Document:

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                                                                   EXHIBIT 10.11

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.

                          THE NATIONAL REGISTRY INC.

                              WARRANT CERTIFICATE

                              Dated July 23, 1999

     THE NATIONAL REGISTRY INC., a Delaware corporation (the "Company"), hereby
certifies that, for value received, ____________, or its registered assigns
("Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company up to a total of ________ shares of Common Stock, $.01 par value per
share (the "Common Stock"), of the Company (each such share, a "Warrant Share"
and all such shares, the "Warrant Shares") at an exercise price equal to $1.00
per share (as adjusted from time to time as provided in Section 7) ( the
"Exercise Price"), at any time and from time to time from and after the date
hereof and through and including ______, 2001 (the "Expiration Date"), and
subject to the following terms and conditions:

          1. REGISTRATION OF WARRANT. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.

          2. REGISTRATION OF TRANSFERS AND EXCHANGES. (a) The Company shall
register the transfer of any portion of this Warrant in the Warrant Register,
upon surrender of this Warrant, with the Form of Assignment attached hereto duly
completed and signed, to the Company at the office specified in or pursuant to
Section 3(b). Upon any such registration or transfer, a new warrant to purchase
Common Stock, in substantially the form of this Warrant (any such new warrant, a
"New Warrant"), evidencing the

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portion of this Warrant so transferred shall be issued to the transferee and a
New Warrant evidencing the remaining portion of this Warrant not so transferred,
if any, shall be issued to the transferring Holder. The acceptance of the New
Warrant by the transferee thereof shall be deemed the acceptance of such
transferee of all of the rights and obligations of a holder of a Warrant.

          (b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.

       3. DURATION AND EXERCISE OF WARRANTS.

          (a) This Warrant shall be exercisable by the registered Holder on any
business day before 5:30 P.M., New York time, at any time and from time to time
on or after the date hereof to and including the Expiration Date. At 5:30 P.M.,
New York time on the Expiration Date, the portion of this Warrant not exercised
prior thereto shall be and become void and of no value.

          (b) Subject to Sections 2(b), 4 and 8, upon surrender of this Warrant,
with the Form of Election to Purchase attached hereto duly completed and signed,
to the Company at its office at 2502 Rocky Point Drive, Suite 100, Tampa,
Florida 33607, Attention: Chief Financial Officer, or at such other address as
the Company may specify in writing to the then registered Holder, and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, in lawful money of the United States
of America, in cash or by certified or official bank check or checks, all as
specified by the Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 3 business days after the date of exercise)
issue or cause to be issued and cause to be delivered to or upon the written
order of the Holder and in such name or names as the Holder may designate, a
certificate for the Warrant Shares issuable upon such exercise. Any person so
designated by the Holder to receive Warrant Shares shall be deemed to have
become holder of record of such Warrant Shares as of the Date of Exercise of
this Warrant.

          A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.

          (c) This Warrant shall be exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares so long as at least
10,000 Warrant Shares are purchased in any one exercise. If less than all of the
Warrant Shares which may be purchased under this Warrant are exercised at any
time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.

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          (d) This Warrant shall only be exercisable if, and shall be only
exercisable to the extent, it is legal to do so because, among other things, the
Warrant Shares are registered pursuant to a registration statement which has
been declared effective by the Securities and Exchange Commission, and which is
still effective on the applicable date of exercise, or the issuance of such
Warrant Shares are exempt from the registration requirements of the Securities
Act of 1933, as amended.

       4. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.

       5. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen or
destroyed, the Company may in its discretion issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.

       6. RESERVATION OF WARRANT SHARES. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders (taking into account the adjustments
and restrictions of Section 7). The Company agrees to use its best efforts to
ensure that all Warrant Shares that shall be so issuable and deliverable shall,
upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.

       7. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 7. Upon each such adjustment of the Exercise
Price pursuant to this Section 7, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.

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         (a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its securities ranking junior as to dividend distributions and
distributions upon the liquidation, winding up and dissolution of the Company
("Junior Securities") payable in shares of Common Stock, (ii) subdivide
outstanding shares of Common Stock into a larger number of shares, or (iii)
combine outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price shall be multiplied by a fraction of which the numerator shall be
the number of shares of Common Stock (excluding treasury shares, if any, but
including warrants or options that would be included for purposes of determining
earnings per share in accordance with generally accepted accounting principals)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock (excluding treasury shares, if any, but including
warrants or options that would be included for purposes of determining earnings
per share in accordance with generally accepted accounting principals)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.

         (b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to give to the Holder
the right to receive the securities or property set forth in this Section 7(b)
as part of such reclassification, consolidation, merger, sale, transfer or share
exchange.

         (c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets (other than cash dividends) or
rights or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 7(a), (b) and (d)), then in each such case the Exercise
Price shall be determined by multiplying the Exercise Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Exercise Price determined as of the record date mentioned above,
and of which the numerator shall be such Exercise Price on such record date less
the then fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share of
Common Stock as determined by a nationally recognized or major regional
investment banking firm or firm of independent certified

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public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "APPRAISER") selected in
good faith by the Company.

         (d)  If, at any time while this Warrant is outstanding, the Company
shall issue or cause to be issued rights or warrants to acquire or otherwise
sell or distribute shares of Common Stock to all holders of Common Stock for a
consideration per share less than the Exercise Price then in effect, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to the
price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon such
issue or sale by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.

         (e)  For the purposes of this Section 7, the following clauses shall
also be applicable:

                    (i)   RECORD DATE. In case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
Convertible Securities, or (B) to subscribe for or purchase Common Stock or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

                    (ii)  TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.

         (f)  All calculations under this Section 7 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.

         (g)  Whenever the Exercise Price is adjusted pursuant to Section 7(c)
above or Section 7(i) below, the Company, after receipt of the determination by
the Appraiser shall have the right to select an additional Appraiser, in good
faith, in which case the adjustment shall be equal to the average of the
adjustments recommended by each Appraiser. The Company shall promptly mail or
cause to be mailed to each Holder, a notice setting forth the Exercise Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment. Such adjustment shall become effective immediately after the
record date mentioned above. All determinations with respect to adjustments by
the Company hereunder shall be made by the Board of Directors in good faith.

         (h) If:

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                    (i)    the Company shall declare a dividend (or
                           any other distribution) on its Common
                           Stock in Common Stock; or

                    (ii)   the Company shall declare a special
                           nonrecurring cash dividend on or a
                           redemption of its Common Stock; or

                    (iii)  the Company shall authorize the granting
                           to all holders of the Common Stock rights
                           or warrants to subscribe for or purchase
                           any shares of capital stock of any class
                           or of any rights; or

                    (iv)   the approval of any stockholders of the
                           Company shall be required in connection with
                           any reclassification of the Common Stock of
                           the Company, any consolidation or merger to
                           which the Company is a party, any sale or
                           transfer of all or substantially all of
                           the assets of the Company, or any compulsory
                           share exchange whereby the Common Stock is
                           converted into other securities, cash or
                           property; or

                    (v)    the Company shall authorize the voluntary
                           dissolution, liquidation or winding up of
                           the affairs of the Company,

then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, to the extent practicable at
least 20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer, share
exchange, dissolution, liquidation or winding up; PROVIDED, HOWEVER, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.

         (i) If at any time conditions shall arise by reason of action taken by
the Company which in the opinion of the Board of Directors are not adequately
covered by the other provisions hereof and which would reasonably be expected to
materially affect the rights of the Holders (different than or distinguished
from the effect generally on rights of holders of any class of the Company's
capital stock) or if any time such conditions are expected to arise by reason of
any action contemplated by the Company, the Company shall mail a written notice
briefly describing the action contemplated and the material adverse effects of
such action on the rights of the Holders to the extent practicable at least 20
calendar days prior to the effective date of such action, and an Appraiser
selected by the Holders of majority in interest of the Warrants then outstanding
and

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consented to by the Company (which consent shall not be unreasonably withheld)
shall give its opinion as to the adjustment, if any (not inconsistent with the
standards established in this Section 7), of the Exercise Price (including, if
necessary, any adjustment as to the Warrant Shares to be purchased upon exercise
of this Warrant) and any distribution which is or would be required to be
preserved without diluting the rights of the Holders.

