shall
     not effect a Sale of the Corporation, as defined in Section C.2.d of
     Article V, without first obtaining the written consent of the holders of 66
     -2/3% of the shares of the Series B Preferred Stock, Series C Preferred
     Stock (both treated as if fully converted to common stock) and the common
     stock issued upon conversion of the Series B and Series C Preferred Stock,
     all voting together as a single class.

                                       12

<PAGE>   38

          c. Voting Rights of the Series M Preferred Stock. Except as required
     by law, the holders of Series M Preferred Stock shall have no voting
     rights.

     6. Protective Provisions.

          a. Subject to the rights of series of Preferred Stock which may from
     time to time come into existence, so long as shares of Series B Preferred
     Stock are outstanding, this corporation shall not without first obtaining
     the approval (by vote or written consent, as provided by law) of holders of
     a majority of the then outstanding shares of Series B Preferred Stock:

               (i) alter or change the rights, preferences or privileges of the
          shares of Series B Preferred Stock, in a manner that adversely affects
          the holders of shares of the Series B Preferred Stock; or

               (ii) increase the authorized number of shares of Series B
          Preferred Stock or Series C Preferred Stock.

          b. Subject to the rights of series of Preferred Stock which may from
     time to time come into existence, so long as shares of Series M Preferred
     Stock are outstanding, this corporation shall not without first obtaining
     the approval (by vote or written consent, as provided by law) of the
     holders of a majority of the outstanding shares of Series M Preferred
     Stock:

               (i) alter or change the rights, preferences or privileges of the
          shares of Series M Preferred Stock, in a manner that adversely affect
          the holders of shares of the Series M Preferred Stock; or

               (ii) increase the authorized number of shares of Series M
          Preferred Stock.

          c. Subject to the rights of series of Preferred Stock which may from
     time to time come into existence, so long as shares of Series C Preferred
     Stock are outstanding, this corporation shall not without first obtaining
     the approval (by vote or written consent, as provided by law) of holders of
     a majority of the then outstanding shares of Series C Preferred Stock:

               (i) alter or change the rights, preferences or privileges of the
          shares of Series C Preferred Stock, in a manner that adversely affects
          the holders of shares of the Series C Preferred Stock; or

               (ii) increase the authorized number of shares of Series C
          Preferred Stock or Series B Preferred Stock.

                                       13

<PAGE>   39

     7. Status of Converted Stock. In the event any shares of Series B Preferred
Stock, Series C Preferred or Series M Preferred Stock shall be converted
pursuant to Section C.3 of this Article V., the shares so converted shall be
canceled and shall not be issuable by the corporation. This Certificate of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the corporation's authorized capital stock.

     8. Status of Redeemed Stock. In the event any shares of Series M Preferred
Stock shall be redeemed pursuant to Section C.4 of this Article V., the shares
so redeemed shall be canceled and shall not be issuable by the corporation.
This Certificate of Incorporation shall be appropriately amended to effect the
corresponding reduction in the corporation's authorized capital stock.

     D. Common Stock.

     1. Dividend Rights. Subject to the rights of holders of shares of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends, if any, as may be declared from time to time
by the Board of Directors.

     2. Liquidation Rights. Upon the liquidation, dissolution or winding up of
the corporation, the assets of the corporation shall be distributed as provided
in Section C.2 of this Article V.

     3. Voting Rights. Each holder of a share of Common Stock shall have the
right to one vote per share, and shall be entitled to notice of any
stockholders' meetings in accordance with the bylaws of this corporation, and
shall be entitled to vote upon such matters in such manner as may be provided by
law.

     4. Redemption. The Common Stock is not redeemable.

                                  ARTICLE VI.

         The business and affairs of the corporation shall be managed by or
under the direction of a board of directors consisting of not less than three
(3) nor more than nine (9) directors, provided, however, that the corporation
may have only one director until the effective date of the merger contemplated
between the corporation and B.I. Systems Corporation, a Delaware corporation.
The exact number shall be determined from time to time by resolution adopted by
the affirmative vote of a majority of the directors in office at the time of
adoption of such resolution. The directors shall be divided into three classes,
Class I Class II and Class III. The initial term of office of the Class I, Class
II and Class III directors shall expire at the annual meeting of stockholders in
1998, 1999 and 2000, respectively. The number of directors shall be apportioned
among the classes by the Board of Directors so as to maintain the number of
directors in each class as nearly equal as possible, and any additional director
of any class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall

                                       14

<PAGE>   40

coincide with the remaining term of that class. Beginning in 1998, at each
annual meeting of stockholders, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. In no
case will a decrease in the number of directors shorten the term of any
incumbent director even though such decrease may result in an inequality of the
classes until the expiration of such term. A director shall hold office until
the annual meeting of the year in which his or her term expires and until his or
her successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement or removal from office. Any director may be,
removed with or without cause, but only by the affirmative vote of the holders
of not less than a majority of the outstanding capital stock of the corporation
entitled to vote generally in the election of directors voting together as a
single class. Except as required by law or the provisions of this Certificate of
Incorporation, all vacancies on the Board of Directors and newly created
directorships shall be filled by the Board of Directors. Any director elected to
fill a vacancy not resulting from an increase in the number of directors shall
have the same remaining term as that of his or her predecessor.

                                  ARTICLE VII.

     A. Indemnification of Officers and Directors. The corporation shall:

     1. indemnify, to the fullest extent permitted by the General Corporation
Law of the State of Delaware, as amended, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director or officer of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, or if such person has previously been
designated for indemnification by the resolution of the Board of Directors, an
employee or agent of the Corporation, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful. The termination of any action, suit, or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendre or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the corporation, and
with respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was unlawful; and

     2. indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, joint venture, employee benefit plan, trust or
other enterprise, or if such person has previously been designated for
indemnification by the

                                       15

<PAGE>   41

resolution of the Board of Directors, an employee or agent of the corporation,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper; and

     3. indemnify any director or officer, or, if such person has previously
been designated for indemnification by the resolution of the Board of Directors,
an employee or agent of the corporation, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection therewith,
to the extent that such director, officer, employee or agent of the corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Article VII.A.1 and 2, or in defense of any claim,
issue or matter therein; and

     4. make any indemnification under Article VII.A.1 and 2 (unless ordered by
a court) only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such director, officer, employee or agent has met the
applicable standard of conduct set forth in Article VII.A.1 and 2. Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders of the corporation; and

     5. pay expenses incurred by a director or officer in defending a civil or
criminal action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that such director or officer is not entitled to be indemnified by
the corporation as authorized in this Article VII. Notwithstanding the
foregoing, the corporation shall not be obligated to pay expenses incurred by a
director or officer with respect to any threatened, pending, or completed claim,
suit or action, whether civil, criminal, administrative, investigative or
otherwise ("Proceedings") initiated or brought voluntarily by a director or
officer and not by way of defense (other than proceedings brought to establish
or enforce a right to indemnification under the provision of this Article VII.
unless a court of competent jurisdiction determines that each of the material
assertions made by the director or officer in such proceeding were not made in
good faith or were frivolous). The corporation shall not be obligated to
indemnify the director or officer for any amount paid in settlement of a
proceeding covered hereby without the prior written consent of the corporation
to such settlement; and

     6. not deem the indemnification and advancement of expenses granted
pursuant to the other subsections of this Article VII. exclusive of any other
rights to which those seeking

                                       16
<PAGE>   42

indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in which director's or officer's official capacity and as to action in
another capacity while holding such office; and

     7. have the right, authority and power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such liability
under the provisions of this Article VII.; and

     8. deem the provisions of this Article VII. to be a contract between the
corporation and each director and officer, or appropriately designated employee
or agent who serves in such capacity at any time while this Article VII. is in
effect, and any repeal or modification of this Article VII. shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought or threatened based in whole or in part upon such state of facts; and

     9. continue the indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VII. unless otherwise provided when authorized
or ratified, as to a person who has ceased to be a director, officer, employee
or agent of the corporation and such rights shall inure to the benefit of the
heirs, executors and administrators of such a person.

