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                                                                EXHIBIT 10.8

                          STOCK PURCHASE AGREEMENT

                               BY AND BETWEEN

                 PROSPECTIVE COMPUTER ANALYSTS INCORPORATED,

                               EDWARD WENGER,

                        THE LAUREN WENGER 2004 GRAT,

                         THE ERIC WENGER 2004 GRAT,

                        THE MITCHELL WENGER 2004 GRAT

                                     AND

                      ENGINEERED SUPPORT SYSTEMS, INC.

                          STOCK PURCHASE AGREEMENT

         THIS STOCK PURCHASE AGREEMENT is entered into as of this 7th day of
January, 2005, by and between PROSPECTIVE COMPUTER ANALYSTS INCORPORATED, a
New York corporation (the "Corporation"), EDWARD WENGER ("Seller"), THE
LAUREN WENGER 2004 GRAT, THE ERIC WENGER 2004 GRAT and THE MITCHELL WENGER
2004 GRAT ((collectively, the "Trusts") Seller and the Trusts being
sometimes hereinafter referred to collectively as the "Shareholders"), and
ENGINEERED SUPPORT SYSTEMS, INC., a Missouri corporation ("Buyer").

                                  RECITALS

         A. The Shareholders own all of the issued and outstanding capital
stock of the Corporation; and

         B. Buyer desires to purchase from the Shareholders, and the
Shareholders desire to sell to Buyer, all of the outstanding shares of stock
of the Corporation owned by the Shareholders in accordance with the terms
and conditions of this Agreement.

                                  AGREEMENT

         NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

                                ARTICLE ONE
                       DEFINITIONS AND INTERPRETATION

         SECTION 1.1 DEFINED TERMS. Capitalized terms not otherwise defined
                     -------------
in this Agreement shall have the meaning given in this Section 1.1.

"Agreement" shall mean this Stock Purchase Agreement, together with all
 ---------
Schedules and Exhibits attached hereto.

"Affiliate" shall mean, with respect to any Person, any other Person
 ---------
directly or indirectly controlling, controlled by, or under common control
with such Person and for purposes of individuals, Affiliates would include
an individual's spouse, ex-spouse, parent, child, and sibling (and a
sibling's children); provided, however, that the Corporation shall not be
considered to be an Affiliate of Seller after the Closing Date unless it is
expressly so provided herein.

"Bid" shall mean any written offer by the Corporation in connection with the
 ---
Business that if accepted would lead to a Government Contract or Scheduled
Contract.

"Business" shall mean the business of development, design, manufacture and
 --------
sale of electronic test equipment for electronic warfare and avionics
systems as well as related engineering services.

"Code" shall mean the Internal Revenue Code of 1986, as amended, from time
 ----
to time.

"Corporation's Knowledge" shall mean the actual knowledge (i.e., the
 -----------------------
conscious awareness of facts or information) or belief of Edward Wenger,
President and Chief Executive Officer of the Corporation, Mark Scherwin,
Chief Financial Officer of the Corporation, Philip Niosi, Vice President,
Operations of the Corporation, Michael Lovelace, Vice President of
Operations-Melbourne and Anthony Scott Brantley, Vice President of
Operations-Warner Robins. For purposes of this Agreement, said individuals
shall not be deemed to have knowledge of any fact, matter or circumstance
solely as a result of their service as an officer, director or employee of
the Corporation nor will said individuals have, or be deemed to have, any
duty to inquire as to the truth or accuracy of any statement contained in
this Agreement.

"Effective Time" shall mean the close of business (5:00 p.m.) on the day
 --------------
immediately preceding the Closing Date.

"Environmental Law" shall mean any federal, state, or local statute, rule,
 -----------------
ordinance, code, license, permit, plan, regulation or order, as in effect on
the date hereof, relating to the protection of the environment or to the
regulation of any toxic, radioactive, ignitable, corrosive, reactive or
otherwise hazardous substances, materials, contaminants, pollutants or
wastes or any other substances the presence of which requires
identification, investigation, regulation or remediation under any
applicable federal, state or local statute, regulation or ordinance
(including, without limitation, asbestos, PCB's, underground storage tanks
and infectious substances).

"Excluded Liabilities" shall mean (i) all liabilities and obligations of the
 --------------------
Corporation relating to the Excluded Assets; (ii) all liabilities of the
Corporation relating to any obligations or liabilities owing to any current
or former shareholders of the Corporation, other than employment benefits
provided in the Ordinary Course of Business; (iii) all liabilities and
obligations of the Corporation relating to or arising out of its previous
ownership or operation of any former subsidiary or business of the
Corporation; (iv) all liabilities and obligations of the Corporation
relating to any indebtedness for borrowed money owing to any lending or
financial institution; (v) all liabilities and obligations of the
Corporation (including contractual commitments) other than employment
benefits provided in the Ordinary Course of Business owing to any Affiliates
of the Corporation or of the Seller; (vi) all liabilities and obligations of
the Corporation relating to amounts owing for legal services rendered or
costs advanced for any period prior to the Closing Date, except for those
amounts listed as owing as of the date hereof on Schedule 5.7(f) attached
hereto and such amounts as may be owing for legal services rendered or costs
advanced between the date hereof and the Closing Date and which were
incurred in the Ordinary Course of Business; and (vii) any of the other
liabilities and obligations listed on Schedule 1.1 attached hereto.
                                      ------------

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
 -----
amended.

"Fixed Assets" shall mean all tangible personal property used in the
 ------------
Business as currently conducted by the Corporation (including, without
limitation, Inventory, equipment and machinery) other than the Owned
Intellectual Property, the Licensed Intellectual Property and the Government
Property.

"GAAP" shall mean generally accepted accounting principles in effect in the
 ----
United States as of the date hereof.

                                     2

"Government" or "Governmental Authority" shall mean any federal, state,
 ----------      ----------------------
local or foreign governmental branch, body, department, court, commission,
board, bureau, agency, authority or instrumentality.

"Government Contract" shall mean any prime contract, subcontract, teaming
 -------------------
agreement or arrangement, joint venture, basic ordering agreement, letter
contract, purchase order, delivery order, change order, or other arrangement
of any kind in writing either (a) between the Corporation and any of (i) the
U.S. Government (acting on its own behalf or on behalf of another country or
international organization), (ii) any prime contractor of the U.S.
Government, or (iii) any subcontractor with respect to any contract
described in clauses (i) or (ii) above, or (b) financed by the U.S.
Government and subject to the rules and regulations of the U.S. Government
concerning procurement.

"Government Property" shall mean any and all assets utilized by the
 -------------------
Corporation in connection with the Business that are owned solely by any
Governmental Authority.

"Inventory" shall mean all inventory used in the operation of the Business,
 ---------
including, without limitation, all raw materials, work in process and
finished goods.

"Laws" shall mean any and all federal, state, local or foreign laws,
 ----
statutes, ordinances, conventions, treaties, codes, rules and regulations,
Orders or directives of any Governmental Authority that are in effect as of
the date hereof.

"Lien" shall mean any deed of trust, mortgage, lien, security interest,
 ----
charge, claim or other encumbrance, restriction or limitation of whatever
kind or nature.

"Material Adverse Event" shall mean an event or occurrences that causes or
 ----------------------
is reasonably likely to cause a material adverse effect on, or a material
adverse change in, the Corporation's operation of the Business, the
condition of the Corporation's material assets, the results of operations of
the Business or the financial condition of the Corporation, except for any
adverse effect or change resulting from (a) general economic, financial or
market conditions; (b) conditions or circumstances generally affecting the
industry in which the Corporation or Buyer operate; (c) the announcement or
pendency of this Agreement or the transactions contemplated hereby; (d) the
payment of fees and expenses incurred in connection with the transactions
contemplated hereby; or (e) any event of force majeure.

"Order" shall mean any award, decision, decree, injunction, order or ruling
 -----
of any Governmental Authority.

"Ordinary Course of Business" shall mean the ordinary course of business of
 ---------------------------
the Business consistent with the Corporation's past practice.

"Party" shall mean the Buyer, the Corporation, the Seller, or the Trusts, as
 -----
the case may be, and "Parties" shall mean more than one or all of the Buyer,
                      -------
the Corporation, the Seller, and the Trusts.

                                     3

"Person" shall mean any individual, partnership, corporation, limited
 ------
liability company, association, joint stock company, estate, trust, joint
venture, unincorporated organization, Governmental Authority or any other
entity.

"Plans" shall mean collectively, each pension, retirement, profit-sharing,
 -----
deferred compensation, stock option, employee stock ownership, share
purchase, tuition reimbursement, bonus, retention, or other incentive plan,
medical, vision, dental or other health plan, any life insurance plan,
flexible spending account, cafeteria plan, vacation, sick leave or family
leave, holiday, disability, severance pay or any other material employee
benefit plan or fringe benefit plan, including any "employee benefit plan,"
as that term is defined in Section 3(3) of ERISA and any other material
plan, fund, policy, program, practice, or arrangement providing compensation
or other benefits, whether or not such employee benefit plan is or is
intended to be subject to the Code, ERISA or any other applicable Law.

"Proceeding" shall mean any audit, examination, arbitration, hearing,
 ----------
complaint, litigation, suit or investigation.

"Shares" shall mean all of the issued and outstanding stock of the
 ------
Corporation existing as of the date of this Agreement, which consists of
3,500 shares of common stock with a par value of $1.00 per share, and 10,500
shares of Class B non-voting stock with a par value of $1.00 per share.

"Subsidiary" shall mean PCA Electronic Test Limited, a United Kingdom
 ----------
corporation.

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

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

"U.S. Government" means the United States Government and any agencies,
 ---------------
instrumentalities and departments thereof.

"Working Capital" shall mean the excess of the Corporation's current assets
 ---------------
(defined to mean billed receivables, unbilled receivables, inventory,
advances, investments in WSTGE warranty and prepaid expenses, including
taxes) over the Corporation's current liabilities (defined to mean accounts
payable, bank overdrafts not reflected in bank debt, accrued but unpaid
payroll, withholding taxes payable, accrued but unpaid expenses and deferred
revenue).

                                     4

         SECTION 1.2 TERMS DEFINED IN THE AGREEMENT. In addition to the
                     ------------------------------
terms defined in Section 1.1 hereof, the following is a list of defined
terms used in this Agreement and a reference to the Section in which such
term is defined:

<TABLE>
<CAPTION>
          DEFINED TERM                                            SECTION IN WHICH DEFINED
          ------------                                            ------------------------
          <S>                                                     <C>
          Accountant                                              Section 3.4(b)
          Arbiter                                                 Section 3.4(c)
          Buyer                                                   Preamble
          Buyer Indemnification Claim                             Section 10.2
          Closing                                                 Section 4.1
          Closing Working Capital Statement                       Section 3.4(b)
          Closing Date                                            Section 4.1
          Claim Notice                                            Section 11.2
          Claims                                                  Section 11.1
          Claiming Party                                          Section 11.2
          Company Projections                                     Section 5.6(b)
          Confidentiality Agreement                               Section 7.2
          Corporation                                             Preamble
          Excluded Assets                                         Section 4.4
          Financial Statements                                    Section 5.6
          Indemnification Claim Notice                            Section 10.4
          Interim Balance Sheet                                   Section 5.6
          Licensed Intellectual Property                          Section 5.9(b)
          Notice of Dispute                                       Section 3.4(c)
          Owned Intellectual Property                             Section 5.9(a)
          Permits                                                 Section 5.12
          Procedures                                              Section 11.3
          Purchase Price                                          Section 3.1
          Scheduled Contracts                                     Section 5.7(a)
          Scheduled Leases                                        Section 5.7(d)
          Section 338 Forms                                       Section 3.2(b)
          Securities Act                                          Section 6.6
          Seller                                                  Preamble
          Shareholders                                            Preamble
          Shareholder Indemnification Claim                       Section 10.3(d)
          Threshold                                               Section 10.6(a)
          Trusts                                                  Preamble
</TABLE>

         SECTION 1.3 INTERPRETATION. Defined terms used in this Agreement,
                     --------------
regardless of the gender and number specifically used, shall be construed to
include any other gender and any other number as the context requires. The
language used in this Agreement shall be deemed to be the language chosen by
all of the parties hereto to express their mutual intent and no rule of
strict construction shall be applied against any party. The titles of the
Articles and Sections of this Agreement are for convenience of reference
only and are not to be considered in construing or interpreting this
Agreement. Schedules will be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Agreement; provided,
however, that a matter

                                     5

disclosed in reference to any particular section or subsection will be
deemed to be disclosed for purposes of any other section or subsections of
this Agreement, if the matter is disclosed in such a way to make its
relevance to such other sections or subsections reasonably apparent.

                                ARTICLE TWO
                         PURCHASE AND SALE OF SHARES

         At the Closing, subject to the terms and conditions set forth in
this Agreement, The Shareholders shall sell, transfer, convey and assign to
Buyer, and Buyer shall purchase and accept from the Shareholders, all of the
Shares.

                               ARTICLE THREE
                               PURCHASE PRICE

         SECTION 3.1 PURCHASE PRICE. Subject to the terms and conditions set
                     --------------
forth in this Agreement, at the Closing, Buyer shall pay the Shareholders an
aggregate of Thirty-Five Million Dollars ($35,000,000) (the "Purchase
Price"), plus or minus the amount calculated in accordance with Section
3.4(a), by wire transfer of immediately available funds to accounts
designated in writing by Seller. The Purchase Price is subject to further
upward or downward adjustment as provided in Section 3.4 hereof.

         SECTION 3.2 SECTION 338(h)(10) ELECTION. (a) Each of the
                     ---------------------------
Shareholders and the Corporation shall join with Buyer in timely making an
election under Section 338(h)(10) of the Code (and any corresponding election
under state, local and foreign Tax Law) with respect to the purchase and
sale of the Shares hereunder (a "338(h)(10) Election"). The Shareholders
shall report on their Tax Returns, and be responsible for the payment of any
Taxes payable as a result of, any income, gain, loss, deduction and other
Tax items resulting from the 338(h)(10) Election to the extent required by
applicable Tax Law. The Shareholders also shall be responsible for the
payment of any Tax imposed on the Corporation attributable to the making of
the 338(h)(10) Election, including (i) any Tax imposed under Code Section
1374, (ii) any Tax imposed under Treas. Reg. Section 1.338(h)(10)-1(e)(5),
and (iii) any state, local or foreign Tax imposed on the Corporation's gain
attributable to the making of the 338(h)(10) Election.

                  (b) At least forty-five (45) days prior to the due date
(as validly extended in accordance with applicable Laws) for filing with the
U.S. Government (and any state, local or foreign Taxing authority) the forms
necessary to make the Section 338(h)(10) Election, Buyer shall prepare and
submit to Seller for Seller's review a draft of Federal Forms 8023 and 8883
(and such other state/local forms as are necessary and as shall be specified
by Seller in a notice to Buyer at least sixty (60) days prior to the due
date (as validly extended in accordance with applicable Laws) for filing
such forms with any state/local Taxing authority in order to make the
Section 338(h)(10) Election for state/local Tax purposes (collectively, the
"Section 338 Forms"). With the submission of such draft Section 338 Forms,
Buyer shall advise the Seller in writing of those actions that Buyer
considers necessary or appropriate for the Shareholders to take in order to
properly make the Section 338(h)(10) Election.

                  (c) On or prior to the fifteenth (15th) day after Seller's
receipt of the draft Section 338 Forms from Buyer, Seller shall deliver to
Buyer either (i) copies of the Section 338

                                     6

Forms which have been executed by all the Shareholders and a consent to
their filing, or (ii) a written notice specifying in reasonable detail all
disputed items and the basis therefor. If Buyer and Seller are unable to
resolve all disputed matters relating to the draft Section 338 Forms within
ten (10) days after Buyer's receipt of the written notice described in
clause (ii) above, any remaining disputed issues shall be resolved pursuant
to Section 3.2(f) below. Immediately following such resolution, Buyer and
Seller shall timely execute and consent to the filing of the Section 338
Forms in the manner determined by the Accountant.

                  (d) Seller and Buyer shall be jointly responsible for
assuring that the Section 338(h)(10) Election is validly and timely made by
the parties. Each of the Shareholders and Buyer shall comply fully with all
filing and other requirements necessary to make the Section 338(h)(10)
Election on a timely basis and agrees to cooperate in good faith in the
preparation and timely filing of the Section 338 Forms.

                  (e) Seller and Buyer shall reasonably cooperate with each
other in reaching a mutual agreement upon the determination of the
"aggregate deemed sale price" and "adjusted grossed up basis" (within the
meaning of Treas. Regs. Sections 1.338-4 and 1.338-5, respectively) and the
allocation thereof among the assets of the Corporation no later than the
earliest of (i) thirty (30) days after the final determination (by agreement
or otherwise) of the Closing Working Capital Statement in accordance with
Section 3.4, (ii) one hundred twenty (120) days after the Closing Date, or
(iii) the date which is forty-five (45) days prior to the due date (as
validly extended in accordance with applicable Laws) for filing the Section
338 Forms with the U.S. Government (and any state, local or foreign Taxing
authority). Such allocation shall be made in accordance with Section 338 of
the Code and the regulations thereunder and in a manner consistent with the
preparation of the Closing Working Capital Statement pursuant to Section
3.4. If Buyer and Seller are unable to agree upon such determination and
allocation within such time period, then such determination and allocation
shall be made by the Accountant pursuant to Section 3.2(f) below. When
finally determined hereunder (whether by agreement or otherwise), such
determination and allocation shall be binding upon each of the Shareholders
and Buyer for all purposes (including financial accounting purposes,
financial and regulatory reporting purposes and Tax purposes), and none of
the Shareholders, the Corporation and Buyer (or any of their respective
Affiliates) shall take any position on any Tax Returns or with any Taxing
authority that is inconsistent with such determination and allocation,
unless such position is required by applicable Laws or administrative or
judicial interpretations thereof. For purposes of the determination and
allocation to be made under this Section 3.2(e), Seller and Buyer agree that
$10,000 of the Purchase Price shall be allocated to the Seller's covenant
not to compete under the Non-Compete Agreement; it being understood and
agreed by Seller, however, that such allocation shall not limit, reduce or
restrict in any manner any damages or losses that the Corporation or the
Buyer may be entitled to recover in the event of a breach or violation by
Seller of any of the terms of the Non-Compete Agreement.

                  (f) If there shall be a dispute between Buyer and Seller
regarding any matters concerning the Section 338(h)(10) Election under this
Section 3.2, and the dispute is not resolved within the 10-day period after
such dispute arises, the dispute shall be referred to the Accountant for
final determination. Buyer shall submit any statement of its position to the
Accountant no later than five (5) days after such referral. Seller shall
have five (5) days after Buyer's submission of its position to submit the
Shareholders' proposed revision of the position urged by

                                     7

Buyer. The Accountant shall apply the terms of this Section 3.2, and shall
render a final decision within fifteen (15) days after the matter is
referred to the Accountant. The fees and expenses of the Accountant shall be
equally allocated between, and paid by, Buyer and the Shareholders.

         SECTION 3.3 CASH DISTRIBUTION TO THE SHAREHOLDERS. Immediately
                     -------------------------------------
prior to the Closing, Seller will cause the Corporation to pay the
Shareholders an amount in the aggregate equal to Seller's good faith
estimate of the consolidated cash of the Corporation as of the Closing.
Seller may cause the Corporation to make any such payment to them in the
form of a distribution or any other similar transaction.

