Document:

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                                                                EXHIBIT 10.17

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                 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

                                     among:

                               DNA SCIENCES, INC.,
                             a Delaware corporation;

                             PIPO ACQUISITION CORP.,
                             a Delaware corporation;

                                       AND

                                   PPGX, INC.,
                             a Delaware corporation;

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

                          Dated as of December 17, 2000

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                                TABLE OF CONTENTS

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SECTION 1. DESCRIPTION OF TRANSACTION.............................................................................1

         1.1      Merger of Merger Sub into the Company...........................................................1

         1.2      Effect of the Merger............................................................................1

         1.3      Closing; Effective Time.........................................................................1

         1.4      Certificate of Incorporation and Bylaws; Directors and Officers.................................2

         1.5      Conversion of Shares............................................................................2

         1.6      Stock Options...................................................................................6

         1.7      Closing of the Company's Transfer Books.........................................................7

         1.8      Exchange of Certificates; Escrow Shares.........................................................7

         1.9      Appraisal Rights...............................................................................10

         1.10     Tax Consequences...............................................................................10

         1.11     Accounting Treatment...........................................................................10

         1.12     Further Action.................................................................................10

SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................10

         2.1      Due Organization; Subsidiaries; Etc............................................................11

         2.2      Certificate of Incorporation and Bylaws; Records...............................................11

         2.3      Capitalization, Etc............................................................................12

         2.4      Financial Statements...........................................................................13

         2.5      Absence of Changes.............................................................................14

         2.6      Title to Assets................................................................................16

         2.7      Bank Accounts; Receivables.....................................................................16

         2.8      Equipment; Leasehold...........................................................................17

         2.9      Proprietary Assets.............................................................................17

         2.10     Contracts......................................................................................20

         2.11     Liabilities....................................................................................23

         2.12     Compliance with Legal Requirements.............................................................23

         2.13     Governmental Authorizations and Facility Certifications........................................23

         2.14     Tax Matters....................................................................................24

         2.15     Employee and Labor Matters; Benefit Plans......................................................25

         2.16     Environmental Matters..........................................................................28
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         2.17     Insurance......................................................................................29

         2.18     Related Party Transactions.....................................................................29

         2.19     Legal Proceedings; Orders......................................................................29

         2.20     Authority; Binding Nature of Agreement.........................................................30

         2.21     Non-Contravention; Consents....................................................................30

         2.22     Inapplicability of Section 2115 of California Corporations Code................................31

         2.23     Vote Required..................................................................................31

         2.24     Brokers or Finders.............................................................................31

         2.25     Full Disclosure................................................................................31

SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...............................................32

         3.1      Organization and Standing; Articles and Bylaws.................................................32

         3.2      Capitalization.................................................................................32

         3.3      Financial Statements...........................................................................33

         3.4      Actions........................................................................................33

         3.5      Title to Properties and Assets; Liens, etc.....................................................34

         3.6      Patents, Trademarks, etc.......................................................................34

         3.7      Proprietary Information and Inventions Agreements..............................................34

         3.8      Material Contracts and Commitments.............................................................34

         3.9      Compliance with Other Instruments..............................................................35

         3.10     Validity of Parent Capital Stock...............................................................35

         3.11     Governmental Authorizations....................................................................35

         3.12     Tax Returns and Payments.......................................................................36

         3.13     Tax Elections..................................................................................36

         3.14     Employees......................................................................................36

         3.15     Employee Benefit Plans.........................................................................36

         3.16     Environmental Matters..........................................................................36

         3.17     Insurance......................................................................................36

         3.18     No Conflict of Interest........................................................................37

         3.19     Litigation, etc................................................................................37

         3.20     Authority; Binding Nature of Agreement.........................................................37
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         3.21     Non-Contravention; Consents....................................................................37

         3.22     Financial Condition............................................................................38

         3.24     U.S. Real Property Holding Corporation.........................................................38

         3.25     Investment Company Act.........................................................................38

         3.26     No Brokers or Finders..........................................................................38

         3.27     Full Disclosure................................................................................38

SECTION 4. CERTAIN COVENANTS OF THE PARTIES......................................................................38

         4.1      Access and Investigation.......................................................................38

         4.2      Operation of the Company's Business............................................................39

         4.3      Notification; Updates to Company Disclosure Schedule...........................................41

         4.4      Notification; Updates to Parent Disclosure Schedule............................................42

         4.5      Operation of Parent's Business.  During the Pre-Closing Period:................................43

         4.6      No Negotiation.................................................................................44

SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES...................................................................44

         5.1      Filings and Consents...........................................................................44

         5.2      Company Stockholders' Meeting..................................................................44

         5.3      Public Announcements...........................................................................45

         5.4      Reasonable Efforts.............................................................................45

         5.5      Tax Matters....................................................................................45

         5.6      Noncompetition Agreements......................................................................46

         5.7      Employment Agreements..........................................................................46

         5.8      Releases.......................................................................................46

         5.9      Underwriter Lockup Agreements..................................................................46

         5.10     Amendment/Clarification of Existing Agreements; Payoff of Company Line of Credit...............46

         5.11     Termination of Certain Agreements..............................................................47

         5.12     FIRPTA Matters.................................................................................47

         5.13     Employee and Related Matters...................................................................47

SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB..........................................48

         6.1      Accuracy of Representations....................................................................48
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         6.2      Performance of Covenants.......................................................................48

         6.3      Stockholder Approval...........................................................................48

         6.4      Consents.......................................................................................48

         6.5      Agreements and Documents.......................................................................48

         6.6      Absence of Material Adverse Effect.............................................................49

         6.7      HSR Act........................................................................................49

         6.8      FIRPTA Compliance..............................................................................50

         6.9      No Restraints..................................................................................50

         6.10     No Legal Proceedings...........................................................................50

         6.11     Employees......................................................................................50

         6.12     Termination of Certain Agreements..............................................................50

         6.13     Closing of Series C Investment.................................................................50

         6.15     Company Amended and Restated Certificate.......................................................50

SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY....................................................50

         7.1      Accuracy of Representations....................................................................51

         7.2      Performance of Covenants.......................................................................51

         7.3      Documents......................................................................................51

         7.4      No Restraints..................................................................................51

         7.5      Absence of Material Adverse Effect.............................................................51

         7.6      HSR Act........................................................................................51

         7.7      Amended and Restated Certificate...............................................................52

         7.8      Director Appointment...........................................................................52

         7.9      Company Amended and Restated Certificate.......................................................52

SECTION 8. TERMINATION...........................................................................................52

         8.1      Termination Events.............................................................................52

         8.2      Termination Procedures.........................................................................53

         8.3      Effect of Termination..........................................................................53

SECTION 9. INDEMNIFICATION, ETC..................................................................................53

         9.1      Survival of Representations, Etc...............................................................53

         9.2      Indemnification................................................................................54
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         9.3      Deductible.....................................................................................55

         9.4      Exclusive Remedy for Monetary Damages..........................................................55

         9.5      No Contribution................................................................................56

         9.6      Interest.......................................................................................56

         9.7      Defense of Third Party Claims..................................................................56

         9.8      Exercise of Remedies by Parent Indemnitees Other Than Parent...................................57

SECTION 10. MISCELLANEOUS PROVISIONS.............................................................................57

         10.1     Stockholders' Agents...........................................................................57

         10.2     Further Assurances.............................................................................57

         10.3     Fees and Expenses..............................................................................57

         10.4     Attorneys' Fees................................................................................57

         10.5     Notices........................................................................................57

         10.6     Confidentiality................................................................................59

         10.7     Time of the Essence............................................................................59

         10.8     Headings.......................................................................................59

         10.9     Counterparts...................................................................................59

         10.10    Governing Law..................................................................................59

         10.11    Successors and Assigns.........................................................................59

         10.12    Remedies Cumulative; Specific Performance......................................................59

         10.13    Waiver.........................................................................................60

         10.14    Amendments.....................................................................................60

         10.15    Severability...................................................................................60

         10.16    Parties in Interest............................................................................60

         10.17    Entire Agreement...............................................................................60

         10.18    Construction...................................................................................60
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                                       v.
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                               AGREEMENT AND PLAN
                          OF MERGER AND REORGANIZATION

       THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is
made and entered into as of December 17, 2000, by and among: DNA SCIENCES, INC.,
a Delaware corporation ("Parent"), PIPO ACQUISITION CORP., a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and PPGX,
INC., a Delaware corporation (the "Company"). Certain capitalized terms used in
this Agreement are defined in EXHIBIT A.

                                    RECITALS

       A.     Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub into the Company in accordance with this Agreement and the Delaware
General Corporation Law (the "Merger"). Upon consummation of the Merger, Merger
Sub will cease to exist, and the Company will become a wholly owned subsidiary
of Parent.

       B.     It is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). For accounting purposes, it is intended that
the Merger be treated as a "purchase."

       C.     This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and the Company.

       D.     Contemporaneously with the execution and delivery of this
Agreement, each of Axys Pharmaceuticals, Inc. ("Axys") and Pharmaceutical
Product Development, Inc. ("PPD," and collectively with Axys, the "Major
Stockholders") is executing and delivering to Parent a voting agreement (a
"Voting Agreement") of even date herewith substantially in the form of EXHIBIT
B.

                                    AGREEMENT

       The parties to this Agreement agree as follows:

SECTION 1. DESCRIPTION OF TRANSACTION

       1.1    MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject
to the conditions set forth in this Agreement, at the Effective Time (as defined
in Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").

       1.2    EFFECT OF THE MERGER. The Merger shall have the effects set forth
in this Agreement and in the applicable provisions of the Delaware General
Corporation Law.

       1.3    CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, 3000 El Camino Real, Five Palo Alto Square, Palo Alto,
California 94306 at 10:00 a.m. on a date to be

                                       1.
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mutually agreed upon by Parent and the Company no later than three days after
the satisfaction (or, to the extent permitted, the waiver) of the conditions set
forth in Sections 6 and 7. Contemporaneously with or as promptly as practicable
after the Closing, a properly executed certificate of merger conforming to the
requirements of the Delaware General Corporation Law shall be filed with the
Secretary of State of the State of Delaware. The Merger shall become effective
at the time such certificate of merger is filed with the Secretary of State of
the State of Delaware (the "Effective Time").

       1.4    CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless otherwise determined by Parent and the Company prior to the Effective
Time:

              (a)    the certificate of incorporation of the Surviving
       Corporation shall be amended and restated as of the Effective Time in a
       form acceptable to Parent;

              (b)    the bylaws of the Surviving Corporation shall be amended
       and restated as of the Effective Time to conform to the bylaws of Merger
       Sub as in effect immediately prior to the Effective Time; and

              (c)    the directors and officers of the Surviving Corporation
       immediately after the Effective Time shall be the individuals selected by
       Parent prior to the Closing.

       1.5    CONVERSION OF SHARES.

              (a)    Subject to Sections 1.8(c) and 1.9, at the Effective Time,
by virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or any stockholder of the Company:

                     (i)    each share of common stock of the Company (par value
       $0.001 per share) ("Company Common Stock") outstanding immediately prior
       to the Effective Time shall be converted into the right to receive a
       fraction of a share of the common stock (par value $0.001 per share) of
       Parent ("Parent Common Stock") equal to the Remainder Exchange Ratio;

                     (ii)   each share of Series A preferred stock of the
       Company (par value $0.001 per share) ("Company Series A Preferred Stock")
       outstanding immediately prior to the Effective Time shall be converted
       into the right to receive a fraction of a share of the Series D preferred
       stock (par value $0.001 per share) of Parent ("Parent Series D Preferred
       Stock," and together with Parent Common Stock, "Parent Capital Stock")
       equal to the Series A Exchange Ratio; and

                     (iii)  each share of the common stock (par value $0.001 per
       share) of Merger Sub outstanding immediately prior to the Effective Time
       shall be converted into one share of common stock of the Surviving
       Corporation.

              (b)    For purposes of this Agreement:

                                       2.
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              (i)    The "Series A Exchange Ratio" shall be equal to (A) the
       Liquidation Portion Exchange Ratio PLUS (B) the Remainder Exchange Ratio,
       rounded to five decimal places.

              (ii)   The "Liquidation Consideration" shall be equal to (A) the
       Debt Repayment DIVIDED BY (B) a fraction, the numerator of which is
       $47,000,000, and the denominator of which is the Merger Consideration,
       rounded to five decimal places.

              (iii)  The "Liquidation Portion Exchange Ratio" is equal to (A)
       the Liquidation Consideration DIVIDED BY (B) 10,000,000, rounded to five
       decimal places.

              (iv)   The "Remainder Exchange Ratio" shall be equal to (A) the
       Merger Consideration MINUS the Liquidation Consideration DIVIDED BY (B)
       the Aggregate Company Common Number, rounded to five decimal places.

              (v)    The "Debt Repayment" shall mean (A) the actual outstanding
       indebtedness due and payable to the Bank (as defined in Section 4.2(k))
       that is actually repaid by the Company on or prior to the Closing Date in
       accordance with Section 5.10(c) and (B) the value of the indebtedness due
       and payable to the Major Stockholders under the Loan Agreement (as
       defined in Section 4.2(n)) that is actually contributed to capital of the
       Company by the Major Stockholders on or prior to the Closing Date in
       accordance with Section 5.10(c).

              (vi)   "Merger Consideration" shall be equal to (A) 0.1175 TIMES
       (B) the Aggregate Parent Common Number.

              (vii)  The "Aggregate Parent Common Number" shall mean the sum of
       (1) the total number of shares of Parent Common Stock that are issued and
       outstanding on the date hereof; (2) the total number of shares of Parent
       Common Stock that are issuable upon the conversion of any shares of
       Parent Preferred Stock issued and outstanding on the date hereof; (3) the
       total number of shares of Parent Common Stock that are issuable upon the
       conversion of any shares of Parent Series C Preferred Stock issued to PPD
       in connection with the closing of the Series C Investment (as defined in
       Section 6.14) and issued or to be issued to Alliance Capital Partners;
       (4) the total number of shares of Parent Common Stock that are issuable
       upon the exercise in full of all warrants to acquire shares of Parent
       Common Stock that are outstanding on the date hereof; (5) the total
       number of shares of Parent Common Stock that are issuable upon conversion
       of any shares of Parent Preferred Stock that are issuable upon the
       exercise in full of all warrants to acquire shares of Parent Preferred
       Stock that are outstanding on the date hereof; (6) the total number of
       shares of Down Round Stock that are issued and outstanding immediately
       prior to the Effective Time or pursuant to a contractual agreement under
       which Parent is bound, as of the Effective Time, to issue Down Round
       Stock subsequent to the Effective Time; and (7) the total number of
       shares of capital stock of Parent that are issuable upon the conversion
       or exercise in full of all convertible securities or options (whether
       vested or unvested), warrants or other rights to acquire capital stock of
       Parent that are outstanding on the Initial Series C Closing Date other
       than

                                       3.
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       convertible securities or warrants referred to in clauses "(2)," "(3),"
       "(4)," "(5)" or "(6)" of this sentence; PROVIDED, HOWEVER, that
       notwithstanding anything to the contrary contained in this paragraph, no
       shares, warrants, options or rights shall be counted more than one time
       in calculating the "Aggregate Parent Common Number."

              (viii) The "Aggregate Company Common Number" shall mean the sum of
       (1) the total number of shares of Company Common Stock that are issued
       and outstanding immediately prior to the Effective Time; (2) the total
       number of shares of Company Common Stock that are issuable upon the
       conversion of any shares of Company Series A Preferred Stock issued and
       outstanding immediately prior to the Effective Time; and (3) the total
       number of shares of Company Capital Stock that are issuable upon the
       conversion or exercise in full of all convertible securities or options,
       warrants or other rights to acquire capital stock of the Company that are
       outstanding immediately prior to the Effective Time other than
       convertible securities or warrants referred to in clause "(2)" of this
       sentence; PROVIDED, HOWEVER, that notwithstanding anything to the
       contrary contained in this paragraph, no shares, warrants, options or
       rights shall be counted more than one time in calculating the "Aggregate
       Company Common Number."

              (ix)   "Down Round Stock" shall mean all shares of Parent Common
       Stock issued or deemed to be issued by Parent pursuant to this Section
       1.5(b)(v) in a Subsequent Equity Financing (as defined in Section
       1.5(b)(ix)) after the date hereof for an Effective Price less than $14.27
       other than (A) shares of Parent Common Stock issued upon conversion of
       Parent Preferred Stock; (B) shares of Parent Common Stock issued pursuant
       to the bona fide acquisition of (i) another entity by Parent by merger,
       purchase of substantially all of the assets of such entity, or other
       reorganization, or (ii) technology, software, patents or other
       intellectual property by license or purchase; (C) up to 4,500,000 shares
       of Parent Common Stock (or related options) issued to employees,
       officers, directors, consultants, or other persons performing services
       for Parent (including, but not by way of limitation, distributors and
       sales representatives) pursuant to any stock offering, plan, or
       arrangement approved by Parent's board of directors; (D) shares of
       capital stock issued to financial institutions in connection with the
       extension of credit to Parent or in connection with the lease of
       equipment, up to a maximum of one percent (1%) of Parent Common Stock
       issued and outstanding immediately prior to the date of this Agreement,
       and in both cases for other than equity financing purposes as approved by
       Parent's board of directors; or (E) shares of capital stock issued in
       connection with any stock split, stock dividend or recapitalization by
       Parent. In the event Parent at any time or from time to time after the
       date of this Agreement issues any Options or Convertible Securities or
       shall fix a record date for the determination of holders of any class of
       securities entitled to receive any such Options or Convertible
       Securities, then the maximum number of shares (as set forth in the
       instrument relating thereto assuming the satisfaction of any conditions
       to exercisability, including, without limitation, the passage of time and
       without regard to any provisions contained therein for a subsequent
       adjustment of such number) of Parent Common Stock issuable upon the
       exercise of such Options or, in the case of Convertible Securities and
       Options therefor, the conversion or exchange of such Convertible
       Securities, shall be deemed to be shares

                                       4.
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       of Down Round Stock issued as of the time of such issue or, in case such
       a record date shall have been fixed, as of the close of business on such
       record date, provided that with respect to a series of preferred stock of
       Parent, Down Round Stock shall not be deemed to have been issued unless
       the consideration per share of such Down Round Stock would be less than
       the conversion price of such series in effect on the date of and
       immediately prior to such issue, or such record date, as the case may be,
       and provided further that in any such case in which shares of Down Round
       Stock are deemed to be issued:

              (1)    no further adjustment in the Aggregate Parent Common Number
shall be made upon the subsequent issue of Convertible Securities or shares of
Parent Common Stock upon the exercise of such Options or conversion or exchange
of such Convertible Securities;

              (2)    if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to Parent, or in the number of shares of Parent Common
Stock issuable, upon the exercise, conversion or exchange thereof, the Exchange
Ratio shall be computed so as to reflect any such increase or decrease that has
occurred on or prior to the Effective Time insofar as it affects such Options or
the rights of conversion or exchange under such Convertible Securities;

              (3)    in the event of the expiration or termination of any such
Options or any rights of conversion or exchange under such Convertible
Securities on or prior to the Effective Time, the Exchange Ratio shall be
computed as if:

                     a.     in the case of Convertible Securities or Options for
              Parent Common Stock, the only shares of Down Round Stock issued
              were shares of Parent Common Stock, if any, actually issued upon
              the exercise of such Options or the conversion or exchange of such
              Convertible Securities and the consideration received therefor was
              the consideration actually received by Parent for the issue of all
              such Options, whether or not exercised, plus the consideration
              actually received by Parent upon such exercise, or for the issue
              of all such Convertible Securities which were actually converted
              or exchanged, plus the additional consideration, if any, actually
              received by Parent upon such conversion or exchange, and

                     b.     in the case of Options for Convertible Securities,
              only the Convertible Securities, if any, actually issued upon the
              exercise thereof were issued at the time of issue of such Options,
              and the consideration received by Parent for the shares of Down
              Round Stock deemed to have been then issued was the consideration
              actually received by Parent for the issue of all such Options,
              whether or not exercised, plus the consideration deemed to have
              been received by Parent upon the issue of the Convertible
              Securities with respect to which such Options were actually
              exercised;

                                       5.
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                     (x)    "Convertible Securities" shall mean any evidences of
       indebtedness, shares (other than Parent Common Stock) or other securities
       convertible into or exchangeable for Parent Common Stock.

                     (xi)   The "Effective Price" of a share of Down Round Stock
       shall mean the quotient obtained by dividing the total number of shares
       of Down Round Stock issued or sold, or deemed to have been issued or sold
       by Parent under Section 1.5(b)(v), into the dollar value of the aggregate
       consideration received, or deemed to have been received by Parent, for
       such shares of Down Round Stock.

                     (xii)  "Options" shall mean rights, options or warrants to
       subscribe for, purchase or otherwise acquire either Parent Common Stock
       or Convertible Securities.

                     (xiii) A "Subsequent Equity Financing" shall mean the sale
       by Parent, prior to the Effective Time, of Down Round Stock.

              (c)    If any shares of Company Capital Stock outstanding
immediately prior to the Effective Time are unvested or are subject to a
repurchase option, risk of forfeiture or other condition under any applicable
restricted stock purchase agreement or other agreement with the Company, then
the shares of Parent Capital Stock issued in exchange for such shares of Company
Capital Stock will also be unvested and subject to the same repurchase option,
risk of forfeiture or other condition, and the certificates representing such
shares of Parent Capital Stock may accordingly be marked with appropriate
legends.

              (d)    Fifteen percent (15%) of the shares of Parent Capital Stock
otherwise issuable in the Merger to the Major Stockholders (without taking into
account any deductions in respect of payment for Excess Transaction Expenses)
shall be delivered into escrow and held as specified in Section 1.8. In
addition, to the extent a Major Stockholder has not paid such Major
Stockholder's pro rata portion of the Excess Transaction Expenses, an additional
number of shares of Parent Series D Preferred Stock equal to the quotient
obtained by dividing (1) such Major Stockholder's pro rata portion of such
Excess Transaction Expenses by (2) $14.27 (rounded down to the nearest whole
number of shares) shall be deducted from the number of shares of Parent Series D
Preferred Stock otherwise issuable to such Major Stockholder.

              (e)    If, between the date of this Agreement and the Effective
Time, the outstanding shares of Company Capital Stock or Parent Capital Stock
are changed into a different number or class of shares by reason of any stock
split, division or subdivision of shares, stock dividend, reverse stock split,
consolidation of shares, reclassification, recapitalization or other similar
transaction, then the Exchange Ratio shall be appropriately adjusted.

       1.6    STOCK OPTIONS. At the Effective Time, each option to purchase
shares of Company Capital Stock that is then outstanding, whether vested or
unvested (a "Company Option"), shall be assumed by Parent in accordance with the
terms (as in effect as of the date of this Agreement) of the Company's 1999
Equity Incentive Plan (the "Stock Plan") and the stock option agreement by which
such Company Option is evidenced. All rights with respect to Company Common
Stock under outstanding Company Options shall thereupon be converted into

                                       6.
<PAGE>

rights with respect to Parent Common Stock. Accordingly, from and after the
Effective Time, (i) each Company Option assumed by Parent may be exercised
solely for shares of Parent Common Stock, (ii) the number of shares of Parent
Common Stock subject to each such assumed Company Option shall be equal to the
number of shares of Company Common Stock that were subject to such Company
Option immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock, (iii)
the per share exercise price for the Parent Common Stock issuable upon exercise
of each such assumed Company Option shall be determined by dividing the exercise
price per share of Company Common Stock subject to such Company Option, as in
effect immediately prior to the Effective Time, by the Exchange Ratio, and
rounding the resulting exercise price up to the nearest whole cent and (iv) all
restrictions on the exercise of each such assumed Company Option shall continue
in full force and effect, and the term, exercisability, vesting schedule and
other provisions of such Company Option shall otherwise remain unchanged and
shall continue to have, and be subject to, the same terms and conditions as set
forth in the Stock Plan and/or stock option agreement by which such Company
Option is evidenced immediately prior to the Effective Time; PROVIDED, HOWEVER,
that each such assumed Company Option shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, reverse
stock split, stock dividend, recapitalization or other similar transaction
effected by Parent after the Effective Time. The Company and Parent shall take
all action that may be necessary to effectuate the provisions of this Section
1.6. Following the Closing, Parent will send to each holder of an assumed
Company Option a written notice setting forth (i) the number of shares of Parent
Common Stock subject to such assumed Company Option, and (ii) the exercise price
per share of Parent Common Stock issuable upon exercise of such assumed Company
Option. Parent shall take all necessary corporate action to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery upon exercise
of Company Options assumed in accordance with this Section 1.6. Notwithstanding
anything to the contrary contained in this Section 1.6, in lieu of assuming
outstanding Company Options in accordance with this Section 1.6 Parent may, at
its election, cause such outstanding Company Options to be replaced by issuing
reasonably equivalent replacement stock options in substitution therefor.

       1.7    CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of Company Capital Stock that were
outstanding immediately prior to the Effective Time shall cease to have any
rights as stockholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of Company Capital Stock shall be made on such stock transfer books
after the Effective Time. If, after the Effective Time, a valid certificate
previously representing any of such shares of Company Capital Stock (a "Company
Stock Certificate") is presented to the Surviving Corporation or Parent, such
Company Stock Certificate shall be canceled and shall be exchanged as provided
in Section 1.8.

       1.8    EXCHANGE OF CERTIFICATES; ESCROW SHARES.

              (a)    At or prior to the Effective Time, Parent shall reserve for
exchange in accordance with this Section 1, (i) the aggregate number of shares
of Parent Capital Stock issuable pursuant to Section 1.5 in exchange for
outstanding shares of Company Capital Stock

                                       7.
<PAGE>

and (ii) cash for fractional shares in the amount described in Section 1.8(c).
At the Closing, each Company stockholder that does not perfect its appraisal
rights and is otherwise entitled to receive shares of Parent Capital Stock
pursuant to Section 1.5 (a "Merger Stockholder") shall surrender to Parent all
certificates representing shares of Company Capital Stock (properly endorsed for
transfer). At or as soon as practicable after the Effective Time, Parent shall
(i) deliver to each Merger Stockholder that is not a Major Stockholder
certificates representing one hundred percent (100%) of the number of whole
shares of Parent Common Stock and/or Parent Series D Preferred Stock, as the
case may be, that such Merger Stockholder has the right to receive pursuant to
the provisions of Section 1.5 (ii) deliver to each Major Stockholder
certificates representing eighty-five percent (85%) of the number of whole
shares of Parent Common Stock and/or Parent Series D Preferred Stock, as the
case may be, that such Merger Stockholder has the right to receive pursuant to
the provisions of Section 1.5 and (ii) deliver to the escrow agent under the
Escrow Agreement in the form of EXHIBIT C hereto (the "Escrow Agreement"), on
behalf and in the name of each Major Stockholder, certificates representing
fifteen percent (15%) of the number of whole shares of Parent Common Stock
and/or Parent Series D Preferred Stock, as the case may be, that such Major
Stockholder has the right to receive pursuant to the provisions of Section 1.5
(the "Escrow Shares"). If any Company Stock Certificate shall have been lost,
stolen or destroyed, Parent may, in its discretion and as a condition precedent
to the issuance of any certificate representing Parent Capital Stock, require
the owner of such lost, stolen or destroyed Company Stock Certificate to provide
an appropriate affidavit and indemnity agreement against any claim that may be
made against Parent or the Surviving Corporation with respect to such Company
Stock Certificate.

              (b)    No dividends or other distributions declared or made with
respect to Parent Capital Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Company Stock Certificate with
respect to the shares of Parent Common Stock or Parent Series D Preferred Stock
represented thereby, and no cash payment in lieu of any fractional share shall
be paid to any such holder, until such holder surrenders such Company Stock
Certificate in accordance with this Section 1.8 or delivers the affidavit and
indemnity agreement referred to in Section 1.8(a) (at which time such holder
shall be entitled receive all such dividends and distributions and such cash
payment).

              (c)    No fractional shares of Parent Capital Stock shall be
issued in connection with the Merger, and no certificates for any such
fractional shares shall be issued. In lieu of such fractional shares, any holder
of Company Capital Stock who would otherwise be entitled to receive a fraction
of a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock issuable to such holder) and/or a fraction of a share of
Parent Series D Preferred Stock (after aggregating all fractional shares of
Parent Series D Preferred Stock issuable to such holder) shall, upon surrender
of such holder's Company Stock Certificate(s) or affidavit and indemnity
agreement referred to in Section 1.8(a), as the case may be, be paid in cash the
dollar amount (rounded to the nearest whole cent), without interest, determined
by multiplying such fraction by (i) $2.05, with respect to a fraction of a share
of Parent Common Stock, and (b) $14.27, with respect to a fraction of a share of
Parent Series D Preferred Stock.

              (d)    The shares of Parent Capital Stock to be issued in the
Merger shall be characterized as "restricted securities" for purposes of Rule
144 under the Securities Act, and

                                       8.
<PAGE>

each certificate representing any such shares shall, until such time that the
shares are not so restricted under the Securities Act, bear a legend identical
or similar in effect to the following legend (together with any other legend or
legends required by applicable state securities laws or otherwise, if any):

                     "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
              REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY
              NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED
              OR HYPOTHECATED UNLESS REGISTERED UNDER THE ACT OR UNLESS AN
              EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS
              AVAILABLE."

              (e)    Parent and the Surviving Corporation shall be entitled to
deduct and withhold from any consideration payable or otherwise deliverable to
any holder or former holder of Company Capital Stock pursuant to this Agreement
such amounts as Parent or the Surviving Corporation may be required to deduct or
withhold therefrom under the Code or under any provision of state, local or
foreign tax law. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as having been
paid to the Person to whom such amounts would otherwise have been paid.

              (f)    Neither Parent nor the Surviving Corporation shall be
liable to any holder or former holder of Company Capital Stock for any shares of
Parent Capital Stock (or dividends or distributions with respect thereto), or
for any cash amounts, delivered to any public official pursuant to any
applicable abandoned property, escheat or similar law.

              (g)    The Escrow Shares shall be maintained in an escrow fund
(the "Escrow Fund") for purposes of satisfying claims brought pursuant to
Section 9 and for the period of time set forth in the Escrow Agreement.

                                       9.
<PAGE>

     1.9  APPRAISAL RIGHTS.

          (a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of Company Capital Stock for which, as of the Effective
Time, the holder thereof has demanded an appraisal of their value in accordance
with Section 262 of the Delaware General Corporation Law ("Dissenting Shares")
shall not be converted into or represent the right to receive Parent Capital
Stock in accordance with Section 1.5, and the holder or holders of such shares
shall be entitled only to such rights as may be granted to such holder or
holders in Section 262 of the Delaware General Corporation Law; PROVIDED,
HOWEVER, that if the status of any such shares as Dissenting Shares shall not be
perfected in accordance with Section 262 of the Delaware General Corporation
Law, or if any such shares shall lose their status as Dissenting Shares then, as
of the later of the Effective Time or the time of the failure to perfect such
status or the loss of such status, such shares shall automatically be converted
into and shall represent only the right to receive (upon the surrender of the
certificate or certificates representing such shares) Parent Capital Stock in
accordance with Section 1.5.

          (b) The Company shall give Parent (i) prompt notice of any written
demand received by the Company at or prior to any meeting of the Company's
stockholders pursuant to Section 5.2 hereof to require the Company to purchase
Dissenting Shares pursuant to Section 262 of the Delaware General Corporation
Law and of any other demand, notice or instrument delivered to the Company prior
to the Effective Time pursuant to the Delaware General Corporation Law, and (ii)
the opportunity to participate in all negotiations and proceedings with respect
to any such demand, notice or instrument. The Company shall not make any payment
or settlement offer prior to the Effective Time with respect to any such demand
unless Parent shall have consented in writing to such payment or settlement
offer.

     1.10 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.

     1.11 ACCOUNTING TREATMENT. For accounting purposes, the Merger is
intended to be treated as a "purchase."

     1.12 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation or Parent
with full right, title and possession of and to all rights and property of
Merger Sub and the Company, the officers and directors of the Surviving
Corporation and Parent shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.

SECTION 2.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

          Except as set forth in the Company Disclosure Schedule, which shall be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Section 2,

                                       10.
<PAGE>

the Company represents and warrants, to and for the benefit of the Parent
Indemnitees, as follows:

     2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.

          (a) The Company has no Subsidiaries, except for the Entities
identified in Part 2.1(a)(i) of the Company Disclosure Schedule; and neither the
Company nor any of the other Entities identified in Part 2.1(a)(i) of the
Company Disclosure Schedule owns any capital stock of, or any equity interest of
any nature in, any other Entity, other than the Entities identified in Part
2.1(a)(ii) of the Company Disclosure Schedule. (The Company and each of its
Subsidiaries are referred to collectively in this Agreement as the "Acquired
Corporations.") Except as set forth in Part 2.1(a)(iii) of the Company
Disclosure Schedule, none of the Acquired Corporations has agreed or is
obligated to make, or is bound by any Contract under which it may become
obligated to make, any future investment in or capital contribution to any other
Entity. Except as set forth in Part 2.1(a)(iv) of the Company Disclosure
Schedule, none of the Acquired Corporations has, at any time, been a general
partner of, or has otherwise been liable for any of the debts or other
obligations of, any general partnership, limited partnership or other Entity.

          (b) Each of the Acquired Corporations is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all necessary power and authority: (i) to conduct its
business in the manner in which its business is currently being conducted; (ii)
to own and use its assets in the manner in which its assets are currently owned
and used; and (iii) to perform its obligations under all Contracts by which it
is bound.

          (c) Each of the Acquired Corporations is qualified to do business as a
foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of its business requires such qualification and
where the failure to be so qualified would reasonably be expected to have a
Material Adverse Effect on such Acquired Corporation. Part 2.1(c) of the Company
Disclosure Schedule accurately sets forth for each of the respective Acquired
Corporations each jurisdiction where such qualification is required.

          (d) Except as set forth in Part 2.1(d) of the Company Disclosure
Schedule, the Company has not conducted any business under or otherwise used,
for any purpose or in any jurisdiction, any fictitious name, assumed name, trade
name or other name, other than the name "PPGx, Inc."

          (e) Part 2.1(e) of the Company Disclosure Schedule accurately sets
forth for each of the respective Acquired Corporations: (i) the names of the
members of the board of directors, (ii) the names of the members of each
committee of the board of directors, and (iii) the names and titles of each of
the officers.

     2.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent accurate and complete copies of: (1) the certificate of
incorporation, bylaws and other charter or similar organizational documents of
the respective Acquired Corporations, including all amendments thereto; (2)
stock records of each of the Acquired Corporations; and (3) except

                                       11.
<PAGE>

as set forth in Part 2.2 of the Company Disclosure Schedule, the minutes and
other records of the meetings and other proceedings (including any actions taken
by written consent or otherwise without a meeting) of the stockholders, the
board of directors and all committees of the board of directors of each of the
Acquired Corporations. The stockholders and board of directors of the Company
have ratified, confirmed and approved all prior lawful action taken on behalf of
the Company by the Company's board of directors (in the case of ratification,
confirmation and approval by the Company's stockholders) and the Company's
officers (in the case of ratification, confirmation and approval by the
Company's board of directors). There has not been any violation of any of the
provisions of the certificate of incorporation, bylaws or other charter or
similar organizational documents of any of the Acquired Corporations, and none
of the Acquired Corporations has taken any action that is inconsistent in any
material respect with any resolution adopted by its stockholders, board of
directors or any committee of its board of directors. The books of account,
stock records, minute books and other records of each of the Acquired
Corporations are accurate, up-to-date and complete in all material respects, and
have been maintained in accordance with prudent business practices.

     2.3 CAPITALIZATION, ETC.

          (a) As of the date of this Agreement, the authorized capital stock of
the Company consists of: (i) 15,000,000 shares of Company Common Stock, of which
29,000 shares have been issued and are outstanding; and (ii) 10,000,000 shares
of preferred stock (par value $0.001 per share), all of which have been
designated "Series A Preferred Stock," of which 10,000,000 shares have been
issued and are outstanding as of the date of this Agreement. Each outstanding
share of preferred stock is convertible into one share of Company Common Stock.
All of the outstanding shares of Company Common Stock and Company Series A
Preferred Stock have been duly authorized and validly issued, and are fully paid
and non-assessable. As of the date of this Agreement, there are no shares of
Company Capital Stock held by any of the other Acquired Corporations. Part
2.3(a) of the Company Disclosure Schedule provides an accurate and complete
description of the terms of each repurchase option which is held by the Company
and to which any of such shares is subject. Except as set forth in Part 2.3(a)
of the Company Disclosure Schedule, there is no Acquired Corporation Contract
relating to the voting or registration of, or restricting any Person from
purchasing, selling, pledging or otherwise disposing of (or granting any option
or similar right with respect to), any shares of Company Capital Stock. None of
the Acquired Corporations is under any obligation, or is bound by any Contract
pursuant to which it may become obligated, to repurchase, redeem or otherwise
acquire any outstanding shares of Company Capital Stock.

          (b) The Company has reserved 1,775,000 shares of Company Common Stock
for issuance under the Stock Plan, of which options to purchase 1,405,900 shares
are outstanding as of the date of this Agreement. Part 2.3(b) of the Company
Disclosure Schedule accurately sets forth, with respect to each Company Option
that is outstanding as of the date of this Agreement: (i) the name of the holder
of such Company Option; (ii) the total number of shares of Company Common Stock
that are subject to such Company Option and the number of shares of Company
Common Stock with respect to which such Company Option is immediately
exercisable; (iii) the date on which such Company Option was granted and the
term of such Company Option; (iv) the vesting schedule for such Company Option;
(v) the exercise price per share of Company

                                       12.
<PAGE>

Common Stock purchasable under such Company Option; and (vi) whether such
Company Option has been designated an "incentive stock option" as defined in
Section 422 of the Code.

          (c) Except as set forth in Part 2.3(b) or Part 2.3(c) of the Company
Disclosure Schedule, there is no: (i) outstanding subscription, option, call,
warrant or right (whether or not currently exercisable) to acquire any shares of
the capital stock or other securities of any of the Acquired Corporations; (ii)
outstanding security, instrument or obligation that is or may become convertible
into or exchangeable for any shares of the capital stock or other securities of
any of the Acquired Corporations; (iii) Contract under which any of the Acquired
Corporations is or may become obligated to sell or otherwise issue any shares of
its capital stock or any other securities; or (iv) to the Knowledge of the
Company, condition or circumstance that may give rise to or provide a basis for
the assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive any shares of capital stock or other securities
of the Acquired Corporations.