     B. Elimination of Certain Liability of Directors. A director of the
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, as the same
exists or hereafter may be amended, or (iv) for any transaction from which the
director derived an improper personal benefit. If the General Corporation Law of
the State of Delaware is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the corporation, in addition to the limitation on personal
liability provided herein, shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended. Any repeal or modification of this Article VII. by the stockholders of
the corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such repeal or modification.

                                  ARTICLE VIII.

     Meetings of stockholders may be held within or without the State of
Delaware as the bylaws may provide. The books of the corporation may be kept
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the

                                    17
<PAGE>   43

bylaws of the corporation. Election of directors need not be by written ballot
unless the bylaws of the corporation so provide.

                                   ARTICLE IX.

     No stockholder of the corporation shall by reason of holding shares of any
class of stock have any cumulative voting right.

                                   ARTICLE X.

     The Board of Directors may from time to time make, amend, supplement or
repeal the corporation's bylaws; provided, however, that the stockholders may
change or repeal any bylaw adopted by the Board of Directors; and provided,
further, that no amendment or supplement to the bylaws adopted by the Board of
Directors shall vary or conflict with any amendment or supplement adopted by the
stockholders.

     IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation of Genomic Solutions Inc. on December 24, 1997.

                                       -----------------------------------------
                                       Jeffrey S. Williams, President and Chief
                                       Executive Officer

                                       18
<PAGE>   44

                                                                       EXHIBIT B

                       Statement of Investor Suitabilily
                                  See Attached.

<PAGE>   45

                             GENOMIC SOLUTIONS INC.

                 CONFIDENTIAL STATEMENT OF INVESTOR SUITABILITY

     In order to comply with the requirements of federal and state securities
laws, securities of the Company may be sold only to persons or entities meeting
the suitability standards established by Genomic Solutions Inc., successor by
merger to the business of B.I. Systems Corporation (the "Company").

     The purpose of this Confidential Statement of Investor Suitability (this
"Statement") is to obtain information from each prospective investor relating to
the investor's knowledge and experience in financial and business matters and to
the investor's ability to bear the economic risks of the proposed investment.
Such information is required in order to determine whether or not the
suitability standards have been met by the prospective investor. Please answer
questions concerning prior business and financial experience and investment
decision-making in detail.

     By signing this Statement you agree that it may be shown to such authorized
persons as the Company may deem appropriate to establish that the offer and/or
sale of this investment in the Company will not result in any violation of any
laws or regulations of any jurisdiction.

     A separate Statement must be completed for each co-owner of securities,
except that spouses may complete a joint Statement.

     You make the following representations with the intent that they may be
relied upon by the Company and other persons designated by the Company.

                 (Please Print or Type. Attach additional sheets
                   if necessary to answer fully any question.)

I. BIOGRAPHICAL INFORMATION (If Joint Subscriber, provide information for both.)

A. Name(s):                                        Birthdate:
           ----------------------------------------

----------------------------
                     (Print)

   Name(s):                                        Birthdate:
           ----------------------------------------

-----------------------------
                     (Print)

<PAGE>   46

B. State of Residency:
_____________________________________________________________

C. Employer or business association and
position:____________________________________________

D. Business address and telephone no.:
__________________________________________________

__________________________________________________

E. Business and/or professional education and degrees:

   School            Location               Degree                 Year Rec'd
   ______            ________               ______                 __________

________________________________________________________________________________

________________________________________________________________________________

F. Employment during the past five years:
Employer or other association   Position, nature of responsibility    From    To
________________________________________________________________________________

________________________________________________________________________________

II. ACCREDITED INVESTOR STATUS

Please check or initial all that apply:

_____the investor a natural person whose net worth, or joint net worth with
spouse, at the time of purchase, exceeds $ 1,000,000 (including the value of
home, home furnishings and automobiles).

_____investor is a natural person whose individual gross income (excluding that
of spouse) exceeded $200,000 in the last two calendar years, and who reasonably
expects individual gross income exceeding $200,000 in the current calendar year;
or for such periods, the combined income of the investor with spouse exceeded
and is expected to exceed $300,000.

_____the investor is a trust, and the grantor

         (i) has the power to revoke the trust at any time and regain title to
         the trust assets; and

         (ii) has an individual (or, together with his spouse a joint) net worth
         in excess of $1,000,000, or had and expects to have a gross income (not
         including spouse's

<PAGE>   47

income) for the last two years and the current year in excess of $200,000, or
for such periods, had and expects to have all gross income including that of a
spouse in excess of $300,000.

_____the investor (or beneficiary if IRA or pension money is invested) is an
executive officer of the Company.

_____the investor is a corporation, partnership, or Massachusetts or similar
business trust, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000.

_____the investor is otherwise an accredited investor as follows (if applicable,
please review Schedule 4.3 of the Series C Preferred Stock Purchase Agreement
and describe qualification for accredited status):

      __________________________________________________________________________
_____

      __________________________________________________________________________

_____

III. PRIOR INVESTMENT EXPERIENCE OF INVESTOR

A. Indicate by check mark which of the following categories best describes the
extent of your prior experience in the areas of investment listed below:

                  More Than 5       2 to 5 years         1 year          No
                  yrs Experience     Experience        Experience    Experience
                  ______________________________________________________________

Corporate Stocks  ______________________________________________________________
Corporate Bonds   ______________________________________________________________
Real Estate       ______________________________________________________________
Limited
Partnerships      ______________________________________________________________
Stock in Privately
Held Companies    ______________________________________________________________

B. Do you make your own investment decisions with respect to the investments
listed above?

                            Yes________ No________

C. What are the principal sources of your investment knowledge or advice? (check
all that apply)

 ____First hand experience                  ____Financial publications
 ____Broker(s)                              ____Investment Adviser(s)
 ____Attorney(s)                            ____Accountant(s)

<PAGE>   48

D. Please briefly describe any additional investment experience in business
ventures, experience with the Company or any other investment experience which
would indicate your ability to evaluate an investment in this business venture.

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

IV. OTHER MATTERS

1. Do any significant contingent liabilities exist for which you may be
obligated?

         Yes_______________       No________________

         If yes, please indicate type and amount:

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

2. Are you involved in any litigation which if an adverse decision occurred
would affect your financial condition adversely?

Yes_______ No_______ If yes, provide details:

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

3. Is this a suitable and appropriate investment for you?

         Yes________ No________

V. SIGNATURE PAGE

The signature pages for this document are located on pages 5 (for individuals)
and 6 (for non-individuals).