         SECTION 3.4 WORKING CAPITAL ADJUSTMENT.
                     --------------------------

                  (a) At least two business days prior to the Closing, the
Corporation shall deliver to Buyer a statement setting forth its best
estimate of the Working Capital prepared in the manner set forth in Section
3.4(b) as of December 31, 2004 (the "Estimated Closing Working Capital"). At
the Closing, the Purchase Price shall be (i) reduced, on a dollar for dollar
basis, to the extent that the Estimated Closing Working Capital is less than
$4,200,000 (the "Working Capital Amount") and (ii) increased, on a dollar
for dollar basis, to the extent that the Estimated Closing Working Capital
exceeds the Working Capital Amount.

                  (b) As promptly as practicable following the Closing Date,
but in no event later than one hundred twenty (120) ) days after the Closing
Date (although the failure to meet such deadline shall not result in a
penalty or loss), Buyer shall cause to be prepared, at Buyer's expense and
in good faith, and submit to Seller an audited statement of Working Capital
of the Corporation as of the Closing Date (the "Closing Working Capital
Statement"). The Closing Working Capital Statement shall be prepared by
Grassi & Co. (the "Accountant") in accordance with GAAP consistent in all
respects (including, without limitation, classification and presentation of
line items) with past practices of the Corporation, so long as such
practices have been in accordance with GAAP, provided that the Closing
Working Capital Statement shall not include or reflect any impact from the
(i) Excluded Assets, (ii) any impact that might otherwise result from the
Section 338(h)(10) Election, and (iii) any related income Tax effect as a
result of any of the foregoing.

                  (c) In the event Seller disputes the Closing Working
Capital Statement as delivered by Buyer, Seller shall provide written notice
(a "Notice of Dispute") specifying in reasonable detail all points of
disagreement with the Closing Working Capital Statement to Buyer within
thirty (30) days after receipt of the Closing Working Capital Statement. If
Seller fails to deliver a Notice of Dispute within such 30-day period, then
the Closing Working Capital Statement as delivered by Buyer shall be used
for purposes of Section 3.5. If Seller delivers a Notice of Dispute within
such 30-day period, Buyer and Seller shall endeavor in good faith to resolve
all specified points of disagreement within thirty (30) days after Seller's
receipt of Buyer's Notice of Dispute. If the dispute is not resolved within
such 30-day period, either or both of Buyer and Seller may refer the dispute
to a partner in a firm of independent public accountants who employ in
excess of one hundred (100) certified public accountants (which firm shall
not then have, nor within the past three (3) years have had, any
relationship with Buyer or its Affiliates or the Seller or his Affiliates)
as shall be mutually acceptable to Buyer and the Seller (the "Arbiter"), to
serve as arbitrator to finally determine, as soon as practicable, all points
of

                                     8

disagreement with respect to the Closing Working Capital Statement. For
purposes of such arbitration, each of Buyer and Seller shall submit a
proposed Closing Working Capital Statement to the Arbiter and to the other
Party, accompanied by such additional information explaining such Party's
position with respect to the Closing Working Capital Statement as it (they)
desires to submit. Each such Party shall, at the time of such submission, be
free to revise positions they have maintained in prior drafts of the Closing
Working Capital Statement and related discussions, but the Parties shall not
be permitted to further modify their proposed Closing Working Capital
Statement once these are submitted to the Arbiter. Buyer shall submit any
revised Closing Working Capital Statement no later than fifteen (15) days
after such referral. Seller shall have fifteen (15) days after such referral
to submit his revised Closing Working Capital Statement in response. The
Arbiter shall apply the terms of this Section 3.4, and shall otherwise
conduct the arbitration under such procedures as the Parties may agree or,
failing such agreement, under the Commercial Arbitration Rules of the
American Arbitration Association. The fees and expenses of the arbitration
and the Arbiter incurred in connection with the arbitration of the Closing
Working Capital Statement shall be allocated between the Buyer and the
Shareholders by the Arbiter in proportion to the extent either Party did not
prevail on the points of disagreement in the Closing Working Capital
Statement; provided, that such fees and expenses shall not include, so long
as a Party complies with the procedures of this Section 3.4, the other
Party's outside counsel or accounting fees. All determinations by the
Arbiter shall be final, conclusive and binding with respect to the Closing
Working Capital Statement and the allocation of arbitration fees and
expenses.

                  (d) Buyer agrees to cooperate with Seller in attempting to
resolve any points of disagreement referred to in Section 3.4(b), including
without limitation, making reasonably available to Seller to the extent
reasonably requested all books, records, work papers and personnel;
provided, however, that Seller and his representatives will conduct their
work in a manner that does not unreasonably interfere with or disrupt the
conduct of the Business by the Corporation after the Closing.

         SECTION 3.5 ADJUSTMENT TO PURCHASE PRICE. The Purchase Price, as
                     ----------------------------
adjusted pursuant to Section 3.4(a), shall be subject to further upward or
downward adjustment, on a dollar for dollar basis, in the event the
Corporation's Working Capital as reflected on the Closing Working Capital
Statement as finally determined (by agreement or otherwise) in accordance
with Section 3.4 is greater than or less than the Estimated Working Capital.
Buyer shall pay to the Shareholders or the Shareholders shall pay to Buyer
the amount of any Purchase Price adjustment that may be owing to the
Shareholders or Buyer under this Section 3.5 within five (5) business days
after the amount of the adjustment has been finally determined.

                                     9

                                ARTICLE FOUR
                          CLOSING AND OTHER MATTERS

         SECTION 4.1 DATE, TIME AND PLACE OF CLOSING. Subject to the
                     -------------------------------
satisfaction or waiver of the conditions of Article Nine hereof, the
consummation of the transactions contemplated hereby (the "Closing") shall
be held at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New
York, New York 10103 at 9:00 a.m. local time on the later of (a) January 7,
2005; or (b) at such other time and place as Buyer and Seller may agree to
in writing (the "Closing Date"). For all purposes, the Closing shall be
deemed effective as of the Effective Time.

         SECTION 4.2 DELIVERIES BY THE CORPORATION AND SELLER AT CLOSING. At
                     ---------------------------------------------------
the Closing, the Corporation and the Seller shall deliver to Buyer the
following:

                  (a) The certificates representing the Shares, registered
in the name of the Shareholders, duly endorsed by the Shareholders for
transfer to Buyer and accompanied by all requisite stock transfer Tax
stamps;

                  (b) The stock books, stock ledgers and minute books of the
Corporation and the Subsidiary;

                  (c) The written resignations of the directors and officers
of the Corporation and the Subsidiary (except to the extent otherwise
requested by Buyer);

                  (d) A copy of duly adopted resolutions of the
Corporation's Board of Directors authorizing and approving the execution and
delivery of this Agreement, the consummation of the transactions
contemplated hereby and the performance of the agreements set forth herein
certified by the Secretary of the Corporation;

                  (e) A certificate of a duly authorized officer of the
Corporation and the Seller, respectively, in forms reasonably acceptable to
Buyer, dated the Closing Date to the effect that the conditions set forth in
Subsections 9.1(a) and 9.1(b) with respect to the Corporation and the
Seller, as the case may be, have been satisfied in all material respects;

                  (f) A certificate of the Secretary of the Corporation, in
form reasonably acceptable to the Buyer, dated the Closing Date to which is
attached true and correct copies of the Corporation's and Subsidiary's
Articles of Incorporation and By-Laws (and all amendments to each of such
documents) and a schedule listing in reasonable detail the distributions
made to the Shareholders from and after January 1, 2004 and up to the
Closing;

                  (g) The waiver, release, consent or approval of any Person
that is necessary to consummate the transactions contemplated hereby, and to
make the warranties and representations made in this Agreement true in all
material respects, unless the failure to do so would not constitute a
Material Adverse Event;

                  (h) A certificate of good standing certifying that the
Corporation is in good standing in the State of New York and each State in
which the Corporation is qualified to transact business as a foreign
corporation, and a similar certificate from the United Kingdom regarding the
good standing of the Subsidiary in that Country;

                                     10

                  (i) A check of Seller payable to the Corporation in
payment of the book value of the non-business assets of the Corporation set
forth on Schedule 4.2;
         ------------

                  (j) Wire transfer instructions regarding delivery of the
Purchase Price;

                  (k) The employment agreements set forth on Schedule
                                                             --------
4.2(k);
------

                  (l) The Employment Agreement and Non-Compete Agreement
with Seller; and

                  (m) An opinion of counsel for the Shareholders and the
Corporation addressed to Buyer and dated the Closing Date, in form
reasonably acceptable to Buyer.

         SECTION 4.3 DELIVERIES BY BUYER AT CLOSING. Buyer shall deliver to
                     ------------------------------
Seller at Closing:

                  (a) The Purchase Price, plus or minus any adjustment
thereof, in accordance with Section 3.1 hereof;

                  (b) Evidence of funds deposited with the Corporation
sufficient to pay the closing bonuses set forth on Schedule 9.2(f);
                                                   ---------------

                  (c) A copy of duly adopted resolutions of Buyer's Board of
Directors authorizing and approving the execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and the
performance of the agreements set forth herein certified by the Secretary of
Buyer;

                  (d) A certificate of a duly authorized officer of Buyer in
form reasonably acceptable to Seller, dated the Closing Date, to the effect
that the conditions set forth in Subsections 9.2(a) and 9.2(b) have been
satisfied in all material respects;

                  (e) A certificate of good standing certifying that Buyer
is in good standing in the jurisdiction of its incorporation;

                  (f) The waiver, release, consent or approval of any person
that is necessary to consummate the transactions contemplated hereby, and to
make the warranties and representations made in this Agreement true in all
material respects, unless the failure to do so would not constitute a
Material Adverse Event;

                  (g) The agreements referred to in Sections 4.2(k) and (l);

                  (h) The non-business assets of the Corporation set forth
on Schedule 4.2; and
   ------------

                  (i) An opinion of counsel for the Buyer addressed to the
Shareholders and dated the Closing Date, in form reasonably acceptable to
the Seller.

         SECTION 4.4 EXCLUDED ASSETS. Prior to the Closing, the Sellers
                     ---------------
shall cause the Corporation to assign and transfer to the Seller all of the
assets and properties listed on Schedule 4.2 (the "Excluded Assets").
                                ------------

                                     11

                                ARTICLE FIVE
          REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE
                                   SELLER

         A. The Corporation represents and warrants to Buyer as follows,
except as otherwise disclosed in the Schedules:

         SECTION 5.1 CORPORATE EXISTENCE.
                     -------------------

                  (a) The Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of New
York and is qualified to do business and is in good standing in all
jurisdictions in which it is required to be qualified to do business as a
result of its operation of the Business except where the failure to be
qualified or in good standing would not be a Material Adverse Event.
Schedule 5.1(a) attached hereto sets forth a list of the Corporation's
---------------
qualifications as a foreign corporation and also sets forth the addresses
for each office, plant and/or other site at which the Corporation conducts
the Business.

                  (b) Subsidiary is a United Kingdom corporation duly
organized, validly existing and in good standing under the laws of the
United Kingdom.

         SECTION 5.2 CAPITAL STRUCTURE.
                     -----------------

                  (a) The Corporation is authorized to issue 20,000 shares
preferred stock, par value $1.00 per share, 20,000 shares of common stock,
par value $1.00 per share, and 10,500 shares of Class B non-voting common
stock, par value $1.00 per share. All of the Shares were duly authorized,
have been validly issued and are fully paid and non-assessable. Schedule
                                                                --------
5.2(a) attached hereto sets forth a complete and accurate list of the number
------
of Shares (and type of Shares) held by each Shareholder. The Shares comprise
all of the outstanding capital stock of the Corporation and, except as set
forth in Schedule 5.2(a) attached hereto: (i) there are no options, warrants
         ---------------
or other rights (including registration rights), agreements or commitments
of any character to which the Corporation is a party relating to issued or
unissued capital stock of the Corporation or obligating the Corporation to
grant, issue or sell any shares of its capital stock or other securities
(whether of a debt, equity or hybrid nature); (ii) there are no obligations,
contingent or otherwise, of the Corporation to (A) repurchase, redeem or
otherwise reacquire any shares of its capital stock or other securities, or
(B) provide material funds to, or make any material investment in (in the
form of a loan, capital contribution or otherwise), or provide any guarantee
with respect to the obligations of, any Person; (iii) the Corporation does
not directly or indirectly own nor has it agreed to purchase or otherwise
acquire, the capital stock or other securities of, or any interests
convertible into or exchangeable or exercisable for, the capital stock or
other securities of any Person other than the stock of Subsidiary; and (iv)
there are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Corporation. There are no agreements,
voting trusts, proxies or understandings with respect to the voting,
registration or transferability of the Shares or otherwise between or among
the Corporation and any of its Shareholders and/or between or among any of
the Shareholders.

                                     12

                  (b) Subsidiary is authorized to issue 1,000 shares of
ordinary stock, of which one share is issued and outstanding and held (both
of record and beneficially) solely by the Corporation. Except as set forth
in Schedule 5.2(b) attached hereto: (i) there are no options, warrants or
   ---------------
other rights (including registration rights), agreements or commitments of
any character to which the Corporation or Subsidiary is a party relating to
issued or unissued capital stock of the Subsidiary or obligating Subsidiary
to grant, issue or sell any shares of its capital stock or other securities;
(ii) there are no obligations, contingent or otherwise, of Subsidiary to (A)
repurchase, redeem or otherwise reacquire any shares of its capital stock or
other securities, or (B) provide material funds to, or make any material
investment in (in the form of a loan, capital contribution or otherwise), or
provide any guarantee with respect to the obligations of, any Person; (iii)
Subsidiary does not directly or indirectly own nor has it agreed to purchase
or otherwise acquire, the capital stock or other securities of, or any
interests convertible into or exchangeable or exercisable for, the capital
stock or other securities of any Person; and (iv) there are no outstanding
or authorized stock appreciation, phantom stock or similar rights with
respect to the Subsidiary.

                  (c) The Corporation has made available to Buyer complete
and correct copies of (i) the certificates evidencing the Shares, and (ii)
the Corporation's Certificate of Incorporation and its Bylaws and the
organizational and governing documents of Subsidiary, in each case as
amended or restated as of the date hereof.

         SECTION 5.3 CORPORATE POWER AND AUTHORITY. The Corporation has the
                     -----------------------------
corporate power and authority to own its assets and to operate the Business
as now conducted.

         SECTION 5.4 AUTHORITY.
                     ---------

                  (a) The Corporation has all requisite right, power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The
execution and delivery by the Corporation of this Agreement and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Corporation. The
Corporation has duly and validly executed and delivered this Agreement and,
assuming the due authorization, execution and delivery by Buyer, this
Agreement will constitute the legal, valid and binding obligation of the
Corporation, enforceable against the Corporation in accordance with its
terms except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency or similar Laws affecting the enforcement of
creditors' rights generally and subject to general principles of equity.

                  (b) Except as set forth in Schedule 5.4(b) attached
                                             ---------------
hereto, the execution and delivery of this Agreement by the Corporation and
its performance of its obligations hereunder do not and will not (a)
conflict with or violate any provision of the Corporation's Articles of
Incorporation or bylaws; (b) conflict with or violate any Law or Order
applicable to the Corporation or the Subsidiary; or (c) result in any breach
or termination of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under any contract or
agreement to which the Corporation or the Subsidiary is a party, except in
the case of (b) and (c), where such breach, termination or default would not
result in a material liability to the Corporation or materially impair or
hinder the Corporation's Business operations after the Closing.

                                     13

         SECTION 5.5 CONSENTS. Except as set forth in Schedule 5.5 attached
                     --------                         ------------
hereto, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby and thereby do not
require any filing with, notice to or consent, waiver or approval of any
Person other than any filing required under the HSR Act (and the expiration
of any applicable waiting period thereunder), if applicable, and except
where the failure to make such a filing or to obtain such a consent, waiver
or approval would result in a material liability to the Corporation or
materially impair or hinder the Corporation's Business operations after the
Closing.

         SECTION 5.6 FINANCIAL STATEMENTS.
                     --------------------

                  (a) Set forth as Schedule 5.6(a) attached hereto are (i)
                                   ---------------
the audited balance sheets of the Corporation as of December 31, 2001,
December 31, 2002, and December 31, 2003, and related statements of income,
stockholders' equity and cash flows for the Corporation for the fiscal years
ended December 31, 2001, December 31, 2002, and December 31, 2003, and (ii)
the unaudited balance sheet of the Corporation as of November 30, 2004 (the
"Interim Balance Sheet") and related statement of income, stockholders'
equity and cash flows for the Corporation for the eleven-month period then
ended (the "Financial Statements"). The Financial Statements have been
prepared in accordance with GAAP (except that the unaudited financial
statements do not contain all footnotes required by GAAP and are subject to
routine year-end adjustments), were derived from and prepared in accordance
with the books and records of the Corporation, and, except as set forth in
Schedule 5.6 attached hereto, the Financial Statements present fairly, in
------------
all material respects, the financial position of the Corporation as of the
dates thereof and the related results of operations for the periods referred
to therein. There has been no change in accounting methods or practices
during the years covered by the Financial Statements, except as required by
GAAP or by applicable Law.

                  (b) The Corporation has provided Buyer with projections
through its 2007 fiscal year which are attached as Schedule 5.6(b) attached
hereto (the "Company Projections"). The Company Projections were prepared in
good faith and are based upon assumptions and estimates that the
Corporation's management believed to be reasonable at the time of
preparation; it being understood by Buyer that projections such as the
Company Projections are inherently subject to risks, uncertainties and other
factors that are likely to cause actual results to differ significantly from
those stated in such Projections.

         SECTION 5.7 MATERIAL CONTRACTS.
                     ------------------

                  (a) Schedule 5.7(a) attached hereto contains a list of all
                      ---------------
commitments, agreements or contracts to which the Corporation is a party or
under which the Corporation is bound (other than Government Contracts) and
which (i) involve, or may reasonably be expected to involve, the payment,
receipt or guaranty of Fifty Thousand Dollars ($50,000.00) or more (whether
in cash or in goods or services of an equivalent value) over its term, (ii)
grant a power of attorney, (iii) involve a sharing of payments or joint
venture which involve, or may reasonably be expected to involve, the payment
or receipt of Fifty Thousand Dollars ($50,000) or more (whether in cash or
in goods or services of equivalent value), (iv) involve a sales agency,
representation, distributorship, supply or consulting or independent
contractor agreement which involve, or may reasonably be expected to
involve, the payment or receipt of Fifty Thousand

                                     14

Dollars ($50,000) or more (whether in cash or in goods or services of
equivalent value), (v) impose material restrictions on the Corporation
regarding competition or solicitation of customers or employees, (vi)
involve any agreement with respect to the treatment of confidential
information furnished by or to the Company, or (vii) are material to the
Business (the "Scheduled Contracts").

                  (b) Except as set forth in Schedule 5.7(b) attached
                                             ---------------
hereto, the Scheduled Contracts and Scheduled Leases are valid and binding
obligations of the parties thereto and are in full force and effect; no
event has, to the Corporation's Knowledge, occurred that (whether with or
without the giving of notice or lapse of time or both) would constitute a
breach or default by any party thereto other than any such breach or default
that would not result in a material liability to the Corporation or
materially impair or hinder the Corporation's Business operations after the
Closing and, have been entered into in the Ordinary Course of Business.

                  (c) Except as provided in Schedule 5.7(c) attached hereto,
                                            ---------------
the consummation of the transactions contemplated by this Agreement will not
(and will not give any Person a right to) terminate or modify any material
rights of, or accelerate or increase any material obligation of, the
Corporation under any Scheduled Contract or Scheduled Lease.

                  (d) Schedule 5.7(d) attached hereto contains a list of all
                      ---------------
leases of real or personal property utilized in the Business to which the
Corporation is a party which (i) involve or may reasonably be expected to
involve, the payment of Fifty Thousand Dollars ($50,000) or more over its
term or (ii) are material to the Business (the "Scheduled Leases").