       8.  FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 8, be issuable
on the exercise of this Warrant, the Company shall, at its option, (a) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (b)
shall round the number of Warrant Shares issuable, up to the next whole number
of such shares.

       9.  NOTICES. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 4:30 p.m. (Eastern Standard Time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 4:30 p.m. (Eastern Standard Time) on any date and earlier
than 11:59 p.m. (Eastern Standard Time) on such date, (iii) the business day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Company, to The National Registry Inc., 2502 Rocky Point Drive, Suite 100,
Tampa, Florida 33607, Attention: Chief Financial Officer, or to facsimile no.
(813) 636-0322, or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 9.

       10. WARRANT AGENT.

           (a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.

           (b) Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.

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          11.  MISCELLANEOUS.

               (a)  This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.

               (b)  Subject to Section 11(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.

               (c)  This Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of Delaware without regard to
the principles of conflicts of law thereof.

               (d)  The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.

               (e)  In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.

     IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its authorized officer as of the date first indicated above.

                              THE NATIONAL REGISTRY INC.
                              By:________________________
                              Name:______________________
                              Title:_____________________

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                         FORM OF ELECTION TO PURCHASE

(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)

To The National Registry Inc.:

     In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.01 par value per share, of The
National Registry Inc. and encloses herewith $________ in cash or certified or
official bank check or checks, which sum represents the aggregate Exercise Price
(as defined in the Warrant) for the number of shares of Common Stock to which
this Form of Election to Purchase relates, together with any applicable taxes
payable by the undersigned pursuant to the Warrant.

     The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of

                                      PLEASE INSERT SOCIAL SECURITY OR
                                             TAX IDENTIFICATION NUMBER
                                                ________________________
________________________________________________________________________
                    (Please print name and address)
________________________________________________________________________
________________________________________________________________________

   If the number of shares of Common Stock issuable upon this exercise shall not
be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:

________________________________________________________________________
                    (Please print name and address)
________________________________________________________________________
________________________________________________________________________

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Dated: ____________________, ____           Name of Holder:

                                            (Print)_____________________________
                                            (By:) ______________________________
                                            (Name:) ____________________________
                                            (Title:) ___________________________
                                            (Signature must conform in all
                                            respects to name of holder as
                                            specified on the face of the
                                            Warrant)

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                              FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]
   FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________ the right represented by the within Warrant to
purchase ____________ shares of Common Stock of The National Registry Inc. to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of The National Registry Inc. with full power
of substitution in the premises.

Dated:

_______________, ____

                                   ____________________________________
                                   (Signature must conform in all
                                   respects to name of Holder as
                                   specified on the face of the
                                   Warrant)

                                   ____________________________________
                                   Address of Transferee
                                   ____________________________________
                                   ____________________________________

In the presence of:

______________________________

                                       11<PAGE>

                                                                   Exhibit 10.18

                         SECURITIES PURCHASE AGREEMENT
                         -----------------------------

This SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of June 5,
                                     ---------
2001, by and between SAFLINK Corporation, a Delaware corporation (the
"Company"), with headquarters located at 18650 N.E. 67th Court, Suite 210
 -------
Redmond, WA  98052 and each of the purchasers listed on Schedule I hereto
("Purchaser") with regard to the following:
  ---------

                                   RECITALS
                                   --------

     A.   The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from registration afforded by the
provisions of Regulation D ("Regulation D"), as promulgated by the United States
                             ------------
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
                                         ---
as amended (the "Securities Act").
                 --------------

     B.   Each Purchaser desires to purchase, upon the terms and conditions
stated in this Agreement, (i) Series E Convertible Preferred Stock of the
Company having the rights set forth in the Certificate of Designations,
Preferences and Rights (the "Certificate of Designation") attached hereto as
                             --------------------------
Exhibit A (the "Preferred Stock"), which shall be convertible into shares of the
---------       ---------------
Company's Common Stock, par value $.01 per share (the "Common Stock"), (ii) a
                                                       ------------
Series A Warrant in the form of Exhibit B attached hereto (the "Series A
                                ---------                       --------
Warrant"), and (iii) for certain Purchasers purchasing at least 5000 shares of
-------
Preferred Stock, a Series B Warrant in the form of Exhibit C attached hereto
                                                   ---------
("Series B Warrant") (the term "Warrant" shall refer to either (i) the Series A
  ----------------              -------
Warrant or (ii) Series A Warrant and Series B Warrant as appropriate). The
Series A Warrant and Series B Warrant entitle the holder thereof to purchase the
number of shares (the "Warrant Shares") of Common Stock as set forth below. The
                       --------------
shares of Common Stock issuable upon conversion of or otherwise pursuant to the
Preferred Stock are referred to herein as the "Conversion Shares". The Preferred
                                               -----------------
Stock, the Warrant, the Warrant Shares and the Conversion Shares are each
referred to as a "Security" and collectively the "Securities."
                                                  ----------

     C.   Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit D (the "Registration Rights Agreement"),
                               ---------       -----------------------------
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act, the rules and regulations promulgated thereunder and
applicable state securities laws.

                                  AGREEMENTS
                                  ----------

     NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and each Purchaser, severally and not
jointly, hereby agree as follows:

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                                   ARTICLE I
                        PURCHASE AND SALE OF SECURITIES

     1.1  Purchase of Preferred Stock and the Warrant. The purchase price (the
          -------------------------------------------
"Purchase Price") per share of Preferred Stock shall be equal to $200. On the
---------------
date of the closing of the purchase of the Preferred Stock and the Warrant
pursuant hereto (the "Closing"), subject to the satisfaction or waiver of the
                      -------
conditions set forth in Articles VI and VII hereof, the Company shall issue and
sell to the Purchasers, and Purchasers shall purchase from the Company (i) an
aggregate of 40,000 shares of Preferred Stock, and (ii) Series A Warrants
entitling the holders thereof to purchase that number of Warrant Shares as is
equal to (x) 1000 multiplied by (y) the number of shares of Preferred Stock
                  ----------
purchased; provided, however, if the Purchaser agrees to purchase at least 5000
shares of Preferred Stock the Company shall issue and sell to such Purchaser,
and Purchaser shall purchase from the Company (i) the number of shares of
Preferred Stock that such Purchaser has agreed to purchase, (ii) Series A
Warrants entitling the holders thereof to purchase that number of Warrant Shares
as is equal to (x) 1000 multiplied by (y) the number of shares of Preferred
                        ----------
Stock purchased; and (iii) Series B Warrants entitling the holder thereof to
purchase 1,000,000 Warrant Shares for each 5000 shares of Preferred Stock
purchased. The terms of the Series B Warrants shall be identical to those of the
Series A Warrants, except that the Series B Warrants shall have an exercise
price equal to $.25 per share and be exercisable for a period of the later of
(i) six (6) months from the date of issuance, or (ii) one hundred and twenty
(120) days from the effective date, as declared by the SEC, of the Registration
Statement (as defined in the Registration Rights Agreement) registering the
Warrant Shares.

     1.2  Form of Payment. At the Closing, each Purchaser shall pay the
          ---------------
aggregate Purchase Price for the Preferred Stock and the Warrant being purchased
by such Purchaser hereunder by wire transfer to the Company, in accordance with
the Company's written wiring instructions, against delivery of duly executed
stock certificates and a certificate representing the Warrant for the same, and
the Company shall deliver such Preferred Stock and certificate representing the
Warrant against delivery of such aggregate Purchase Price. Payment for each
Purchaser electing to convert debt issued by the Company shall be effected by
such Purchaser returning the original note payable for such debt, marked paid in
full, to the Company and Company shall deliver the Preferred Stock certificate
and the Warrant certificate against delivery of such note.

     1.3  Closing Date. Subject to the satisfaction or waiver of the conditions
          ------------
set forth in Articles VI and VII below, the date and time of the issuance, sale
and purchase of the Securities pursuant to this Agreement and the Investment
Agreements (as defined in Section 3.1 hereof) contemplated hereby shall be
within three (3) business days of the execution of this Agreement. The Closing
shall occur at 10:00 a.m. New York time, at the offices of Baker & McKenzie, 815
Connecticut Ave N.W., Washington D.C. 20006 - 4078.