<PAGE>   49

                                                     [TO BE COMPLETED AND SIGNED
                                                    BY ALL INDIVIDUAL INVESTORS]

                                 SIGNATURE PAGE
                                (FOR INDIVIDUALS)

         This page constitutes the signature page for INDIVIDUALS for the
Confidential Statement of Investor Suitability. Execution of this Signature Page
constitutes execution of such document.

         IN WITNESS WHEREOF, the undersigned executed the Confidential
Statement of Investor Suitability this this _______ day of December, 1997.

______________________________

     ________________________________
Signature of Investors                        Signature of Spouse
                                              (or Joint Investor, if any)

______________________________

     ________________________________
Print Name of Investor                              Print Name of Spouse
                                              (or Joint Investor, if any)

______________________________

     ________________________________
Social Security Number                              Social Security Number of
Spouse
                                              (or Joint Investor, if any)

Address:______________________                      Address:

_______________________

_________________________________

_______________________

_________________________________

<PAGE>   50

                                              [TO BE COMPLETED AND SIGNED BY ALL
                                             INVESTORS THAT ARE NOT INDIVIDUALS]

                                 SIGNATURE PAGE
                              (FOR NON-INDIVIDUALS)

         This page constitutes the signature page for the Confidential Statement
of Investor Suitability. Execution of this Signature Page constitutes execution
of such document.

         IN WITNESS WHEREOF, the undersigned has executed the Confidential
Statement of Investor Suitability this                    day of December, 1997

______________________________________
         Address:
                 _______________________

Print Name of Entity

         _____________________________

         _____________________________

____________________________________

         _____________________________
Describe Entity (i.e., corporation, trust,       Tax Identification Number
LLC, partnership, etc.)

By:________________________________

      ________________________________

      Name:___________________________           State of Organization

      Title:__________________________

<PAGE>   51

                     GENOMIC SOLUTIONS INC. ("CORPORATION")

                                   ARTICLE III

                REPRESENTATIONS AND WARRANTIES OF THE CORPORATION

                                    SCHEDULES

NOTE: Unless previously provided, copies of the related attachments are
      available upon request of the Secretary of the Corporation or its legal
      counsel.

<PAGE>   52

                                  SCHEDULE 3.7
                       See attached list of shareholders.

<PAGE>   53
     List of Ownership as of December 11, 1997 of Common Stock. Preferred "B" &
"M" Shares
<TABLE>
<CAPTION>
                                                                  Common Stock
                                                                   Issued and   Series B    Series M
                          Investor                                 Outstanding  Preferred   Preferred
    <S>                                                           <C>          <C>          <C>
     Capital Health                                                  172,870     400,353
     Liberty Bidco                                                    25,535      52,016
     Jas Hoover                                                       19,642      20,000
     J Mathew Mackowski                                               98,796     526,336
     Robert Shepler                                                   79,154     180,130
     David Given                                                      11,785      24,007
     John J. Mackowski                                                11,785      24,007
     Chas Stewart                                                     11,785
     Murray Bodine                                                    11,785      24,007
     Corp. Capital Partners                                           11,785      24,007
     Grove Invest Partners                                            11,785      24,007
     Ms. Laverne Styles                                                5,893      12,004
     Brent D Clapacs/Patrice Clapacs                                   5,893           0
     Eamonn Keegan                                                     5,893           0
     Jon Folan                                                         5,893           0
     Don Van Dyke                                                     15,333           0
     Donald Bronstein                                                  4,911           0
     Inge Morrison                                                     4,911           0
     John Styles                                                       9,821      20,006
     Walter Welch                                                     14,745           0
     L. Kent                                                                     300,000
     Millipore                                                                                  50,000
     J Steigman                                                        85000
     Todd Dahlberg                                                        21
     Jon Hawthorne                                                        41
     Ian R Bund                                                                   50,000
     Walter Welch                                                        386
     Chase Capital

     Total as of 12/11/97*                                           625,448   1,680,880        50,000
</TABLE>
      *Note. No change in Common Stock and Series B & M shares issued and
outstanding since July 31, 1997

                                                                          Page 1

<PAGE>   54

                                    Schedule 3.7.1

  See attached list for all persons holding options to purchase common stock.

<PAGE>   55

                                                                  SCHEDULE 3.7.1

                            B.I. SYSTEMS CORPORATION
                                  STOCK OPTIONS

<TABLE>
<CAPTION>
                                        Date                    Signed
                                        Board       Issued       Copy
                             Proposed  Approved      Date      Returned
<S>                         <C>       <C>          <C>        <C>        <C>
Akahori, Motonori             40,000   04/28/97     12/3/97    12/12/97
Cuff, Adrian                                                              Terminated 10/31/97
Darcy, Maureen                         04/28/97     5/10/97     5/21/97   Terminated 7/31/97
Downey, Lotte                 15,000   04/28/97     5/10/97     5/14/97
Drazovich, Robert             14,600   04/28/97     5/10/97      6/6/97
Fenwick, Alison                                                           Terminated 10/31/97
Harrington, Daniel                     04/28/97     5/10/97     5/10/97   Terminated 7/31/97
Helmreich David               10,000   04/28/97     5/10/97     5/23/97
Ignatoski, Michael            15,000   04/28/97     5/10/97     5/10/97
Jakimcius, Andrew             40,000   04/28/97     5/10/97     5/10/97
Kato, Noriko                  10,000   04/28/97    12/08/97
Kinch, Greg                   40,000   04/28/97     5/10/97     5/21/97
Kirkland, Barbara             40,000   04/28/97     5/10/97     5/10/97
Luton, Robert                 40,000   04/28/97     5/10/97     5/10/97
Proffitt, Samuel              10,000   04/28/97     5/10/97      9/5/97
Shelhart, Tammy                5,000   04/28/97     5/10/97     5/27/97
Siden, Lawrence               10,000   04/28/97     5/10/97     5/12/97
Tincher, Michael              15,000   04/28/97     5/10/97     5/14/97
Jeff Williams              1,080,000   04/28/97                  8/1/97
Frank Becker                  50,000   06/06/97      6/6/97      6/6/97
Shannon Richie                15,000   06/06/97     6/23/97     6/23/97
Jeff Steigman                 50,000   06/17/97      6/1/97      6/1/97
David O'Hagan                 15,OOC   08/24/97     6/24/97     8/28/97
Scott KraliK                  10,000   08/24/97     8/28/97     10/9/97
Helen Thompson                 5,000   08/24/97     8/28/97      9/8/97
Christyne Bliton              10,000   08/24/97     8/28/97    1O/l7/97
George Byrkit                 10,000   08/24/97     8/28/97      9/9/97
Doug Perry                     2,500   08/24/97     8/28/97    10/16/97
Monica Ruthenberg              5,000   08/24/97     8/28/97    11/20/97
Chris Ethier                   5,000   08/24/97     8/28/97     10/9/97
Rick Russell                  10,000   08/24/97     8/28/97    12/12/97
Ed Burnham                    10,000   08/24/97     8/28/97     9/29/97

Total                      1,582,100
                           =========
</TABLE>

                                     Page 1

<PAGE>   56

                                  Schedule 3.8

ITEM:            COMMENT:
 3.8             Bio Image UK, Inc., a Michigan Corporation wholly owned by B.I.
                 Systems Corporation. Operations ceased and office closed
                 effective October 31, 1997.