                  (e) Set forth on Schedule 5.7(e) attached hereto is a list
                                   ---------------
of each written or oral contract (or subcontract), lease (or sublease) or
other agreement, commitment, liability or obligation (i) between the
Corporation and any of its and/or the Seller's Affiliates, and (ii) between
the Corporation and the Seller.

                  (f) Schedule 5.7(f) attached hereto contains a list of all
                      ---------------
law firms (including the names of individual attorneys) and sole
practitioners that have provided legal services to the Corporation at any
time over the past three (3) years. Schedule 5.7(f) further sets forth any
                                    ---------------
amounts outstanding as of the date hereof for legal services rendered or
costs advanced prior to the date hereof, other than amounts owing for legal
services provided or costs advanced in connection with this Agreement and
the transactions contemplated hereby.

         SECTION 5.8 TITLE TO ASSETS.
                     ---------------

                  (a) Except as set forth in Schedule 5.8(a) attached
                                             ---------------
hereto, the Corporation has good and marketable title to the Fixed Assets
(except for any Fixed Assets sold, consumed or otherwise disposed of in the
Ordinary Course of Business since the date hereof and those Fixed Assets in
which the Corporation holds a leasehold interest), and such Fixed Assets are
owned free and clear of all Liens, except for (a) Liens for Taxes and
assessments not yet due and payable or for Taxes the validity of which is
being contested in good faith and which are fully reserved against on the
Corporation's Interim Balance Sheet; (b) mechanic's, materialmen's and other
similar Liens not unusual in nature or amount that have arisen in the
Ordinary Course of Business; (c) imperfections of title and Liens the
existence of which do not materially detract

                                     15

from the value of, or materially impair the use of, such Fixed Assets; and
(d) the matters disclosed in Schedule 5.8(a) attached hereto. The
                             ---------------
Corporation owns no real property.

                  (b) Except as set forth in Schedule 5.8(b) attached
                                             ---------------
hereto, the Corporation has a valid leasehold interest in the property
subject to the Scheduled Leases, free and clear of all encumbrances that
would materially interfere with the continued use or operation of such
property in the manner heretofore used or operated by the Corporation in the
Ordinary Course of Business. To the Corporation's Knowledge, the premises
leased by the Corporation are in all material respects, (i) in reasonably
good condition and repair, ordinary wear and tear excepted, and (ii) in
compliance with applicable Laws.

                  (c) Schedule 5.8(c) attached hereto lists (i) all of the
                      ---------------
Corporation's depreciable personal property as of September 30, 2004 and the
location of such items, and (ii) all of the Corporation's leased personal
property, and the respective lessors thereof. With respect to the
Corporation's leased personal property, such properties are held under valid
and enforceable leases. Except as set forth on Schedule 5.8(c) attached
                                               ---------------
hereto, no material tangible assets of the Business (including Inventory)
are in the possession of others and the Corporation holds no property on
consignment in connection with the Business.

                  (d) The Corporation owns one share of the common stock of
Subsidiary, free and clear of all Liens. The Corporation is not party to any
agreement whereby the transfer of any of the stock of Subsidiary is subject
to any restrictions and there are no voting trusts, proxies or other
agreements with respect to the voting of any of the shares of the stock of
Subsidiary.

         SECTION 5.9 INTELLECTUAL PROPERTY.
                     ---------------------

                  (a) Schedule 5.9(a) attached hereto sets forth a list of
                      ---------------
all patents and patent applications, trade name, trademark and service mark
registrations and applications and copyright registrations and applications
that are owned by the Corporation and used directly and exclusively in the
Business (the "Owned Intellectual Property").

                  (b) Schedule 5.9(b) attached hereto sets forth a list of
                      ---------------
material agreements under which the Corporation has a license to use a
trademark or trade name, service mark, patent or other item of intellectual
property in connection with the Business (the "Licensed Intellectual
Property").

                  (c) Except as set forth in Schedule 5.9(c) attached
                                             ---------------
hereto, (i) none of the Owned Intellectual Property and, to the
Corporation's Knowledge, none of the Licensed Intellectual Property, is the
subject of any pending Proceeding that if adversely determined would
reasonably be expected to result in a material liability to the Corporation
or materially impair or hinder the Corporation's Business operations after
the Closing, and (ii) to the Corporation's Knowledge, no such Proceeding is
threatened.

                  (d) Except as set forth in Schedule 5.9(d) attached hereto
                                             ---------------
no other Person has been granted any license or other right to use any of
the Owned Intellectual Property.

                  (e) The Corporation has good title to the Owned
Intellectual Property free and clear of any Liens, and the right and
authority to use same. The consummation of the

                                     16

transactions contemplated hereby will not alter or impair any of the Owned
Intellectual Property or any right to use any of the Licensed Intellectual
Property, nor accelerate or increase any obligation of the Corporation with
respect thereto.

         SECTION 5.10 LITIGATION AND COMPLIANCE WITH LAW. Other than those
                      ----------------------------------
matters set forth on Schedule 5.10 attached hereto, there are no Proceedings
                     -------------
by or before any Governmental Authority that are pending or, to the
Corporation's Knowledge, threatened against the Corporation that, if
determined adversely to the Corporation's interests, would result in a
material liability to the Corporation or materially impair or hinder the
Corporation's Business operations after the Closing. The Corporation has not
violated any Order applicable to the Corporation nor is the Corporation
subject to any unsatisfied Order entered in any Proceeding except for those
violations result in a material liability to the Corporation or materially
impair or hinder the Corporation's Business operations after the Closing. To
The Corporation's Knowledge, the Corporation's operation of the Business as
currently conducted does not violate any Law except for those violations
which would not that would not result in a material liability to the
Corporation or materially impair or hinder the Corporation's Business
operations after the Closing. To the Corporation's Knowledge, there is no
pending Proceeding against any Person based in whole or in part on the fact
that such Person is or was a director or officer of the Corporation nor is
the Corporation aware of any such contemplated action. There is not now
pending any Proceeding that the Corporation has commenced against another
Person nor is the Corporation aware of any such contemplated action except
for those Proceedings or actions that would not result in a material
liability to the Corporation or materially impair or hinder the
Corporation's Business operations after the Closing.

         SECTION 5.11 TAXES. Except as set forth in Schedule 5.11 attached
                      -----                         -------------
hereto:

                  (a) The Corporation has timely and properly filed all Tax
Returns that it was required to file on or prior to the date of this
Agreement, and has paid or provided for payment of all Taxes required to be
paid by the Corporation as disclosed by such Tax Returns, except where the
failure to file such Tax Returns or to pay or provide for such Taxes would
not result in a material Tax liability to the Corporation. All income and
other Tax Returns filed or caused to be filed by the Corporation on or prior
to the date of this Agreement were correct and complete in all material
respects.

                  (b) No Proceedings are presently pending against the
Corporation with regard to Taxes, the Corporation has not received notice of
any impending Proceeding not yet commenced relating to the Corporation's
liability for Taxes and no deficiency for any Taxes has been assessed
against the Corporation which has not been resolved and paid.

                  (c) The Corporation has furnished or made available to
Buyer true, correct and complete copies of the Corporation's annual income
Tax Returns filed for each of the last three (3) Tax years of the
Corporation.

                  (d) The Corporation has complied in all material respects
with all Laws relating to the withholding of Taxes and the payment thereof
and has in all material respects timely and properly withheld from employee
wages and paid over to the proper Taxing authority all employment Taxes
required to be withheld and paid over under applicable Laws, except

                                     17

where the failure to withhold and pay over such employment Taxes would not
result in a material Tax liability to the Corporation.

                  (e) The Corporation has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to any Tax assessment or deficiency, which waiver or extension has
not expired.

                  (f) The Corporation has no liability for any Tax
obligations of any Person other than the Corporation (including, without
limitation, any current or former Affiliate of the Corporation).

         SECTION 5.12 PERMITS. The permits and licenses listed on Schedule
                      -------                                     --------
5.12 attached hereto (the "Permits") are all of the material governmental
----
permits and licenses necessary to operate the Business as currently
conducted. To the Corporation's Knowledge, the Corporation is in material
compliance with all requirements and limitations set forth in the Permits.

         SECTION 5.13 CONDITION OF ASSETS. The Fixed Assets (other than the
                      -------------------
Inventory) are, taken as a whole, in reasonably good operating condition and
repair, ordinary wear and tear considered, and are suitable for the uses
intended therefor.

         SECTION 5.14 CERTAIN CHANGES OR EVENTS. Except as contemplated
                      -------------------------
hereby and as set forth in Schedule 5.14 attached hereto, since December 31,
                           -------------
2003, through the date hereof, the Corporation has not: (a) incurred any
loss (whether or not covered by insurance) with respect to any of its assets
which caused a financial loss to the Corporation of Fifty Thousand Dollars
($50,000.00) or more, (b) undertaken any material change in accounting
methods, principles or practices except as required by GAAP; (c) redeemed,
repurchased or otherwise reacquired any of its equity securities; (d) made
any increase in the benefits under, or established any material bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option, stock purchase or other employee benefit plan, or
effected any increase in the compensation payable or to become payable to
directors, officers or employees of the Business, except for any of the
foregoing that are within the Ordinary Course of Business; (e) entered into
any contract (or lease) or any material amendment to any contract (or lease)
to which the Corporation is party or by which the Corporation is bound and
for which the Corporation's aggregate obligations to pay money thereunder
would be in excess of $50,000 or the Corporation would be obligated for a
term in excess of three (3) years; (f) abandoned or permitted to lapse any
of the Owned or Licensed Intellectual Property that is material to the
Business; (g) permitted, allowed or suffered any of the assets of the
Corporation to be subject to any Lien other than any such Liens incurred in
the Ordinary Course of Business or Liens related to credit agreements in
existence on the date hereof, or would not cause a Material Adverse Event;
(h) acquired or made any investment in (by merger, exchange, consolidation,
purchase or otherwise) any Person; (i) forgiven any material indebtedness
owing to the Corporation or the waiver or release by the Corporation of any
claims or rights of material value; (j) made any loan or advance to, or
guarantee for the benefit of, any Person, in an amount in excess of $50,000;
(k) incurred or assumed any liabilities, obligations or indebtedness for
borrowed money or guaranteed any such liabilities or indebtedness in an
amount in excess of $50,000, other than trade accounts payable incurred in
the Ordinary Course of Business; (l) made any commitment by the Corporation
to make any capital expenditure in excess of $25,000 per item or $100,000 in

                                     18

the aggregate; (m) except in connection with the transactions contemplated
by this Agreement, made any sale, transfer or other disposition of any of
the Corporation's material assets (tangible or intangible) or any other
similar material transaction entered into or carried out by the Corporation
other than in the Ordinary Course of Business; or (n) agreed, whether in
writing or otherwise, to do any of the foregoing. Except as set forth on
Schedule 5.14 attached hereto, since December 31, 2003, there has not been:
-------------
(i) any event, occurrence, development or state of circumstances or facts
involving the Corporation which has had a Material Adverse Effect; (ii) any
termination or termination threatened, in writing or orally, or substantial
modification of the relationship of the Corporation with any material
customer or supplier; or (iii) any material written cure, show cause, or
termination notices received by the Corporation with respect to any
Scheduled Contract, Scheduled Lease or Government Contract.

         SECTION 5.15 EMPLOYEE BENEFIT MATTERS.
                      ------------------------

                  (a) Schedule 5.15(a) attached hereto lists all Plans
                      ----------------
maintained by the Corporation or to which the Corporation is a party or
subject to material liability (the "Corporation Plans"). Schedule 5.15(a)(1)
                                                         -------------------
attached hereto lists all automobiles leased or paid for by the Corporation
and all club dues paid for by the Corporation.

                  (b) Each Corporation Plan has been administered in
material compliance with its terms and, to the extent applicable, with ERISA
or other Law applicable to any Corporation Plan. Each Corporation Plan that
is intended to qualify under Section 401(a) or Section 501(c)(9) of the Code
has received a favorable determination or opinion letter from the Internal
Revenue Service (a copy of which has been provided to Buyer) and related
trusts have been determined or opined to be exempt from taxation. Nothing
has occurred that would cause and no action or proceeding is pending or to
the Corporation's Knowledge threatened, which could reasonably be expected
to result in the loss of such exemption or qualification except for
amendments required by Law for which the remedial amendment period remains
open.

                  (c) No Corporation Plan is a multi-employer plan (as
defined in Section 3(37) of ERISA) and the Corporation has not contributed
to nor ever has been obligated to contribute to any multi-employer plan.

                  (d) To the Corporation's Knowledge, except as set forth on
Schedule 5.15(d) attached hereto, there have been no prohibited transactions
----------------
within the meaning of Sections 406 or 407 of ERISA or Section 4975 of the
Code for which a statutory or administrative exemption does not exist with
respect to any Corporation Plan and which would result in a material
liability to the Corporation. No reportable event within the meaning of
Section 4043 of ERISA (other than those for which reporting is waived) has
occurred with respect to any Corporation Plan subject to Title IV of ERISA.
With respect to each Corporation Plan, all material payments due from the
Corporation to date have been made and all amounts properly accrued to date
as liabilities of Corporation which have not been paid have in all material
respects been properly recorded on the books of the Corporation and are
reflected on the Interim Balance Sheet.

                  (e) Except as specified on Schedule 5.15(e), no
                                             ----------------
Corporation Plan provides benefits at the expense of the Corporation,
including, without limitation, death or medical

                                     19

benefits (whether or not insured), with respect to current or former
employees of the Corporation beyond their retirement or other termination of
services other than:

                           (i) continuation coverage mandated by Section
4980B of the Code or other Law;

                           (ii) death or pension benefits under any
Corporation Plan that is an employee pension benefit plan;

                           (iii) deferred compensation benefits accrued as
liabilities on the Interim Balance Sheet;

                           (iv) disability benefits under any Corporation
Plan that is an employee welfare benefit plan and which have been fully
provided for by insurance or otherwise;

                           (v) benefits in the nature of severance pay; or

                           (vi) rights to convert to an individual policy of
insurance pursuant to the terms of an insurance contract under a Corporation
Plan.

                  (f) Except as set forth on Schedule 5.15(f) attached
                                             ----------------
hereto, to the Corporation's Knowledge, there has been no act or omission by
Corporation with regard to the Corporation Plans that has given rise to any
material fines, penalties, taxes or related charges under Section 502(c) of
ERISA or Chapter 43 of the Code;

                  (g) Except as set forth on Schedule 5.15(g) attached
                                             ----------------
hereto, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or
in conjunction with any other event) (i) result in any severance,
termination, golden parachute or other payment becoming due to any former or
current employee of the Corporation or any of its Affiliates or cause an
increase in the amount of compensation due to any such current employee or
former employee; or (ii) increase or affect the calculation of the amount of
any benefits otherwise payable under any Corporation Plan or result in any
acceleration of the time of payment or vesting of any such benefits.

         SECTION 5.16 LABOR MATTERS.
                      -------------

                  (a) Except as set forth on Schedule 5.16(a) attached
                                             ----------------
hereto, there is no collective bargaining, representation or similar
agreement or arrangement to which the Corporation is a party or by which it
is bound.

                  (b) Except as set forth on Schedule 5.16(b) attached
                                             ----------------
hereto:

                           (i) The Corporation is not aware of any currently
pending charge before the National Labor Relations Board (or any counterpart
state agency) that the Corporation has engaged in any unfair labor practice;

                           (ii) There is no labor strike, dispute, slowdown,
or stoppage pending or, to the Corporation's Knowledge, threatened against
the Corporation;

                                     20

                           (iii) No collective bargaining agreement is
currently being negotiated and, to the Corporation's Knowledge, no
organizing effort is currently being made with respect to the Corporation's
employees;

                           (iv) To the Corporation's Knowledge, there is no
basis for which a material claim may be made against the Corporation under
any collective bargaining agreement to which the Corporation is a party; and

                           (v) To the Corporation's Knowledge, no current or
former employee of the Corporation has any valid claim against the
Corporation on account of or for:

                                    (A) overtime pay, other than overtime
pay for the current payroll period,

                                    (B) wages or salary (excluding current
bonus, accruals and amounts accruing under pension and profit-sharing plans)
for any period other than the current payroll period,

                                    (C) vacation, time off or pay in lieu of
vacation or time off, other than as may be accrued on the books and records
of the Corporation in accordance with GAAP or earned in respect of the
current fiscal year, or

                                    (D) any violation of any Law relating to
minimum wages or maximum hours of work; except, however, to the extent that
any of the foregoing is reflected on the Interim Balance Sheet.

                  (c) Schedule 5.16(c) attached hereto lists all employees
                      ----------------
of the Corporation, together with their respective job titles, dates of
employment, current rates of compensation (including any increases in
compensation since December 31, 2003) and office location. Except as
otherwise disclosed in the Schedules hereto, the Corporation has complied
and is presently complying in all material respects with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and there is no charge or complaint actually
pending or to the Corporation's Knowledge, threatened against the
Corporation before the Equal Employment Opportunity Commission or the
Department of Labor, or any state or local agency of similar jurisdiction.
Except as otherwise noted on Schedule 5.16(c) attached hereto, the
                             ----------------
employment of all persons employed by the Corporation is terminable at will,
without any penalty or severance obligation of any kind on the part of the
Corporation.

                  (d) Schedule 5.16(d) attached hereto lists each individual
                      ----------------
written employment agreement that the Corporation has with employees.

         SECTION 5.17 INSURANCE. Schedule 5.17 attached hereto sets forth a
                      ---------  -------------
list and a brief description of all insurance policies and coverage
maintained by the Corporation with respect to the property, assets and
operations of the Business. All such insurance policies are in full force
and effect in all material respects. Except as set forth in Schedule 5.17
                                                            -------------
attached hereto, there are no pending claims relating to the Business under
such insurance policies by the Corporation as to which the insurers have
denied liability. The Corporation has not received any notice or other

                                     21

communication within one (1) year prior to the date hereof canceling or
materially amending or materially increasing the premium payable under any
of the Corporation's insurance policies and, to the Corporation's Knowledge,
no such cancellation, amendment or an increase of premiums is threatened.
There remains no outstanding written requirements or recommendations of any
insurance company or any Governmental Authority pertaining to any material
repairs or other material work to be done on or with respect to any of the
Corporation's properties.

         SECTION 5.18 BOOKS AND RECORDS. The minute books and stock transfer
                      -----------------
records of the Corporation and the Subsidiary, all of which have been made
available to Buyer, are complete and correct in all material respects.

         SECTION 5.19 BANK ACCOUNTS. Schedule 5.19 attached hereto sets
                      -------------  -------------
forth a list of all bank accounts, lock box accounts and other special
purpose bank accounts maintained by the Corporation, together with the names
of all persons who are authorized signatories or have access thereto or
control thereover.

         SECTION 5.20 NO UNDISCLOSED LIABILITIES. Except as set forth in
                      --------------------------
Schedule 5.20 attached hereto, the Corporation does not have any liability
-------------
other than those liabilities (a) reflected or reserved against in the most
recent of the Financial Statements, (b) liabilities under this Agreement and
under any agreements, contracts, purchase orders or matters disclosed in any
Schedule hereto, (c) incurred in the Ordinary Course of Business and not
required to be set forth in the most recent of the Financial Statements
under GAAP, and (d) liabilities incurred in the Ordinary Course of Business
since the date of the most recent of the Financial Statements that
individually, or in the aggregate, would not be reasonably likely to result
in material liability to the Corporation or materially impair or hinder the
Corporation's operations after the Closing Date.