                                  ARTICLE II
                  PURCHASER'S REPRESENTATIONS AND WARRANTIES

     Each Purchaser severally and not jointly represents and warrants to the
Company as set forth in this Article II. None of the Purchasers makes any other
representations or warranties, express or implied, to the Company in connection
with the transactions contemplated hereby or

                                       2
<PAGE>

by any other Investment Agreements and any and all prior representations and
warranties, if any, which may have been made by such Purchaser to the Company in
connection with the transactions contemplated hereby shall be deemed to have
been merged in this Agreement and any such prior representations and warranties,
if any, shall not survive the execution and delivery of this Agreement.

     2.1  Investment Purpose. Purchaser is purchasing the Preferred Stock and
          ------------------
the Warrant for Purchaser's own account for investment only and not with a view
toward or in connection with the public sale or distribution thereof, and
Purchaser has no present intention of selling, granting any participation in or
otherwise distributing the same. Purchaser is entering into this Agreement to
purchase the Preferred Stock and the Warrant on its own behalf and is not
relying on any other investor in making its investment decision. By executing
this Agreement, Purchaser further represents that Purchaser does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to the Preferred Stock and the Warrant. Purchaser will not resell the
Preferred Stock, the Warrant or any securities which may be issued upon
conversion thereof except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act. Purchaser understands that Purchaser must bear the economic
risk of this investment indefinitely, unless the Securities are registered
pursuant to the Securities Act and any applicable state securities laws or an
exemption from such registration is available, and that the Company has no
present intention of registering any such Securities other than as contemplated
by the Registration Rights Agreement. By making the representations in this
Section 2.1, Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
from registration under the Securities Act.

     2.2  Accredited Investor Status. Purchaser is an "accredited investor" as
          --------------------------
that term is defined in Rule 501(a) of Regulation D.

     2.3  Reliance on Exemptions. Purchaser understands that the Securities are
          ----------------------
being offered and sold to Purchaser in reliance upon specific exemptions from
the registration requirements of the United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and
Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of Purchaser
to acquire the Securities.

     2.4  Information. Purchaser and its counsel have been furnished all
          -----------
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Preferred Stock which have been
specifically requested by Purchaser which is all the information Purchaser
considers necessary or appropriate for deciding to purchase the Securities.
Purchaser has been afforded the opportunity to ask questions of the Company and
has received what Purchaser believes to be complete and satisfactory answers to
any such inquiries. Neither such inquiries nor any other due diligence
investigation conducted by Purchaser or any of its representatives shall modify,
amend or affect Purchaser's right to rely on the Company's

                                       3
<PAGE>

representations and warranties contained in Article III hereof. Purchaser
understands that Purchaser's investment in the Securities involves a high degree
of risk.

     2.5  Governmental Review. Purchaser understands that no United States
          -------------------
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities or an
investment therein.

     2.6  Transfer or Resale. Purchaser understands that (i) except as provided
          ------------------
in the Registration Rights Agreement, the Securities have not been and will not
be registered under the Securities Act or any state securities laws, and may not
be transferred unless subsequently registered thereunder or an exemption from
such registration is available (which exemption the Company expressly agrees may
be established as contemplated in clauses (b) and (c) of Section 5.1 hereof);
(ii) any sale of such Securities made in reliance on Rule 144 under the
Securities Act (or a successor rule) ("Rule 144") may be made only in accordance
                                       --------
with the terms of said Rule and further, if said Rule is not applicable, any
resale of such Securities without registration under the Securities Act under
circumstances in which the seller may be deemed to be an underwriter (as that
term is defined in the Securities Act) may require compliance with some other
exemption under the Securities Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to this Agreement or the
Registration Rights Agreement).

     2.7  Legends. Purchaser understands that, subject to Article V hereof, the
          -------
certificates for the Preferred Stock and the Warrant, and until such time as the
Conversion Shares and Warrant Shares have been registered under the Securities
Act as contemplated by the Registration Rights Agreement or otherwise may be
sold by Purchaser pursuant to Rule 144, the certificates for the Conversion
Shares and Warrant Shares (respectively) will bear a restrictive legend (the
"Legend") in the following form:
 ------

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
     SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
     REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR OTHERWISE
     TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
     THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED,
     SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
     REGISTRATION REQUIREMENTS OF THOSE LAWS.

Except for the legends contemplated by this Section 2.7, Section 5.1 hereof and
the information required to be set forth on or stated on certificates pursuant
to Section 151(f) of the Delaware General Corporation Law, the Securities shall
bear no other legend.

     2.8  Authorization; Enforcement. This Agreement and the Registration Rights
          --------------------------
Agreement have been duly and validly authorized, executed and delivered on
behalf of Purchaser

                                       4
<PAGE>

and are valid and binding agreements of Purchaser enforceable against Purchaser
in accordance with their terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance.

     2.9  Trading Limitations. Purchaser represents that prior to the Closing
          -------------------
and so long as it owns any Securities, it will conduct any sales of Common Stock
in compliance with all relevant securities laws and regulations.

                                  ARTICLE III
                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company represents and warrants to each Purchaser that as of the date
hereof, as of the Closing, and except as specifically set forth in the Schedule
of Exceptions attached hereto (the "Schedule of Exceptions"):
                                    ----------------------

     3.1  Organization and Qualification. The Company and each of its
          ------------------------------
subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is organized, and has the requisite
corporate power and authority to own its properties and to carry on its business
as now being conducted. The Company and each of its subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction where the failure to so qualify would have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on either
         -----------------------
(i) the business, operations, properties, financial condition or operating
results of the Company and its subsidiaries, taken as a whole on a consolidated
basis, (ii) the Securities, (iii) the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection herewith or (iv) the
authority or ability of the Company to perform its obligations under this
Agreement, the Certificate of Designation, the Warrant, and the Registration
Rights Agreements or other agreements or instruments to be entered into in
connection herewith and therewith (collectively, the "Investment Agreements").
                                                      ---------------------

     3.2  Authorization; Enforcement. (a) The Company has the requisite
          --------------------------
corporate power and authority to enter into and perform this Agreement, the
Warrant, the Certificate of Designation and the Registration Rights Agreement,
and to issue and sell, perform its obligations with respect to the Preferred
Stock and the Warrant in accordance with the terms hereof and to issue the
Conversion Shares in accordance with the terms and conditions of the Certificate
of Designation and the Warrant Shares in accordance with the terms and
conditions of the Warrant; (b) the execution, delivery and performance of this
Agreement, the Certificate of Designation, the Registration Rights Agreement and
the other Investment Agreements by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation the
issuance of the Preferred Stock and the Warrant and the reservation for issuance
and issuance of the Conversion Shares and the Warrant Shares) have been duly
authorized by all necessary corporate action and, except as set forth on
Schedule 3.2 hereof, no further consent or authorization of the Company, its
------------
board of directors, or its stockholders or any other person, body or agency is
required with respect to any of the transactions contemplated hereby or thereby
(whether under rules of the Nasdaq SmallCap Market or the Nasdaq National Market

                                       5
<PAGE>

("Nasdaq"), the National Association of Securities Dealers or otherwise), other
  ------
than the Nasdaq Authorization (as herein defined) and the declaration or
ordering of effectiveness by the SEC of the Registration Statement as
contemplated by the Registration Rights Agreement (collectively, the
"Consents"); (c) this Agreement, the Registration Rights Agreement, the
Certificate of Designation, the Preferred Stock and the Warrant have been duly
executed and delivered by the Company; and (d) each Investment Agreement
constitutes legal, valid and binding obligations of the Company enforceable
against the Company in accordance with its terms, except as such enforcement may
be limited by applicable bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting creditors' rights, and subject to
general equity principles and to limitations on availability of equitable
relief, including specific performance.