                 Nihon Bio Image, Ltd., a Michigan Corporation wholly owned by
                 B.I. Systems Corporation. Doing business as a branch office in
                 Japan. Office is located in Tokyo, Japan.

<PAGE>   57

                                 Schedule 3.9(i)

See attached July 31, 1997 financial statements with footnotes. These financial
statements are in draft form pending completion of the Series C Financing,
after which time the revised financial statements will be distributed to the
stockholders.

<PAGE>   58

                                                                 SCHEDULE 3.9(i)

Report of Independent Public Accountants

To the Board of Directors,
B.I. Systems Corporation, Inc.:

We have reviewed the accompanying consolidated balance sheet of B.I. SYSTEMS
CORPORATION, INC. AND SUBSIDIARIES (a Delaware corporation) as of July 31, 1997,
and the related consolidated statements of operations, stockholders' equity
and cash flows for the year then ended in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of the management of the Company.

A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above in order for them to be in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
may be unable to continue as a going concern due to significant operating
losses. Management's plans to deal with this matter are also described in Note
1. The accompanying financial statements do not include any adjustments that
might be necessary should the Company be unable to continue as a going concern.

Ann Arbor, Michigan,
 September 19, 1997 (except with
   respect to the matter discussed
   in Note 1 as to which the date is
   December 12, 1997).

<PAGE>   59

                 B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES

                   CONSOLIDATED BALANCE SHEET AS OF JULY 31, 1997

<TABLE>
<S>                                                                 <C>
                       ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                        $   575,838
   Accounts receivable, less allowance for doubtful
      accounts of $38,250                                               459,552
   Inventories                                                          430,615
   Prepaid expenses and other                                            42,553
                                                                    -----------
          Total current assets                                      $ 1,508,558

PROPERTY AND EQUIPMENT, NET                                              63,916

GOODWILL, NET                                                           125,651
                                                                    -----------
                                                                    $ 1,698,125
                                                                    ===========
         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Note payable                                                     $   823,811
   Accounts payable                                                     271,379
   Accrued liabilities                                                   61,005
   Deferred revenue                                                      45,679
                                                                    -----------
          Total current liabilities                                 $ 1,201,874
                                                                    -----------

STOCKHOLDERS' EQUITY:
   Preferred stock, 4,000,000 shares authorized-
      Series B convertible, $0.001 par value,
        2,000,000 shares authorized, 1,680,880
        shares issued and outstanding                                     1,681
      Series M convertible, $0.001 par value,
        50,000 shares authorized, 50,000 shares
        issued and outstanding                                               50
   Common stock, $0.001 par value, 15,000,000
        shares authorized, 625,448 shares issued
      and outstanding                                                       626
  Additional paid-in capital                                          2,270,297
  Accumulated deficit                                                (1,776,403)
                                                                    -----------
       Total stockholders' equity                                       496,251
                                                                    -----------
                                                                    $ 1,698,125
                                                                    ===========

</TABLE>

      The accompanying notes are an integral part of this balance sheet.

<PAGE>   60

                 B.1. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

                        FOR THE YEAR ENDED JULY 31, 1997

<TABLE>
<CAPTION>

<S>                                                                 <C>

REVENUE                                                             $ 2,276,421

COST OF REVENUE                                                         861,665
                                                                    -----------
        Gross profit                                                  1,414,756
                                                                    -----------

OPERATING EXPENSES:
   Research and development                                             637,178
   Sales and marketing                                                1,148,838
   General and administrative                                         1,064,687
   Unusual charge                                                     1,182,575
                                                                     ----------
        Total operating expenses                                      4,033,278
                                                                     ----------
        Loss from operations                                         (2,618,522)
                                                                     ----------
OTHER EXPENSE:
  Interest                                                              306,338
  Other                                                                  55,989
                                                                     ----------
         Total other expense                                            362,327
                                                                     ----------
         Loss before taxes and extraordinary gain                    (2,980,849)

CREDIT FOR INCOME TAXES                                                (637,776)
                                                                     ----------
         Loss before extraordinary gain                              (2,343,073)

EXTRAORDINARY GAIN - Forgiveness of debt, net of
  tax expense of $641,000                                             1,245,691
                                                                     ----------
NET LOSS                                                            $(1,097,382)
                                                                    ===========
</TABLE>

        The accompanying notes are an integral part of this statement.

<PAGE>   61

                  B.I. SYSTEMS CORPORATION, INC. AND SUDSIDIARIES

                 CONSOLIDATED STATEMENT OR STOCKHOLDERS' EQUITY

                        FOR THE YEAR ENDED JULY 30, 1997

<TABLE>
<CAPTION>

                                                         Series A              Series B           Series H
                                                       Convertible           Convertible         Convertible
                                                        Preferred             Preferred           Preferred
                                                          Stock                 Stock               Stock
                                                    ----------------      ----------------    ----------------
                                                    Shares    Amount      Shares    Amount    Shares    Amount
                                                    ------    ------      ------    ------    ------    ------
<S>                                                <C>        <C>         <C>       <C>       <C>       <C>

BALANCE AS OF JULY 31, 1996                        1,250,000  $1,250        -     $   -         -       $  -

  1 for 97.103 reverse stock split                      -       -           -         -         -          -
  Common stock issued on conversion of Series A
    preferred stock                               (3,250,000) $1,250        -         -         -          -

  Series B preferred and common stock issued on
    conversion of notes payable                         -       -        413,169      413       -          -

  Series B preferred stock issued for cash              -       -      1,267,711    1,268       -          -

  Series M preferred stock issued on conversion
    of notes payable                                    -       -           -        -        50,000       50

  Common stock issued on conversion of
    subordinated debt                                   -       -           -        -          -          -

  Common stock issued on settlement of
    accounts payable                                    -       -           -        -          -          -

  Common stock issued in connection with the
    acquisition of BioPhotonics, Inc.                   -       -           -        -          -          -

  Net loss for the period                               -       -           -        -          -          -
                                                  ---------  ------    ---------  -------     ------    -----
BALANCE AS OF JULY 31, 1997                             -     $ -      1,690.880  $ 1,681     50,000    $  50
                                                  =========  ======    =========  =======     ======   ======
</TABLE>

<TABLE>
<CAPTION>

                                                                           Additional
                                                      Common Stock          Paid-In        Accumulated
                                                    ----------------
                                                    Shares    Amount        Capital          Deficit        Total
                                                    ------    ------       ---------       -----------      -----
<S>                                                <C>         <C>        <C>            <C>           <C>
BALANCE AS OF JULY 31, 1996                        $ 3,043,500  $ 3,044   $ 499,127      $(1,407,747)  $  (934,326)

  1 for 97.103 reverse stock split                  (3,011,772)  (3,012)      3,012             -             -
  Common stock issued on conversion of Series A
    preferred stock                                     45,821       46       1,201             -             -

  Series B preferred and common stock issued on
    conversion of notes payable                        200,986      201     426,624             -          427,238

  Series B preferred stock issued for cash                -        -      3,266,443                      1,267,711

  Series M preferred stock issued on conversion
    of notes payable                                      -        -         49,950            -            50,000

  Common stock issued on conversion of
    subordinated debt                                  249,813      249      17,168         644,643        662,060

  Common stock issued on settlement of
    accounts payable                                    13,100       13         904          84,083         85,000

  Common stock issued in connection with the
    acquisition of BioPhotonics, Inc.                   85,000       85       5,865            -             5,950