          (d) All outstanding shares of Company Common Stock and Company Series
A Preferred Stock, all outstanding Company Options and all outstanding shares of
capital stock of each Subsidiary of the Company have been issued and granted in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Contracts.

          (e) Except as set forth in Part 2.3(e) of the Company Disclosure
Schedule, the Company has never repurchased, redeemed or otherwise reacquired
any shares of capital stock or other securities of the Company. All securities
so reacquired by the Company were reacquired in compliance with (i) the
applicable provisions of the Delaware General Corporation Law and all other
applicable Legal Requirements, and (ii) all requirements set forth in applicable
restricted stock purchase agreements and other applicable Contracts.

          (f) Except as set forth in Part 2.3(f) of the Company Disclosure
Schedule, all of the outstanding shares of capital stock or other ownership
interests of the Entities identified in Part 2.1(a) of the Company Disclosure
Schedule that have been issued to the Company have been duly authorized and are
validly issued, are fully paid and nonassessable and are owned beneficially and
of record by the Company, free and clear of any Encumbrances.

     2.4 FINANCIAL STATEMENTS.

          (a) The Company has delivered to Parent the following financial
statements and notes (collectively, the "Acquired Corporation Financial
Statements"):

               (i) The audited consolidated balance sheets of the Acquired
Corporations as of December 31, 1999, and the related audited consolidated
income statements, consolidated statements of stockholders' equity and
consolidated statements of cash flows for the Acquired Corporations for the year
then ended, together with the notes thereto and the unqualified report and
opinion of Ernst & Young relating thereto; and

               (ii) the unaudited consolidated balance sheet of the Acquired
Corporations as of September 30, 2000 (the "Unaudited Interim Balance Sheet"),
and the related

                                       13.
<PAGE>

unaudited consolidated income statement of the Acquired Corporations for the
nine months then ended.

          (b) The Acquired Corporation Financial Statements are accurate and
complete in all material respects and present fairly the consolidated financial
position of the Acquired Corporations as of the respective dates thereof and the
consolidated results of operations and (in the case of the financial statements
referred to in Section 2.4(a)(i)) consolidated cash flows of the Acquired
Corporations for the periods covered thereby. The Acquired Corporation Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered (except
that the financial statements referred to in Section 2.4(a)(ii) do not contain
footnotes and are subject to normal and recurring year-end audit adjustments,
which will not, individually or in the aggregate, be material in magnitude).

     2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Company
Disclosure Schedule, since September 30, 2000:

          (a) there has not been any material adverse change in the business,
     condition, assets, liabilities, operations or financial performance of the
     Acquired Corporations taken as a whole, and, to the Knowledge of the
     Company, no event has occurred that will, or could reasonably be expected
     to, have a Material Adverse Effect on the Acquired Corporations;

          (b) there has not been any material loss, damage or destruction to, or
     any material interruption in the use of, any of the assets of any of the
     Acquired Corporations (whether or not covered by insurance);

          (c) none of the Acquired Corporations has (i) declared, accrued, set
     aside or paid any dividend or made any other distribution in respect of any
     shares of capital stock, or (ii) repurchased, redeemed or otherwise
     reacquired any shares of capital stock or other securities;

          (d) none of the Acquired Corporations has sold, issued or authorized
     the issuance of (i) any capital stock or other security (except for Company
     Common Stock issued upon the exercise of outstanding Company Options), (ii)
     any option or right to acquire any capital stock or any other security
     (except for Company Options described in Part 2.3(b) of the Company
     Disclosure Schedule), or (iii) any instrument convertible into or
     exchangeable for any capital stock or other security;

          (e) the Company has not amended or waived any of its rights under, or
     permitted the acceleration of vesting under, (i) any provision of the Stock
     Plan, (ii) any provision of any agreement evidencing any outstanding
     Company Option, or (iii) any restricted stock purchase agreement;

          (f) there has been no amendment to the certificate of incorporation,
     bylaws or other charter or organizational documents of any of the Acquired
     Corporations, and none of the Acquired Corporations has effected or been a
     party to any Acquisition Transaction,

                                       14.
<PAGE>

     recapitalization, reclassification of shares, stock split, reverse stock
     split or similar transaction;

          (g) none of the Acquired Corporations has formed any Subsidiary or
     acquired any equity interest or other interest in any other Entity;

          (h) none of the Acquired Corporations has made any capital expenditure
     which, when added to all other capital expenditures made on behalf of the
     Acquired Corporations since September 30, 2000, exceeds $500,000;

          (i) none of the Acquired Corporations has amended or prematurely
     terminated, or waived any material right or remedy under, any Material
     Contract;

          (j) none of the Acquired Corporations has (i) acquired, leased or
     licensed any right or other asset from any other Person, (ii) sold or
     otherwise disposed of, or leased or licensed, any right or other asset to
     any other Person, or (iii) waived or relinquished any right, except for
     immaterial rights or other immaterial assets acquired, leased, licensed or
     disposed of in the ordinary course of business and consistent with past
     practices;

          (k) none of the Acquired Corporations has written off as
     uncollectible, or established any extraordinary reserve with respect to,
     any account receivable or other indebtedness;

          (l) none of the Acquired Corporations has made any pledge of any of
     its assets or otherwise permitted any of its assets to become subject to
     any Encumbrance, except for pledges of immaterial assets made in the
     ordinary course of business and consistent with past practices;

          (m) none of the Acquired Corporations has (i) lent money to any Person
     (other than pursuant to routine travel advances made to employees in the
     ordinary course of business), or (ii) incurred or guaranteed any
     indebtedness for borrowed money;

          (n) none of the Acquired Corporations has, outside the ordinary course
     of business or inconsistent with past practices, (i) established or adopted
     any Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing
     or similar payment to, or increased the amount of the wages, salary,
     commissions, fringe benefits or other compensation or remuneration payable
     to, any of its directors, officers or employees, or (iii) hired any new
     employee;

          (o) none of the Acquired Corporations has changed any of its methods
     of accounting or accounting practices in any respect;

          (p) none of the Acquired Corporations has made any material Tax
     election;

          (q) none of the Acquired Corporations has commenced or settled any
     Legal Proceeding;

                                       15.
<PAGE>

          (r) none of the Acquired Corporations has entered into any material
     transaction or taken any other material action outside the ordinary course
     of business or inconsistent with past practices; and

          (s) none of the Acquired Corporations has agreed or committed to take
     any of the actions referred to in clauses "(c)" through "(r)" above.

     2.6 TITLE TO ASSETS. The Acquired Corporations own, and have good and
marketable title to, all of the assets purported to be owned by them, including:
(i) all assets reflected on the Unaudited Interim Balance Sheet; (ii) all of the
rights of the Acquired Corporations under the Contracts identified in Part 2.10
of the Company Disclosure Schedule; and (iii) all other assets reflected in the
books and records of the Acquired Corporations as being owned by the Acquired
Corporations. Except as set forth in Part 2.6 of the Company Disclosure
Schedule, all of such assets are owned by the Acquired Corporations free and
clear of any liens or other Encumbrances, except for (x) any lien for current
taxes not yet due and payable, (y) minor liens that have arisen in the ordinary
course of business and that do not (in any case or in the aggregate) materially
detract from the value of the assets subject thereto or materially impair the
operations of any of the Acquired Corporations and (z) Permitted Encumbrances.

     2.7 BANK ACCOUNTS; RECEIVABLES.

          (a) Part 2.7(a) of the Company Disclosure Schedule accurately sets
forth, with respect to each account or credit line maintained by or for the
benefit of each Acquired Corporation at any bank or financial institution:

              (i)   the name and location of the institution at which such
account or credit line is maintained;

              (ii)  the name in which such account or credit line is maintained
and the account number of such account or credit line;

              (iii) a description of such account or credit line and the
purpose for which such account or credit line is used;

              (iv)  the current balance in such account or amount owed under
such credit line;

              (v)   the rate of interest being earned on the funds in such
account or charged under such credit line; and

              (vi)  the names of all individuals authorized to draw on or make
withdrawals from such account or to borrow against such credit line.

          (b) Except as set forth in Part 2.7(b)(i) of the Company Disclosure
Schedule, all existing accounts receivable of the Acquired Corporations
(including those accounts receivable reflected on the Unaudited Interim Balance
Sheet that have not yet been collected and those accounts receivable that have
arisen since September 30, 2000 and have not yet been

                                       16.
<PAGE>

collected) represent valid obligations of customers of the Acquired Corporations
arising from bona fide transactions entered into in the ordinary course of
business. Part 2.7(b)(ii) of the Company Disclosure Schedule accurately
identifies, and provides an accurate and complete breakdown of the revenues
received from, each customer or other Person that accounted for (i) more than
$175,000 of the consolidated gross revenues of the Acquired Corporations in the
fiscal year ended December 31, 1999, or (ii) more than $175,000 of the
consolidated gross revenues of the Acquired Corporations in the nine-month
period ended September 30, 2000 (each, a "Material Customer")(it being
understood that for purposes of clauses "(i)" and "(ii)" of this sentence, a
"Material Customer" of an Acquired Corporation includes any Person to which PPD
provides "Designated Services" or "Designated Products" (as such terms are
defined in the Distributor Agreement dated February 1, 2000 between the Company
and PPD (the "Distributor Agreement")) in accordance with the terms of the
Distributor Agreement). Except as set forth in Part 2.7(c)(iii) of the Company
Disclosure Schedule, the Company has not received any notice or other
communication (in writing or otherwise), and, to the Knowledge of the Company,
has not received any other information, indicating that (a) any Material
Customer is likely to cease dealing with the Company or (b) any Material
Customer is dissatisfied in any material respect with the operation of any
product, system or program currently maintained, sold or licensed by any of the
Acquired Corporations or with any services performed by any of the Acquired
Corporations since January 1, 1999.

     2.8 EQUIPMENT; LEASEHOLD.

          (a) All material items of equipment and other tangible assets owned by
or leased to the Acquired Corporations are, in the reasonable judgment of the
Acquired Corporations, adequate for the uses to which they are being put, are in
good condition and repair (ordinary wear and tear excepted) and are adequate for
the conduct of the business of the Acquired Corporations in the manner in which
such businesses are currently being conducted.

          (b) None of the Acquired Corporations own any real property or any
interest in real property, except for the leaseholds created under the real
property leases identified in Part 2.8 of the Company Disclosure Schedule.

     2.9 PROPRIETARY ASSETS.

          (a) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth, with
respect to each Acquired Corporation Proprietary Asset registered with any
Governmental Body or for which an application has been filed with any
Governmental Body, (i) a brief description of such Acquired Corporation
Proprietary Asset, and (ii) the names of the jurisdictions covered by the
applicable registration or application. Part 2.9(a)(ii) of the Company
Disclosure Schedule identifies and provides a brief description of each
Proprietary Asset (other than trade secrets, know-how or customer list) owned by
any of the Acquired Corporations. Part 2.9(a)(iii) of the Company Disclosure
Schedule identifies and provides a brief description of, and identifies any
ongoing royalty or payment obligations in excess of $10,000 annually with
respect to, each Proprietary Asset that is licensed or otherwise made available
to any of the Acquired Corporations by any Person and is material to the
business of the Acquired Corporations (except for any Proprietary Asset that is
licensed to any Acquired Corporation under any third party

                                       17.
<PAGE>

software license generally available to the public), and identifies the Contract
under which such Proprietary Asset is being licensed or otherwise made available
to such Acquired Corporation. Except as set forth in Part 2.9(a)(iv) of the
Company Disclosure Schedule, each of the Acquired Corporations has good and
valid title to, and exclusive ownership of or exclusive license to use, all of
their respective Proprietary Assets identified or required to be identified in
Parts 2.9(a)(i) and 2.9(a)(ii) of the Company Disclosure Schedule that are
material to the conduct of the business of the Acquired Corporations, free and
clear of all Encumbrances. All of the rights of the Acquired Corporations in all
of such Proprietary Assets are freely transferable, and each of the Acquired
Corporations has a valid right to use, license and otherwise exploit all
Proprietary Assets identified in Part 2.9(a)(iii) of the Company Disclosure
Schedule. Except as set forth in Part 2.9(a)(v) of the Company Disclosure
Schedule, none of the Acquired Corporations has developed jointly with any other
Person any Acquired Corporation Proprietary Asset with respect to which such
other Person has any rights. Except as set forth in Part 2.9(a)(vi) of the
Company Disclosure Schedule, there is no Acquired Corporation Contract pursuant
to which any Person has any right (whether or not currently exercisable) to use,
license or otherwise exploit any Acquired Corporation Proprietary Asset or any
Acquired Corporation Proprietary Asset that may be developed in the future.

          (b) Except as set forth in Part 2.9(b)(i) of the Company Disclosure
Schedule, all such Proprietary Assets have been duly registered with, filed with
or issued by the United States Patent and Trademark Office, the United States
Register of Copyrights, or the corresponding offices of other jurisdictions as
identified in the Company Disclosure Schedule, and have been properly maintained
and renewed in accordance with all applicable provisions of law and
administrative regulations of the United States and each such jurisdiction and,
except as stated in Part 2.9(b)(ii) of the Company Disclosure Schedule, all of
the rights and Proprietary Assets of the Acquired Corporations thereunder are
freely assignable without the consent of any Person.

          (c) Part 2.9(c)(i) of the Company Disclosure Schedule sets forth all
licenses or other Contracts under which the Acquired Corporations are granted
rights in Proprietary Assets. Except as set forth in Part 2.9(c)(ii), all such
licenses or other Contracts are in full force and effect, there is no material
default by any Acquired Corporation or, to the Knowledge of the Company, by any
other party thereto, and, except as set forth in Part 2.9(c)(iii), all of the
rights of the Acquired Corporations thereunder are freely assignable without the
consent of any Person. Except as set forth in Part 2.9(c)(iv), to the Knowledge
of the Company, the licensors under said licenses and other Contracts have and
had all requisite power and authority to grant the rights purported to be
conferred thereby. True and complete copies of all such licenses or other
Contracts, and any amendments thereto, have been provided to Parent.

          (d) Each of the Acquired Corporations has taken reasonable measures
and precautions to protect and maintain the confidentiality, secrecy and value
of all material Acquired Corporation Proprietary Assets (except Acquired
Corporation Proprietary Assets whose value would be unimpaired by disclosure).
Without limiting the generality of the foregoing, except as set forth in Part
2.9(d) of the Company Disclosure Schedule, (i) each current or former employee
of any Acquired Corporation who is or was involved in, or who has contributed
to, the creation or development of any material Acquired Corporation Proprietary

                                       18.
<PAGE>

Asset has executed and delivered to such Acquired Corporation an agreement
(containing no exceptions to or exclusions from the scope of its coverage) that
is substantially identical to the form of the Company's Employment, Confidential
Information and Invention Assignment Agreement previously delivered by the
Company to Parent, and (ii) each current and former consultant and independent
contractor to any Acquired Corporation who is or was involved in, or who has
contributed to, the creation or development of any material Acquired Corporation
Proprietary Asset has executed and delivered to the Company an agreement
(containing no material exceptions to or exclusions from the scope of its
coverage) that is substantially identical to the form of the Company's
Employment, Confidential Information and Invention Assignment Agreement
previously delivered to Parent. No current or former employee, officer,
director, stockholder, consultant or independent contractor has any right, claim
or interest in or with respect to any material Acquired Corporation Proprietary
Asset.

          (e) To the Knowledge of the Company: (i) all patents, trademarks,
service marks and copyrights held by any of the Acquired Corporations are valid,
enforceable and subsisting; (ii) none of the Acquired Corporation Proprietary
Assets and no Proprietary Asset that is currently being developed by any of the
Acquired Corporations (either by itself or with any other Person)
misappropriates any Proprietary Asset owned or used by any other Person, and the
use of Acquired Corporation Proprietary Assets in their intended or contemplated
manner does not require a license under or other rights to use any Proprietary
Asset owned by any other Person; (iii) none of the products, formula,
compositions of matter, inventions, designs, technology, proprietary rights or
other intellectual property rights or intangible assets that is or has been
designed, created, developed, assembled, manufactured or sold by any of the
Acquired Corporations is infringing, misappropriating or making any unlawful or
unauthorized use of any Proprietary Asset owned or used by any other Person, and
none of such products has at any time infringed, misappropriated or made any
unlawful or unauthorized use of any Proprietary Asset owned or used by any other
Person; (iv) except as set forth in Part 2.9(e) of the Company Disclosure
Schedule, none of the Acquired Corporations has received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful or unauthorized use of, any
Proprietary Asset owned or used by any other Person; and (v) no other Person is
infringing, misappropriating or making any unlawful or unauthorized use of any
material Acquired Corporation Proprietary Asset.

          (f) To the Knowledge of the Company, the Acquired Corporation
Proprietary Assets constitute all the Proprietary Assets necessary to enable the
Acquired Corporations to conduct their business in the manner in which such
business is presently being conducted. Except as set forth in Part 2.9(f) of the
Company Disclosure Schedule, none of the Acquired Corporations has (i) licensed
any of the Acquired Corporation Proprietary Assets to any Person on an exclusive
basis, or (ii) entered into any covenant not to compete or Contract limiting or
purporting to limit the ability of any Acquired Corporation to exploit fully any
material Acquired Corporation Proprietary Assets or to transact business in any
market or geographical area or with any Person.

          (g) Notwithstanding the generality of anything stated in this Section
2.9, the Company owns (and immediately after the Effective Time, the Surviving
Corporation shall own), subject to Third-Party Rights, the entire right, title
and interest in and to the DNA Sample

                                       19.
<PAGE>

Library and any information, including but not limited to, genotypic and
phenotypic information, derived or developed by the Company from the DNA Sample
Library. All right, title and interest owned by the Company in and to the DNA
Sample Library and information derived or developed by the Company from the DNA
Sample Library is freely transferable, subject only to the Third Party Rights.
For purposes of this Agreement: (1) the "DNA Sample Library" means the library
of DNA specimens identified in Part 2.9(g) of the Company Disclosure Schedule;
and (2) "Third-Party Rights" means those rights retained by Persons other than
the Company and/or the Major Stockholders pursuant to those Contracts identified
in Part 2.9(g) of the Company Disclosure Schedule.

     2.10 CONTRACTS.

          (a) Part 2.10 of the Company Disclosure Schedule identifies each
Acquired Corporation Contract that constitutes a "Material Contract" as of the
date of this Agreement. For purposes of this Agreement, each of the following
Contracts (to the extent that any of the Acquired Corporations has (or may have)
any liability or obligation thereunder or with respect thereto after the date of
this Agreement) shall be deemed to constitute a "Material Contract":

               (i)   each Contract relating to the employment of, or the
performance of services by, any employee or consultant (other than any offer
letter provided to any employee of any of the Acquired Corporations which
provides for "at will" employment);

               (ii)  each Contract pursuant to which any of the Acquired
Corporations is or may become obligated to make any severance, termination or
similar payment to any current or former employee or director; and any Contract
pursuant to which any of the Acquired Corporations is or may become obligated to
make any bonus or similar payment (other than payments in respect of salary or
commissions) in excess of $15,000 to any current or former employee or director;

               (iii) each Contract with a face value of $25,000 (A) with any
customer of any of the Acquired Corporations except for standard purchase
orders; or (B) with respect to the distribution or marketing of any product of
any of the Acquired Corporations;

               (iv)  each Contract relating to the acquisition, transfer,
development, sharing or license of any Acquired Corporation Proprietary Asset
(except for any Contract pursuant to which any Proprietary Asset is licensed by
any of the Acquired Corporations to any Person (other than a Major Stockholder)
on a non-exclusive basis);

               (v)   each Contract which provides for indemnification of any
officer, director, employee or agent;

               (vi)  each Contract creating or relating to any partnership or
joint venture or any sharing of revenues, profits, losses, costs or liabilities;

               (vii) each Contract relating to the purchase or sale of any
product or other asset by or to, or the performance of any services by or for,
any Related Party;

                                       20.
<PAGE>

               (viii) each Contract imposing any restriction on the right or
ability of any Acquired Corporation (A) to compete with any other Person, (B) to
acquire any material product or other asset or any services from any other
Person, (C) to solicit, hire or retain any Person as an employee, consultant or
independent contractor, (D) to develop, sell, supply, distribute, offer, support
or service any product or any technology or other asset to or for any other
Person, (E) to perform services for any other Person or (F) to transact business
or deal in any other manner with any other Person;

               (ix)  each Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;

               (x)   each Contract relating to the creation of any Encumbrance
(except Permitted Encumbrances) with respect to any asset of any of the Acquired
Corporations;

               (xi)  each Contract (A) relating to the acquisition, issuance,
voting, registration, sale or transfer of any securities, other than pursuant to
the Company Options, (B) providing any Person with any preemptive right, right
of participation, right of maintenance or any similar right with respect to any
securities or (C) providing any of the Acquired Corporations with any right of
first refusal with respect to, or right to purchase or otherwise acquire, any
securities;

               (xii) each Contract incorporating or relating to any guaranty or
any indemnity or similar obligation, except for Contracts entered into in the
ordinary course of business;

               (xiii) each Contract relating to any currency hedging;

               (xiv) each Contract imposing any confidentiality obligation on
any of the Acquired Corporations other than nondisclosure agreements entered
into in the ordinary course of business;

               (xv)  each Contract to which any Governmental Body is a party;
and any other Contract directly or indirectly benefiting any Governmental Body
(including any subcontract or other Contract between any Acquired Corporation
and any contractor or subcontractor to any Governmental Body), except for
Contracts entered into in the ordinary course of business for the license,
maintenance or service of products;

               (xvi) each Contract with obligations in excess of $50,000 that
has a term of more than 60 days and that may not be terminated by an Acquired
Corporation (without penalty) within 60 days after the delivery of a termination
notice by such Acquired Corporation;

               (xvii) each Contract that contemplates or involves the payment or
delivery of cash or other consideration in an amount or having a value in excess
of $50,000 in the aggregate, or contemplates or involves the performance of
services having a value in excess of $50,000 in the aggregate;

                                       21.
<PAGE>

               (xviii) each Contract requiring that any of the Acquired
Corporations give any notice or provide any information to any Person prior to
considering or accepting any Acquisition Proposal or similar proposal, or prior
to entering into any discussions, agreement, arrangement or understanding
relating to any Acquisition Transaction or similar transaction;

               (xix)   each Contract that (A) contemplates or involves the
payment or delivery of cash or other consideration by any of the Acquired
Corporations in an amount or having a value in excess of $100,000 in the
aggregate, (B) contemplates or involves the payment or delivery of cash or other
consideration to any of the Acquired Corporations in an amount or having a value
in excess of $100,000 in the aggregate or (C) contemplates or involves the
performance of services by any of the Acquired Corporations having a value in
excess of $100,000 in the aggregate;

               (xx)    each Contract that could reasonably be expected to have a
material effect on (A) the business, condition, capitalization, assets,
liabilities, operations, financial performance of any of the Acquired
Corporations or (B) the ability of the Company to perform any of its obligations
under, or to consummate any of the transactions contemplated by, this Agreement;
and

               (xxi)   each Contract (not otherwise identified in clauses "(i)"
through "(xx)" of this sentence) with a Major Stockholder and/or one or more of
its Subsidiaries.

          (b) The Company has delivered to Parent and to Cooley Godward LLP an
accurate and complete copy of each Material Contract.

          (c) Each Acquired Corporation Contract is valid and in full force and
effect, and is enforceable in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) applicable Legal Requirements governing specific performance,
injunctive relief and other equitable remedies, except where the failure to be
valid and binding and in full force and effect would not individually or in the
aggregate have a Material Adverse Effect on the Acquired Corporations.

          (d) Except as set forth in Part 2.10(d) of the Company Disclosure
Schedule: (i) none of the Acquired Corporations has violated or breached, or
committed any default under, any Acquired Corporation Contract, except for
violations, breaches and defaults that have not had and would not reasonably be
expected to have a Material Adverse Effect on the Acquired Corporations; and, to
the Knowledge of the Company, no other Person has violated or breached, or
committed any default under, any Acquired Corporation Contract, except for
violations, breaches or defaults that have not had and would not reasonably be
expected to have a Material Adverse Effect on the Acquired Corporations; (ii) to
the Knowledge of the Company, no event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time) will, or would
reasonably be expected to, (A) result in a violation or breach of any of the
provisions of any Acquired Corporation Contract, (B) give any Person the right
to declare a default or exercise any remedy under any Acquired Corporation
Contract, (C) give any Person the right to receive or require a rebate,
chargeback or penalty under any Acquired Corporation Contract, (D) give any
Person the right to accelerate the maturity or performance of any

                                       22.
<PAGE>

Acquired Corporation Contract, or (E) give any Person the right to cancel,
terminate or modify any Acquired Corporation Contract, except in each such case
for defaults, acceleration rights, termination rights and other rights that have
not had and would not reasonably be expected to have a Material Adverse Effect
on the Acquired Corporations; and (iii) since January 1, 1999, none of the
Acquired Corporations has received any notice or other communication regarding
any actual or possible violation or breach of, or default under, any Acquired
Corporation Contract, except in each such case for defaults, acceleration
rights, termination rights and other rights that have not had and would not
reasonably be expected to have a Material Adverse Effect on the Acquired
Corporations.

     2.11 LIABILITIES. None of the Acquired Corporations has accrued,
contingent or other liabilities of any nature, either matured or unmatured
(whether or not required to be reflected in financial statements in accordance
with generally accepted accounting principles, and whether due or to become
due), except for: (a) liabilities identified as such in the "liabilities" column
of the Unaudited Interim Balance Sheet; (b) accounts payable or accrued salaries
that have been incurred by the Acquired Corporations since September 30, 2000 in
the ordinary course of business and consistent with past practices; (c)
liabilities under the Acquired Corporation Contracts identified in Part 2.10 of
the Company Disclosure Schedule, to the extent the nature and magnitude of such
liabilities can be specifically ascertained by reference to the text of such
Acquired Corporation Contracts; and (d) the liabilities identified in Part 2.11
of the Company Disclosure Schedule.

     2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Acquired
Corporations is, and has at all times since January 1, 1999 been, in compliance
with all applicable Legal Requirements, except where the failure to comply with
such Legal Requirements has not had and will not have a Material Adverse Effect
on the Acquired Corporations. Except as set forth in Part 2.12 of the Company
Disclosure Schedule, since January 1, 1999, none of the Acquired Corporations
has received any notice or other communication from any Governmental Body
regarding any actual or possible violation (or of any pending or threatened
investigation, inspection, audit or other proceeding by any Governmental Body
involving allegations of any violation) of, or failure to comply with, any Legal
Requirement. To the Knowledge of the Company, no investigation, inspection,
audit or other proceeding by Governmental Body involving allegations of any
violation of any Legal Requirement is contemplated by any such Governmental
Body.

     2.13 GOVERNMENTAL AUTHORIZATIONS AND FACILITY CERTIFICATIONS.

          (a) Part 2.13(a) of the Company Disclosure Schedule identifies each
material Governmental Authorization held by the Acquired Corporations (and
contains a summary description of each such Governmental Authorization and,
where applicable, specifies the date issued, granted or applied for, the
expiration date and the current status thereof), and the Company has delivered
to Parent accurate and complete copies of all Governmental Authorizations
identified in Part 2.13(a) of the Company Disclosure Schedule.

          (b) The Governmental Authorizations identified in Part 2.13(a) of the
Company Disclosure Schedule are valid and in full force and effect (and, to the
Knowledge of

                                       23.
<PAGE>

the Company, no revocation, withdrawal, suspension, cancellation, termination or
modification thereof has been threatened), and collectively constitute all
Governmental Authorizations necessary to enable the Acquired Corporations to
conduct their respective businesses in the manner in which such businesses are
currently being conducted, except where the failure to hold such Governmental
Authorizations has not had, and based on applicable Legal Requirements as in
effect on the date hereof would not reasonably be expected to have, a Material
Adverse Effect on the Acquired Corporations. Each of the Acquired Corporations
is, and at all times since January 1, 1999 has been, in substantial compliance
with the terms and requirements of such Governmental Authorizations, except
where the failure to be in compliance with the terms and requirements of such
Governmental Authorizations has not had, and based on applicable Legal
Requirements as in effect on the date hereof would not reasonably be expected to
have, a Material Adverse Effect on any of the Acquired Corporations. Since
January 1, 1999, none of the Acquired Corporations has received any written
notice from any Governmental Body regarding (a) any actual or possible violation
of or failure to comply with any term or requirement of any material
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
material Governmental Authorization.

          (c) The certifications identified in Part 2.13(c) of the Company
Disclosure Schedule are valid and in full force and effect (and, to the
Knowledge of the Company, no revocation, withdrawal, suspension, cancellation,
termination, modification or limitation thereof has been threatened). Each of
the Acquired Corporations is, and at all times since January 1, 1999 has been,
in substantial compliance with the terms and requirements of such
certifications, except where the failure to be in compliance with the terms and
requirements of such certifications has not had, and based on the terms of such
certifications would not reasonably be expected to have, a Material Adverse
Effect on any of the Acquired Corporations. Since January 1, 1999, none of the
Acquired Corporations has received any written notice from the Person that
issued each such certification regarding (a) any actual or possible violation of
or failure to comply with any term or requirement of such certification, or (b)
any actual or possible revocation, withdrawal, suspension, cancellation,
termination, modification or limitation of such certification.

     2.14 TAX MATTERS.

          (a) Each of the Tax Returns relating to income taxes required to be
filed by or on behalf of the respective Acquired Corporations with any
Governmental Body with respect to any taxable period ending on or before the
Closing has been or will be filed on or before the applicable due date
(including any extensions of such due date). Each of the Tax Returns required to
be filed by or on behalf of the respective Acquired Corporations with any
Governmental Body with respect to any taxable period ending on or before the
Closing (the "Acquired Corporation Returns") has been, or will be when filed,
accurately and completely prepared in all material respects in compliance with
all applicable Legal Requirements. All amounts shown on the Acquired Corporation
Returns to be due on or before the Closing have been or will be paid on or
before the Closing. The Company has delivered to Parent accurate and complete
copies of all Acquired Corporation Returns filed since December 31, 1999 which
have been requested by Parent.

                                       24.
<PAGE>

          (b) The Financial Statements of the Acquired Corporations fully accrue
all actual and contingent liabilities for Taxes with respect to all periods
through the dates thereof in accordance with generally accepted accounting
principles. The Acquired Corporations will establish, in the ordinary course of
business and consistent with its past practices, reserves adequate for the
payment of all Taxes for the period from September 30, 2000 through the Closing,
and the Company will disclose the dollar amount of such reserves to Parent on or
prior to the Closing.

          (c) No Acquired Corporation Return has ever been examined or audited
by any Governmental Body. Except as set forth in Part 2.14 of the Company
Disclosure Schedule, there have been no examinations or audits of any Acquired
Corporation Returns. The Company has delivered to Parent accurate and complete
copies of all audit reports and similar documents (to which the Company has
access) relating to the Acquired Corporation Returns. Except as set forth in
Part 2.14 of the Company Disclosure Schedule, no extension or waiver of the
limitation period applicable to any of the Acquired Corporation Returns has been
granted (by the Company or any other Person), and no such extension or waiver
has been requested from any Acquired Corporation.

          (d) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, no claim or Proceeding is, to the Knowledge of the Company, pending or
has been threatened against or with respect to any Acquired Corporation in
respect of any Tax. There are no unsatisfied liabilities for Taxes (including
liabilities for interest, additions to tax and penalties thereon and related
expenses) with respect to any notice of deficiency or similar document received
by any of the Acquired Corporations with respect to any Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document which are being contested in good faith by the Acquired Corporations
and with respect to which adequate reserves for payment have been established).
There are no liens for Taxes upon any of the assets of any of the Acquired
Corporations except liens for current Taxes not yet due and payable. None of the
Acquired Corporations has entered into or become bound by any agreement or
consent pursuant to Section 341(f) of the Code. None of the Acquired
Corporations has been, and none of the Acquired Corporations will be, required
to include any adjustment in taxable income for any tax period (or portion
thereof) pursuant to Section 481 or 263A of the Code or any comparable provision
under state or foreign Tax laws as a result of transactions or events occurring,
or accounting methods employed, prior to the Closing.

          (e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of any of the Acquired Corporations that, considered
individually or considered collectively with any other such Contracts, will, or
could reasonably be expected to, give rise directly or indirectly to the payment
of any amount that would not be deductible pursuant to Section 280G or Section
162 of the Code. None of the Acquired Corporations are, or have ever been, a
party to or bound by any tax indemnity agreement, tax-sharing agreement, tax
allocation agreement or similar Contract.

     2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.

                                       25.
<PAGE>

          (a) Part 2.15(a) of the Company Disclosure Schedule identifies each
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by any of the
Acquired Corporations for the benefit of any employee of any of the Acquired
Corporations ("Employee"), except for (1) Plans which would not require any of
the Acquired Corporations to make payments or provide benefits having a value in
excess of $25,000 in the aggregate and (2) except for the Company's 2000 Merit
Compensation Plan and 2000 Incentive Compensation Plan.

          (b) Except as set forth in Part 2.15(b) of the Company Disclosure
Schedule, none of the Acquired Corporations maintains, sponsors or contributes
to, and, to the Knowledge of the Company, none of the Acquired Corporations has
at any time in the past maintained, sponsored or contributed to, any employee
pension benefit plan (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not excluded from
coverage under specific Titles or Merger Subtitles of ERISA) for the benefit of
Employees or former Employees (a "Pension Plan").

          (c) Each of the Acquired Corporations maintains, sponsors or
contributes only to those employee welfare benefit plans (as defined in Section
3(1) of ERISA, whether or not excluded from coverage under specific Titles or
Merger Subtitles of ERISA) for the benefit of Employees or former Employees
which are described in Part 2.15(c) of the Company Disclosure Schedule (the
"Welfare Plans"), none of which is a multiemployer plan (within the meaning of
Section 3(37) of ERISA).

          (d) With respect to each Plan, the Company has delivered or made
available to Parent:

               (i)   an accurate and complete copy of such Plan (including all
amendments thereto);

               (ii)  an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last two years;

               (iii) an accurate and complete copy of the most recent summary
plan description, together with each Summary of Material Modifications, if
required under ERISA, with respect to such Plan, and all material employee
communications relating to such Plan;

               (iv)  if such Plan is funded through a trust or any third party
funding vehicle, an accurate and complete copy of the trust or other funding
agreement (including all amendments thereto) and accurate and complete copies
the most recent financial statements thereof;

               (v)   accurate and complete copies of all Contracts relating to
such Plan, including service provider agreements, insurance contracts, minimum
premium contracts, stop-

                                       26.
<PAGE>

loss agreements, investment management agreements, subscription and
participation agreements and recordkeeping agreements; and

               (vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).

          (e) None of the Acquired Corporations are required to be, and, to the
Knowledge of the Company, has ever been required to be, treated as a single
employer with any other Person under Section 4001(b)(1) of ERISA or Section
414(b), (c), (m) or (o) of the Code. None of the Acquired Corporations has ever
been a member of an "affiliated service group" within the meaning of Section
414(m) of the Code. To the Knowledge of the Company, none of the Acquired
Corporations has ever made a complete or partial withdrawal from a multiemployer
plan, as such term is defined in Section 3(37) of ERISA, resulting in
"withdrawal liability," as such term is defined in Section 4201 of ERISA
(without regard to subsequent reduction or waiver of such liability under either
Section 4207 or 4208 of ERISA).

          (f) None of the Acquired Corporations has any plan or commitment to
create any additional Welfare Plan or any Pension Plan, or to modify or change
any existing Welfare Plan or Pension Plan (other than to comply with applicable
law) in a manner that would affect any Employee.

          (g) Except as set forth in Part 2.15(g) of the Company Disclosure
Schedule, no Welfare Plan provides death, medical or health benefits (whether or
not insured) with respect to any current or former Employee after any such
Employee's termination of service (other than (i) benefit coverage mandated by
applicable law, including coverage provided pursuant to Section 4980B of the
Code, (ii) deferred compensation benefits accrued as liabilities on the
Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which are
borne by current or former Employees (or the Employees' beneficiaries)).

          (h) With respect to each of the Welfare Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.

          (i) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
but not limited to ERISA and the Code.

          (j) Each of the Plans intended to be qualified under Section 401(a) of
the Code has received a favorable determination from the Internal Revenue
Service, and the Company is not aware of any reason why any such determination
letter should be revoked.

          (k) Except as set forth in Part 2.15(k) of the Company Disclosure
Schedule, neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any payment (including any bonus, golden
parachute or severance payment) to any current or former Employee or director of
any of the Acquired Corporations (whether or not under any Plan), or

                                       27.
<PAGE>

materially increase the benefits payable under any Plan, or result in any
acceleration of the time of payment or vesting of any such benefits.

          (l) The Company has provided Parent a list of all salaried employees
of each of the Acquired Corporations as of the date of this Agreement, and such
list correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. None of the Acquired Corporations is a party to any collective
bargaining contract or other Contract with a labor union representing any of its
Employees. All of the employees of the Acquired Corporations are "at will"
employees.

          (m) Part 2.15(m) of the Company Disclosure Schedule identifies each
Employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.

          (n) Each of the Acquired Corporations is in compliance in all material
respects with all applicable Legal Requirements and Contracts relating to
employment, employment practices, wages, bonuses and terms and conditions of
employment, including employee compensation matters.

          (o) Except as set forth in Part 2.15(o) of the Company Disclosure
Schedule, each of the Acquired Corporations has good labor relations and the
Company has no Knowledge that (i) the consummation of the Merger or any of the
other transactions contemplated by this Agreement will have a material adverse
effect on the labor relations of any of the Acquired Corporations, or (ii) any
officer or head of facility of any of the Acquired Corporations intends to
terminate his or her employment with such Acquired Corporation.

     2.16 ENVIRONMENTAL MATTERS. Each of the Acquired Corporations is in
compliance in all material respects with all applicable Environmental Laws,
which compliance includes the possession by each of the Acquired Corporations of
all permits and other Governmental Authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof. None
of the Acquired Corporations has received any notice or other communication (in
writing or otherwise), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that any of the Acquired Corporations are
not in compliance with any Environmental Law, and, to the Knowledge of the
Company, there are no circumstances that may prevent or interfere with the
compliance of the Acquired Corporations with any Environmental Law in the
future. To the Knowledge of the Company, no current or prior owner of any
property leased or controlled by any of the Acquired Corporations has received
any notice or other communication (in writing or otherwise), whether from a
Government Body, citizens group, employee or otherwise, that alleges that such
current or prior owner or any of the Acquired Corporations is not in compliance
with any Environmental Law. All Governmental Authorizations currently held by
the Acquired Corporations pursuant to Environmental Laws are identified in Part
2.16 of the Company Disclosure Schedule. (For purposes of this Section 2.16: (i)
"Environmental Law" means any federal, state, local or foreign Legal Requirement
relating to pollution or protection of human health or the environment
(including ambient air, surface water, ground water, land surface or subsurface
strata), including

                                       28.
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any law or regulation relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern; and (ii) "Materials
of Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is now or hereafter regulated by any Environmental Law or that is otherwise a
danger to health, reproduction or the environment.)