     3.3  Capitalization. The capitalization of the Company as of the date
          --------------
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Preferred Stock and the Warrant)
exercisable for, or convertible into or exchangeable for any shares of Common
Stock and the number of shares to be initially reserved for issuance upon
conversion of the Preferred Stock and the exercise of the Warrant is set forth
on Schedule 3.3. All of such outstanding shares of capital stock have been, or
   ------------
upon issuance will be, validly issued, fully paid and non-assessable. Except as
set forth in Schedule 3.3, no shares of capital stock of the Company (including
the Preferred Stock, the Warrant, the Conversion Shares and the Warrant Shares)
are subject to preemptive rights or any other similar rights of the stockholders
of the Company or any liens or encumbrances. Except as disclosed in Schedule
                                                                    --------
3.3, as of the date of this Agreement, (i) there are no outstanding options,
---
warrants, scrip, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of
its subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights Agreement)
and (iii) there are no anti-dilution or price adjustment provisions contained in
any security issued by the Company (or in any agreement providing rights to
holders of such securities). The Company has furnished to Purchaser true and
correct copies of the Company's Certificate of Incorporation as currently in
effect ("Certificate of Incorporation"), and the Company's Bylaws as currently
         ----------------------------
in effect (the "Bylaws"). The Company has set forth on Schedule 3.3 all
                ------                                 ------------
instruments and agreements (other than the Certificate of Incorporation and
Bylaws) governing securities convertible into or exercisable or exchangeable for
Common Stock of the Company (and the Company shall provide to Purchaser copies
thereof upon the request of Purchaser). Except as set forth on Schedule 3.3, the
                                                               ------------
Company has no indebtedness for borrowed money and no agreement providing for
indebtedness for borrowed money. Except as set forth on Schedule 3.3, the
                                                        ------------
Company has no subsidiaries and has no investments, either debt or equity, in
any other entity. The Company shall provide Purchaser with a written update of
this representation signed by the Company's Chief Executive Officer or Chief
Financial Officer on behalf of the Company as of the date of the Closing

                                       6
<PAGE>

     3.4  Issuance of Shares. The Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance, and, upon conversion of the Preferred
Stock and the exercise of the Warrant in accordance with their respective terms,
will be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances and will not be subject to preemptive rights or
other similar rights of stockholders of the Company, other than (i) restrictions
on transferability as may be applicable under federal and state securities laws;
(ii) restrictive stock legends contemplated by the Investment Agreements; or
(iii) those created by Purchaser. The Preferred Stock and the Warrant are duly
authorized and are validly issued, fully paid and non-assessable, and free from
all taxes, liens claims and encumbrances and are not and will not be subject to
preemptive rights or other similar rights of stockholders of the Company, other
than (i) restrictions on transferability as may be applicable under federal and
state securities laws; (ii) restrictive stock legends contemplated by the
Investment Agreements; or (iii) those created by Purchaser. The board of
directors of the Company has unanimously approved the issuance of the Preferred
Stock and the Warrant pursuant to the terms hereof and of the Conversion Shares
and Warrant Shares issuable upon conversion of the Preferred Stock and the
exercise of the Warrant pursuant to the terms thereof (without giving effect to
any limitations on conversion or exercise contained therein, including for
purposes of Nasdaq Rule 4350 (the "Nasdaq Authorization")), has unanimously
                                   --------------------
recommended to the stockholders of the Company the approval of the Nasdaq
Authorization and will seek Stockholder Approval (as defined in Section 4.12) at
the Company's next stockholder meeting, which shall be no later than July 31,
2001. No further authorization or approval (other than the Stockholder Approval)
is required under the rules of Nasdaq with respect to the transactions
contemplated by this Agreement, including, without limitation, the issuance of
the Conversion Shares and the Warrant Shares and the inclusion thereof on
Nasdaq.

     3.5  No Conflicts. The execution, delivery and performance of each of the
Investment Agreements by the Company, and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance and reservation for issuance, as applicable, of the Preferred Stock,
the Conversion Shares, the Warrant and the Warrant Shares) will not (a) result
in a violation of the Certificate of Incorporation or Bylaws, (b) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party (except
for such conflicts, defaults, terminations, amendments, accelerations, and
cancellations as would not, individually or in the aggregate, have a Material
Adverse Effect), or (c) result in a violation of any law, rule, regulation,
order, judgment or decree (including, without limitation, U.S. federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries, or by which any property or asset of the Company or any of its
subsidiaries, is bound or affected. Neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation, Bylaws or
other organizational documents, and neither the Company nor any of its
subsidiaries is in default (and no event has occurred which, with notice or
lapse of time or both, would put the Company or any of its subsidiaries in
default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, except for possible defaults or rights as
would not, individually or in the aggregate, have a Material Adverse Effect. To
the Company's knowledge, the business of the Company and its subsidiaries is not
being

                                       7
<PAGE>

conducted, and shall not be conducted so long as Purchaser owns any of the
Securities, in violation of any law, ordinance, rule, regulation, order,
judgment or decree of any governmental entity, court or arbitration tribunal
except for possible violations the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect.  Except as set forth on
Schedule 3.5, the Company is not required to obtain any consent, authorization
------------
or order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or to perform its obligations in accordance with
the terms hereof or thereof.

     3.6  Registration and SEC Documents.  The Common Stock is registered under
          ------------------------------
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
                                                                    --------
Act") and has been so registered since 1992.  Except as disclosed in Schedule
---                                                                     --------
3.6, since January 1, 1998, the Company has timely filed all reports, schedules,
---
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act (all of the foregoing
filed after December 31, 1997 and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference
therein, being referred to herein as the "SEC Documents" and all the SEC
                                          -------------
documents filed prior to the date of this Agreement, the "Filed SEC Documents").
                                                          -------------------
The Company has made available (which may include access to the SEC's website)
to Purchaser true and complete copies of the SEC Documents, except for exhibits,
schedules and incorporated documents.  As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except to the extent corrected by a subsequent
Filed SEC Document.  None of the statements made in any such SEC Documents is
currently required to be updated or amended under applicable law (except for
such statements as have been amended or updated by subsequent Filed SEC
Documents prior to the date of this Agreement).  The financial statements of the
Company included in the SEC Documents have been prepared in accordance with U.S.
generally accepted accounting principles, consistently applied, and the rules
and regulations of the SEC during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they do not include
footnotes or are condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal, immaterial year-end audit adjustments).
Except as set forth in the Filed SEC Documents, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred subsequent to the
date of such financial statements in the ordinary course of business consistent
with past practice and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under U.S. generally
accepted accounting principles to be reflected in such financial statements, in
each case of clause (i) and (ii) next above which, individually or in the
aggregate, are not material to the financial condition, business, operations,
properties, operating results or prospects of the Company and its subsidiaries
taken on a whole.  The Filed SEC Documents contain or incorporate by reference a

                                       8
<PAGE>

complete and accurate list of all material undischarged written or oral
contracts, agreements, leases or other instruments to which the Company or any
subsidiary is a party or by which the Company or any subsidiary is bound or to
which any of the properties or assets of the Company or any subsidiary is
subject (each a "Contract").  None of the Company, its subsidiaries or, to the
                 --------
best knowledge of the Company, any of the other parties thereto, is in breach or
violation of any Contract, which breach or violation would have a Material
Adverse Effect.  No event, occurrence or condition exists which, with the lapse
of time, the giving of notice, or both, or the happening of any further event or
condition, would become a breach or default by the Company or its subsidiaries
under any Contract which breach or default would have a Material Adverse Effect.

     3.7  Absence of Certain Changes. Since December 31, 2000, there has been no
          --------------------------
Material Adverse Effect and no material adverse development in the business,
properties, operations, financial condition or results of operations of the
Company or any of its subsidiaries, except as disclosed in Schedule 3.7.
                                                           ------------

     3.8  Absence of Litigation.  Except as disclosed in Schedule 3.8, there is
          ---------------------                          ------------
no action, suit, proceeding, or to the knowledge of the Company or any of its
subsidiaries, inquiry or investigation before or by any court, public board,
governmental agency or authority, or self-regulatory organization or body
pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company, any of its subsidiaries, or any of
their respective directors or officers in their capacities as such, wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect or
would adversely affect the transactions contemplated by this Agreement or any of
the other Investment Agreements or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other Investment Agreements.
The Company and each of its subsidiaries are unaware of any facts which could
give rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or any of its subsidiaries, could have a Material
Adverse Effect.