  Net loss for the period                                 -        -           -         (1,097,382)    (1,097,382)
                                                   -----------  -------  ----------     -----------    -----------
BALANCE AS OF JULY 31, 1997                            625,448  $   624  $2,270,297     $(1,776,403)    $  496,251
                                                   ===========  =======  ==========     ===========    ===========
</TABLE>

         The accompanying notes are an integral part of this statement.
<PAGE>   62

                 B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                          FOR THE YEAR ENDED JULY 31, 1997

<TABLE>
<S>                                                                 <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                          $(1,097,382)
  Adjustments to reconcile net loss to net cash
    provided by operating activities-
      Unusual charge                                                  1,182,575
      Depreciation and amortization                                     258,144
      Interest expense forgiven under recapitalization                  248,052
      Extraordinary gain on forgiveness of debt                      (1,886,691)
      Increase (decrease) in cash resulting from
        changes in assets and liabilities-
          Accounts receivable                                           396,430
          Inventories                                                  (112,111)
          Prepaid expenses and other                                     (2,349)
          Accounts payable                                              119,484
          Accrued liabilities                                            26,563
          Deferred revenue                                              (38,769)
                                                                     ----------
            Net cash used in operating activities                      (906,054)
                                                                     ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of certain assets of BioPhotonics, Inc.                  (302,300)
  Purchase of property and equipment                                    (38,905)
                                                                     ----------
            Net cash used in investing activities                     (341,205)
                                                                     ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of Series B convertible
    preferred stock                                                   1,267,711
  Borrowings under note payable to bank                                  22,000
  Proceeds from bridge financing                                        350,000
                                                                     ----------
            Net cash provided by financing activities                 1,639,711
                                                                     ----------
NET INCREASE IN CASH                                                    392,452
CASE AND CASH EQUIVALENTS AS OF BEGINNING OF PERIOD                     183,386
                                                                     ----------
CASE AND CASH EQUIVALENTS AS OF END OF PERIOD                        $  575,838
                                                                     ==========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITY
  Cash paid during the year for interest                             $   85,000
                                                                     ==========

</TABLE>

         The accompanying notes are an integral part of this statement.

<PAGE>   63

                B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES

                         NOTES TO FINANCIAL STATEMENTS

(1)   DESCRIPTION OF BUSINESS

        B.I. Systems Corporation, Inc. (the "Company") designs, develops,
          manufactures and markets instrumentation, software, hardware and
          related products for quantifying and analyzing biomolecules, such as
          DNA, RNA and proteins. The Company's products are frequently used for
          typing, mapping and sequencing genes, discovering and developing
          pharmaceutical compounds, and diagnosing genetic and infectious
          diseases. The Company's customers are typically pharmaceutical and
          biotechnology companies, universities and government institutions. The
          Company was incorporated in June 1994. On July 26, 1994, the Company
          purchased certain assets, including software, inventory and fixed
          assets, from the Bio Image business unit ("Bio Image") of Millipore
          Corporation ("Millipore").

        The Company has three wholly-owned subsidiaries,  incorporated in
          Michigan, which operate sales offices in Europe, North America and the
          Asian Pacific areas. Revenues from software licensing, hardware sales
          and support services were derived from Europe (15%), North America
          (35%), and the Asian Pacific areas (50%).

        The accompanying financial statements have been prepared assuming that
          the Company will continue as a going concern. The Company may be
          unable to continue as a going concern due to significant operating
          losses. Furthermore, the Company is in the early phases of
          implementing its operating strategy and its future success is subject
          to several technical and business risks including customer acceptance,
          availability and retention of key employees, competition,
          technological changes and additional financing adequate to support
          operations. In December 1997, the Company received letters of intent
          from existing stockholders and a new stockholder to provide a total of
          $6.5 million of equity financing beginning in December 1997.
          Additionally, the Company has hired three new executives; a President
          in March 1997, a Chief Financial Officer in November 1997, and an
          Executive Vice President of Global Marketing and Sales in December
          1997. The accompanying financial statements do not include any
          adjustments that might be necessary should the Company be unable to
          continue as a going concern.

(2) SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation

       The consolidated financial statements include the accounts of the
          Company and its wholly-owned subsidiaries. All significant
          intercompany balances and transactions have been eliminated in
          consolidation.

     Foreign Currency Translation

       Foreign currency transaction losses resulting from sales in foreign
          denominated currencies totaled approximately $52,000 and are included
          in other expense in the accompanying statement of operations. Accounts
          receivable denominated in foreign currencies as of July 31, 1997 have
          been translated at the exchange rates existing at that date.

<PAGE>   64
                B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)

       Revenue Recognition

          The Company recognizes revenue from contracts for sales of software
          licenses, hardware and training upon shipment of goods or completion
          of services. Agreements for service and support are recognized over
          the period in which support services are provided on a straight-line
          basis.

       Inventories

          Inventories consist primarily of purchased components are stated at
          the lower of cost, as determined on a first-in, first-out basis, or
          market.

       Property and Equipment

          Property and equipment are recorded at cost. Depreciation is provided
          on a straight-line basis over the estimated useful lives of the
          related assets which generally ran from three to seven years.

       Goodwill

          Goodwill resulted from the acquisition of BioPhotonics in 1997 (see
          Note 11) and is being amortized on a straight-line basis over ten
          years.

          At each balance sheet date, the Company evaluates the carrying value
          of goodwill and other long-lived assets for impairment whenever events
          or changes in circumstances indicate that the carrying value may not
          be recoverable. In 1997, the Company wrote-off approximately $829,000
          of goodwill and other intangible assets as a result of this evaluation
          which is included in the unusual charge on the accompanying statement
          of operations.

       Software Development Costs

          The Company accounts for software development costs in accordance with
          Statement of Financial Accounting Standards (SFAS) No. 86. Under SFAS
          No. 86, capitalization of software development costs begins upon the
          establishment of technological feasibility. Technological feasibility
          for the Company's software products is based upon achievement of
          detailed designs, free of high-risk development issues. The Company
          amortizes capitalized software development costs on a
          product-by-product, straight-line basis over the remaining estimated
          economic life of the related products which is generally a maximum of
          three years. In 1997, capitalized software development costs totaling
          approximately $354,000 were written off as it was determined that
          certain products had no remaining economic life. This charge is
          included in the unusual charge on the accompanying statement of
          operations.

<PAGE>   65

                B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES

                         NOTES TO FINANCIAL STATEMENTS
                                  (Continued)

      Stock-Based Compensation

          The Company accounts for stock-based compensation using the intrinsic
          value method prescribed under Accounting Principles Board Opinion No.
          25 (APB 25), "Accounting for Stock Issued to Employees." Accordingly,
          compensation cost for stock options is measured as the excess, if any,
          of the fair value of the Company's common stock at the date of the
          grant over the amount the employee must pay to acquire the stock. As
          supplemental information, the Company has provided pro forma
          disclosure of the fair value at the date of grant of stock options
          granted during 1997 in Note 9, in accordance with the requirements of
          Statement of Financial Accounting Standards No. 123 (SFAS 123),
          "Accounting for Stock-Based Compensation."

      Management Estimates

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial statements and the reported amounts of revenues
          and expenses during the reporting period. Actual results could differ
          from those estimates.