         SECTION 5.21 RELATIONSHIPS WITH AFFILIATES. No officer, director,
                      -----------------------------
or stockholder of the Corporation and, to the Corporation's Knowledge, no
relative of such an officer, director, or stockholder, has any agreement
with the Corporation (whether for employment, provision of services or goods
or otherwise) or any interest in any property (real, personal or mixed,
tangible or intangible) used by or pertaining to the Corporation, except
solely as a stockholder or employee (and as disclosed on the Schedules
attached hereto) and except as set forth on Schedule 5.21.
                                            -------------

         SECTION 5.22 BROKER'S FEES. Neither the Shareholders nor the
                      -------------
Corporation has any liability or obligation to pay any brokerage or finder's
fees or commissions with respect to the transactions contemplated herein
other than those amounts the Corporation has agreed to pay Wachovia Capital
Markets, LLC as financial advisor in connection with the transaction
contemplated hereby.

         SECTION 5.23 BILLED ACCOUNTS RECEIVABLE. All the billed accounts
                      --------------------------
receivable reflected in the most recent of the Financial Statements and any
billed accounts receivable arising between the date of such Financial
Statements and the Closing Date arose or will have arisen in the Ordinary
Course of Business and represent (or will represent) bona fide obligations
owing to the Corporation from the applicable account debtor. Except as set
forth on Schedule 5.23 attached hereto, to the Corporation's Knowledge, such
billed accounts receivable are not and will not be

                                     22

on the Closing Date subject to any valid counterclaim, set-off, defense or
Lien. The reserves for doubtful accounts set forth in the most recent of the
Financial Statements have been established in accordance with GAAP.

         SECTION 5.24 INVENTORY. Except as set forth on Schedule 5.24
                      ---------                         -------------
attached hereto, there is no Inventory held or owned by the Corporation at
any location not owned or leased by the Corporation and no Inventory is held
by Corporation on consignment from others. Except as set forth on Schedule
                                                                  --------
5.24 attached hereto, the Inventory (except for such portion thereof as has
----
been written off or is subject to reserve in the most recent of the
Financial Statements), in all material respects, is usable and saleable in
the Ordinary Course of Business and exists in quantities which do not
materially exceed levels which are reasonable in the present circumstances
of the Business and such will be the case on the Closing Date.

         SECTION 5.25 ENVIRONMENT MATTERS. Except as set forth on Schedule
                      -------------------                         --------
5.25 attached hereto, to the Corporation's Knowledge:
----

                  (a) the Corporation is in compliance in all material
respects with all applicable Environmental Laws, and the Corporation has not
received any written notice or demand from a Governmental Authority which is
currently pending, alleging a material violation of any Environmental Law,
ordering or requesting that steps be taken to remedy any environmental
condition on or at the Corporation's facilities (or elsewhere), or claiming
that the Corporation is responsible for material damages, losses, penalties,
fines, liabilities, costs and expenses of any kind or nature (including
attorneys' fees) as a result of the existence of hazardous materials or
substances upon, about or underneath any of the Corporation's current or
former facilities or migrating or threatening to migrate to or from any such
facilities;

                  (b) the Corporation has all material permits and other
authorizations required under the Environmental Laws, and the Corporation is
in compliance in all material respects with all such permits and other
authorizations;

                  (c) no conditions were created by the Corporation at any
facility currently or formerly owned, leased or operated by the Corporation
during the period of the Corporation's ownership, lease or operation of such
facility that require remediation of any material nature under any
Environmental Law;

                  (d) the Corporation has not received any notice or demand
which is currently pending under any Environmental Law as a result of the
offsite disposal of any hazardous material or waste by the Corporation; and

                  (e) the Corporation has not placed or caused to be placed
on any facilities currently or formerly owned, leased, occupied or operated
by the Corporation any underground storage tanks nor is the Corporation
aware of any such underground storage tanks having been placed on or
underneath any of such facilities at any time by any Person.

         SECTION 5.26 GOVERNMENT CONTRACTS. Set forth on Schedule 5.26
                      --------------------               -------------
attached hereto is a list of each Government Contract.

                                     23

                  (a) Schedule 5.26(a) attached hereto identifies each
                      ----------------
Government Contract with respect to which:

                           (i) the Corporation is in material breach or with
the passage of time or the giving of notice, or both, the Corporation would
be in material breach;

                           (ii) the Corporation expects to recognize a loss
at the gross profit level (determined on a basis consistent with GAAP) in
connection with such contract or any option thereof;

                           (iii) full funding (pursuant to multi-year
contract provisions) has not been established;

                           (iv) there has been a material amendment since
December 31, 2003, other than in the Ordinary Course of Business;

                           (v) to the Corporation's Knowledge, the other
party(ies) to the Government Contract are in material breach or with the
passage of time or the giving of notice, or both, such other party(ies)
would be in material breach; or

                           (vi) the consent or approval of the other
party(ies) to the Government Contract is required in connection with the
consummation of the transactions contemplated by this Agreement. Schedule
                                                                 --------
5.26(a) attached hereto further briefly describes the circumstances with
-------
respect to any of the above described disclosures.

                  (b) Except as set forth on Schedule 5.26(b) attached
                                             ----------------
hereto:

                           (i) to the Corporation's Knowledge, there are no
audits (other than those conducted in the Ordinary Course of Business) of
any Government Contracts being conducted by the U.S. Government, a prime
contractor or any other party to any Government Contract;

                           (ii) except to the extent finally resolved (and
except for any liability relating thereto paid or reflected on the Interim
Balance Sheet), to the Corporation's Knowledge, the Corporation has not,
with respect to any Government Contracts, received during the past two (2)
years:

                                    (A) any written cure notice or show
cause notice (as defined in the Federal Acquisition Regulations Part 49)
pursuant to applicable contract default provisions or notice of default;

                                    (B) any written contract termination,
whether for default, convenience, cancellation or lack of funding or other
reasons;

                                    (C) any written final decision or
unilateral modification assessing a price reduction, penalty or claim for
damages or other remedy;

                                     24

                                    (D) any written claim based on
assertions of defective pricing or violations of Government cost accounting
standards or cost principles; or

                                    (E) any written request for an equitable
adjustment of, or claim concerning, such contracts by any of the
Corporation's customers, subcontractors or suppliers;

                           (iii) the Corporation has not, within the past
five (5) years, with respect to any Government Contract, received any
written notice of any investigation or enforcement proceeding of a criminal,
civil or administrative nature by any investigative or enforcement agency of
any Government (including any qui tam action brought under the Civil False
                              --- ---
Claims Act alleging any irregularity, misstatement or omission arising under
or relating to any Government Contract); and

                           (iv) there exists no financing arrangements with
respect to performance of any current Government Contract.

                  (c) Except as set forth on Schedule 5.26(c) attached
                                             ----------------
hereto, neither the Corporation, nor any of the Corporation's officers or,
to the Corporation's Knowledge, any of the Corporation's employees, is
suspended or debarred from doing business with the U.S. Government or is the
subject of a finding of nonresponsibility or ineligibility for U.S.
Government contracting, and to the Corporation's Knowledge, there are no
circumstances that would warrant the institution of suspension or debarment
proceedings against the Corporation or any of its officers or employees.

                  (d) Except as set forth on Schedule 5.26(d) attached
                                             ----------------
hereto:

                           (i) neither the Corporation nor any of its
directors or officers, or, to the Corporation's knowledge, any of the
Corporation's employees, consultants or agents, is or during the past two
(2) years has been under administrative, civil or criminal investigation or
indictment by the U.S. Government with respect to any alleged irregularity,
misstatement or omission arising under or relating to any Government
Contract or Bid; and

                           (ii) during the past two (2) years, neither the
Corporation nor any Affiliate of the Corporation has conducted or initiated
any internal investigation or made a voluntary disclosure to the U.S.
Government with respect to any allegation of any irregularity, misstatement
or omission arising under or relating to a Government Contract or Bid.

                  (e) Except as set forth on Schedule 5.26(e) attached
                                             ----------------
hereto, there are not:

                           (i) any material claims pending or, to the
Corporation's Knowledge, threatened against the Corporation, either by the
U.S. Government or by any prime contractor, subcontractor, vendor or other
Person, arising under or relating to any Government Contract; and

                           (ii) any material disputes before a court or
administrative agency between the Corporation and the U.S. Government under
the Contract Disputes Act or any other statute or regulation or between the
Corporation and any prime contractor, subcontractor or vendor arising under
or relating to any Government Contract. Except as set forth on Schedule
                                                               --------

                                     25

5.26(e) attached hereto, subsequent to December 31, 2003, the Corporation
-------
has not received any draft or final post award audit report.

                  (f) To the Corporation's Knowledge, except as set forth on
Schedule 5.26(f) attached hereto, all material test and inspection results
----------------
provided by the Corporation to the U.S. Government or to any other Person
pursuant to any Government Contract or as a part of the delivery to the U.S.
Government or to any other Person pursuant to a Government Contract of any
article designed, engineered or manufactured by the Corporation were
complete and correct in all material respects as of the date so provided. To
the Corporation's Knowledge, except as set forth in the Schedule 5.26(f)
                                                        ----------------
attached hereto, the Corporation has provided all material test and
inspection results to the U.S. Government or to any other Person pursuant to
a Government Contract as required by Law and the terms of the applicable
Government Contracts.

                  (g) To the Corporation's Knowledge, with respect to each
and every Government Contract and Bid to which the Corporation is currently
a party, and except as otherwise set forth in Schedule 5.26(g) attached
                                              ----------------
hereto or in any Schedule referenced in this Section 5.26, (i) the
Corporation has complied in all material respects with all terms and
conditions of each Governmental Contract and Bid, including all clauses,
provisions and requirements incorporated expressly, by reference or by
operation of law therein; (ii) the Corporation has complied in material
respects with all requirements of Laws pertaining to any Government Contract
or Bid; (iii) all representations and certifications executed, acknowledged
or set forth in or pertaining to a Government Contract or Bid in all
material respects, are accurate and complete as of their effective date, and
the Corporation has complied in all material respects with such
representations and certifications including, without limitation, all
representations and certifications required by or relating to any and all
Laws and the regulations and rules relating to the submission of progress
payment requests; (iv) no material cost incurred by the Corporation has been
disallowed; and (v) no material amount of money due to the Corporation from
the Government has been withheld or set off or been the subject of any
attempt to withhold or set off.

                  (h) To the Corporation's Knowledge, except as set forth on
Schedule 5.26(h) attached hereto, the Corporation is in material compliance
----------------
with all of its obligations relating to the customer furnished items under
the terms of Government Contracts to which it is a party, including, but not
limited to, government furnished equipment, government furnished property,
government furnished information and like categories of customer furnished
assets provided by the Government in such Government Contracts.

                  (i) Except to the extent prohibited by the Industrial
Security Manual for Safeguarding Classified Information, Schedule 5.26(i)
                                                         ----------------
attached hereto sets forth all facility security clearances held by the
Corporation and all personal security clearances held by any officer or
employee of the Corporation.

                  (j) To the Corporation's Knowledge, the Corporation's cost
accounting and procurement systems with respect to Government Contracts are
in compliance in all material respects with all Government regulations and
rules.

                                     26

         SECTION 5.27 PRODUCT LIABILITY. Except as described on Schedule
                      -----------------                         --------
5.27 attached hereto, no material claim or allegation of personal injury,
----
death, or property or economic damages, claim for punitive or exemplary
damages, claim for contribution or indemnification, or claim for injunctive
relief in connection with any product manufactured, sold or distributed by
the Corporation has been asserted in writing against the Corporation.

         SECTION 5.28 CERTAIN UNLAWFUL PRACTICES. In the five (5) year
                      --------------------------
period preceding the date of this Agreement, the Corporation has not nor has
any officer, employee or agent of the Corporation nor has any Person acting
on any of their behalf, directly or indirectly, given or agreed to give any
material gift or similar benefit to any customer, supplier, competitor or
governmental employee or official or has engaged in any other practice
(including, but not limited to, violation of any anti-trust law) or received
or retained any such gift or similar benefit, which in any case would
subject the Corporation to any material damage or penalty in any civil,
criminal or Government litigation or proceeding or which would be grounds
for termination or modification of any Government Contract or any Scheduled
Contract.

         SECTION 5.29 BACK CHARGES, REBATES, ETC. Except as set forth on
                      --------------------------
Schedule 5.29 attached thereto, there are no material outstanding claims by
-------------
customers for back charges, rebates, price reductions, credits or
settlements, or for breaches of product or service warranties, or for
product liability for products manufactured or sold by the Corporation.

         SECTION 5.30 QUOTE LOG. Included on Schedule 5.30 attached thereto
                      ---------              -------------
is the quote log of the Corporation as of November 30, 2004, which quote log
contains a list of all outstanding Bids or proposals for contract under
which the value of services to be performed or goods to be provided by the
Corporation or the costs of goods to be sold by the Corporation is expected
to exceed $100,000.

         SECTION 5.31 DOCUMENTS. True, correct and complete copies of all
                      ---------
documents creating or evidencing any Plan, Scheduled Contract, Scheduled
Lease, Government Contract, agreement, lease, commitment or obligation
described within this Article Five have been furnished to Buyer. All of the
data and information provided to the Buyer by the Corporation and/or the
Seller relating to the Government Contracts and Scheduled Contracts
(including, without limitation, estimates of percentage of completion and
estimates of cost to complete) was prepared in good faith by the
Corporation's management.

         B. Seller represents and warrants to Buyer, except as otherwise
disclosed in the Schedules:

         SECTION 5.32 TITLE TO SHARES. Except as set forth in Schedule 5.32
                      ---------------                         -------------
attached hereto, the Shareholders are the beneficial and record owners of
the Shares, free and clear of all Liens, and are not parties to any
agreement whereby the transfer of any of the Shares is subject to any
restrictions. Except as set forth in Schedule 5.32 attached hereto, there
                                     -------------
are no voting trusts, proxies or other agreements with respect to the voting
of any of the Shares.

         SECTION 5.33 AUTHORIZATION OF TRANSACTION. Each of the Shareholders
                      ----------------------------
has full power and authority to execute and deliver this Agreement and to
perform its or his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of the

                                     27

Shareholders enforceable against each of the Shareholders in accordance with
its terms except to the extent that the enforceability may be limited by
applicable bankruptcy, insolvency or similar Laws affecting the enforcement
of creditors' rights generally and subject to general principles of equity.

         SECTION 5.34 NONCONTRAVENTION. Neither the execution and the
                      ----------------
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby will (a) violate any statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other restriction of
any government, governmental agency, or court to which each of Seller or any
of and the Trusts is subject or (b) conflict with, result in a breach or
termination of, or constitute a default under any agreement, contract,
lease, license, instrument, or other arrangement to which Seller or any of
the Trusts is a party or by which it or he is bound or to which any of its
or his assets is subject.

         SECTION 5.35 NO CLAIMS. Neither Seller nor any of the Trusts have
                      ---------
any claim against the Corporation, for whatever reason, either as a
stockholder, director, officer, or otherwise, other than relating to
employment benefits provided in the Ordinary Course of Business, and after
the Closing, neither the Corporation nor the Buyer shall have any further
obligations owing to the Seller or any of the Trusts, except to the extent
expressly provided in this Agreement, or as otherwise agreed to in writing
after the Closing between Seller and/or any of the Trusts on the one hand
and the Corporation and/or the Buyer on the other hand.

                                ARTICLE SIX
                   REPRESENTATIONS AND WARRANTIES OF BUYER

         Buyer represents and warrants to the Corporation and each of the
Shareholders as follows:

         SECTION 6.1 CORPORATE EXISTENCE. Buyer is a corporation duly
                     -------------------
organized, validly existing and in good standing under the laws of the State
of Missouri.

         SECTION 6.2 CORPORATE POWER AND AUTHORITY. Buyer has the corporate
                     -----------------------------
power and authority to own its properties and assets and to carry on the
business in which it is now engaged. Buyer has the corporate power and
authority to execute and deliver this Agreement and perform its obligations
hereunder.

         SECTION 6.3 EXECUTION AND DELIVERY PERMITTED. The execution,
                     --------------------------------
delivery and performance of this Agreement will not: (a) violate any term of
Buyer's Articles of Incorporation or Bylaws; (b) result in a breach of or
constitute a default under any agreement or other instrument to which Buyer
is a party which would adversely effect Buyer's ability to consummate the
transactions contemplated hereby; or (c) violate any Law or Order applicable
to Buyer. Buyer's Board of Directors and shareholders have taken all action
required by law and by Buyer's Articles of Incorporation and Bylaws to
authorize the execution, delivery and performance of this Agreement.

         SECTION 6.4 BINDING EFFECT. This Agreement is the legal, valid and
                     --------------
binding obligation of Buyer, enforceable against Buyer in accordance with
its terms, except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency or similar Laws affecting the enforcement
of creditors' rights generally and subject to general principles of equity.

                                     28

         SECTION 6.5 CONSENTS. The execution, delivery and performance of
                     --------
this Agreement and the consummation by Buyer of the transactions
contemplated hereby do not require any filing with, notice to or consent,
waiver or approval of any Person other than any filing required under the
HSR Act and the expiration of any applicable waiting period thereunder.

         SECTION 6.6 INVESTMENT INTENT. Buyer is acquiring the Shares for
                     -----------------
investment for its own account and not with a view to resale or distribution
within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and the Securities Exchange Act of 1934, as amended.
Buyer does not presently intend to divide its participation with others or
to resell or otherwise dispose of all or any part of the Shares unless and
until Buyer determines at such future date that changed circumstances, not
now anticipated, make such disposition advisable. Buyer acknowledges that
the Shares are not being registered under the securities laws of the United
States or any state thereof in reliance upon one or more exemptions from the
registration requirements made available under such laws, and that the
statutory basis for such exemptions may not be present if Buyer has a
present intent to acquire the Shares with a view to the distribution
thereof. Buyer further acknowledges that the Shares may not be resold unless
the Shares are registered under the Securities Act and applicable state
securities law or an exemption from registration thereunder is applicable.

         SECTION 6.7 AVAILABLE FUNDS. Buyer has sufficient existing cash
                     ---------------
resources to fund the Purchase Price.

         SECTION 6.8 BROKER'S FEES. Buyer has no liability or obligation to
                     -------------
pay any brokerage or finder's fees or commissions with respect to the
transactions contemplated hereby.

                               ARTICLE SEVEN
                        COVENANTS OF THE CORPORATION

         The Corporation covenants and agrees as follows:

         SECTION 7.1 CONDUCT OF BUSINESS. From the execution of this
                     -------------------
Agreement through the Closing or such earlier time as this Agreement is
terminated, except as contemplated by this Agreement, as set forth in
Schedule 7.1 attached hereto or as otherwise agreed in writing with Buyer:
------------
(a) the Business will be conducted by the Corporation only in the Ordinary
Course of Business and the Corporation will not enter into any transaction
material in nature or amount other than in the Ordinary Course of Business,
(b) the Corporation will not enter into, adopt or amend any employee benefit
plan, agreement, or arrangement, enter into or amend any employment or
consulting contracts or increase the salaries, compensation or benefits of
its officers, employees or consultants outside of the Ordinary Course of
Business, (c) the Corporation shall not incur any liability for borrowed
money or encumber any of its assets, except with respect to ongoing
obligations under credit agreements outstanding on the date hereof as the
same may be extended or amended after the date hereof in the Ordinary Course
of Business, (d) the Corporation will use reasonable efforts to preserve the
Business intact, to keep available the service of its officers and employees
and to preserve the goodwill of suppliers, customers and others doing
business with the Corporation, (e) the Corporation will not make any capital
expenditures in excess of Fifty Thousand Dollars ($50,000) in the aggregate,
other than as necessary to maintain existing assets in good repair, (f) the
Corporation will maintain its

                                     29

corporate existence in full force and effect, will not amend its Articles of
Incorporation or By-Laws and no change shall be made in the number of shares
or terms of the authorized, issued or outstanding capital stock of the
Corporation, nor shall the Corporation enter into or grant any options,
calls, contracts or commitments of any character relating to any issued or
unissued capital stock, (g) the Corporation will not perform any act, or
attempt to do any act, or permit any act or omission to act, which will
cause a breach or default by the Corporation of any contract or agreement
which breach or default might result in a material liability to the
Corporation, (h) the Corporation will take no actions to materially alter
delivery dates, production schedules, shipment dates or the like except in
the Ordinary Course of Business, (i) the Corporation will not declare or pay
any dividends of any kind or make any distributions in respect of the
Corporation's capital stock, (other than those made in accordance with
Section 3.3 hereof or relating to the distribution of the Corporation's
income for periods prior to the Closing Date or the extinguishment of any
loans or advances to the Corporation's officers, directors or Shareholders
or the transfer of the Excluded Assets), (j) the Corporation will not make
any loans or advances to officers, directors or shareholders of the
Corporation (except for travel advances in the Ordinary Course of Business),
(k) the Corporation will pay in full all Taxes of the Corporation becoming
due and payable prior to the Closing Date, and (l) the Corporation will not
take any action which would require a material change to the disclosures of
the Corporation or the Seller given under Article Five. Further, the
Corporation agrees to (i) maintain its records and books of accounts in a
manner consistent with past practices, (ii) maintain its tangible assets and
properties in good condition, order and repair, reasonable wear and tear
excepted, (iii) preserve all of its rights in the Intellectual Property, and
(iv) pay (on or before the date when due) its accounts payable and other
obligations (including, without limitation, amounts due under credit
agreements outstanding on the date hereof) in the Ordinary Course of
Business.