     3.9  Disclosure.  No information relating to or concerning the Company set
          ----------
forth in this Agreement or provided to Purchaser in connection with the
transactions contemplated hereby contains an untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were made, not
misleading.  Except for the execution and performance of this Agreement and the
other Investment Agreements, no material fact (within the meaning of the federal
securities laws of the United States) exists with respect to the Company or any
of its subsidiaries which has not been publicly disclosed.  The Company shall in
no event be deemed to have made to Purchaser any representations or warranties
with respect to any projections, estimates or budgets of future revenues,
expenses or expenditures, or future results of operations, which the Company
shall have supplied in good faith, except that with respect to projections
contained in the investment materials provided to Purchaser in March 2001, the
Company represents that such projections were prepared in good faith and that
the Company believes there is a reasonable basis for such projections.  Except
as disclosed in Schedule 3.9, the Company has not provided any material non-
                ------------
public information to Purchaser.

     3.10 Acknowledgment Regarding Purchaser's Purchase of the Securities.  The
          ---------------------------------------------------------------
Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or

                                       9
<PAGE>

fiduciary of the Company (or in any similar capacity) with respect to this
Agreement or the transactions contemplated hereby, that this Agreement and the
transactions contemplated hereby, and the relationship between Purchaser and the
Company, are "arms-length", and that any statement made by Purchaser, or any of
its representatives or agents, in connection with this Agreement or the
transactions contemplated hereby is not advice or a recommendation, is merely
incidental to Purchaser's purchase of the Securities and has not been relied
upon in any way by the Company, its officers, directors or other
representatives. The Company further represents to Purchaser that the Company's
decision to enter into this Agreement and the transactions contemplated hereby
has been based solely on an independent evaluation by the Company and its
representatives.

     3.11 Current Public Information.  Except as disclosed on Schedule 3.11, the
          --------------------------                          -------------
Company is currently eligible to register the resale of the Conversion Shares
and Warrant Shares on a registration statement on Form S-3 under the Securities
Act.

     3.12 No General Solicitation.  Neither the Company nor any person acting on
          -----------------------
behalf of the Company has conducted any "general solicitation," as described in
Rule 502(c) under Regulation D, with respect to any of the Securities being
offered hereby.

     3.13 No Integrated Offering.  Neither the Company, nor any of its
          ----------------------
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the Securities Act pursuant to the provisions of Section 4(2)
or Regulation D promulgated thereunder.  The transactions contemplated hereby
are exempt from the registration requirements of the Securities Act, assuming
the accuracy of the representations and warranties herein contained of Purchaser
to the extent relevant for such determination.

     3.14 No Brokers.  The Company has taken no action which would give rise to
          ----------
any claim by any person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions contemplated hereby,
except for dealings with H.C. Wainwright & Co., Inc. and its selected dealers.

     3.15 Acknowledgment of Dilution. The Company acknowledges that its
          --------------------------
obligation to issue Conversion Shares upon conversion of the Preferred Stock is
binding upon it and enforceable regardless of the dilution that such issuance
may have on the ownership interests of other stockholders.

     3.16 Intellectual Property.  Except as disclosed in Schedule 3.16, each of
          ---------------------                          -------------
the Company and its subsidiaries owns or possesses adequate and enforceable
rights to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "Intangibles")
                                                               -----------
used or necessary for the conduct of its business as now being conducted and as
previously described in the Company's Annual Report on Form 10-K for its most
recently ended fiscal year for which an Annual Report on

                                       10
<PAGE>

Form 10-K was filed. To the knowledge of the Company and its subsidiaries,
neither the Company nor any subsidiary of the Company infringes on or is in
conflict with any right of any other person with respect to any Intangibles nor
is there any claim of infringement made by a third party against or involving
the Company or any of its subsidiaries, which infringement, conflict or claim,
individually or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Material Adverse Effect.

     3.17 Foreign Corrupt Practices.  Neither the Company, nor any of its
          -------------------------
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S.  Foreign Corrupt Practices Act of
1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment to any foreign or domestic government official or
employee.  Without limiting the generality of the foregoing, the Company and its
subsidiaries have not directly or indirectly made or agreed to make (whether or
not said payment is lawful) any payment to obtain, or with respect to, sales
other than usual and regular compensation to its or their employees and sales
representatives with respect to such sales.

     3.18 Key Employees; Company's Knowledge.  No Key Employee, to the best of
          ----------------------------------
the knowledge of the Company and its subsidiaries, is, or is now expected to be,
in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and the continued
employment of each Key Employee does not subject the Company or any of its
subsidiaries to any liability with respect to any of the foregoing matters.
Except as disclosed in Schedule 3.18, no Key Employee has, to the best of the
                       -------------
knowledge of the Company and its subsidiaries, any intention to terminate or
limit his employment with, or services to, the Company or any of its
subsidiaries, nor is any such Key Employee subject to any constraints (e.g.,
litigation) which would cause such employee to be unable to devote his full time
and attention to such employment or services.   For purposes hereof, the term
"knowledge of the Company" shall mean the knowledge of each of the Key
Employees.

                                  ARTICLE IV
                                   COVENANTS

     4.1  Best Efforts. The Company shall use its best efforts timely to satisfy
          ------------
each of the conditions described in Articles VI and VII of this Agreement.

     4.2  Securities Laws.  The Company agrees to file a Form D with respect to
          ---------------
the Securities with the SEC as required under Regulation D.  The Company shall,
on or prior to the date of the Closing, take such action as is necessary to sell
the Securities to the Purchasers in accordance with applicable securities laws
of the states of the United States, and shall provide evidence of any such
action so taken to the Purchasers on or prior to the date of the Closing.
Without limiting any of the Company's obligations under this Agreement, the
Registration Rights Agreement, the Warrant or the Certificate of Designation,
from and after the date of the

                                       11
<PAGE>

Closing, neither the Company nor any person acting on its behalf shall take any
action which would adversely affect any exemptions from registration under the
Securities Act with respect to the transactions contemplated hereby.

     4.3  Reporting Status.  So long as a Purchaser beneficially owns any of the
          ----------------
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and the Company shall not terminate its
status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination.

     4.4  Use of Proceeds.  The Company shall use the proceeds from the sale of
          ---------------
the Securities for working capital only, in the ordinary course of its business,
and, without limiting the generality of the foregoing, shall not use such
proceeds to make a loan to any employee, officer, director or stockholder of the
Company, to repay any loan or other obligation of the Company (except for (i)
mandatory prepayment of the RMS Note (as defined below) with 50% of the proceeds
from the exercise of the Warrants and (ii) the repayment of monies loaned to the
Company as part of the November 2000 or March 2001 bridge loans that such person
elects not to convert) to any such person or to repurchase or pay a dividend on
shares of Common Stock or other securities of the Company, other than any such
payment explicitly required or permitted by the terms of this Agreement, the
Certificate of Designation or the other Investment Agreements.

     4.5  Restriction on Issuance of Securities.  For a period beginning on the
          -------------------------------------
date of the Closing and ending on the date which is one hundred and eighty (180)
days following the effective date of the Registration Statement, the Company
shall not issue or agree to issue any privately placed discounted, variable
priced equity or equity-like securities (including debt securities with equity
features), other than (i) to the Purchasers pursuant to this Agreement, (ii)
pursuant to a bona fide business acquisition of or by the Company, whether by
merger, joint venture, consolidation, sale of assets, sale or exchange of stock
or otherwise that has been approved by the Board of Directors of the Company,
the primary purpose of which is not to raise equity capital, (iii) in private
placements of such securities pursuant to or in connection with a strategic
alliance or partnering relationship, the primary purpose of which is not to
raise equity capital, (iv) upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the Closing and
disclosed in the Schedule of Exceptions, (v) pursuant to the Company's stock
option plans, employee stock purchase plan or restricted stock plans approved by
the stockholders of the Company, (vi) pursuant to written agreements existing on
the date hereof to independent contractors or consultants for professional
services provided to the Company, or (vii) in connection with lease lines bank
financings or acquisitions of intellectual property rights, the primary purpose
of which is not to raise equity capital.  Without implication that the contrary
would otherwise be true, the Company shall not indirectly accomplish any action
which the immediately preceding sentence would have otherwise prohibited from
being effected directly (e.g., by an asset drop-down to a subsidiary followed by
the offering of securities of such subsidiary).