     2.17 INSURANCE. Part 2.17 of the Company Disclosure Schedule
identifies all insurance policies maintained by, at the expense of or for the
benefit of each of the Acquired Corporations and identifies any material claims
made thereunder since January 1, 1999, and the Company has delivered to Parent
accurate and complete copies of the insurance policies identified on Part 2.17
of the Company Disclosure Schedule. Each of the insurance policies identified in
Part 2.17 of the Company Disclosure Schedule is in full force and effect. Since
December 31, 1999, none of the Acquired Corporations has received any notice or
other communication regarding any actual or possible (a) cancellation or
invalidation of any insurance policy, (b) refusal of any coverage or rejection
of any claim under any insurance policy, or (c) material adjustment in the
amount of the premiums payable with respect to any insurance policy.

     2.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.18 of
the Company Disclosure Schedule: (a) no Related Party has, and no Related Party
has at any time since December 31, 1999 had, any direct or indirect interest in
any material asset used in or otherwise relating to the business of any of the
Acquired Corporations; (b) no Related Party is, or has at any time since
December 31, 1999 been, indebted to any of the Acquired Corporations; (c) since
December 31, 1999, no Related Party has entered into, or has had any direct or
indirect financial interest in, any material Contract, transaction or business
dealing involving any of the Acquired Corporations; (d) no Related Party is
competing, or has at any time since December 31, 1999 competed, directly or
indirectly, with any of the Acquired Corporations; and (e) no Related Party has
any claim or right against any of the Acquired Corporations (other than rights
under Company Options and rights to receive compensation for services performed
as an employee of the Company). (For purposes of this Section 2.18, each of the
following shall be deemed to be a "Related Party": (i) each individual who is,
or who has at any time since December 31, 1999 been, an officer of any of the
Acquired Corporations; (ii) each member of the immediate family of each of the
individuals referred to in clause "(i)" above; and (iii) any trust or other
Entity (other than the Acquired Corporations) in which any one of the
individuals referred to in clauses "(i)" or "(ii)" above holds (or in which more
than one of such individuals collectively hold), beneficially or otherwise, a
material voting, proprietary or equity interest.)

     2.19 LEGAL PROCEEDINGS; ORDERS.

          (a) Except as set forth in Part 2.19 of the Company Disclosure
Schedule, there is no pending Legal Proceeding, and (to the Knowledge of the
Company) no Person has threatened to commence any Legal Proceeding: (i) that
involves any of the Acquired Corporations or any of the assets owned or used by
any of the Acquired Corporations or any Person whose liability the Acquired
Corporations has or may have retained or assumed, either contractually or by
operation of law; or (ii) that challenges, or that may have the effect of

                                       29.
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preventing, delaying, making illegal or otherwise interfering with, the Merger
or any of the other transactions contemplated by this Agreement. To the
Knowledge of the Company, except as set forth in Part 2.19 of the Company
Disclosure Schedule, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that will, or that could reasonably be
expected to, give rise to or serve as a basis for the commencement of any such
Legal Proceeding.

          (b) Except as set forth in Part 2.19 of the Company Disclosure
Schedule, no Legal Proceeding has ever been commenced by or has ever been
pending against any of the Acquired Corporations.

          (c) There is no order, writ, injunction, judgment or decree to which
any of the Acquired Corporations, or any of the assets owned or used by any of
the Acquired Corporations, are subject. To the Knowledge of the Company, no
officer or other employee of any of the Acquired Corporations is subject to any
order, writ, injunction, judgment or decree that prohibits such officer or other
employee from engaging in or continuing any conduct, activity or practice
relating to the business of any of the Acquired Corporations.

     2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the
absolute and unrestricted right, power and authority to enter into and to
perform its obligations under this Agreement; and the execution, delivery and
performance by the Company of this Agreement have been duly authorized by all
necessary action on the part of the Company and its board of directors. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.

     2.21 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.21 of
the Company Disclosure Schedule, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):

          (a) contravene, conflict with or result in a violation of (i) any of
     the provisions of the certificate of incorporation, bylaws or other charter
     or similar organizational documents of any of the Acquired Corporations, or
     (ii) any resolution adopted by the stockholders, the board of directors or
     any committee of the board of directors of any of the Acquired
     Corporations;

          (b) contravene, conflict with or result in a violation of, or give any
     Governmental Body or other Person the right to challenge any of the
     transactions contemplated by this Agreement or to exercise any remedy or
     obtain any relief under, any Legal Requirement or any order, writ,
     injunction, judgment or decree to which any of the Acquired Corporations,
     or any of the assets owned or used by any of the Acquired Corporations, is
     subject;

                                       30.
<PAGE>

          (c) contravene, conflict with or result in a violation of any of the
     terms or requirements of, or give any Governmental Body the right to
     revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
     Authorization that is held by any of the Acquired Corporations or that
     otherwise relates to the business or to any of the assets owned or used by
     any of the Acquired Corporations;

          (d) contravene, conflict with or result in a violation or breach of,
     or result in a default under, any provision of any Acquired Corporation
     Contract that is or would constitute a Material Contract, or give any
     Person the right to (i) declare a default or exercise any remedy under any
     such Material Contract, (ii) accelerate the maturity or performance of any
     such Material Contract, or (iii) cancel, terminate or modify any such
     Material Contract; or

          (e) result in the imposition or creation of any lien or other
     Encumbrance upon or with respect to any asset owned or used by any of the
     Acquired Corporations (except for Permitted Encumbrances).

Except as set forth in Part 2.21 of the Company Disclosure Schedule, none of the
Acquired Corporations was, is or will be required to make any filing with or
give any notice to, or to obtain any Consent from, any Person in connection with
(x) the execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement, or (y) the consummation of the Merger
or any of the other transactions contemplated by this Agreement.

     2.22 INAPPLICABILITY OF SECTION 2115 OF CALIFORNIA CORPORATIONS CODE. The
Company is not subject to Section 2115 of the California Corporations Code.

     2.23 VOTE REQUIRED. The affirmative vote of holders of at least (i) a
majority of the outstanding shares of the Company Common Stock and the Company
Series A Preferred Stock, voting together as a single class, and (ii) a majority
of the outstanding shares of the Company Series A Preferred Stock, voting as a
separate class (the "Required Vote") is the vote necessary to adopt and approve
this Agreement, the Merger and the other transactions contemplated by this
Agreement.

     2.24 BROKERS OR FINDERS. Except for the fees, costs and expenses payable to
the Company Financial Advisor and incurred in connection with the transactions
contemplated by this Agreement, the Acquired Corporations have not incurred, and
will not incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with the
transactions contemplated by this Agreement.

     2.25 FULL DISCLOSURE.

          (a) No representation or warranty made by the Company in this
Agreement (including the Company Disclosure Schedule) (i) contains any
information that is false or misleading with respect to any material fact, or
(ii) omits to state any material fact necessary in order to make such
representations and warranties (in the light of the circumstances under which
such representations, warranties were made) false or misleading.

                                       31.
<PAGE>

          (b) The information supplied by the Company for inclusion in the
Information Statement (as defined in Section 5.2) will not, as of the date of
the Information Statement or as of the date of the Company Stockholders' Meeting
(as defined in Section 5.3), (i) contain any statement that is inaccurate or
misleading with respect to any material fact, or (ii) omit to state any material
fact necessary in order to make such information (in the light of the
circumstances under which it is provided) not false or misleading.

SECTION 3.  REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

          Except as otherwise set forth in the Parent Disclosure Schedule,
Parent and Merger Sub jointly and severally represent and warrant to the Company
as follows:

     3.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. Each of Parent and
Merger Sub is a corporation duly organized and validly existing under, and by
virtue of, the laws of the State of Delaware and is in good standing under such
laws. Each of Parent and Merger Sub has all requisite corporate power to own and
operate its respective properties and assets, and to carry on its respective
business as presently conducted and as proposed to be conducted. Each of Parent
and Merger Sub is qualified to do business as a foreign corporation in any
jurisdiction in which failure to qualify would have a material adverse effect on
Parent's business. Parent has furnished the Company true and complete copies of
its restated certificate of incorporation (the "Restated Certificate") and
bylaws in effect as of the date hereof. Other than Merger Sub, Parent has no
Subsidiaries and does not otherwise own or control any other Entity. Parent has
no equity interest in any Entity other than Merger Sub.

     3.2 CAPITALIZATION. As of the date of this Agreement, the authorized
capital stock of Parent consists of 40,000,000 shares of Parent Common Stock,
4,721,364 shares of which are issued and outstanding, and 22,000,000 shares of
Preferred Stock, 8,283,000 shares of which are designated as Series A Preferred
Stock, all of which are issued and outstanding, 7,099,006 shares of which are
designated Series B Preferred Stock, all of which are issued and outstanding,
5,500,000 of which are designated as Series C Preferred Stock, 1,644,076 of
which are issued and outstanding. All such issued and outstanding shares have
been duly authorized and validly issued, and are fully paid and non-assessable
and have been issued in compliance with all federal and applicable state
securities laws. Parent has reserved 8,283,000 shares of Parent Common Stock for
issuance upon conversion of its Series A Preferred, 7,099,006 shares of Parent
Common Stock for issuance upon conversion of its Series B Preferred, 5,500,000
shares of Parent Common Stock for issuance upon conversion of its Series C
Preferred, 5,000,000 shares of Parent Common Stock for issuance upon conversion
of the Parent Series D Preferred Stock, 650,000 shares of Parent Common Stock
for issuance upon conversion of outstanding options granted outside Parent's
2000 Equity Incentive Plan (the "Parent Stock Plan"), and 5,257,136 shares of
Parent Common Stock for issuance to officers, directors, employees, sales
representatives and consultants of Parent pursuant to the Parent Stock Plan, of
which 3,687,395 shares are currently subject to outstanding options and
1,569,741 shares are available for future issuance. The Parent Common Stock and
the Parent Series D Preferred Stock, when the Amended and Restated Certificate
of Parent attached hereto as EXHIBIT D (the "Parent Amended and Restated
Certificate") is filed, shall have the rights, preferences, privileges and
restrictions set forth in the Parent Amended and Restated Certificate. There are
no options, warrants (other

                                       32.
<PAGE>

than warrants to purchase 10,000 shares of Parent Common Stock and warrants to
purchase 254,000 shares of Parent Series B Preferred Stock), conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of the capital stock or other
securities of Parent, nor any agreements or understandings with respect thereto.
Parent is not a party or subject to any agreement or understanding, and, to
Parent's Knowledge, there is no agreement or understanding between any Persons,
which affects or relates to the voting or giving of consents with respect to any
security or by a director of Parent. Parent is not under any obligation to
register any of its presently outstanding securities or any of its securities
that may hereafter be issued. To Parent's Knowledge, no stockholders of Parent
have entered into any agreements with respect to the voting of capital stock of
Parent.

     3.3 FINANCIAL STATEMENTS.

          (a) Parent has delivered to the Company the following financial
statements and notes (collectively, the "Parent Financial Statements"):

                    (i)  The audited balance sheets of Parent as of December 31,
          1999, and the related audited income statements, statements of
          stockholders' equity and statements of cash flows of Parent for the
          years then ended, together with the notes thereto and the unqualified
          report and opinion of Ernst & Young LLP relating thereto; and

                    (ii) the unaudited balance sheet of Parent as of September
          30, 2000 (the "Unaudited Interim Balance Sheet"), and the related
          unaudited income statement of Parent for the nine months then ended.

          (b) The Parent Financial Statements are accurate and complete in all
material respects and present fairly the financial position of Parent as of the
respective dates thereof and the results of operations and (in the case of the
financial statements referred to in Section 3.5(a)(i)) cash flows of Parent for
the periods covered thereby. The Parent Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods covered (except that the financial
statements referred to in Section 3.5(a)(ii) do not contain footnotes and are
subject to normal and recurring year-end audit adjustments, which will not,
individually or in the aggregate, be material in magnitude).

          (c) Except as set forth in the Parent Financial Statements, Parent has
no material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to September 30, 2000 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Parent Financial Statements, which, in both cases,
individually or in the aggregate are not material to the financial condition or
operating results of Parent.

     3.4 ACTIONS. Parent has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) except as may be contemplated by this Agreement,
incurred any indebtedness for money borrowed or incurred any other liabilities
individually in excess of $25,000 or in excess of $50,000 in the aggregate,

                                       33.
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(iii) made any loans or advances to any person, other than ordinary advances for
travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course of
business.

     3.5 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. Parent has good and
marketable title to all its properties and assets, and is in compliance with the
lease of all material properties leased by it, in each case subject to no
Encumbrances, other than liens for current taxes not yet due and payable. Parent
is not in default under or in breach of any provision of its leases, and Parent
holds valid lease-hold interests in the properties which it leases. Parent's
material properties and assets are in good condition and repair, ordinary wear
and tear excepted, in all material respects.

     3.6 PATENTS, TRADEMARKS, ETC. To the Knowledge of Parent, Parent has
sufficient title and ownership of all patents, trademarks, service marks, trade
names, copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted, and as proposed to be conducted,
and, to the Knowledge of Parent, without conflict with or infringement of the
rights of others. Parent has not received any communications alleging that
Parent has violated or, by conducting its business as proposed, would violate,
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
information or proprietary or intellectual property rights of any other person
or entity. Parent has no Knowledge of any violation or infringement by a third
party of any of Parent's patents, licenses, trademarks, service marks, trade
names, copyrights, trade secrets or other proprietary rights. Parent has
disclosed trade secrets to other persons solely as required for the conduct of
its business and solely under nondisclosure agreements that are enforceable by
Parent. Parent has at all times maintained reasonable procedures to protect and
have enforced all of its trade secrets.

     3.7 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each employee,
consultant and officer of Parent has executed an agreement with Parent regarding
confidentiality and proprietary information substantially in the form or forms
delivered to the counsel for the Company. Parent, after reasonable
investigation, is not aware that any of its employees or consultants is in
violation thereof. All consultants to or vendors of Parent with access to
confidential information of Parent are parties to a written agreement
substantially in the form or forms provided to counsel for the Company under
which, among other things, each such consultant or vendor is obligated to
maintain the confidentiality of confidential information of Parent. Parent,
after reasonable investigation, has no Knowledge that any of its consultants or
vendors are in violation thereof.

     3.8 MATERIAL CONTRACTS AND COMMITMENTS. Part 3.8 of the Parent
Disclosure Schedule sets forth a list of all Contracts to which Parent is a
party or by which it or its assets are bound that (a) involve in excess of
$50,000 aggregating similar agreements or obligations to the same party; (b)
involve to Parent's Knowledge any of the officers, consultants, directors,
employees, or shareholders of Parent or any members of the immediate family of
the foregoing; or (c) obligate Parent to share, license, or develop any product.
True and complete copies of all items set forth on Part 3.8 of the Parent
Disclosure Schedule have been made available to the Major Stockholders.

                                       34.
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       3.9    COMPLIANCE WITH OTHER INSTRUMENTS. Neither Parent nor Merger Sub
is in violation of any term of its respective certificate of incorporation (as
amended) or its respective bylaws (as amended), or in any material respect of
any term or provision of any mortgage, indenture, Contract, judgment or decree,
and to the Parent's Knowledge, neither Parent nor Merger Sub is in violation of
any order, statute, rule or regulation applicable to Parent. The execution,
delivery and performance of and compliance with this Agreement and each of the
other Transaction Agreements, have not resulted and will not result in any
violation of, or conflict with, or constitute a default under any of the
foregoing, or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of Parent; and there is no such
violation or default which materially and adversely affects the business,
financial condition or results of operations of Parent or any of its properties
or assets. All of the Contracts set forth on Part 3.8 of the Parent Disclosure
Schedule are in full force and effect and constitute legal, valid and binding
obligations of Parent. Parent and, to the Knowledge of Parent, each other party
thereto, has performed in all material respects all obligations required to be
performed by it under the Contracts set forth on Part 3.8 of the Parent
Disclosure Schedule, and no material violation or default exists in respect
thereof, nor any event that with notice or lapse of time, or both, would
constitute a default thereof; on the part of Parent or, to the Knowledge of
Parent, any other party thereto; none of the Contracts set forth on Part 3.8 of
the Parent Disclosure Schedule is currently being renegotiated; and the
validity, effectiveness and continuation of all Contracts set forth on Part 3.8
of the Parent Disclosure Schedule will not be materially adversely affected by
the transactions contemplated by this Agreement or any of the other Transaction
Agreements.

       3.10   VALIDITY OF PARENT CAPITAL STOCK. The Parent Capital Stock, when
issued in compliance with the provisions of this Agreement, will be duly and
validly issued and will be fully paid and nonassessable and free and clear of
all Encumbrances, and the Parent Common Stock issuable upon conversion of the
Parent Series D Preferred Stock will, prior to the Closing, be duly and validly
reserved and, when issued and delivered in compliance with the provisions of the
Amended and Restated Certificate will be duly and validly issued and will be
fully paid and nonassessable and free and clear of all Encumbrances on transfer
other than as set forth in this Agreement and the other Transaction Agreements,
provided, however, that the Parent Capital Stock (and the Parent Common Stock
issuable upon conversion of the Parent Series D Preferred Stock) may be subject
to restrictions on transfer under state and/or federal securities laws. There
are no outstanding rights of first refusal or preemptive rights applicable to
the Parent Capital Stock.

       3.11   GOVERNMENTAL AUTHORIZATIONS. Parent has all Governmental
Authorizations necessary to enable Parent to conduct its business in the manner
in which its business is currently being conducted. Parent is, and at all times
since December 31, 1999 has been, in substantial compliance with the terms and
requirements of all material Governmental Authorizations held by Parent. Since
December 31, 1999, Parent has not received any notice or other communication
from any Governmental Body regarding (a) any actual or possible violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (b) any actual or possible revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization.

                                      35.
<PAGE>

       3.12   TAX RETURNS AND PAYMENTS. Parent has filed all tax returns and
reports as required by law. These returns and reports are true and correct in
all material respects. Parent has paid all taxes and other assessments due.

       3.13   TAX ELECTIONS. Parent has not elected pursuant to the Internal
Revenue Code of 1986, as amended (the "Code"), to be treated as an "S"
corporation or a collapsible corporation pursuant to Section 341(f) or Section
1362(a) of the Code, nor has it made any other elections pursuant to the Code
(other than elections which relate solely to matters of accounting, depreciation
or amortization) which would have a material affect on Parent, its financial
condition, its business as presently conducted or as presently proposed to be
conducted or any of its properties or material assets.

       3.14   EMPLOYEES. To Parent's Knowledge, no employee of Parent is or will
be in violation of any judgment, decree or order of any court or administrative
agency, or any term of any employment contract or any other contract (including
without limitation any covenant not to compete) or agreement relating to the
relationship of any such employee with Parent or any other party because of the
nature of the business conducted or to be conducted by Parent or to the
utilization by the employee of such employee's reasonable efforts with respect
to such business. Parent does not have any collective bargaining agreements
covering any of its employees. To Parent's Knowledge, Parent is not using any
inventions of any of its employees, consultants or officers made before their
employment by Parent. To Parent's Knowledge, no employee, consultant or officer
has taken, removed, or made use of any proprietary documentation, manuals,
products, materials, or any other tangible items from the employee's previous
employers relating to Parent's business. To Parent's Knowledge, no labor union
has sought to represent any of the employees of Parent. There is no strike or
other labor dispute involving Parent pending, or to the Knowledge of Parent,
threatened. To Parent's Knowledge, no officer or key employee intends to
terminate his or her employment with Parent.

       3.15   EMPLOYEE BENEFIT PLANS. Neither Parent nor Merger Sub has any
Employee Benefit Plan as defined in ERISA.

       3.16   ENVIRONMENTAL MATTERS. The business, assets and properties of
Parent are and have been operated and maintained in material compliance with all
applicable Environmental Laws. To Parent's Knowledge, no event has occurred
which, with or without the passage of time or the giving of notice, or both,
would constitute noncompliance by Parent with, or a violation by Parent of, the
Environmental Laws. To Parent's Knowledge, Parent has not caused or permitted to
exist, as a result of an intentional or unintentional act or omission, a
disposal, discharge or release of solid wastes, pollutants or hazardous
substances, on or from any site which currently is or formerly was owned,
leased, occupied or used by it, except where such disposal, discharge or release
was in material compliance with the Environmental Laws.

       3.17   INSURANCE. Parent has in full force and effect fire, casualty and
liability insurance policies with recognized insurers with such coverages as are
sufficient in amount to allow replacement of the tangible properties of Parent
that might be damaged or destroyed.

                                      36.
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       3.18   NO CONFLICT OF INTEREST. Parent is not indebted, directly or
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees. To Parent's Knowledge, none of Parent's officers or
directors, or any members of their immediate families, are, directly or
indirectly, indebted to Parent (other than in connection with purchases of
Parent's stock) or have any direct or indirect ownership interest in any firm or
corporation with which Parent is affiliated or with which Parent has a business
relationship, or any firm or corporation which competes with Parent, except that
officers, directors and/or shareholders of Parent may own stock in (but not
exceeding two percent of the outstanding capital stock of) any publicly traded
company that may compete with Parent. To Parent's Knowledge, none of Parent's
officers or directors or any members of the immediate families are, directly or
indirectly, interested in any material contract with Parent. Parent is not a
guarantor or indemnitor of any indebtedness of any other Person.

       3.19   LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending or, to Parent's Knowledge, threatened against Parent or
its properties before any Governmental Body, which, either in any case or in the
aggregate, might result in any material adverse effect on the business,
financial condition, affairs, operations or equity ownership of Parent or any of
its properties or assets, or in any material impairment of the right or ability
of Parent to carry on its business as now conducted or as presently proposed to
be conducted, or in any material liability on the part of Parent, and none which
questions the validity of this Agreement or any of the other Transaction
Agreements or any action taken or to be taken in connection herewith or
therewith. Parent is not a party or subject to the order, writ, judgement,
injunction, decree or other provisions of any Governmental Body. There is no
action, suit, proceeding, or investigation by Parent currently pending or that
Parent intends to initiate.

       3.20   AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub each
has the absolute and unrestricted right, power and authority to enter into and
to perform its respective obligations under this Agreement, the Escrow
Agreements, the Voting Agreements, and the Noncompetition Agreements
(collectively, the "Transaction Agreements"); and the execution, delivery and
performance by Parent and Merger Sub of the Transaction Agreements have been
duly authorized by all necessary action on the part of the Parent and Merger
Sub. This Agreement and each of the other Transaction Agreements to which either
Parent or Merger Sub is a party constitutes the legal, valid and binding
obligation of Parent and/or Merger Sub, as the case may be, enforceable against
Parent and/or Merger Sub, as the case may be, in accordance with their
respective terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.

       3.21   NON-CONTRAVENTION; CONSENTS. Neither the execution and delivery of
this Agreement by Parent and Merger Sub nor the consummation by Parent and
Merger Sub of the Merger will (a) conflict with or result in any breach of any
provision of the certificate of incorporation or bylaws of Parent or Merger Sub,
(b) result in a default by Parent or Merger Sub under any Contract to which
Parent or Merger Sub is a party, except for any default that has not had and
will not have a Material Adverse Effect on Parent, or (c) result in a violation
by Parent or Merger Sub of any order, writ, injunction, judgment or decree to
which Parent or Merger Sub

                                      37.
<PAGE>

is subject, except for any violation that has not had and will not have a
Material Adverse Effect on Parent. Except as may be required by the Securities
Act, state securities or "blue sky" laws, the DGCL, the HSR Act, any foreign
antitrust law or regulation, Parent is not and will not be required to make any
filing with or give any notice to, or to obtain any Consent from, any Person in
connection with the execution, delivery or performance of this Agreement or the
consummation of the Merger.

       3.22   FINANCIAL CONDITION. Parent was incorporated on May 11, 1998.
Since that time, Parent has only engaged in startup and development activities
and has generated no revenue. Since inception, Parent has been operated only in
the ordinary course of business, and there has not been a Material Adverse
Effect on Parent.

       3.23

       3.24   U.S. REAL PROPERTY HOLDING CORPORATION. Parent is not now, nor
will it be immediately after the Closing, a "United States Real Property Holding
Corporation" as defined in Section 897(c)(2) of the Code and Section 1.897-2(b)
of the regulations promulgated under the Code.

       3.25   INVESTMENT COMPANY ACT. Parent is not an "investment company" nor
is Parent directly or indirectly controlled by or acting on behalf of any person
which is an "Investment Company" within the meaning of the Investment Company
Act of 1940, as amended.

       3.26   NO BROKERS OR FINDERS. Parent has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with the transactions
contemplated by this Agreement.

       3.27   FULL DISCLOSURE.

              (a)    No representation or warranty made by Parent or Merger Sub
in this Agreement (including the Parent Disclosure Schedule) (i) contains any
information that is false or misleading with respect to any material fact, or
(ii) omits to state any material fact necessary in order to make such
representations and warranties (in the light of the circumstances under which
such representations, warranties were made) false or misleading.

              (b)    The information supplied by Parent or Merger Sub for
inclusion in the Information Statement (as defined in Section 5.2) will not, as
of the date of the Information Statement or as of the date of the Company
Stockholders' Meeting (as defined in Section 5.3), (i) contain any statement
that is inaccurate or misleading with respect to any material fact, or (ii) omit
to state any material fact necessary in order to make such information (in the
light of the circumstances under which it is provided) not false or misleading.

SECTION 4. CERTAIN COVENANTS OF THE PARTIES

       4.1    ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives to: (a) provide Parent and Parent's
Representatives with reasonable access to

                                      38.
<PAGE>

the Acquired Corporations' Representatives, personnel and assets and to all
existing books, records, Tax Returns, work papers and other documents and
information relating to the Company; and (b) provide Parent and Parent's
Representatives with copies of such existing books, records, Tax Returns, work
papers and other documents and information relating to the Acquired
Corporations, and with such additional financial, operating and other data and
information regarding the Acquired Corporations, as Parent may reasonably
request.

       4.2    OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing
Period:

              (a)    the Company shall (and shall cause each of the other
       Acquired Corporations to) conduct their respective businesses and
       operations in the ordinary course and in substantially the same manner as
       such businesses and operations have been conducted prior to the date of
       this Agreement;

              (b)    the Company shall (and shall cause each of the other
       Acquired Corporations to) use reasonable efforts to preserve intact their
       respective current business organizations, keep available the services of
       their respective current officers and employees and maintain their
       respective relations and good will with all suppliers, customers,
       landlords, creditors, employees and other Persons having business
       relationships with any of the Acquired Corporations;

              (c)    the Company shall (and shall cause each of the other
       Acquired Corporations to) keep in full force all insurance policies
       identified in Part 2.17 of the Company Disclosure Schedule;

              (d)    the Company shall (and shall cause each of the other
       Acquired Corporations to) cause their respective officers to report
       regularly (but in no event less frequently than bi-monthly) to Parent
       concerning the status of the business of each Acquired Corporation;

              (e)    the Company shall use commercially reasonable efforts to
       file an amended and restated certificate of incorporation with the
       Secretary of State for the State of Delaware that provides for a
       liquidation preference in favor of the Company Series A Preferred Stock
       equal in value, in the aggregate, to the Liquidation Consideration (the
       "Company Amended and Restated Certificate");

              (f)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) declare, accrue, set aside or pay any
       dividend or make any other distribution in respect of any shares of
       capital stock, and shall not repurchase, redeem or otherwise reacquire
       any shares of capital stock or other securities (except that the Company
       may repurchase Company Common Stock from former employees pursuant to the
       terms of existing restricted stock purchase agreements);

              (g)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) sell, issue or authorize the issuance of
       (i) any capital stock or other security, (ii) any option or right to
       acquire any capital stock or other security, or (iii) any instrument
       convertible into or exchangeable for any capital stock or other security
       (except

                                      39.
<PAGE>

       that the Company shall be permitted (y) to issue Company Common Stock to
       employees upon the exercise of outstanding Company Options, and (z) to
       issue shares of Company Common Stock upon the conversion of shares of
       Company Preferred Stock);

              (h)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) amend or waive any of its rights under, or
       permit the acceleration of vesting under, (i) any provision of the Stock
       Plan, (ii) any provision of any agreement evidencing any outstanding
       Company Option, or (iii) any provision of any restricted stock purchase
       agreement;

              (i)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) amend or permit the adoption of any
       amendment to the Company's Certificate of Incorporation or Bylaws or
       similar organizational documents of any Acquired Corporation, or effect
       or permit any Acquired Corporation to become a party to any Acquisition
       Transaction, recapitalization, reclassification of shares, stock split,
       reverse stock split or similar transaction (except that the Company may
       issue shares of Company Common Stock upon the conversion of shares of
       Company Series A Preferred Stock);

              (j)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) form any subsidiary or acquire any equity
       interest or other interest in any other Entity;

              (k)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) make any capital expenditure, except for
       capital expenditures that, when added to all other capital expenditures
       made on behalf of the Acquired Corporations during the Pre-Closing
       Period, do not exceed $15,000 per month;

              (l)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) (i) enter into, or permit any of the assets
       owned or used by any Acquired Corporation to become bound by, any
       Contract that is or would constitute a Material Contract, or (ii) amend
       or prematurely terminate, or waive any material right or remedy under,
       any such Contract (except amendment or termination of the Company's
       existing line of credit with that certain Loan Agreement dated February
       1, 1999 among First Union National Bank (the "Bank"), the Company and PPD
       (the "Company Line of Credit");

              (m)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) (i) acquire, lease or license any right or
       other asset from any other Person, (ii) sell or otherwise dispose of, or
       lease or license, any right or other asset to any other Person, or (iii)
       waive or relinquish any right, except for assets acquired, leased,
       licensed or disposed of by the Company pursuant to Contracts that are not
       Material Contracts;

              (n)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) (i) lend money to any Person (except that
       the Company may make

                                      40.
<PAGE>

       routine travel advances to employees in the ordinary course of business
       and may, consistent with its past practices, allow employees to acquire
       Company Common Stock in exchange for promissory notes upon exercise of
       Company Options), or (ii) incur or guarantee any indebtedness for
       borrowed money (except that the Company may make routine borrowings in
       the ordinary course of business under the Company Line of Credit or that
       certain Loan Agreement dated September 22, 2000 among the Company and the
       Major Stockholders (the "Loan Agreement"));

              (o)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) (i) establish, adopt or amend any Employee
       Benefit Plan, (ii) pay any bonus or make any profit-sharing payment, cash
       incentive payment or similar payment to, or increase the amount of the
       wages, salary, commissions, fringe benefits or other compensation or
       remuneration payable to, any of its directors, officers or employees, or
       (iii) hire any new employee whose aggregate annual compensation is
       expected to exceed $50,000;

              (p)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) change any methods of accounting or
       accounting practices of any Acquired Corporation in any material respect;

              (q)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) make any Tax election;

              (r)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) commence or settle any material Legal
       Proceeding;

              (s)    the Company shall not (and shall cause each of the other
       Acquired Corporations not to) agree or commit to take any of the actions
       described in clauses "(f)" through "(f)" above.

Notwithstanding the foregoing, the Company may take any action described in
clauses "(f)" through "(s)" above if Parent gives its prior written consent to
the taking of such action by the Company, which consent will not be unreasonably
withheld (it being understood that Parent's withholding of consent to any action
will not be deemed unreasonable if Parent determines in good faith that the
taking of such action would not be in the best interests of Parent or would not
be in the best interests of the Company); PROVIDED, HOWEVER, that Parent's
consent shall be deemed to have been granted if Parent fails to reply to a
written request from the Company to take any action described in clauses "(e)"
through "(r)" above within five days after receipt of such written request.

       4.3    NOTIFICATION; UPDATES TO COMPANY DISCLOSURE SCHEDULE.

              (a)    During the Pre-Closing Period, the Company shall promptly
notify Parent in writing of:

                     (i)    the discovery by any Acquired Corporation of any
       event, condition, fact or circumstance that occurred or existed on or
       prior to the date of this

                                      41.
<PAGE>

       Agreement and that caused or constitutes an inaccuracy in or breach of
       any representation or warranty made by the Company in this Agreement;

                     (ii)   any event, condition, fact or circumstance that
       occurs, arises or exists after the date of this Agreement and that would
       cause or constitute an inaccuracy in or breach of any representation or
       warranty made by the Company in this Agreement if (A) such representation
       or warranty had been made as of the time of the occurrence, existence or
       discovery of such event, condition, fact or circumstance, or (B) such
       event, condition, fact or circumstance had occurred, arisen or existed on
       or prior to the date of this Agreement;

                     (iii)  any breach of any covenant or obligation of the
       Company; and

                     (iv)   any event, condition, fact or circumstance that
       would make the timely satisfaction of any of the conditions set forth in
       Section 6 or Section 7 impossible or unlikely.

              (b)    If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 4.3(a) requires any change in the
Company Disclosure Schedule, or if any such event, condition, fact or
circumstance would require such a change assuming the Company Disclosure
Schedule were dated as of the date of the occurrence, existence or discovery of
such event, condition, fact or circumstance, then the Company shall promptly
deliver to Parent an update to the Company Disclosure Schedule specifying such
change. No such update shall be deemed to supplement or amend the Company
Disclosure Schedule for the purpose of (i) except as set forth in Section
9.2(a), determining the accuracy of any of the representations and warranties
made by the Company in this Agreement, or (ii) determining whether any of the
conditions set forth in Section 6 has been satisfied.

       4.4    NOTIFICATION; UPDATES TO PARENT DISCLOSURE SCHEDULE.

              (a)    During the Pre-Closing Period, Parent shall promptly notify
the Company in writing of:

                     (i)    the discovery by Parent of any event, condition,
       fact or circumstance that occurred or existed on or prior to the date of
       this Agreement and that caused or constitutes an inaccuracy in or breach
       of any representation or warranty made by Parent and Merger Sub in this
       Agreement;

                     (ii)   any event, condition, fact or circumstance that
       occurs, arises or exists after the date of this Agreement and that would
       cause or constitute an inaccuracy in or breach of any representation or
       warranty made by Parent and Merger Sub in this Agreement if (A) such
       representation or warranty had been made as of the time of the
       occurrence, existence or discovery of such event, condition, fact or
       circumstance, or (B) such event, condition, fact or circumstance had
       occurred, arisen or existed on or prior to the date of this Agreement;

                                      42.
<PAGE>

                     (iii)  any breach of any covenant or obligation of Parent
       or Merger Sub; and

                     (iv)   any event, condition, fact or circumstance that
       would make the timely satisfaction of any of the conditions set forth in
       Section 6 or Section 7 impossible or unlikely.

       If any event, condition, fact or circumstance that is required to be
disclosed pursuant to Section 4.4(a) requires any change in the Parent
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Parent Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then Parent shall promptly deliver to the Company an
update to the Parent Disclosure Schedule specifying such change. No such update
shall be deemed to supplement or amend the Parent Disclosure Schedule for the
purpose of (i) except as set forth in Section 9.2(b), determining the accuracy
of any of the representations and warranties made by Parent and Merger Sub in
this Agreement, or (ii) determining whether any of the conditions set forth in
Section 7 has been satisfied.

       4.5    OPERATION OF PARENT'S BUSINESS. DURING THE PRE-CLOSING PERIOD:

              (a)    Parent shall (and shall cause each of its Subsidiaries to)
       conduct their respective businesses and operations in the ordinary course
       and in substantially the same manner as such businesses and operations
       have been conducted prior to the date of this Agreement (it being
       understood, however, that Parent may continue preparations for the
       initial public offering of Parent Common Stock);

              (b)    Parent shall (and shall cause each of its respective
       Subsidiaries to) use reasonable efforts to preserve intact their
       respective current business organizations, keep available the services of
       their respective current officers and employees and maintain their
       respective relations and good will with all suppliers, customers,
       landlords, creditors, employees and other Persons having business
       relationships with any of Parent and/or any of its Subsidiaries;

              (c)    Parent shall use commercially reasonable efforts to file
       the Amended and Restated Certificate as soon as possible;

              (d)    Parent shall use commercially reasonable efforts to ensure
       that, as of immediately after the Closing, PPD will be permitted to
       appoint one member of the board of directors of Parent.

              (e)    Parent shall not declare, accrue, set aside or pay any
       dividend or make any other distribution in respect of any shares of
       Parent's capital stock, and shall not repurchase, redeem or otherwise
       reacquire any shares of Parent's capital stock or other securities
       (except that Parent may repurchase Parent Common Stock from former
       employees pursuant to the terms of existing restricted stock purchase
       agreements);

                                      43.
<PAGE>

              (f)    Parent shall not amend or permit the adoption of any
       amendment to the Restated Certificate or Parent's Bylaws that would have
       the effect of diminishing the rights, preferences or privileges of the
       Parent Series D Preferred Stock as set forth in the Restated Certificate.

Notwithstanding the foregoing, Parent may take any action described in clauses
"(e)" or "(f)" if the Company gives its prior written consent to the taking of
such action by Parent, which consent will not be unreasonably withheld (it being
understood that the Company's withholding of consent to any action will not be
deemed unreasonable if the Company determines in good faith that the taking of
such action would not be in the best interests of the Company); PROVIDED,
HOWEVER, that the Company's consent shall be deemed to have been granted if the
Company fails to reply to a written request from Parent to take any action
described in clauses "(e)" or "(f)" above within five days after receipt of such
written request

       4.6    NO NEGOTIATION. During the Pre-Closing Period, the Company shall
not (and shall cause each of the other Acquired Corporations not to), directly
or indirectly:

              (a)    solicit or encourage the initiation of any inquiry,
       proposal or offer from any Person (other than Parent) relating to a
       possible Acquisition Transaction;

              (b)    participate in any discussions or negotiations or enter
       into any agreement with, or provide any non-public information to, any
       Person (other than Parent) relating to or in connection with a possible
       Acquisition Transaction; or

              (c)    consider, entertain or accept any proposal or offer from
       any Person (other than Parent) relating to a possible Acquisition
       Transaction.

The Company shall promptly notify Parent in writing of any material inquiry,
proposal or offer relating to a possible Acquisition Transaction that is
received by the Company during the Pre-Closing Period.

SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES

       5.1    FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) shall make all
filings (if any) and give all notices (if any) required to be made and given by
such party in connection with the Merger and the other transactions contemplated
by this Agreement, and (b) shall use all commercially reasonable efforts to
obtain all Consents (if any) required to be obtained (pursuant to any applicable
Legal Requirement or Contract, or otherwise) by such party in connection with
the Merger and the other transactions contemplated by this Agreement. The
Company shall (upon request) promptly deliver to Parent a copy of each such
filing made, each such notice given and each such Consent obtained by the
Company during the Pre-Closing Period.

       5.2    COMPANY STOCKHOLDERS' MEETING. As promptly as practicable after
the execution of this Agreement, the Company and Parent shall jointly prepare an
Information Statement relating to the adoption of this Agreement and the
approval of the transactions contemplated hereby by the Company's stockholders
and the exercise of appraisal rights in connection

                                      44.
<PAGE>

therewith (the "Information Statement"). The Company shall provide and include
in the Information Statement such information relating to the Company and its
stockholders as may be required pursuant to the provisions of applicable
securities and corporate laws (including, without limitation, Rule 502 under the
Securities Act). The Company shall, in accordance with its Certificate of
Incorporation and Bylaws and the applicable requirements of the Delaware General
Corporation Law, call and hold a special meeting of its stockholders as promptly
as practicable, and in any event no later than December 20, 2000, for the
purpose of permitting them to consider and to vote upon and adopt this Agreement
and approve the transactions contemplated hereby (the "Company Stockholders'
Meeting"). The Company shall cause a copy of the Information Statement to be
delivered to each stockholder of the Company who is entitled to vote on the
adoption of this Agreement and approval of the transactions contemplated hereby.
As promptly as practicable after the delivery of copies of the Information
Statement to all stockholders entitled to vote at the Company Stockholders'
Meeting, the Company shall take all actions necessary (i) to solicit from each
of such stockholders a proxy in favor of the adoption of this Agreement and the
approval of the transactions contemplated hereby and (ii) to cause each of such
stockholders to execute and deliver to Parent a Stockholder Representation
Letter in a form to be mutually agreed upon by the parties hereto. In lieu of
calling and holding the Company Stockholders' Meeting, the Company may solicit
written consents (to be effective on or prior to December 20, 2000) in
accordance with its certificate of incorporation and bylaws and the applicable
requirements of the Delaware General Corporation Law. Parent will reasonably
cooperate with the Company with respect to the matters set forth in this Section
5.2. Parent will promptly provide all information relating to its business or
operations necessary for inclusion in the Information Statement to satisfy all
requirements of applicable state and federal securities and corporate laws.

       5.3    PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, (a) Neither
Parent nor the Company shall (and Parent and the Company shall not permit any of
their respective Representatives to, and the Company shall use commercially
reasonable efforts to cause the Major Stockholders to) issue any press release
or make any public statement regarding this Agreement or the Merger, or
regarding any of the other transactions contemplated by this Agreement, without
the prior written consent of the Company or Parent, as the case may be, and (b)
Parent and the Company will use reasonable efforts to consult with one another
(and the Company shall use commercially reasonable efforts to cause the Major
Stockholders to consult with Parent) prior to issuing any press release or
making any public statement regarding the Merger.

       5.4    REASONABLE EFFORTS. During the Pre-Closing Period, (a) the Company
shall use commercially reasonable efforts to cause the conditions set forth in
Section 6 to be satisfied on a timely basis, and (b) Parent and Merger Sub shall
use commercially reasonable efforts to cause the conditions set forth in Section
7 to be satisfied on a timely basis.

       5.5    TAX MATTERS. Prior to the Closing, Parent, Merger Sub and the
Company shall execute and deliver, to Cooley Godward LLP and to Heller Ehrman
White & McAuliffe LLP, tax representation letters in substantially the form of
EXHIBIT E. Parent, Merger Sub and the Company shall each confirm to Cooley
Godward LLP and to Heller Ehrman White & McAuliffe LLP the accuracy and
completeness as of the Effective Time and thereafter, where relevant, of

                                      45.
<PAGE>

the tax representation letters delivered pursuant to the immediately preceding
sentence. Parent and the Company shall use commercially reasonable efforts prior
to the Effective Time to cause the Merger to qualify as a tax-free
reorganization under Section 368(a)(1) of the Code. Following delivery of the
tax representation letters pursuant to the first sentence of this Section 5.6,
each of Parent and the Company shall use its commercially reasonable efforts to
cause Cooley Godward LLP and Heller Ehrman White & McAuliffe LLP, respectively,
to deliver to it a tax opinion satisfying the requirements of Section 6.5(h)
hereof and Section 7.3(b) hereof. In rendering such opinions, each of such
counsel shall be entitled to rely on the tax representation letters referred to
in this Section 5.6. The parties hereto shall report the Merger as a
reorganization within the meaning of Section 368(a) of the Code, and neither
Parent, Merger Sub nor the Company shall take any action prior to or following
the Closing that would reasonably be expected to cause the Merger to fail to
qualify as a reorganization.

       5.6    NONCOMPETITION AGREEMENTS. The Company shall use commercially
reasonable efforts to cause each of the Major Stockholders to execute and
deliver to Parent prior to the Closing a Noncompetition Agreement in the form of
EXHIBIT F.

       5.7    EMPLOYMENT AGREEMENTS. The Company shall use commercially
reasonable efforts to cause each of the individuals identified on EXHIBIT G to
execute and deliver to Parent prior to the Closing an Employment Agreement in
the form of EXHIBIT H.

       5.8    RELEASES. The Company shall use commercially reasonable efforts to
cause each of the Company stockholders to execute and deliver to Parent at the
Closing a Release in the form of EXHIBIT I.

       5.9    UNDERWRITER LOCKUP AGREEMENTS. The Company shall use commercially
reasonable efforts to cause each of the Company stockholders to execute and
deliver to Parent prior to the Closing an Underwriter Lockup Agreement in the
form of EXHIBIT J.

       5.10   AMENDMENT/CLARIFICATION OF EXISTING AGREEMENTS; PAYOFF OF COMPANY
LINE OF CREDIT.

              (a)    The Company shall execute and deliver, and shall use
commercially reasonable efforts to cause the other parties to such agreements to
execute and deliver: (1) the Amended and Restated Distributor Agreement between
the Company and PPD dated February 1, 1999, as amended attached hereto as
EXHIBIT K; and (2) the Amended and Restated Technology Transfer and License
Agreement between the Company and Axys dated February 1, 1999, as amended
attached hereto as EXHIBIT L. The Company shall execute and deliver, and shall
use commercially reasonable efforts to cause PPD to execute and deliver, (1) the
clarification letter to the PPD/PPGx Joint Development Agreement attached hereto
as EXHIBIT M and (2) the real property indemnity letter attached hereto as
EXHIBIT N. The Company shall execute and deliver, and shall use commercially
reasonable efforts to cause Axys to execute and deliver, (1) the covenant not to
sue agreement attached hereto as EXHIBIT O and (2) the assignment letter
attached hereto as EXHIBIT P.

                                      46.
<PAGE>

              (b)    Parent shall use commercially reasonable efforts to execute
and deliver (and the Company shall use commercially reasonable efforts to cause
the Major Stockholders to execute and deliver): (1) that certain Amended and
Restated Investor Rights Agreement attached hereto as EXHIBIT Q; and (2) that
certain Co-Sale Agreement attached hereto as EXHIBIT R.

              (c)    The Company shall use commercially reasonable efforts to
cause the Company's indebtedness existing as of immediately prior to the Closing
to the Bank to be repaid and the indebtedness due and payable to the Major
Stockholders under the Loan Agreement to be contributed to the capital of the
Company.

       5.11   TERMINATION OF CERTAIN AGREEMENTS.

              (a)    The Company shall use commercially reasonable efforts to
ensure that the Investor Rights Agreement of the Company dated February 1, 1999
and the Registration Rights Agreement of the Company dated February 1, 1999 are
terminated prior to the Closing:

              (b)    The Company shall use commercially reasonable efforts to
ensure that all provisions in Contracts that provide any Person with rights of
any nature with respect to the board of directors of the Company (except as
provided generally by the Company's Certificate of Incorporation and Bylaws (or
similar organizational documents) or by applicable Legal Requirements) are
validly and effectively terminated as of the Effective Time.

       5.12   FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasure Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897 - 2(h)(2)
of the United States Treasury Regulations.

       5.13   EMPLOYEE AND RELATED MATTERS.

              (a)    The Company shall take any and all actions that are
necessary prior to the Closing to terminate its status as a participating
employer/sponsor of the AXYS qualified retirement plan (the "AXYS 401(k) Plan")
so that the employees of the Acquired Corporations will no longer be eligible to
participate in the AXYS 401(k) Plan as of a date that is prior to the Closing
Date. Those employees of the Acquired Corporations that continue to be employees
of Parent or any of its affiliates, including the Company, following the Closing
would, subject to any necessary transition period and the terms of such plans,
be eligible to participate in Parent's health, vacation, employee stock
purchase, stock option, 401(k) and other plans, to the same extent as comparably
situated employees of Parent and would receive credit under Parent's benefit
plans for service as an employee of the Acquired Corporations. Parent shall
exercise commercially reasonable efforts to minimize the duration of any
necessary transition period and to amend or replace Parent's existing plans as
Parent, in its reasonable discretion believes necessary to comply with this
Section 5.13(a).

              (b)    At the Closing, the Company shall terminate its 2000
Incentive Compensation Plan and its 2000 Merit Compensation Plan, and shall
ensure that no employee or former employee of any Acquired Corporation has any
rights under any of such Plans and that

                                      47.
<PAGE>

any liabilities of the Acquired Corporations under such Plans (including any
such liabilities relating to services performed prior to the Closing) are fully
extinguished at no cost to the Acquired Corporations.

SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB

              The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:

       6.1    ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company in this Agreement and in each of the other
agreements and instruments delivered to Parent in connection with the
transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement (except to the extent that
such representations and warranties relate to a specific date, in which case
such representations and warranties shall be accurate on and as of such specific
date), and shall be accurate in all material respects as of the Closing as if
made at the Closing (except to the extent that such representations and
warranties relate to a specific date, in which case such representations and
warranties shall be accurate on and as of such specific date); PROVIDED,
HOWEVER, that for purposes of determining the accuracy of such representations
and warranties for purposes of this Section 6.1, all "Material Adverse Effect,"
other materiality qualifications and other similar qualifications contained in
such representations and warranties shall be disregarded.

       6.2    PERFORMANCE OF COVENANTS. All of the covenants and obligations
that the Company is required to comply with or to perform at or prior to the
Closing shall have been complied with and performed in all material respects.

       6.3    STOCKHOLDER APPROVAL. The adoption of this Agreement and the
approval of the transactions contemplated hereby shall have been duly approved
by the affirmative vote of all of the shares of Company Series A Preferred Stock
and at least 95% of the shares of Company Common Stock entitled to vote with
respect thereto.

       6.4    CONSENTS. All Consents required to be obtained in connection with
the Merger and the other transactions contemplated by this Agreement (including
the Consents identified in Part 2.21 of the Company Disclosure Schedule) shall
have been obtained and shall be in full force and effect.

       6.5    AGREEMENTS AND DOCUMENTS. Parent and the Company shall have
received the following agreements and documents, each of which shall be in full
force and effect:

              (a)    Employment Agreements in the form of EXHIBIT H, executed by
       the individuals identified on EXHIBIT G;

              (b)    Noncompetition Agreements in the form of EXHIBIT F,
       executed by the Major Stockholders;

                                      48.
<PAGE>

              (c)    Releases in the form of EXHIBIT I, executed by the Major
       Stockholders;

              (d)    the statement referred to in Section 5.12, executed by the
       Company;

              (e)    the documents listed as Exhibits to this Agreement set
       forth in Section 5.10(a);

              (f)    a legal opinion of Heller Ehrman White & McAuliffe LLP,
       dated as of the Closing Date, in the form of EXHIBIT S;

              (g)    a legal opinion of Cooley Godward LLP (or, if Cooley
       Godward LLP for any reason does not render such legal opinion, a legal
       opinion of Heller Ehrman White & McAuliffe LLP), dated as of the Closing
       Date, to the effect that the Merger will constitute a reorganization
       within the meaning of Section 368 of the Code (it being understood that,
       in rendering such opinion, such counsel may rely upon the tax
       representation letters referred to in Section 5.5);

              (h)    written resignations of all directors and officers of the
       Company, effective as of the Effective Time;

              (i)    an Underwriter Lock-up Agreement in the form of EXHIBIT J,
       executed by each of the Major Stockholders;

              (j)    an Escrow Agreement in the form of EXHIBIT C, executed by
       the Stockholders' Agent and the Stockholders' Agent;

              (k)    the Amended and Restated Investor Rights Agreement in the
       form of EXHIBIT Q, executed by each of the Major Stockholders;

              (l)    the Amended and Restated Co-Sale Agreement in the form of
       EXHIBIT R, executed by each of the Major Stockholders; and

              (m)    a certificate executed by the Chief Executive Officer of
       the Company and containing the representation and warranty of each of
       them that the conditions set forth in Sections 6.1, 6.2, 6.3, 6.4, 6.6
       and 6.8 have been duly satisfied (the "Company Closing Certificate").

       6.6    ABSENCE OF MATERIAL ADVERSE EFFECT. Since the date of this
Agreement, there shall not have occurred any Material Adverse Effect on the
Company, and no event shall have occurred or circumstance shall exist that, in
combination with any other events or circumstances, could reasonably be expected
to have a Material Adverse Effect on the Company.

       6.7    HSR ACT. The waiting period applicable to the consummation of the
exercise of the PPD Call, as such term is defined in the Company's Investor
Rights Agreement, under the HSR Act shall have expired or been terminated, and
there shall not be in effect any voluntary agreement between PPD and the Federal
Trade Commission or the Department of Justice pursuant to which PPD has agreed
not to consummate the exercise of the PPD Call for any

                                      49.
<PAGE>

period of time; any similar waiting period applicable to the Merger or the
exercise of the PPD Call under any applicable foreign antitrust law or
regulation shall have expired or been terminated; and any Consent required under
any applicable foreign antitrust law or regulation in connection with the Merger
or the exercise of the PPD call shall have been obtained.

       6.8    FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.12.

       6.9    NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.

       6.10   NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened
to commence any Legal Proceeding (a) challenging or seeking the recovery of a
material amount of damages in connection with the Merger, (b) seeking to
prohibit or limit the exercise by Parent of any material right pertaining to its
ownership of stock of the Surviving Corporation, or (c) claiming to own any
capital stock of the Company, or option or other right to acquire capital stock
of the Company or any other Acquired Corporation, or right to receive
consideration as a result of the Merger.

       6.11   EMPLOYEES. Parent shall have received assurances reasonably
satisfactory to it that none of the individuals identified on EXHIBIT G shall
have ceased to be employed by, or expressed an intention to terminate their
employment with, the Company.

       6.12   TERMINATION OF CERTAIN AGREEMENTS. The Company shall have provided
Parent with evidence, reasonably satisfactory to Parent, as to the termination
of those agreements listed in Section 5.11.

       6.13   CLOSING OF SERIES C INVESTMENT. Parent and PPD shall have closed
the acquisition of Parent Series C Preferred Stock by PPD (the "Series C
Investment").

       6.14   AMENDED AND RESTATED CERTIFICATE. The Amended and Restated
Certificate shall have been accepted for filing by the Secretary of State of the
State of Delaware.

       6.15   COMPANY AMENDED AND RESTATED CERTIFICATE. The Company Amended and
Restated Certificate shall have been accepted for filing by the Secretary of
State of the State of Delaware.

SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY

       The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:

                                      50.
<PAGE>

       7.1    ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate in all material respects as of the date of this Agreement (except to
the extent that such representations and warranties relate to a specific date,
in which case such representations and warranties shall be accurate on and as of
such specific date), and shall be accurate in all material respects as of the
Closing as if made at the Closing (except to the extent that such
representations and warranties relate to a specific date, in which case such
representations and warranties shall be accurate on and as of such specific
date); PROVIDED, HOWEVER, that for purposes of determining the accuracy of such
representations and warranties for purposes of this Section 7.1, all "Material
Adverse Effect," other materiality qualifications and other similar
qualifications contained in such representations and warranties shall be
disregarded.

       7.2    PERFORMANCE OF COVENANTS. All of the covenants and obligations
that Parent and Merger Sub are required to comply with or to perform at or prior
to the Closing shall have been complied with and performed in all material
respects.

       7.3    DOCUMENTS. The Company shall have received the following
documents:

              (a)    a legal opinion of Cooley Godward LLP, dated as of the
       Closing Date, in the form of EXHIBIT T;

              (b)    a legal opinion of Heller Ehrman White & McAuliffe LLP (or,
       if Heller Ehrman White & McAuliffe LLP for any reason does not render
       such legal opinion, a legal opinion of Cooley Godward LLP), dated as of
       the Closing Date, to the effect that the Merger will constitute a
       reorganization within the meaning of Section 368 of the Code (it being
       understood that, in rendering such opinion, such counsel may rely upon
       the tax representation letters referred to in Section 5.6; and

              (c)    an Escrow Agreement in the form of EXHIBIT C, executed by
       Parent and the Escrow Agent, which Escrow Agreement shall be in full
       force and effect.

       7.4    NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.

       7.5    ABSENCE OF MATERIAL ADVERSE EFFECT. Since the date of this
Agreement, there shall not have occurred any Material Adverse Effect on Parent,
and no event shall have occurred or circumstance shall exist that, in
combination with any other events or circumstances, could reasonably be expected
to have a Material Adverse Effect on Parent.

       7.6    HSR ACT. The waiting period applicable to the consummation of the
exercise of the PPD Call under the HSR Act shall have expired or been
terminated, and there shall not be in effect any voluntary agreement between PPD
and the Federal Trade Commission or the Department of Justice pursuant to which
PPD has agreed not to consummate the exercise of the PPD Call for any period of
time; any similar waiting period applicable to the Merger or the

                                      51.
<PAGE>

exercise of the PPD Call under any applicable foreign antitrust law or
regulation shall have expired or been terminated; and any Consent required under
any applicable foreign antitrust law or regulation in connection with the Merger
or the exercise of the PPD Call shall have been obtained.

       7.7    AMENDED AND RESTATED CERTIFICATE. The Amended and Restated
Certificate shall have been accepted for filing by the Secretary of State of the
State of Delaware.

       7.8    DIRECTOR APPOINTMENT. The Company shall have received evidence
reasonably satisfactory to it that immediately after the Closing, PPD shall have
the right to appoint one member of the board of directors of Parent.

       7.9    COMPANY AMENDED AND RESTATED CERTIFICATE. The Company Amended and
Restated Certificate shall have been accepted for filing by the Secretary of
State of the State of Delaware.

       7.10   CLOSING OF SERIES C INVESTMENT. Parent and PPD shall have closed
the Series C Investment.

SECTION 8. TERMINATION

       8.1    TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing:

              (a)    by Parent if Parent reasonably determines that the timely
       satisfaction of any condition set forth in Section 6 has become
       impossible (other than as a result of any failure on the part of Parent
       or Merger Sub to comply with or perform any covenant or obligation of
       Parent or Merger Sub set forth in this Agreement);

              (b)    by the Company if the Company reasonably determines that
       the timely satisfaction of any condition set forth in Section 7 has
       become impossible (other than as a result of any failure on the part of
       the Company to comply with or perform any covenant or obligation set
       forth in this Agreement or in any other agreement or instrument delivered
       to Parent);

              (c)    by Parent if the Closing has not taken place on or before
       January 15, 2001 (other than as a result of any failure on the part of
       Parent to comply with or perform any covenant or obligation of Parent set
       forth in this Agreement);

              (d)    by the Company if the Closing has not taken place on or
       before January 15, 2001 (other than as a result of the failure on the
       part of the Company to comply with or perform any covenant or obligation
       set forth in this Agreement or in any other agreement or instrument
       delivered to Parent);

              (e)    by either Parent or the Company if a Governmental Body
       shall have issued a final and nonappealable order, decree or ruling, or
       shall have taken any other action, having the effect of permanently
       restraining, enjoining or otherwise prohibiting the Merger; or

                                      52.
<PAGE>

              (f)    by the mutual consent of Parent and the Company.

       8.2    TERMINATION PROCEDURES. If Parent wishes to terminate this
Agreement pursuant to Section 8.1(a), Section 8.1(c) or Section 8.1(e), Parent
shall deliver to the Company a written notice stating that Parent is terminating
this Agreement and setting forth a brief description of the basis on which
Parent is terminating this Agreement. If the Company wishes to terminate this
Agreement pursuant to Section 8.1(b), Section 8.1(d) or Section 8.1(e), the
Company shall deliver to Parent a written notice stating that the Company is
terminating this Agreement and setting forth a brief description of the basis on
which the Company is terminating this Agreement.

       8.3    EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; PROVIDED, HOWEVER, that: (a) neither the Company nor Parent shall be
relieved of any obligation or liability arising from any prior breach by such
party of any provision of this Agreement; (b) the parties shall, in all events,
remain bound by and continue to be subject to the provisions set forth in
Section 10; and (c) the Company shall, in all events, remain bound by and
continue to be subject to Section 5.4.

SECTION 9. INDEMNIFICATION, ETC.

       9.1    SURVIVAL OF REPRESENTATIONS, ETC.

              (a)    The representations and warranties made by the parties
(including the representations and warranties set forth in Section 2 and Section
3) shall survive until the February 28, 2002 (the "Termination Date"); PROVIDED,
HOWEVER, that if, at any time prior to the Termination Date, any Parent
Indemnitee or Stockholder Indemnitee (acting in good faith) delivers to the
Stockholders' Agent or Parent, as the case may be, a written notice alleging the
existence of an inaccuracy in or a breach of any of the representations and
warranties made by the Company, on the one hand, or Parent and Merger Sub, on
the other hand, (and setting forth in reasonable detail the basis for such
Indemnitee's belief that such an inaccuracy or breach may exist) and asserting a
claim for recovery under Section 9.2 based on such alleged inaccuracy or breach,
then the claim asserted in such notice shall survive the Termination Date until
such time as such claim is fully and finally resolved.

              (b)    The representations, warranties, covenants and obligations
of the Company, on the one hand, and Parent and Merger Sub, on the other hand,
and the rights and remedies that may be exercised by the Indemnitees, shall not
be limited or otherwise affected by or as a result of any information furnished
to, or any investigation made by or knowledge of, any of the Indemnitees or any
of their Representatives.

              (c)    For purposes of this Agreement, (i) each statement or other
item of information set forth in the Company Disclosure Schedule or in any
update to the Company Disclosure Schedule shall be deemed to be a representation
and warranty made by the Company in this Agreement and (ii) each statement or
other item of information set forth in the Parent

                                      53.
<PAGE>

Disclosure Schedule or in any update to the Parent Disclosure Schedule shall be
deemed to be a representation and warranty made by Parent and Merger Sub in this
Agreement.

       9.2    INDEMNIFICATION.

              (a)    INDEMNIFICATION BY MAJOR STOCKHOLDERS. From and after the
Closing (but subject to Section 9.1(a), 9.3 and 9.4), the Major Stockholders,
jointly and severally shall hold harmless and indemnify each of the Parent
Indemnitees from and against, and shall compensate and reimburse each of the
Parent Indemnitees for, any Damages that are suffered or incurred by any of the
Parent Indemnitees or to which any of the Parent Indemnitees may otherwise
become subject (regardless of whether or not such Damages relate to any
third-party claim) and that arise from or as a result of, or are directly or
indirectly connected with: (i) any inaccuracy in or breach of any representation
or warranty made by the Company in Section 2 of this Agreement (without giving
effect to any "Material Adverse Effect" or other materiality qualification or
any similar qualification contained or incorporated directly in such
representation or warranty, and without giving effect to any update to the
Company Disclosure Schedule delivered by the Company to Parent prior to the
Closing); (ii) any inaccuracy in or breach of any representation or warranty
made by the Company in Section 2 as if such representation and warranty had been
made on and as of the Closing Date (except for such representations and
warranties that address matters only as of a particular time, which need only be
accurate as of such time) (after having given effect to any updates to the
Company Disclosure Schedule delivered to Parent prior to the Closing pursuant to
Section 4.3(b), but without giving effect to any "Material Adverse Effect" or
other materiality qualification or any similar qualification contained or
incorporated directly in such representation or warranty); (iii) any breach of
any covenant or obligation of the Company in this Agreement to be performed
prior to the Closing (including, without limitation, the covenants set forth in
Sections 4 and 5); (iv) any claim or demand made by the Company's legal counsel,
accountants, the Company Financial Advisors or other advisors with respect to
fees, costs or expenses payable to them in connection with the transactions
contemplated by this Agreement to the extent that such fees, costs and expenses
constitute Excess Transaction Expenses and exceed the Excess Transaction
Expenses, if any, used in determining the Parent Share Number in Section 1.5; or
(v) any Legal Proceeding relating to (Y) any inaccuracy or breach of the type
referred to in clause "(i)," "(ii)" or "(iii)" above or (Z) any claim or demand
of the type referred to in clause "(iv)" above (including with respect to each
of clause "(Y)" and clause "(Z)" of this clause "(v)," any Legal Proceeding
commenced by any Parent Indemnitee for the purpose of enforcing any of its
rights under this Section 9).

              (b)    INDEMNIFICATION BY PARENT. From and after the Closing (but
subject to Section 9.1(a), 9.3 and 9.4), Parent shall hold harmless and
indemnify each of the Stockholder Indemnitees from and against, and shall
compensate and reimburse each of the Stockholder Indemnitees for, any Damages
that are suffered or incurred by any of the Stockholder Indemnitees or to which
any of the Stockholder Indemnitees may otherwise become subject (regardless of
whether or not such Damages relate to any third-party claim) and that arise from
or as a result of, or are directly or indirectly connected with: (i) any
inaccuracy in or breach of any representation or warranty made by Parent and
Merger Sub in Section 3 of this Agreement (without giving effect to any
"Material Adverse Effect" or other materiality qualification or any

                                      54.
<PAGE>

similar qualification contained or incorporated directly in such representation
or warranty, and without giving effect to any update to the Parent Disclosure
delivered by Parent to the Company prior to the Closing); (ii) any inaccuracy in
or breach of any representation or warranty made by Parent and Merger Sub in
Section 3 as if such representation and warranty had been made on and as of the
Closing Date (except for such representations and warranties that address
matters only as of a particular time, which need only be accurate as of such
time) (after having given effect to any updates to the Parent Disclosure
Schedule delivered to the Company prior to the Closing pursuant to Section
4.4(b), but without giving effect to any "Material Adverse Effect" or other
materiality qualification or any similar qualification contained or incorporated
directly in such representation or warranty); (iii) any breach of any covenant
or obligation of Parent or Merger Sub in this Agreement to be performed prior to
the Closing (including, without limitation, the covenants set forth in Sections
4 and 5); or (iv) any Legal Proceeding relating to any inaccuracy or breach of
the type referred to in clause "(i)," "(ii)" or "(iii)" above (including any
Legal Proceeding commenced by any Stockholder Indemnitee for the purpose of
enforcing any of its rights under this Section 9).

       9.3    DEDUCTIBLE. The Major Stockholders, on the one hand, and Parent,
on the other hand, shall not be required to make any indemnification payment
pursuant to Section 9.2(a) or Section 9.2(b), as the case may be, for any
inaccuracy in or breach of any of (a) the Company's representations and
warranties set forth in this Agreement (in the case of the Major Stockholders)
or (b) Parent and Merger Sub's representations and warranties in this Agreement
(in the case of Parent) until such time as the total amount of all Damages
(including, without limitation, the Damages arising from such inaccuracy or
breach and all other Damages arising from any other inaccuracies in or breaches
of any representations or warranties) that have been directly or indirectly
suffered or incurred by any one or more of the Parent Indemnitees or the
Stockholder Indemnitees, as the case may be, or to which any one or more of the
Parent Indemnitees or the Stockholder Indemnitees, as the case may be, has or
have otherwise become subject, exceeds $500,000 in the aggregate. If the total
amount of such Damages exceeds $500,000, then the Parent Indemnitees or the
Stockholder Indemnitees, as the case may be, shall be entitled to be indemnified
against and compensated and reimbursed only for the portion of such Damages that
exceeds $500,000. Notwithstanding the preceding sentence, no individual claim or
series of related claims for indemnification under this Section 9 may be
asserted unless it is (or they are) for an amount in excess of $15,000.

       9.4    EXCLUSIVE REMEDY FOR MONETARY DAMAGES.

              (a)    From and after the Closing, the total aggregate liability
of the Major Stockholders for Damages arising under Section 9.2(a) shall not
exceed the Escrow Fund. From and after the Closing, the total aggregate
liability of Parent for Damages arising under Section 9.2(b) shall not exceed a
cash amount equal to the aggregate value (as of the Closing Date) of the Parent
Capital Stock held in the Escrow Fund.

              (b)    Nothing in this Section 9.4 or elsewhere in this Agreement
shall affect the parties' rights to specific performance or other equitable
remedies with respect to the covenants referred to in this Agreement to be
performed after the Closing.

                                      55.
<PAGE>

              (c)    In the absence of fraud or intentional misconduct, from and
after the Closing, this Section 9 sets forth the exclusive remedy for monetary
Damages owing from the Indemnitors to the Indemnitees that arise from the
matters described in Section 9.2.

       9.5    NO CONTRIBUTION.

No stockholder of the Company shall have any right of contribution, right of
indemnity or other right or remedy against the Surviving Corporation in
connection with any indemnification obligation or any other liability to which
he may become subject under or in connection with this Agreement.

       9.6    INTEREST. If the Major Stockholders, on the one hand, or Parent,
on the other hand, are required to hold harmless, indemnify, compensate or
reimburse any Parent Indemnitee or Stockholder Indemnitee, as the case may be,
pursuant to this Section 9 with respect to any Damages, then the Major
Stockholders or Parent, as the case may be, shall also be liable to such Parent
Indemnitee or Stockholder Indemitee, as the case may be, for interest on the
amount of such Damages (for the period commencing as of the date on which such
the Major Stockholders or Parent, as the case may be, first received notice of a
claim for recovery by such Parent Indemnitee or Stockholder Indemnitee, as the
case may be, and ending on the date on which the liability of the Major
Stockholders or Parent, as the case may be, to is fully satisfied) at a floating
rate equal to the rate of interest publicly announced by Bank of America, N.T. &
S.A. from time to time as its prime, base or reference rate.

       9.7    DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against Parent or against any other Person) with respect
to which any of the Major Stockholders may become obligated to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 9,
Parent shall have the right, at its election, to proceed with the defense of
such claim or Legal Proceeding on its own. If Parent so proceeds with the
defense of any such claim or Legal Proceeding:

              (a)    all reasonable expenses relating to the defense of such
       claim or Legal Proceeding shall be borne and paid exclusively by the
       Major Stockholders;

              (b)    each Major Stockholder shall make available to Parent any
       documents and materials in his possession or control that may be
       necessary to the defense of such claim or Legal Proceeding; and

              (c)    Parent shall not have the right to settle, adjust or
       compromise such claim or Legal Proceeding with the consent of the
       Stockholders' Agent (as defined in Section 10.1); PROVIDED, HOWEVER, that
       such consent shall not be unreasonably withheld.

Parent shall give the Stockholders' Agent prompt notice of the commencement of
any such Legal Proceeding against Parent or the Surviving Corporation; PROVIDED,
HOWEVER, that any failure on the part of Parent to so notify the Stockholders'
Agent shall not limit any of the obligations of the Major Stockholder under this
Section 9 (except to the extent such failure materially prejudices the defense
of such Legal Proceeding).

                                      56.
<PAGE>

     9.8 EXERCISE OF REMEDIES BY PARENT INDEMNITEES OTHER THAN PARENT. No Parent
Indemnitee (other than Parent or any successor thereto or assign thereof) shall
be permitted to assert any indemnification claim or exercise any other remedy
under this Agreement unless Parent (or any successor thereto or assign thereof)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.

SECTION 10.  MISCELLANEOUS PROVISIONS

     10.1 STOCKHOLDERS' AGENTS. By virtue of their adoption of this Agreement
and approval of the transactions contemplated hereby, the stockholders of the
Company hereby irrevocably appoint Bill Newell and Fred Davenport as their joint
agents for purposes of Section 9 (the "Stockholders' Agents"), and Bill Newell
and Fred Davenport hereby accept their appointment as the Stockholders' Agents.
Parent shall be entitled to deal exclusively with the Stockholders' Agents on
all matters relating to Section 9, and shall be entitled to rely conclusively
(without further evidence of any kind whatsoever) on any document executed or
purported to be executed on behalf of any Merger Stockholder by both of the
Stockholders' Agents, and on any other action taken or purported to be taken on
behalf of any Merger Stockholder by the Stockholders' Agents, as fully binding
upon such stockholder. If one of the Stockholders' Agents shall die, become
disabled or otherwise be unable to fulfill his responsibilities as agent of the
Merger Stockholders, then the Merger Stockholders shall, within ten days after
such death or disability, appoint a successor agent and, promptly thereafter,
shall notify Parent of the identity of such successor. Any such successor shall
become a "Stockholders' Agents" for purposes of Section 9 and this Section 10.1.
If for any reason there is no Stockholders' Agent at any time, all references
herein to the Stockholders' Agents shall be deemed to refer to the Merger
Stockholders.

     10.2 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.

     10.3 FEES AND EXPENSES. Subject to Section 9.2(a), each party to this
Agreement shall bear and pay all fees, costs and expenses (including legal fees,
costs and expenses and accounting fees, costs and expenses) that have been
incurred or that are incurred by such party in connection with the transactions
contemplated by this Agreement.

     10.4 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).

     10.5 NOTICES. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name

                                       57.
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of such party below (or to such other address or facsimile telephone number as
such party shall have specified in a written notice given to the other parties
hereto):

                  IF TO PARENT:

                  DNA Sciences, Inc.
                  2375 Garcia Avenue
                  Mountain View, CA 94043
                  Attention:
                  Phone: (650)
                  Fax: (650)

                  WITH A COPY TO:

                  Cooley Godward LLP
                  3000 El Camino Real
                  5 Palo Alto Square
                  Palo Alto, CA 94306
                  Attention: Robert L. Jones
                  Phone: (650) 843-5000
                  Fax: (650) 849-7400

                  IF TO THE COMPANY:

                  PPGx, Inc.
                  11099 North Torrey Pines Road
                  La Jolla, CA 92037
                  Attention:  Josh Baker
                  Phone: (919) 463-6702
                  Fax: (919) 379-6029

                  WITH A COPY TO:

                  Heller Ehrman White & McAuliffe LLP
                  4250 Executive Square, 7th Floor
                  La Jolla, CA 92037
                  Attention: Stephen C. Ferruolo
                  Phone:  (858) 450-8430
                  Fax:  (858) 450-8499

                  IF TO THE STOCKHOLDERS' AGENTS:

                  Fred Davenport
                  Pharmaceutical Product Development, Inc.

                                       58.
<PAGE>

                  3151 South 17th Street
                  Wilmington, NC 28412
                  Phone:  (910) 251-0081
                  Fax:  (910) 772-6951

                  Bill Newell
                  Axys Pharmaceuticals, Inc.
                  180 Kimball Way
                  South San Francisco, CA 94080
                  Phone:  (650) 829-1000
                  Fax:  (650) 829-1001

     10.6 CONFIDENTIALITY. Without limiting the generality of anything contained
in Section 5.6, on and at all times after the Closing Date, each party to this
Agreement shall keep confidential, and shall not use or disclose to any other
Person, any non-public document or other non-public information in such
stockholder's possession that relates to the business of the Company or Parent.

     10.7 TIME OF THE ESSENCE. Time is of the essence of this Agreement.

     10.8 HEADINGS. The underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.

     10.9 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.

     10.10 GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the State of Delaware
(without giving effect to principles of conflicts of laws).

     10.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns (if any), Parent and its successors and
assigns (if any), and Merger Sub and its successors and assigns (if any). This
Agreement shall inure to the benefit of: the Company, the Company's stockholders
(to the extent set forth in Section 1.5) and the Stockholder Indemnitees (to the
extent set forth in Section 9), the holders of assumed Company Options (to the
extent set forth in Section 1.6), Parent, Merger Sub, the other Parent
Indemnitees (subject to Section 9.6), and the respective successors and assigns
(if any) of the foregoing. Parent may freely assign any or all of its rights
under Section 9, in whole or in part, to any other Person without obtaining the
consent or approval of any other party hereto or of any other Person.

     10.12 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies of
the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant,

                                       59.
<PAGE>

obligation or other provision set forth in this Agreement for the benefit of any
other party to this Agreement, such other party shall be entitled (in addition
to any other remedy that may be available to it) to (a) a decree or order of
specific performance or mandamus to enforce the observance and performance of
such covenant, obligation or other provision, and (b) an injunction restraining
such breach or threatened breach.

     10.13 WAIVER.

          (a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.

          (b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.

     10.14 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.

     10.15 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.

     10.16 PARTIES IN INTEREST. Except for the provisions of Sections 1.5, 1.6
and 9, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).

     10.17 ENTIRE AGREEMENT. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties hereto relating to the
subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof; PROVIDED, HOWEVER, that the Confidentiality and
Non-Disclosure Agreement executed on behalf of Parent and the Company on
September 6, 2000 shall not be superseded by this Agreement and shall remain in
effect in accordance with its terms until the earlier of (a) the Effective Time,
or (b) the date on which such Confidentiality and Nondisclosure Agreement is
terminated in accordance with its terms.

     10.18 CONSTRUCTION.

                                       60.
<PAGE>

          (a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.

          (b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.

          (c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."

          (d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.

                                       61.
<PAGE>

         The parties hereto have caused this Agreement to be executed and
delivered as of December 17, 2000.

                                 DNA SCIENCES, INC.,
                                  a Delaware corporation

                                 By: /s/ Steven Lehrer
                                    --------------------------------------------
                                    Chief Business Officer,
                                    DNA Sciences, Inc.

                                 PIPO ACQUISITION CORP.,
                                  a Delaware corporation

                                 By: /s/ Steven Lehrer
                                    --------------------------------------------
                                    President and Chief Executive Officer,
                                    PIPO Acquisition Corp.

                                 PPGX, INC.,
                                  a Delaware corporation

                                 By: /s/ Joshua S. Baker
                                    --------------------------------------------
                                    President,
                                    PPGx, Inc.

                                       62.
<PAGE>

                                    EXHIBIT A

                               CERTAIN DEFINITIONS

         For purposes of the Agreement (including this Exhibit A):

         ACQUIRED CORPORATION CONTRACT. "Acquired Corporation Contract" shall
mean any contract: (a) to which any of the Acquired Corporations is a party; (b)
by which any of the Acquired Corporations or any asset of any of the Acquired
Corporations is or may become bound or under which any of the Acquired
Corporations has, or may become subject to, any obligation; or (c) under which
any of the Acquired Corporations has or may acquire any right or interest.