(3)  PROPERTY AND EQUIPMENT

     As of July 31, 1997, property and equipment consists of the following:

<TABLE>
<S>                                                        <C>
        Furniture and fixtures                             $  27,378
        Computer equipment                                   457,103
        Office equipment                                       6,691
                                                           ---------
                                                             491,172
        Less - Accumulated depreciation                     (427,256)
                                                           ---------
                                                           $  63,916
                                                           =========
</TABLE>

<PAGE>   66

                B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)

(4)  NOTE PAYABLE

      The Company has a note payable to a bank which is payable in full in
          April 1998. Interest is payable monthly at the bank's prime rate plus
          1.75% (effective rate of 10.25% as of July 31, 1997). The note is
          collateralized by substantially all of the Company's assets.

      The loan agreement subjects the Company to various financial and
          nonfinancial covenants, the most restrictive of which require the
          Company maintain certain levels of tangible net worth and current
          ratios. As of July 31, 1997, the company was in compliance with all
          covenants.

(5) INCOME TAXES

      The components of the provision for income taxes are as follows:
<TABLE>
<S>                                                 <C>
          Currently payable                         $   3,224
          Deferred credit                            (347,500)
          Increase in valuation allowance             347,500
                                                    ---------
                                                    $   3,224
                                                    =========
</TABLE>

      The effective tax rate differs from the statutory tax rate primarily due
          to certain nondeductible expenses and recognition of a valuation
          allowance against the tax benefit of net operating loss carryforwards
          and other tax benefits.

      The net deferred income tax asset is summarized as follows:

<TABLE>
<S>                                                  <C>
          Net operating loss  carryforward           $ 274,100
          Purchased  software                          231,200
          Research and  development credit              24,700
          Organization costs                            23,700
          Depreciation and amortization                 18,700
          Accounts receivable                           13,000
                                                     ---------
                                                       585,400
          Less- Valuation allowance.                  (585,400)
                                                     ---------
                                                     $    -
                                                     =========
</TABLE>

      The Company has an available net operating loss carryforward of
          approximately $806,000 which can be utilized to offset future taxable
          income and expires in 2011 through 2012. This and other deferred
          income tax assets are fully reserved by a valuation allowance as
          realizability of these tax benefits is not assured. Additionally,
          utilization of the net operating loss carryforward may be limited
          under Section 382 of the Internal Revenue Code.

<PAGE>   67

                 B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)

(6)   RECAPITALIZATION

       In April 1997, the Company amended its Articles of Incorporation pursuant
          to which the majority of the Company's outstanding debt and all
          outstanding shares of Series A preferred stock were restructured (the
          "Recapitalization"). Significant components of the Recapitalization,
          together with the applicable accounting effects, were as follows:

          (1)  The Company initiated a reverse stock split issuing one share of
               common stock for every 97.103 shares of outstanding common
               stock.

          (2)  Notes payable, bridge loan financing obtained during 1997 and
               accrued interest totaling $413,169 were converted to 413,169
               shares of Series B preferred stock at $1 per share. The Company
               also issued 200,986 shares of common stock to these creditors.

          (3)  The Company issued 1,267,711 shares of Series B preferred stock
               at $1 per share for cash.

          (4)  All outstanding shares of Series A preferred stock were converted
               to 45,821 shares of common stock.

          (5)  Subordinated convertible debt of $1,200,000 and accrued interest
               of $429,027, payable to both stockholders (defined as
               stockholders with greater than 10% ownership interest) and
               non-stockholders, was converted to 248,813 shares of common stock
               at $0.07 per share. The difference between the carrying value of
               the debt and the fair value of the common stock issued to
               existing stockholders of $644,643 has been credited directly to
               retained earnings. The difference between the carrying value of
               the debt and the fair value of the common stock issued to
               non-stockholders of $966,967 is included in extraordinary gain in
               the accompanying statement of operations.

          (6)  Accounts payable to stockholders for professional services
               rendered totaling $85,000 was converted to 13,100 shares of
               common stock at $0.07 per share. The difference between the fair
               value of the common stock and amounts owed of $84,083 has been
               credited directly to retained earnings.

          (7)  A note payable to Millipore and accrued interest totaling
               $983,764 was converted to 50,000 shares of Series M preferred
               stock at $1 per share. The difference between the carrying value
               of the debt and the fair value of the common stock of $933,764 is
               included in extraordinary gain in the accompanying statement of
               operations.

<PAGE>   68

                 B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)

      (7)  PREFERRED STOCK

             As a result of the Recapitalization, the Company's preferred stock
               contains two series, Series B and Series M, and provide the
               following rights, preferences, privileges and restrictions:

           Dividends

             The holders of shares of Series B and Series M preferred stock are
                not entitled to any dividends.

           Conversion

             Each share of Series B and Series M preferred stock shall be
               convertible, at the holder's option, into such number of common
               shares as is determined by dividing the original Series B and M
               issue prices by $0.33 and $1.111, respectively. These conversion
               factors are subject to adjustment upon any recapitalization of
               the Company's common stock, as defined.

             Conversion of Series B and Series M preferred stock will occur
               automatically upon the consummation of the sale of the Company's
               common stock in a registration statement in connection with an
               initial public offering, as defined.

           Voting Rights

             The holders of Series B preferred stock have the right to one
               vote for each share of common stock into which such Series B
               preferred stock could then be converted. The holder of Series M
               preferred stock have no voting rights.

           Liquidation Preference

             In the event of any liquidation, dissolution or winding up of the
               affairs of the Company, either voluntarily or involuntarily, the
               holders of Series B and M preferred stock are entitled to
               receive, prior to and in preference to any distributions to the
               holders of common stock, an amount initially equal to $1 and, $6
               per share, respectively, subject to adjustment upon any
               recapitalization of the Company's common stock, as defined. The
               holders of Series B preferred stock are also entitled to receive,
               prior to and in preference to any distributions to the holders of
               common stock, an amount per share equal to 8% of the original
               issuance price of Series B preferred stock.

<PAGE>   69

                 B.I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)

 (8)   COMMON STOCK

             The Company has reserved for issuance such number of shares of
               its authorized but unissued common stock necessary to effect
               conversion of all outstanding shares of Series B and M preferred
               stock and exercise of all outstanding options.

 (9)   STOCK OPTION PLAN

             Effective 1994, the Company established a stock option plan (the
               Plan) to increase its ability to attract and retain key employees
               as well as provide an incentive for certain consultants and
               directors to invest in the Company. Options granted may be either
               incentive stock options, which are granted at the fair market
               value of the common stock on the date of grant (as determined
               under the Plan), or nonqualified stock options, which are
               generally granted at the fair market value of the common stock on
               the date of grant. Options are granted at the discretion of Board
               of Directors. The maximum number of shares that may be granted
               under the Plan is 1,590,000. Options granted become exercisable
               at a rate of 33% per year over three years from the date of
               grant. As of July 31, 1997, 43,500 options have been exercised.

             The Company accounts for the Plan under APB Opinion No. 25, under
               which no compensation expense has been recognized. Had
               compensation expense been determined consistent with SFAS
               No. 123, the Company's reported net loss of $1,097,382 would have
               been increased to a net loss of $1,098,845. This pro forma result
               may not be representative of that to be expected in future
               periods.