     4.6  [Intentionally Omitted].

     4.7  [Intentionally Omitted].
          -----------------------

                                       12
<PAGE>

     4.8  Listing.  For so long as a Purchaser owns any of the Securities, the
          -------
Company shall continue the listing of its Common Stock on the Nasdaq SmallCap
Market, the Nasdaq National Market, the New York Stock Exchange or the American
Stock Exchange, secure and maintain listing and trading of the Conversion Shares
and Warrant Shares on such exchange, and comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
such exchange.

     4.9  Prospectus Delivery Requirement.  Each Purchaser understands that the
          -------------------------------
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof pursuant to a registration statement under
the Securities Act covering the resale by Purchaser of the Common Stock being
sold, and Purchaser shall use its reasonable efforts to comply with the
applicable prospectus delivery requirements of the Securities Act in connection
with any such sale.

     4.10 Intentional Acts or Omissions.  The Company shall not intentionally
          -----------------------------
perform any act which if performed, or intentionally omit to perform any act
which, if omitted to be performed, would prevent or excuse the performance of
this Agreement or any of the other Investment Agreements or any of the
transactions contemplated hereby or thereby or the benefits intended to be
secured thereby by Purchaser (including, without limitation, pursuant to any
agreements or documents obtained by the Company as a condition to any Closing
hereunder).

     4.11 Corporate Existence.  So long as a Purchaser beneficially owns any
          -------------------
Securities, the Company shall maintain its corporate existence, except in the
event of a merger or consolidation as long as the surviving or successor entity
in such transaction (i) assumes the Company's obligations hereunder and under
the agreements and instruments entered into in connection herewith regardless of
whether or not the Company would have had a sufficient number of shares of
Common Stock authorized and available for issuance in order to effect the
conversion of all Preferred Stock and the exercise of the Warrant outstanding as
of the date of such transaction (including, without limitation, without giving
effect to any limitations on conversion or exercise thereof) and (ii) is a
publicly traded corporation whose common stock is listed for trading on the
Nasdaq SmallCap Market, the Nasdaq National Market, the New York Stock Exchange
or the American Stock Exchange.

     4.12 Share Authorization.  The Company covenants and agrees that it shall
          -------------------
(i) solicit by proxy Stockholder Approval (as defined below) and (ii) use its
best efforts to obtain Stockholder Approval at its next stockholder meeting
which shall be held no later than July 31, 2001 (the "Stockholder Approval
                                                      --------------------
Date").  For purposes hereof, "Stockholder Approval" means (a) authorization by
                               --------------------
the required vote under Nasdaq Rule 4350 of the stockholders of the Company of
the issuance of shares of Common Stock upon conversion of shares of Preferred
Stock pursuant to the terms of the Certificate of Designation and the exercise
of the Warrant pursuant to the terms thereof in the aggregate in excess of
19.99% of the outstanding shares of Common Stock, (b) if necessary and to the
extent effected by stockholder vote, the elimination of any prohibitions under
the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Company or any of
its securities on the Company's ability to issue shares of Common Stock in
excess of the Cap Amount (as defined in the Certificate of Designation) and for
all other applicable purposes, and (c) authorization by the required vote under
the Delaware General Corporation Law to approve

                                       13
<PAGE>

the Reverse Stock Split (as defined below). In addition, the Company shall,
unless otherwise consented to by Purchaser, have a definitive proxy statement
mailed to each stockholder of the Company at least ten (10) days prior to the
Stockholder Approval Date.

     4.13 Transactions with Affiliates.  Except as disclosed in Schedule 4.13,
          ----------------------------                          -------------
the Company and each of its subsidiaries will not enter into any agreement or
arrangement, written or oral, directly or indirectly, with an affiliate or
provide services or sell goods to, or for the benefit of, or pay or otherwise
distribute monies, goods or other valuable consideration to, an affiliate,
except upon fair and reasonable terms under the circumstances as determined by
the Company in good faith, taking into account all of the facts and
circumstances of such agreement or arrangement, and except for existing
intercompany debt or transactions with or between the Company and any of its
wholly-owned subsidiaries and payments and benefits to officers and directors in
their capacities as such in the ordinary course of business, consistent with
past practices.

     4.14 Limitation of Agreements.  The Company will not, and will not permit
          ------------------------
any subsidiary to, enter into any Contract, or any amendment, modification,
extension or supplement to any existing Contract, which limits the Company from
performing its obligations under any of the Investment Agreements or that would
limit the number of shares of Common Stock issuable to a Purchaser upon
conversion of the Preferred Stock or exercise of the Warrant without Stockholder
Approval, including, without limitation, by integration of other shares of
Common Stock with the Cap Amount.

     4.15 Reverse Stock Split.  The Company covenants and agrees that it will
          -------------------
use its best efforts to obtain by July 31, 2001 stockholder approval to conduct
a 1 to 5 reverse stock split of its Common Stock, or such greater ratio (e.g. 1
to 6) as necessary to comply with the Nasdaq Marketplace Rules (the "Reverse
                                                                     -------
Stock Split"), provided that the number of shares of Common Stock reduced to one
-----------
(1) share of Common Stock in the Reverse Stock Split multiplied by the closing
price of the Common Stock on the record date set for the Company's next
stockholder meeting ("Closing Price") shall equal or exceed $2.00 per share.
For example, if the Company conducts a 1 to 6 reverse stock split, the Closing
Price multiplied by 6 must be greater than or equal to $2.00 per share.

     4.16 Conversion of Jotter Note.  The Company covenants and agrees that it
          -------------------------
will use its best efforts to obtain by July 31, 2001 stockholder approval for
the conversion of the $1.7 million promissory note issued to Jotter
Technologies, Inc. ("Jotter") as partial consideration in the asset purchase
                     ------
transaction between the Company and Jotter ("Jotter Asset Purchase") into shares
                                             ---------------------
of Common Stock at $1.00 per share, provided that Nasdaq determines that such
stockholder approval is required for such conversion, and the Company shall, in
any event, provide evidence satisfactory to the Purchaser of such conversion.

                                       14
<PAGE>

                                   ARTICLE V
                  LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES

     5.1  Removal of Legend.  The Legend shall be removed and the Company shall
          -----------------
issue a certificate without any legend to the holder of any Security upon which
such Legend is stamped, and a certificate for a Security shall be originally
issued without any legend, if, unless otherwise required by applicable state
securities laws, (a) the sale thereof is registered under the Securities Act
pursuant to an effective registration statement, (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions and reasonably acceptable to the
Company (the reasonable cost of which shall be borne by the Company), to the
effect that a public sale or transfer of such Security may be made without
registration under the Securities Act or (c) Purchaser provides reasonable
assurances that such Security can be sold pursuant to Rule 144.  Each Purchaser
agrees to sell all Securities, including those represented by a certificate(s)
from which the Legend has been removed, or which were originally issued without
the Legend, pursuant to an effective registration statement and to deliver a
prospectus in connection with such sale or in compliance with an exemption from
the registration requirements of the Securities Act.  In the event the Legend is
removed from any Security or any Security is issued without the Legend and
thereafter the effectiveness of a registration statement covering the resale of
such Security is suspended or the Company determines that a supplement or
amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to the Purchaser holding such Security, the Company
may require that the Legend be placed on any such Security that cannot then be
sold pursuant to an effective registration statement or Rule 144 or with respect
to which the opinion referred to in clause (b) next above has not been rendered,
which Legend shall be removed when such Security may be sold pursuant to an
effective registration statement or Rule 144 or such holder provides the opinion
with respect thereto described in clause (b) next above.

