Document:

ENTERPRISE ENGINES, INC.
                            STOCK PURCHASE AGREEMENT

                          dated as of December 15, 1999

                                  by and among

                                    QAD INC.

                                  ("Purchaser")

                                       and

                                 DAVID A. TAYLOR

                                   ("Seller")

                                       and

                            ENTERPRISE ENGINES, INC.

                                   ("Company")

                                 with respect to

             One Hundred Percent of the Outstanding Common Stock of

                            ENTERPRISE ENGINES, INC.

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                                TABLE OF CONTENTS
                                   (Continued)

                                TABLE OF CONTENTS
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                                                                                                          Page
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ARTICLE I  SALE OF SHARES AND CLOSING.............................................................................1
         1.1      Purchase and Sale.  ............................................................................1
         1.2      Purchase Price.  ...............................................................................1
         1.3      Closing.  ......................................................................................1
         1.4      Further Assurances; Post-Closing Cooperation.  .................................................2
         1.5      Seller's Retention of Certain Rights.  .........................................................2
         1.6      Company Source Code.  ..........................................................................2

ARTICLE II  REPRESENTATIONS AND WARRANTIES OF SELLER..............................................................2
         2.1      Authority.  ....................................................................................3
         2.2      Organization of the Company.  ..................................................................3
         2.3      Capital Stock.  ................................................................................3
         2.4      Subsidiaries.  .................................................................................3
         2.5      No Conflicts.  .................................................................................3
         2.6      Governmental Approvals and Filings.  ...........................................................4
         2.7      Books and Records.  ............................................................................4
         2.8      Financial Statements; Assets and Liabilities.  .................................................4
         2.9      Absence of Changes.  ...........................................................................5
         2.10     No Undisclosed Liabilities.  ...................................................................6
         2.11     Taxes.  ........................................................................................6
         2.12     Legal Proceedings...............................................................................7
         2.13     Compliance With Laws and Orders.  ..............................................................7
         2.14     Benefit and Compensation Plans.  ...............................................................7
         2.15     Real Property...................................................................................7
         2.16     Tangible Personal Property; Investment Assets...................................................8
         2.17     Intellectual Property...........................................................................8
         2.18     Contracts.  ...................................................................................10
         2.19     Licenses.  ....................................................................................10
         2.20     Insurance.  ...................................................................................11
         2.21     Affiliate Transactions.  ......................................................................11
         2.22     Employees; Labor Relations.  ..................................................................11
         2.23     Environmental Matters.  .......................................................................11
         2.24     Bank and Brokerage Accounts; Investment Assets.  ..............................................12
         2.25     No Powers of Attorney.  .......................................................................12
         2.26     Accounts Receivable.  .........................................................................13
         2.27     Brokers.  .....................................................................................13
         2.28     Disclosure.  ..................................................................................13
         2.29     Warranties and Indemnities.  ..................................................................13
         2.30     Confidentiality Agreements.  ..................................................................13
         2.31     Products.  ....................................................................................14
         2.32     Product Liability.  ...........................................................................14
         2.33     Year 2000 Compliance.  ........................................................................14
         2.34     Seller's Investment Representations.  .........................................................14

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ARTICLE III  REPRESENTATIONS AND WARRANTIES OF PURCHASER.........................................................15
         3.1      Organization.  ................................................................................15
         3.2      Authority.  ...................................................................................15
         3.3      No Conflicts.  ................................................................................15
         3.4      Governmental Approvals and Filings.  ..........................................................15
         3.5      QAD Stock.  ...................................................................................15
         3.6      Reports; Financial Statements.  ...............................................................15
         3.7      Absence Of Certain Changes.  ..................................................................16

ARTICLE IV  COVENANTS OF SELLER, THE COMPANY AND
                    PURCHASER....................................................................................16
         4.1      Regulatory and Other Approvals.  ..............................................................16
         4.2      Investigation by Purchaser.  ..................................................................17
         4.3      No Solicitations.  ............................................................................17
         4.4      Conduct of Business.  .........................................................................17
         4.5      Financial Statements and Reports; Filings......................................................18
         4.6      Certain Restrictions.  ........................................................................18
         4.7      Affiliate Transactions.  ......................................................................19

ARTICLE V  COVENANT OF PURCHASER.................................................................................20
         5.1      Form S-3.  ....................................................................................20

ARTICLE VI  CONDITIONS TO OBLIGATIONS OF PURCHASER
                    AND SELLER...................................................................................20
         6.1      Conditions to Obligations of Purchaser.  ......................................................20
         6.2      Conditions to Obligations of Seller.  .........................................................22

ARTICLE VII  SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
                    AND AGREEMENTS...............................................................................24
         7.1      Survival of Representations, Warranties, Covenants and
                  Agreements.  ..................................................................................24

ARTICLE VIII  INDEMNIFICATION....................................................................................24
         8.1      Indemnification................................................................................24
         8.2      Method of Asserting Claims.  ..................................................................25

ARTICLE IX  TERMINATION..........................................................................................27
         9.1      Termination.  .................................................................................27
         9.2      Effect of Termination.  .......................................................................28

ARTICLE X  DEFINITIONS...........................................................................................28
         10.1     Definitions....................................................................................28

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ARTICLE XI  MISCELLANEOUS........................................................................................34
         11.1     Notices.  .....................................................................................34
         11.2     Entire Agreement.  ............................................................................35
         11.3     Expenses.  ....................................................................................35
         11.4     Public Announcements.  ........................................................................35
         11.5     Confidentiality.  .............................................................................36
         11.6     Waiver.  ......................................................................................36
         11.7     Amendment.  ...................................................................................36
         11.8     No Third Party Beneficiary.  ..................................................................36
         11.9     No Assignment; Binding Effect.  ...............................................................37
         11.10    Headings.  ....................................................................................37
         11.11    Arbitration.  .................................................................................37
         11.12    Consent to Jurisdiction and Service of Process.  ..............................................37
         11.13    Invalid Provisions.  ..........................................................................38
         11.14    Governing Law.  ...............................................................................38
         11.15    Post-Closing Operation of Business.  ..........................................................38
         11.16    Counterparts.  ................................................................................38
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<PAGE>

                            STOCK PURCHASE AGREEMENT

     This STOCK  PURCHASE  AGREEMENT  dated as of December  15, 1999 is made and
entered into by and among QAD Inc.,  a Delaware  corporation  ("Purchaser")  and
DAVID A.  TAYLOR  ("Seller")  and  ENTERPRISE  ENGINES,  INC.  (the  "Company").
Capitalized  terms not otherwise  defined  herein have the meanings set forth in
Section 9.1.

     WHEREAS,  Seller owns Two Million One Hundred  (2,000,100) shares of common
stock,  without par value,  of the  Company,  constituting  One Hundred  Percent
(100%) of the issued and outstanding shares of common stock of the Company (such
shares being referred to herein as the "Shares"); and

     WHEREAS,  Seller desires to sell, and Purchaser desires to purchase, all of
the  Shares  on the  terms  and  subject  to the  conditions  set  forth in this
Agreement.

     NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this  Agreement,  and for other good and  valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

                                    ARTICLE I

                           SALE OF SHARES AND CLOSING

     1.1 Purchase and Sale.  Seller agrees to sell to  Purchaser,  and Purchaser
agrees to purchase from Seller,  all of the right,  title and interest of Seller
in and to the Shares at the Closing on the terms and  subject to the  conditions
set forth in this Agreement.

     1.2 Purchase Price.  The  consideration  for the purchase of the Shares is:
(i) ONE MILLION  DOLLARS  ($1,000,000),  payable FIVE HUNDRED  THOUSAND  DOLLARS
($500,000)  in  immediately  available  funds  at the  Closing,  as  hereinafter
defined,  in the manner  provided in Section 1.3,  together  with a one (1) year
Promissory  Note in the form  attached  hereto  as  Exhibit  A (the  "Promissory
Note"),  and (ii) the issuance of up to One Hundred  Twenty  Thousand  (120,000)
shares of the Purchaser's  common stock,  upon the achievement of the Milestones
as set forth in the Escrow  Agreement in the form  attached  hereto as Exhibit B
(the "QAD Stock") to be deposited in escrow with Santa  Barbara Bank & Trust and
to be released as the Milestones are reached or returned to the Purchaser if the
Milestones are not achieved (the cash payment,  the Promissory  Note and the QAD
Stock are collectively  referred to as the "Purchase Price"). The Seller will be
responsible  for all ordinary  income taxes and capital gains taxes which may be
due as a result of receipt of the Purchase Price.

     1.3 Closing. The Closing will take place at the offices of Purchaser,  6450
Via Real,  Carpenteria,  California,  U.S.A.  93103,  or at such other  place as
Purchaser  and Seller  mutually  agree,  on the  Closing  Date,  as  hereinafter
defined. At the Closing,  Purchaser will pay the Purchase Price by wire transfer
of immediately  available funds to such account as Seller may reasonably  direct
by written  notice  delivered  to  Purchaser by Seller at least two (2) Business
Days before the Closing Date. Simultaneously, Seller will assign and transfer to

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Purchaser  all of  Seller's  right,  title and  interest in and to the Shares by
delivering to Purchaser a certificate or certificates  representing  the Shares,
in genuine and  unaltered  form,  duly  endorsed in the name of Purchaser or its
designee. At the Closing,  there shall also be delivered to Seller and Purchaser
the opinions,  certificates  and other documents and instruments to be delivered
under Article VI.

     1.4 Further Assurances;  Post-Closing Cooperation. At any time or from time
to time after the Closing,  Seller shall  execute and deliver to Purchaser  such
other documents and instruments, provide such materials and information and take
such other actions as Purchaser may reasonably  request more effectively to vest
title to the Shares in  Purchaser  and, to the full extent  permitted by Law, to
put Purchaser in actual  possession and operating control of the Company and its
Assets and  Properties  and Books and Records,  and otherwise to cause Seller to
fulfill  his  obligations  under  this  Agreement  to which  he is a party.  The
obligation  of Seller under this Section 1.4 shall  survive  until two (2) years
following the Closing Date.

     1.5  Seller's  Retention  of Certain  Rights.  The Seller  wishes to secure
certain  Intellectual  Property  rights  from the  Company  which the Seller was
instrumental in creating, and Purchaser is agreeable to the Company's divestment
of such Intellectual  Property rights, as follows.  The Company hereby agrees to
assign,  effective as of immediately  following the Closing  without any further
action required on the part of any of Seller,  Purchaser or the Company, all its
right,  title and interest in and to (collectively,  the "Divested IP"): (i) the
trademark "Convergent Engineering" (the "Name"); (ii) the copyright to the book,
"Business  Engineering  With  Object  Technology"  (the  "Book");  and (iii) any
royalty or license agreements  associated with the Name and/or the Book. Company
and Purchaser agree to execute any documents reasonably necessary to vest in the
Seller all such right,  title and interest in and to the Divested IP. Except for
the  Divested  IP,  Seller has no other  rights to the Company or its Assets and
Properties.  The Company shall retain, and, together with Seller,  hereby grants
to   Purchaser,   effective   as  of  the  Closing,   transferable,   worldwide,
non-exclusive,  royalty-free,  licenses to make, use and sell the Divested IP in
the  state  Divested  IP  exists  at  the  Closing,   whether  or  not  utilized
independently  or included in the  Purchaser's  software  products.  The license
includes  all rights  necessary  to utilize the  Company's  and the  Purchaser's
software  and create  derivative  works in and to the  Divested IP and to create
appropriate documentation,  training and marketing materials. The parties hereto
agree and acknowledge that the value of the Divested IP is $5,000.00.  Except as
provided herein, the Seller has no other rights to the Company or its Assets and
Properties.

     1.6 Company Source Code. The Seller acknowledges that it has deposited into
Escrow with Robert  Stephens the Company's  Enterprise  Engine Source Code which
will be delivered by Robert Stephens to the Purchaser upon the Closing.

                                   ARTICLE II

                    REPRESENTATIONS AND WARRANTIES OF SELLER

     Except with respect to any contract,  arrangement or understanding  between
the Company and Purchaser, as to which Seller makes no representation,  warranty
or covenant, Seller hereby represents and warrants to Purchaser as follows:

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<PAGE>

     2.1  Authority.  The execution and delivery by Seller of this  Agreement to
which he is a party, and the performance by Seller of his obligations  hereunder
and thereunder,  have been duly and validly  authorized by the Seller,  no other
action on the part of Seller being  necessary.  This Agreement has been duly and
validly  executed and delivered by Seller and constitutes  the legal,  valid and
binding  obligations of Seller enforceable against Seller in accordance with its
terms.

     2.2  Organization  of  the  Company.  The  Company  is a  corporation  duly
organized,  validly existing and in good standing under the State of California,
and has full corporate power and authority to conduct its business as and to the
extent  now  conducted  and to own,  use and lease its  Assets  and  Properties.
Section 2.2 of the Disclosure  Schedule lists all lines of business in which the
Company is participating or engaged. The Company is duly qualified,  licensed or
admitted to do  business  and is in good  standing  in the State of  California,
which is the only  jurisdiction  in which the  ownership,  use or leasing of its
Assets and  Properties,  or the  conduct or nature of its  business,  makes such
qualification,  licensing or admission necessary, except for those jurisdictions
in  which  the  adverse  effects  of all  such  failures  by the  Company  to be
qualified,  licensed or admitted and in good  standing  can in the  aggregate be
eliminated without material cost or expense by the Company,  as the case may be,
becoming  qualified or admitted and in good standing.  The name of each director
and officer of the Company on the date hereof, and the position with the Company
held by each, are listed in Section 2.2 of the Disclosure  Schedule.  Seller has
prior  to the  execution  of this  Agreement  delivered  to  Purchaser  true and
complete copies of the Articles of  Incorporation  and the Bylaws of the Company
as in effect on the date hereof.

     2.3 Capital  Stock.  The authorized  capital stock of the Company  consists
solely of Forty Million  (40,000,000)  shares of Common Stock, of which only the
Shares have been issued,  and of which the Shares  represent One Hundred Percent
(100%) of the entire outstanding common stock of the Company, and Twenty Million
(20,000,000)  shares of Preferred Stock. Shares of Series A Preferred Stock have
been authorized, of which One Million (1,000,000) is outstanding. The Shares are
duly  authorized,  validly issued,  outstanding,  fully paid and  nonassessable.
Seller owns the Company Shares,  beneficially  and of record,  free and clear of
all  Liens.  Except for  options or  warrants  disclosed  in Section  2.3 of the
Disclosure Schedule, there are no outstanding stock options or warrants or other
securities or debt which is  convertible  into common  stock.  The delivery of a
certificate or certificates at the Closing representing the Shares in the manner
provided in Section 1.3 will  transfer to Purchaser  good and valid title to the
Shares, free and clear of all Liens.