         SECTION 7.2 BUYER'S ACCESS TO PREMISES AND INFORMATION.
                     ------------------------------------------

                  (a) Between the date of this Agreement and the Closing
Date or such earlier time as this Agreement is terminated, Buyer and its
counsel, accountants and other representatives shall have, subject to the
terms and conditions of that certain letter agreement from Buyer to the
Corporation dated July 30, 2004, attached hereto as Exhibit 7.2 (the
                                                    -----------
"Confidentiality Agreement"), upon reasonable advance notice and during
normal business hours, reasonable access to senior management of the
Corporation and all properties, books, accounts, records, contracts and
documents of the Corporation, and the Corporation shall furnish or make
available or cause to be furnished or made available to Buyer and its
representatives such data and information concerning the assets of the
Corporation and the Business as may reasonably be requested by Buyer.

                  (b) Upon Buyer's reasonable request from time to time
after Closing, Seller shall, upon reasonable notice, afford to authorized
representatives of the Buyer and the Corporation reasonable access during
normal business hours to any books, records, documents and information,
including any financial records in Seller's possession or under Seller's
control relating to the Corporation or the Business or otherwise relating to
Buyer's rights and obligations hereunder or any other obligations of the
Corporation.

         SECTION 7.3 CONSENTS AND GOVERNMENTAL FILINGS. As soon as
                     ---------------------------------
reasonably practical after the execution and delivery of this Agreement, the
Corporation will use its reasonable efforts

                                     30

to obtain, prior to the Closing Date, all material consents and
authorizations necessary to consummate the transactions contemplated hereby.
Buyer shall cooperate, at Buyer's expense, with the Corporation's efforts in
obtaining such consents and authorizations when called upon to do so.

         SECTION 7.4 COOPERATION. The Corporation will use its reasonable
                     -----------
efforts to facilitate and cause the consummation of the transactions
contemplated hereby

         SECTION 7.5 KNOWLEDGE OF BREACH; CURRENT INFORMATION. The
                     ----------------------------------------
Corporation shall advise the Buyer in writing promptly (and in any event
prior to the Closing) of (i) the occurrence of any event which renders any
of the Corporation's and/or the Seller's representations or warranties set
forth herein inaccurate in any material respect or the awareness of the
Corporation that any representation or warranty set forth herein was not
accurate in all material respects when made; and (ii) the failure of the
Corporation or the Seller to comply with or accomplish any of the covenants
or agreements of the Corporation or the Seller set forth herein in any
material respect. Between the date hereof and the Closing Date, the
Corporation will provide Buyer promptly on becoming available copies of all
operating reports and financial statements prepared by or for the
Corporation. If any of the information disclosed on any of the Schedules
hereto is (or becomes) incorrect, the Corporation shall prepare and deliver
to the Buyer updated Schedules promptly after discovering same and prior to
the Closing. If any matter arises after the date hereof which, had such
matter existed or occurred on or prior to the date hereof, would have been
required to have been disclosed on the Corporation or the Seller's
Schedules, such Party shall prepare and deliver to the Buyer supplemental
Schedules prior to Closing. Any updated or supplemental Schedules delivered
pursuant to this Section 7.5 shall be deemed to amend the delivering Party's
Schedules.

         SECTION 7.6 CERTAIN LIABILITIES; TRANSFERS. Prior to the Closing,
                     ------------------------------
the Corporation and the Seller shall take all action as is necessary to
cause any notes or receivables due to the Corporation from the Shareholders
or the Corporation's officers or directors to be cancelled or otherwise
extinguished, other than travel advances. Further, the Corporation and the
Seller agree to use commercially reasonable efforts prior to the Closing to
do all such acts and undertakings as are necessary to cause title to the
Excluded Assets to be transferred to the Seller.

                               ARTICLE EIGHT
                             COVENANTS OF BUYER

         Buyer covenants and agrees as follows:

         SECTION 8.1 BUYER PERFORMANCE. Buyer hereby covenants and agrees to
                     -----------------
accept conveyance of the Shares subject to the terms and conditions of this
Agreement. Buyer will use its reasonable efforts to facilitate and cause the
consummation of the transactions contemplated hereby and to obtain from all
Persons, and take all other actions with respect to, all consents or
approvals required on the part of Buyer with respect to the consummation of
the transactions contemplated hereby.

                                     31

         SECTION 8.2 CONFIDENTIALITY. In the event the transactions
                     ---------------
contemplated hereby are not consummated for any reason whatsoever, Buyer
shall continue to be bound by the terms of the Confidentiality Agreement.

         SECTION 8.3 BROKER'S FEES. Buyer shall indemnify and hold the
                     -------------
Shareholders harmless in respect to any claim for brokerage or finder's fees
or commissions with respect to the transactions contemplated herein by
anyone claiming to have acted on behalf of Buyer.

         SECTION 8.4 NOTIFICATION OF CERTAIN MATTERS. From the date of this
                     -------------------------------
Agreement through the Closing, Buyer shall promptly notify Seller of the
occurrence of any fact or event that would reasonably be expected (a) to
cause any representation or warranty of Buyer contained in this Agreement to
be untrue in any material respect; (b) to cause any covenant, condition or
agreement of Buyer hereunder not to be complied with or satisfied in any
material respect; or (c) to be a Material Adverse Event.

         SECTION 8.5 INSURANCE. For a period of six (6) years after the
                     ---------
Closing Date, Buyer shall cause the Corporation and its successors and
assigns to maintain a reasonable amount of product liability insurance with
respect to any and all products developed, designed, manufactured or sold by
the Corporation and its successors and assigns with a reputable insurance
company and shall cause each of the Shareholders to be included as an
additional named insured thereon.

         SECTION 8.6 NOTICES TO THIRD PARTIES. In conjunction with the
                     ------------------------
Corporation, Buyer shall use reasonable efforts to make all other filings
and to give notice to all third parties that may reasonably be required to
consummate the transactions contemplated hereby.

         SECTION 8.7 ACCESS TO BOOKS AND RECORDS. Buyer agrees to (a) hold
                     ---------------------------
all of the books and records of the Corporation, and not destroy or dispose
of any thereof, for a period of six (6) years from the Closing Date or such
longer time as may be required by Law, and thereafter, if it desires to
destroy or dispose of such books and records, to offer first in writing at
least sixty (60) days prior to such destruction or disposition to surrender
them to Seller and (b) following the Closing Date, afford the Shareholders
and their accountants and counsel, during normal business hours, upon
reasonable request, reasonable access to such books, records and other data
to the extent that such access may be requested in connection with claims or
litigation against the Shareholders or necessary to allow the Shareholders
to prepare any Tax Returns or for any other reasonable business purpose
related to the Shareholders' prior ownership of the Corporation at no cost
to the Shareholders (other than for actual out-of-pocket expenses of Buyer);
provided, however, that nothing herein shall limit any of the Shareholders'
rights of discovery. Nothing in this Section 8.9 will obligate Buyer to take
actions that would unreasonably disrupt or interfere with the Ordinary
Course of the Business, violate the terms of any contract to which the
Corporation and/or the Buyer is a party or to which they or any of their
assets are subject or grant access to any of their proprietary, confidential
or classified information (except to the extent required for purposes of
defending or prosecuting any third party legal proceedings).

         SECTION 8.8 EMPLOYEES. Buyer shall be responsible for, and shall
                     ---------
hold the Shareholders harmless from and against any and all liability with
respect to, any notification that may be required under the Federal Worker
Adjustment and Retraining Notification Act of 1988.

                                     32

         SECTION 8.9 SEVERANCE OBLIGATIONS. Buyer agrees that the
                     ---------------------
Corporation is and will remain responsible for the Corporation's severance
obligations to certain employees identified on Schedule 8.9 attached hereto
                                               ------------
and Buyer shall cause the Corporation to perform said obligations in
accordance with the terms of said person's Employment Agreements with the
Corporation, true and correct copies of which have been made available to
Buyer.

         SECTION 8.10 CLOSING BONUSES. Buyer agrees to cause the Corporation
                      ---------------
to pay the closing bonuses set forth on Schedule 9.2(f) with funds provided
                                        ---------------
by Buyer.

                                ARTICLE NINE
                            CONDITIONS TO CLOSING

         SECTION 9.1 BUYER'S CONDITIONS TO CLOSING. The obligations of Buyer
                     -----------------------------
hereunder are subject to the satisfaction of each of the following
conditions at or before Closing, any and all of which may, at the option of
Buyer, be waived:

                  (a) All representations and warranties of the Corporation
and the Seller in this Agreement shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects on and as of the Closing Date as if made as of the Closing Date
(without giving effect to modifications to the Schedules to this Agreement
which are delivered by the Corporation or the Seller after the date hereof
and on or before the Closing Date), unless the representation or warranty
specifies another date, and each of the Corporation and the Seller shall
have delivered to Buyer a certificate to such effect with respect to its or
his representations and warranties dated as of the Closing Date;

                  (b) Each of the Corporation and the Seller shall have
performed and complied in all material respects with all of its or his
respective obligations under this Agreement which are to be performed or
complied with by the Corporation or Seller prior to or on the Closing Date
and each of the Corporation and the Seller shall have delivered to Buyer a
certificate to such effect with respect to its or his performance and
compliance with obligations dated as of the Closing Date;

                  (c) The Corporation and the Seller shall have delivered
all of the items and documents required to be delivered by it or him
pursuant to Section 4.2 of this Agreement;

                  (d) The form and substance of the documents delivered by
the Corporation and Seller pursuant to this Agreement shall be reasonably
acceptable to Buyer and Buyer's counsel; and

                  (e) There shall be no Proceedings pending or threatened
that would materially restrict or prohibit consummating the transactions
contemplated herein (provided, however, that a Proceeding commenced by Buyer
or any Person controlled by Buyer shall not constitute a Proceeding for
purposes of this Section 9.1(e)).

         SECTION 9.2 SELLER'S CONDITIONS TO CLOSING. The obligations of the
                     ------------------------------
Seller and the Trusts hereunder are subject to the satisfaction of each of
the following conditions at or before Closing, any and all of which may, at
the option of Seller, be waived:

                                     33

                  (a) All representations and warranties of Buyer in this
Agreement shall be true in all material respects on and as of the Closing
Date as if made as of the Closing Date, and Buyer shall have delivered to
the Corporation and the Shareholders a certificate to such effect dated as
of the Closing Date;

                  (b) Buyer shall have performed and complied in all
material respects with all of its obligations under this Agreement which are
to be performed or complied with by Buyer prior to or on the Closing Date,
including, without limitation, Section 8.11 hereof, and Buyer shall have
delivered to the Shareholders a certificate to such effect with respect to
its performance and compliance with obligations dated as of the Closing
Date;

                  (c) Buyer shall have delivered all of the items and
documents required to be delivered by it under Section 4.3 of this
Agreement;

                  (d) The form and substance of the documents delivered by
Buyer pursuant to this Agreement shall be reasonably acceptable to the
Corporation and Seller and counsel for the Corporation and Seller;

                  (e) There shall be no Proceedings pending or threatened
that would restrict or prohibit consummating the transactions contemplated
herein; and

                  (f) Buyer shall provide the Corporation with the funds to
pay, simultaneously with the Closing, the closing bonuses set forth on
Schedule 9.2(f).
---------------

                                ARTICLE TEN
                        SURVIVAL AND INDEMNIFICATION

         SECTION 10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
                      -----------------------------------------------------
The representations and warranties contained in Sections 5.2, 5.4(a), 5.22,
5.32, 5.33, 6.2, 6.6 and 6.8 hereof and the disclosures set forth in
Schedule 5.2(a) and Schedule 5.32 attached hereto, shall survive the Closing
---------------     -------------
indefinitely. The representations and warranties contained in Sections 5.11,
5.15 and 5.25 hereof, any claims in respect of the Excluded Liabilities and
any claims in respect of claims determined by final non-appealable judgment
of a court of competent jurisdiction to arise from fraud by the Seller
and/or the Corporation, shall survive the Closing until the expiration of
the applicable statutes of limitations therefor (or any extensions thereof
in the case of Tax matters). All other representations, warranties, and
covenants and agreements to be performed by any of the Parties prior to
Closing contained in this Agreement shall survive the Closing for a period
of fifteen (15) months. The covenants and agreements to be performed by any
of the Parties after the Closing shall continue and survive the Closing in
accordance with their terms. Notwithstanding the foregoing, any claim that
has been timely asserted in accordance with this Section 10.1 and Section
10.4 hereof shall survive past the time limits set forth in this Section
10.1 until the final resolution of the claim.

         SECTION 10.2 INDEMNIFICATION BY SELLER. Subject to the terms and
                      -------------------------
limitations of this Article, Seller agrees to defend, indemnify and hold
harmless Buyer and the Corporation from and against any and all loss,
liability, damage, cost and expense including reasonable attorneys' fees
incurred or resulting from:

                                     34

                  (a) any breach of a representation or warranty made by the
Corporation or Seller in this Agreement or in any certificate or other
instrument furnished or to be furnished by the Corporation or the Seller to
the Buyer under this Agreement;

                  (b) any breach or non-fulfillment of any covenant or
agreement by the Corporation or Seller under this Agreement;

                  (c) any of the Excluded Liabilities;

                  (d) any inaccuracies in the disclosure of Share ownership
set forth on Schedule 5.2(a); and

                  (e) all Proceedings (including settlement and satisfaction
of judgment payments, interest, fines and penalties) incident to any of the
foregoing (each a "Buyer Indemnification Claim").

If, prior to the Closing, Corporation or Seller shall inform Buyer in
writing that it or he has failed to satisfy any of the conditions to Closing
set forth in Section 4.2 or that it or he has breached any of the
representations and warranties set forth in Article Five and,
notwithstanding such disclosure, Buyer proceeds with the Closing, Buyer
shall be deemed to have waived its right to seek indemnification for any
such failure or breach.

         SECTION 10.3 INDEMNIFICATION BY BUYER. Subject to the terms and
                      ------------------------
limitations of this Article, Buyer agrees to defend, indemnify, and hold
harmless each of the Shareholders from and against any and all loss,
liability, damage, cost and expense incurred or resulting from:

                  (a) Buyer's ownership or operation of the Corporation and
its assets or the Business after the Closing Date;

                  (b) any breach of a representation or warranty made by
Buyer in this Agreement or in any certificate or other instrument furnished
or to be furnished by Buyer to the Shareholders under this Agreement;

                  (c) any breach, or non-fulfillment of any covenant or
agreement by Buyer under this Agreement; and

                  (d) all Proceedings (including settlement and satisfaction
of judgment payments, interest, fines and penalties) incident to any of the
foregoing (each a "Shareholder Indemnification Claim").

         SECTION 10.4 TIME TO ASSERT CLAIMS. Any Buyer or Shareholder
                      ---------------------
Indemnification Claims made pursuant to this Article must be asserted by
providing written notice to the Party against which the Indemnification
Claim is made reasonably promptly after the asserting Party becomes aware of
such Claim setting forth in reasonable detail the basis of the claim and
identifying the specific representation, warranty or covenant alleged to
have been breached (the "Indemnification Claim Notice") and, in any event,
prior to the expiration of the survival period set forth in Section 10.1 for
the representation, warranty, covenant or agreement that is alleged to have
been breached. The right of a Party to be indemnified hereunder shall be
waived upon such

                                     35

Party's failure to give such Indemnification Claim Notice within the
applicable survival period set forth in Section 10.1 hereof. The Parties
shall resolve disputes between them regarding Indemnification Claims in
accordance with Article Eleven hereof.

         SECTION 10.5 THIRD PARTY CLAIM INDEMNIFICATION PROCEDURE. An
                      -------------------------------------------
indemnified Party shall promptly notify the indemnifying Party within a
reasonable period of the existence of any Indemnification Claim resulting
from a claim made by a third party and shall give the indemnifying Party the
opportunity to defend the same at its own expense and with counsel of its
own selection, provided that such indemnified Party shall at all times also
have the right to participate fully in the defense of the Indemnification
Claim at its own expense (without any right to indemnity hereunder for said
expenses). If the indemnifying Party shall, within twenty (20) days after
such notice, fail to acknowledge its indemnification obligation hereunder in
writing or thereafter fails to defend such Indemnification Claim adequately
and reasonably, and such indemnified Party is entitled to such defense, such
indemnified Party shall have the right, but not the obligation, to undertake
the defense of, and to compromise or settle (exercising reasonable business
judgment) such Indemnification Claim on behalf, for the account and at the
sole risk and expense, of the indemnifying Party provided, however, that no
such compromise or settlement shall be made without the prior written
consent of the indemnifying Party, which consent shall not be unreasonably
withheld or delayed.

         SECTION 10.6 SELLER'S LIMITS. Seller's obligations pursuant to the
                      ---------------
provisions of this Article Ten are subject to the following limitations,
except as otherwise set forth in Section 10.6(d):

                  (a) Buyer shall not be entitled to recover under this
Article Ten for any individual claim that does not exceed $35,000 (the
"Threshold");

                  (b) Buyer shall not be entitled to recover under this
Article Ten until the total amount of Buyer Indemnification Claims
(excluding those claims below the Threshold) exceeds $350,000.00 and then
only for the excess over such amount;

                  (c) Buyer shall not be entitled to recovery under this
Article Ten in excess of $12,250,000 in the aggregate;

                  (d) The Threshold and the minimum and maximum limitations
on the Seller's liability set forth in Subsections 10.6(b) and 10.6(c),
above, shall not be applicable to (i) obligations of the Shareholders
pursuant to Sections 3.5 and 13.6, (ii) claims in respect of the Excluded
Liabilities, (iii) any claims relating to any inaccuracy in the
Corporation's representations set forth in Section 5.2 or the Seller's
representations set forth in Section 5.32, (iv) any claims relating to any
inaccuracy in the disclosures set forth on Schedule 5.2(a) and Schedule 5.32
attached hereto, and (v) any claims determined by final, non-appealable
judgment of a court of competent jurisdiction to arise from fraud by the
Seller or the Corporation (prior to Closing);

                  (e) the amount of any recovery by Buyer pursuant to this
Article Ten shall be reduced by any insurance proceeds received by Buyer,
the Corporation or Subsidiary with respect to the damages claimed (and Buyer
hereby covenants to use reasonable efforts to recover

                                     36

under its, the Corporation's and Subsidiary's insurance policies any damages
that are the subject of any Buyer Indemnification Claim);

                  (f) the amount of any recovery by Buyer pursuant to this
Article Ten shall be reduced by any Tax benefit (with respect to Buyer, the
Corporation or Subsidiary) attributable to the state of facts which entitled
Buyer to recover pursuant to this Article Ten (and Buyer hereby covenants to
use reasonable efforts to recover any potential Tax benefits with respect to
indemnified losses);

                  (g) Buyer shall not be entitled to more than one recovery
for any single loss, damage, cost, expense, liability, obligation or claim
even though said loss, damage, cost, expense, liability, obligation or claim
may have resulted from the breach of more than one of the representations,
warranties, covenants or agreements of Seller in this Agreement; and

                  (h) Buyer shall not be entitled to recover under this
Article Ten any consequential damages including, without limitation,
consequential damages consisting of business interruption or lost profits,
or special, incidental or punitive damages.