     5.2  Transfer Agent Instructions.  The Company shall instruct its transfer
          ---------------------------
agent to issue certificates, registered in the name of each Purchaser or its
nominee, for the Conversion Shares and/or Warrant Shares in such amounts as
specified from time to time by Purchaser to the Company upon, and in accordance
with, the conversion of the Preferred Stock and the exercise of the Warrant.
Such certificates shall bear a legend only in the form of the Legend and only to
the extent permitted by Section 5.1 above.  The Company warrants that no
instruction other than such instructions referred to in this Article V, and no
stop transfer instructions other than stop transfer instructions to give effect
to Section 2.6 hereof in the case of the Conversion Shares and/or Warrant Shares
prior to registration of the Conversion Shares and/or Warrant Shares under the
Securities Act, will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company.  Nothing in this Section shall affect in any way Purchaser's
obligations and agreement set forth in Section 5.1 hereof to resell the
Securities pursuant to an effective registration statement and to deliver a
prospectus in connection with such sale or in compliance with an exemption from
the registration requirements of applicable securities laws.  Without limiting
the foregoing, if (a) Purchaser provides the Company with an opinion of counsel,
which opinion of counsel shall be in form, substance and scope customary for
opinions of counsel in comparable transactions and reasonably acceptable to the
Company (the reasonable cost of which shall be borne by the Company), to the
effect that the Securities to be sold or transferred may be sold or transferred

                                       15
<PAGE>

pursuant to an exemption from registration or (b) Purchaser transfers Securities
to an affiliate or pursuant to Rule 144, the Company shall permit the transfer,
and, in the case of the Conversion Shares and/or Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denomination as specified by Purchaser in order to effect such a
transfer or sale.  The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to Purchaser by vitiating the
intent and purpose of the transaction contemplated hereby.  Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Article V will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Article V, that
Purchaser shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.

                                  ARTICLE VI
                CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL

     6.1  Conditions to the Company's Obligation to Sell.  The obligation of the
          ----------------------------------------------
Company hereunder to issue and sell the Preferred Stock and the Warrant to the
Purchasers at the Closing is subject to the satisfaction, as of the date of the
Closing, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:

          (i)    Each Purchaser shall have executed the signature page to this
     Agreement and the Registration Rights Agreement and delivered the same to
     the Company.

          (ii)   Each Purchaser shall deliver the applicable Purchase Price for
     the Preferred Stock purchased at the Closing.

          (iii)  The representations and warranties of each Purchaser shall be
     true and correct as of the date when made and as of the Closing as though
     made at that time, and each Purchaser shall have performed, satisfied and
     complied in all material respects with the covenants and agreements
     required by this Agreement to be performed or complied with by each
     Purchaser at or prior to the Closing.

          (iv)   No statute, rule, regulation, executive order, decree, ruling
     or injunction shall have been enacted, entered, promulgated or endorsed by
     any court or governmental authority of competent jurisdiction or any self-
     regulatory organization having authority over the matters contemplated
     hereby which restricts or prohibits the consummation of any of the
     transactions contemplated by this Agreement.

                                  ARTICLE VII
               CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE

     7.1  Conditions to the Closing.  The obligation of each Purchaser hereunder
          -------------------------
to purchase the Preferred Stock and the Warrant to be purchased by it on the
date of the Closing is subject to the satisfaction of each of the following
conditions (including conditions to be performed at the Closing), provided that
these conditions are for Purchaser's sole benefit and may not be waived by a
majority of the Purchasers:

                                       16
<PAGE>

             (i)    The Company shall have executed the signature page to this
     Agreement and Registration Rights Agreement and delivered the same to the
     Purchasers' counsel.

             (ii)   The Company shall have delivered duly executed certificates
     for the Preferred Stock and duly executed the Warrant being so purchased by
     each Purchaser at the Closing (each in such denominations as each Purchaser
     shall request).

             (iii)  The Common Stock shall be listed on the Nasdaq SmallCap
     Market, the Nasdaq National Market, the New York Stock Exchange or the
     American Stock Exchange.

             (iv)   The representations and warranties of the Company shall be
     true and correct as of the date when made and as of the Closing as though
     made at that time and the Company shall have performed, satisfied and
     complied with the covenants and agreements required by this Agreement to be
     performed or complied with by the Company at or prior to the Closing.
     Purchasers shall have received a certificate, executed by the Chief
     Executive Officer or Chief Financial Officer of the Company, dated as of
     the Closing to the foregoing effect and as to such other matters as may be
     reasonably requested by the Purchasers.

             (v)    No statute, rule, regulation, executive order, decree,
     ruling or injunction shall have been enacted, entered, promulgated or
     endorsed by any court or governmental authority of competent jurisdiction
     or any self-regulatory organization having authority over the matters
     contemplated hereby which prohibits the consummation of any of the
     transactions contemplated by this Agreement.

             (vi)   Purchaser shall have received the officer's certificate
     described in Section 3.3, dated as of the Closing.

             (vii)  Purchasers shall have received an opinion of the Company's
     outside legal counsel, dated as of the Closing in the form attached hereto
     as Exhibit E.
        ---------

             (viii) The Company's transfer agent has agreed to act in accordance
     with irrevocable instructions in the form attached hereto as Exhibit F.
                                                                  ---------

             (ix)   The Certificate of Designation shall have been accepted for
     filing with the Secretary of State of the State of Delaware and a copy
     thereof certified by the Secretary of State of Delaware shall have been
     delivered to Purchaser's counsel.

             (x)    The Company shall have received (a) subscription for
     Preferred Stock and Warrants for an aggregate purchase price of not less
     than $9 million or (b) subscription for Preferred Stock and Warrants for an
     aggregate purchase price of not less than $8 million and an agreement from
     RMS Limited Partnership ("RMS") to extend by one (1) year the maturity date
                               ---
     of the $1.0 million promissory note issued to it in connection with a
     bridge financing on November 13, 2001 ("RMS Note").
                                             --------

                                       17
<PAGE>

             (xi)   In the event that RMS has agreed to convert the RMS Note
     into Series E Preferred Stock and Warrants, the Company shall have provided
     evidence satisfactory to Purchaser that a minimum of $1.5 million of the
     $2.0 million principal amount in short term debt shall be converted into
     the Series E Convertible Preferred Stock and Warrants.

             (xii)  [INTENTIONALLY OMITTED]

             (xiii) Common shares issued in connection with the Jotter Asset
     Purchase shall be subject to a contractual lock-up to be in effect from the
     Closing Date until six months following the effectiveness of the
     Registration Statement ("Lock-Up Period"). Excluded from such contractual
                              --------------
     lock-up shall be that number of common shares, not to exceed 500,000
     shares, that when sold results in gross proceeds of up to $750,000. Such
     proceeds shall be used solely to satisfy the financial obligations of
     Jotter. After the Lock-Up Period, 4% of the shares shall be released each
     week.

             (xiv)  The Company shall have provided evidence satisfactory to the
     Purchaser that Jotter and RMS have agreed to vote at the Company's next
     stockholder meeting in favor of (a) approving the Series E Preferred Stock
     and Warrant financing; (b) approving the SAFLINK Corporation 2000 Stock
     Incentive Plan, and (c) approving the Reverse Stock Split.