         ACQUIRED CORPORATION PROPRIETARY ASSET. "Acquired Corporation
Proprietary Asset" shall mean any Proprietary Asset owned by or licensed to any
of the Acquired Corporations or otherwise used by any of the Acquired
Corporations.

         ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:

              (a) the sale, license, disposition or acquisition of all or a
         material portion of the any of the Acquired Corporations' business or
         assets;

              (b) the issuance, disposition or acquisition of (i) any capital
         stock or other equity security of any of the Acquired Corporations'
         (other than common stock issued to employees of the Acquired
         Corporations, upon exercise of Company Options or otherwise, in
         routine transactions in accordance with the Acquired Corporations'
         past practices), (ii) any option, call or right (whether or not
         immediately exercisable) to acquire any capital stock or other equity
         security of the any of the Acquired Corporations (other than stock
         options granted to employees of the Acquired Corporations in routine
         transactions in accordance with the Acquired Corporations' past
         practices), or (iii) any security, instrument or obligation that is or
         may become convertible into or exchangeable for any capital stock or
         other equity security of any of the Acquired Corporations; or

              (c) any merger, consolidation, business combination,
         reorganization or similar transaction involving any of the Acquired
         Corporations.

         AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Company
Disclosure Schedule and the Parent Disclosure Schedule), as it may be amended
from time to time.

         COMPANY CAPITAL STOCK. "Company Capital Stock" shall mean,
collectively, the Company Common Stock and the Company Series A Preferred Stock.

         COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall mean
the schedule (dated as of the date of the Agreement) delivered to Parent on
behalf of the Company.

         CONSENT. "Consent" shall mean any approval, consent, ratification,
permission,  waiver or authorization (including any Governmental Authorization).

                                       1.
<PAGE>

         CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.

         DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.

         ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).

         ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.

         EXCESS TRANSACTION EXPENSES. "Excess Transaction Expenses" shall mean
(A) 50% of the first $400,000 in aggregate fees, costs and expenses payable by
the Company to the Company's legal counsel, accountants and other advisors
(other than P(2) Partners (the "Company Financial Advisor") and incurred in
connection with the transactions contemplated by this Agreement, PLUS (B) 100%
of the aggregate fees, costs and expenses payable to the Company's legal
counsel, accountants and other advisors (other than the Company Financial
Advisor) in excess of $400,000 and incurred in connection with the transactions
contemplated by this Agreement, PLUS (C) all fees, costs and expenses payable by
the Company to the Company Financial Advisor and incurred in connection with the
transactions contemplated by this Agreement.

         GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.

         GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal, foreign
or other government; or (c) governmental or quasi-governmental authority or
component of any nature (including any governmental branch, division,
department, agency, commission, instrumentality, official, organization, unit,
body or Entity and any court or other tribunal).

         INDEMNITEES.  "Indemnitees" shall mean the Parent Indemnitees and the
Stockholder Indemnitees.

                                       2.
<PAGE>

         KNOWLEDGE. Information shall be deemed "known to" or "to the Knowledge"
of the Company if that information is actually known by any of Josh Baker or
Jeff Hall or should be known to such individual after reasonable inquiry by such
individual. Information shall be deemed "known to" or "to the Knowledge" of
Parent if that information is actually known by any officer or director of
Parent or should be known to such officer or director after reasonable inquiry
by such officer or director.

         LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.

         LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation,
publicly available administrative interpretation, ruling or requirement issued,
enacted, adopted, promulgated, implemented or otherwise put into effect by or
under the authority of any Governmental Body.

         MATERIAL ADVERSE EFFECT. A "Material Adverse Effect" on the Acquired
Corporations means any change, effect, event, occurrence, state of facts or
development that is materially adverse to the business, condition, assets,
liabilities, operations or financial performance of one or more of the Acquired
Corporations. A "Material Adverse Effect" on Parent means any change, effect,
event, occurrence, state of facts or development that is materially adverse to
the business, condition, assets, liabilities, operations or financial
performance of Parent; PROVIDED, HOWEVER, that any adverse change, effect,
event, occurrence, state of facts or development affecting Parent's ability to
obtain or arrange public or private debt or equity financing on terms acceptable
to Parent or otherwise adversely affecting the financial markets in general or
the financial markets for the industry sector in which Parent competes shall not
be deemed to constitute, nor taken into account in determining whether there has
been, a Material Adverse Effect on Parent; PROVIDED FURTHER HOWEVER, that any
adverse change, effect, event, occurrence, state of facts or development
referred to in the preceding proviso will be taken into account in determining
whether there has been a Material Adverse Effect on Parent (but will not in and
of itself constitute a Material Adverse Effect on Parent) if such adverse
change, effect, event, occurrence, state of facts or development resulted from
the gross negligence or willful misconduct of Parent or its Representatives and
such adverse change, effect, event, occurrence, state of facts or development
has resulted in an obligation of Parent to pay money damages in an amount in
excess of $300,000.

         PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to the Company on
behalf of Parent and Merger Sub.

         PARENT INDEMNITEES. "Parent Indemnitees" shall mean the following
Persons: (a) Parent; (b) Parent's current and future affiliates (including the
Surviving Corporation); (c) the respective Representatives of the Persons
referred to in clauses "(a)" and "(b)" above; and (d) the respective successors
and assigns of the Persons referred to in clauses "(a)", "(b)" and "(c)"

                                       3.
<PAGE>

above; PROVIDED, HOWEVER, that the stockholders of the Company shall not be
deemed to be "Parent Indemnitees."

         PARENT PREFERRED STOCK. "Parent Preferred Stock" shall mean
collectively, the Series A Preferred Stock ($0.001 par value per share) of
Parent, the Series B Preferred Stock ($0.001 par value per share) of Parent, the
Parent Series C Preferred Stock and the Parent Series D Preferred Stock.

         PARENT SERIES C PREFERRED STOCK. "Parent Series C Preferred Stock"
shall mean the Series C Preferred Stock (0.001 par value per share) of Parent.

         PERMITTED ENCUMBRANCE. "Permitted Encumbrance" shall mean any (i) any
Encumbrance for Taxes (other than income taxes) either not yet due and payable
or being contested in good faith by appropriate proceedings and for which
adequate reserves have been established on the Acquired Corporation Financial
Statements in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods covered and (ii) mechanic's,
materialmen's, workmen's, warehousemen's and other similar liens incurred in the
ordinary course of business with respect to obligations that are not past due or
that are being contested in good faith by appropriate proceedings and for which
adequate reserves have been established on the Acquired Corporation Financial
Statements in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods covered.

         PERSON. "Person" shall mean any individual, Entity or Governmental
Body.

         PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, source code, algorithm, invention, design,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.

         REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.

         SUBSIDIARY. An entity shall be deemed to be a "Subsidiary" of another
Person if such Person directly or indirectly owns, beneficially or of record,
(a) an amount of voting securities of other interests in such Entity that is
sufficient to enable such Person to elect at least a majority of the members of
such Entity's board of directors or other governing body, or (b) at least 50% of
the outstanding equity or financial interests or such Entity.

         STOCKHOLDER INDEMNITEES. "Stockholder Indemnitees" shall mean the
following Persons: (a) the Merger Stockholders; (b) the Merger Stockholders'
current and future affiliates; (c) the respective Representatives of the Persons
referred to in clauses "(a)" and "(b)" above; and (d) the respective successors
and assigns of the Persons referred to in clauses "(a)", "(b)" and "(c)" above;
PROVIDED, HOWEVER, that the Company shall not be deemed to be a "Stockholder
Indemnitee."

                                       4.
<PAGE>

         TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.

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

                                       5.
<PAGE>

                                    EXHIBITS

Exhibit A     -    Certain definitions

Exhibit B     -    Form of Voting Agreement

Exhibit C     -    Form of Escrow Agreement

Exhibit D     -    Form of Amended and Restated Certificate

Exhibit E     -    Forms of tax representation letters

Exhibit F     -    Form of Noncompetition Agreement

Exhibit G     -    Persons to Execute Offer Letters

Exhibit H     -    Form of Offer Letter

Exhibit I     -    Form of Release

Exhibit J     -    Form of Underwriter Lockup Agreement

Exhibit K     -    Form of Amended and Restated Distributor Agreement

Exhibit L     -    Form of Amended and Restated Technology Transfer Agreement

Exhibit M     -    Form of PPD Clarification Letter

Exhibit N     -    Form of PPD Real Property Indemnity Letter

Exhibit O     -    Form of Axys Covenant Not to Sue

Exhibit P     -    Form of Axys Assignment Letter

Exhibit Q     -    Form of Amended and Restated Investor Rights Agreement

Exhibit R     -    Form of Amended and Restated Co-Sale Agreement

Exhibit S     -    Form of legal opinion of Heller Ehrman White & McAuliffe LLP

Exhibit T     -    Form of legal opinion of Cooley Godward LLP

                                       1.

<PAGE>

                               AMENDMENT NO. 1 TO
                               AGREEMENT AND PLAN
                          OF MERGER AND REORGANIZATION

     THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
(this "Amendment") is made and entered into as of December 22, 2000, by and
among: DNA SCIENCES, INC., a Delaware corporation ("Parent"), PIPO ACQUISITION
CORP., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger
Sub"), and PPGX, INC., a Delaware corporation (the "Company"). Certain
capitalized terms not otherwise defined herein are defined in the Reorganization
Agreement (as defined below).

                                    RECITALS

     A.  Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company in accordance with that certain Agreement and Plan of
Merger and Reorganization dated December 17, 2000, among Parent, Merger Sub and
the Company (the "Reorganization Agreement").

     B.  Parent, Merger Sub and the Company desire to amend the Reorganization
Agreement as set forth in this Amendment.

                                    AGREEMENT

     The parties to this Amendment, intending to be legally bound, agree as
follows:

1. DEFINITION OF "AGGREGATE PARENT COMMON NUMBER."

     Section 1.5(b)(vii)(7) is amended by replacing "Initial Series C Closing
Date" with "date hereof."

2. DEFINITION OF "DOWN ROUND STOCK."

     Section 1.5(b)(ix) is amended by replacing "$14.27" with "$14.37."

3. SECTION 1.5(d) AND SECTION 1.8(c).

     Section 1.5(d) and Section 1.8(c) is amended by replacing "$14.27" with
"$14.37."

4. SECTION 1.6.

     Clauses "(ii)" and "(iii)" of Section 1.6 are amended by replacing
"Exchange Ratio" with "Remainder Exchange Ratio."

5. SECTION 3.23.

     Section 3.23 is amended and restated to read in its entirety, "Reserved."

6. SECTION 4.5(d).

                                      1.
<PAGE>

     Section 4.5(d) is amended and restated to read in its entirety, "Reserved."

7. SECTION 7.8.

     Section 7.8 is amended and restated to read in its entirety, "Reserved."

8. REMAINING TERMS.

     All other provisions of the Reorganization Agreement remain in full force
and effect and unmodified by this Amendment.

9. GOVERNING LAW.

     This Amendment shall be governed by and construed in accordance with the
internal laws of the State of Delaware, without reference to principles of
conflicts of law.

                                      2.
<PAGE>

     The parties hereto have caused this Amendment to be executed and delivered
as of December 22, 2000.

                                  DNA SCIENCES, INC.,
                                    a Delaware corporation

                                  By: /s/ Steven Lehrer
                                      ---------------------------------------
                                      Chief Business Officer,
                                      DNA Sciences, Inc.

                                  PIPO ACQUISITION CORP.,
                                    a Delaware corporation

                                  By: /s/ Steven Lehrer
                                      ---------------------------------------
                                      President and Chief Executive Officer,
                                      PIPO Acquisition Corp.

                                  PPGX, INC.,
                                    a Delaware corporation

                                  By: /s/ Joshua S. Baker
                                      ---------------------------------------
                                      President,
                                      PPGx, Inc.

                                      3.Exhibit 10.1
EXECUTION COPY
       ---------------------------------------------------------------------

                      SERIES C PREFERRED STOCK AND WARRANT

                               PURCHASE AGREEMENT

                                  by and among

                   THE PURCHASERS LISTED ON SCHEDULE I HERETO,

                             SOFTLOCK.COM, INC. AND

                             SOFTLOCK SERVICES, INC.

                          Dated as of December 21, 2000

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

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                               Page
<S>                                                                                                            <C>

SECTION 1 - Authorization, Purchase and Sale of the Acquired Securities...........................................1
   1.1    Authorization of the Acquired Securities................................................................1
          ----------------------------------------
   1.2    Sale and Purchase of the Shares and Warrants............................................................1
          --------------------------------------------
   1.3    Certain Defined Terms...................................................................................2
          ---------------------
SECTION 2 - Closing, Payment and Delivery.........................................................................2
   2.1    Closing Date and Place of Closing.......................................................................2
          ---------------------------------
   2.2    Closing Payment and Delivery............................................................................2
          ----------------------------
   2.3    Subsequent Sales of Shares..............................................................................2
          --------------------------
SECTION 3 - Representations and Warranties of the Company.........................................................3
   3.1    Organization and Standing; Articles and By-laws.........................................................3
          -----------------------------------------------
   3.2    Corporate Power.........................................................................................3
          ---------------
   3.3    Subsidiaries............................................................................................3
          ------------
   3.4    Capitalization..........................................................................................4
          --------------
   3.5    Authorization...........................................................................................5
          -------------
   3.6    Contracts; Insurance....................................................................................6
          --------------------
   3.7    Securities and Exchange Commission Documents............................................................8
          --------------------------------------------
   3.8    Absence of Undisclosed Liabilities......................................................................9
          ----------------------------------
   3.9    Absence of Certain Changes..............................................................................9
          --------------------------
   3.10   Taxes..................................................................................................11
          -----
   3.11   Transactions With Affiliates...........................................................................11
          ----------------------------
   3.12   Litigation.............................................................................................11
          ----------
   3.13   Consents...............................................................................................12
          --------
   3.14   Title to Properties, Liens and Encumbrances............................................................12
          -------------------------------------------
   3.15   Leases.................................................................................................13
          ------
   3.16   Franchises, Licenses, Trademarks, Patents and Other Rights.............................................13
          ----------------------------------------------------------
   3.17   Issuance Taxes.........................................................................................14
          --------------
   3.18   Offering...............................................................................................14
          --------
   3.19   Employees..............................................................................................14
          ---------
   3.20   Business of the Company and Subsidiary.................................................................15
          --------------------------------------
   3.21   Use of Proceeds........................................................................................16
          ---------------
   3.22   Applicability of, and Compliance with, Other Laws......................................................16
          -------------------------------------------------
   3.23   Indebtedness...........................................................................................18
          ------------
   3.24   Insurance Coverage.....................................................................................18
          ------------------
   3.25   Illegal or Unauthorized Payments; Political Contributions..............................................18
          ---------------------------------------------------------
   3.26   Disclosure.............................................................................................18
          ----------
   3.27   Potential Conflicts of Interest........................................................................19
          -------------------------------
   3.28   Real Property Holding Corporation......................................................................19
          ---------------------------------
SECTION 4 - Representations and Warranties of Purchasers.........................................................19
   4.1    Organization; Good Standing; Power and Authority; Binding Obligation...................................19
          --------------------------------------------------------------------
   4.2    Purchase Entirety for Own Account; Etc.................................................................20
          --------------------------------------
   4.3    Disclosure.............................................................................................20
          ----------
   4.4    Accredited Investor....................................................................................20
          -------------------
   4.5    Restricted Securities..................................................................................21
          ---------------------
   4.6    Legends................................................................................................21
          -------
   4.7    Termination of Restrictions............................................................................21
          ---------------------------
SECTION 5 - Conditions to Closing of Purchasers..................................................................22
   5.1    Representations and Warranties Correct.................................................................22
          --------------------------------------
   5.2    Performance............................................................................................22
          -----------
   5.3    Compliance Certificate.................................................................................22
          ----------------------
   5.4    Opinion of Company's Counsel...........................................................................22
          ----------------------------
   5.5    Good Standing Certificates.............................................................................22
          --------------------------
   5.6    Qualifications.........................................................................................23
          --------------
   5.7    Amendment of Certificate and Filing of Certificate.....................................................23
          --------------------------------------------------
   5.8    Proceedings and Documents..............................................................................23
          -------------------------
   5.9    By-Laws................................................................................................23
          -------
   5.10   Shareholders' and Rights Agreement.....................................................................23
          ----------------------------------
   5.11   Certification by Corporate Secretary...................................................................23
          ------------------------------------
   5.12   Warrants...............................................................................................24
          --------
   5.13   Legal Investment.......................................................................................24
          ----------------
   5.14   Side Letter............................................................................................24
          -----------
SECTION 6 - Conditions to Closing of Company.....................................................................24
   6.1    Representations and Warranties Correct.................................................................24
          --------------------------------------
   6.2    Performance............................................................................................24
          -----------
   6.3    Qualifications.........................................................................................24
          --------------
   6.4    Proceedings and Documents..............................................................................25
          -------------------------
   6.5    Statement of Accredited Investor.......................................................................25
          --------------------------------
   6.6    Legal Investment.......................................................................................25
          ----------------
   6.7    Shareholders' and Rights Agreement.....................................................................25
          ----------------------------------
SECTION 7 - Affirmative Covenants................................................................................25
   7.1    Basic Financial Information............................................................................25
          ---------------------------
   7.2    Additional Information and Rights......................................................................26
          ---------------------------------
   7.3    Prompt Payment of Taxes, Etc...........................................................................28
          ----------------------------
   7.4    Maintenance of Properties and Leases...................................................................28
          ------------------------------------
   7.5    Insurance..............................................................................................28
          ---------
   7.6    Accounts and Records...................................................................................29
          --------------------
   7.7    Compliance with Laws, Contracts, Licenses and Permits..................................................29
          -----------------------------------------------------
   7.8    Maintenance of Corporate Existence, etc................................................................29
          ---------------------------------------
   7.9    Availability of Common Stock for Conversion............................................................30
          -------------------------------------------
   7.10   Proprietary Information Agreement, and Key Employee Agreement..........................................30
          -------------------------------------------------------------
   7.11   Use of Proceeds........................................................................................30
          ---------------
   7.12   Compliance by Subsidiaries.............................................................................30
          --------------------------
   7.13   Expenses of Board Members..............................................................................30
          -------------------------
   7.14   Securities Law Filings.................................................................................31
          ----------------------
   7.15   Registration and Transfer of Securities................................................................31
          ---------------------------------------
   7.16   Indemnification........................................................................................31
          ---------------
   7.17   Registration Requirements..............................................................................32
          -------------------------
   7.18   Indemnification and Contribution.......................................................................34
          --------------------------------
   7.19    "Market Stand-Off" Agreement..........................................................................37
           ----------------------------
SECTION 8 - Negative Covenants...................................................................................37
   8.1    Sale/Purchase of Assets; Merger........................................................................37
          -------------------------------
   8.2    Future Registration Rights.............................................................................38
          --------------------------
   8.3    Changes in Type of Business............................................................................38
          ---------------------------
   8.4    Dividends and Distributions............................................................................38
          ---------------------------
   8.5    Purchase of Equity Securities..........................................................................39
          -----------------------------
   8.6    Conflicting Agreements.................................................................................39
          ----------------------
   8.7    Amendment of Charter Documents.........................................................................39
          ------------------------------
   8.8    Related Party Transactions.............................................................................39
          --------------------------
   8.9    Issuance of Equity Securities..........................................................................39
          -----------------------------
   8.10   Subsidiaries...........................................................................................39
          ------------
   8.11   Fiscal Year............................................................................................39
          -----------
   8.12   Business Plan..........................................................................................40
          -------------
   8.13   Employee Stock Plans...................................................................................40
          --------------------
   8.14   Liens..................................................................................................40
          -----
   8.15   Investments............................................................................................40
          -----------
   8.16   Purchases and Sales....................................................................................40
          -------------------
   8.17   Leases.................................................................................................41
          ------
   8.18   Indebtedness...........................................................................................41
          ------------
   8.19   Loans; Guarantees......................................................................................41
          -----------------
   8.20   License of Listed Rights or Intellectual Property......................................................41
          -------------------------------------------------
   8.21   Compliance by Subsidiaries.............................................................................41
          --------------------------
SECTION 9 - Definitions..........................................................................................41
SECTION 10 - Miscellaneous.......................................................................................47
   10.1   Governing Law..........................................................................................47
          -------------
   10.2   Survival...............................................................................................47
          --------
   10.3   Successors and Assigns.................................................................................47
          ----------------------
   10.4   Entire Agreement; Amendment............................................................................47
          ---------------------------
   10.5   Notices, etc...........................................................................................48
          ------------
   10.6   Delays or Omissions....................................................................................48
          -------------------
   10.7   Rights; Severability...................................................................................49
          --------------------
   10.8   Agent's Fees and Services..............................................................................49
          -------------------------
   10.9   Legal Fees and Expenses................................................................................49
          -----------------------
   10.10     Titles and Subtitles................................................................................49
             --------------------
   10.11     Counterparts........................................................................................49
             ------------
   10.12     Construction........................................................................................50
             ------------
   10.13     Further Assurances..................................................................................50
             ------------------
   10.14     Equitable Relief....................................................................................50
             ----------------
   10.15     Publicity...........................................................................................50
             ---------

</TABLE>

<PAGE>

                                         SCHEDULES AND EXHIBITS

Schedule I  -     Schedule of Purchasers

Schedule II -     Disclosure Schedules

Exhibit A   -     Certificate of Designation of Powers, Preferences and Rights
                  of Series C Preferred Stock
Exhibit B   -     Form of Opinion of Counsel

Exhibit C   -     Amended and Restated Shareholders' and Rights Agreement

Exhibit D   -     Statement of Accredited Investor
Exhibit E  -      Form of Preferred Stock Warrant

Exhibit F   -     Form of August 1, 2001 Common Stock Warrant
Exhibit G         Form of October 15, 2001 Common Stock Warrant

<PAGE>

             SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

         THIS SERIES C  PREFERRED  STOCK AND WARRANT  PURCHASE  AGREEMENT  (this
"Agreement")  is made and entered into as of the 21st day of December,  2000, by
and among  SoftLock.com,  Inc. (the "Company"),  a Delaware  corporation  having
offices at Five Clock Tower Place, Suite 440, Maynard,  Massachusetts,  SoftLock
Services,  Inc., a wholly-owned subsidiary of the Company (the "Subsidiary") and
each of the parties listed on Schedule I hereto (the "Schedule of  Purchasers").
The parties listed on the Schedule of Purchasers and any  transferee(s) to which
the Purchasers may from time to time have transferred any "Shares" (as such term
is defined in Section 1.1 below) are hereinafter referred to collectively as the
"Purchasers."

         WHEREAS, the Company desires to issue and sell, and the Purchasers
desire to purchase, certain securities of the Company;

         NOW,  THEREFORE,  in  consideration  of the  promises  and  the  mutual
covenants and conditions  herein  contained,  the Company and the Purchasers (in
the case of the Purchasers, severally and not jointly), hereby agree as follows:

SECTION 1

           Authorization, Purchase and Sale of the Acquired Securities

         1.1      Authorization of the Acquired Securities.

         The Company has, or before the First Closing (as defined in Section 2.1
hereof) will have,  authorized the designation of Series C Preferred  Stock, par
value $0.01 per share (the "Series C Preferred"),  having the rights, privileges
and  preferences  as set forth in the  Certificate  of  Designation  of  Powers,
Preferences  and  Rights  of  Series  C  Preferred  Stock,  the form of which is
attached to this  Agreement as Exhibit A (the  "Certificate"),  and the issuance
and sale under  this  Agreement  of all of the  Acquired  Securities,  including
without  limitation the 76,523 shares (the "Shares") of Series C Preferred,  the
Conversion  Shares,  the  Warrants  and the Warrant  Shares,  each as defined in
Section 9 hereof.  The term "Shares" as used in this Agreement also includes any
securities  issued or issuable  with respect to the original  Shares by way of a
stock   dividend,    stock   split,   combination   or   division   of   shares,
recapitalization,  reclassification,  merger, consolidation,  reorganization, or
the like and any securities  into which any of the original Shares are converted
or  convertible,  directly  or  indirectly  (including  but not  limited  to the
Conversion  Shares) or for which any of the  original  Shares are  exchanged  or
exchangeable, directly or indirectly.

         1.2      Sale and Purchase of the Shares and Warrants.

         Upon and subject to the terms and  conditions of this  Agreement and in
reliance upon the  representations,  warranties and agreements contained herein,
at the First Closing the Company will issue and sell to the Purchasers, and each
Purchaser  will  purchase  from the Company at the  Closing,  (i) that number of
shares of Series C Preferred set forth  opposite each such  Purchaser's  name on
the Schedule of  Purchasers,  and (ii) the Warrants.  The purchase price for the
Shares and the Warrants  shall be $191.00 per share of Series C Preferred for an
aggregate purchase price for all of the Shares and Warrants at the First Closing
of $7,000,000.

         1.3      Certain Defined Terms.

         Certain  capitalized  terms  used  in this  Agreement  shall  have  the
respective meanings ascribed to them in Section 9 hereof.

SECTION 2

Closing, Payment and Delivery

         2.1      Closing Date and Place of Closing.

          The  closing  of the  initial  purchase  and  sale of the  Shares  and
Warrants (the "First  Closing")  shall be held on the date (the "Closing  Date")
of, and immediately following,  the final execution and delivery of at least one
counterpart of this  Agreement by the Company and the  Purchasers  listed on the
Schedule of  Purchasers,  or such other date as shall have been agreed to by the
Company and the  Purchasers.  The place of the Closing  (including  the place of
delivery to the  Purchasers  by the  Company of the  Warrants  and  certificates
evidencing the Shares being purchased and the place of payment to the Company by
such  Purchasers  of the  purchase  price  therefor)  shall be at the offices of
Hutchins, Wheeler & Dittmar, 101 Federal Street, Boston, Massachusetts,  or such
other  place as shall  have been  agreed to by the  Company  and the  Purchasers
participating in such First Closing.

         2.2      Closing Payment and Delivery.

          At the First Closing,  the Purchasers will pay to the Company, in cash
or by check or wire  transfer,  the amount set forth  opposite such  Purchaser's
name on the  Schedule  of  Purchasers;  and the  Company  will  deliver  to such
Purchaser a certificate or certificates  registered in such Purchaser's name for
the number of Shares set forth opposite such Purchaser's name on the Schedule of
Purchasers  and three  (3)  Warrants  substantially  in the form of  Exhibit  E,
Exhibit F and Exhibit G, attached  hereto,  for the number of shares of Series C
Preferred Stock and Common Stock, as defined in Section 9 hereof,  respectively,
as is set forth opposite such Purchaser's name on the Schedule of Purchasers.

          2.3     Subsequent Sales of Shares.

          At any time,  and from time to time,  on or before  March 31, 2001 the
Company  may  sell up to the  balance  of the  authorized  shares  of  Series  C
Preferred Stock not sold at the First Closing to such persons as may be approved
by the Board of Directors ("Board") of the Company;  provided that the aggregate
number of Shares sold pursuant to this Agreement  shall not exceed  76,523.  All
such  sales  shall  be  made on the  terms  and  conditions  set  forth  in this
Agreement,  including without limitation,  the representations and warranties by
such  Purchasers as set forth in Section 4; provided  however that Purchasers of
Shares  pursuant  to this  Section  2.3 shall not be  entitled  to any  Warrants
provided in Section 1.2. Any shares of Series C Preferred Stock sold pursuant to
this Section 2.3 shall be deemed  Shares for all purposes  under this  Agreement
and any Purchasers  thereof shall be deemed to be "Purchasers"  for all purposes
of this Agreement. Any Purchaser of Shares pursuant to this Section 2.3 shall be
required as a condition to closing to become a party to that certain Amended and
Restated Shareholders and Rights Agreement.

SECTION 3

Representations and Warranties of the Company

          Except as expressly  set forth (with  reference to a paragraph in this
Section 3) on Schedule 2 (the "Disclosure  Schedules")  hereto,  the Company and
Subsidiary  jointly and severally  represent and warrant to the Purchasers as of
the Closing Date as follows:

          3.1     Organization and Standing; Articles and By-laws.

          (a) The Company and Subsidiary  each is a corporation  duly organized,
validly  existing  and  in  good  standing  under  the  laws  of  its  state  of
organization and is qualified, licensed or domesticated as a foreign corporation
in each jurisdiction wherein the nature of its activities or properties owned or
leased by each makes such qualification,  licensing or domestication  necessary.
The Disclosure Schedules set forth the jurisdictions in which the Company and/or
Subsidiary is qualified,  licensed or domesticated as a foreign corporation. The
Company and  Subsidiary  each has all requisite  power,  governmental  licenses,
authorization  consents and approvals to own the  properties  owned by it and to
conduct the business as it is being  conducted by it and as  contemplated by the
business plan (the "Plan")  prepared by the Company,  a true and correct copy of
which has been given to the  Purchasers  and  counsel  for the  Purchasers.  The
Disclosure  Schedules  set  forth all  jurisdictions  in which  the  Company  or
Subsidiary  owns or leases  property  or engages  in any  activity  which  under
applicable  law  makes   qualification  or  license  as  a  foreign  corporation
necessary;

         (b) The Company has  furnished  counsel for the  Purchasers  with true,
correct and complete  copies of the Company's and  Subsidiary's  Certificate  of
Incorporation and By-laws,  and all amendments thereto through and including the
Closing Date and copies of the minutes of all Board, Committees of the Board and
stockholders  meetings of the Company and Subsidiary.  Prior to the Closing, the
Company  shall  have  properly  filed  and  recorded  the  Certificate  with the
Secretary of the State of Delaware. Neither the Company nor the Subsidiary is in
breach of any of the  provisions  of its  Certificate  of  Incorporation  or its
By-laws.

         3.2      Corporate Power.

         Each of the  Company and the  Subsidiary  has all  requisite  corporate
power to enter  into this  Agreement  and each of the  Financing  Documents,  as
defined  in  Section 9  hereof,  to which it is a party  and will  have,  on the
Closing Date, all requisite  corporate power to sell the Shares and Warrants and
to carry out and perform its  obligations  under the terms of this Agreement and
each of the Financing Documents.

         3.3      Subsidiaries.

         Neither the Company nor the Subsidiary has any other  subsidiaries  and
neither owns of record or beneficially any capital stock, membership interest or
equity interest or investment in any  corporation,  limited  liability  company,
partnership,  association or other business  entity,  except as set forth in the
Disclosure  Schedules.  The Company is the sole owner of all  securities  of the
Subsidiary.  There are no options,  warrants,  or other  agreements  pursuant to
which any Person may acquire any of the Equity Securities, as defined in Section
9  hereof,  of  Subsidiary.   The  Subsidiary  has  not  issued  any  Derivative
Securities, as defined in Section 9 hereof.

          3.4     Capitalization.

         (a) The Disclosure Schedules contain a true and correct list of (i) all
capital  stock of the Company and  Subsidiary  (including  the amounts  thereof)
outstanding  immediately  prior to the First Closing  (including  all Derivative
Securities, which shall be reflected on a fully diluted basis) not giving effect
to the sale  and  purchase  of the  Shares  and  Warrants  provided  for in this
Agreement,  (ii) the holders of any interest  exceeding five percent (5%) of the
amount of such issued and outstanding  capital stock, (iii) the number of shares
of capital  stock held by the  Company's  management  and directors and (iv) the
number of shares of capital stock held by all other shareholders as a group. All
such  outstanding  shares of  capital  stock  will be duly  authorized,  validly
issued,  fully paid, and non-assessable.  No adjustment has previously been made
(or should have been made) nor will any  adjustment  be required to be made as a
result of the  Company's  issuance  of the  Shares  or  Warrant  Shares  (or the
issuance of Common Stock upon the conversion or exercise thereof) to the rate at
which  shares of Series A Preferred  Stock or Series B  Preferred  Stock and any
other capital stock or Derivative Securities of the Company are convertible into
or  exercisable  for shares of Common  Stock (by  reason of any  "anti-dilution"
provisions or agreements or otherwise);

         (b)  Except  as set  forth in the  Disclosure  Schedules,  neither  the
Company nor the  Subsidiary,  is bound by, has any  obligation to grant or enter
into, any (i) outstanding subscriptions,  options, warrants, calls, commitments,
or  agreements of any character  calling for it to issue,  deliver,  or sell, or
cause to be issued,  delivered,  or sold, any shares of its capital  stock,  any
membership  interests or any other equity security,  or any securities described
in the following clause, or (ii) securities convertible into,  exchangeable for,
or representing the right to subscribe for,  purchase,  or otherwise acquire any
shares of its  capital  stock,  any  membership  interests  or any other  equity
security.  No adjustment has previously been made (or should have been made) nor
will any adjustment be required to be made as a result of the Company's issuance
of the  Shares or  Warrant  Shares  (or the  issuance  of Common  Stock upon the
conversion  or  exercise  thereof)  to the number of shares of capital  stock or
Derivative  Securities  of the Company  into which any  subscriptions,  options,
warrants,  calls,  commitments or agreements are  convertible  (by reason of any
"anti-dilution" provisions or agreements or otherwise);

         (c)  Except  as set  forth in the  Disclosure  Schedules,  neither  the
Company nor the  Subsidiary  (i) has  outstanding  obligations,  contractual  or
otherwise,  to repurchase,  redeem,  or otherwise  acquire any shares of capital
stock or other equity securities of the Company, (ii) is a party to or bound by,
and has knowledge of, any agreement or instrument  relating to the voting of any
of its  securities,  and  (iii)  is a party  to or  bound  by any  agreement  or
instrument  under which any person has the right to require it to effect,  or to
include  any  securities  held by such  person  in, any  registration  under the
Securities Act of 1933, as amended (the  "Securities  Act").  There are no other
agreements,  contracts,  instruments  or  documents,  except as set forth in the
Disclosure  Schedules,  which  govern  or  affect  in any way the  rights of the
holders of securities,  including any class of capital stock,  of the Company or
the Subsidiary.  No First Public Offering (as defined in the  Shareholders'  and
Rights  Agreement  dated as of February  11,  2000 and the Amended and  Restated
Shareholders' and Rights Agreement dated of even date herewith) has occurred;

         (d) The Company has  reserved,  solely for the purpose of issuance upon
(i) exercise of the Warrants for Series C Preferred Stock, a number of shares of
Series C Preferred Stock  necessary to cover the exercise of such Warrants,  and
(ii) conversion of shares of Series C Preferred and exercise of the Warrants for
Common  Stock,  a number  of  shares of  Common  Stock  sufficient  to cover the
conversion  of all such  shares of Series C Preferred  and the  issuance of such
Warrant Shares;

         (e)  All  of  the  outstanding  shares  of  capital  stock,  membership
interests,  and other securities of the Company and the Subsidiary were offered,
issued,  and sold, and the Shares,  Warrants and other Acquired  Securities have
been offered and at the Closing will be issued and sold, in compliance  with (i)
all  applicable  preemptive or similar  rights of all persons (all of which have
been  waived),   and  (ii)  assuming  the   truthfulness  and  accuracy  of  the
representations  made by the  Purchasers  in  Section 4 hereof,  all  applicable
provisions of the Securities Act and the rules and regulations  thereunder,  and
all applicable state  securities laws and the rules and regulations  thereunder.
No person has any valid right to rescind  any  purchase of any shares of capital
stock or other securities of the Company or the Subsidiary;

         (f) The Shares, Warrants and other Acquired Securities being issued and
sold by the Company hereunder shall, upon issuance pursuant to the terms hereof,
be duly authorized and validly issued,  fully paid and  non-assessable  and free
and clear of any Lien, security interest, option or other charge or encumbrance.
The Conversion  Shares and Warrant  Shares shall be duly  authorized and validly
issued,  fully paid and non-assessable and free and clear of any Lien,  security
interest,  option or other charge or  encumbrance.  The issuance of the Acquired
Securities  is not and will not be subject to any  preemptive  rights or similar
rights with respect to any of such Acquired Securities;

          3.5     Authorization.

         (a) All action on the part of the  Company,  the  Subsidiary  and their
respective   directors  and  shareholders   necessary  for  the   authorization,
execution,  delivery and  performance  by the Company and the Subsidiary of this
Agreement and each of the Financing Documents to which it is a party and for the
consummation of the transactions  contemplated  herein and therein,  and for the
authorization,  issuance and delivery of any and all of the Acquired  Securities
has been taken or will be taken prior to the Closing;

         This  Agreement  and each of the  Financing  Documents  is a valid  and
binding obligation of the Company and Subsidiary, enforceable in accordance with
their  respective   terms,   subject  to  applicable   bankruptcy,   insolvency,
reorganization  and  moratorium  laws  and  other  laws of  general  application
affecting enforcement of creditors' rights generally. The execution and delivery
by the Company and the  Subsidiary  of this  Agreement and each of the Financing
Documents,  and compliance herewith and therewith,  and the issuance and sale of
the Acquired  Securities will not, with or without notice or the passage of time
or both,  result in any violation of and will not conflict  with, or result in a
breach of any of the terms of, or  constitute a default  under any provision of,
any state or federal law to which the  Company or  Subsidiary  is  subject,  the
Certificate  of  Incorporation  or By-laws of the Company or Subsidiary (in each
case as amended), or any mortgage, indenture, agreement,  instrument,  judgment,
decree,  order,  rule or regulation or other restriction to which the Company or
Subsidiary is a party or by which it or any of its property is bound,  or may be
affected, or result in the creation of any mortgage,  pledge, lien,  encumbrance
or charge  upon any of the  properties  or assets of the  Company or  Subsidiary
pursuant  to any such  term or give any  other  person  or  entity  the right to
accelerate  the  time  for  performance  of any  obligation  of the  Company  or
Subsidiary.  Except as set forth in the Shareholders'  and Rights Agreement,  as
defined  herein,  no shareholder  has any  preemptive  rights or rights of first
refusal  by  reason  of or in  connection  with  the  issuance  of the  Acquired
Securities;

          (b) The execution, delivery and performance of this Agreement and each
of  the  Financing   Documents,   and  the   consummation  of  the  transactions
contemplated  hereby and thereby require no governmental or judicial approval to
be obtained by the Company or Subsidiary,  except for post-sale filings with the
Securities and Exchange  Commission  (the  "Commission")  and, as required under
state law,  state  securities  commissions,  which  filings the  Company  and/or
Subsidiary (as applicable) will effect in a prompt and timely fashion.