         In addition, if, at any time prior to Closing, as the result of any
due diligence investigation or otherwise, any of Buyer's representatives who
have actual knowledge of the representations and warranties of the
Corporation and the Seller contained in this Agreement learn of a breach of
any such representation or warranty of the Corporation or Seller, Buyer
shall promptly inform the Corporation and Seller in writing of such breach.
The waiver of any closing condition related to such breach by Buyer shall
waive Buyer's right to seek indemnification for such breach after Closing.

         SECTION 10.7 BUYER'S LIMITS. Buyer's obligations pursuant to the
                      --------------
provisions of this Article Ten are subject to the following limitations,
except as otherwise set forth in Section 10.7(d):

                  (a) The Shareholders shall not be entitled to recover
under this Article Ten for any individual claim that does not exceed the
Threshold;

                  (b) The Shareholders shall not be entitled to recover
under this Article Ten until the total amount of Shareholder Indemnification
Claims (excluding those claims below the Threshold) exceeds $350,000.00 and
then only for the excess over such amount;

                  (c) The Shareholders shall not be entitled to recovery
under this Article Ten in excess of $12,250,000 in the aggregate;

                  (d) The Threshold and the minimum and maximum limitations
on the Buyer's liability set forth in Subsections 10.7(b) and 10.7(c),
above, shall not be applicable to (i) obligations of the Buyer pursuant to
Sections 13.2(c) and 13.6, and (ii) any claims determined by final,
non-appealable judgment of a court of competent jurisdiction to arise from
fraud by the Buyer;

                  (e) the amount of any recovery by the Shareholders
pursuant to this Article Ten shall be reduced by any insurance proceeds
received by the Shareholders with respect to the

                                     37

damages claimed (and Seller hereby covenants to use reasonable efforts to
recover under any Shareholders' insurance policies any damages that are the
subject of any Shareholder Indemnification Claim);

                  (f) the amount of any recovery by the Shareholders
pursuant to this Article Ten shall be reduced by any Tax benefit (with
respect to the Shareholders) attributable to the state of facts which
entitled the Shareholders to recover pursuant to this Article Ten (and the
Seller hereby covenants to use reasonable efforts to recover on behalf of
the Shareholders any potential Tax benefits with respect to indemnified
losses); and

                  (g) The Shareholders shall not be entitled to recover
under this Article Ten any consequential damages including, without
limitation, consequential damages consisting of business interruption or
lost profits, or special, incidental or punitive damages.

         In addition, if, at any time prior to Closing, Seller learns of a
breach of any representation or warranty of the Buyer contained in this
Agreement, Seller shall promptly inform the Buyer in writing of such breach.
The waiver of any closing condition related to such breach by the Seller
shall waive the Shareholders' right to seek indemnification for such breach
after Closing.

         SECTION 10.8 BUYER ACKNOWLEDGEMENT. Buyer hereby acknowledges that
                      ---------------------
it has been provided with the opportunity to conduct, and has conducted, a
due diligence investigation with respect to the Corporation, its assets and
the Business and has made its own evaluation of the Corporation, its assets
and the Business. The scope of such investigation has been determined by
Buyer. By consummating the transactions contemplated hereby, Buyer
acknowledges and agrees that it is satisfied with the results of its
investigation of the Corporation, its assets and the Business and further
acknowledges and agrees that the Purchase Price reflects Buyer's assumption
of certain business risks and contingent liabilities of the Corporation
disclosed in this Agreement. Buyer further acknowledges that it has assumed
responsibility for evaluating any forecasts, projections and similar
materials prepared by or on behalf of the Corporation or Seller with respect
to the Corporation's operations that may have been made available to Buyer
or its representatives. Buyer understands the uncertainties and variables
inherent in forecasts and projections.

         SECTION 10.9 EXCLUSIVE REMEDY. Except as otherwise expressly set
                      ----------------
forth in this Agreement, the provisions of this Article Ten shall be the
exclusive remedy of the Parties after the Closing for any misrepresentation
or breach of any representation, warranty, covenant or agreement contained
in this Agreement or other matter described in Section 10.2, other than
claims determined by final, non-appealable judgment of a court of competent
jurisdiction to arise from fraud.

                               ARTICLE ELEVEN
                             DISPUTE RESOLUTION

         SECTION 11.1 GENERAL. All disputes between any of the Shareholders
                      -------
and Buyer arising under or in connection with this Agreement, including
Indemnification Claims (as more fully described below, "Claims"), shall be
resolved in accordance with the following procedures.

                                     38

         SECTION 11.2 NEGOTIATION. A Party with a Claim (the "Claiming
                      -----------
Party") shall give reasonably prompt notice (the "Claim Notice") to the
other(s), specifically identifying the issue and amount in dispute. Senior
executives of the Parties or their representatives shall negotiate in good
faith to attempt to resolve the Claim. During this process, any Party may
request that an independent third party be used to mediate the dispute. If
the Parties do not resolve the Claim by negotiation within sixty (60) days
after receipt of the Claim Notice, any Party may submit the Claim for
binding arbitration (except for Claims not covered by arbitration as
provided in Section 11.3, below).

         SECTION 11.3 ARBITRATION; CLAIMS COVERED; CONCLUSIVE DETERMINATION.
                      -----------------------------------------------------
Claims not settled by negotiation shall be resolved by arbitration in
accordance with the American Arbitration Association Commercial Arbitration
Rules and any supplemental rules deemed appropriate by the arbitrators or
otherwise agreed to by the Parties (the "Procedures"). The arbitration shall
be conducted in New York, New York. Claims by either Party for injunctive or
other equitable relief (including fraud claims) and the use or unauthorized
disclosure of trade secrets, confidential information or intellectual
property, are not covered by this Section and either Party may seek and
obtain relief for such Claims from a court of competent jurisdiction. The
decision of the arbitrators may be entered as a judgment in any court of
competent jurisdiction thereof. Any arbitral award shall be a conclusive
determination of the matter, final and binding upon all Parties.

         SECTION 11.4 ARBITRATION PROCEDURES; SURVIVAL. The Parties agree
                      --------------------------------
that the procedures and provisions set forth in Schedule 11.4 attached
                                                -------------
hereto shall apply to any arbitration under this Section. This agreement to
arbitrate shall survive the termination of this Agreement.

         SECTION 11.5 CONFIDENTIALITY. All aspects of the proceedings
                      ---------------
pursuant to this Article Eleven, including the exchange of information
during discovery, any hearings, and the record of the proceedings, are
confidential and shall not be open to the public, except (a) to the extent
the Parties agree otherwise in writing, (b) as may be appropriate in any
subsequent proceedings between the Parties or (c) as may otherwise be
required by any Law, a Governmental Authority or the rules of any national
stock exchange.

                               ARTICLE TWELVE

         [INTENTIONALLY OMITTED.].

                              ARTICLE THIRTEEN
                                MISCELLANEOUS

         SECTION 13.1 NOTICES. Except as otherwise expressly provided, all
                      -------
notices or other communications required or permitted under this Agreement
shall be made in writing and shall be deemed given (i) upon delivery, if
sent personal delivery, (ii) one (1) business day after sending by a
nationally recognized overnight courier (provided evidence of receipt is
provided) (iii) two (2) business days after sending certified mail, return
receipt requested, postage and registration fees prepaid and correctly
addressed to a Party as set forth below, or (iv) upon sending, if sent by
telecopy to a Party at the number listed below for such Party (with a
telecopy machine generated confirmation sheet retained by the sender):

                                     39

                  If to Buyer:               Engineered Support Systems, Inc.
                                             201 Evans Lane
                                             St. Louis, Missouri 63121
                                             Attn: David D. Mattern,
                                                   General Counsel
                                             Telecopy: (314) 553-4320

                  with a copy to:            Wittner, Poger, Spewak, Maylack
                                              & Spooner, P.C.
                                             7733 Forsyth Blvd., Suite 2000
                                             St. Louis, Missouri 63105
                                             Attn: David S. Spewak
                                             Telecopy: (314) 862-5741

                  If to the Corporation,
                  Seller or the Trusts:      Edward Wenger
                                             c/o Prospective Computer Analysts
                                              Incorporated
                                             100 Garden City Plaza
                                             Garden City, NY 11520
                                             Telecopy:  516-742-0600

                                             with a copy to:

                                             Fulbright & Jaworski L.L.P.
                                             666 Fifth Avenue
                                             New York, NY 10103
                                             Attn: Neil Gold, Esq.
                                             Telecopy: 212-318-3400

or to such other address as Buyer, the Corporation, Seller or any of the
Trusts have last designated by notice to the other Party.

         SECTION 13.2 CERTAIN TAX MATTERS.
                      -------------------

                  (a) The Shareholders shall prepare or cause to be prepared
and file or cause to be filed all Tax Returns for the Corporation for all
periods ending on or prior to the Closing Date that are required to be filed
after the Closing Date. The Shareholders shall afford Buyer a reasonable
opportunity to review and comment on each such Tax Return prior to its
filing. The Shareholders shall report on their Tax Returns, and be
responsible for the payment of any Taxes payable as a result of, any income,
gain, loss, deduction and other tax items for such periods in a manner
consistent with the Schedules K-1 prepared on behalf of the Corporation for
such periods.

                  (b) With respect to any Tax period that would otherwise
include but not end on the Closing Date, to the extent permissible pursuant
to applicable Laws, the Shareholders will, and Buyer will cause the
Corporation to, take all steps as are or may be reasonably necessary,
including, without limitation, the filing of elections or returns with
applicable Taxing authorities, to cause such period to end on the Closing
Date. In any case where applicable Laws do not permit the Corporation to
close its Tax year on the Closing Date, then Taxes, if any, attributable to
a Tax period of the Corporation that includes the Closing Date, but does not
end

                                     40

on the Closing Date (a "Straddle Period"), shall be allocated to and paid by
the Shareholders for that portion of the Tax period up to and including the
Closing Date and allocated to and paid by Buyer for that portion of the Tax
period subsequent to the Closing Date based on the number of days in such
Tax period prior to the Closing Date relative to the number of days in such
Tax period subsequent to the Closing Date. For any Straddle Period, Buyer
shall timely prepare or cause to be prepared and file or cause to be filed
with the appropriate authorities all Tax Returns that are required to be
filed in respect of such Straddle Period.

                  (c) Each of the Shareholders, the Corporation and Buyer
shall reasonably cooperate, and shall cause their respective Affiliates,
officers, employees, agents, auditors and representatives reasonably to
cooperate, in preparing and filing all Tax Returns and any Proceeding
relating to the Corporation's liability for Taxes. The Shareholders, the
Corporation and Buyer shall (i) retain all books and records with respect to
Tax matters pertaining to the Corporation for any Tax period beginning
before the Closing Date until the expiration of the statute of limitations
(including, to the extent notified by Buyer or the Shareholders, any
extensions thereof) for such Tax period and abide by any record retention
agreement entered into with any Tax authority, and (ii) give the other party
reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other Party so requests, allow the
other Party to take possession of such books and records.

                  (d) Each of the Shareholders and Buyer agree, upon the
request of the other and at the sole cost of the requesting Party, to use
his or its reasonable best efforts to obtain any certificate or other
document from any Governmental Authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including with respect to the transactions contemplated hereby).

                  (e) Any refunds or credits of Taxes of the Corporation for
any Tax period ending on or before the Closing Date which are not reflected
as assets on the Closing Working Capital Statement shall be for the account
of the Shareholders. Any refunds or credits of Taxes of the Corporation for
any Tax period beginning after the Closing Date shall be for the account of
Buyer. Any refunds or credits of Taxes of the Corporation for any Straddle
Period shall be equitably apportioned among the Shareholders and Buyer.
Within ten (10) days after its receipt or credit of any amount to which the
Shareholders are properly entitled under this Section 13.2(e), Buyer shall
cause the Corporation to forward to the Shareholders or reimburse them for
such credit or refund, provided, however, that any such amounts payable to
the Shareholders shall be net of any Tax cost or benefit to Buyer or the
Corporation, as the case may be, attributable to the receipt of such refund
or credit and/or the payment of such amount to the Shareholders.

                  (f) If any Governmental Authority asserts a claim, makes
an assessment or otherwise disputes or affects any Tax for which the
Shareholders are responsible hereunder, Buyer shall promptly inform Seller
thereof. The Shareholders, at their sole expense, shall represent the
Corporation's interests in and control any Proceeding relating to Tax
periods of the Corporation ending on or before the Closing Date and shall
keep Buyer informed as to the status of any such Proceeding. Buyer shall
have the right, at its expense, to participate in any such Proceeding. The
Shareholders and Buyer shall jointly represent the interests of the
Corporation in any Proceeding relating to the Corporation's liability for
Taxes during a Straddle Period.

                                     41

Buyer shall control (or cause the Corporation to control) at its own
expense, all Proceedings with respect to a Tax claim and relating to a Tax
period that ends after and does not include any period on or before the
Closing Date. If any Governmental Authority asserts a claim, makes an
assessment or otherwise disputes or assesses any Taxes of the Corporation
for which Buyer is responsible hereunder, Buyer shall not take any position
in any such Proceeding that will materially increase the Shareholders'
liability for Taxes in any prior period, unless (i) Buyer reasonably
believes that not taking such position would result in a future material
loss or liability for Buyer or the Corporation, or (ii) such position is
required by applicable Laws or administrative or judicial interpretations
thereof.

         SECTION 13.3 APPLICABLE LAW/CHOICE OF VENUE. This Agreement, and
                      ------------------------------
the rights and obligations of the parties hereto, shall be governed by and
determined in accordance with the laws of the State of New York, without
giving effect to the choice or conflicts of law provisions thereof. As a
material inducement to the Corporation, Seller and the Trusts to enter into
this Agreement, Buyer agrees that all actions or proceedings in any manner
relating to or arising out of this Agreement may be brought only in courts
of the State of New York or the federal court for the Southern District of
New York, and Buyer consents to the jurisdiction of such courts. Buyer and
Seller each waives any objection it or he may now or hereinafter have to the
venue of such courts and any right it or he may have now or hereafter have
to claim that any such action or proceeding is in an inconvenient court.

         SECTION 13.4 BENEFIT AND ASSIGNMENT. This Agreement shall be
                      ----------------------
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any
rights hereunder may be assigned or transferred, and no duties may be
delegated, by either party without the prior written consent of the other,
provided, however Buyer may assign or transfer its rights and delegate its
duties hereunder to any Affiliate of Buyer so long as Buyer agrees to
guarantee the performance of all of the obligations assigned to its
Affiliate in the form of a guarantee reasonably acceptable to Seller and his
counsel. Any assignment that violates the terms hereof shall be null and
void and of no force or effect.

         SECTION 13.5 NO THIRD PARTY BENEFICIARY. This Agreement is for the
                      --------------------------
benefit of, and may be enforced only by, the Parties who are signatories
hereto and their respective successors and permitted assigns.

         SECTION 13.6 EXPENSES; TRANSFER AND SALES TAX. Each of the
                      --------------------------------
Corporation and Buyer shall bear its own costs and expenses incurred in
connection with the negotiation, preparation and execution of this Agreement
and the consummation of the transactions contemplated hereby, including,
without limitation, fees and expenses of attorneys, accountants,
consultants, investment bankers and other financial advisors; it being
understood, however, that the fees and expenses incurred by the Corporation
in connection with this Agreement and the transactions contemplated hereby
for its counsel and Wachovia Capital Markets, LLC shall be borne solely by
the Shareholders. All transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest)
incurred in connection with the purchase and sale of the Shares hereunder
shall be paid by the Shareholders when due, and the Shareholders shall, at
their own expense, file all necessary Tax Returns and other documentation
with respect to all such transfer, documentary, sales, use, stamp,
registration and other such

                                     42

Taxes and fees, and if required by applicable Laws, Buyer and the
Corporation shall join in the execution of any such Tax Returns and other
documentation.

         SECTION 13.7 WAIVER. Except as otherwise provided in this
                      ------
Agreement, no delay or failure on the part of any party hereto in exercising
any right, power or privilege under this Agreement or under any other
instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as
a waiver of any default or any acquiescence therein. No single or partial
exercise of any such right, power or privilege shall preclude the further
exercise of such right, power or privilege, or the exercise of any other
right, power or privilege.

         SECTION 13.8 FURTHER ACTIONS. From and after the Closing, the
                      ---------------
Parties shall do such acts and execute such documents and instruments as may
be reasonably requested by any other Party to make effective the
transactions contemplated hereby. In the event that consents, approvals or
other authorizations or other acts contemplated by this Agreement have not
been fully effected as of Closing, the Parties will continue after the
Closing, without further consideration, to use their reasonable best efforts
to carry out such transactions; provided, however, in the event that certain
approvals, consents or other necessary documentation cannot be secured, then
the Party having legal responsibility, ownership or other control shall act
on behalf of the other Party, without further consideration, to effect the
essential intention of the Parties with respect to the transactions
contemplated by this Agreement.

         SECTION 13.9 ENTIRE AGREEMENT; AMENDMENT. This Agreement, any
                      ---------------------------
documents or instruments to be executed by any of the Parties in connection
with this Agreement and the Confidentiality Agreement contain the entire
agreement of the Parties hereto with respect to the transactions
contemplated hereby and supersede any and all prior agreements, arrangements
and understandings between the Parties with respect thereto. No inducements
contrary to the terms of this Agreement exist. In connection with the
execution and delivery of this Agreement, neither Party has relied on any
promise, inducement, representation or warranty of the other Party, whether
oral or written, not set forth in this Agreement. EXCEPT FOR THE WARRANTIES
CONTAINED IN THIS AGREEMENT, NEITHER THE CORPORATION NOR SELLER MAKES ANY
OTHER WARRANTY, EXPRESS OR IMPLIED, REGARDING THE ASSETS OR THE BUSINESS OF
THE CORPORATION OR ANY OF THE MATTERS CONTEMPLATED BY THIS AGREEMENT AND
HEREBY EXPRESSLY DISCLAIMS, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. This Agreement may not be modified orally and may only
be amended in a writing executed by all parties hereto.

         SECTION 13.10 COUNTERPARTS. This Agreement may be executed in one
                       ------------
or more counterparts, each of which shall constitute an original, but all of
which together shall constitute a single agreement.

         SECTION 13.11 [INTENTIONALLY OMITTED]
                       -----------------------

                                     43

         SECTION 13.12 PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY.
                       -------------------------------------

                  (a) Buyer and Seller will coordinate with each other all
press releases relating to the transactions contemplated by this Agreement
and, except to the extent required by Law, refrain from issuing any press
release, publicity statement or other public notice relating to this
Agreement or the transactions contemplated hereby without providing the
other Party reasonable opportunity to review and comment thereon.