             Information concerning stock options for the year ended July 31,
               1997, is as follows:
<TABLE>
<CAPTION>
                                                                                       Weighted
                                                                       Price            Average
                                                        Number of       Per            Exercise
                                                          Shares       Share             Price
                                                        ---------      -----           ---------

<S>                                                    <C>             <C>             <C>
                   Outstanding at July 31, 1996          675,750       $0.07             $0.07
                       Options granted                 1,517,100       $0.07             $0.07
                       Options cancelled                (693,250)      $0.07             $0.07
                       Options exercised                    -
                                                       ---------
                   Outstanding at July 31, 1997        1,499,600       $0.07             $0.07
                                                       =========
                   Exercisable at July 31, 1997          166,622       $0.07             $0.07
                                                       =========

</TABLE>
<PAGE>   70

                B. I. SYSTEMS CORPORATION, INC. AND SUBSIDIARIES

                            NOTES TO FINANCIAL STATEMENTS (Continued)

                (10)    EMPLOYEE BENEFIT PLAN

                         The Company has a 401(k) plan covering all eligible
                           employees. Participants may elect to defer a certain
                           percentage of qualified compensation through
                           voluntary contributions to the plan and the Company
                           may make discretionary contributions to the plan
                           based on the gross compensation of qualified
                           participants. The Company made no contributions to
                           the plan in 1997.

               (11)    ACQUISITION OF BIOPHOTONICS, INC.

                         In June 1997, the Company acquired substantially all
                           assets of BioPhotonics, Inc. in exchange for $302,300
                           in cash and 85,000 shares of common stock at $O.07
                           per share. The Company has accounted for the
                           acquisition as a purchase and has allocated the
                           purchase price over the assets acquired based on
                           their respective fair market values. The excess of
                           the purchase price over the fair value of the net
                           assets acquired of approximately $126,000 has been
                           recorded as goodwill (see Note 2).

<PAGE>   71

                                Schedule 3.9(ii)

See attached management's interim financial statements, dated November 30, 1997.

<PAGE>   72

                                                                SCHEDULE 3.9(ii)

                            B.I. Systems Corporation
                                  Balance Sheet
                            As of November 30, 1997

<TABLE>
<S>                                            <C>
                                       ASSETS

Current Assets
   Cash                                                $113,440.76
   Accounts Receivable -Trade (Net)                     605,965.98
   Accounts Receivable - Other                            4,500.00
   Inventory                                            489,564.23
   Prepaid & Other Expenses                              41,372.66
                                                  ----------------
Total Current Assets                                                  $1,258,843.63

Long Term Assets:

  Property & Equipment                                 $500,410.65
    Less: Accumulated Depreciation                     (451,189.10)
                                                  -----------------
          Net property & Equipment                      $49,221.55
Capitalized S/W & Intangibles                           175,651.00
   Less: Accumulated Amortization                        (4,188.45)
                                                -------------------
          Net Capitalized Software                     $121,462.55
                                                -------------------

Total Long Term Assets                                                  $170,684.10
                                                                    ----------------
Total Assets                                                          $1,429,527.73
                                                                    ================

                                LIABILITIES & EQUITY

Current Liabilities:
   Accounts Payable - Trade                            $254,265.36

   Accounts Payable Other                               106,062.11
   Notes Payable                                        923,811.00
   Interest Payable                                         161.29
   Taxes Payable                                         74,629.67
   Deferred Revenue                                      36,328.74
                                                  -----------------
      Total Current Liabilities                                       $1,395,258.19

Shareholders's Equity
  Preferred Stock                                        $1,731.35
  Common Stock $.001 Par Value                              626.00
  Add'l Pd In Capital                                 2,270,296.65
  Retained Earnings                                  (1,776,401.42)
  Net Profit / (Loss)                                 (461,963.041
                                                 ------------------
     Total Equity                                                        $34,269.54
                                                                      --------------
     Total Liabilities & Equity                                       $1,429,527.73
                                                                      ==============
</TABLE>
<PAGE>   73

                            B.I. Systems Corporation

                                Income Statement
                                For All Locations
               For the period November 1, 1997 to November 30, 1997

<TABLE>
<CAPTION>
                                        Current Period  Current Period   Current Period        YTD              YTD          YTD
                                            Actual          Budget          Variance          Actual           Budget      Variance
     <S>                               <C>              <C>             <C>                <C>            <C>             <C>
      Sales                              $170,590.48      $502,400.00     ($331,809.52)     $855,965.79    $1,337,500.00      481

      Cost of Sales                        78,061.25       176,735.00       (96,673.75)      243,563.76       418,031.00     (174
      Gross Margin                        $92,529.23      $325,665.00     ($233,135.77)     $612,402.03      $919,469.00     $207
      Direct Expenses:

        Administration                    $44,084.79       $62.375.00       ($18,290.21)    $164,038.92      $209,926.00     (545
        Finance & Accounting               19,748.06         7,132.00         12,616.06       53,256.70        42,528.00       10
        Software Development               26,732.28        32,231.00         (5,498.72)     110,624.13       140,974.00      (30
        Marketing                          41,376.36        38,221.00          3,156.36      174,589.13       221,503.00      (46
        Engineering                        25,430.72        27,400.00         (1,969.28)      98,161.01       116,936.00      (18
        North America                      61,487.49        66,066.00         (6,578.51)     197,618.07       227,502.00      (29
        Europe                              5,274.07              .00          5,274.07       64,343.20        58,897.00
        Rest of world                       7,057.69        15,877.00         (8,819.31)      35,616.23        49,503.00
        Japan                              36,205.18        34,900.00          1,305.18      128,876.18       135,200.00
                                      --------------- ---------------   --------------- ---------------  ---------------  -------

      Total Allocated Direct Expense     $267,396.64      $286,202.00       ($18,805.36)  $1,027,123.57    $1,202,969.00    ($l75,
                                      --------------- ---------------   --------------- ---------------  ---------------  -------
                                        ($174,867.41)      $39,463.00      ($214,330.41)   ($414,721.54)    ($283,500.00)  (3,132,
        Depreciation/Amortization         (13,428.11)       15,040.00        (28,468.11)      56,483.98        60,160.00       (3,
                                      --------------- ---------------   --------------- ---------------  ---------------  -------
      Total Depr. & Amort.               ($13,428.11)      $15,040.00       ($28,468.11)     $56,483.98       $60,160.00     ($3,
                                      --------------- ---------------   --------------- ---------------  ---------------  -------
      EBIT                              ($161,439.30)      $24,423.00      ($185,862.30)   ($471,205.52)    ($343,560.00)   $127,

      Other (Income) / Expense:
        Other (Income) / Expense           $3.854.36       ($1,300.00)        $5,154.36      ($9,222.48)      ($5,200.00)     ($4,
                                      --------------- ---------------   --------------- ---------------  ---------------  -------

      Net Other (Income) / Expense         $3,854.36       ($1,300.00)        $5,154.36      ($9,222.48)      ($5,200.00)     ($4,
                                      --------------- ---------------   --------------- ---------------  ---------------  -------
      Pretax Income                     ($165,293.66)      $25,723.0O      ($19l,016.66)   ($461,983.04)    ($338,460.00)   ($123,
                                      --------------- ---------------   --------------- ---------------  ---------------  -------
          Net Income                    ($165,293.66)      $25,723.00      ($191,016.66)   ($461,983.04)    ($338,460.00)   ($123,
                                      =============== ===============   =============== ===============  ===============  =======
</TABLE>