         3.6      Contracts; Insurance.

          The  Disclosure  Schedules  set forth a true and  correct  list of all
material contracts,  obligations,  commitments,  agreements,  plans and the like
(which,  in  addition  to  the  material  contracts,  obligations,  commitments,
agreements and plans mentioned in subsections (a) through (q) below,  shall mean
the  performance by or payment to the Company of greater than $10,000 in any one
(1) year), whether written or oral, and all administrative, judicial and similar
orders to which the Company  and/or  Subsidiary is a party or by which it or any
of its properties is bound, including, without limitation, the following:

          (a) Any employment,  bonus or consulting  agreement,  pension,  profit
sharing,  deferred compensation,  stock bonus,  retirement,  stock option, stock
purchase,  phantom  stock or similar  plan,  or agreement  evidencing  rights to
purchase securities,  phantom stock or similar plan of the Company or Subsidiary
or any agreement among shareholders of the Company or Subsidiary;

          (b)  Any  loan or  other  agreement,  note,  indenture  or  instrument
relating to, or  evidencing,  indebtedness  for borrowed  money,  or mortgaging,
pledging  or  granting  or  creating  a  Lien  or  security  interest  or  other
encumbrance  on any property of the Company or  Subsidiary  or any  agreement or
instrument  evidencing  any guaranty by the Company or  Subsidiary of payment or
performance by any other party;

          (c)     Any material agreement with any dealer, sales representative,
broker or other distributor,  jobber,  advertiser or sales agency;

          (d)     Any agreement with any labor union or collective bargaining
organization or any other labor agreement;

          (e) Any contract for the  furnishing,  purchase or lease of machinery,
equipment, goods or services (including,  without limitation, any agreement with
processors and subcontractors) in an amount in excess of $10,000 per year;

          (f)     Any indenture,  agreement or other document  (including
private placement  brochures)  relating to the future sale or repurchase of
securities;

          (g)     Any agreement to register under the Securities Act, any of the
securities of the Company or Subsidiary;

         (h)      Any joint venture,  partnership or teaming contract or
arrangement or other agreement  involving a sharing of profits or expenses;

         (i) Any  agreement  (other than  distributorship  agreements or similar
agreements  providing  for the  distribution  of the  Company's or  Subsidiary's
products with dealers,  distributors and sales representatives of the Company or
Subsidiary)  limiting the freedom of the Company or Subsidiary to compete in any
line of business or in any geographic area or with any party;

         (j) Any agreement  providing for  disposition  of any line of business,
assets or securities of the Company or Subsidiary, or any agreement with respect
to the  acquisition  of any line of  business,  assets  or  shares  of any other
business,  any  agreement  of merger or  consolidation  or letter of intent with
respect to the foregoing;

         (k) Any agreement  requiring it to purchase all or substantially all of
its requirements for a particular product or service from a particular  supplier
or  suppliers,  or  requiring  it to supply all of a  particular  customer's  or
customers' requirements for a certain service or product;

         (l)      Any material  agreement or other  commitment  pursuant to
which it has agreed to indemnify or hold harmless any other person;

         (m) Any (i) employment agreement,  (ii) consulting agreement,  or (iii)
other  agreement,  in each  case  providing  for  severance  payments  or  other
additional rights or benefits (whether or not optional) in the event of the sale
or other change in control of it;

         (n) Any agreement with any current or former  Affiliate,  as defined in
Section 9 hereof, stockholder, officer, director, employee, or consultant of the
Company or  Subsidiary,  or with any person in which any such  Affiliate  has an
interest;

         (o) Any agreement with any domestic or foreign  government or agency or
executive  office  thereof or any  subcontract  between  it and any third  party
relating  to a contract  between  such third  party and any  domestic or foreign
government or agency or executive office thereof;

         (p) Any agreement with employees with respect to the confidentiality of
the Company's or Subsidiary's  Proprietary  Information,  as defined herein, and
the assignment to the Company or Subsidiary of any and all rights such employees
of the Company or Subsidiary  might have to acquire with respect to  technology,
inventions,  developments,  etc.,  developed in connection with their employment
with the Company or Subsidiary; and

         (q) Any agreement,  the  performance  of which is reasonably  likely to
result in a loss to the Company or  Subsidiary,  which loss would be  reasonably
likely to have a Material Adverse Effect, as defined in Section 9 hereof.

Each of the Company and the  Subsidiary  has delivered or caused to be delivered
to the  Purchasers  correct  and  complete  copies  of all  material  agreements
requested  by the  Purchasers,  including  but  not  limited  to  the  Company's
Certificate  of  Incorporation  as  amended  (including  but not  limited to the
Certificate  of  Designation  for the Series A Preferred  Stock as amended,  the
Certificate of Designation for the Series B Preferred  Stock),  the By-laws,  as
amended,  the Series A Preferred  Stock Purchase  Agreement dated as of December
30, 1999, as supplemented, the Series B Preferred Stock Purchase Agreement dated
as of February 10, 2000,  the  Shareholders'  and Rights  Agreement  dated as of
February 10, 2000. Each such agreement,  instrument,  and commitment is a valid,
binding and enforceable obligation of the Company or the Subsidiary (as the case
may be) and to the Company's and/or Subsidiary's  knowledge,  of the other party
or parties thereto, and is in full force and effect. Each of the Company and the
Subsidiary is not or, to the Company's and/or  Subsidiary's (as the case may be)
knowledge,  is any other party  thereto,  (nor is the Company or the  Subsidiary
considered by any other party thereto to be) in breach of or noncompliance  with
any term of any such  agreement,  instrument,  or  commitment  (nor is there any
basis for any of the foregoing), except for any breaches or non-compliances that
singly or in the aggregate would not have a Material  Adverse Effect.  No claim,
change order, request for equitable adjustment, or request for contract price or
schedule  adjustment,  between the Company or the Subsidiary and any supplier or
customer,  relating to any agreement,  instrument,  or commitment  listed in the
Disclosure  Schedules  is  pending  or, to the  Company's  or  Subsidiary's  (as
appropriate)  knowledge,  threatened,  nor is  there  any  basis  for any of the
foregoing,  except  for  any  claims,  change  orders,  requests  for  equitable
adjustment or requests for contract price or schedule  adjustment would not have
a Material Adverse Effect. No agreement, instrument, or commitment listed in the
Disclosure Schedules includes or incorporates any provision, the effect of which
may be to enlarge or  accelerate  any of the  obligations  of the Company or the
Subsidiary  or to give  additional  rights to any other party  thereto,  or will
terminate, lapse, or in any other way be affected, by reason of the transactions
contemplated by this Agreement.

         3.7      Securities and Exchange Commission Documents.

         The  Company  has  filed  all  required  reports,   schedules,   forms,
statements and other  documents  with the  Commission  (any of the foregoing are
referred to herein as the "SEC  Documents").  As of their respective  dates, the
SEC Documents  complied in all material  respects with the  requirements  of the
Securities  Act,  or the  Securities  Exchange  Act of  1934,  as  amended  (the
"Exchange  Act"),  as the case may be,  and the  rules  and  regulations  of the
Commission promulgated  thereunder applicable to such SEC Documents,  and to the
Company's and Subsidiary's  knowledge,  none of the SEC Documents  contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated  therein or necessary in order to make the statements  therein,  in
light of the circumstances under which they were made, not misleading. Except to
the extent that  information  contained  in any SEC Document has been revised or
superseded  by a later filed SEC Document,  to the  Company's  and  Subsidiary's
knowledge,  none of the SEC Documents currently contains any untrue statement of
a material fact at the time that it was made or omits to state any material fact
required  to be stated  therein  or  necessary  in order to make the  statements
therein as of the date thereof,  in light of the circumstances  under which they
were  made,  not  misleading.  The  financial  statements  of  the  Company  and
Subsidiary,  included  in the SEC  Documents  comply as to form in all  material
respects with  applicable  accounting  requirements  and the published rules and
regulations  of the  Commission  with  respect  thereto,  have been  prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited statements,  as permitted by Form 10-QSB of the Commission) applied on
a consistent  basis during the periods  involved  (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of the
Company,  Subsidiary and their consolidated Subsidiaries as of the dates thereof
and the consolidated  results of their operations and cash flows for the periods
then ended  (subject,  in the case of unaudited  statements,  to normal year-end
audit  adjustments).  All  of  the  SEC  Documents  have  been  provided  to the
Purchasers.  As used in this Agreement,  the term "Balance Sheet" shall mean the
unaudited,  draft consolidated balance sheet of the Company and Subsidiary as of
September 30, 2000, provided to the Purchasers and "Financial  Statements" shall
mean the unaudited,  draft consolidated  financial statements of the Company and
the Subsidiary as of and for the twelve (12) month period ended on September 30,
2000, a true and complete copy of which has been provided to the Purchasers.

         3.8      Absence of Undisclosed Liabilities.

         Neither the Company nor the  Subsidiary  has any  liabilities  (whether
accrued,  fixed,  contingent or otherwise,  including without limitation any tax
liabilities due or to become due),  whether due or to become due, which,  either
individually or in the aggregate,  are material and not disclosed on the Balance
Sheet.

         3.9      Absence of Certain Changes.

         Except as set forth on the Disclosure Schedules,  since the date of the
Balance Sheet, there has not been:

         (a) Any change in the  condition,  assets,  liabilities,  prospects  or
business  of the  Company or  Subsidiary  from that shown on the  Balance  Sheet
which, either individually or in the aggregate, has been or is reasonably likely
to have a Material Adverse Effect;

         (b)      Any damage to, or destruction  or loss of, any of the
properties or assets of the Company or the Subsidiary  (whether
or not covered by insurance) that has a Material Adverse Effect;

         (c) Any declaration,  setting aside or payment of any dividend or other
distribution  in  respect  of  any of  the  Company's  capital  stock  or  other
securities  of the Company,  or any direct or indirect  redemption,  purchase or
other  acquisition  of any of such stock (or any warrant,  option or other right
with  respect to such stock) by the Company or  Subsidiary  or any  repayment of
Company or Subsidiary  debt held by any Related  Party,  as defined in Section 9
hereof,  or by an Affiliate  (in each such case,  whether in cash,  stock and/or
property or otherwise);

         (d)      Any organizational activity, collective bargaining activity,
labor dispute or labor trouble;

         (e)      Any event or condition of any character  which,  either
individually  or in the  aggregate,  has a Material  Adverse Effect;

         (f) Any  action  taken or entered  into by the  Company  involving  any
transaction other than in the usual and ordinary course of business, except this
Agreement;

         (g) Any wage or salary increase made or granted, or entered into by the
Company or the Subsidiary  involving any employment agreement with an officer or
key employee other than any agreement set forth in the Disclosure Schedules;

         (h)      Any disclosure to any person of any material trade secrets,
except for disclosures  made to persons subject to valid and enforceable
confidentiality agreements;

          (i)     Any material disposition of assets outside the ordinary
course of business;

         (j) Any issuance of any shares of the capital stock or other securities
of the Company or Subsidiary, or any direct or indirect redemption, purchase, or
other  acquisition  by the  Company or  Subsidiary  of any shares of its capital
stock or other securities;

         (k)      Any change in the officers, directors, key employees, or key
independent contractors of the Company or Subsidiary;

         (l) Any labor trouble or claim of unfair labor practices  involving the
Company or the  Subsidiary,  any increase in the  compensation or other benefits
payable  or to become  payable  by the  Company  or  Subsidiary  to any of their
respective Affiliates,  or to any of their officers,  employees,  or independent
contractors  outside the ordinary  course of business,  or any bonus payments or
arrangements  made to or with any of such  officers,  employees,  or independent
contractors  outside the  ordinary  course of business or which were not accrued
and set forth in the Financial Statements or Balance Sheet;

         (m) Any forgiveness or cancellation of any debt or claim by the Company
or the Subsidiary or any waiver by the Company or the Subsidiary of any right of
material value,  other than  compromises of accounts  receivable in the ordinary
course of business;

         (n) Any incurrence or any payment,  discharge,  or  satisfaction by the
Company or the Subsidiary of any material Indebtedness,  as defined in Section 9
hereof, or any material obligations or material  liabilities,  whether absolute,
accrued,  contingent, or otherwise (including without limitation liabilities, as
guarantor or otherwise, with respect to obligations of others);

         (o) Any incurrence, discharge, or satisfaction of any Lien in excess of
$10,000 (i) by the Company or  Subsidiary,  or (ii) on any of the capital stock,
other  securities,  properties,  or assets owned or leased by the Company or the
Subsidiary;

         (p)      Any change in the financial or tax accounting principles,
practices, or methods of the Company or the Subsidiary; or

         (q) Any agreement,  understanding, or commitment by or on behalf of the
Company or the Subsidiary,  whether in writing or otherwise, to do or permit any
of the things referred to in this Section 3.9.

         3.10     Taxes.

         The Company and  Subsidiary has each filed or will file within the time
prescribed by law  (including  extensions  of time  approved by any  appropriate
taxing  authority)  all tax returns  and  reports  required to be filed with the
United  States  Internal  Revenue  Service  and with  the  States  of  Delaware,
Massachusetts,  and New York and  (except to the extent that the failure to file
would not have a Material  Adverse  Effect) with all other  jurisdictions  where
such filing is required by law; and the Company and Subsidiary has paid, or made
adequate provision in the Balance Sheet for the payment of, all taxes, interest,
penalties,  assessments or deficiencies due in connection therewith. Neither the
Company nor the Subsidiary has ever had any tax deficiency  proposed or assessed
against it and neither the Company nor the Subsidiary has executed any waiver of
any  statute  of  limitations  on the  assessment  or  collection  of any tax or
governmental  charge.  None of the Company's or Subsidiary's  federal income tax
returns  nor any state  income,  sales or  franchise  tax  returns has ever been
audited by governmental  authorities.  No tax audit, action,  suit,  proceeding,
investigation  or claim is now  pending  nor, to the best of the  Company's  and
Subsidiary's knowledge after reasonable inquiry,  threatened against the Company
or  Subsidiary,  and no issue or  question  has been  raised  (and is  currently
pending) by any taxing  authority  in  connection  with any of the  Company's or
Subsidiary's tax returns or reports.

         The Company and  Subsidiary  each has withheld or  collected  from each
payment made to each of their employees, the amount of all taxes (including, but
not limited to, federal income taxes,  Federal Insurance  Contribution Act taxes
and Federal  Unemployment  Tax Act taxes)  required to be withheld or  collected
therefrom,  and has  paid the  same to the  proper  tax  receiving  officers  or
authorized depositaries.

         3.11     Transactions With Affiliates

         Except  as set  forth on the  Disclosure  Schedules,  there is no loan,
lease or other  continuing  transaction  of any nature  between  the  Company or
Subsidiary and any Related Party and/or Affiliate.

         3.12     Litigation.

         Except  as set  forth on the  Disclosure  Schedules,  there is  neither
pending nor threatened  any action,  suit,  proceeding or claim,  whether or not
purportedly  on behalf  of the  Company  or  Subsidiary,  to which the  Company,
Subsidiary,  or any employee of the Company or Subsidiary, is or may be named as
a party or to which the Company's, Subsidiary's or any such person's property is
or may be  subject.  Except as set  forth on the  Disclosure  Schedules,  to the
Company's  and  Subsidiary's  knowledge,  there is no basis for any such action,
suit,  proceeding or claim involving the Company or the Subsidiary,  in which an
unfavorable  outcome,  ruling  or  finding  in any such  matter  or for all such
matters,  taken as a whole, might have a Material Adverse Effect.  Except as set
forth on the Disclosure Schedules,  the Company and Subsidiary have no knowledge
of any unasserted claim, the assertion of which is more likely than not.

         3.13     Consents.

         No consent,  approval or authorization of, or designation,  declaration
or  filing  with,  any  governmental  authority  on the part of the  Company  or
Subsidiary,  including  qualification  under applicable state securities laws of
the offer and sale of the Shares and of the issuance of the  Conversion  Shares,
is  required  in  connection  with the  valid  execution  and  delivery  of this
Agreement,  the offer,  sale or issuance of the Shares,  the  conversion  of the
Shares  into  Common  Stock or the  issuance of the  Conversion  Shares,  or the
consummation of any other  transaction  contemplated on the Closing Date by this
Agreement  or  any  of  the  Financing  Documents,  except  the  filing  of  the
Certificate  with the Secretary of the State of Delaware,  which filing has been
made  and is  effective  as of the  date  hereof.  Each of the  Company  and the
Subsidiary has complied with, and is in compliance with, (i) all laws, statutes,
governmental regulations, judicial or administrative tribunal orders, judgments,
writs,  injunctions,  decrees,  and similar  commands  applicable  to it and its
business, and all unwaived terms and provisions of all agreements,  instruments,
and  commitments  to which it is a party or to which it or any of its  assets or
properties is subject,  except for any  non-compliances  that, both individually
and in the aggregate,  have not had and could not reasonably be expected to have
a Material Adverse Effect,  and (ii) its charter documents and By-laws,  each as
amended to date. Each of the Company and the Subsidiary has not committed,  been
charged with, or, to their knowledge,  been under investigation with respect to,
nor does there exist,  any  violation by either of them of any  provision of any
federal,  state,  or local  law or  administrative  regulation,  except  for any
violations that,  either singly or in the aggregate,  have not had and could not
reasonably be expected to have a Material  Adverse  Effect.  The Company and the
Subsidiary have and maintain,  and the Disclosure Schedules set forth a complete
and correct list of, all such licenses,  permits,  and other authorizations from
all such  governmental  authorities  as are legally  required for the conduct of
their business or in connection  with the ownership or use of their  properties,
except for any such licenses, permits, and other authorizations,  the failure to
obtain or maintain which in effect, both singly or in the aggregate, has not had
and could not reasonably be expected to have a Material Adverse Effect,  and all
of which (except as specifically  described in the Disclosure  Schedules) are in
full force and effect in all material respects,  and true and complete copies of
all of which have been delivered to the Purchasers.

         3.14     Title to Properties, Liens and Encumbrances.

         Each of the  Company  and the  Subsidiary  has (i) good and  marketable
title  to all of the  assets  and  properties  owned  by it,  including  without
limitation  all assets and  properties  reflected in the Balance  Sheet (in each
case  excluding  any assets and  properties  sold or  otherwise  disposed  of to
persons other than  Affiliates in the ordinary course of business since the date
of such  Balance  Sheet),  free and clear of all Liens,  (ii) valid title to the
lessee interest in all assets and properties leased by them as lessee,  free and
clear of all  Liens,  and (iii) full right to hold and use all of its assets and
properties used in or necessary to its businesses and  operations,  in each case
all free and clear of all Liens, and in each case subject to applicable laws and
the terms of any lease  under which the  Company or the  Subsidiary  leases such
assets or  properties  as lessee.  All such  assets and  properties  are in good
condition and repair,  reasonable  wear and tear excepted,  and are adequate and
sufficient  to carry on the  businesses  of the Company and the  Subsidiary  (as
applicable) as presently conducted and as proposed to be conducted.

         3.15     Leases.

         Set forth on the Disclosure Schedules is a correct and complete list of
all leases  (including,  with respect to each lease, the material  provisions of
such lease,  including the term, the amount of rent called for and a description
of the leased property) under which the Company or Subsidiary is a lessee, other
than personal property  requiring rental payments of less than $10,000 per year.
The Company and Subsidiary each enjoys peaceful and undisturbed possession under
all such leases, all of such leases are valid and subsisting and none of them is
in default in any  material  respect,  and to the  knowledge  of the Company and
Subsidiary,  no event has occurred and no condition exists which, with notice or
the passage of time or both, would constitute such a default.

         3.16     Franchises, Licenses, Trademarks, Patents and Other Rights.

         (a) The  Disclosure  Schedules list all patents,  patent  applications,
trademarks,  trade names, service marks, logos, copyrights,  and licenses (other
than licenses from  governmental  authorities which are covered in Section 3.13)
used in or necessary to the Company's and/or Subsidiary's  business as now being
conducted or as proposed to be conducted  (collectively,  and together  with any
technology, know-how, trade secrets, processes, formulas, and techniques used in
or  necessary  to  the  Company's  and/or  Subsidiary's  business,  "Proprietary
Information").  Except as set forth in the  Disclosure  Schedules,  the  Company
and/or  Subsidiary  own,  or  are  licensed  or  otherwise  have  the  full  and
unrestricted  exclusive right to use,  without the payment of royalties or other
further consideration,  all Proprietary  Information,  and no other intellectual
property  rights,   privileges,   licenses,   contracts,  or  other  agreements,
instruments,  or evidences of interests  are necessary to or used in the conduct
of their businesses;

         (b) In any instance where the Company's and/or  Subsidiary's  rights to
Proprietary  Information  arise under a license or similar agreement (other than
for  software  programs  that have not been  customized  for its  use),  this is
indicated in the Disclosure Schedules and such rights are, to the best knowledge
of the Company and/or Subsidiary, licensed exclusively to it except as indicated
in the  Disclosure  Schedules.  No other  person has an  interest in or right or
license to use any of the  Proprietary  Information.  Except as set forth in the
Disclosure Schedules, to the Company's and Subsidiary's best knowledge,  none of
the Proprietary  Information is being infringed by others,  or is subject to any
outstanding order, decree, judgment, or stipulation.  Except as set forth in the
Disclosure Schedules, no litigation (or other proceedings in or before any court
or other governmental,  adjudicatory, arbitral, or administrative body) relating
to the Proprietary  Information is pending or, to the Company's and Subsidiary's
best knowledge, threatened, nor, to the Company's and Subsidiary's knowledge, is
there  any  basis  for any  such  litigation  or  proceeding.  The  Company  and
Subsidiary use reasonable  efforts to maintain adequate and sufficient  security
measures  for the  preservation  of the  secrecy and  proprietary  nature of the
Proprietary Information;

         (c) (i) Neither the Company  and/or  Subsidiary nor to the knowledge of
the Company  and/or  Subsidiary  any of their  employees  has  infringed or made
unlawful  use  of,  or  is,  to the  Company's  and/or  Subsidiary's  knowledge,
infringing  or  making   unlawful  use  of,  any   proprietary  or  confidential
information of any Person,  including without  limitation any former employer of
any past or present employee or consultant of the Company and/or Subsidiary; and
(ii) to the  Company's  and/or  Subsidiary's  knowledge,  the  activities of the
Company's and/or  Subsidiary's  employees in connection with their employment do
not  violate  any  agreements  or  arrangements   that  any  such  employees  or
consultants  have with any former  employer or any other  Person.  Except as set
forth in the Disclosure  Schedules,  no litigation  (or other  proceedings in or
before   any   court  or  other   governmental,   adjudicatory,   arbitral,   or
administrative body) charging the Company and/or Subsidiary with infringement or
unlawful use of any patent, trademark,  copyright, or other proprietary right is
pending or, to the Company's and/or Subsidiary's knowledge,  threatened,  nor is
there any basis for any such litigation or proceeding;

         (d) To the  knowledge  of  the  Company  and  Subsidiary,  no  officer,
director,  employee, or consultant of the Company and/or Subsidiary is presently
obligated  under or bound  by any  agreement  or  instrument,  or any  judgment,
decree,  or order of any court of administrative  agency,  that (i) conflicts or
may conflict with his or her agreements  and  obligations to use his or her best
efforts  to  promote  the  interests  of the  Company  and/or  Subsidiary,  (ii)
conflicts or may conflict with the business or operations of the Company  and/or
Subsidiary  as  presently  conducted  or as proposed to be  conducted,  or (iii)
restricts or may restrict the use or disclosure of any  information  that may be
useful to the Company and/or Subsidiary;

         3.17     Issuance Taxes.

         All taxes  imposed by any state in connection  with the issuance,  sale
and delivery of the Acquired Securities shall have been fully paid, and all laws
imposing such taxes shall have been fully  complied  with,  prior to the Closing
Date.

         3.18     Offering.

         Except as set forth on the  Disclosure  Schedules  and in the Company's
SEC  Documents,  within the past six (6) months,  the  Company  has not,  either
directly  or through any agent,  offered  any of the  Shares,  Warrants or other
Derivative  Securities,  or any preferred  security or securities similar to the
Shares for sale to, or solicited any offers to buy the Shares, Warrants or other
Derivative Securities or any part thereof or any such similar preferred security
or  securities  from, or otherwise  approached or negotiated in respect  thereof
with, any party or parties other than the Purchasers or  institutional  or other
sophisticated  investors,  each of which was  offered  all or a  portion  of the
Shares at private sale for investment.

         Subject  in  part  to  the  truth  and  accuracy  of  the   Purchasers'
representations set forth in this Agreement, the offer, sale and issuance of the
Acquired  Securities  as  contemplated  by this  Agreement  are exempt  from the
registration  requirements of the Securities Act, and all state securities laws,
and neither  the  Company  nor anyone  acting on its behalf will take any action
hereafter that would cause the loss of such exemption.

         3.19     Employees.

         (a) Each of the Company's and Subsidiary's  present or former employees
who has had access to  Proprietary  Information of the Company or Subsidiary has
executed the Company's or Subsidiary's standard form of proprietary  information
agreement ("Proprietary  Information  Agreement").  The Disclosure Schedules set
forth a complete list of the name and position of each person who has executed a
Proprietary  Information Agreement. To the Company's and Subsidiary's knowledge,
no employee or former employee of the Company or Subsidiary is or is expected to
be in violation of the terms of the aforesaid Proprietary  Information Agreement
or of any other  obligation  relating to the use of  confidential or Proprietary
Information of the Company or Subsidiary.  Each of such Proprietary  Information
Agreements remains in full force and effect;

         (b) The Disclosure Schedules set forth the current compensation of each
officer or director of the Company and  Subsidiary,  and of each employee  being
paid (or to whom the Company or Subsidiary has agreed to pay) annual salary at a
rate of $120,000 per year or more;

         (c) To the knowledge of the Company and Subsidiary, except as set forth
on the  Disclosure  Schedules,  no officer  or key  employee  of the  Company or
Subsidiary  has  any  present  intent  of  terminating  such  officer's  or  key
employee's employment with the Company or Subsidiary;

         (d)  Each  of the  Company  and  Subsidiary  complies  in all  material
respects with all laws regarding  employment,  wages,  hours, equal opportunity,
collective  bargaining  and  payment of Social  Security  and other  taxes.  The
Company and Subsidiary  each is in compliance in all material  respects with all
applicable  foreign,  federal,  state and local laws and  regulations  regarding
occupational safety and health standards and has received no complaints from any
foreign,  federal,  state or local agency or regulatory body alleging violations
of any such laws and regulations;

         (e)  Except  as set  forth  on the  Disclosure  Schedules  hereto,  the
employment of all persons and officers employed by the Company and Subsidiary is
terminable  at will without any penalty or severance  obligation  of any kind on
the part of the Company or  Subsidiary.  All sums due for employee  compensation
and  benefits and all  vacation  time owing to any  employees of the Company and
Subsidiary  have been duly and adequately  accrued on the accounting  records of
the Company and  Subsidiary.  All  employees of the Company and  Subsidiary  are
either  United States  citizens or resident  aliens  specifically  authorized to
engage in  employment in the United  States in  accordance  with all  applicable
laws;

         (f) Neither the Company nor  Subsidiary  has  experienced,  nor does it
know or have  reasonable  grounds to know of any basis for,  any  strike,  labor
troubles or strife,  work stoppages,  slow downs, or other  interference with or
impairment of its business.  Neither the Company nor Subsidiary has experienced,
nor does it know of, any union or collective bargaining  organization efforts or
negotiations, or requests for negotiations,  for any representation or any labor
contract relating to any employees of the Company or Subsidiary.

         3.20     Business of the Company and Subsidiary.

         Except as set forth on the  Disclosure  Schedules,  the Company and the
Subsidiary  have no knowledge or belief (i) that there is pending or  threatened
any  claim  or  litigation  against  or  affecting  the  Company  or  Subsidiary
contesting  its  right  to  manufacture,  sell or use  any  product  or  service
presently manufactured, sold or used or planned to be manufactured, sold or used
by the Company or Subsidiary,  or (ii) that there exists, or there is pending or
planned, any statute, rule, law, regulation, standard or code which would have a
Material Adverse Effect.  The Company and Subsidiary  currently intend to engage
in the business of the general type described in the Plan.

         3.21     Use of Proceeds.

         The Company and  Subsidiary  will use the  proceeds of the offering for
working capital  purposes.  The Company and Subsidiary will not use the proceeds
of  the  offering  for  other  business  purposes.   None  of  the  transactions
contemplated in this Agreement  (including,  without limitation,  the use of the
proceeds  from the sale of the Shares)  will violate or result in a violation of
Section 7 of the  Exchange  Act, or any  regulations  issued  pursuant  thereto,
including, without limitation,  Regulations G, T and X of the Board of Governors
of the Federal  Reserve System,  12 C.F.R.,  Chapter 11. Neither the Company nor
the Subsidiary owns or intends to carry or purchase any "margin security" within
the meaning of said Regulation G, including margin securities  originally issued
by the  Company or the  Subsidiary.  None of the  proceeds  from the sale of the
Shares  will be used to  purchase  or carry  (or  refinance  any  borrowing  the
proceeds  of which were used to  purchase  or carry) any  "security"  within the
meaning of the Securities Act.

         3.22     Applicability of, and Compliance with, Other Laws.

           (a) Neither the Company nor Subsidiary has or makes  contributions to
any  pension  plans,   defined  benefit  plans  or  defined  contribution  plans
("Employee Plan") for its employees which are subject to the Employee Retirement
Income  Security Act of 1974, as amended  ("ERISA"),  except as set forth on the
Disclosure Schedules. With respect to such Employee Plans, if any, listed on the
Disclosure  Schedules,  each of the Company and the  Subsidiary is in compliance
with the applicable  provisions of ERISA. Neither the Company nor the Subsidiary
has incurred any unremedied accumulated funding deficiency within the meaning of
ERISA, or any unsatisfied  liability to the Pension Benefit Guaranty Corporation
established  under ERISA in  connection  with any Employee Plan  established  or
maintained by the Company or the Subsidiary  under the jurisdiction of ERISA. No
"Reportable  Event" or "Prohibited  Transaction"  (as defined in Section 4043 of
ERISA) has  occurred  with  respect to any  Employee  Plan  administered  by the
Company or Subsidiary;

          (b) The Company's and Subsidiary's  employment  practices and policies
comply in all  material  respects  with (i) all  applicable  laws of the  United
States  and  each   applicable   jurisdiction   relating  to  equal   employment
opportunity,  and any rules,  regulations,  administrative  orders and Executive
Orders  relating  thereto;  and (ii) the  applicable  terms,  relating  to equal
opportunity, of any contract,  agreement or grant the Company and Subsidiary has
with,  from or  relating  (by way of  subcontract  or  otherwise)  to any  other
contract, agreement or grant of, any federal or state governmental unit. Neither
the  Company  nor the  Subsidiary  has been the  subject of any charge of unfair
labor practices, employment discrimination made against it by the National Labor
Relations Board, the United States Equal  Employment  Opportunity  Commission or
any  other  governmental  unit,  (collectively   "Governmental  Agency")  or  is
presently   subject  to  any  formal  or   informal   proceedings   before,   or
investigations  by a  Governmental  Agency.  To the Company's  and  Subsidiary's
knowledge, neither the Company, nor Subsidiary, nor any employees of the Company
or Subsidiary,  nor any Related Parties are presently under investigation by any
Governmental Agency for purposes of security clearance or otherwise;

          (c) To the  Company's  and  Subsidiary's  knowledge,  none of the real
properties   presently  owned,  leased,  or  operated  by  the  Company  or  the
Subsidiary,  nor any leasehold  improvements thereto, nor any business conducted
by the Company or the  Subsidiary  thereon,  are in violation of any  applicable
land use or zoning requirements,  including without limitation any building line
or use or  occupancy  restriction,  any public  utility or other  easement,  any
limitation,  condition,  or covenant of record,  or any zoning or building  law,
code, or ordinance;

          (d)  Neither  the  Company,  Subsidiary,  nor any  property  owned  or
occupied by the Company or Subsidiary is in material violation of any federal or
state  Environmental  Law of any sort or in  violation  of any  federal or state
so-called  "OSHA"  law.  The  Disclosure   Schedules   contain  a  list  of  all
environmental  permits held by the Company and Subsidiary.  Without limiting the
foregoing:

                  (i) Environmental Permits. The Company and Subsidiary each has
obtained  all   environmental,   health  and  safety  permits  and  governmental
authorizations  (collectively,  the "Environmental  Permits")  necessary for the
construction  of their  facilities or the conduct of their  operations,  and all
such  Environmental  Permits are in good standing and the Company and Subsidiary
each is in  compliance  with  all  terms  and  conditions  of the  Environmental
Permits.  No  notice  to,  approval  of or  authorization  or  consent  from any
governmental  or  regulatory  authority  is  necessary  for the  transfer  of or
modification  to  any   Environmental   Permit  and  the   consummation  of  the
transactions  contemplated by this Agreement will not violate,  alter, impair or
invalidate, in any respect, any Environmental Permit;

                  (ii) Environmental  Claims. There are no Environmental Claims,
as defined in Section 9 hereof,  pending,  threatened or likely to be threatened
(a) against the Company or  Subsidiary,  (b) to the  Company's  or  Subsidiary's
knowledge,  against any person or entity whose  liability for any  Environmental
Claim the  Company or  Subsidiary  has or may have  retained  or assumed  either
contractually  or by  operation  of law,  or (c)  against  any real or  personal
property or  operations  which are now or have been  previously  owned,  leased,
operated  or  managed,  in whole  or in  part,  by the  Company  or  Subsidiary;
provided,  however  that to the extent the  Environmental  Claim is based on the
liability of another  person or entity that the Company or Subsidiary has or may
have  retained  or assumed  either  contractually  or by  operation  of law such
representation and warranty under this clause (c) is limited to the knowledge of
the Company and Subsidiary;

                  (iii)  Releases.  There have been no Releases of any Hazardous
Materials,  as  defined  in  Section 9 hereof,  that would be likely to form the
basis of any  Environmental  Claim  against the  Company,  Subsidiary  or to the
Company's  and  Subsidiary's  knowledge,  against  any  person or  entity  whose
liability for any Environmental  Claim the Company or Subsidiary has or may have
retained or assumed either contractually or by operation of law;

                  (iv) Environmental  Assessments.  There are no environmental
reports,  audits,  investigations or assessments of the Company,  Subsidiary,
or any real or personal property or operations which are now or have been
previously owned, leased,  operated or managed, in whole or in part, by the
Company or Subsidiary;

                  (v) Environmental  Disclosure. To the knowledge of the Company
and Subsidiary upon diligent  review,  the Company and Subsidiary have disclosed
to the  Purchasers  all  relevant  facts  with  respect to  potential  or actual
environmental liabilities of the Company and Subsidiary.

         3.23     Indebtedness.

         The Disclosure  Schedules  contain a true and complete list,  including
the names of the parties  thereto and summary  description of the terms thereof,
of  all  Indebtedness,  including  without  limitation  debt  instruments,  loan
agreements,  indentures,  guaranties or other  obligations,  whether  written or
oral,  other than (i)  obligations  which may be terminated  without  payment or
penalty by the Company or Subsidiary upon not more than thirty (30) days notice,
and (ii)  obligations  for less than $10,000.  All of the  aforesaid  items were
entered into in the ordinary course of business,  are valid and binding, in full
force and effect and are enforceable in accordance with their  respective  terms
and there  exists no breach or default,  or any event which with notice or lapse
of time or both, would constitute a breach or default by any party thereto.  All
of the Company's and Subsidiary's Indebtedness which is required to be disclosed
under  generally  accepted  accounting  principles  is  disclosed on the Balance
Sheet.

         3.24     Insurance Coverage.

         Neither the  Company  nor  Subsidiary  has been  refused any  insurance
coverage sought or applied for, and the Company and Subsidiary have no reason to
believe  that they will be unable to obtain one or more  policies  of  insurance
issued  by  insurers  of  recognized   responsibility,   insuring  the  Company,
Subsidiary and their  properties and business against such losses and risks, and
in such amounts,  as are customary in the case of  corporations  of  established
reputation engaged in the same or similar business and similarly  situated.  The
Disclosure  Schedules set forth each insurance  policy  (specifying the insurer,
the  amount of  coverage,  the type of  insurance,  the policy  number,  and the
expiration  date),  maintained by the Company and  Subsidiary  relating to their
properties, assets, business or personnel. Neither the Company nor Subsidiary is
in material  default with respect to any  provision  contained in any  insurance
policy,  and neither the Company nor Subsidiary has failed to give any notice or
present any  presently  existing  claims under any  insurance  policy in due and
timely fashion.

         3.25     Illegal or Unauthorized Payments; Political Contributions.

         To the  Company's  and  Subsidiary's  knowledge,  neither the  Company,
Subsidiary  nor any of their  officers,  directors,  employees,  agents or other
representatives  of the  Company,  Subsidiary  or any other  business  entity or
enterprise  with which the Company or  Subsidiary  is or has been  affiliated or
associated,  has,  directly  or  indirectly,  made or  authorized  any  payment,
contribution  or  gift  of  money,  property,  or  services,  whether  or not in
contravention  of applicable law (i) as a kickback or bribe to any person,  (ii)
to any political organization,  or the holder of or any aspirant to any elective
or  appointive  public office except for personal  political  contributions  not
involving the direct or indirect use of funds of the Company or  Subsidiary,  or
(iii) in violation of the Foreign Corrupt Practices Act of 1977, as amended,  or
any rules or regulations thereunder.

         3.26     Disclosure.

         Neither this  Agreement,  the  Disclosure  Schedules  nor other written
statement  furnished to the  Purchasers or their counsel in connection  with the
offer and sale of the Shares,  contains any untrue  statement of a material fact
or omits to state a  material  fact  necessary  in order to make the  statements
contained  therein or herein not  misleading  in the light of the  circumstances
under which they were made.  The  forecasts,  projections,  estimates  and other
forward-looking  matters  furnished to the Purchasers were prepared on the basis
of the Company's and Subsidiary's best estimates.  The Company and Subsidiary do
not have any reason to believe that any  assumptions  or  statements  of opinion
contained in such  forecasts,  projections,  estimates or other  forward-looking
matters are unreasonable or false.

         3.27     Potential Conflicts of Interest.

         Except as set forth on the Disclosure  Schedules,  neither the Company,
nor the Subsidiary nor, to the best knowledge of the Company and the Subsidiary,
any of either of their officers,  directors or employees,  (i) own,  directly or
indirectly,  any interest (excepting passive holdings for investment purposes of
not more than one percent (1%) of the  securities  of any publicly held company)
in, or is an officer, director, employee, or consultant of, any person that is a
competitor,  lessor,  lessee,  customer,  or  supplier  of  the  Company  or the
Subsidiary;  or (ii) has any cause of action or other claim  whatsoever  against
the  Company  or the  Subsidiary,  or owes  any  amount  to the  Company  or the
Subsidiary,  except for claims in the ordinary  course of business,  such as for
accrued vacation pay, accrued benefits under employee benefit plans, and similar
matters and agreements or under any employment agreements.