                  (b) After the Closing, (i) Seller shall keep confidential,
and cause his Affiliates and instruct his agents, representatives,
consultants and advisors to keep confidential, all information relating to
the Corporation, the Business, the Buyer and the Buyer's Affiliates, and
(ii) Buyer and the Corporation shall keep confidential, and cause their
Affiliates and instruct their agents, representatives, consultants and
advisors to keep confidential, all information relating to the Seller and
each of Seller's Affiliates; except in each case as required by Law or
administrative process and except for information which is available to the
public on the Closing Date, or thereafter becomes available to the public
other than as a result of a breach of this Section.

                  (c) If either Seller or Buyer shall determine that he or
it may be required by Law or administrative process to make a disclosure
otherwise prohibited by this Section, they shall promptly so advise the
other Party and shall cooperate with such other Party and take such actions
as shall be reasonably requested by such other Party in order to prevent or
limit such required disclosure.

         SECTION 13.13 TRUSTS' REPRESENTATIVE. The execution and delivery of
                       ----------------------
this Agreement by the Trusts shall constitute approval of the appointment of
Seller as agent and attorney-in-fact for each Trust to give and receive
notices and communications, authorize, in Seller's discretion, the
satisfaction of claims by Buyer, object to such claims, agree to negotiate,
enter into settlements and compromises of , and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of
the Seller for the accomplishment of the foregoing and with respect to any
other matter arising under this Agreement. Any decision, act, consent or
instruction of the Seller shall constitute a decision, act, consent or
instruction of all the Trusts and shall be final, binding and conclusive
upon each of the Trusts, and Buyer and the Corporation may rely upon any
such decision, act, consent or instruction of the Seller as being the
decision, act, consent or instruction of each Trust. Buyer is hereby
relieved from any liability to any Trust for any action taken by it in
accordance with any decision, act, consent or instruction of the Seller.
Each Trust covenants and agrees that it will not dispute or contest any
decision, act, consent or instruction of the Seller once it has been made,
taken or given, as the case may be.

             [The remainder of this page isintentionally blank.]

                                     44

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

PROSPECTIVE COMPUTER ANALYSTS INCORPORATED

By:
   -----------------------------------------

Name:
     ---------------------------------------

Title:
      --------------------------------------

-------------------------------
EDWARD WENGER

THE LAUREN WENGER 2004 GRAT

By:
   -----------------------------------------

Name:
     ---------------------------------------

Title:
      --------------------------------------

THE ERIC WENGER 2004 GRAT

By:
   -----------------------------------------

Name:
     ---------------------------------------

Title:
      --------------------------------------

                                     45

THE MITCHELL WENGER 2004 GRAT

By:
   -----------------------------------------

Name:
     ---------------------------------------

Title:
      --------------------------------------

ENGINEERED SUPPORT SYSTEMS, INC.

By:
   -----------------------------------------

Name:
     ---------------------------------------

Title:
      --------------------------------------

                                     46

                                SCHEDULE 11.4

                           ARBITRATION PROCEDURES

                  (a) The Arbitrators. The Parties shall select three (3)
                      ---------------
         arbitrators (the "Arbitrators") to arbitrate Claims in accordance
         with these Procedures. Unless otherwise agreed by the Parties, the
         panel used will be selected from arbitrators through the American
         Arbitration Association. The Arbitrators shall not be liable to
         either Party in connection with the proceeding.

                  (b) Discovery. For a period of time set by the Arbitrators
                      ---------
         (but in no event for less than a period of 120 days after the
         Arbitrators have been selected), the Parties shall cooperate in the
         voluntary exchange of relevant documents and information in the
         most expeditious and cost-effective manner possible. In addition,
         each Party shall have the right to pose such interrogatories and to
         take such depositions as deemed necessary by a Party. Responses or
         objections will be served within twenty (20) days after receipt of
         a discovery request with extensions as approved by the Parties
         (which approval will not be unreasonably withheld) or as granted by
         the arbitrators.

                  (c) Designation of Witnesses. At least forty-five (45)
                      ------------------------
         days before the arbitration, the Parties must identify in writing
         any experts intended to be used at the arbitration. At least twenty
         (20) days before the arbitration, the Parties must exchange lists
         of all other witnesses and copies of all exhibits intended to be
         used at the arbitration.

                  (d) Subpoenas. Each Party and their counsel of record
                      ---------
         shall have the right to subpoena witnesses and documents to the
         extent permitted in a judicial proceeding, and the Arbitrators are
         empowered to subpoena witnesses or documents to the extent
         permitted in a judicial proceeding, upon their initiative or the
         request of a Party. Unless the Arbitrators direct otherwise, the
         Party requesting the production of witnesses or proof shall bear
         the costs of production.

                  (e) Arbitration Procedures.
                      ----------------------

                           (i) Hearing. The Arbitrators shall afford each
                               -------
                  Party a full and fair opportunity to present relevant
                  proof, to call and cross examine witnesses and to present
                  argument. The Arbitrators shall not be bound by any formal
                  rules of evidence with the exception of the applicable Law
                  with respect to the attorney-client and work-product
                  privileges.

                           (ii) Powers of the Arbitrators.
                                -------------------------

                                    (A) The Arbitrators shall apply the
                           substantive law (state or federal or both)
                           applicable to this Agreement. The Arbitrators
                           shall have exclusive authority to resolve any
                           dispute relating to the interpretation,
                           applicability, enforceability, or formation of
                           this Agreement, including, but not limited to,
                           any claim that all or any part of this Agreement
                           is void or voidable.

                                    (B) The Arbitrators shall have
                           jurisdiction to hear and rule on discovery and
                           subpoena disputes and any other prehearing
                           disputes and is

                           authorized to hold prehearing conferences by
                           telephone or in person as the Arbitrators deem
                           necessary. The Arbitrators shall have the
                           authority to entertain a motion to dismiss and/or
                           a motion for summary judgment by any Party and
                           shall apply the standards governing such motions
                           under the Federal Rules of Civil Procedure.

                           (iii) Record of Proceedings and Post-Hearing
                                 --------------------------------------
                  Briefs. A court reporter shall provide a stenographic
                  ------
                  record of proceedings and the expense shall be apportioned
                  as set forth in paragraph (e)(v). Either Party, upon
                  request at the close of the hearing, shall be given leave
                  to file a post-hearing brief within twenty (20) days
                  following the conclusion of the hearing. The time for
                  filing such a brief shall be set by the Arbitrators.

                           (iv) The Award. Within twenty (20) days after the
                                ---------
                  submission of the Parties' post-hearing briefs and in any
                  event within forty (40) days after the conclusion of the
                  hearing, the Arbitrators shall render an award and opinion
                  in writing (the "Award") that shall be dated and which
                  shall contain findings of fact, conclusions of law and
                  rationale for the disposition of any and all issues raised
                  by the Parties. Unless applicable Law provides otherwise,
                  the Award shall be based solely on the evidence and
                  authorities presented to the Arbitrator, applicable Law
                  and the provisions of this Agreement.

                           (v) Arbitration Fees and Costs. The Parties shall
                               --------------------------
                  equally share the fees and costs of the Arbitrators,
                  unless the Arbitrators elect to award all or a portion of
                  such costs to the prevailing Party and each Party shall
                  pay for its own costs and attorneys' fees, if any. Each
                  Party will deposit funds or post other appropriate
                  security for their share of the Arbitrators' fee, in an
                  amount and manner determined by the Arbitrator, ten (10)
                  days before the first day of hearing. The Arbitrators may
                  award the prevailing Party all or a portion of its
                  reasonable attorneys' fees and costs, including reasonable
                  expenses associated with production of witnesses or proof.

                  (f) Enforcement and Collateral Proceedings.

                           (i) Either Party may bring an action in any court
                  of competent jurisdiction to compel arbitration under this
                  Agreement, to enforce any prehearing orders or subpoenas
                  issued by the Arbitrator and to enforce an Award.

                           (ii) The Parties agree not to commence or pursue
                  any litigation or administrative proceeding on any Claim,
                  dispute or issue subject to this proceeding, and the
                  Parties also agree to discontinue any such proceeding
                  which is commenced after, or is pending at, the time of
                  submission of a Claim under this procedure.

<TABLE>
                                            TABLE OF SCHEDULES

        <S>                                       <C>
        Schedule 1.1                              Other Excluded Liabilities
        Schedule 4.1(k)                           Employment Agreements at Closing
        Schedule 4.2                              Excluded Assets
        Schedule 5.1(a)                           Jurisdictions in which Corporation is Qualified
        Schedule 5.2(a)                           Capital Structure and Share Ownership - the Corporation
        Schedule 5.2(b)                           Capital Structure - Options, Warrants, etc.
        Schedule 5.4(b)                           Conflicts, Breaches, Violations
        Schedule 5.5                              Consents
        Schedule 5.6(a)                           Financial Statements
        Schedule 5.6(b)                           Projections
        Schedule 5.7(a)                           Scheduled Contracts
        Schedule 5.7(b)                           Scheduled Contracts - Validity, Breach
        Schedule 5.7(c)                           Scheduled Contracts - Termination, Modification
        Schedule 5.7(d)                           Leases
        Schedule 5.7(e)                           Agreements With Affiliates
        Schedule 5.7(f)                           Legal Services
        Schedule 5.8(a)                           Liens
        Schedule 5.8(b)                           Leasehold Interest
        Schedule 5.8(c)                           Depreciable Property
        Schedule 5.9(a)                           Owned Intellectual Property
        Schedule 5.9(b)                           Licensed Intellectual Property
        Schedule 5.9(c)                           Intellectual Property - Proceedings
        Schedule 5.9(d)                           Owned Intellectual Property - Licenses
        Schedule 5.10                             Litigation and Compliance with Law
        Schedule 5.11                             Taxes
        Schedule 5.12                             Permits
        Schedule 5.14                             Certain Changes or Events
        Schedule 5.15(a)                          Employee Benefit Plans
        Schedule 5.15(a)(1)                       Cars and Club Dues
        Schedule 5.15(d)                          Prohibited Transactions
        Schedule 5.15(e)                          Retiree Benefits
        Schedule 5.15(f)                          Penalties and Fines re Plans
        Schedule 5.15(g)                          Severance/Termination Benefits
        Schedule 5.16(a)                          Collective Bargaining Agreements
        Schedule 5.16(b)                          Labor - Miscellaneous
        Schedule 5.16(c)                          List of Employees, Compensation, Etc.
        Schedule 5.16(d)                          Written Employment Agreements
        Schedule 5.17                             Insurance
        Schedule 5.19                             Bank Accounts
        Schedule 5.20                             Undisclosed Liabilities
        Schedule 5.21                             Relationship with Affiliates
        Schedule 5.23                             Accounts Receivable Disputes
        Schedule 5.24                             Inventory Exceptions

        Schedule 5.25                             Environmental Matters
        Schedule 5.26                             Government Contracts
        Schedule 5.26(a)                          Identification of Issues
        Schedule 5.26(b)                          Audits, Etc.
        Schedule 5.26(c)                          Suspensions
        Schedule 5.26(d)                          Investigations
        Schedule 5.26(e)                          Claims, Etc.
        Schedule 5.26(f)                          Test Results
        Schedule 5.26(g)                          Contract Bid Exceptions
        Schedule 5.26(h)                          Customer Furnished Property
        Schedule 5.26(i)                          Security Clearances
        Schedule 5.27                             Product Liability
        Schedule 5.29                             Bank Charges, Rebates, Etc.
        Schedule 5.30                             Quote Log
        Schedule 5.32                             Title to Shares
        Schedule 7.1                              Conduct of Business (Not applicable)
        Schedule 8.9                              Severance Obligations
        Schedule 9.2(f)                           Closing Bonuses
        Schedule 11.4                             Arbitration Procedures
</TABLE>Debenture

Exhibit 4.1

 EXHIBIT A

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: November ___, 2004

Original Conversion Price (subject to adjustment herein): $3.00

$_______________

7% SECURED CONVERTIBLE DEBENTURE

DUE NOVEMBER ___, 2006

THIS DEBENTURE is one of a series of duly authorized and issued 7% Secured Convertible Debentures of TechnoConcepts, Inc., a Colorado corporation, having a principal place of business at  _____________________________ (the “Company”), designated as its 7% Secured Convertible Debenture, due November ___, 2006 (the “Debenture(s)”).

FOR VALUE RECEIVED, the Company promises to pay to ________________________ or its registered assigns (the “Holder”), the principal sum of $_______________ on November ___, 2006 or such earlier date as the Debentures are required or permitted to be repaid as provided hereunder (the “Maturity Date”), and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof.  This Debenture is subject to the following additional provisions:

Section 1.

Definitions.  For the purposes hereof, in addition to the terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined herein have the 

1

meanings given to such terms in the Purchase Agreement, and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e)(iii). 

“Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

“Change of Control Transaction” means the occurrence after the date hereof of any of (i) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company, or (ii) a replacement at one time or within a three year period of more than one-half of the members of the Company's board of directors which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), or (iii) the execution by the Company of an agreement to which the Company  is a party or by which it is bound, providing for any of the events set forth above in (i) or (ii).

“Common Stock” means the common stock, no par value, of the Company and stock of any other class into which such shares may hereafter have been reclassified or changed.

“Conversion Date” shall have the meaning set forth in Section 4(a) hereof.

“Conversion Price” shall have the meaning set forth in Section 4(b).

 

“Conversion Shares” means the shares of Common Stock issuable upon conversion of Debentures or as payment of interest in accordance with the terms hereof.

      “Effectiveness Period” shall have the meaning given to such term in the Registration Rights Agreement. 

“Equity Conditions” shall mean, during the period in question, (i) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notice of Conversions, if any, (ii) all liquidated damages and other amounts owing in respect of the Debentures shall have been paid; (iii) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will 

2

continue uninterrupted for the foreseeable future), (iv) the Common Stock is trading on the Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed for trading on a Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (v) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (vi) there is then existing no Event of Default or event which, with the passage of time or the giving of notice, would constitute an Event of Default, (vii) all of the shares issued or issuable pursuant to the transaction proposed would not violate the limitations set forth in Section 4(c), and (viii) no public announcement of a pending or proposed Fundamental Transaction, Change of Control Transaction or acquisition transaction has occurred that has not been consummated.

“Event of Default” shall have the meaning set forth in Section 8.

 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 “Fundamental Transaction” shall have the meaning set forth in Section 5(e)(iii) hereof.

“Interest Conversion Rate” means the lesser of (a) the Conversion Price and (b) the 90% of the lesser of (i) the average of the 20 VWAPs immediately prior to the applicable Interest Payment Date or (ii) the average of the 20 VWAPs immediately prior to the date the applicable interest payment shares are issued and delivered if after the Interest Payment Date.

“Late Fees” shall have the meaning set forth in the second paragraph to this Debenture.

“Mandatory Prepayment Amount” for any Debentures shall equal the sum of (i) the greater of: (A) 130% of the principal amount of Debentures to be prepaid, plus all accrued and unpaid interest thereon, or (B) the principal amount of Debentures to be prepaid, plus all other accrued and unpaid interest hereon, divided by the Conversion Price on (x) the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is paid in full, whichever is less, multiplied by the VWAP on (x) the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of such Debentures.

“Monthly Conversion Price” shall have the meaning set forth in Section 6(a) hereof.

“Monthly Redemption” shall mean the redemption of the Debenture pursuant to Section 6(a) hereof.

3

“Monthly Redemption Amount” shall mean, as to a Monthly Redemption, $___________1

 in the aggregate among all Holders.

“Monthly Redemption Date” means the 1st of each month, commencing on the first month immediately after the one year anniversary of the Original Issue Date and ending upon the full redemption of this Debenture. 

 “Original Issue Date” shall mean the date of the first issuance of the Debentures regardless of the number of transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debenture.

“Person” means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of November 17, 2004, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms.

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms.

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement, covering among other things the resale of the Conversion Shares and naming the Holder as a “selling stockholder” thereunder.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Subsidiary” shall have the meaning given to such term in the Purchase Agreement.

“Threshold Period” shall have the meaning given to such term in Section 6(d). 

“Trading Day” means a day on which the Common Stock is traded on a Trading Market.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.

 The quotient obtained by dividing (x) the aggregate principal amount by (y) 12 months. 

4

 “Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the primary Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP function; (b) if the Common Stock is not then listed or quoted on the Trading Market and if prices for the Common Stock are then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock as determined by a nationally recognized-independent appraiser selected in good faith by Purchasers holding a majority of the principal amount of Debentures then outstanding.

Section 2.

Interest.

a)

Payment of Interest in Cash or Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 7% per annum, payable quarterly on March 31, June 30, September 30 and December 31, beginning on the first such date after the Original Issue Date and on each Conversion Date (as to that principal amount then being converted) and on the Maturity Date (except that, if any such date is not a Business Day, then such payment shall be due on the next succeeding Business Day) and on each Monthly Redemption Date (as to that principal amount then being redeemed) (each such date, an “Interest Payment Date”), in cash or shares of Common Stock at the Interest Conversion Rate, or a combination thereof; provided, however, payment in shares of Common Stock may only occur if during the 20 Trading Days immediately prior to the applicable Interest Payment Date all of the Equity Conditions have been met and the Company shall have given the Holder notice in accordance with the notice requirements set forth below.   

 

b)

Company’s Election to Pay Interest in Kind.  Subject to the terms and conditions herein, the decision whether to pay interest hereunder in shares of Common Stock or cash shall be at the discretion of the Company.  Not less than 20 Trading Days prior to each Interest Payment Date, the Company shall provide the Holder with written notice of its election to pay interest hereunder either in cash or shares of Common Stock (the Company may indicate in such notice that the election contained in such notice shall continue for later periods until revised).  Within 20 Trading Days prior to an Interest Payment Date, the Company’s election (whether specific to an Interest Payment Date or continuous) shall be irrevocable as to such Interest Payment Date.  Subject to the aforementioned conditions, failure to timely provide such written notice shall be deemed an election by the Company to pay the interest on such Interest Payment Date in cash.  

5

c)

Interest Calculations. Interest shall be calculated on the basis of a 360-day year and shall accrue daily commencing on the Original Issue Date until payment in full of the principal sum, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made.  Payment of interest in shares of Common Stock shall otherwise occur pursuant to Section 4(d)(ii) and only for purposes of the payment of interest in shares, the Interest Payment Date shall be deemed the Conversion Date.  Interest shall cease to accrue with respect to any principal amount converted, provided that the Company in fact delivers the Conversion Shares within the time period required by Section 4(d)(ii).  Interest hereunder will be paid to the Person in whose name this Debenture is registered on the records of the Company regarding registration and transfers of Debentures (the “Debenture Register”). Except as otherwise provided herein, if at any time the Company pays interest partially in cash and partially in shares of Common Stock, then such payment shall be distributed ratably among the Holders based upon the principal amount of Debentures held by each Holder.  

 

d)

Late Fee.  All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at the rate of 18% per annum (or such lower maximum amount of interest permitted to be charged under applicable law) (“Late Fee”) which will accrue daily, from the date such interest is due hereunder through and including the date of payment. Notwithstanding anything to the contrary contained herein, if on any Interest Payment Date the Company has elected to pay interest in Common Stock and is not able to pay accrued interest in the form of Common Stock because it does not then satisfy the conditions for payment in the form of Common Stock set forth above, then, at the option of the Holder, the Company, in lieu of delivering either shares of Common Stock pursuant to this Section 2 or paying the regularly scheduled cash interest payment, shall deliver, within three Trading Days of each applicable Interest Payment Date, an amount in cash equal to the product of the number of shares of Common Stock otherwise deliverable to the Holder in connection with the payment of interest due on such Interest Payment Date and the highest VWAP during the period commencing on the Interest Payment Date and ending on the Trading Day prior to the date such payment is made.

 

e)

Prepayment.  Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder. 