     2.4  Subsidiaries.  The  Company  does not have,  nor has it ever had,  any
Subsidiaries.

     2.5 No Conflicts. The execution and delivery by Seller of this Agreement do
not  conflict  with the  performance  by Seller of his  obligations  under  this
Agreement  and the  consummation  of the  transactions  contemplated  hereby and
thereby will not:

          (a)  conflict  with or result in a  violation  or breach of any of the
     terms, conditions or provisions of the articles of incorporation or by-laws
     (or other  comparable  corporate  charter  documents) of the Company or any
     Subsidiary;

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<PAGE>

          (b)  conflict  with or result in a violation  or breach of any term or
     provision  of any Law or Order  applicable  to Seller,  the  Company or any
     Subsidiary or any of their respective Assets and Properties; or

          (c) except as disclosed in Section 2.5 of the Disclosure Schedule, (i)
     conflict with or result in a violation or breach of, (ii) constitute  (with
     or without notice or lapse of time or both) a default under,  (iii) require
     Seller,  the Company or any  Subsidiary to obtain any consent,  approval or
     action  of,  make any  filing  with or give any  notice to any  Person as a
     result  or under the terms of,  (iv)  result in or give to any  Person  any
     right of termination, cancellation, acceleration or modification in or with
     respect  to, (v) result in or give to any Person any  additional  rights or
     entitlement to increased,  additional,  accelerated or guaranteed  payments
     under,  or (vi) result in the creation or  imposition  of any Lien upon the
     Company or any Subsidiary or any of their respective  Assets and Properties
     under, any material Contract or License to which Seller, the Company or any
     Subsidiary  is a party  or by  which  any of their  respective  Assets  and
     Properties is bound.

     2.6 Governmental Approvals and Filings. No consent,  approval or action of,
filing with or notice to any Governmental or Regulatory Authority on the part of
Seller,  the  Company or any  Subsidiary  is  required  in  connection  with the
execution,  delivery and performance of this Agreement to which it is a party or
the consummation of the transactions contemplated hereby or thereby.

     2.7 Books and Records.  The minute books and other  similar  records of the
Company as made available to Purchaser  prior to the execution of this Agreement
contain a true and  complete  record,  in all material  respects,  of all action
taken at all  meetings  and by all  written  consents in lieu of meetings of the
stockholders,  the boards of directors and committees of the boards of directors
of the Company.  The stock transfer ledgers,  stock option schedules,  and other
similar  records of the  Company as made  available  to  Purchaser  prior to the
execution of this Agreement accurately reflect all record transfers prior to the
execution of this Agreement in the capital stock of the Company. The Company has
not  recorded,  stored,  maintained,  operated  or  otherwise  wholly  or partly
dependent upon or held any of its Books and Records by any means  (including any
electronic,  mechanical or photographic  process,  whether  computerized or not)
which  (including  all means of access  thereto and therefrom) are not under the
exclusive ownership and direct control of the Company.

     2.8 Financial Statements; Assets and Liabilities. Prior to the execution of
this  Agreement,  Seller has  delivered to Purchaser a true and complete copy of
the  unaudited  balance  sheet of the Company as of November 30, 1999, a copy of
which is attached hereto as Exhibit C, and the related  unaudited  statements of
operations,  stockholders'  equity and cash flows for the  portion of the fiscal
year then ended.

     Except as set forth in the notes thereto, all such financial statements (i)
were  prepared in accordance  with GAAP,  (ii) fairly  present the  consolidated
financial  condition  and  results  of  operations  of  the  Company  as of  the
respective  dates thereof and for the respective  periods covered  thereby,  and
(iii)  were  compiled  from the  Books  and  Records  of the  Company  regularly
maintained  by management  and used to prepare the  financial  statements of the
Company in  accordance  with the  principles  stated  therein.  The  Company has

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<PAGE>

maintained  its  Books  and  Records  in  a  manner  sufficient  to  permit  the
preparation of financial statements in accordance with GAAP.

     2.9  Absence of  Changes.  Except for the  execution  and  delivery of this
Agreement and the  transactions  to take place pursuant hereto and thereto on or
prior to the Closing Date, since the Financial Statement Date there has not been
any material adverse change, or any event or development which,  individually or
together  with other such events,  could  reasonably  be expected to result in a
material  adverse change,  in the Business or Condition of the Company.  Without
limiting the foregoing,  there has not occurred between the Financial  Statement
Date and the date hereof:

          (i) any declaration, setting aside or payment of any dividend or other
     distribution in respect of the capital stock of the Company,  or any direct
     or indirect redemption, purchase or other acquisition by the Company of any
     such capital stock of or any Option with respect to the Company;

          (ii) any  authorization,  issuance,  sale or other  disposition by the
     Company  of any shares of capital  stock of or Option  with  respect to the
     Company, or any modification or amendment of any right of any holder of any
     outstanding  shares of  capital  stock of or  Option  with  respect  to the
     Company;

          (iii) (A)  incurrences by the Company of  Indebtedness in an aggregate
     principal amount exceeding  $25,000 (net of any amounts  discharged  during
     such period),  or (B) any voluntary purchase,  cancellation,  prepayment or
     complete or partial  discharge in advance of a scheduled  payment date with
     respect to, or waiver of any right of the Company under,  any  Indebtedness
     of or owing to the Company;

          (iv) any physical damage,  destruction or other casualty loss (whether
     or not covered by insurance) affecting any of the real or personal property
     or  equipment  of the  Company or any  Subsidiary  in an  aggregate  amount
     exceeding $25,000;

          (v) any material  change in (x) any pricing,  investment,  accounting,
     financial reporting, inventory, credit, allowance or Tax practice or policy
     of the Company, or (y) any method of calculating any bad debt,  contingency
     or other reserve of the Company for accounting,  financial reporting or Tax
     purposes, or any change in the fiscal year of the Company;

          (vi) any write-off or write-down of or any  determination to write off
     or  write  down any of the  Assets  and  Properties  of the  Company  in an
     aggregate amount exceeding $25,000;

          (vii) any  acquisition  or  disposition  of, or  incurrence  of a Lien
     (other than a Permitted Lien) on, any Assets and Properties of the Company,
     other  than  in the  ordinary  course  of  business  consistent  with  past
     practice;

          (viii) any (x) amendment of the  certificate or acts of  incorporation
     or  by-laws  (or  other  comparable  corporate  charter  documents)  of the
     Company, (y) recapitalization,  reorganization,  liquidation or dissolution
     of the Company or (z) merger or other  business  combination  involving the
     Company and any other Person;

                                       5
<PAGE>

          (ix) any entering into, amendment, modification,  termination (partial
     or  complete)  or  granting of a waiver  under or giving any  consent  with
     respect to (A) any Contract  which is required (or had it been in effect on
     the date hereof would have been required) to be disclosed in the Disclosure
     Schedule  pursuant to Section  2.18(a) or (B) any material  License held by
     the Company;

          (x) capital  expenditures  or  commitments  for additions to property,
     plant  or  equipment  of the  Company  constituting  capital  assets  in an
     aggregate amount exceeding $25,000;

          (xi) any  commencement  or  termination  by the Company of any line of
     business;

          (xii)  any  transaction  by the  Company  with  Seller,  any  officer,
     director or Affiliate  (other than the Company) of Seller (A) other than on
     an arm's-length basis, other than pursuant to any Contract in effect on the
     Financial Statement Date and disclosed pursuant to Section  2.18(a)(vii) of
     the Disclosure Schedule;

          (xiii) any  entering  into of a Contract to do or engage in any of the
     foregoing after the date hereof;

          (xiv) any other  transaction  involving or  development  affecting the
     Seller  outside  the  ordinary  course  of  business  consistent  with past
     practice; or

          (xv) any increase in the annual level of  compensation of any employee
     whose  compensation  from the  Company in the last  preceding  fiscal  year
     exceeded  $50,000,  or any grant of any unusual or  extraordinary  bonuses,
     benefits or other forms of direct or indirect  compensation  to any current
     or former employee,  officer, director or consultant,  except in amounts in
     keeping with past practices by formulas or otherwise.

     2.10 No  Undisclosed  Liabilities.  To the  Knowledge of Seller,  Except as
reflected or reserved  against in the balance  sheet  included in the  Financial
Statements  or in the notes  thereto  or as  disclosed  in  Section  2.10 of the
Disclosure Schedule, there are no Liabilities against,  relating to or affecting
the Company or any of its Assets and Properties,  other than Liabilities  which,
individually or in the aggregate,  are not material to the Business or Condition
of the Company.

     2.11 Taxes.  The Company  has filed all Tax Returns  which are  required to
have been filed in any jurisdiction, and have paid all Taxes shown to be due and
payable on the Tax  Returns  and all other  Taxes  payable by the Company to the
extent  the same have  become  due and  payable  and  before  they  have  become
delinquent.  The Seller knows of no proposed material Tax assessment against the
Company and all Tax  liabilities  are  adequately  provided for on the Books and
Records of the  Company.  There are no pending or, to the  Knowledge  of Seller,
threatened Actions or Proceedings against the Company with respect to any Taxes.
With respect to any Tax audits,  the Company has not received any adverse notice
or  communication  of any kind or nature  whatsoever  from any  Governmental  or
Regulatory  Authority  with respect to any Tax Returns filed by the Company.  No
Liens  for Taxes  (other  than with  respect  to Taxes not yet due and  payable)
encumber any of the Assets and Properties of the Company.

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<PAGE>

     2.12 Legal Proceedings.

     (a) there are no Actions or  Proceedings  pending or, to the  Knowledge  of
Seller,  threatened against, relating to or affecting Seller, the Company or any
Subsidiary  or any of their  respective  Assets and  Properties  which (i) could
reasonably  be  expected  to result  in the  issuance  of an Order  restraining,
enjoining or otherwise  prohibiting or making illegal the consummation of any of
the  transactions  contemplated  by this  Agreement  or  otherwise  result  in a
material diminution of the benefits  contemplated by this Agreement,  or (ii) if
determined  adversely to the Company,  could reasonably be expected to result in
(x) any  injunction  or other  equitable  relief  against the Company that would
interfere in any material  respect with its business or operations or (y) Losses
by the Company or any  Subsidiary,  individually or in the aggregate with Losses
in respect of other such Actions or Proceedings, exceeding $5,000;

     (b)  there  are no  facts  or  circumstances  Known to  Seller  that  could
reasonably  be expected to give rise to any Action or  Proceeding  that would be
required to be disclosed pursuant to clause (a) above; and

     (c) there are no Orders outstanding against the Company.

     2.13 Compliance With Laws and Orders. The Company is not and has not at any
time within the last five (5) years been,  or has received any notice that it is
or has at any time within the last five (5) years been,  in  violation  of or in
default  under,  in any material  respect,  any Law or Order  applicable  to the
Company or any of its Assets and Properties.

     2.14  Benefit and  Compensation  Plans.  The  Company  has a Section  401-K
Employee Benefit Plan, a copy of which has been made available to Purchaser, and
has no other  employee  benefit  or  compensation  plans  except as set forth in
Section 2.14 of the Disclosure Schedule.

     2.15 Real Property.

     (a) Section 2.15(a) of the Disclosure  Schedule contains a true and correct
list of each parcel of real property leased by the Company.  The Company owns no
real property.

     (b) The Company has  adequate  rights of ingress and egress with respect to
the real property listed in Section  2.15(a) of the Disclosure  Schedule and all
buildings,  structures,  facilities, fixtures and other improvements thereon. To
the  Knowledge of Seller,  none of such real  property,  buildings,  structures,
facilities,  fixtures or other improvements,  or the use thereof, contravenes or
violates any building, zoning, administrative, occupational safety and health or
other  applicable Law in any material  respect  (whether or not permitted on the
basis of prior nonconforming use, waiver or variance).

     (c) The  Company  has a valid and  subsisting  leasehold  estate in and the
right to quiet enjoyment of the real  properties  leased by it for the full term
of the lease thereof.  Each lease referred to in paragraph (a) above is a legal,
valid and binding  agreement,  enforceable in accordance  with its terms, of the
Company and, to the  Knowledge  of Seller,  of each other Person that is a party
thereto,  and,  there is no, and the  Company  has not  received  notice of any,
default (or any condition or event which, after notice or lapse of time or both,

                                       7
<PAGE>

would constitute a default)  thereunder.  The Company does not owe any brokerage
commissions with respect to any such leased space.

     (d)  Seller has  delivered  to  Purchaser  prior to the  execution  of this
Agreement true and complete  copies of all leases  (including any amendments and
renewal letters).

     (e) The improvements on the real property  identified in Section 2.15(a) of
the Disclosure  Schedule are in good operating  condition and in a state of good
maintenance  and repair,  ordinary  wear and tear  excepted,  are  adequate  and
suitable for the purposes  for which they are  presently  being used and, to the
Knowledge of Seller,  there are no  condemnation  or  appropriation  proceedings
pending or  threatened  against any of such real  property  or the  improvements
thereon.

2.16     Tangible Personal Property; Investment Assets.

     (a) The  Company  is in  possession  of and has good title to, or has valid
leasehold  interests  in or valid  rights  under  Contract to use,  all tangible
personal  property  used in or  reasonably  necessary  for the  conduct of their
business,  including  all tangible  personal  property  reflected on the balance
sheet  included in the  Financial  Statements  and  tangible  personal  property
acquired  since the Financial  Statement  Date other than  property  disposed of
since  such  date in the  ordinary  course  of  business  consistent  with  past
practice.  All such tangible  personal  property is free and clear of all Liens,
other than Permitted Liens, and is in good working order and condition, ordinary
wear and tear excepted,  and its use complies in all material  respects with all
applicable Laws.

     (b) Section  2.16(b) of the Disclosure  Schedule  describes each Investment
Asset owned by the Company on the date  hereof.  Except as  disclosed in Section
2.16(b) of the Disclosure Schedule,  all such Investment Assets are owned by the
Company free and clear of all Liens other than Permitted Liens.

2.17     Intellectual Property.

     (a) To the  Knowledge of Seller,  Company owns, or is licensed or otherwise
entitled  to  exercise  pursuant  to the  terms of a  license  or other  similar
agreement identified in Section 2.17(a) of the Disclosure  Schedule,  all rights
to all Intellectual  Property used in the Business as currently  conducted or in
connection with products to be used in the Business  currently under development
without any conflict or  infringement  of the rights of others.  The source code
created by Company and included  within the Assets and Properties of the Company
constitutes a trade secret of Company, and as a whole, is not part of the public
knowledge or literature, and Company has taken reasonable action to protect such
source  code as a trade  secret  and has not  been  disclosed  to any  party  or
retained by any party other than the  Company.  In  addition,  Company has taken
reasonable and practicable steps (including,  without limitation,  entering into
confidentiality and non-disclosure agreements with all officers and employees of
and  consultants to Seller) to maintain the secrecy and  confidentiality  of and
its  proprietary  rights in,  Company's trade secrets.  Furthermore,  all of the
employees of Company that have  participated  in the  development or creation of
any of the Company's  Intellectual Property are listed in Section 2.17(a) of the

                                       8
<PAGE>

Disclosure  Schedule,  and each such employee has already entered, or will prior
to the Closing enter,  into  agreements  with Company whereby each such employee
assigns any and all of his or her rights in the  Intellectual  Property  created
pursuant to his or her employment with the Company.

     (b) In  addition  to  the  foregoing,  Section  2.17(b)  of the  Disclosure
Schedule  lists (i) all  patents  and  patent  applications  and all  registered
copyrights, trade names, trademarks, service marks and other company, product or
service identifiers included in Company's  Intellectual  Property, and specifies
the  jurisdictions in which each such Company's  Intellectual  Property has been
registered,  including  the  respective  registration  numbers;  (ii) other than
nonexclusive  end user licenses entered into in the ordinary course of business,
all licenses,  sublicenses  and other  agreements as to which Company is a party
and pursuant to which  Company or any other person is  authorized  to use any of
Company's Intellectual Property; and (iii) all licenses relating to the Business
under which  Company is or may be obligated  to make royalty or other  payments.
Copies of all licenses, sublicenses, and other agreements identified pursuant to
clauses (ii) and (iii) above have been delivered by Company to Purchaser.