                                 ARTICLE VIII

                             ADDITIONAL AGREEMENTS

     8.1  Election and Removal of Directors. In the election of the directors
          ---------------------------------
to be elected by the holders of the Preferred Stock (the "Series E Directors"),
each holder of the Preferred Stock shall vote at any regular or special meeting
of stockholders or execute a written consent at the request of Palo Alto
Investors of such number of shares of voting securities then held by such holder
(or as to which it then has voting power) as may be necessary to elect two (2)
directors nominated by Palo Alto Investors. Each holder of Preferred Stock
hereby irrevocably constitutes and appoints Palo Alto Investors as its true and
lawful attorney-in-fact, in its name, place, and stead, to make, execute,
acknowledge, and file written consents in connection with the election or
removal of directors of the Company. It is expressly intended by each holder of
the Preferred Stock that the power of attorney granted hereby is coupled with an
interest, shall be irrevocable unless and until the covenants of this Section
8.1 terminate pursuant to the terms hereof, and shall survive and not be
affected by the subsequent disability or incapacity of such holder of Preferred
Stock (or if such holder of Preferred Stock is a corporation, partnership,
trust, association, limited liability company or other legal entity, by the
dissolution or termination thereof). In addition, each holder of the Preferred
Stock hereby constitutes and appoints Palo Alto Investors, with full power of
substitution, as the proxy of such holder and hereby authorizes it to represent
and to vote, or to execute and deliver written consents or otherwise act with
respect to, all of the Preferred Stock now owned or hereafter acquired by such
holder on all matters in connection with the election and removal of directors
of the Company, to the same extent and with the same effect as such holder might
or could do under applicable law, rules and regulations. The proxy granted
pursuant to the immediately preceding sentence is given in consideration of the
agreements and covenants of the Company and shareholders of the

                                       18
<PAGE>

Company pursuant to this Agreement and as such is coupled with an interest and
shall be irrevocable unless and until the covenants of this Section terminate
pursuant to the terms hereof. Each holder of Preferred Stock hereby revokes any
and all previous proxies granted with respect to any of the Preferred Stock
owned by such holder and shall not hereafter, unless and until this Agreement
terminates, purport to grant any other proxy or power of attorney with respect
to any of the Preferred Stock owned by such holder, deposit any of the Preferred
Stock into a voting trust or enter into any agreement (other than this
Agreement), arrangement or understanding with any person, directly or
indirectly, to vote, grant any proxy or give instructions with respect to the
voting of any of the Preferred Stock owned by such holder. Each holder of
Preferred Stock and Conversion Shares shall: (i) vote at any regular or special
meeting of the stockholders for the removal of a Series E Director if, and only
if, Palo Alto Investors designates that such director be removed; and (ii)
execute a written consent for the removal of a Series E Director if, and only
if, Palo Alto Investors designates that such director be removed. Except as
provided in the preceding sentence, no holder of Preferred Stock or Conversion
Shares shall vote for, or execute a written consent resulting in, the removal of
a Series E Director.

     8.2  Manner of Voting. The voting of shares pursuant to this Agreement may
          ----------------
be effected in person, by proxy, by written consent, or in any other manner
permitted by applicable law.

     8.3  Palo Alto Investors' Legal Fees. After Closing, the Company shall
          -------------------------------
reimburse Palo Alto Investors for up to $20,000 in attorneys' fees, costs and
disbursements related to the Series E Preferred Stock and Warrant financing.

                                  ARTICLE IX
                         GOVERNING LAW; MISCELLANEOUS

     9.1  Governing Law; Jurisdiction. This Agreement shall be governed by and
          ---------------------------
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company further
agrees that service of process upon the Company mailed by the first class mail
(certified/return receipt) shall be deemed in every respect effective service of
process upon the Company in any suit or proceeding arising hereunder. Nothing
herein shall affect Purchaser's right to serve process in any other manner
permitted by law. The parties hereto agree that a final non-appealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner. If any
legal action or other legal proceeding relating to this Agreement or the
enforcement of any provision hereof is brought by any party, the prevailing
party shall be entitled to recover reasonable attorneys' fees, costs and
disbursements to the extent actually incurred (in addition to any other relief
to which the prevailing party may be entitled).

     9.2  Counterparts; Facsimile Signatures. This Agreement may be executed in
          ----------------------------------
two or more counterparts, including, without limitation, by facsimile
transmission, all of which counterparts shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery

                                       19
<PAGE>

shall cause additional original executed signature pages to be delivered to the
other parties via a reputable overnight courier for next business day delivery.

     9.3  Headings. The headings of this Agreement are for convenience of
          --------
reference and shall not form part of, or affect the interpretation of, this
Agreement.

     9.4  Severability. If any provision of this Agreement shall be invalid or
          ------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

     9.5  Scope of Agreement; Amendments. Except as specifically set forth
          ------------------------------
herein, Purchaser makes no representation, warranty, covenant or undertaking
with respect to the transactions contemplated hereby. No provision of this
Agreement may be waived other than by an instrument in writing signed by the
party to be charged with enforcement and no provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and each
Purchaser.

     9.6  Notice. Any notice herein required or permitted to be given shall be
          ------
in writing and may be personally served or delivered by courier or by facsimile-
machine confirmed telecopy, and shall be deemed delivered at the time and date
of receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:

               If to the Company:

               SAFLINK Corporation
               18650 N.E. 67/th/ Court, Suite 210
               Redmond, WA 98052
               Attention: Chief Financial Officer
               Facsimile Number:  425-497-1778

               If to Purchaser:

               to the address set forth next to each Purchaser's name on
               Schedule I hereto.

Each party shall provide notice to the other parties of any change in address.

     9.7  Successors and Assigns. This Agreement shall be binding upon and
          ----------------------
inure to the benefit of the parties and their successors and assigns. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers.

     9.8  Third Party Beneficiaries. This Agreement is intended for the benefit
          -------------------------
of the parties hereto and their respective permitted successors and assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.

                                       20
<PAGE>

     9.9  Survival. The representations and warranties of Purchaser and the
          --------
Company shall survive the Closing hereunder for a period of two (2) years after
the date of the Closing and the covenants of the parties shall survive the
Closing, in each case notwithstanding any due diligence investigation conducted
by or on behalf of Purchaser. The Company agrees to indemnify (which indemnity
shall include advancement of expenses as they are incurred) and hold harmless
each of the Purchasers and each of Purchaser's officers, directors, employees,
partners, agents and affiliates for loss or damage or expenses (including
reasonable attorneys fees) arising as a result of or related to (a) any breach
or alleged breach by the Company of any of its representations or covenants set
forth herein, (b) any cause of action, suit or claim brought or made against
Purchaser and arising out of or resulting from the execution, delivery,
performance or enforcement of the Investment Agreements or any other
certificate, instrument or document contemplated hereby or thereby, (c) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, or (d) the
status of Purchaser or holder of the Securities as an investor in the Company.
To the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the indemnified liabilities which is permissible
under applicable law.

     9.10 Public Filings; Publicity. Within three (3) business day following
          -------------------------
the Closing, the Company shall issue a press release with respect to the
transactions contemplated hereby. Within five (5) business days of the Closing,
the Company shall file a Form 8-K regarding the transaction contemplated by this
Agreement; such Form 8-K shall have as exhibits thereto the material documents
executed in connection with this transaction contemplated hereby

     9.11 Further Assurances. Each party shall do and perform, or cause to be
          ------------------
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

     9.12 Remedies. No provision of this Agreement providing for any remedy to
          --------
Purchaser shall limit any remedy which would otherwise be available to Purchaser
at law or in equity. Nothing in this Agreement shall limit any rights Purchaser
may have with any applicable federal or state securities laws with respect to
the investment contemplated hereby. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to Purchaser and that
the remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

     9.13 Termination. In the event that the Closing shall not have occurred
          -----------
within three (3) business days of the execution of this Agreement, unless the
parties agree otherwise, this Agreement shall terminate.

                                       21
<PAGE>

     9.14 Directly or Indirectly. Where any provision in this Agreement refers
          ----------------------
to action to be taken by any person, or which such person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such person.

     9.15 Failure or Indulgence Not Waiver. No failure or delay on the part of
          --------------------------------
a party in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.

                                     * * *

                        [SIGNATURES ON FOLLOWING PAGE]

                                       22
<PAGE>

     IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
above written.

PURCHASER:

________________

By:_________________
Its:________________

COMPANY:

SAFLINK CORPORATION

By:_____________________
Its:____________________

                                       23
<PAGE>

                                  SCHEDULE 1

                            Schedule of Purchasers
                            ----------------------

                    Shares of Series E    Series A     Series B
                                          --------     --------
Name of Purchaser     Preferred Stock     Warrants     Warrants   Purchase Price
-----------------     ---------------     --------     --------   --------------

                                       24

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