Section 3.

 Registration of Transfers and Exchanges. 

 

a)

Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same.  No service charge will be made for such registration of transfer or exchange.

 

b)

Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase 

6

Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.  

c)

Reliance on Debenture Register. Prior to due presentment to the Company for transfer of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.

  Conversion.

 

a)

Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible into shares of Common Stock at the option of the Holder, in whole or in part at any time and from time to time (subject to the limitations on conversion set forth in Section 4(c) hereof).  The Holder shall effect conversions by delivering to the Company the form of Notice of Conversion attached hereto as Annex A (a “Notice of Conversion”), specifying therein the principal amount of Debentures to be converted and the date on which such conversion is to be effected (a “Conversion Date”).  If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is provided hereunder.  To effect conversions hereunder, the Holder shall not be required to physically surrender Debentures to the Company unless the entire principal amount of this Debenture plus all accrued and unpaid interest thereon has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion.  The Holder and the Company shall maintain records showing the principal amount converted and the date of such conversions.  The Company shall deliver any objection to any Notice of Conversion within 1 Business Day of receipt of such notice.  In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

b)

Conversion Price.  The conversion price in effect on any Conversion Date shall be equal to $3.00 (subject to adjustment herein)(the “Conversion Price”).

c)

Conversion Limitations; Holder’s Restriction on Conversion. The Company shall not effect any conversion of this Debenture, and the Holder shall not have the right to convert any portion of this Debenture, pursuant to Section 4(a) or otherwise, to the extent that after giving effect to such conversion, the Holder (together with the Holder’s affiliates), as set forth on the applicable Notice of Conversion, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such conversion.  For purposes of the 

7

foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Debenture beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Debentures or the Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act.  To the extent that the limitation contained in this section applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder) and of which a portion of this Debenture is convertible shall be in the sole discretion of such Holder. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination.  For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of the Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  The provisions of this Section 4(c) may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Company, and the provisions of this Section 4(c) shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).

 

d)

Mechanics of Conversion

 

i.

Conversion Shares Issuable Upon Conversion of Principal Amount.  The number of shares of Common Stock issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

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ii.

Delivery of Certificate Upon Conversion. Not later than three Trading Days after any Conversion Date, the Company will deliver to the Holder (A) a certificate or certificates representing the Conversion Shares which shall be free of restrictive legends and trading restrictions (other than those required by the Purchase Agreement) representing the number of shares of Common Stock being acquired upon the conversion of Debentures (including, if so timely elected by the Company, shares of Common Stock representing the payment of accrued interest) and (B) a bank check in the amount of accrued and unpaid interest (if the Company is required to pay accrued interest in cash). The Company shall, if available and if allowed under applicable securities laws, use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions.  

 

iii.

Failure to Deliver Certificates.  If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after a Conversion Date, the Holder shall be entitled by written notice to the Company at any time on or before its receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Company shall immediately return the certificates representing the principal amount of Debentures tendered for conversion. 

 

iv.

Obligation Absolute; Partial Liquidated Damages.  If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the third Trading Day after the Conversion Date, the Company shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $1000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day after 5 Trading Days after such damages begin to accrue) for each Trading Day after such third Trading Day until such certificates are delivered.  The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder.  In the event a Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or any one associated or affiliated with the Holder of has been engaged in any violation of 

9

law, agreement or for any other reason, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the principal amount of this Debenture outstanding, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment.  In the absence of an injunction precluding the same, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion.  Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 herein for the Company’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  The exercise of any such rights shall not prohibit the Holders from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

v.

Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the third Trading Day after the Conversion Date, and if after such third Trading Day the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder anticipated receiving from the conversion at issue multiplied by (2) the actual sale price of the Common Stock at the time of the sale (including brokerage commissions, if any) giving rise to such purchase obligation and (B) at the option of the Holder, either reissue Debentures in principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements under Section 4(d)(ii).  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of Debentures with respect to which the actual sale price of the Conversion Shares at the time of the sale (including brokerage commissions, if any) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000.  The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In.  Notwithstanding anything contained herein to the contrary, if a Holder requires 

10

the Company to make payment in respect of a Buy-In for the failure to timely deliver certificates hereunder and the Company timely pays in full such payment, the Company shall not be required to pay such Holder liquidated damages under Section 4(d)(iv) in respect of the certificates resulting in such Buy-In.

 

vi.

Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion of the Debentures and payment of interest on the Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holders, not less than such number of shares of the Common Stock as shall (subject to any additional requirements of the Company as to reservation of such shares set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of the Debentures and payment of interest hereunder.  The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable and, if the Registration Statement is then effective under the Securities Act, registered for public sale in accordance with such Registration Statement.

vii.

Fractional Shares. Upon a conversion hereunder the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the VWAP at such time.  If the Company elects not, or is unable, to make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.

viii.

Transfer Taxes.  The issuance of certificates for shares of the Common Stock on conversion of the Debentures shall be made without charge to the Holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of such Debentures so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

(e)

 Forced Conversion. Notwithstanding anything herein to the contrary, if after the Effective Date each of the VWAPs for any 22 consecutive Trading Days (such period commencing only after the Effective Price, such period the “Threshold Period”)) exceeds $7.00 (adjusted for any stock splits or 

11

similar capital adjustments occurring after the Original Issue Date) AND the average daily dollar trading volume for such Threshold Period equals or exceeds $500,000, the Company may, within 2 Trading Days of the end of any such period, deliver a notice to the Holder (a “Forced Conversion Notice” and the date such notice is received by the Holder, the “Forced Conversion Notice Date”) to cause the Holder to immediately convert all or part of the then outstanding principal amount of Debentures pursuant to Section 4(a). Such Forced Conversion shall be effective as of the Trading Day after such Forced Conversion Notice is deemed delivered.  The Company may only effect a Forced Conversion Notice if all of the Equity Conditions are met through the applicable Threshold Period until the date of the applicable Forced Conversion.  Any Forced Conversion shall be applied ratably to all Holders based on their initial purchases of Debentures pursuant to the Purchase Agreement.

Section 5.

Certain Adjustments.

 

a)

Stock Dividends and Stock Splits.  If the Company, at any time while the Debentures are outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Debenture, including as interest thereon), (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the Common Stock any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event.  Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b)

Intentionally Omitted.

 

c)

Pro Rata Distributions. If the Company, at any time while Debentures are outstanding, shall distribute to all holders of Common Stock (and not to Holders) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security, then in each such case the Conversion Price shall be determined by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness 

12

so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith.  In either case the adjustments shall be described in a statement provided to the Holders of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

 

d)

Calculations.  All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  The number of shares of Common Stock outstanding at any given time shall not includes shares of Common Stock owned or held by or for the account of the Company, and the description of any such shares of Common Stock shall be considered on issue or sale of Common Stock.  For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

e)

Notice to Holders.

i.

Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any of this Section 5, the Company shall promptly mail to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company issues a variable rate security, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised in the case of a Variable Rate Transaction (as defined in the Purchase Agreement), or the lowest possible adjustment price in the case of an MFN Transaction (as defined in the Purchase Agreement).

 

ii.

Notice to Allow Conversion by Holder.  If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of the Debentures, and shall cause to be mailed to the Holders at their last addresses as they shall appear upon the  stock 

13

books of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  Holders are entitled to convert Debentures during the 20-day period commencing the date of such notice to the effective date of the event triggering such notice. 

 

iii.

Fundamental Transaction. If, at any time while this Debenture is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”).  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving 

14

entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. Notwithstanding the foregoing, if the Company is acquired by a publicly-traded corporation whose common stock is listed on the New York Stock Exchange or the Nasdaq National Market and had a market capitalization (based on closing prices) of more than One Billion Dollars ($1,000,000,000) for each of the 45 Trading Days prior to the announcement of such acquisition, and the fair market value of the consideration to be received by Holder if Holder converted its Debenture immediately prior to the effective time of such acquisition would equal at least the then-outstanding principal amount of this Debenture, then the Holder shall be required to convert this Debenture into the right to receive such consideration effective upon the effectiveness of such acquisition.

 

iv.

Exempt Issuance. Notwithstanding the foregoing, no adjustment will be made under this Section 5 in respect of an Exempt Issuance.

Section 6.

Monthly Redemption

a)

Monthly Redemption.  On each Monthly Redemption Date, the Company shall redeem each Holder’s Pro Rata Portion of the Monthly Redemption Amount plus accrued but unpaid interest, the sum of all liquidated damages and any other amounts then owing to such Holder in respect of the Debenture.  For purposes of this subsection 6(a) only, “Pro Rata Portion” is the ration of (x) the principal amount of this Debenture on the Original Issue Date and (y) the sum of the aggregate original principal amounts of the Debentures issued to all Holders.  If any Holder shall no longer hold Debentures, then the Pro Rata Portion shall be recalculated to exclude such Holder’s principal amount from clause (y) above and the Monthly Redemption Amount shall be allocated pro-rata among the remaining Holders.  The Monthly Redemption Amount due on each Monthly Redemption Date shall be paid in cash; provided, however, as to any Monthly Redemption and upon 20 Trading Days’ prior written irrevocable notice, in lieu of a cash redemption payment the Company may elect to pay 100% of a Monthly Redemption in Conversion Shares based on a conversion price equal to 85% of the average of the 20 consecutive VWAPs immediately prior to the applicable Monthly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock during such 20 Trading Day period) (the “Monthly Conversion Price”); provided, however, that the Company may not pay the Monthly Redemption Amount in Conversion Shares unless, on the Monthly Redemption Date and during the 20 Trading Day period immediately prior to the Monthly Redemption Date, the Equity Conditions have been satisfied, and in addition, the VWAP 

15

for each Trading Day within the 20 consecutive Trading Days immediately prior to the applicable Monthly Redemption Date shall have been at least $2.00 (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock since the Original Issue Date) AND the average daily dollar trading volume for such period shall have been at least $300,000.  The Holders may convert, pursuant to Section 4(a), any principal amount of the Debenture subject to a Monthly Redemption at any time prior to the date that the Monthly Redemption Amount and all amounts owing thereon are due and paid in full.  Unless otherwise indicated by the Holder in the applicable Notice of Conversion, any principal amount of Debenture converted during any 20 day period until the date the Monthly Redemption Amount is paid shall be first applied to the principal amount subject to the Monthly Redemption and such Holder’s cash payment of the Monthly Redemption Amount on such Monthly Redemption Date shall be reduced accordingly, and any remaining principal amount so converted shall be applied against the last principal scheduled to be repaid, in reverse time order.  The Company covenants and agrees that it will honor all Notice of Conversions tendered up until such amounts are paid in full.  The Company’s determination to pay a Monthly Redemption in cash or shares of Common Stock shall be applied ratably to all Holders based on their initial purchases of Debentures pursuant to the Purchase Agreement.

 

b)

Redemption Procedure.  The payment of cash and/or issuance of Common Stock, as the case may be, pursuant to a Monthly Redemption shall be made on the Monthly Redemption Date.  If any portion of the cash payment for a Monthly Redemption shall not be paid by the Company by the respective due date, interest shall accrue thereon at the rate of 18% per annum (or the maximum rate permitted by applicable law, whichever is less) until the payment of the Monthly Redemption Amount, plus all amounts owing thereon is paid in full.  Alternatively, if any portion of the Monthly Redemption Amount remains unpaid after such date, the Holders subject to such redemption may elect, by written notice to the Company given at any time thereafter, to invalidate ab initio such redemption, notwithstanding anything herein contained to the contrary.

Section 7.

Negative Covenants. So long as any portion of this Debenture is outstanding, the Company will not and will not permit any of its Subsidiaries to directly or indirectly:

a)

enter into, create, incur, assume or suffer to exist any indebtedness or liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior to, or pari passu with, in any respect, the Company’s obligations under the Debentures; provided, that subject to the prior security interest of the Holders of the Debentures, the Company may obtain a line of credit with a government-regulated commercial lending institution whose right to repayment is pari passu with the Debentures, which line of credit may not exceed the greater of (i) $750,000 or (ii) $2,000,000 if the total draw under such line of credit does not exceed 25% of the Company’s EBITDA for the most recently reported fiscal quarter, as set forth in the Company’s Forms 10-Q and 10-K;

16

 

b)

amend its certificate of incorporation, bylaws or to her charter documents so as to adversely affect any rights of the Holder;

c)

repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or other equity securities other than as to the Conversion Shares to the extent permitted or required under the Transaction Documents or as otherwise permitted by the Transaction Documents; or

d)

enter into any agreement with respect to any of the foregoing.

 

Section 8.

Events of Default.  

a)

“Event of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.

any default in the payment of (A) the principal of amount of any Debenture, or (B) interest (including Late Fees) on, or liquidated damages in respect of, any Debenture, in each case free of any claim of subordination, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured, within 3 Trading Days following receipt of written notice thereof by the Company;

 

ii.

the Company shall fail to observe or perform any other covenant or agreement contained in this Debenture or any of the other Transaction Documents not addressed elsewhere in this Section 8(a) which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such default sent by the Holder or by any other Holder and (B)10 Trading Days after the Company shall become or should have become aware of such failure;

iii.

a default or event of default (subject to any grace or cure period provided for in the applicable agreement, document or instrument) not addressed elsewhere in this Section 8(a), shall occur under (A) any of the Transaction Documents other than the Debentures, or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is bound;

iv.

any material representation or warranty made herein, in any other Transaction Document, in any written statement pursuant hereto or thereto, or in any other report, financial statement or certificate made or delivered to the Holder or any other holder of Debentures shall be untrue or incorrect in any material respect as of the date when made or deemed made;

17

v.

(i) the Company or any of its Subsidiaries shall commence, or there shall be commenced against the Company or any such Subsidiary, a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any Subsidiary thereof or (ii) there is commenced against the Company or any Subsidiary thereof any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 60 days; or (iii) the Company or any Subsidiary thereof is adjudicated by a court of competent jurisdiction insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or (iv) the Company or any Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or (v) the Company or any Subsidiary thereof makes a general assignment for the benefit of creditors; or (vi) the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or (vii) the Company or any Subsidiary thereof shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (viii) the Company or any Subsidiary thereof shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or (ix) any corporate or other action is taken by the Company or any Subsidiary thereof for the purpose of effecting any of the foregoing;

 

vi.

the Company or any Subsidiary shall default in any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company in an amount exceeding $150,000, whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; 

vii.

the Common Stock shall not be eligible for quotation on or quoted for trading on a Trading Market and shall not again be eligible for and quoted or listed for trading thereon within five Trading Days;

viii.

the Company shall be a party to any Change of Control Transaction or Fundamental Transaction, shall agree to sell or dispose of all or in excess of 33% of its assets in one or more transactions (whether or not such sale would constitute a Change of Control Transaction) or shall redeem or repurchase more than a de minimis number of its outstanding shares of Common Stock or 

18

other equity securities of the Company (other than redemptions of Conversion Shares and repurchases of shares of Common Stock or other equity securities of departing officers and directors of the Company; provided such repurchases shall not exceed $100,000, in the aggregate, for all officers and directors during the term of this Debenture);

ix.

a Registration Statement shall not have been declared effective by the Commission on or prior to the 240th calendar day after the Closing Date; 

x.

if, during the Effectiveness Period (as defined in the Registration Rights Agreement), the effectiveness of the Registration Statement lapses for any reason or the Holder shall not be permitted to resell Registrable Securities (as defined in the Registration Rights Agreement) under the Registration Statement, in either case, for more than 30 consecutive Trading Days or 60 non-consecutive Trading Days during any 12 month period; provided, however, that in the event that the Company is negotiating a merger, consolidation, acquisition or sale of all or substantially all of its assets or a similar transaction and in the written opinion of counsel to the Company, the Registration Statement, would be required to be amended to include information concerning such transactions or the parties thereto that is not available or may not be publicly disclosed at the time, the Company shall be permitted an additional 10 consecutive Trading during any 12 month period relating to such an event;

xi.

an Event (as defined in the Registration Rights Agreement) shall not have been cured to the satisfaction of the Holder prior to the expiration of thirty days from the Event Date (as defined in the Registration Rights Agreement) relating thereto (other than an Event resulting from a failure of an Registration Statement to be declared effective by the Commission on or prior to the Effectiveness Date (as defined in the Registration Rights Agreement), which shall be covered by Section 8(a)(ix); provided, that if the Company is timely paying liquidated damages called for under the Registration Rights Agreement in respect of such Event, then such Event shall be deemed to have been cured for purposes of this paragraph; 

xii.

the Company shall fail for any reason to deliver certificates to a Holder prior to the tenth Trading Day after a Conversion Date pursuant to and in accordance with Section 4(d) or the Company shall provide notice to the Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversions of any Debentures in accordance with the terms hereof; or

xiii.

the Company shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In within 5 Trading Days after notice therefor is delivered hereunder or shall fail to pay all amounts owed on account of an Event of Default within five days of the date due.

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b)

Remedies Upon Event of Default. If any Event of Default occurs, the full principal amount of this Debenture, together with interest and other amounts owing in respect thereof, to the date of acceleration shall become, at the Holder’s election, immediately due and payable in cash.   The aggregate amount payable upon an Event of Default shall be equal to the Mandatory Prepayment Amount.  Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at the rate of 18% per annum, or such lower maximum amount of interest permitted to be charged under applicable law.  All Debentures for which the full Mandatory Prepayment Amount hereunder shall have been paid in accordance herewith shall promptly be surrendered to or as directed by the Company.  The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law.  Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a Debenture holder until such time, if any, as the full payment under this Section shall have been received by it.  No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 9.

Miscellaneous. 

 

a)

Notices.  Any and all notices or other communications or deliveries to be provided by the Holders hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, facsimile number  ______________, Attn: ______________________________________or such other address or facsimile number as the Company may specify for such purposes by notice to the Holders delivered in accordance with this Section.  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile telephone number or address of such Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 5:30 p.m. (New York City time), (ii) the date after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

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b)

Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, interest and liquidated damages (if any) on, this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed.  This Debenture is a direct debt obligation of the Company.  This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein. 

 

c)

Lost or Mutilated Debenture.  If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Company.

d)

Security Interest.  This Debenture is a direct debt obligation of the Company and, pursuant to the Security Agreement is secured by a first priority perfected security interest in all of the assets of the Company for the benefit of the Holders. 

e)

Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or such New York Courts are improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions 

21

of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

f)

Waiver.  Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture.  The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture.  Any waiver must be in writing.

 

g)

Severability.  If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.  If it shall be found that any interest or other amount deemed interest due hereunder violates applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

h)

Next Business Day.  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

i)

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

*********************

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

TECHNOCONCEPTS, INC.

By:__________________________________________

     Name:

     Title:

23

ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 7% Secured Convertible Debenture of TechnoConcepts, Inc., a Colorado corporation (the “Company”), due on November ___, 2006, into shares of common stock, no par value (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below.  If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts determined in accordance with Section 13(d) of the Exchange Act, specified under Section 4 of this Debenture.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.  

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debentures to be Converted:

Payment of Interest in Common Stock __ yes  __ no

If yes, $_____ of Interest Accrued on Account of Conversion at Issue.

Number of shares of Common Stock to be issued:

Signature:

Name:

Address:

24

Schedule 1

CONVERSION SCHEDULE

The 7% Secured Convertible Debentures due on November ___, 2006, in the aggregate principal amount of $____________ issued by TechnoConcepts, Inc., a Colorado corporation.  This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated: 

	

Date of Conversion

(or for first entry,

 Original Issue Date)

	

Amount of 

Conversion

	

Aggregate 

Principal 

Amount 

Remaining 

Subsequent to

 Conversion

(or original 

Principal 

Amount)

	

Company Attest

	

	

	

	

	

	

	

	

	

 

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

25

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