     (c) To the Knowledge of Seller, Company is not in violation in any material
respect of any license, sublicense or agreement described in Section 2.17 of the
Disclosure Schedule. As a result of the execution and delivery of this Agreement
or  the  performance  of  Company's  obligations  hereunder  or  thereunder,  to
Company's  and  Seller's  knowledge,  Company  will not be in  violation  in any
material  respect of any license,  sublicense or agreement  described in Section
2.17  of the  Disclosure  Schedule,  or lose or in any  way  impair  any  rights
pursuant thereto.

     (d) To the Knowledge of Seller, Company is the owner or a licensee of, with
all necessary right,  title and interest in and to (free and clear of any liens,
encumbrances  or security  interests)  all  Intellectual  Property being used or
proposed to be used in the Business in connection with products  currently under
development,  and has rights to the use,  sale,  license or disposal  thereof in
connection  with the services or products in respect of which such  Intellectual
Property are used.

     (e) No  claims  with  respect  to the  Intellectual  Property  used  in the
Business have been asserted to Company, or, to Company's and Seller's knowledge,
are  threatened  by any person,  and Seller knows of no claims (i) to the effect
that Company in the conduct of the Business  infringes  any  copyright,  patent,
trade  secret,  or  other  intellectual  property  right of any  third  party or
violates any license or  agreement  with any third party,  (ii)  contesting  the
right of Company to use, sell,  license or dispose of any Intellectual  Property
used  in  the  Business,  or  (iii)  challenging  the  ownership,   validity  or
effectiveness of any of the Intellectual Property used in the Business.

     (f) To the Knowledge of Seller,  all trademarks,  service marks,  and other
company, product or service identifiers held by Company and used in the Business
are valid and subsisting.

     (g) To the Knowledge of Seller, there has not been and there is not now any
unauthorized  use,   infringement  or   misappropriation  of  any  of  Company's
Intellectual  Property by any third party,  including,  without limitation,  any
service  provider of Company;  Company  has not been sued or, to  Company's  and

                                       9
<PAGE>

Seller's  knowledge,  charged  as a  defendant  in any  claim,  suit,  action or
proceeding  that involves a claim of  infringement  of any patents,  trademarks,
service marks,  copyrights or other  intellectual  property rights. To Company's
and Seller's knowledge,  Company does not have any infringement liability due to
its conduct of the Business with respect to any patent, trademark, service mark,
copyright or other intellectual property right of another.

(h) To the  Knowledge  of Seller,  none of  Company's  Intellectual  Property is
subject to any outstanding  order,  judgment,  decree,  stipulation or agreement
restricting in any material manner the licensing thereof by Company. Company has
not entered into any agreement to indemnify any other person  against any charge
of infringement of any Intellectual  Property,  except in the ordinary course of
business.  Company has not entered into any  agreement  granting any third party
the right to bring infringement actions with respect to, or otherwise to enforce
rights with respect to, any of Company's Intellectual Property.  Company has the
exclusive  right  to  file,   prosecute  and  maintain  all   applications   and
registrations with respect to Company's Intellectual Property developed or owned
by Company.

(i) No person  has a license to use or the right to acquire a license to use any
future  version of any Company  product  used in or sold by the  Business or any
such  Company  product  that is under  development,  and no  agreement  to which
Company is a party will restrict  Purchaser from charging customers for any such
new version.  Section 2.17(i) of the Disclosure Schedule  separately  identifies
each exclusive  arrangement between Company and any third party to use, license,
sublicense,  sell or distribute  any of Company's  Intellectual  Property or any
Company products sold or distributed by the Business.

     2.18 Contracts. Section 2.18 of the Disclosure Schedule contains a true and
complete  list of each of  Contracts  or other  arrangements  (true and complete
copies or reasonably  complete and accurate  written  descriptions  of, together
with all  amendments  and  supplements  thereto  and all  waivers  of any  terms
thereof,  have been made  available to Purchaser  prior to the execution of this
Agreement),  to which the  Company  is a party or by which any of its Assets and
Properties  are bound which (i) has a value in excess of $10,000.00  and (ii) is
not listed in any other section of the Disclosure Schedule.

     2.19 Licenses.  Section 2.19 of the Disclosure Schedule contains a true and
complete  list of all  Licenses  used in and  material,  individually  or in the
aggregate,  to the  business  or  operations  of the  Company  (and all  pending
applications for any such Licenses), setting forth the grantor, the grantee, the
function and the expiration and renewal date of each.  Prior to the execution of
this  Agreement,  Seller has delivered to Purchaser true and complete  copies of
all such  Licenses.  Except  as  disclosed  in  Section  2.19 of the  Disclosure
Schedule:

     (i) the  Company  owns or validly  holds all  Licenses  that are  material,
individually or in the aggregate, to its business or operations;

     (ii) each  License  listed in Section  2.19 of the  Disclosure  Schedule is
valid,     binding     and     in     full     force     and     effect;     and

                                       10
<PAGE>

     (iii)  neither the Company  is, or has  received  any notice that it is, in
default  (or with the  giving of  notice  or lapse of time or both,  would be in
default) under any such License.

     2.20 Insurance. Section 2.20 of the Disclosure Schedule contains a true and
complete list of all liability, property, workers' compensation,  directors' and
officers' liability and other insurance policies currently in effect that insure
the business,  operations or employees of the Company or affect or relate to the
ownership,  use or operation of any of the Assets and  Properties of the Company
and that (i) have been  issued to the  Company  or (ii) have been  issued to any
Person  (other than the Company) for the benefit of the Company.  The  insurance
coverage provided by any of the policies  described in clause (i) above will not
terminate or lapse by reason of the transactions contemplated by this Agreement.
Each  policy  listed in Section  2.20 of the  Disclosure  Schedule  is valid and
binding and in full force and effect,  no premiums due thereunder  have not been
paid and neither the Company, nor the Person to whom such policy has been issued
has received any notice of  cancellation  or  termination in respect of any such
policy or is in default  thereunder.  The insurance  policies  listed in Section
2.20 of the  Disclosure  Schedule  are,  in  light of the  respective  business,
operations  and Assets  and  Properties  of the  Company,  in  amounts  and have
coverages  that  are  reasonable  and  customary  for  Persons  engaged  in such
businesses  and operations  and having such Assets and  Properties.  Neither the
Company,  nor the Person to whom such policy has been issued has received notice
that any  insurer  under any  policy  referred  to in this  Section  is  denying
liability with respect to a claim thereunder or defending under a reservation of
rights clause.

     2.21 Affiliate Transactions. Except as disclosed in Section 2.18(a)(vii) or
Section  2.21(a)  of the  Disclosure  Schedule,  (i) there  are no  intercompany
Liabilities  between the Company,  on the one hand,  and Seller,  any present or
former officer, director or Affiliate (other than the Company) of Seller, on the
other,  (ii) neither Seller nor any such present or former officer,  director or
Affiliate  provides or causes to be provided any assets,  services or facilities
to the  Company,  (iii) the Company does not provide or cause to be provided any
assets,  services or facilities to Seller or any such present or former officer,
director or Affiliate and (iv) the Company does not beneficially  own,  directly
or  indirectly,  any  Investment  Assets issued by Seller or any such present or
former officer, director or Affiliate. Except as disclosed in Section 2.21(b) of
the Disclosure  Schedule,  each of the  Liabilities and  transactions  listed in
Section  2.21(a) of the  Disclosure  Schedule was incurred or engaged in, as the
case may be, on an arm's-length basis. Except as disclosed in Section 2.21(c) of
the Disclosure Schedule,  since the Financial Statement Date, all settlements of
intercompany Liabilities between the Company, on the one hand, and Seller or any
such present or former officer,  director or Affiliate,  on the other, have been
made, and all  allocations of  intercompany  expenses have been applied,  in the
ordinary course of business  consistent  with past practice.  Since November 30,
1999,  the Company has not made any  distributions  to Seller  other than normal
payroll or expense reimbursement.

     2.22 Employees;  Labor Relations.  There are no outstanding  claims pending
or, to the  Knowledge  of  Seller,  asserted  by or against  the  Company by any
employee, consultant or former employee or former consultant of the Company.

     2.23  Environmental  Matters.  To the Knowledge of Seller,  the Company has
obtained all Licenses which are required under applicable  Environmental Laws in
connection  with the conduct of the business or operations of the Company.  Each
of such Licenses is in full force and effect and the Company is in compliance in

                                       11
<PAGE>

all material  respects  with the terms and  conditions  of all such Licenses and
with any applicable Environmental Law. In addition, to the Knowledge of Seller:

     (a) No Order has been issued,  no  Environmental  Claim has been filed,  no
penalty has been assessed and no  investigation  or review is pending or, to the
Knowledge of Seller, threatened by any Governmental or Regulatory Authority with
respect to any alleged failure by the Company to have any License required under
applicable  Environmental Laws in connection with the conduct of the business or
operations of the Company or with respect to any generation, treatment, storage,
recycling,  transportation,  discharge,  disposal  or Release  of any  Hazardous
Material  generated by the Company or any  Subsidiary,  and to the  Knowledge of
Seller,  there are no facts or circumstances in existence which could reasonably
be expected to form the basis for any such Order,  Environmental  Claim, penalty
or investigation.

     (b) The Company has not transported or arranged for the  transportation  of
any  Hazardous  Material  to any  location  that is the  subject of  enforcement
actions by Governmental or Regulatory Authorities that may lead to Environmental
Claims against the Company.

     (c) No  Hazardous  Material  generated  by the Company  has been  recycled,
treated, stored, disposed of or Released by the Company at any location.

     (d) No Liens have arisen under or pursuant to any  Environmental Law on any
site or facility owned,  operated or leased by the Company,  and no Governmental
or Regulatory Authority action has been taken or, to the Knowledge of Seller, is
in process that could  subject any such site or facility to such Liens,  and the
Company would not be required to place any notice or restriction relating to the
presence of Hazardous  Materials at any site or facility owned by it in any deed
to the real property on which such site or facility is located.

     (e)  There  have been no  environmental  investigations,  studies,  audits,
tests, reviews or other analyses conducted by, or that are in the possession of,
the  Company  in  relation  to any site or  facility  now or  previously  owned,
operated or leased by the Company  which have not been  delivered  to  Purchaser
prior to the execution of this Agreement.

     2.24 Bank and Brokerage  Accounts;  Investment Assets.  Section 2.24 of the
Disclosure  Schedule  sets forth (a) a true and  complete  list of the names and
locations of all banks, trust companies,  securities brokers and other financial
institutions  at  which  the  Company  has an  account  or safe  deposit  box or
maintains a banking,  custodial,  trading or other similar  relationship;  (b) a
true  and  complete  list  and  description  of  each  such  account,   box  and
relationship,  indicating  in each case the account  number and the names of the
respective officers,  employees,  agents or other similar representatives of the
Company  having  signatory  power with respect  thereto;  and (c) a list of each
Investment  Asset,  the name of the record and  beneficial  owner  thereof,  the
location of the certificates,  if any, therefor,  the maturity date, if any, and
any stock or bond powers or other  authority  for transfer  granted with respect
thereto.

     2.25 No Powers of  Attorney.  Except  as set forth in  Section  2.25 of the
Disclosure  Schedule,  the  Company  does not have any  powers  of  attorney  or
comparable delegations of authority outstanding.

                                       12
<PAGE>

     2.26  Accounts  Receivable.  Except  as set  forth in  Section  2.26 of the
Disclosure Schedule,  the accounts and notes receivable of the Company reflected
on the balance sheet included in the Financial Statements,  and all accounts and
notes receivable arising  subsequent to the Financial  Statement Date, (i) arose
from bona fide sales  transactions  in the  ordinary  course of business and are
payable on ordinary trade terms, (ii) are legal,  valid and binding  obligations
of the respective debtors  enforceable in accordance with their terms, (iii) are
not  subject  to any  valid  set-off  or  counterclaim,  (iv)  do not  represent
obligations  for goods sold on consignment,  on approval or on a  sale-or-return
basis  or  subject  to any  other  repurchase  or  return  arrangement,  (v) are
collectible in the ordinary course of business  consistent with past practice in
the aggregate recorded amounts thereof,  net of any applicable reserve reflected
in the balance sheet included in the Financial Statements,  and (vi) are not the
subject of any Actions or  Proceedings  brought by or on behalf of the  Company.
Section 2.26 of the Disclosure Schedule sets forth a description of any security
arrangements  and  collateral  securing the repayment or other  satisfaction  of
receivables  of the Company.  All steps  necessary  to render all such  security
arrangements legal, valid, binding and enforceable, and to give and maintain for
the Company,  as the case may be, a perfected  security  interest in the related
collateral, have been taken.

     2.27  Brokers.  All  negotiations   relative  to  this  Agreement  and  the
transactions  contemplated  hereby have been carried out by Seller directly with
Purchaser  without  the  intervention  of any Person on behalf of Seller in such
manner as to give rise to any valid claim by any Person against Purchaser or the
Company for a finder's fee, brokerage commission or similar payment.

     2.28 Disclosure. To the Knowledge of Seller, all material facts relating to
the Business or  Condition  of the Company have been  disclosed by the Seller to
the Purchaser in or in connection  with this  Agreement.  No  representation  or
warranty  contained  in  this  Agreement,  and  no  statement  contained  in the
Disclosure  Schedule or in any certificate,  list or other writing  furnished to
Purchaser  pursuant  to any  provision  of  this  Agreement  (including  without
limitation  the  Financial  Statements),  contains  any  untrue  statement  of a
material fact or omits to state a material  fact  necessary in order to make the
statements herein or therein, in the light of the circumstances under which they
were made, not misleading.

     2.29 Warranties and  Indemnities.  Section 2.29 of the Disclosure  Schedule
sets forth a summary of all  warranties  and  indemnities,  express or  implied,
relating to products sold or services  rendered by the Company,  and no warranty
or indemnity has been given by the Company that is not listed on Section 2.29 of
the Disclosure  Schedule or which differs therefrom in any respect.  The Company
is in compliance with all warranties described in Section 2.29 of the Disclosure
Schedule.  Section 2.29 of the  Disclosure  Schedule also indicates all warranty
and indemnity claims currently pending against the Company.