<PAGE>   74

                             B I SYSTEMS CORPORATION
                               CASH FLOW STATEMENT
                        FOR MONTH ENDED November 30, 1997

<TABLE>
<S>                                                                            <C>          <C>
    Cash flows from operating activities:
                Net Income                                                                   (165,294)
                Adjustments to reconcile net income to net cash
                used in operating activities:
                            Depreciation and Amortization                       (20,111)
                            Increase in Accounts Receivable                      70,230
                            Decrease in Prepaid Expense                           1,423
                            Increase in Inventory                                18,922
                            Increase In Accounts Payable                         54,050
                            Increase In Deferred Revenue                         (4,562)
                            Decrease in Accrued Interest                            161
                            Increase in Deferred Tax Liability
                            Increase in Notes Payable                           100,000
                                       Total Adjustments                                      220,114
                                                                                           ----------
                                       Net Cash provided by operating activities               54,820
    Cash flows from investing activities:
                Capital Expenditures                                                  -
                Debt Converted to Equity                                              -
                Additional Paid in Capital/Stock Purchased                            0
                                                                                -------
                                       Net Cash provided by investing activities                    0
                                                                                           ----------
    Net increase/decrease in cash and cash equivalents                                         54,821
    Cash and cash equivalents at beginning of month                                           $58,621
    Cash and cash equivalents at end of month                                              ----------
                                                                                              113,442
                                                                                           ==========
</TABLE>

<PAGE>   75

                                SCHEDULE 3.11(ii)

     Per the License Agreement with Computational Biosciences, the Corporation
has committed to issue 40,000 shares of common stock. This Agreement is
referenced in Schedule 3.15 and has been previously supplied or will be supplied
upon request.

     The Corporation signed on December 19, 1997 a definitive Agreement for the
sale and purchase of the entire issued share capital of PBA Technology
Limited. This Agreement has been previously supplied or will be supplied upon
request.

<PAGE>   76

                                  SCHEDULE 3.12

                National Bank of Detroit ("NBD") Term Loan. The Company intends
to fully pay-off the outstanding balance ($823,811) of the Term Loan upon
completion of the Series C Preferred Stock offering. For a description of the
terms of the Term Loan, see Note 4 of the Notes to Financial Statements which
are part of the July 31, 1997 financial statements.

<PAGE>   77

                                  SCHEDULE 3.15

List of Agreements (Unless previously provided, copies of these agreements are
available upon request of the Secretary of the Corporation or its legal
counsel.)

3.15          1994 Omnibus Equity Incentive Plan ("Stock Option Plan").
3.15(i)       401(k) Profit Sharing Plan and Trust.
3.15(ii)      Jeffrey S. Williams Employment Agreement. Terms finalized and
              agreement currently being drafted. Final employment agreement to
              be attached upon its completion.
3.15(iii)     Jeffrey Stiegman Employment Agreement.
3.15(iv)      Promissory notes issued to certain shareholders, who also serve as
              directors of the Corporation. These notes will be fully repaid in
              exchange for Series C Preferred Stock.
3.15(v)       Computational Biosciences Agreement.
3.15(vi)      List of distributors.
3.15(vii)     BioSpace Mesures Distribution Agreement.
3.15(viii)    List of Leased Corporate Facilities.
3.15(ix)      Bioseparations Agreement
3.15(x)       List of Non-Disclosure Agreements
3.15(xi)      Other leases: Dell computer leases; one for laptop and one for
              desktop PC; Telephone and UPS System lease.

ITEM:         COMMENT:
3.15(ix)      Bio Image to supply segmentation software under license agreement
              with BioSeparations Inc. This is an exclusive license, in the
              field of cell imaging, for the segmentation software required for
              cell location in an imaging system. B.I. Systems Corp. is to
              receive 1% royalty on revenue of the direct sales of
              BioSeparations Scanning and Analysis System. In addition, the
              Company received 15,000 shares of BioSeparations Series "B"
              Preferred Stock.
3.15(vii)     Biospace Mesures - B.I. Systems to distribute Biospace products in
              North America and Japan. B.I. Systems has exclusive distribution
              rights.

<PAGE>   78
                                                                   SCHEDULE 3.15

                              LIST OF DISTRIBUTORS

ITEM:                COMMENT:

 3.15(vi)            Distributors of Bio Image Products:
                                     1. MWG
                                     2. Manufacturers Reps. In North America -
                                     Approx. 17 reps.
                                     3. Research Instruments
                                     Ptd., Ltd. - Singapore, Malaysia
                                     4. Feng Jih Biomedical & Instruments Co.
                                     Ltd. - Taiwan
                                     5. Cor Bio - Korea
                                     6. SATECH -  Middle East
                                     7. Bio Tech s.r.o. - Czech Republic
                                     8. Ikeda Rika K. K. - Japan
                                     Nihon Bio Image sells primarily through
                                     distributors in Japan. Approx. 30
                                     distributors.

<PAGE>   79

                                    SCHEDULE 3.15(viii)

                             LEASED CORPORATE FACILITIES

                   Leased Facilities

1.)                Main Corporate offices which house - Sales, Marketing,
                   Software Development, Accounting and Administration.
                   Address:     525 Avis Drive, Suite 10
                                Ann Arbor, MI 48108

2.)                Production and Engineering groups are located at a separate
                   facility.
                   Address:     7300 W. Huron River Drive
                                Dexter, MI 48130

3.)                The Company entered into a new property lease agreement on
                   August 7, 1997. The Company will consolidate from its Avis
                   Drive and W. Huron River Drive locations into this one single
                   facility. The Company plans to move into this new space
                   between December 18, 1997 and January 5, 1998.
                   Address:     4355 Varsity Drive, Suite E
                                Ann Arbor, MI 48108

4.)                Office facility in Tokyo, Japan for only one sales manager
                   and one marketing rep.

Note:   a.)        Copies of property leases for items 1, 2 & 3 have been
                   previously provided or are available upon request.
        b.)        Corporate sales reps located outside Michigan work out of
                   their homes.

<PAGE>   80
                                                                 SCHEDULE 3.15.X

[BIO IMAGE LETTERHEAD]

                      LIST OF NON - DISCLOSURE AGREEMENTS

      1. Biotechnology Business Consultants, LLC.

      2. ESA, Inc.

      3. Gene Logic Inc.

      4. Kloehn Company Ltd.

      5. Mosaic Technologies

      6. PBA Technology

      7. The Regents of the University of Michigan

<PAGE>   81

                                  SCHEDULE 3.16

   ITEM:          COMMENT:
   3.16           Have applied for "Early Disclosure" designation with the US
                  patent office for the GeneTAC(TM) 2000.

                  Our Intellectual property includes:
                                 -   Proprietary software and image analysis
                                     algorithms. All software is copyrighted.
                                     The source code is updated monthly and
                                     stored offsite.
                                 -   "Bio Image" and logo design registered
                                     trademarks in USA and Japan.
                                 -   Common law trademarks include:
                                        Visage(TM), GelPrint(TM), GeneTAC(TM),
                                        Virtual 2-D(TM), Genomic Integrator(TM),
                                        Advanced Quantifier(TM), Intelligent
                                        Quantifier(TM), & Array Manager(TM)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00008-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00008-of-00352.parquet"}]]