         3.28     Real Property Holding Corporation.

         Neither  the  Company  nor the  Subsidiary  is a  "United  States  real
property holding  corporation" within the meaning of Section 897 of the Internal
Revenue  Code of 1986,  as amended  (the  "Code")  and the  Treasury  Regulation
Section 1.897-2.

SECTION 4

Representations and Warranties of Purchasers

         Each of the  Purchasers  (severally  and not  jointly)  represents  and
warrants to the Company as of each closing date (including the date of the First
Closing) on which such Purchasers  purchase Shares of the Company,  as to itself
only, as follows:

         4.1      Organization; Good Standing; Power and Authority; Binding
Obligation.

         Such  Purchaser  has  full  power  and  authority  to enter  into  this
Agreement,  and is duly organized,  validly  existing and in good standing under
the laws of the  jurisdiction  of its  organization  and all  action on its part
necessary for the  authorization,  execution and delivery of this  Agreement and
the Financing  Documents,  the performance of all of its obligations  hereunder,
including,  without limitation, the payment of the purchase price for the Shares
and Warrants contemplated by this Agreement,  has been taken, and it has all the
requisite  power and  authority  to enter  into this  Agreement  and each of the
Financing  Documents  to  which it is a party.  This  Agreement  and each of the
Financing  Documents to which it is a party has been duly executed and delivered
by such  Purchasers  and  constitutes  a valid and  legally  binding  obligation
enforceable  against it in accordance  with its terms,  subject to the effect of
any applicable  bankruptcy,  reorganization,  insolvency,  moratorium or similar
laws affecting  creditors' rights generally,  subject, as to enforceability,  to
the  effect  of  general  principles  of  equity  (regardless  of  whether  such
enforceability is considered in a proceeding in equity or at law) and subject to
the effect of applicable securities laws as to rights of indemnification.

         4.2      Purchase Entirety for Own Account; Etc.

         Such  Purchaser  is  acquiring  the  Shares  and  Warrants  solely  for
investment  purposes for his, her or its own account,  not as a nominee or agent
and not with the view to, or for resale in  connection  with,  any  distribution
thereof.  Such  Purchaser  has no present  intention  of selling,  granting  any
participation  in, or  otherwise  distributing  the  Acquired  Securities.  Such
Purchaser does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant  participations to any person with respect
to the  Acquired  Securities.  Such  Purchaser  understands  that  the  Acquired
Securities  have not been  registered  under the  Securities Act by reason of an
exemption from the  registration  provisions of the Securities Act, and that the
Company's and Subsidiary's reliance on such exemption is predicated in part upon
its representations and warranties set forth in this Section 4.

         4.3      Disclosure.

         Such Purchaser has received or reviewed all the information  which each
has requested for the purposes of determining  the merits of the purchase of the
Acquired  Securities  and the  execution  of this  Agreement  and the  Financing
Documents. Such Purchaser also has received and reviewed a copy of the Financial
Statements  and Balance  Sheet.  Such  Purchaser has had an  opportunity  to ask
questions and receive  answers from the Company and  Subsidiary  regarding  such
entities,  their business,  operations and financial condition and the terms and
conditions  of the  purchase  of the  Shares,  this  Agreement  and  each of the
Financing  Documents  to which he, she or it is a party,  and answers  have been
provided  to its full  satisfaction.  Such  Purchaser  has  fully  reviewed  all
corporate  and  governance  documents  of the Company and  Subsidiary  provided,
understands all relevant terms and has asked all questions and received  answers
thereto  to  his,  her or its  full  satisfaction.  If  deemed  necessary,  such
Purchaser has consulted with a professional advisor who has provided him, her or
it with advice  concerning  these terms.  HE, SHE OR IT ACKNOWLEDGES  AND AGREES
THAT THE PURCHASE OF THE SHARES AND WARRANTS INVOLVES A HIGH DEGREE OF RISK, AND
MAY RESULT IN A LOSS OF THE ENTIRE  AMOUNT  INVESTED,  AND THERE IS NO ASSURANCE
THAT THE  REGISTRATION  STATEMENT  CONTEMPLATED  IN SECTION  7.17 HEREOF WILL BE
DECLARED EFFECTIVE; PROVIDED THAT THE COMPANY ACKNOWLEDGES ITS OBLIGATION TO USE
ITS  REASONABLE  BEST  EFFORTS TO CAUSE SUCH  REGISTRATION  STATEMENT  TO BECOME
EFFECTIVE AS PROVIDED IN SECTION 7.17 HEREOF.

         4.4      Accredited Investor.

         Such  Purchaser is an accredited  investor as defined in Rule 501(a) of
Regulation  D  under  the  Securities  Act.  The  information  provided  by such
Purchaser on the Statement of Accredited Investor,  attached hereto as Exhibit D
(the "Statement of Accredited  Investor"),  is true and correct in all respects.
Such  Purchaser is capable of bearing the economic  risk of an investment in the
purchase of the Acquired  Securities,  including the possible loss of its entire
investment.  Such  Purchaser has such  knowledge and  experience in financial or
business  matters  that it is capable of  evaluating  the merits and risks of an
investment in the Acquired  Securities  offered  hereby.  Such Purchaser has not
been organized solely for the purpose of acquiring the Acquired Securities. Such
Purchaser  has not  construed  the  contents of this  Agreement,  any  Financing
Document or any additional  agreement  with respect to the proposed  purchase of
the Shares  and  Warrants  or any prior or  subsequent  communications  from the
Company or Subsidiary,  or any of their officers,  employees or representatives,
as investment,  tax or legal advice or as information  necessarily applicable to
his, hers or its particular  financial  situation.  Such Purchaser has consulted
his,  her  or  its  own  financial  advisor,  tax  advisor,  legal  counsel  and
accountant,  as necessary or desirable, as to matters concerning the purchase of
the Shares and Warrants.

         4.5      Restricted Securities.

         Such Purchaser understands that the Acquired Securities are "restricted
securities" as defined in the  Securities  Act, and that under federal and state
securities laws the Acquired Securities may be resold without registration under
the  Securities  Act only in certain  limited  circumstances.  Such Purchaser is
familiar with Rule 144  promulgated by the Commission  under the Securities Act,
and understands the resale limitations  imposed thereunder and by the Securities
Act generally. Such Purchaser also acknowledges that the Acquired Securities are
subject to significant restrictions on transfer,  pledge or hypothecation.  Such
Purchaser  agrees  that  in no  event  will  he,  she or it make a  transfer  or
disposition  of the  Acquired  Securities  other  than in  compliance  with  all
applicable securities laws.

         4.6      Legends.

         It is understood by such Purchaser that  certificates or other evidence
of the Shares,  Warrant Shares and the Conversion  Shares may bear the following
legend, as well as any legend required by the laws of any relevant state:

         "THESE  SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
         1933 OR APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED
         FOR SALE,  PLEDGED OR  HYPOTHECATED  IN THE  ABSENCE OF A  REGISTRATION
         STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN
         OPINION OF COUNSEL  SATISFACTORY TO THE COMPANY THAT SUCH  REGISTRATION
         IS NOT  REQUIRED  PURSUANT  TO A VALID  EXEMPTION  THEREFROM  UNDER THE
         SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS."

         4.7      Termination of Restrictions.

         The restrictions  imposed by this Section 4 upon the transferability of
any Acquired  Securities  will terminate as to any  particular  Shares when such
Shares  have been sold  pursuant  to an  effective  Registration  Statement,  as
defined  herein,  under the  Securities  Act,  or pursuant to Rule 144 under the
Securities Act or any other exemption from the registration  requirements of the
Securities Act pursuant to which the transferee receives securities that are not
"restricted  securities"  within  the  meaning  of that term as  defined in Rule
144(a)(3).  Whenever any of such restrictions  terminates as to any Shares,  the
holder  thereof will be entitled to receive  from the Company,  upon its request
and at the Company's expense, new certificates representing such Shares, without
restrictive legends.

SECTION 5

Conditions to Closing of Purchasers

         The obligation of the Purchasers to purchase the Shares to be purchased
by them at the Closing is subject to the fulfillment to their satisfaction on or
prior to the Closing Date of each of the following conditions:

         5.1      Representations and Warranties Correct.

         The  representations  and warranties made by the Company and Subsidiary
in Section 3 hereof, as qualified by the Disclosure Schedules, shall be true and
correct in all respects when made, and shall be true and correct in all respects
on the First Closing Date and any subsequent closing pursuant to Section 2.3.

         5.2      Performance.

         All covenants, agreements and conditions contained in this Agreement to
be performed or complied  with by the Company  and/or  Subsidiary on or prior to
the Closing Date shall have been so  performed or complied  with in all material
respects.

         5.3      Compliance Certificate.

         The Company and  Subsidiary  shall have  executed and  delivered to the
Purchasers a  certificate  of the President or Executive  Vice  President of the
Company and Subsidiary, dated the Closing Date, certifying to the fulfillment of
the  conditions  specified  in Sections 5.1 and 5.2 of this  Agreement  and such
other matters as the Purchasers may reasonably request.

         5.4      Opinion of Company's Counsel.

         The  Purchasers  shall have received an opinion of Hutchins,  Wheeler &
Dittmar,  A  Professional  Corporation,  counsel to the Company and  Subsidiary,
addressed to the  Purchasers  and dated the Closing Date, in  substantially  the
form set forth in Exhibit B, attached hereto (the "Opinion of Counsel"),  and in
form and substance reasonably satisfactory to the Purchasers.

         5.5      Good Standing Certificates.

         The Company shall have delivered to the Purchasers  certificates  dated
not more than five (5) days before the Closing Date from the  Secretary of State
of the State of the  Company's  and  Subsidiary's  state of  incorporation  with
respect to the Company's and  Subsidiary's  due  incorporation,  good  standing,
legal corporate existence, due authorization to conduct business and the payment
of all franchise taxes,  and,  certificates  from the Secretary of State in each
jurisdiction  in which the Company or  Subsidiary is required to be qualified to
do business with respect to the Company's or Subsidiary's  good standing and due
authorization to conduct business therein and payment of all qualification fees.

         5.6      Qualifications.

         All authorizations, approvals, or permits of any governmental authority
or regulatory  body that are required in connection with the lawful issuance and
sale of the Acquired  Securities  pursuant to this Agreement,  the conversion of
the  Shares  into  Common  Stock  and the  issuance  of Common  Stock  upon such
conversion  and upon the exercise of the Warrants and issuance of Warrant Shares
upon such  exercise  shall have been duly obtained and shall be effective on and
as of the Closing Date, including,  if necessary,  permits from applicable state
securities   authorities,   qualifying  the  offer  and  sale  of  the  Acquired
Securities.

         5.7      Amendment of Certificate and Filing of Certificate.

         The  Certificate  shall have been duly filed with the  Secretary of the
State of Delaware,  evidence of which filing the Company  shall have provided to
the Purchasers.

         5.8      Proceedings and Documents.

         All corporate and other proceedings in connection with the transactions
contemplated  hereby  and  all  documents  and  instruments   incident  to  such
transactions  shall be  satisfactory in substance and form to the Purchasers and
counsel for the Purchasers.

         5.9      By-Laws.

         The By-laws of the Company  shall  provide that the holders of Series C
Preferred  which represent  fifteen percent (15%) or more of outstanding  voting
shares of the Company can call special meetings of stockholders.

         5.10     Shareholders' and Rights Agreement.

         The Company,  the holders of the Series A Preferred  Stock, the holders
of the Series B Preferred  Stock,  and the  Purchasers  shall have  executed and
delivered  an Amended  and  Restated  Shareholders'  and Rights  Agreement  (the
"Shareholders'  and Rights  Agreement") to the effect and in  substantially  the
form set forth in Exhibit C attached hereto.

         5.11     Certification by Corporate Secretary.

         With  respect to the Company and  Subsidiary,  a  certificate  of their
respective  secretaries,  dated the Closing Date,  certifying (i) the absence of
any amendments to its charter documents (or proceedings therefor) since the date
of the certificate  referred to in Section 5.5, above,  (ii) an attached copy of
the  By-laws,  (iii) an attached  copy of the  resolutions  of their  respective
Boards,  with respect to the transactions hereby contemplated or otherwise to be
effected at the Closing,  (iv) the incumbency of their  respective  officers and
directors,  and (v) as to the  membership of their  respective  Boards,  each of
which shall be  constituted  as provided in Section 2 of the  Shareholders'  and
Rights Agreement.

         5.12     Warrants.

         The Company shall have executed and delivered to each of the Purchasers
three (3)  Warrants  (each for the  purchase  of that number of shares of Common
Stock  or  Series  C  Preferred   specified  in  the  Schedule  of   Purchasers)
substantially  in the form of  Exhibit  E,  Exhibit F and  Exhibit  G,  attached
hereto,  each of  which  shall  be in form  and  substance  satisfactory  to the
Purchasers (collectively, the "Warrants" and each, a "Warrant").

         5.13     Legal Investment.

         The acquisition of any Acquired  Securities  hereunder shall be legally
permitted at Closing by all laws and regulations to which the Purchasers and the
Company and Subsidiary are subject.

         5.14     Side Letter.

         The Company  shall have  executed  and  delivered  to each of RAM
Trading,  Ltd.,  RC  Capital,  L.L.C.  and Ritchie  Capital Management L.L.C.
that certain side letter in form and substance satisfactory to the foregoing
Purchasers.

SECTION 6

Conditions to Closing of Company

         The  Company's  obligation  to sell the Shares to be  purchased  at the
Closing is subject to the  fulfillment  to its  satisfaction  on or prior to the
Closing Date of each of the following conditions:

         6.1      Representations and Warranties Correct.

         The  representations  and warranties made by the Purchasers pursuant to
Section  4 hereof  shall be true and  correct  when  made and  shall be true and
correct in all  respects on the Closing  Date and with  respect  thereto,  after
giving effect to the purchase of the Shares at the Closing.

         6.2      Performance.

         All covenants, agreements and conditions contained in this Agreement to
be performed or complied with by the  Purchasers on or prior to the Closing Date
shall have been so performed or complied with in all material respects.

         6.3      Qualifications.

         All authorizations, approvals, or permits of any governmental authority
or regulatory  body that are required in connection with the lawful issuance and
sale of the Acquired  Securities  pursuant to this Agreement,  the conversion of
the Shares into  Common  Stock and the  issuance of such Common  Stock upon such
conversion, and the exercise of the Warrants and issuance of Warrant Shares upon
such exercise  shall have been duly obtained and shall be effective on and as of
the Closing  Date,  including,  if  necessary,  permits  from  applicable  state
securities   authorities,   qualifying  the  offer  and  sale  of  the  Acquired
Securities.

         6.4      Proceedings and Documents.

         All corporate and other proceedings in connection with the transactions
contemplated  hereby  and  all  documents  and  instruments   incident  to  such
transactions  shall be  satisfactory  in  substance  and form to the Company and
Subsidiary and their counsel.

         6.5      Statement of Accredited Investor.

         The  Purchasers  shall have  executed and  delivered to the Company and
Subsidiary a Statement of Accredited Investor to the effect and in substantially
the form set forth in Exhibit D attached hereto.

         6.6      Legal Investment.

         The sale and issuance of the  Acquired  Securities  hereunder  shall be
legally permitted at Closing by all laws and regulations to which the Purchasers
and the Company and Subsidiary are subject.

         6.7      Shareholders' and Rights Agreement.

         The Company,  the holders of the Series A Preferred  Stock, the holders
of the Series B Preferred  Stock,  and the  Purchasers  shall have  executed and
delivered the  Shareholders'  and Rights Agreement in substantially  the form of
Exhibit C attached hereto.

SECTION 7 - Affirmative Covenants

         The Company and Subsidiary  hereby  jointly and severally  covenant and
agree,  for the benefit of any  Purchaser  who owns 2,356 (which number shall be
subject to  adjustment  for any stock  dividends,  stock split,  combination  or
division of shares, recapitalization,  reclassification,  merger, consolidation,
reorganization,  or the like affecting the shares of Series C Preferred) or more
shares of the Series C Preferred  which  remain  outstanding  and which have not
been converted to Common Stock (the "Ownership Threshold"):

         7.1      Basic Financial Information.

         The Company and  Subsidiary  will  furnish to each such  Purchaser  the
following reports:

         (a) Within  seven (7) days  following  the filing with the  Commission,
copies of its reports filed on Form 10-K,  Form 10-Q,  Form 8-K or any successor
form or forms, its Form of Proxy and any other reports and financial  statements
sent  or  made  available  to  stockholders  or  directors  or  filed  with  the
Commission.

         (b) Each set of financial  statements delivered to a Purchaser pursuant
to Section  7.1 will be  accompanied  by a  certificate  of the Chief  Financial
Officer of the Company setting forth:

         (i)  Covenant  Compliance  -  any  information  required  in  order  to
         establish whether the Company,  Subsidiary and their other subsidiaries
         were in compliance  with the  requirements of this Section 7 during the
         period covered by the income statement then being furnished, and

         (ii) Event of Default - that the signer has reviewed the relevant terms
         of this Agreement,  the  Certificate and the other Financing  Documents
         and has made, or caused to be made, under their  supervision,  a review
         of the transactions and conditions of the Company, Subsidiary and their
         other subsidiaries, if any, from the beginning of the accounting period
         covered by the income statements being delivered  therewith to the date
         of the certificate and that such review has not disclosed the existence
         during such period of any condition or event which constitutes a breach
         or default under this  Agreement,  the  Certificate or any of the other
         Financing  Documents  or, if any such  condition  or event  existed  or
         exists,  specifying the nature and period of existence thereof and what
         action the  Company and  Subsidiary  have taken or propose to take with
         respect thereto.

         (iii) Notice of Material  Litigation  and Other  Material  Events - any
         information  regarding any  litigation or other event that might have a
         Material Adverse Effect.

         7.2      Additional Information and Rights.

          The Company and Subsidiary will, for any such Purchaser:

         (a) Permit such Purchaser (or its designated  representative)  to visit
and inspect any of the  properties  of the Company,  Subsidiary  and their other
subsidiaries  including  its  books of  account,  and to  discuss  its  affairs,
finances  and  accounts  with  the  Company's,   Subsidiary's  and  their  other
subsidiaries'  officers  and its  independent  public  accountants,  all  during
ordinary  business hours upon reasonable prior written notice to the Company and
as often as any such  party  may  reasonably  request.  Any such  visitation  or
inspection  shall  be  performed  in a  reasonable  manner  with  a  minimum  of
disruption to the Company's and Subsidiary's business and with due regard to the
proprietary and confidential nature of any information received by it.

          (b)    Deliver the reports and data described below to such Purchaser:

         (i) As soon as available (but in any event before the  commencement  of
         its fiscal  year  except in the case of the Annual Plan for fiscal year
         2001 which shall be delivered  no later than at Closing) the  Company's
         consolidated  capital and operating  expense  budgets and its operating
         plan (the "Annual Plan") approved by the Board indicating,  among other
         things,  monthly  income  statements,  balance  sheets  and  cash  flow
         statements for the next fiscal year, all itemized in reasonable detail,
         together with the underlying assumptions therefor,  plans for incurring
         indebtedness  and  projections  regarding  other sources of funds;  any
         material  changes in such financial plan shall be submitted as promptly
         as practicable after such changes have been approved by the Board;

         (ii) As soon as available, information and data on any material adverse
         changes in or any event or condition which has or could have a Material
         Adverse Effect;

         (iii)  Immediately  upon becoming aware of any condition or event which
         constitutes a breach of this Agreement,  the Financing Documents or any
         agreement contemplated hereby or thereby, written notice specifying the
         nature and period of  existence  thereof and what action the Company is
         taking or proposes to take with respect thereto;

         (iv) With  reasonable  promptness,  copies of audit  response  letters,
         accountants' management letters and any other written reports submitted
         to the Company by its independent public accountants in connection with
         an annual or interim  audit of the books of the Company,  Subsidiary or
         any of their other subsidiaries;

         (v) Such  other  information  and data  with  respect  to the  Company,
         Subsidiary and their other subsidiaries as any such party may from time
         to time reasonably request;

         (vi) Promptly after the  commencement  thereof,  notice of all actions,
         suits,  claims,  proceedings,  investigations and inquiries of the type
         described in Section 3.12 that could have a Material Adverse Effect;

         (vii) Promptly upon sending,  making  available or filing the same, all
         press  releases,  reports  and  financial  statements  that the Company
         Subsidiary or any of their other subsidiaries, sends or makes available
         to its stockholders or directors or files with the Commission;

         (viii)  At the  time  of  delivery  to the  Company's  Board,  reports,
         minutes,  consents,  waivers  or such other  information  substantially
         similar  to  such  reports,   minutes,   consents,   waivers  or  other
         information  delivered  to the  members of the  Company's  Board  (such
         obligation  being  satisfied  by  delivery  to such  Purchasers'  Board
         representative,  if  such  Purchaser  has a Board  representative,  for
         signature or consent) provided that each Purchaser  understands that it
         could be  subject  to  fines,  penalties  and other  liabilities  under
         applicable  securities  laws in the event of trading  in the  Company's
         securities  while  in  the  possession  of  any  material,   non-public
         information  concerning  the Company and agrees to abide by these legal
         prohibitions  on  tipping  and  trading  and each  Purchaser  agrees to
         maintain the confidentiality of such information in accordance with its
         applicable nondisclosure agreement with the Company;

         (ix) Promptly,  from time to time, such other information regarding the
         business,  prospects,  financial  condition,  operations,  property  or
         affairs of the Company, Subsidiary and their other subsidiaries as such
         Purchaser reasonably may request; and

         (x) As soon as available and in any event within thirty (30) days after
         the end of each fiscal  quarter,  commencing  with the  quarter  ending
         December  31,  2000,  the  Company  will  deliver  to  each  Purchaser,
         unaudited balance sheets and statements of income and cash flows of the
         Company and the Subsidiary as of the end of each such quarter,  as well
         as  summary   information  as  to  backlog  and  bookings  as  of  such
         quarter-end,  certified by the treasurer or chief financial officer (or
         other officer  acting in a similar  capacity) of the Company to be true
         and  correct  and to have been  prepared in  accordance  with GAAP,  as
         defined in Section 9 hereof,  consistently  applied (except for changes
         in the  application of such  principles  that have been approved by the
         Company's   Board),   subject  to  the  absence  of  footnotes  and  to
         adjustments  consisting  of normal  year-end  accruals,  the  effect of
         which, both individually and in the aggregate, is not material.

         7.3      Prompt Payment of Taxes, Etc.

         The Company,  Subsidiary and any Other Subsidiary will promptly pay and
discharge, or cause to be paid and discharged,  when due and payable, all lawful
taxes,  assessments and governmental  charges or levies imposed upon the income,
profits,  property  or  business  of  the  Company,  Subsidiary  and  any  Other
Subsidiary;  provided,  however,  that any such tax, assessment,  charge or levy
need not be paid if the validity  thereof shall at the time be contested in good
faith by appropriate proceedings,  and provided,  further, that unless otherwise
approved by the Board, the Company, Subsidiary and any Other Subsidiary will pay
all such taxes,  assessments,  charges or levies forthwith upon the commencement
of  proceedings  to  foreclose  any lien  which may have  attached  as  security
therefor.  Unless otherwise  approved by the Board, the Company,  Subsidiary and
any Other  Subsidiary  will  promptly  pay or cause to be paid  when due,  or in
conformance with customary trade terms, all other obligations  incident to their
operations.

         7.4      Maintenance of Properties and Leases.

         The  Company,  Subsidiary  and any Other  Subsidiary  will  keep  their
properties in good repair, working order and condition, reasonable wear and tear
excepted,  and from  time to time  make  all  needful  and  proper,  or  legally
required, repairs, renewals,  replacements,  additions and improvements thereto;
and the Company,  Subsidiary and any Other  Subsidiary  will at all times comply
with  each  provision  of all  leases  to which it is a party or under  which it
occupies,  or has possession of property if the breach of such  provision  might
have a Material Adverse Effect.

         7.5      Insurance.

         The Company, Subsidiary and any Other Subsidiary will keep their assets
which are of an insurable  character  insured by financially sound and reputable
insurers  against loss or damage by fire,  extended  coverage  and  explosion in
amounts  sufficient to prevent the Company,  Subsidiary or any Other  Subsidiary
from becoming a co-insurer.  The Company,  Subsidiary  and any Other  Subsidiary
will maintain for  themselves  with  financially  sound and reputable  insurers,
insurance  against other hazards and risks and liability to persons and property
to the extent and in the manner  customary for  companies in similar  businesses
similarly situated. The Company will use its best efforts to obtain within sixty
(60)  days of the  date  hereof  and  shall  thereafter  maintain  key-man  life
insurance  on the life of Scott  Griffith,  having a death  benefit  of at least
$500,000  payable to the Company and  providing  that such  insurance may not be
cancelled  without  at least  thirty  (30)  days'  prior  written  notice to the
Purchasers  delivered in accordance with Section 10.5 of this Agreement,  for so
long as Scott Griffith continues to be employed by the Company and will maintain
with,  to the best  knowledge of the Company,  financially  sound and  reputable
insurance  companies,  funds, or underwriters such other insurance of the kinds,
covering  the risks  (including  without  limitation  directors'  and  officers'
liability,  in  the  amount  of at  least  $15  million)  and  in  the  relative
proportionate  amounts  usually  carried by  reasonable  and  prudent  companies
conducting businesses similar to that of the Company (such insurance coverage at
all times to be at least as protective as the insurance currently carried by the
Company and described in the Disclosure Schedules).  The Company shall not cause
or permit any assignment or change in  beneficiary  and shall not borrow against
any such policy.

         7.6      Accounts and Records.

         The Company and the Subsidiary will each keep true and accurate records
and books of account in which full, true, and correct entries will be made so as
to permit the  preparation of financial  statements in accordance with GAAP, and
maintain  adequate  accounts and  reserves in  accordance  with good  accounting
practice for all taxes (including income taxes),  all  depreciation,  depletion,
obsolescence,  and amortization of its properties,  all  contingencies,  and all
other reserves.

         7.7      Compliance with Laws, Contracts, Licenses and Permits.

         The Company,  Subsidiary and other  subsidiaries shall duly observe and
conform in all  material  respects  to all valid  requirements  of  governmental
authorities  relating to their conduct of their  businesses or to their property
or assets.  Without  limiting  the  generality  of the  foregoing,  the Company,
Subsidiary and other subsidiaries will:

          (a) Comply with all minimum  funding  requirements  applicable  to any
pension plans,  employee benefit plans or employee  contribution plans which are
subject to ERISA or to the Code and comply in all other  material  respects with
the provisions of ERISA and the provisions of the Code applicable to such plans;
and

          (b) Comply in all material  respects with all  applicable  laws of the
United States and of each applicable  jurisdiction  relating to equal employment
opportunity, any rules, regulations,  administrative orders and executive orders
relating  thereto  and  the  applicable  terms,  relating  to  equal  employment
opportunity,  of any contract,  agreement or grant the Company,  Subsidiary  and
other  subsidiaries  has  with,  from  or  relating  (by way of  subcontract  or
otherwise)  to any other  contract,  agreement or grant of, any federal or state
governmental  unit;  and  keep all  records  required  to be kept,  and file all
reports,  affirmative  action plans and forms required to be filed,  pursuant to
any such applicable law or the terms of any such government contract.

         (c) So conduct its business  that neither the Company,  Subsidiary  and
other  subsidiaries,  nor any  property  owned or  occupied by any of them is in
material  violation of any federal or state  Environmental Law of any sort or in
material violation of any federal or state so-called "OSHA" Law.

         7.8      Maintenance of Corporate Existence, etc.

         The Company, Subsidiary and each Other Subsidiary will maintain in full
force and effect its  corporate  existence,  rights,  government  approvals  and
franchises  and  all  licenses  and  other  rights  to use  patents,  processes,
licenses,  trademarks,  trade names or  copyrights  owned or possessed by it and
deemed by it to be necessary to the conduct of its business.

         7.9      Availability of Common Stock for Conversion.

         The Company,  Subsidiary and each Other  Subsidiary  will, from time to
time, in accordance  with the laws of the state of its  incorporation,  increase
the  authorized  amount of Common  Stock if at any time the  number of shares of
Common Stock remaining unissued and available for issuance shall be insufficient
to permit  the  conversion  of all the then  outstanding  shares of the Series C
Preferred and issuance of the Warrant Shares.

         7.10     Proprietary Information Agreement, and Key Employee Agreement.

         (a) The Company, Subsidiary and each Other Subsidiary will enter into a
Proprietary  Information  Agreement as approved by the Board of the Company with
each  person  hereafter  employed  by any of them with  access  to  confidential
information.

         (b) At such time as the Board of the Company  authorizes  the  Company,
Subsidiary  and each  Other  Subsidiary,  to enter  into an  agreement  or other
arrangement that would constitute consideration for such key employee agreement,
the Company,  Subsidiary and each Other  Subsidiary will require all persons now
or hereafter  employed by the Company,  Subsidiary and each Other Subsidiary and
designated  as a "key person" by the  Company's  Board to execute a key employee
agreement  in favor of the Company  containing  the  non-competition  provisions
approved  by the  Board  and  reasonably  satisfactory  to the  Purchasers  as a
condition to the entering  into of such  agreement or  arrangement  with the key
person.

         (c) The Company,  Subsidiary and each Other  Subsidiary  will cause all
technological  developments,  inventions,  discoveries or  improvements  made by
employees  of the  Company,  Subsidiary  and each Other  Subsidiary  to be fully
documented  in  engineering  notebooks in  accordance  with the best  prevailing
industrial professional standards, and where possible and appropriate, cause all
employees to file and prosecute  United States and foreign  patent  applications
relating to and protecting such developments.

         7.11     Use of Proceeds.

         The Company and  Subsidiary  will use the proceeds from the sale of the
Shares for the purposes described in Section 3.21 hereof.

         7.12     Compliance by Subsidiaries.

         The Company and Subsidiary will each cause any Subsidiary  which it may
now have and/or  which it may  organize or acquire in the future to comply fully
with all the terms and provisions of this Section 7.

         7.13     Expenses of Board Members.

         The Company  agrees to reimburse  each of the directors  elected to the
Company's Board by the Purchasers for their  reasonable and properly  documented
out-of-pocket  travel and lodging  expenses in connection  with attending  Board
meetings and performing their  respective  obligations and  responsibilities  as
directors of the Company upon receipt of an itemized  invoice or expense  report
with appropriate receipts or other evidence in support of such expenses.

         7.14     Securities Law Filings.

         Based on the Purchaser's  representations  and warranties made pursuant
to this Agreement,  the Company will make any filings  necessary to perfect in a
timely fashion  exemptions  from (a) the  registration  and prospectus  delivery
requirements  of the Securities Act and (b) the  registration  or  qualification
requirements of all applicable securities or blue sky laws of any state or other
jurisdiction, for the issuance of the Shares to the Purchasers.

         7.15     Registration and Transfer of Securities.

         (a) Transfer and  Exchange of Capital  Stock.  The Company has retained
and will continue to retain a transfer agent to maintain a register of names and
addresses  of the holders of the Common  Stock and handle  other  record-keeping
matters  regarding the Common Stock.  The Company will maintain at its principal
executive  office a register in which will be entered the names and addresses of
the holders of the capital stock (other than Common  Stock) and the  particulars
(including without limitation the class thereof) of the respective capital stock
(other than Common Stock) held by them and of all transfers of shares of capital
stock (other than Common Stock) or  conversions  of shares of capital stock from
one  class  to  another.  Upon  surrender  at  such  office  of any  certificate
representing  shares of capital stock (other than Common Stock) for registration
of conversion,  exchange,  or (subject to compliance with applicable federal and
state securities laws) transfer,  the Company will issue, at its expense, one or
more  new  certificates,  in  such  denomination  or  denominations  as  may  be
requested,  for shares of such capital  stock (other than the Common  Stock) and
registered as such holder may request.  Any certificate  representing  shares of
capital stock surrendered for registration of transfer will be duly endorsed, or
accompanied  by a written  instrument of transfer duly executed by the holder of
such  certificate or his attorney duly  authorized in writing.  The Company will
pay shipping and insurance charges,  from and to each holder's principal office,
upon any transfer, exchange, or conversion provided for in this Section 7.15(a).

         (b) Replacement of Shares. In the case of any loss, theft, destruction,
or mutilation of the certificate  representing any Shares or Warrant Shares,  or
of any Warrant, upon receipt of evidence thereof reasonably  satisfactory to the
Company,  and (i) in the case of any such  loss,  theft,  or  destruction,  upon
delivery  of an  indemnity  bond in such  reasonable  amount as the  Company may
determine, or (ii) in the case of any such mutilation, upon the surrender to the
Company at its principal office of such mutilated  certificate for cancellation,
the Company will execute and deliver,  in lieu  thereof,  new  certificates  (or
Warrants,  as the case may be) of like  tenor.  Any old  stock  certificate  (or
Warrants,  as the case may be) in lieu of which any such new  stock  certificate
(or  Warrants,  as the case may be) has been so executed  and  delivered  by the
Company will not be deemed to be  outstanding  for any purpose of this Agreement
or otherwise.

         7.16     Indemnification.

         (a) All covenants,  agreements,  representations,  and warranties  made
herein or in the other  Financing  Documents or any other  document  referred to
herein or delivered  to the  Purchasers  pursuant  hereto will be deemed to have
been relied on by the Purchasers,  notwithstanding  any investigation made by or
on behalf of the Purchasers,  and will survive the Closing.  The Company and the
Subsidiary will jointly and severally indemnify,  defend, and hold harmless each
Purchaser,  and  each  of such  Purchaser's  partners,  stockholders,  officers,
directors, employees, agents, and representatives,  from and against any and all
Damages  incurred by any of them in any capacity and resulting  from or relating
to the  breach  by the  Company  of  any  of  its  representations,  warranties,
covenants,  or  agreements  contained  in  this  Agreement  or in the  Financing
Documents  or  any  other  document  referred  to  herein  or  delivered  to the
Purchasers  pursuant hereto, (i) for two (2) years after the Closing Date in the
case of any breach by the Company of any of its  representations  and warranties
set forth in this  Agreement  and (ii) for two (2)  years  after the date of any
breach by the Company of any covenant or agreement  contained in this  Agreement
or in any of the other Financing Documents.

         (b) The  obligations  of the  Company  and the  Subsidiary  under  this
Section  7.16  will  survive  transfer  of  the  Acquired   Securities  and  the
termination of this Agreement.

         7.17     Registration Requirements.

         (a) No later than April 15, 2001,  the Company  shall (i) file with the
Commission  one or more  Registration  Statements  on Form S-1,  Form S-3 or any
other suitable form, as determined by the Company in its  discretion,  (together
with any prospectus  included therein, a "Registration  Statement,"  pursuant to
Rule 415 of the  Securities  Act in order to register  with the  Commission  the
continuous  resale by the  Purchasers,  from time to time, of all Warrant Shares
(or  shares  of  Common  Stock  issuable  on  conversion  of  shares of Series C
Preferred Stock included within "Warrant  Shares") and shares of Common Stock of
the  Company  that may be  acquired by the  Purchasers  through any  exchange or
conversion  of the Shares,  through the  facilities  of any national  securities
exchange on which the Common  Stock is then traded,  or in  privately-negotiated
transactions.  The Company shall use its  reasonable  best efforts to cause such
Registration Statement to be declared effective on or before July 15, 2001. Each
Purchaser  agrees to furnish  promptly to the Company in writing all information
required  from  time to time to be  disclosed  in order to make the  information
previously furnished to the Company by such holder not misleading.

         (b) The Company shall pay all Registration Expenses, as defined herein,
in connection with any registration,  qualification or compliance hereunder, and
each Purchaser  shall pay all Selling  Expenses,  as defined  herein,  and other
expenses that are not Registration  Expenses relating to the Common Stock resold
by such Purchaser.  "Registration Expenses" shall mean all expenses,  except for
Selling  Expenses,  incurred by the Company in complying  with the  registration
provisions herein described,  including  without  limitation,  all registration,
qualification  and filing  fees  (including  all  Commission  and Nasdaq  fees),
printing  expenses,  escrow  fees,  fees and  disbursements  of counsel  for the
Company and for any underwriter (unless paid by such underwriter), blue sky fees
and expenses,  the expense of any special audits  incident to or required by any
such registration and the fees, not to exceed $20,000,  and disbursements of one
counsel to all selling  Purchasers.  "Selling  Expenses" shall mean only selling
commissions, underwriting fees and stock transfer taxes applicable to the Common
Stock sold by each Purchaser and all fees and  disbursements  of counsel for any
Purchaser in excess of $20,000 for the one counsel to all selling Purchasers.

         (c) In the case of the registration effected by the Company pursuant to
these registration provisions, the Company will use its best efforts to:

                  (i)......keep such registration  statement on Form S-1 or Form
S-3  effective  until the earlier of (A) the second  anniversary  of the date on
which the Registration  Statement first becomes effective,  (B) such date as all
of the Common Stock  (constituting  Conversion Shares and Shares of Common Stock
issuable  upon exercise of the Warrants) has been resold or (C) such time as all
of the Conversion Shares and Warrant Shares can be sold within a given three (3)
month  period  without  compliance  with the  registration  requirements  of the
Securities Act pursuant to Rule 144;

                  (ii).....prepare  and file with the Commission such amendments
and  supplements  to the  Registration  Statement  and  the  prospectus  used in
connection  therewith as may be necessary to comply with the  provisions  of the
Securities Act with respect to the disposition of all securities  covered by the
Registration Statement;

                  (iii)....furnish   such  number  of  prospectuses   and  other
documents  incident  thereto,  including  any  amendment of or supplement to the
prospectus, as a Purchaser from time to time may reasonably request;

                  (iv).....cause all Common Stock registered as described herein
to be listed on each securities exchange and quoted on each quotation service on
which the Equity Securities of the Company are then listed or quoted;

                  (v)......provide a transfer agent and registrar for all Common
Stock registered  pursuant to the Registration  Statement and a CUSIP number for
all such Common Stock;

                  (vi).....otherwise use its best efforts promptly to comply
with all applicable rules and regulations of the Commission;

                  (vii)....file  the  documents  required  of  the  Company  and
otherwise use its best efforts to promptly obtain,  if applicable,  and maintain
requisite  blue sky  clearance  in (A) all  jurisdictions  in  which  any of the
Acquired  Securities are originally  sold, and (B) all other states specified in
writing by a  Purchaser;  provided,  however,  as to Clause (B) that the Company
shall not be required to qualify to do business or consent to service of process
in any state in which it is not now so qualified or has not so consented;

                  (viii)...with   respect   to  the   initial   filing   of  the
Registration Statement as of the date of declaration of effectiveness, obtain an
opinion of counsel to the Company in customary form and reasonably acceptable to
each  Purchaser  addressed  to each  Purchaser  selling  registrable  securities
pursuant to the Registration  Statement.  The Company shall use its best efforts
to qualify for use of Form S-1 or Form S-3 under the  Securities Act to register
the resale of the Common Stock issuable upon the conversion of the Shares and to
maintain such  qualification  during the periods  described in subsection (c)(i)
hereof; and

                  (ix) in the event that the Common Stock is de-listed  from the
Nasdaq SmallCap Market,  then the Company will, at such time as the Common Stock
(including  Conversion Shares and Warrant Shares) again qualifies for listing on
the Nasdaq SmallCap Market, cause the Common Stock to be so listed.