     2.30   Confidentiality   Agreements.   All  present  or  former  employees,
consultants,  officers and  directors of the Company that have had access to the
Proprietary  Assets  of the  Company  are  parties  to a  written  agreement  (a
"Confidentiality  Agreement"),  under which each such Person (i) is obligated to
disclose and transfer to the Company,  without the receipt by such Person of any
additional  value  therefor  (other  than normal  salary or fees for  consulting
services), all inventions, developments and discoveries which, during the period
of employment  with or performance of services for the Company,  he or she makes
or conceives of either solely or jointly with others, that relate to any subject

                                       13
<PAGE>

matter with which his or her work for the Company may be concerned,  and (ii) is
obligated to maintain the  confidentiality  of  proprietary  information  of the
Company.  To the Knowledge of Seller,  none of the  Company's  present or former
employees,  consultants,  officers or directors is obligated  under any Contract
(including licenses,  covenants or commitments of any nature), or subject to any
judgment,  decree or Order of any  Governmental  or Regulatory  Authority,  that
would  conflict  with their  obligation  to promote the interests of the Company
with regard to their  business or the  proprietary  assets.  To the Knowledge of
Seller,  neither  the  execution  nor the  delivery of this  Agreement,  nor the
carrying on of the  Company's  business by its present or former  employees  and
consultants,  will conflict with or result in a breach of the terms,  conditions
or provisions  of, or  constitute a default  under,  any  contract,  covenant or
instrument  under which any of such Persons are now  obligated.  It is currently
not necessary nor will it be necessary for the Company to utilize any inventions
of any of such Persons (or Persons the Company  currently  intends to hire) made
or owned prior to their employment by or affiliation with the Company, nor is it
or will it be  necessary  to  utilize  any  other  assets  or rights of any such
persons or entities (or Persons the Company  currently  intends to hire) made or
owned prior to their employment with or engagement by the Company,  in violation
of any registered  patents,  trade names,  trademarks or copyrights or any other
limitations or restrictions to which any such persons or entity is a party or to
which any of such assets or rights may be subject.  To the  Knowledge of Seller,
none of the  Company's  present  or  former  employees,  consultants,  officers,
directors  or  shareholders  that has had  knowledge  or access  to  information
relating  to the  proprietary  assets  has  taken,  removed  or made  use of any
Proprietary Assets, or any other tangible item from his or her previous employer
relating to the proprietary  assets by such previous employer which has resulted
in the  Company's  access to or use of such  proprietary  items  included in the
Proprietary  Assets,  and the Company will not gain access to or make use of any
such proprietary items in their business.

     2.31 Products. Each of the products and services produced, sold or provided
by the  Company is, and at all times has been,  in  compliance  in all  material
respects with all  applicable  Laws and, to the Knowledge of the Seller,  at all
relevant  times has been fit for the ordinary  purposes for which it is intended
to be used and conforms in all material respects to any promises or affirmations
of fact made in connection with the sale of such product or service.

     2.32 Product Liability.  There are no claims,  actions,  suits,  inquiries,
proceedings or investigations  pending by or against the Company,  or threatened
by or against relating to the Company's products and containing allegations that
such  products are  defective or were  improperly  designed or  manufactured  or
improperly labeled or otherwise improperly described for use.

     2.33 Year 2000 Compliance. Seller represents and warrants that Seller owned
and  controlled  business  systems  ("Seller's  Systems")  that  are part of the
Business will not have a material  interruption of operations due to a Year 2000
problem provided items not owned and controlled by Seller properly exchange date
data with the Seller's  Systems.  Such warranty  shall remain in place up to and
including one hundred eighty (180) days following January 1, 2000.

     2.34 Seller's Investment  Representations.  The Seller understands that the
sale of the QAD Stock has not been registered  under the Securities Act of 1933,
as amended (the "Securities Act") or qualified under the California Corporations
Code (the "Code") in reliance upon exemptions therefrom the nonpublic offerings.

                                       14
<PAGE>

The Seller  understands that the QAD Stock must be held indefinitely  unless the
sale thereof is subsequently  registered or qualified under the Act and the Code
and applicable  state  securities laws or exemptions  from such  registration or
qualification  are available.  The QAD Stock is being  purchased  solely for the
Seller's own account for  investment and not for the account of any other person
and  not  for  distribution,  assignment  or  resale  to  others  or a  view  to
distribution  to others and no other person has a direct or indirect  beneficial
interest in the QAD Stock, and the certificates  representing the QAD Stock will
bear appropriate restrictive legends.

                                   ARTICLE III

                   REPRESENTATIONS AND WARRANTIES OF PURCHASER

         Purchaser hereby represents and warrants to Seller as follows:

     3.1  Organization.  Purchaser  is a  corporation  duly  organized,  validly
existing and in good standing under the Laws of the State of Delaware. Purchaser
has full corporate power and authority to execute and deliver this Agreement, to
perform  its   obligations   hereunder  and  to  consummate   the   transactions
contemplated hereby.

     3.2 Authority.  The execution and delivery by Purchaser of this  Agreement,
and the  performance by Purchaser of its obligations  hereunder,  have been duly
and  validly  authorized  by the  Board  of  Directors  of  Purchaser,  no other
corporate action on the part of Purchaser or its  stockholders  being necessary.
This Agreement has been duly and validly executed and delivered by Purchaser and
constitutes  a legal,  valid and binding  obligation  of  Purchaser  enforceable
against Purchaser in accordance with its terms.

     3.3 No Conflicts. The execution and delivery by Purchaser of this Agreement
and the performance by the Purchaser of its obligations under this Agreement and
the consummation of the transactions  contemplated hereby will not conflict with
or result in a violation or breach of any of the terms, conditions or provisions
of the certificate of incorporation  or by-laws (or other  comparable  corporate
charter document) of Purchaser.

     3.4 Governmental Approvals and Filings. Except for routine filings with the
Securities and Exchange  Commission (the "SEC") that may be required pursuant to
the Securities Exchange Act of 1934, as amended, no consent,  approval or action
of, filing with or notice to any  Governmental  or  Regulatory  Authority on the
part of Purchaser is required in  connection  with the  execution,  delivery and
performance  of  this  Agreement  or  the   consummation  of  the   transactions
contemplated hereby.

     3.5  QAD  Stock.  The  QAD  Stock  will  be  duly  authorized,  issued  and
outstanding, and fully paid and non-assessable.

     3.6 Reports;  Financial Statements.  Each registration  statement,  report,
proxy statement or information statement prepared by Purchaser since January 31,
1999,  including  Purchaser's  Annual  Report on Form  10-K for the years  ended
January 31, 1999 and Purchaser's Quarterly Reports on Form 10-Q for the quarters
ended April 30, 1999 and July 31, 1999 in the form (including exhibits,  annexes
and any amendments thereto) filed with the SEC (collectively, including any such

                                       15
<PAGE>

reports filed subsequent to the date of this Agreement,  "Purchaser's  Reports")
complied as to form with all applicable  requirements  under the Securities Act,
the  Securities  Exchange Act of 1934, as amended (the  "Exchange  Act") and the
rules and regulations  thereunder and did not contain any untrue  statement of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements made therein,  in light of the circumstances in
which they were made, not misleading.  Each of the  consolidated  balance sheets
included in or incorporated by reference into Purchaser's Reports (including the
related notes and schedules) fairly presents the consolidated financial position
of Purchaser and its  Subsidiaries  as of its date and each of the  consolidated
statements of income,  shareholders'  investment  and cash flows  included in or
incorporated by reference into Purchaser's  Reports (including any related notes
and schedules) fairly presents the consolidated results of operations, statement
of shareholders' investment and cash flows, as the case may be, of Purchaser and
its  Subsidiaries  for the periods set forth  therein  (subject,  in the case of
unaudited  statements,  to the absence of notes (to the extent  permitted by the
rules  applicable to Form 10-Q) and to normal  year-end audit  adjustments  that
will not be material in amount or effect),  in each case in accordance with GAAP
consistently  applied  during  the  periods  involved,  except  as may be  noted
therein.

     3.7 Absence Of Certain Changes.  Except as disclosed in Purchaser's Reports
filed  prior to the date of this  Agreement  or in any  press  releases  made by
Purchaser,  since January 31, 1999,  there has not been: (i) any material change
in the financial condition, liabilities and assets (taken together), business or
results of  operations  of  Purchaser  and its  Subsidiaries;  (ii) any material
damage, destruction or other casualty loss with respect to any asset or property
owned, leased or otherwise used by Purchaser or any of its Subsidiaries, whether
or not covered by  insurance;  or (iii) any change by  Purchaser  in  accounting
principles, practices or methods, except as required by GAAP.

                                   ARTICLE IV

                 COVENANTS OF SELLER, THE COMPANY AND PURCHASER

     The Seller and the Company  covenant and agree with the Purchaser  that, at
all times from and after the date  hereof  until the  Closing,  they will comply
with the following covenants:

     4.1  Regulatory  and Other  Approvals.  The Seller and the Company  will as
promptly as practicable (a) take all commercially  reasonable steps necessary or
desirable to obtain all consents, approvals or actions of, make all filings with
and give all notices to  Governmental  or  Regulatory  Authorities  or any other
Person  required  of the  Seller,  the Company to  consummate  the  transactions
contemplated  hereby,  including without  limitation those described in Sections
2.6 and 2.7 of the Disclosure  Schedule,  (b) provide such other information and
communications to such  Governmental or Regulatory  Authorities or other Persons
as the Purchaser or such Governmental or Regulatory Authorities or other Persons
may reasonably request in connection  therewith and (c) cooperate with Purchaser
in connection with the performance of its obligations  under Sections 6.1(b) and
(c).  The  Seller  and the  Company  will  provide  prompt  notification  to the
Purchaser when any such consent,  approval, action, filing or notice referred to
in clause (a) above is obtained,  taken, made or given, as applicable,  and will
advise the  Purchaser  of any  communications  (and,  unless  precluded  by Law,

                                       16
<PAGE>

provide  copies  of any  such  communications  that  are in  writing)  with  any
Governmental  or  Regulatory  Authority  or other  Person  regarding  any of the
transactions contemplated by this Agreement.

     4.2 Investigation by Purchaser.  The Seller and the Company (a) provide the
Purchaser and its officers, directors,  employees, agents, counsel, accountants,
financial   advisors,    consultants   and   other   representatives   (together
"Representatives")  with full access,  upon  reasonable  prior notice and during
normal business hours, to all officers, employees, agents and accountants of the
Company and its Assets and Properties and Books and Records, and (b) furnish the
Purchaser and such other Persons with all such  information  and data (including
without  limitation  copies of  Contracts,  Benefit  Plans  and other  Books and
Records)  concerning the business and operations of the Company as the Purchaser
or any of such other  Persons  reasonably  may request in  connection  with such
investigation.

     4.3 No  Solicitations.  The Seller and the Company will not take,  nor will
they permit the Company or any  Affiliate of Seller (or  authorize or permit any
investment  banker,  financial  advisor,  attorney,  accountant  or other Person
retained  by or acting for or on behalf of the  Seller,  the Company or any such
Affiliate) to take,  directly or indirectly,  any action to solicit,  encourage,
receive,  negotiate,  assist or otherwise  facilitate  (including  by furnishing
confidential information with respect to the Company or permitting access to the
Assets  and  Properties  and Books  and  Records  of the  Company ) any offer or
inquiry from any Person concerning an Acquisition  Proposal.  If the Seller, the
Company or any such Affiliate (or any such Person acting for or on their behalf)
receives from any Person any offer, inquiry or informational request referred to
above,  the Seller and the Company will promptly advise such Person,  by written
notice,  of the  terms of this  Section  4.3 and will  promptly,  orally  and in
writing,  advise the  Purchaser of such offer,  inquiry or request and deliver a
copy of such notice to the Purchaser.

     4.4 Conduct of Business.  The Seller and the Company will cause the Company
to conduct  business only in the ordinary course  consistent with past practice.
Without limiting the generality of the foregoing, Seller and the Company will:

     (a)  cause  the  Company  to use  commercially  reasonable  efforts  to (i)
preserve intact the present business organization and reputation of the Company,
(ii) keep  available  (subject to  dismissals  and  retirements  in the ordinary
course of business  consistent  with past  practice) the services of the present
officers,  employees and  consultants of the Company,  (iii) maintain the Assets
and Properties of the Company in good working order and condition, ordinary wear
and tear excepted, (iv) maintain the good will of customers,  suppliers, lenders
and other Persons to whom the Company  sells goods or provides  services or with
whom the  Company  otherwise  has  significant  business  relationships  and (v)
continue all current sales, marketing and promotional activities relating to the
business and operations of the Company;

     (b) except to the extent  required by  applicable  Law, (i) cause the Books
and Records to be maintained in the usual, regular and ordinary manner, (ii) not
permit any material change in (A) any pricing, investment, accounting, financial
reporting,  inventory,  credit,  allowance  or Tax  practice  or  policy  of the
Company,  or (B) any method of  calculating  any bad debt,  contingency or other
reserve of the Company for accounting,  financial  reporting or Tax purposes and
(iii) not permit any change in the fiscal year of the Company;

                                       17
<PAGE>

     (c) (i) use,  and will cause the  Company to use,  commercially  reasonable
efforts to maintain in full force and effect until the Closing substantially the
same levels of coverage as the insurance  afforded under the Contracts listed in
Section 2.18 of the  Disclosure  Schedule,  (ii) to the extent  requested by the
Purchaser prior to the Closing Date, use all commercially  reasonable efforts to
cause such  insurance  coverage  held by any Person (other than the Company) for
the  benefit of the  Company to  continue  to be  provided at the expense of the
Company for at least  ninety (90) days after the  Closing on  substantially  the
same terms and  conditions  as provided on the date of this  Agreement and (iii)
cause any and all benefits under such Contracts paid or payable  (whether before
or after the date of this Agreement)  with respect to the business,  operations,
employees or Assets and Properties of the Company to be paid to the Company; and

     (d) cause the Company to comply,  in all material  respects,  with all Laws
and Orders  applicable  to the  business  and  operations  of the  Company,  and
promptly  following  receipt thereof to give the Purchaser  copies of any notice
received from any Governmental or Regulatory  Authority or other Person alleging
any violation of any such Law or Order.

     4.5 Financial Statements and Reports; Filings.

     (a) As promptly as practicable after the date hereof and before the Closing
Date, the Seller will deliver to the Purchaser true and complete  copies of such
financial  statements,  reports  and  analyses as may be prepared or received by
Seller or the Company  relating to the business or  operations of the Company or
as the Purchaser may otherwise reasonably request.

     (b) As  promptly as  practicable,  the Seller  will  deliver  copies of all
License applications and other filings made by the Company after the date hereof
and before the Closing Date with any Governmental or Regulatory Authority (other
than  routine,  recurring  filings  made  in the  ordinary  course  of  business
consistent with past practice).

     4.6 Certain  Restrictions.  Except as contemplated  by this Agreement,  the
Seller will cause the Company to refrain from:

     (a) amending its articles of  incorporation or by-laws (or other comparable
corporate  charter  documents)  or taking  any action  with  respect to any such
amendment or any recapitalization, reorganization, liquidation or dissolution of
any such corporation;

     (b)  authorizing,  issuing (except  pursuant to the exercise of outstanding
options to purchase Common Stock of the Company), selling or otherwise disposing
of any shares of capital stock of or any Option with respect to the Company,  or
modifying or amending any right of any holder of  outstanding  shares of capital
stock of or Option with respect to the Company;

     (c) declaring,  setting aside or paying any dividend or other  distribution
in respect of the  capital  stock of the  Company,  or  directly  or  indirectly
redeeming,  purchasing or otherwise acquiring any capital stock of or any Option
with respect to the Company;

     (d)  acquiring  or  disposing  of,  or  incurring  any Lien  (other  than a
Permitted Lien) on, any Assets and Properties;

                                       18
<PAGE>

     (e) (i) entering  into,  amending,  modifying,  terminating  (partially  or
completely), granting any waiver under or giving any consent with respect to (A)
any  Contract  that would,  if in existence  on the date of this  Agreement,  be
required to be disclosed in the Disclosure  Schedule pursuant to Section 2.18 or
(B) any material License or (ii) granting any irrevocable powers of attorney;

     (f) violating,  breaching or defaulting under in any material  respect,  or
taking or failing to take any  action  that (with or without  notice or lapse of
time or both) would  constitute  a material  violation  or breach of, or default
under,  any term or  provision of any License held or used by the Company or any
Contract  to which  the  Company  is a party or by which any of its  Assets  and
Properties is bound;

     (g) (i) incurring  Indebtedness in an aggregate  principal amount exceeding
$10,000 (net of any amounts of Indebtedness  discharged during such period),  or
(ii) voluntarily purchasing,  canceling,  prepaying or otherwise providing for a
complete  or  partial  discharge  in advance of a  scheduled  payment  date with
respect to, or waiving any right of the Company under,  any  Indebtedness  of or
owing to the Company;

     (h) engaging with any Person in any merger or other business combination;

     (i) making capital  expenditures  or commitments for additions to property,
plant or equipment  constituting capital assets in an aggregate amount exceeding
$10,000;

     (j) making any change in the lines of business in which they participate or
are engaged;

     (k) writing off or writing down any of their Assets and Properties;

     (l)  except as set forth in  Section  4.6(l)  of the  Disclosure  Schedule,
modifying  any  compensation  terms or paying any bonuses to a current or former
employee, director, consultant or Affiliate; or

     (m) entering into any Contract to do or engage in any of the foregoing.

     4.7  Affiliate  Transactions.  Except  as set forth in  Section  4.7 of the
Disclosure  Schedule,  immediately  prior to the Closing,  all  Indebtedness and
other  amounts  owing  under  Contracts  between the Seller,  the  Company,  any
officer,  director or Affiliate  (other than the Company) of Seller,  on the one
hand,  and the  Company,  on the other,  will be paid in full,  and Seller  will
terminate  and will cause any such  officer,  director or Affiliate to terminate
each Contract with the Company. Prior to the Closing, the Company will not enter
into any Contract or amend or modify any existing Contract,  and will not engage
in any transaction  outside the ordinary course of business consistent with past
practice  or not on an  arm's-length  basis  (other than  pursuant to  Contracts
disclosed pursuant to Section 2.21 of the Disclosure Schedule),  with Seller, or
any such officer, director or Affiliate.

                                       19
<PAGE>

                                    ARTICLE V

                              COVENANT OF PURCHASER

     5.1 Form S-3. No later than 30 days after the Closing Date, Purchaser shall
file with the SEC, at Purchaser's  expense a Registration  Statement on Form S-3
(the  "Registration  Statement") or other  appropriate form under the Securities
Act to  register  the QAD Stock.  Purchaser  shall use  commercially  reasonable
efforts to cause the Registration  Statement to remain  continuously  effective,
including without  limitation by timely making all required filings with the SEC
and  supplementing the prospectus  related to the QAD Stock as necessary,  until
the  earlier to occur of the  following:  (i) Seller has  disposed of all of the
shares  of QAD  Stock;  and (ii) all of the  shares of QAD Stock are can be sold
within a given 30-day period pursuant to Rule 144 of the Securities Act.

                                   ARTICLE VI

                CONDITIONS TO OBLIGATIONS OF PURCHASER AND SELLER

     6.1 Conditions to Obligations  of Purchaser.  The  obligations of Purchaser
hereunder  to purchase the Shares are subject to the  fulfillment,  at or before
the Closing,  of each of the  following  conditions  (all or any of which may be
waived in whole or in part by Purchaser in its sole discretion):

     (a)  Representations  and  Warranties.  Each  of  the  representations  and
warranties  made by Seller in this  Agreement  (other  than  those  made as of a
specified  date earlier than the Closing  Date) shall be true and correct in all
material respects on and as of the Closing Date as though such representation or
warranty  was made on and as of the  Closing  Date,  and any  representation  or
warranty  made as of a specified  date  earlier than the Closing Date shall have
been true and correct in all material respects on and as of such earlier date.

     (b)  Performance.  Seller shall have  performed  and complied  with, in all
material  respects,  each  agreement,  covenant and obligation  required by this
Agreement  to be so  performed  or  complied  with by Seller  at or  before  the
Closing.

     (c)  Seller's  Certificates.  Seller  shall have  delivered  to Purchaser a
certificate,  dated the Closing  Date and  executed in the name and on behalf of
Seller, substantially in the form and to the effect of Exhibit D hereto.

     (d) Orders and Laws.  There shall not be in effect on the Closing  Date any
Order or Law restraining,  enjoining or otherwise  prohibiting or making illegal
the  consummation of any of the  transactions  contemplated by this Agreement or
which could reasonably be expected to otherwise result in a material  diminution
of the benefits of the  transactions  contemplated by this Agreement,  and there
shall not be pending or  threatened on the Closing Date any Action or Proceeding
in, before or by any Governmental or Regulatory Authority which could reasonably
be  expected  to  result in the  issuance  of any such  Order or the  enactment,
promulgation  or  deemed  applicability  to  Purchaser,   the  Company,  or  the
transactions contemplated by this Agreement of any such Law.

                                       20
<PAGE>

     (e) Regulatory Consents and Approvals. All consents,  approvals and actions
of,  filings  with and  notices  to any  Governmental  or  Regulatory  Authority
necessary to permit the Seller to perform his  obligations  under this Agreement
and to consummate  the  transactions  contemplated  hereby and thereby (a) shall
have  been duly  obtained,  made or  given,  (b) shall be in form and  substance
reasonably  satisfactory  to  Purchaser,   (c)  shall  not  be  subject  to  the
satisfaction  of any  condition  that has not been  satisfied  or waived and (d)
shall be in full  force and  effect,  and all  terminations  or  expirations  of
waiting periods imposed by any  Governmental or Regulatory  Authority  necessary
for the consummation of the transactions  contemplated by this Agreement,  shall
have occurred.

     (f) Third Party Consents.  All consents (or in lieu thereof waivers) to the
performance by Purchaser or Seller of their  obligations under this Agreement or
to the consummation of the transactions  contemplated  hereby and thereby as are
required under any Contract to which Purchaser, Seller or the Company is a party
or by which any of their  respective  Assets and  Properties are bound (a) shall
have been obtained,  (b) shall be in form and substance reasonably  satisfactory
to Purchaser, (c) shall not be subject to the satisfaction of any condition that
has not been  satisfied  or waived  and (d) shall be in full  force and  effect,
except where the failure to obtain any such consent (or in lieu thereof  waiver)
could not  reasonably be expected,  individually  or in the aggregate with other
such  failures,  to  materially  adversely  affect  Purchaser or the Business or
Condition of the Company or  otherwise  result in a material  diminution  of the
benefits of the transactions contemplated by this Agreement.

     (g) Due Diligence.  Purchaser's due diligence  investigation of the Company
shall not have  disclosed any matter or matters  which,  individually  or in the
aggregate,  could  reasonably  be expected to  materially  adversely  affect the
Company or the Business or Conditions of the Company.

     (h)  Resignations of Directors and Officers.  Such members of the boards of
directors and such officers of the Company as are designated in a written notice
delivered  prior to the Closing Date by Purchaser to Seller shall have tendered,
effective at the Closing, their resignations as such directors and officers.

     (i) Consulting Agreement. Seller will execute a Consulting Agreement in the
form attached hereto as Exhibit E (the "Consulting Agreement").

     (j) Release Agreement. Seller will deliver a Release Agreement, in the form
attached  hereto as Exhibit F,  releasing the Company and the Purchaser from all
claims and liabilities,  except for this Agreement, the Promissory Note, the QAD
Stock,  the Consulting  Agreement and the  Noncompetition  Agreement (as defined
below).

     (k) Employment  Agreements.  The employees  listed in Section 6.1(k) of the
Disclosure  Schedule  will  have  executed  employment   agreements  in  a  form
satisfactory  to the Purchaser,  together with the  cancellation of any existing
options to purchase shares of the Company.

     (l)  Proceedings.  All  proceedings  to be taken on the part of  Seller  in
connection  with  the  transactions  contemplated  by  this  Agreement  and  all
documents  incident  thereto  shall  be  reasonably  satisfactory  in  form  and

                                       21
<PAGE>

substance to  Purchaser,  and Purchaser  shall have received  copies of all such
documents and other  evidences as Purchaser may  reasonably  request in order to
establish  the  consummation  of  such   transactions  and  the  taking  of  all
proceedings in connection therewith.

     (m) Source  Code.  The  Seller  shall have  delivered  the Source  Code for
Enterprise Engines to Robert Stephens.

     (n)  Purchaser's  Lender and Board of Directors  Approval.  The Purchaser's
lender and the Purchaser's  Board of Directors has consented to or approved this
Agreement.

     (o)   Noncompetition   Agreement.   The  Seller  shall  have  executed  the
Noncompetition  Agreement  in  the  form  attached  hereto  as  Exhibit  G  (the
"Noncompetition Agreement").

     (p) Gemstone Agreement.  The Value-Added  Remarketer  Agreement between the
Company and Gemstone  Systems,  Inc. (the "Gemstone  Agreement") shall remain in
effect and shall be unaffected by the transactions contemplated herein such that
the  Purchaser has  determined  that the Company may receive the full benefit of
the Gemstone Agreement and that it is valid and in full force and effect.

     6.2  Conditions  to  Obligations  of  Seller.  The  obligations  of  Seller
hereunder  to sell the Shares are subject to the  fulfillment,  at or before the
Closing, of each of the following  conditions (all or any of which may be waived
in whole or in part by Seller in its sole discretion):

     (a)  Representations  and  Warranties.  Each  of  the  representations  and
warranties  made by Purchaser in this  Agreement  (other than those made as of a
specified  date earlier than the Closing  Date) shall be true and correct in all
material respects on and as of the Closing Date as though such representation or
warranty  was made on and as of the  Closing  Date,  and any  representation  or
warranty  made as of a specified  date  earlier than the Closing Date shall have
been true and correct in all material respects on and as of such earlier date.

     (b)  Performance.  Purchaser shall have performed and complied with, in all
material  respects,  each  agreement,  covenant and obligation  required by this
Agreement  to be so  performed  or  complied  with by Seller  at or  before  the
Closing.

     (c)  Purchaser's  Certificate.  Purchaser  shall have delivered to Seller a
certificate,  dated the Closing  Date and  executed in the name and on behalf of
Seller, substantially in the form and to the effect of Exhibit H hereto.

     (d) Orders and Laws.  There shall not be in effect on the Closing  Date any
Order or Law restraining,  enjoining or otherwise  prohibiting or making illegal
the  consummation of any of the  transactions  contemplated by this Agreement or
which could reasonably be expected to otherwise result in a material  diminution
of the benefits of the  transactions  contemplated by this Agreement,  and there
shall not be pending or  threatened on the Closing Date any Action or Proceeding
in, before or by any Governmental or Regulatory Authority which could reasonably
be  expected  to  result in the  issuance  of any such  Order or the  enactment,

                                       22
<PAGE>

promulgation  or  deemed  applicability  to  Purchaser,   the  Company,  or  the
transactions contemplated by this Agreement of any such Law.

     (e) Regulatory Consents and Approvals. All consents,  approvals and actions
of,  filings  with and  notices  to any  Governmental  or  Regulatory  Authority
necessary  to permit  the  Purchaser  to  perform  its  obligations  under  this
Agreement and to consummate the transactions contemplated hereby and thereby (a)
shall have been duly obtained, made or given, (b) shall be in form and substance
reasonably  satisfactory to Seller, (c) shall not be subject to the satisfaction
of any condition  that has not been satisfied or waived and (d) shall be in full
force and effect, and all terminations or expirations of waiting periods imposed
by any  Governmental or Regulatory  Authority  necessary for the consummation of
the transactions contemplated by this Agreement, shall have occurred.

     (f) Third Party Consents.  All consents (or in lieu thereof waivers) to the
performance by Seller or Purchaser of their  obligations under this Agreement or
to the consummation of the transactions  contemplated  hereby and thereby as are
required under any Contract to which Seller, Purchaser or the Company is a party
or by which any of their  respective  Assets and  Properties are bound (a) shall
have been obtained,  (b) shall be in form and substance reasonably  satisfactory
to Seller,  (c) shall not be subject to the  satisfaction  of any condition that
has not been  satisfied  or waived  and (d) shall be in full  force and  effect,
except where the failure to obtain any such consent (or in lieu thereof  waiver)
could not  reasonably be expected,  individually  or in the aggregate with other
such  failures,  to  materially  adversely  affect  Seller  or the  Business  or
Condition of the Company or  otherwise  result in a material  diminution  of the
benefits of the transactions contemplated by this Agreement.

     (g)  Consulting  Agreement.  Purchaser  shall have executed the  Consulting
Agreement.

     (h)  Proceedings.  All  proceedings to be taken on the part of Purchaser in
connection  with  the  transactions  contemplated  by  this  Agreement  and  all
documents  incident  thereto  shall  be  reasonably  satisfactory  in  form  and
substance to Seller, and Seller shall have received copies of all such documents
and other  evidences as Seller may reasonably  request in order to establish the
consummation  of  such  transactions  and  the  taking  of  all  proceedings  in
connection therewith.

     (i) The  Company's  Board of Directors  Approval.  The  Company's  Board of
Directors shall have consented to or approved this Agreement.

     (j)   Noncompetition   Agreement.   Purchaser   shall  have   executed  the
Noncompetition Agreement.

     (k) Termination of Employment Agreement.  The Company and Seller shall have
terminated the Employment  Agreement,  dated March 26, 1997, between the Company
and Seller.

                                       23
<PAGE>

                                   ARTICLE VII

                    SURVIVAL OF REPRESENTATIONS, WARRANTIES,
                            COVENANTS AND AGREEMENTS

     7.1 Survival of Representations,  Warranties, Covenants and Agreements. The
representations,  warranties,  covenants and  agreements of Seller and Purchaser
contained in this  Agreement  will survive the Closing for eighteen (18) months;
provided  that an  Indemnified  Party shall be entitled  to  indemnification  in
accordance  with the terms of this  Agreement  provided  that a Claim  Notice or
Indemnity  Notice (as applicable) is timely given under Article VIII on or prior
to May 15, 2001.

                                  ARTICLE VIII

                                 INDEMNIFICATION

     8.1 Indemnification.

     (a) Subject to paragraph (c) of this Section and the other Sections of this
Article VIII, the Seller shall  indemnify the Purchaser  Indemnified  Parties in
respect of, and hold each of them harmless from and against,  any and all Losses
suffered,  incurred or  sustained by any of them or to which any of them becomes
subject,   resulting  from,  arising  out  of  or  relating  to  any  breach  of
representation  or  warranty  or  nonfulfillment  of or failure  to perform  any
covenant or agreement on the part of Seller, contained in this Agreement.

     (b) Subject to the other  Sections of this Article  VIII,  Purchaser  shall
indemnify  the Seller  Indemnified  Parties in respect of, and hold each of them
harmless from and against, any and all Losses suffered, incurred or sustained by
any of them or to which any of them becomes subject, resulting from, arising out
of or relating to any breach of  representation or warranty or nonfulfillment of
or  failure  to perform  any  covenant  or  agreement  on the part of  Purchaser
contained in this Agreement.

     (c) No amounts of  indemnity  shall be payable in the case of a claim by an
Indemnified Party, as the case may be, under Section 8.2(a) unless and until the
Seller or  Purchaser  Indemnified  Parties,  as the case may be, have  suffered,
incurred,  sustained or become subject to Losses  referred to in such Section in
excess of $10,000 in the aggregate; in which event the Indemnified Parties shall
be entitled to claim  indemnity for the full amount of such Losses;  provided in
no event shall the aggregate  liability  under this Article VIII of Purchaser or
Seller to indemnify, defend or hold harmless all Indemnified Parties exceed Five
Hundred Thousand Dollars ($500,000.00).

     (d) The  indemnification  provisions of this Article VIII shall  constitute
the sole and exclusive remedy of each party hereto with respect to the breach or
falsity of any  representation or warranty,  or the failure to perform or comply
with any covenant or agreement to be performed on or prior to the Closing  Date,
made by another party hereto in this Agreement or in any  certificate  delivered
pursuant to this Agreement.

                                       24
<PAGE>

     8.2 Method of  Asserting  Claims.  All claims  for  indemnification  by any
Indemnified Party under Section 8.2 will be asserted and resolved as follows:

     (a) In the event any claim or  demand in  respect  of which an  Indemnified
Party might seek indemnity under Section 8.2 is asserted against or sought to be
collected  from such  Indemnified  Party by a Person  other  than  Seller or any
Affiliate of Seller or of Purchaser (a "Third  Party  Claim"),  the  Indemnified
Party  shall  deliver  a  Claim  Notice  with   reasonable   promptness  to  the
Indemnifying  Party. If the Indemnified  Party fails to provide the Claim Notice
with reasonable  promptness after the Indemnified  Party receives notice of such
Third Party Claim, the Indemnifying Party will not be obligated to indemnify the
Indemnified  Party with respect to such Third Party Claim to the extent that the
Indemnifying  Party's ability to defend has been irreparably  prejudiced by such
failure  of the  Indemnified  Party.  The  Indemnifying  Party  will  notify the
Indemnified  Party as soon as practicable  within the Dispute Period whether the
Indemnifying Party disputes its liability to the Indemnified Party under Section
8.2 and whether the Indemnifying Party desires, at its sole cost and expense, to
defend the Indemnified Party against such Third Party Claim.

          (i) If the  Indemnifying  Party notifies the Indemnified  Party within
     the  Dispute  Period  that the  Indemnifying  Party  desires  to defend the
     Indemnified  Party with  respect to the Third Party Claim  pursuant to this
     Section 8.2(a),  then the Indemnifying Party will have the right to defend,
     with counsel reasonably  satisfactory to the Indemnified Party, at the sole
     cost and expense of the Indemnifying  Party,  such Third Party Claim by all
     appropriate   proceedings,   which   proceedings  will  be  vigorously  and
     diligently  prosecuted by the  Indemnifying  Party to a final conclusion or
     will be settled at the discretion of the Indemnifying  Party (but only with
     the  consent  of  the  Indemnified   Party,   which  consent  will  not  be
     unreasonably  withheld, in the case of any settlement that provides for any
     relief  other  than  the  payment  of  monetary  damages  as to  which  the
     Indemnified Party will be indemnified in full). The Indemnifying Party will
     have full control of such  defense and  proceedings,  including  (except as
     provided in the  immediately  preceding  sentence) any settlement  thereof;
     provided,  however,  that the  Indemnified  Party may, at the sole cost and
     expense of the  Indemnified  Party,  at any time prior to the  Indemnifying
     Party's  delivery of the notice  referred to in the first  sentence of this
     clause (i),  file any motion,  answer or other  pleadings or take any other
     action that the Indemnified  Party  reasonably  believes to be necessary or
     appropriate  to  protect  its  interests;  and  provided  further,  that if
     requested by the  Indemnifying  Party,  the Indemnified  Party will, at the
     sole  cost  and  expense  of the  Indemnifying  Party,  provide  reasonable
     cooperation to the  Indemnifying  Party in contesting any Third Party Claim
     that the Indemnifying  Party elects to contest.  The Indemnified  Party may
     retain separate counsel to represent it in, but not control, any defense or
     settlement of any Third Party Claim  controlled by the  Indemnifying  Party
     pursuant to this clause (i),  and the  Indemnified  Party will bear its own
     costs  and  expenses  with  respect  to such  separate  counsel,  except as
     provided in the preceding  sentence and except that the Indemnifying  Party
     will pay the costs and  expenses  of such  separate  counsel  if (x) in the
     Indemnified Party's good faith judgment,  it is advisable,  based on advice
     of counsel, for the Indemnified Party to be represented by separate counsel
     because a conflict or potential  conflict  exists between the  Indemnifying
     Party and the Indemnified Party which makes  representation of both parties
     inappropriate under applicable standards of professional conduct or (y) the
     named parties to such Third Party Claim include both the Indemnifying Party
     and the  Indemnified  Party and the  Indemnified  Party  determines in good
     faith,  based on advice of counsel,  that defenses are available to it that
     are unavailable to the Indemnifying  Party.  Notwithstanding the foregoing,
     the Indemnified Party may retain or take over the control of the defense or
     settlement  of any Third Party Claim the defense of which the  Indemnifying

                                       25
<PAGE>

     Party has elected to control if the Indemnified  Party  irrevocably  waives
     its right to indemnity  under  Section 8.1 with respect to such Third Party
     Claim.

          (ii) If the Indemnifying  Party fails to notify the Indemnified  Party
     within the Dispute Period that the Indemnifying Party desires to defend the
     Third Party Claim pursuant to Section 8.2(a), or if the Indemnifying  Party
     gives such  notice but fails to  prosecute  vigorously  and  diligently  or
     settle the Third  Party  Claim,  then the  Indemnified  Party will have the
     right to defend,  at the sole cost and expense of the  Indemnifying  Party,
     the Third Party Claim by all  appropriate  proceedings,  which  proceedings
     will be  prosecuted  by the  Indemnified  Party  in good  faith  or will be
     settled at the discretion of the Indemnified Party (with the consent of the
     Indemnifying Party, which consent will not be unreasonably  withheld).  The
     Indemnified  Party will have full control of such defense and  proceedings,
     including  (except as provided in the immediately  preceding  sentence) any
     settlement thereof; provided, however, that if requested by the Indemnified
     Party,  the  Indemnifying  Party will,  at the sole cost and expense of the
     Indemnifying Party, provide reasonable cooperation to the Indemnified Party
     and its counsel in contesting  any Third Party Claim which the  Indemnified
     Party is  contesting.  Notwithstanding  the  foregoing  provisions  of this
     clause (ii), if the Indemnifying  Party has notified the Indemnified  Party
     within  the  Dispute  Period  that  the  Indemnifying  Party  disputes  its
     liability  hereunder  to the  Indemnified  Party with respect to such Third
     Party Claim and if such  dispute is  resolved in favor of the  Indemnifying
     Party in the manner provided in clause (iii) below, the Indemnifying  Party
     will not be  required  to bear the costs and  expenses  of the  Indemnified
     Party's defense pursuant to this clause (ii) or of the Indemnifying Party's
     participation   therein  at  the  Indemnified  Party's  request,   and  the
     Indemnified  Party will  reimburse the  Indemnifying  Party in full for all
     reasonable  costs  and  expenses  incurred  by the  Indemnifying  Party  in
     connection with such litigation.

          (iii) If the Indemnifying Party notifies the Indemnified Party that it
     does not dispute its liability to the Indemnified Party with respect to the
     Third  Party Claim  under  Section  8.1 or fails to notify the  Indemnified
     Party within the Dispute Period whether the Indemnifying Party disputes its
     liability to the Indemnified  Party with respect to such Third Party Claim,
     the Loss arising from such Third Party Claim will be conclusively  deemed a
     liability of the Indemnifying  Party under Section 8.1 and the Indemnifying
     Party shall pay the amount of such Loss to the Indemnified  Party on demand
     following its final  determination.  If the  Indemnifying  Party has timely
     disputed its liability with respect to such claim, the  Indemnifying  Party
     and the  Indemnified  Party  will  proceed  in good  faith to  negotiate  a
     resolution of such dispute, and if not resolved through negotiations within
     the  Resolution  Period,  such dispute shall be resolved by  arbitration in
     accordance with Section 11.11.

     (b) In the event any  Indemnified  Party should have a claim under  Section
8.1 against any  Indemnifying  Party that does not involve a Third Party  Claim,
the  Indemnified  Party  shall  deliver  an  Indemnity  Notice  with  reasonable
promptness to the Indemnifying  Party.  The failure by any Indemnified  Party to
give the Indemnity  Notice shall not impair such party's rights hereunder except
to the  extent  that  an  Indemnifying  Party  demonstrates  that  it  has  been
irreparably   prejudiced   thereby.  If  the  Indemnifying  Party  notifies  the
Indemnified Party that it does not dispute the claim described in such Indemnity

                                       26
<PAGE>

Notice or fails to notify  the  Indemnified  Party  within  the  Dispute  Period
whether the  Indemnifying  Party disputes the claim  described in such Indemnity
Notice,  the Loss arising from the claim specified in such Indemnity Notice will
be conclusively  deemed a liability of the Indemnifying  Party under Section 8.1
and the Indemnifying  Party shall pay the amount of such Loss to the Indemnified
Party on demand following its final determination. If the Indemnifying Party has
timely disputed its liability with respect to such claim, the Indemnifying Party
and the  Indemnified  Party will proceed in good faith to negotiate a resolution
of such dispute,  and if not resolved through negotiations within the Resolution
Period, such dispute shall be resolved by arbitration in accordance with Section
11.11.

     (c) The amount which an  Indemnifying  Party is required to pay to, for, or
on behalf of any other  party  pursuant  to this  Article  VIII shall be reduced
(including,  without  limitation,   retroactively)  by  any  insurance  proceeds
actually recovered (after making a good faith effort for such recovery) by or on
behalf of such  Indemnified  Party and other amounts paid by any other person in
reduction of the related indemnifiable loss (the "Indemnifiable  Loss"). Amounts
required to be paid, as so reduced, are hereafter sometimes called an "Indemnity
Payment." If an Indemnified  Party shall have received or shall have paid on its
behalf an  Indemnity  Payment  in  respect  of an  Indemnifiable  Loss and shall
subsequently  receive directly or indirectly insurance proceeds or other amounts
in  respect  of such  Indemnifiable  Loss,  then such  Indemnified  Party  shall
promptly  pay to the  Indemnifying  Party  a sum  equal  to the  amount  of such
insurance  proceeds or other amounts provided the same does not exceed an amount
equal to the payment actually made by the Indemnifying Party.

                                   ARTICLE IX

                                   TERMINATION

     9.1  Termination.  This Agreement may be terminated,  and the  transactions
contemplated hereby may be abandoned:

     (a) at any time before the Closing,  by mutual written  agreement of Seller
and Purchaser;

     (b) at any time before the Closing,  by Seller or  Purchaser,  in the event
(i)  of  a  material  breach  hereof  by  the  non-terminating   party  if  such
non-terminating  party fails to cure such breach  within five (5) Business  Days
following   notification   thereof  by  the  terminating   party  or  (ii)  upon
notification  of the  non-terminating  party by the  terminating  party that the
satisfaction of any condition to the terminating  party's obligations under this
Agreement  becomes  impossible  or  impracticable  with the use of  commercially
reasonable  efforts if the  failure of such  condition  to be  satisfied  is not
caused by a breach hereof by the terminating party; or

     (c) at any time  after  December  15,  1999 by  Seller  or  Purchaser  upon
notification  of the  non-terminating  party  by the  terminating  party  if the
Closing  shall not have  occurred  on or before  such date and such  failure  to
consummate is not caused by a breach of this Agreement by the terminating party.

                                       27
<PAGE>

     9.2 Effect of Termination. If this Agreement is validly terminated pursuant
to Section 9.1, this Agreement  will  forthwith  become null and void, and there
will be no  liability  or  obligation  on the part of  Seller,  the  Company  or
Purchaser (or any of their respective officers, directors,  employees, agents or
other representatives or Affiliates),  except as provided in the next succeeding
sentence and except that the provisions with respect to expenses in Section 11.3
and  confidentiality  in Section 11.5 will continue to apply  following any such
termination.  Notwithstanding  any  other  provision  in this  Agreement  to the
contrary,  upon termination of this Agreement pursuant to Section 9.1(b) or (c),
Seller will  remain  liable to  Purchaser  for any breach of this  Agreement  by
Seller  existing  at the time of such  termination,  and  Purchaser  will remain
liable to Seller for any breach of this  Agreement by Purchaser  existing at the
time of such  termination,  and  Seller or  Purchaser  may seek  such  remedies,
including  damages and fees of attorneys,  against the other with respect to any
such breach as are provided in this  Agreement or as are otherwise  available at
Law or in equity.

                                    ARTICLE X

                                   DEFINITIONS

     10.1 Definitions.

     (a) Defined Terms. As used in this Agreement,  the following  defined terms
have the meanings indicated below:

          "Actions  or  Proceedings"   means  any  action,   suit,   proceeding,
          arbitration or Governmental or Regulatory  Authority  investigation or
          audit.

          "Affiliate" means any Person that directly,  or indirectly through one
          of more  intermediaries,  controls  or is  controlled  by or is  under
          common  control  with  the  Person  specified.  For  purposes  of this
          definition,  control of a Person means the power,  direct or indirect,
          to direct or cause the  direction  of the  management  and policies of
          such Person  whether by Contract  or  otherwise  and, in any event and
          without  limitation  of the previous  sentence,  any Person owning ten
          percent (10%) or more of the voting securities of another Person shall
          be deemed to control that Person.

          "Agreement" means this Stock Purchase Agreement and the Exhibits,  the
          Disclosure  Schedule  and the  Schedules  hereto and the  certificates
          delivered in accordance  with Article VI, as the same shall be amended
          from time to time.

          "Assets and  Properties" of any Person means all assets and properties
          of every  kind,  nature,  character  and  description  (whether  real,
          personal or mixed,  whether tangible or intangible,  whether absolute,
          accrued,  contingent,  fixed  or  otherwise  and  wherever  situated),
          including the goodwill related thereto,  operated,  owned or leased by
          such Person,  including  without  limitation  cash, cash  equivalents,
          Investment  Assets,  accounts  and notes  receivable,  chattel  paper,
          documents,  instruments,  general intangibles, real estate, equipment,
          inventory, goods and Intellectual Property.

          "Books and Records" means all files, documents,  instruments,  papers,
          books  and  records  relating  to the  Business  or  Condition  of the
          Company,   including  without  limitation  financial  statements,  Tax

                                       28
<PAGE>

          Returns and related work papers and letters from accountants, budgets,
          pricing guidelines,  ledgers,  journals, deeds, title policies, minute
          books,   stock   certificates  and  books,   stock  transfer  ledgers,
          Contracts,  Licenses,  customer  lists,  computer  files and programs,
          retrieval programs, operating data and plans and environmental studies
          and plans.

          "Business Day" means a day other than  Saturday,  Sunday or any day on
          which  banks  located in the State of  California  are  authorized  or
          obligated to close.

          "Business or Condition of the Company"  means the business,  condition
          (financial or otherwise), results of operations, Assets and Properties
          of the Company taken as a whole.

          "Claim Notice" means written  notification  pursuant to Section 9.2(a)
          of a Third  Party  Claim as to which  indemnity  under  Section 9.1 is
          sought by an Indemnified Party, enclosing a copy of all papers served,
          if any,  and  specifying  the nature of and basis for such Third Party
          Claim and for the Indemnified  Party's claim against the  Indemnifying
          Party  under  Section  9.1,  together  with the amount or, if not then
          reasonably  determinable,  the  estimated  amount,  determined in good
          faith, of the Loss arising from such Third Party Claim.

          "Closing"  means  the  closing  of the  transactions  contemplated  by
          Section 1.3.

          "Closing Date" means the earlier of (a) December 15, 1999, (b) as soon
          as  practicable  after the last of the consents,  approvals,  actions,
          filings,  notices or waiting  periods  described  in or related to the
          filings  described in Article VI has been  obtained,  made or given or
          has expired,  as  applicable,  or (c) such other date as Purchaser and
          Seller mutually agree upon in writing.

          "Common Stock" means the common stock,  no par value per share, of the
          Company.

          "Company"  has the  meaning  ascribed  to it in the  forepart  of this
          Agreement.

          "Company  Shares"  has the meaning  ascribed to it in the  forepart of
          this Agreement.

          "Contract"   means  any  agreement,   lease,   license,   evidence  of
          Indebtedness,   mortgage,   indenture,  security  agreement  or  other
          contract (whether written or oral).

          "Disclosure  Schedule"  means the record  delivered  to  Purchaser  by
          Seller herewith and dated as of the date hereof, containing all lists,
          descriptions,  exceptions and other  information  and materials as are
          required to be included therein by Seller pursuant to this Agreement.

          "Dispute  Period"  means the period  ending  thirty (30) days (or such
          shorter   period  as  required  by  law)   following   receipt  by  an
          Indemnifying Party of either a Claim Notice or an Indemnity Notice.

          "Environmental  Claim" means, with respect to any Person,  any written
          or oral notice, claim, demand or other communication (collectively,  a

                                       29
<PAGE>

          "claim") by any other  Person  alleging  or  asserting  such  Person's
          liability for  investigatory  costs,  cleanup costs,  Governmental  or
          Regulatory  Authority response costs,  damages to natural resources or
          other property,  personal injuries, fines or penalties arising out of,
          based on or  resulting  from (a) the  presence,  or  Release  into the
          environment, of any Hazardous Material at any location, whether or not
          owned by such Person,  or (b)  circumstances  forming the basis of any
          violation,  or alleged  violation,  of any Environmental Law. The term
          "Environmental Claim" shall include, without limitation,  any claim by
          any  Governmental or Regulatory  Authority for  enforcement,  cleanup,
          removal,  response,  remedial or other actions or damages  pursuant to
          any  applicable  Environmental  Law,  and any claim by any third party
          seeking  damages,   contribution,   indemnification,   cost  recovery,
          compensation  or  injunctive  relief  resulting  from the  presence of
          Hazardous Materials or arising from alleged injury or threat of injury
          to health, safety or the environment.

          "Environmental  Law" means any Law or Order relating to the regulation
          or  protection  of  human  health,  safety  or the  environment  or to
          emissions,  discharges, releases or threatened releases of pollutants,
          contaminants,  chemicals or industrial,  toxic or hazardous substances
          or wastes into the environment (including, without limitation, ambient
          air, soil, surface water, ground water,  wetlands,  land or subsurface
          strata),  or  otherwise  relating  to  the  manufacture,   processing,
          distribution, use, treatment, storage, disposal, transport or handling
          of  pollutants,   contaminants,  chemicals  or  industrial,  toxic  or
          hazardous substances or wastes.

          "Financial  Statements" means the financial  statements of the Company
          delivered to Purchaser pursuant to Section 2.8.

          "Financial Statement Date" means November 30, 1999.

          "GAAP" means United States generally accepted  accounting  principles,
          consistently  applied  throughout  the  specified  period  and  in the
          immediately  prior comparable  period as determined by the Purchaser's
          independent auditors.

          "Governmental  or  Regulatory  Authority"  means any court,  tribunal,
          arbitrator,   authority,   agency,   commission,   official  or  other
          instrumentality of the United States or any domestic or foreign state,
          county, city or other political subdivision.

          "Hazardous  Material"  means (A) any petroleum or petroleum  products,
          flammable explosives, radioactive materials, asbestos in any form that
          is or could become  friable,  urea  formaldehyde  foam  insulation and
          transformers  or  other  equipment  that  contain   dielectric   fluid
          containing  levels  of  polychlorinated   biphenyls  (PCBs);  (B)  any
          chemicals or other materials or substances  which are now or hereafter
          become  defined  as  or  included  in  the  definition  of  "hazardous
          substances,"  "hazardous  wastes," "hazardous  materials,"  "extremely
          hazardous wastes," "restricted  hazardous wastes," "toxic substances,"
          "toxic  pollutants" or words of similar import under any Environmental
          Law;  and (C) any  other  chemical  or other  material  or  substance,
          exposure to which is now or hereafter prohibited, limited or regulated
          by any  Governmental or Regulatory  Authority under any  Environmental
          Law.

          "Indebtedness"  of any Person means all obligations of such Person (i)
          for borrowed  money,  (ii)  evidenced by notes,  bonds,  debentures or
          similar instruments, (iii) for the deferred purchase price of goods or

                                       30
<PAGE>

          services  (other  than trade  payables  or  accruals  incurred  in the
          ordinary course of business), (iv) under capital leases and (v) in the
          nature of  guarantees  of the  obligations  described  in clauses  (i)
          through (iv) above of any other Person.

          "Indemnified  Party" means any Person claiming  indemnification  under
          any provision of Article IX.

          "Indemnifying  Party"  means  any  Person  against  whom a  claim  for
          indemnification is being asserted under any provision of Article IX.

          "Indemnity  Notice"  means  written  notification  pursuant to Section
          9.2(b) of a claim for  indemnity  under  Article IX by an  Indemnified
          Party,  specifying  the nature of and basis for such  claim,  together
          with the amount or, if not then reasonably determinable, the estimated
          amount, determined in good faith, of the Loss arising from such claim.

          "Intellectual   Property"   means  all  patents  and  patent   rights,
          trademarks  and trademark  rights,  trade names and trade name rights,
          service marks and service mark rights,  service names and service name
          rights, brand names, inventions,  processes,  formulae, copyrights and
          copyright  rights,  trade dress,  business and product  names,  logos,
          slogans,  trade  secrets,   industrial  models,  processes,   designs,
          methodologies,  computer  programs  (including  all source  codes) and
          related   documentation,    technical   information,    manufacturing,
          engineering   and  technical   drawings,   know-how  and  all  pending
          applications  for and  registrations of patents,  trademarks,  service
          marks and copyrights.

          "Investment Assets" means all debentures, notes and other evidences of
          Indebtedness,  stocks,  securities  (including  rights to purchase and
          securities  convertible  into or exchangeable  for other  securities),
          interests  in joint  ventures  and general  and limited  partnerships,
          mortgage  loans and other  investment  or  portfolio  assets  owned of
          record or  beneficially  by the Company and issued by any Person other
          than the  Company  (other  than  trade  receivables  generated  in the
          ordinary course of business of the Company).

          "Knowledge  of Seller" or "Known to Seller" means the knowledge of the
          Seller;  provided  however,  that the parties expressly agree that any
          intellectual  property  claims  arising  from,  or  related  to,  Adam
          Springer  and/or  Steven T.  Abell  shall be  deemed to be within  the
          knowledge of the Seller.

          "Laws" means all laws, statutes,  rules,  regulations,  ordinances and
          other pronouncements  having the effect of law of the United States or
          any  domestic  or  foreign  state,  county,  city or  other  political
          subdivision or of any Governmental or Regulatory Authority.

          "Liabilities"   means   all   Indebtedness,   obligations   and  other
          liabilities of a Person (whether absolute, accrued,  contingent, fixed
          or otherwise, or whether due or to become due).

          "Licenses"  means all licenses,  permits,  certificates  of authority,
          authorizations,   approvals,  registrations,  franchises  and  similar
          consents   granted  or  issued  by  any   Governmental  or  Regulatory
          Authority.

                                       31
<PAGE>

          "Liens" means any mortgage,  pledge,  assessment,  security  interest,
          lease,  lien,  adverse claim, levy, charge or other encumbrance of any
          kind, or any conditional  sale Contract,  title retention  Contract or
          other Contract to give any of the foregoing.

          "Loss"   means  any  and  all   damages,   fines,   fees,   penalties,
          deficiencies,   losses  and  expenses  (including  without  limitation
          interest,  court  costs,  fees of  attorneys,  accountants  and  other
          experts or other expenses of litigation or other proceedings or of any
          claim, default or assessment).

          "Option"  with  respect  to any  Person  means  any  security,  right,
          subscription, warrant, option, "phantom" stock right or other Contract
          that gives the right to (i) purchase or otherwise receive or be issued
          any shares of capital stock of such Person or any security of any kind
          convertible  into or  exchangeable  or  exercisable  for any shares of
          capital  stock of such Person or (ii) receive or exercise any benefits
          or rights  similar to any rights  enjoyed by or accruing to the holder
          of shares of capital  stock of such  Person,  including  any rights to
          participate  in the equity or income of such Person or to  participate
          in or direct the election of any  directors or officers of such Person
          or the manner in which any shares of capital  stock of such Person are
          voted.

          "Order" means any writ, judgment,  decree, injunction or similar order
          of any Governmental or Regulatory Authority (in each such case whether
          preliminary or final).

          "Permitted  Lien"  means  (i)  any  Lien  for  Taxes  not  yet  due or
          delinquent or being contested in good faith by appropriate proceedings
          for which adequate  reserves have been  established in accordance with
          GAAP,  (ii) any  statutory  Lien  arising  in the  ordinary  course of
          business by operation  of Law with respect to a Liability  that is not
          yet due or  delinquent  and (iii) any minor  imperfection  of title or
          similar Lien which  individually  or in the aggregate  with other such
          Liens does not materially  impair the value of the property subject to
          such Lien or the use of such  property in the conduct of the  business
          of the Company.

          "Person" means any natural person,  corporation,  general partnership,
          limited  partnership,  proprietorship,  other  business  organization,
          trust, union, association or Governmental or Regulatory Authority.

          "Plan" means any bonus, incentive compensation, deferred compensation,
          pension,  profit sharing,  retirement,  stock purchase,  stock option,
          stock ownership,  stock appreciation  rights,  phantom stock, leave of
          absence,  layoff,  vacation,  day or dependent  care,  legal services,
          cafeteria, life, health, accident, disability,  workmen's compensation
          or other  insurance,  severance,  separation or other employee benefit
          plan, practice,  policy or arrangement of any kind, whether written or
          oral.

          "Proprietary Assets" means any Assets and Properties of the Company of
          a  proprietary  nature,  including,   without  limitation,   know-how,
          formulas,  processes,  ideas,  inventions (whether or not patentable),
          schematics  and other  technical,  business,  financial,  customer and
          product  development  plans  related  to  the  Company's  products  or
          services.

          "Purchase Price" has the meaning ascribed to it in Section 1.2.

                                       32
<PAGE>

          "Purchaser"  has the meaning  ascribed  to it in the  forepart of this
          Agreement.

          "Purchaser  Indemnified  Parties"  means  Purchaser  and its officers,
          directors, employees, agents and Affiliates.

          "Release"  means  any  release,  spill,  emission,  leaking,  pumping,
          injection,  deposit,  disposal,  discharge,   dispersal,  leaching  or
          migration into the indoor or outdoor environment,  including,  without
          limitation,  the movement of Hazardous  Materials through ambient air,
          soil,  surface  water,  ground  water,  wetlands,  land or  subsurface
          strata.

          "Resolution Period" means the period ending thirty (30) days following
          receipt  by  an  Indemnified   Party  of  a  written  notice  from  an
          Indemnifying  Party  stating  that it disputes all or any portion of a
          claim set forth in a Claim Notice or an Indemnity Notice.

          "Seller"  has  the  meaning  ascribed  to it in the  forepart  of this
          Agreement.

          "Seller Indemnified Parties" means the Seller.

          "Shares"  has  the  meaning  ascribed  to it in the  forepart  of this
          Agreement.

          "Tax or Taxes"  shall  mean any  federal,  state,  local,  or  foreign
          income,  gross  receipts,   license,  payroll,   employment,   excise,
          severance, stamp, occupation, premium, environmental,  customs duties,
          capital  stock,  franchise,  profits,  withholding,  social  security,
          unemployment,  disability,  real property,  personal property,  sales,
          use, transfer,  registration,  value added, estimated, or other tax of
          any kind  whatsoever,  including  any interest,  penalty,  or addition
          thereto, whether disputed or not.

          "Tax Return"  means any return  (including  any  information  return),
          report,   statement,   declaration,    estimate,   schedule,   notice,
          notification,   form,  election,  certificate  or  other  document  or
          information  filed with or submitted  to, or required to be filed with
          or  submitted  to,  any   Governmental  or  Regulatory   Authority  in
          connection with the determination,  assessment,  collection or payment
          of any Tax or in connection with the administration, implementation or
          enforcement of or compliance with any Laws relating to any Tax.

          "Third Party Claim" has the meaning ascribed to it in Section 9.2(a).

          "Year 2000 Compliant" has the meaning ascribed to it in Section 2.33.

     (b)  Construction of Certain Terms and Phrases.  Unless the context of this
Agreement otherwise requires, (i) words of any gender include each other gender;
(ii) words  using the  singular  or plural  number  also  include  the plural or
singular number, respectively;  (iii) the terms "hereof," "herein," "hereby" and
derivative  or similar  words  refer to this  entire  Agreement;  (iv) the terms
"Article"  or  "Section"  refer to the  specified  Article  or  Section  of this
Agreement;  and (v) the phrases  "ordinary  course of  business"  and  "ordinary
course of business  consistent  with past  practice"  refer to the  business and
practice of the Company.  Whenever  this  Agreement  refers to a number of days,
such number shall refer to calendar days unless Business Days are specified. All
accounting  terms used herein and not  expressly  defined  herein shall have the
meanings given to them under GAAP as interpreted by the Purchaser's  independent
auditors.

                                       33
<PAGE>

                                   ARTICLE XI

                                  MISCELLANEOUS

     11.1 Notices. All notices, requests and other communications hereunder must
be in  writing  and will be deemed to have been  duly  given  only if  delivered
personally or by facsimile  transmission or mailed (first class postage prepaid)
to the parties at the following addresses or facsimile numbers:

                  If to Purchaser, to:

                  QAD Inc.
                  6450 Via Real
                  Carpinteria, California USA 93103
                  Facsimile No.: (805) 684-1890
                  Attn.: General Counsel

                  with a copy to:

                  Nida & Maloney, LLP
                  800 Anacapa Street
                  Santa Barbara, CA 93101
                  Facsimile No.:  (805) 568-1955
                  Attn.:  Joseph E. Nida, Esq.

                  If to Seller, to:

                  David A. Taylor
                  4008 Bayview Avenue
                  San Mateo, California  94403
                  Facsimile No.:  none

                  with a copy to:

                  Heller Ehrman White & McAuliffe
                  525 University Avenue
                  Palo Alto, CA 94301
                  Attn: Sarah A. O'Dowd
                  Facsimile No.: (650) 324-0638

                                       34
<PAGE>

                  If to the Company, to:

                  Enterprise Engines, Inc.
                  990 Baker Way
                  San Mateo, California  94404
                  Attn:  President
                  Facsimile No.: (650) 525-2828

                  with a copy to:

                  Heller, Ehrman, White & McAuliffe
                  525 University Avenue
                  Palo Alto, CA 94301
                  Attn: Sarah A. O'Dowd
                  Facsimile No.: (650) 324-0638

All such  notices,  requests  and  other  communications  will (i) if  delivered
personally  to the  address as provided in this  Section,  be deemed  given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section,  be deemed given upon receipt,  and (iii) if delivered
by mail in the  manner  described  above  to the  address  as  provided  in this
Section,  be deemed given upon receipt (in each case  regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice,  request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address,  facsimile
number or other  information  for the purpose of notices to that party by giving
notice specifying such change to the other party hereto.

     11.2 Entire Agreement.  This Agreement supersedes all prior discussions and
agreements  between the parties  with respect to the subject  matter  hereof and
thereof, including without limitation that certain letter of intent; between the
parties  dated  November  24, 1999,  and contains the sole and entire  agreement
among the parties hereto with respect to the subject matter hereof and thereof.

     11.3  Expenses.  Except as otherwise  expressly  provided in this Agreement
(including without  limitation as provided in Section 10.2),  whether or not the
transactions contemplated hereby are consummated, the Purchaser will pay its own
costs and expenses,  and the Company shall pay the actual  documented  costs and
expenses,  including  any  broker's,  finder's or  investment  banking  fees and
counsel fees not to exceed $100,000, incurred in connection with the negotiation
and  closing of this  Agreement  and the  transactions  contemplated  hereby and
thereby.

     11.4 Public  Announcements.  At all times at or before the Closing,  Seller
and Purchaser will not issue or make any reports,  statements or releases to the
public or generally  to the  customers,  suppliers or other  Persons to whom the
Company sells goods or provides  services or with whom the Company otherwise has
significant  business  relationships  with  respect  to  this  Agreement  or the
transactions contemplated hereby without the consent of the other, which consent
shall not be  unreasonably  withheld.  If either  party is unable to obtain  the
approval of its public  report,  statement  or release  from the other party and
such report,  statement  or release is, in the opinion of legal  counsel to such

                                       35
<PAGE>

party,   required  by  Law  in  order  to  discharge  such  party's   disclosure
obligations,  then such  party may make or issue the  legally  required  report,
statement or release and promptly  furnish the other party with a copy  thereof.
Seller and the Purchaser  will also obtain the other  parties prior  approval of
any press release to be issued immediately  following the Closing announcing the
consummation of the transactions contemplated by this Agreement.

     11.5  Confidentiality.  Each party hereto will hold,  and will use its best
efforts to cause its Affiliates,  and their respective  Representatives to hold,
in  strict  confidence  from  any  Person  (other  than any  such  Affiliate  or
Representative),  unless (i) compelled to disclose by judicial or administrative
process (including without limitation in connection with obtaining the necessary
approvals  of  this  Agreement  and  the  transactions  contemplated  hereby  of
Governmental or Regulatory  Authorities) or by other requirements of Law or (ii)
disclosed in an Action or Proceeding brought by a party hereto in pursuit of its
rights  or in  the  exercise  of  its  remedies  hereunder,  all  documents  and
information  concerning the other party or any of its Affiliates furnished to it
by the other party or such other party's Representatives in connection with this
Agreement or the  transactions  contemplated  hereby,  except to the extent that
such documents or information can be shown to have been (a) previously  known by
the party  receiving  such  documents or  information,  (b) in the public domain
(either  prior to or after  the  furnishing  of such  documents  or  information
hereunder) through no fault of such receiving party or (c) later acquired by the
receiving  party from another  source if the  receiving  party is not aware that
such  source  is under an  obligation  to  another  party  hereto  to keep  such
documents and information confidential;  provided that following the Closing the
foregoing  restrictions  will not  apply to  Purchaser's  use of  documents  and
information  concerning the Company furnished by Seller hereunder.  In the event
the transactions  contemplated  hereby are not consummated,  upon the request of
the other party, each party hereto will, and will cause its Affiliates and their
respective Representatives to, promptly redeliver or cause to be redelivered all
copies of documents and  information  furnished by the other party in connection
with this Agreement or the transactions contemplated hereby and destroy or cause
to be destroyed all notes,  memoranda,  summaries,  analyses,  compilations  and
other writings  related thereto or based thereon prepared by the party furnished
such documents and information or its Representatives.

     11.6 Waiver.  Any term or condition of this  Agreement may be waived at any
time by the party that is entitled to the  benefit  thereof,  but no such waiver
shall be effective unless set forth in a written  instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party of
any term or condition of this Agreement, in any one or more instances,  shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this  Agreement  on any future  occasion.  All  remedies,  either  under this
Agreement  or  by  Law  or  otherwise  afforded,  will  be  cumulative  and  not
alternative.

     11.7  Amendment.  This Agreement may be amended,  supplemented  or modified
only by a written instrument duly executed by or on behalf of each party hereto.

     11.8 No Third Party Beneficiary. The terms and provisions of this Agreement
are intended  solely for the benefit of each party  hereto and their  respective
successors or permitted  assigns,  and it is not the intention of the parties to
confer  third-party  beneficiary  rights  upon any other  Person  other than any
Person entitled to indemnity under Article IX.

                                       36
<PAGE>

     11.9 No Assignment;  Binding Effect.  Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without the
prior written consent of the other party hereto and any attempt to do so will be
void,  except (a) for assignments and transfers by operation of Law and (b) that
Purchaser  may  assign  any  or all of its  rights,  interests  and  obligations
hereunder  (including  without  limitation its rights under Article IX) to (i) a
wholly-owned subsidiary,  provided that any such subsidiary agrees in writing to
be bound by all of the terms,  conditions and provisions  contained herein, (ii)
any  post-Closing  purchaser of all of the issued and  outstanding  stock of the
Company or a substantial  part of its assets or (iii) any financial  institution
providing  purchase  money or other  financing  to Purchaser or the Company from
time to time as collateral  security for such financing,  but no such assignment
referred to in clause (i) shall relieve Purchaser of its obligations  hereunder.
Subject to the preceding sentence, this Agreement is binding upon, inures to the
benefit  of and is  enforceable  by the  parties  hereto  and  their  respective
successors and assigns.

     11.10 Headings.  The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.

     11.11  Arbitration.  Any controversy or claim arising out of or relating to
this Agreement,  or the breach thereof,  shall be settled by arbitration  before
one (1) arbitrator in San Francisco,  California,  administered  by the American
Arbitration  Association under its Commercial  Arbitration Rules and judgment on
the  award  rendered  by the  arbitrator  may be  entered  in any  court  having
jurisdiction thereof.

     11.12  Consent to  Jurisdiction  and Service of Process.  Seller  agrees to
appoint,  within ten (10) days of any written  request by Purchaser,  its lawful
agent and attorney in the State of California to accept and acknowledge  service
of any and all process against it in any action,  suit or proceeding arising out
of or relating to this Agreement or any of the transactions  contemplated hereby
and upon whom such process may be served,  with the same effect as if such party
were a resident of the State of  California  and had been  lawfully  served with
such process in such  jurisdiction,  and waives all claims of error by reason of
such  service,  provided  that in the case of any  service  upon such  agent and
attorney,  the party effecting such service shall also deliver a copy thereof to
the other  party at the  address and in the manner  specified  in Section  11.1.
Seller will enter into such  agreements  with such agents as may be necessary to
constitute and continue the appointment of such agents  hereunder.  In the event
that any such agent and  attorney  resigns or  otherwise  becomes  incapable  of
acting as such,  such party will  appoint a successor  agent and attorney in the
State of  California,  reasonably  satisfactory  to the other  party,  with like
powers.  Subject to the arbitration  provisions set forth in Section 11.11, each
party hereby  irrevocably  submits to the exclusive  jurisdiction  of the United
States  District  Court for the Northern  District of California or any court of
the State of California located in the City of San Francisco, California, in any
action,  suit or proceeding  arising out of or relating to this Agreement or any
of the transactions  contemplated  hereby, and agrees that any such action, suit
or proceeding shall be brought only in such court, provided,  however, that such
consent to  jurisdiction  is solely for the purpose  referred to in this Section
11.12 and shall not be deemed to be a general  submission to the jurisdiction of
said  courts or in the State of  California  other than for such  purpose.  Each
party hereby  irrevocably  waives,  to the fullest extent  permitted by Law, any
objection  that it may now or  hereafter  have to the laying of the venue of any
such action,  suit or proceeding  brought in such a court and any claim that any

                                       37
<PAGE>

such action,  suit or proceeding  brought in such a court has been brought in an
inconvenient forum.

     11.13 Invalid Provisions.  If any provision of this Agreement is held to be
illegal,  invalid or  unenforceable  under any present or future Law, and if the
rights or  obligations  of any party  hereto  under this  Agreement  will not be
materially  and adversely  affected  thereby,  (a) such  provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or  unenforceable  provision had never comprised a part hereof,  and (c)
the remaining  provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal,  invalid or unenforceable  provision or
by its severance herefrom.

     11.14  Governing Law. This Agreement  shall be governed by and construed in
accordance  with the Laws of the State of  California  applicable  to a Contract
executed and performed in such State,  without giving effect to the conflicts of
laws principles thereof.

     11.15  Post-Closing  Operation of Business.  The parties  acknowledge  that
following the Closing, the Purchaser, as the sole shareholder, shall be entitled
to operate the Company in the manner it determines.

     11.16  Counterparts.  This  Agreement  may be  executed  in any  number  of
counterparts,  each of  which  will be  deemed  an  original,  but all of  which
together  will  constitute  one  and  the  same  instrument.  Signatures  may be
exchanged by telecopy,  with original  signatures to follow. Each of the parties
hereto agrees that it will be bound by its own telecopied  signature and that it
accepts the telecopied  signatures of the other parties to this  Agreement.  The
original  signature  pages shall be  forwarded  to  Purchaser or its counsel and
Purchaser or its counsel  will provide all of the parties  hereto with a copy of
the entire Agreement.

                           [Signature Page to Follow]

                                       38
<PAGE>

     IN WITNESS WHEREOF,  this Agreement has been duly executed and delivered by
the duly  authorized  officer  of each party  hereto as of the date first  above
written.

                                   PURCHASER:

                                   QAD Inc., a Delaware corporation

                                   By: /s/ A.J. Moyer
                                      ------------------------------
                                      Albert J. Moyer,
                                      Chief Financial Officer

                                     SELLER:

                                      /s/ David A. Taylor
                                     ------------------------------
                                     David A. Taylor

                                    COMPANY:

                                    ENTERPRISE ENGINES, INC.

                                    By: /s/ David A. Taylor
                                        ----------------------------
                                        David A. Taylor,
                                        President

                                CONSENT OF SPOUSE

     I consent to and join in the foregoing.

Date:  December 15, 1999                     /s/ Nina J. Hamberg
                                             ----------------------------
                                             MRS. NINA J. HAMBERG

                                       39
<PAGE>

                               [EXHIBITS OMITTED]UNSECURED PROMISSORY NOTE

$500,000                                                      December 15, 1999
                                                              Santa Barbara, CA

     The undersigned, QAD Inc. (the "Maker"), promises to pay to DAVID A. TAYLOR
(the  "Holder"),  or  order,  at such  address  as the  Holder  designates,  the
principal  sum of  FIVE  HUNDRED  THOUSAND  DOLLARS  ($500,000),  together  with
interest  as  described  below,  in four (4)  equal  quarterly  installments  of
principal and interest as follows:

Date                       Payment                   Interest         Total
March 15, 2000             $125,000                  $10,000          $135,000
June 15, 2000              $125,000                  $7,500           $132,500
September 15, 2000         $125,000                  $5,000           $130,000
December 15, 2000          $125,000                  $2,500           $127,500
         Total:            $500,000                  $25,000          $525,000

1.  PAYMENTS AND INTEREST.

     1.1 Interest and Payments. The Maker shall pay interest on this Note to the
Holder on the amount  outstanding  hereunder  on each  quarterly  payment as set
forth above.  All payments  under this Note shall be made in lawful  currency of
the United  States of  America at 4008  Bayview  Avenue,  San Mateo,  California
94403.

     1.2 Interest Rate.  This Note shall bear interest at Eight Percent (8%) per
annum.

2. DEFAULT AND  ACCELERATION.  Upon failure to pay any  principal or interest or
any  other  amount  described  hereunder  when  due or to  perform  when due any
obligation,  covenant or agreement in this Note,  then all principal and accrued
interest will become  immediately due and payable,  at the Holder's option.  The
Holder may exercise  this option to  accelerate  during any default by the Maker
regardless of any forbearance.

3. PREPAYMENT. This Note may be prepaid at any time without penalty or fee.

4. ASSUMPTION.  This Note may be assumed only after a default by Maker of any of
Maker's payment obligations hereunder.

5. ATTORNEYS' FEES. The Maker agrees to pay the following costs,  expenses,  and
attorneys'  fees paid or  incurred by the  Holder,  or adjudged by a court:  (i)
reasonable costs of collection, costs, and expenses, and attorneys' fees paid or
incurred in connection with the collection or enforcement of this Note,  whether
or not suit is  filed;  and (ii)  costs  of suit and such sum as the  court  may
adjudge as attorneys'  fees in any action to enforce payment of this Note or any
part of it.
<PAGE>

6.  SEVERABILITY.  If any  provision of this Note is invalid by operation of any
law or interpretation  placed thereon by any court, this Note shall be construed
as not containing such provision and all other provisions of this Note which are
otherwise  lawful  shall  remain in full force and  effect,  and to this end the
provisions of this Note are declared to be severable.

7.  GOVERNING  LAW.  This Note shall be governed by and  construed in accordance
with the laws of the State of  California  as those laws are  applied to written
contracts  between  residents of such  jurisdiction to be performed  within such
jurisdiction.

8. NO ASSIGNMENT.  The Holder may sell, assign, or otherwise transfer, either in
part or in its  entirety,  this  Note only  after a  default  by Maker of any of
Maker's payment obligations hereunder.

9.  FORBEARANCE NOT A WAIVER.  No delay or omission on the part of the Holder in
exercising any rights under this Note, on default by the Maker, shall operate as
a  waiver  of such  right  or of any  other  right  under  this  Note  or  other
agreements,  for the same  default  or any  other  default.  The  Maker  and any
sureties or guarantors of this Note consent to all extensions without notice for
any period or periods of time and to the acceptance of partial  payments  before
or after maturity, and to the acceptance,  release and substitution of security,
all without  prejudice to the Holder.  The Holder shall similarly have the right
to deal in any  way,  at any  time,  with one or more of the  foregoing  parties
without notice to any other party, and to grant any such party any extensions of
time for payment of any of the  indebtedness,  or to grant any other indulgences
or forbearances whatsoever, without notice to any other party and without in any
way affecting the personal liability of any such party.

10. MANNER OF  NOTIFICATION.  Any notice to the Maker  provided for in this Note
shall be given by personal  delivery or by mailing such notice by first class or
certified mail, return receipt requested, addressed to the Maker at the property
address  stated  above,  or to such other  address as the Maker may designate by
written  notice  to the  Holder.  Any  notice  to the  Holder  shall be given by
personal  delivery or by mailing such notice by first class or  certified  mail,
return  receipt  requested,  to the  Holder at the  address  stated in the first
paragraph of this Note, or at such other address as may have been  designated by
written  notice to the  Maker.  Mailed  notices  shall be deemed  delivered  and
received  three (3) days after deposit in accordance  with this provision in the
United States mails.

                                       2
<PAGE>

11. TIME. Time is of the essence for each and every obligation under this Note.

                                        MAKER:

                                        QAD Inc.

                                        By:/s/ A.J. Moyer
                                           -------------------------------
                                           Name:  Albert J. Moyer
                                           Title:  Chief Financial Officer

                                       3
<PAGE>

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