         (d)  The  Company  shall  furnish  to each  Purchaser  upon  request  a
reasonable  number  of  copies  of a  supplement  to or  an  amendment  of  such
prospectus as may be necessary in order to  facilitate  the public sale or other
disposition of all or any of the Common Stock held by the Purchaser.

         (e) With a view to making  available to the  Purchasers the benefits of
Rule 144 and any other rule or regulation of the Commission that may at any time
permit a Purchaser to sell Common Stock to the public  without  registration  or
pursuant to registration, the Company covenants and agrees to: (i) make and keep
public information available,  as those terms are understood and defined in Rule
144, until the earlier of (A) the second  anniversary of the Closing Date or (B)
such date as all of the Common Stock (constituting  Conversion Shares and Shares
of Common Stock issuable upon exercise of Warrants) shall have been resold; (ii)
file with the  Commission  in a timely  manner all reports  and other  documents
required  of the  Company  under the  Exchange  Act;  and (iii)  furnish  to any
Purchaser upon request,  as long as the Purchaser  owns any Common Stock,  (A) a
written  statement  by the  Company  that it has  complied  with  the  reporting
requirements  of the  Exchange  Act,  (B) a copy of the most  recent  annual  or
quarterly  report  of the  Company,  and (C) such  other  information  as may be
reasonably  requested in order to avail any  Purchaser of any rule or regulation
of the  Commission  that  permits the selling of any such Common  Stock  without
registration.

         (f) The  Company  may,  at any time,  refuse to permit a  Purchaser  to
resell  any Common  Stock  pursuant  to the  Registration  Statement;  provided,
however,  that in order to exercise  this right at any time the Company does not
qualify for either Form S-1 or Form S-3, the Company must deliver a  certificate
in writing to the Purchasers to the effect that suspension of the sale of shares
under the  Registration  Statement,  until such time as the  Company can make an
appropriate filing with the Commission,  is necessary because a sale pursuant to
the  Registration  Statement,  in its  then-current  form,  could  constitute  a
violation  of the federal  securities  laws.  In such an event,  each  Purchaser
agrees to  immediately  suspend any sale of Common Stock under the  Registration
Statement,  and the Company shall use its best efforts to amend the Registration
Statement if necessary and take all other  actions  necessary to allow such sale
under the federal  securities  laws,  and shall notify the  Purchasers  promptly
after it has determined that such sale has become  permissible under the federal
securities laws.  Notwithstanding the foregoing, the Company shall not under any
circumstances  be  entitled  to  exercise  its right to suspend  sales under the
Registration  Statement  more than two (2) times in any twelve (12) month period
and the period during which such  Registration  Statement may be withdrawn shall
not exceed  thirty  (30) days or sixty (60) days if the  Company  has  suspended
sales of the  Common  Stock to permit  the  Company  to  negotiate  a  strategic
acquisition, disposition, merger or other significant transaction.

         (g) The Purchasers agree not to sell or otherwise transfer any Acquired
Securities  covered  by the  Registration  Statement  until the  earlier  of (i)
September 11, 2001,  and (ii) the date that is four (4) months after the date on
which such Registration Statement became effective;  provided, however, that the
Purchasers shall remain free from time to time to transfer  Acquired  Securities
to or among their Affiliates  (including  without limitation the Tudor Entities)
and otherwise in sales exempt from registration.

         7.18     Indemnification and Contribution.

         (a) The Company  agrees to indemnify and hold  harmless each  Purchaser
and its Affiliates from and against any losses,  claims,  damages or liabilities
(or  actions or  proceedings  in respect  thereof) to which such  Purchaser  may
become subject (under the  Securities  Act, state law,  common law or otherwise)
insofar  as  such  losses,   claims,  damages  or  liabilities  (or  actions  or
proceedings  in respect  thereof)  arise out of, or are based  upon,  any untrue
statement of a material fact  contained in, or omission of a material fact from,
the  Registration  Statement,  or arise out of any  failure  by the  Company  to
fulfill  any  undertaking  included  in  the  Registration   Statement  or  this
Agreement,  and the Company will, as incurred,  reimburse such Purchaser for any
legal or other  expenses  reasonably  incurred in  investigating,  defending  or
preparing to defend any such action, proceeding or claim; provided however, that
the  Company  shall not be liable in any such case (i) to the  extent  that such
loss,  claim,  damage or  liability  arises out of, or is based upon,  an untrue
statement made in such Registration Statement in reliance upon and in conformity
with  information  furnished  to the  Company in writing by or on behalf of such
Purchaser  specifically for use in preparation of the Registration  Statement or
(ii) to any  particular  Purchaser or its  Affiliate to the extent that any such
claim,  loss,  damage or  liability  arises  out of or is based  upon any untrue
statement or alleged  untrue  statement or omission or alleged  omission made in
any final, preliminary or summary prospectus if such untrue statement or alleged
untrue statement or omission or alleged  omission is completely  corrected in an
amendment or supplement to such  prospectus  provided to, and which the relevant
Purchaser or its Affiliates  fails to deliver prior to or concurrently  with the
sales of the Common Stock to the person or entity  asserting  such claim,  loss,
damage or liability.  The Company will reimburse the Purchasers for any legal or
other expenses reasonably incurred and documented in investigating, defending or
preparing to defend any such action,  proceeding  or claim  notwithstanding  the
absence of a judicial  determination as to the propriety and  enforceability  of
the obligations  under this section and the possibility that such payments might
later be held to be improper,  provided,  that to the extent any such payment is
ultimately  held to be  improper,  the persons  receiving  such  payments  shall
promptly refund them.

         (b) Each Purchaser,  severally and not jointly, agrees to indemnify and
hold  harmless  the  Company  and its  Affiliates  from and  against any losses,
claims, damages or liabilities (or actions or proceedings in respect thereof) to
which the Company or its  Affiliates  may become  subject  (under the Securities
Act, state law, common law or otherwise) insofar as such losses, claims, damages
or liabilities  (or actions or proceedings in respect  thereof) arise out of, or
are based upon, an untrue  statement made in or omission of a material fact from
such Registration  Statement in reliance upon and in conformity with information
furnished  to  the  Company  in  writing  by  or on  behalf  of  such  Purchaser
specifically  for use in preparation of the  Registration  Statement;  provided,
however,  that no  Purchaser  shall be liable  in any such  case for any  untrue
statement  included in or any omission of a material fact from any  Registration
Statement which statement has been corrected,  in writing, by such Purchaser and
delivered to the Company before the sale from which such loss occurred and in no
event shall any Purchaser be liable for any amount in excess of the net proceeds
received  for the  sale  of its  Common  Stock  pursuant  to  such  Registration
Statement.

         (c) Promptly after receipt by any  indemnified  person of a notice of a
claim or the  beginning  of any action in respect  of which  indemnity  is to be
sought  against an  indemnifying  person  pursuant to this  Section  7.18,  such
indemnified person shall notify the indemnifying person in writing of such claim
or  of  the  commencement  of  such  action,  and,  subject  to  the  provisions
hereinafter  stated,  in case  any  such  action  shall be  brought  against  an
indemnified person and the indemnifying person shall have been notified thereof,
the indemnifying  person shall be entitled to participate  therein,  and, to the
extent  that it  shall  wish,  to  assume  the  defense  thereof,  with  counsel
reasonably  satisfactory  to the  indemnified  person.  After  notice  from  the
indemnifying  person to such  indemnified  person of the  indemnifying  person's
election to assume the defense  thereof,  the  indemnifying  person shall not be
liable to such indemnified person for any legal expenses  subsequently  incurred
by such  indemnified  person in connection with the defense  thereof;  provided,
however,  that if there exists or shall exist a conflict of interest  that would
make it inappropriate in the reasonable  judgment of the indemnified  person for
the same counsel to represent both the indemnified  person and such indemnifying
person or any affiliate or associate  thereof,  the indemnified  person shall be
entitled to retain its own counsel at the expense of such  indemnifying  person.
No indemnifying  person, in the defense of any such claim or litigation,  shall,
except  with the  consent of each  indemnified  person,  consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified  person
of a release from all liability in respect to such claim or  litigation.  If the
defense of any claim or resulting  litigation is not assumed by the indemnifying
person,  the  indemnifying  person will not be subject to any  liability for any
settlement  made without its consent,  but such consent may not be  unreasonably
withheld;  provided that an indemnifying person shall not be deemed unreasonable
in withholding  consent to any settlement  involving the imposition of equitable
remedies  or  involving  the  imposition  of any  material  obligations  on such
indemnifying person other than financial  obligations for which such indemnified
person will be indemnified hereunder.

         (d)  If the  indemnification  provided  for in  this  Section  7.18  is
unavailable  to or  insufficient  to hold  harmless an  indemnified  party under
subsection  (a) or (b)  hereof in  respect  of any  losses,  claims,  damages or
liabilities (or actions or proceedings in respect thereof)  referred to therein,
then each  indemnifying  party shall contribute to the amount paid or payable by
such  indemnified  party  as  a  result  of  such  losses,  claims,  damages  or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative  fault of the Company on the one hand and the Purchasers
on the other in connection  with the  statements or omissions  which resulted in
such losses,  claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference  to, among other  things,  whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to  information  supplied by the Company on the one hand
or a Purchaser on the other and the parties' relative intent, knowledge,  access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Purchasers  agree that it would not be just and equitable if
contribution  pursuant  to this  subsection  (d)  were  determined  by pro  rata
allocation  (even if the Purchasers were treated as one entity for such purpose)
or by any  other  method  of  allocation  which  does  not take  account  of the
equitable  considerations  referred to above in this  subsection (d). The amount
paid or  payable  by an  indemnified  party as a result of the  losses,  claims,
damages,  or liabilities  (or actions in respect  thereof)  referred to above in
this  subsection  (d)  shall be deemed to  include  any legal or other  expenses
reasonably  incurred by such indemnified party in connection with  investigating
or defending any such action or claim.  Notwithstanding  the  provisions of this
subsection  (d), no  Purchaser  shall be required  to  contribute  any amount in
excess of the amount, if any, by which the amount received by the Purchaser from
the sale of the Common  Stock to which such loss  relates  exceeds the amount of
any damages which such Purchaser has otherwise been required to pay by reason of
such untrue or alleged  untrue  statement  or omission or alleged  omission.  No
person  guilty of  fraudulent  misrepresentation  (within the meaning of Section
11(f) of the Securities Act) shall be entitled to  contribution  from any person
who was  not  guilty  of  such  fraudulent  misrepresentation.  The  Purchasers'
obligations  in this  subsection  (d) to contribute are several in proportion to
their respective sales of Common Stock.

         7.19     "Market Stand-Off" Agreement.

         If at the time of any  underwritten  offering a Purchaser  has not sold
all the Acquired Securities owned by it pursuant to the Registration  Statement,
each such  Purchaser  agrees,  if requested by the managing  underwriter  of any
public  offering of the Common  Stock,  to enter into an  agreement  pursuant to
which such Purchaser agrees not to sell or otherwise  transfer or dispose of any
Common  Stock (or other  securities)  of the Company  held by it during a period
specified  by such  underwriter,  not to exceed one  hundred  eighty  (180) days
following the effective date of the registration  statement of the Company filed
under the Securities Act in connection with any underwritten offering;  provided
that all shareholders  having registration rights and all officers and directors
of the Company enter into similar agreements.

         Such  agreement  shall  be in  writing  in a form  satisfactory  to the
Company and such underwriter.  The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing  restriction
until the end of such period and shall  remove such  stop-transfer  instructions
effective immediately upon the expiration of such period.

SECTION 8

Negative Covenants

         The Company and Subsidiary jointly and severally agree, for the benefit
of any Purchaser who meets the  Ownership  Threshold,  that so long as less than
seventy-five  percent  (75%) of the  shares  of  Series C  Preferred  have  been
converted  into Common Stock each of the Company,  Subsidiary  and each of their
other  subsidiaries  (unless the context otherwise  requires) will not after the
date  hereof do (i) any of the  following  set forth in Section  8.1 through 8.9
unless  the  holders  of a  majority  of such  outstanding  shares  of  Series C
Preferred held by holders who continue to meet the Ownership  Threshold  approve
or consent in writing or (ii) any of the  following  set forth in Sections  8.10
through 8.21 without the approval of a majority of the Board:

         8.1      Sale/Purchase of Assets; Merger.

                  (a)......Sell or otherwise dispose of the capital stock of the
Company,  Subsidiary  or any other  subsidiaries  or a  substantial  part of the
Company's  assets or business or of all or a  substantial  part of the assets or
business  of  Subsidiary  or any Other  Subsidiary  (whether  by sale of assets,
exclusive license or otherwise);

                  (b)......Purchase  or otherwise  acquire all or  substantially
all of the  capital  stock of any  corporation  or equity  interest in any other
entity or lend money to any person or entity,  or purchase a substantial part of
the operating  assets of any person or entity for a purchase  price in excess of
the lower of (i) $5,000,000,  and (ii) twenty percent (20%) of the Company's and
Subsidiary's  consolidated  net  revenues  for  the  twelve  (12)  month  period
immediately preceding such purchase; or

                  (c)......Consolidate  with or  merge  into or with  any  other
person or entity or permit  any other  person or entity to  consolidate  with or
merge into it (except  that  Subsidiary  may merge into the  Company,  and a one
hundred  percent  (100%) Other  Subsidiary  may  consolidate  with or merge into
Subsidiary  or the  Company or into  another one hundred  percent  (100%)  Other
Subsidiary);  provided  that the  foregoing  restriction  does not  apply to the
merger of another corporation into the Company or Subsidiary, if:

                  (i)......either  (x) in the case of a merger into the Company,
the Company is the  surviving  corporation  and more than fifty percent (50%) of
the  outstanding  common stock of the surviving  corporation is owned by persons
who prior to such merger owned  Common Stock of the Company;  or (y) in the case
of a merger into Subsidiary,  Subsidiary is the surviving corporation, remains a
one hundred percent (100%) subsidiary of the Company and more than fifty percent
(50%) of the  outstanding  Common Stock of the Company after the merger is owned
by persons who prior to such merger owned Common Stock of the Company; and

                   (ii)  after  giving   effect  to  the   proposed   merger  or
 consolidation  the surviving  corporation will be engaged in substantially  the
 same lines of business; and

                   (iii)  immediately after the consummation of the transaction,
 and  after  giving  effect  thereto,  no  default  under  this  Agreement,  the
 Certificate or any other Financing Document would exist.

         8.2      Future Registration Rights.

         Except as set  forth in the  Shareholders'  and  Rights  Agreement  and
except  for an  underwriting  agreement  between  the  Company  and  one or more
professional underwriters of securities, the Company shall not agree to register
any Equity  Securities  under the  Securities  Act that will  provide such other
Equity  Securities  with  registration  rights  which  are  preferential  to  or
inconsistent with those granted to Purchasers under this Agreement.

         8.3      Changes in Type of Business.

         Make any  substantial  change in the  character  of its  business.  Any
business activities related to repetitive locking techniques or the distribution
of electronic  content will not constitute a substantial change in the character
of its business.

         8.4      Dividends and Distributions.

         Directly  or  indirectly  declare  or pay any  dividends  or  make  any
distributions  upon any of its Equity  Securities  other  than (i) the  dividend
amount set forth in the  Certificate  of  Designation  of the Series A Preferred
Stock  payable on the Series A Preferred  Stock,  (ii) the  dividend  amount set
forth in the  Certificate of Designation of the Series C Preferred Stock payable
on the Series C Preferred  Stock and (iii)  dividends and  distributions  on the
Series  A  Preferred  Stock,  the  Series B  Preferred  Stock  and the  Series C
Preferred  made,  together  as a  single  class  for this  purpose,  pro rata in
proportion  to the number of shares of Common Stock then  issuable on conversion
of the  Series A  Preferred  Stock,  the Series B  Preferred  Stock and Series C
Preferred.

         8.5      Purchase of Equity Securities.

         Directly or indirectly redeem,  purchase or otherwise  acquire,  any of
the Company's,  Subsidiary's or any Other Subsidiary's  Equity Securities except
(i) as permitted by this Agreement,  the Shareholders' and Rights Agreement, and
the  Certificate,  (ii) as required by the  Certificates  of Designations of the
Series A Preferred Stock or Series B Preferred Stock, or (iii) from any employee
upon termination of employment, but subject to Board approval.

         8.6      Conflicting Agreements.

         Become subject to any agreement or instrument, which by its terms would
(under any  circumstances)  restrict the  Company's,  Subsidiary's  or any Other
Subsidiary's  right to perform any of its  obligations  pursuant to the terms of
this  Agreement or any  agreement  contemplated  hereby,  the  Certificate,  the
Financing  Documents,  or the Company's By-laws (including,  without limitation,
all  obligations  relating to payment of dividends on and making  redemptions of
the Series C Preferred and conversions of the Series C Preferred).

         8.7      Amendment of Charter Documents.

         Except as  contemplated  by this  Agreement,  make any amendment to the
By-laws  that has not been  approved by action of the Board or any  amendment to
the  Company's,   Subsidiary's   or  any  Other   Subsidiary's   Certificate  of
Incorporation,  including but not limited to the  Certificate  of Designation of
the Series C Preferred Stock.

         8.8      Related Party Transactions.

         Enter into any transaction with any Related Party or Affiliate,  except
as otherwise expressly  contemplated by this Agreement or referred to in Section
3.11 hereto.

         8.9      Issuance of Equity Securities.

         Issue,  sell,  grant or award or enter into any  agreement or adopt any
plan to issue,  sell,  grant or award any Equity Security (other than the Shares
issuable at any Subsequent  Closing and the warrants to purchase 1,964 shares of
Series A  Preferred  Stock  granted to SI  Venture  Fund II,  L.P.) with  rights
ranking  senior  or pari  passu to the  Series  C  Preferred  as to  liquidation
preference,  voting rights,  registration rights, dividends or any other matters
or rights.

         8.10     Subsidiaries.

         Establish or acquire (a) any other subsidiaries other than wholly-owned
other subsidiaries or (b) any other subsidiaries organized outside of the United
States and its territorial possessions.

         8.11     Fiscal Year.

         Change its fiscal year.

         8.12     Business Plan.

         Make any material changes in the Plan or the Company's, Subsidiary's or
any Other Subsidiary's  operation of the business;  provided however the Company
may present to the  Shareholders at the next annual meeting a proposal to change
the name of the Corporation.

         8.13     Employee Stock Plans.

         Issue,  sell,  grant or award  any  Equity  Security  or any  option to
acquire any Equity Security to officers,  directors,  employees,  consultants or
advisors to the Company;  provided,  however that this provision shall not limit
the ability of the Board to delegate  authority to issue,  sell,  grant or award
Equity Securities or options to the Compensation Committee.

         8.14     Liens.

         Create,  assume  or  permit,  any Lien  upon any of its  properties  or
assets, whether now owned or hereafter acquired, except (i) Liens existing as of
the date hereof as disclosed in Section 3.14 hereof,  (ii) any Lien on any asset
of a  corporation  existing  at the time  such  corporation  is  merged  into or
consolidated  with the  Company,  Subsidiary  or any  Other  Subsidiary  and not
created in  contemplation  of such event,  (iii) any Lien  existing on any asset
prior  to the  acquisition  thereof  by the  Company,  Subsidiary  or any  Other
Subsidiary and not created in contemplation of such event, (iv) any Lien created
on any real  property or equipment in  connection  with the leasing of such real
property  or  equipment,  (v) Liens  contemplated  by the  Annual  Plan and (vi)
Permitted Liens.

         8.15     Investments.

         Own,  purchase or acquire any stock,  obligations  or securities of, or
any interest in, or make any capital  contribution to, any other Person, or own,
purchase or acquire any property  not used in the usual and  ordinary  course of
business,  except that the Company,  Subsidiary or any Other  Subsidiary may (i)
own,  purchase or acquire  certificates  of deposit in or repurchase  agreements
from United  States  commercial  banks  having  capital  resources  in excess of
$100,000,000  and  obligations  of the United  States  Government  or any agency
thereof and obligations guaranteed by the United States Government,  (ii) invest
in commercial paper rated at least Prime I by Moody's Industrial  Manual,  (iii)
deposit funds in money market accounts in financial  institutions having capital
resources  in excess of  $100,000,000  and (iv)  make  such  investments  as are
approved by a majority of the Board.

         8.16     Purchases and Sales.

         Except as contemplated by the Annual Plan:

         (a) other  than  normal  operating  expenditures  made as a part of the
ordinary  course of business,  purchase,  directly or  indirectly,  any item (or
group of items) of real or  personal  property  which  has a  purchase  price in
excess of $75,000 or enter into any other  transaction with respect to such item
(or group of items) which, under generally accepted accounting  principles is or
should be treated as a purchase or capital expenditure for accounting  purposes;
or

         (b) (i) Pay or provide  annual  salary in excess of  $120,000,  or (ii)
increase the compensation of any person listed in part 3.19(b) of the Disclosure
Schedules and will not compensate any other officer,  director or employee at an
annual salary of $120,000 per year or more.

         8.17     Leases.

         Enter into any leases or other rental agreements (excluding capitalized
leases)  that are not within the scope of an Annual Plan unless  entered into in
the ordinary course of business.

         8.18     Indebtedness.

         Create,  incur, issue, assume,  guarantee or otherwise become or remain
directly or indirectly liable for any Indebtedness other than as contemplated by
the Annual Plan.

         8.19     Loans; Guarantees.

           Make any loan or advance to any person or entity, including,  without
 limitation,  any employee or director of the Company,  Subsidiary  or any Other
 Subsidiary,  except advances for travel and entertainment expenses,  relocation
 costs and similar expenditures

  in the ordinary  course of  business,  as  contemplated  by the Annual Plan or
     under  the  terms  of an  employee  stock  option  plan or  stock  purchase
     agreement approved by the Board, or guarantee,  directly or indirectly, any
     Indebtedness except for trade accounts or

        personal  property  leases  of the  Company,  Subsidiary  or  any  Other
Subsidiary arising in the ordinary course of business.

         8.20     License of Listed Rights or Intellectual Property.

         Not transfer,  assign or license any Proprietary  Information now owned
or hereafter  acquired by it (except for  licenses to Company's or  Subsidiary's
customers in the ordinary course of business).

         8.21     Compliance by Subsidiaries.

         The Company and Subsidiary will cause any Other Subsidiary which either
of them may now have and/or  which either of them may organize or acquire in the
future to comply with all the terms and provisions of this Section 8.

SECTION 9

Definitions

         As used in this  Agreement or in the Financing  Documents,  capitalized
terms shall have the  respective  meanings  set forth in this  Agreement  or set
forth below or in the Section of this Agreement referred to below:

         Acquired Securities means, collectively,  the Shares (including without
limitation Conversion Shares), Warrants and Warrant Shares.

         Affiliate  means any other person  directly or indirectly  controlling,
controlled  by, or under direct or indirect  common control with the Company (or
other referenced person) and includes without limitation,  (a) any person who is
an officer,  director,  or direct or indirect beneficial holder of at least five
percent  (5%) of the then  outstanding  capital  stock of the  Company (or other
referenced  person),  and any of the Family Members of any such person,  (b) any
person of which the Company (or other  referenced  person) and/or its Affiliates
(as defined in clause (a) above),  directly or indirectly,  either  beneficially
own(s) at least five percent (5%) of the then outstanding  Equity  Securities or
constitute(s) at least a five percent (5%) equity  participant,  (c) in the case
of a specified person who is an individual,  Family Members of such person,  and
(d) the case of the  Purchasers,  any entities for which a Purchaser its general
partner,  investment advisor or any person serving in a similar capacity, or any
of its Affiliates  serve as general  partner and/or  investment  adviser or in a
similar capacity,  and all mutual funds,  hedge funds or other pooled investment
vehicles or entities  under the control or management  of such  Purchaser or the
general partner or investment adviser thereof,  or any Affiliate of any of them,
or any Affiliates of any of the foregoing.

                  For purposes  hereof,  Family Members means, as applied to any
                  individual,  any  parent,  spouse,  child,  spouse of a child,
                  brother or sister of the individual sharing the same household
                  as such individual,  and each trust created for the benefit of
                  one or more of such  persons and each  custodian of a property
                  of one or  more  such  persons  and  the  estate  of any  such
                  persons.

         Affiliated  Group has the  meaning  given to it in Section  1504 of the
Code, and in addition includes any analogous combined,  consolidated, or unitary
group, as defined under any applicable state, local, or foreign income tax law.

         Annual Plan shall have the meaning ascribed to it in Section 7.2 hereof

          Balance  Sheet  shall have the  meaning  ascribed to it in Section 3.7
hereof.

         Board shall mean the entire  Board of  Directors  of the Company or the
Subsidiary as applicable.

         Certificate  shall  mean the  Certificate  of  Designation  of  Powers,
Preferences and Rights of Series C Preferred Stock.

         Closing  Date  shall have the  meaning  ascribed  to it in Section  2.1
hereof.

         Code shall have the meaning ascribed to it in Section 3.28 hereof.

         Commission  shall mean the Securities and Exchange  Commission.  Common
         Stock  means the  Common  Stock,  par value  $0.01  per  share,  of the
         Company.

         Conversion  Shares  shall mean at any time,  shares of Common Stock (a)
issued  and then  outstanding  upon the  conversion  of the  Series C  Preferred
(including  without  limitation Shares of Series C Preferred Stock issuable upon
exercise of Warrants issued pursuant to this  Agreement),  (b) issuable upon the
conversion  of the Series C Preferred,  and (c) issued and then  outstanding  or
issuable  in  respect  of the  Common  Stock  referred  to in clause (a) of this
definition  upon any stock  dividend,  stock split,  combination  or division of
shares,    recapitalization,     reclassification,     merger,    consolidation,
reorganization, or the like.

         Damages means all damages, losses, claims, demands,  actions, causes of
action,  suits,  litigations,  arbitrations,  liabilities,  costs, and expenses,
including  without  limitation  court costs and the fees and expenses of counsel
and experts.

         Derivative   Securities  means  (a)  all  shares  of  stock  and  other
securities that are convertible into or exchangeable for shares of Common Stock,
and (b) all  options,  warrants,  and other  rights to acquire  shares of Common
Stock or any class of stock or other security or securities  convertible into or
exchangeable for shares of Common Stock or any class of stock or other security.

         Environmental Claim shall mean any and all  administrative,  regulatory
or judicial actions, suits, demands, demand letters, directives,  claims, liens,
investigations,  proceedings  or notices of compliance or violation  (written or
oral) by any person or entity  (including any governmental  authority)  alleging
potential  liability  (including,  without  limitation,  potential liability for
enforcement,  investigatory costs, cleanup costs,  governmental  response costs,
removal costs,  remedial costs,  natural  resources  damages,  property damages,
personal injuries,  or penalties) arising out of, based on or resulting from (a)
the presence,  or Release or  threatened  Release into the  environment,  of any
Hazardous Material at any location,  whether owned, operated,  leased or managed
by the Company, Subsidiary or any Other Subsidiary; or (b) circumstances forming
the basis of any violation,  or alleged violation,  of any Environmental Law; or
(c) any  and all  claims  by any  third  party  seeking  damages,  contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
the presence or Release of any Hazardous Materials.

         Environmental  Laws  shall  mean all  laws or  orders  relating  to the
regulation or protection of human health, safety or the environment  (including,
without limitation,  ambient air, soil, surface water,  ground water,  wetlands,
land or subsurface strata), including,  without limitation, laws and regulations
relating to Releases or threatened Releases of Hazardous Materials, or otherwise
relating to the manufacture,  processing, distribution, use, treatment, storage,
disposal, transport, recycling or handling of Hazardous Materials.

          Environmental Permits shall have the meaning ascribed to it in Section
3.22 hereof.

         Equity Securities shall mean any stock or similar  security,  including
without  limitation   securities   containing  equity  features  and  securities
containing  profit  participation  features,  or  any  security  convertible  or
exchangeable, with or without consideration, into any stock or similar security,
or any  security  carrying  any warrant or right to subscribe to or purchase any
stock or similar security, or any such warrant or right.

         ERISA shall have the meaning ascribed to it in Section 3.22 hereof.

         Exchange  Act  shall  mean the  Securities  Exchange  Act of  1934,  as
amended.

         Financing  Documents  shall mean,  collectively,  this  Agreement,  the
Certificate, the Shareholders' and Rights Agreement, and all other documents set
forth in any other schedules or exhibits hereto under which,  upon its execution
thereof,  the Company,  Subsidiary,  any Other  Subsidiary  or any Related Party
shall have an obligation to any Purchaser,  all in the respective  forms thereof
as executed and as amended from time to time.

         Financial  Statements  shall have the meaning ascribed to it in Section
3.7 hereof.

         First  Closing  shall  have the  meaning  ascribed  to it in  Section 2
hereof.

         GAAP  means  generally  accepted  accounting  principles  that  are (a)
consistent  with  the  principles   promulgated  or  adopted  by  the  Financial
Accounting  Standards  Board  and  its  predecessors,  (b)  applied  on a  basis
consistent  with  prior  periods,  and  (c)  such  that,  insofar  as the use of
accounting principles is pertinent,  a certified public accountant could deliver
an  unqualified  opinion  with  respect to  financial  statements  in which such
principles have been properly applied.

         Hazardous Materials shall mean (a) any petroleum or petroleum products,
radioactive  materials,  asbestos in any form that is or could  become  friable,
above ground or underground  storage tanks and  compressors  or other  equipment
that  contain  polychlorinated   biphenyls  ("ECBs");  and  (b)  any  chemicals,
materials or substances  which are now defined as or included in the  definition
of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes,"  "restricted  hazardous wastes," "toxic  substances,"  "toxic
pollutants," "pollutants,"  "contaminants" or words of similar import, under any
Environmental  Law; and (c) any other  chemical,  material,  substance or waste,
exposure  to  which  is  now   prohibited,   limited  or  regulated   under  any
Environmental Law.

         Indebtedness  means,  with  respect to the Company,  Subsidiary  or any
Other  Subsidiary (a) all  indebtedness  for borrowed money,  whether current or
long-term,  or secured  or  unsecured,  (b) all  indebtedness  for the  deferred
purchase  price  of  property  or  services  represented  by a note or  security
agreement, (c) all indebtedness created or arising under any conditional sale or
other title  retention  agreement  (even  though the rights and  remedies of the
seller or lender under such  agreement in the event of default may be limited to
repossession  or sale of such  property),  (d)  all  indebtedness  secured  by a
purchase  money  mortgage  or other lien to secure  all or part of the  purchase
price of property  subject to such mortgage or lien, (e) all  obligations  under
leases that have been or must be, in accordance  with GAAP,  recorded as capital
leases in respect of which it is liable as lessee,  (f) any liability in respect
of banker's  acceptances or letters of credit,  and (g) all  indebtedness of any
person  that  is  directly  or  indirectly  guaranteed  by  the  Company  or the
Subsidiary  or that it has agreed  (contingently  or  otherwise)  to purchase or
otherwise  acquire or in respect  of which it has  otherwise  assured a creditor
against  loss.  Any  obligation  secured  by a Lien on,  or  payable  out of the
proceeds of or production from, property of the Company, Subsidiary or any Other
Subsidiary shall be deemed to be Indebtedness even though such obligation is not
assumed by the Company, Subsidiary or Other Subsidiary.

         Lien(s) means any and all liens, claims, mortgages, security interests,
charges,  encumbrances, and restrictions on transfer of any kind, except: (a) in
the case of  references to  securities,  any of the same arising (i) pursuant to
the Financing  Documents,  or (ii) under  applicable  securities  laws solely by
reason of the fact that such  securities were issued pursuant to exemptions from
registration  under such securities  laws, (b) real estate taxes not yet due and
payable,  (c) any lien in favor of any  landlord  or  lessor  for  unpaid  rent,
additional rent, or other charges, which lien is created by statute or under any
lease under which the Company is lessee and (d) Permitted Liens.

         Material  Adverse  Effect means,  with  reference to the Company or the
Subsidiary, a material adverse effect on the condition (financial or otherwise),
operations,  business, assets, or prospects of the Company or the Subsidiary, or
on its ability to consummate the transactions hereby contemplated.

         Other  Subsidiary  shall  mean  any  corporation,   partnership,  joint
venture,  association or other  business  entity at least fifty percent (50%) of
the  outstanding  equity  interests of which is at the time owned or controlled,
directly  or  indirectly,  by  the  Company  (other  than  with  respect  to the
Subsidiary),  or by  Subsidiary,  or by one or  more of  such  Other  Subsidiary
entities or both.

         Opinion of  Counsel  shall have the  meaning  set forth in Section  5.4
hereof.

         Ownership  Threshold  shall  have the  meaning  set  forth in the first
paragraph of Section 7.

         Permitted  Liens  shall  mean (a) Liens for  taxes and  assessments  or
governmental  charges  or levies  not at the time due or in respect of which the
validity  thereof  shall  currently be  contested  in good faith by  appropriate
proceedings  conducted  with due  diligence  and for the  payment  of which  the
Company,  Subsidiary or Other Subsidiary has furnished  adequate  security;  (b)
Liens in respect of pledges or  deposits  under  workers'  compensation  laws or
similar  legislation,  carriers',  warehousemen's,   mechanics',  laborers'  and
materialmen's  and similar liens, if the  obligations  secured by such Liens are
not  then  delinquent  or are  being  contested  in good  faith  by  appropriate
proceedings  conducted  with due  diligence  and for the  payment  of which  the
Company, Subsidiary or Other Subsidiary has furnished adequate security; and (c)
statutory  Liens  incidental  to the  conduct of the  business  of the  Company,
Subsidiary or any Other  Subsidiary,  which were not incurred in connection with
the  borrowing of money or the obtaining of advances or credits and which do not
in the aggregate materially detract from the value of its property or materially
impair the use thereof in the operation of its business;  and (d) purchase money
liens or security  interests  securing the cost of acquisition of assets subject
to such liens or security interests.

         Person  shall  include  all  natural  persons,  corporations,  business
trusts, associations, companies, partnerships, joint ventures and other entities
and governments, agencies and political subdivisions.

         Plan shall have the meaning ascribed to it in Section 3.1 hereof.

         Proprietary  Information  shall have the  meaning  ascribed  thereto in
Section 3.16 hereof.

         Proprietary Information Agreement shall have the meaning ascribed to it
in Section 3.19 and Section 7.10 hereof.

         Qualified  Public Offering shall mean an  underwritten  public offering
pursuant  to an  effective  registration  statement  under  the  Securities  Act
covering  the  offering and sale of Common Stock for the account of the Company,
on a firm  commitment  basis,  yielding  aggregate  proceeds  to the  Company of
$20,000,000  at a public  offering  price  that is at least  $7.64  per share of
Common Stock (as adjusted for stock splits, including  recapitalizations and the
like).

         RAM shall mean RAM Trading, Ltd.

         Raptor shall mean the Raptor Global Portfolio.

         Registration  Expenses  shall  have the  meaning  ascribed  thereto  in
Section 7.17 hereof.

         Registration  Statement  shall  have the  meaning  ascribed  thereto in
Section 7.17 hereof.

         Related Party shall mean any officer, director,  employee or consultant
of the Company,  Subsidiary  or Other  Subsidiary  or any holder of five percent
(5%) or more of any class of capital  stock of the Company,  Subsidiary or Other
Subsidiary or any member of the immediate family of any such officer,  director,
employee,  consultant  or  shareholder  or any  Person  controlled  by any  such
officer,  director,  employee,  consultant  or  shareholder  or a member  of the
immediate  family  of  any  such  officer,  director,  employee,  consultant  or
shareholder.

         Release shall mean any release,  spill, emission,  leaking,  injection,
deposit,  disposal,  discharge,   dispersal,  leaching  or  migration  into  the
atmosphere, soil, surface water, ground water or property.

         Securities  Act shall  have the  meaning  ascribed  thereto  in Section
3.4(c).

         Selling  Expenses  shall have the meaning  ascribed  thereto in Section
7.17 hereof.

         Series C Preferred shall have the meaning ascribed to it in Section 1.1
hereof.

         Shareholders'  and Rights  Agreement shall have the meaning ascribed to
it in Section 5.10 hereof.

         Shares shall have the meaning ascribed to it in Section 1.1 hereof.

         Statement of Accredited  Investor shall have the meaning ascribed to it
in Section 4.4 hereof.

         Subsidiary shall mean SoftLock Services, Inc.

         Warrant(s)  shall have the  meaning  ascribed  thereto in Section  5.11
hereof.

         Warrant Shares means,  at any time,  shares of Series C Preferred Stock
or Common Stock as the case may be (a) issued and then outstanding upon exercise
of the Warrants,  and (b) issued and  outstanding  or issuable in respect of the
Common  Stock  referred  to in  clause  (a) of this  definition  upon any  stock
dividend,  stock  split,  combination  or division of shares,  recapitalization,
reclassification, merger, consolidation, reorganization, or the like.

SECTION 10

Miscellaneous

         10.1     Governing Law.

         This  Agreement  shall be governed  by, and  construed  and enforced in
accordance  with,  the  laws of the  Commonwealth  of  Massachusetts;  provided,
however,   that  matters  related  to  the  construction,   interpretation   and
enforcement of the  Certificate of  Incorporation  (including but not limited to
any certificates of designation of preferred stock),  By-laws and other internal
corporate documents of the Company,  Subsidiary or any Other Subsidiary shall be
governed by the Delaware  General  Corporation  Law. The parties  agree that any
legal or equitable suit, action or proceeding  arising out of this Agreement may
be instituted and  prosecuted in any state or federal court in the  Commonwealth
of Massachusetts and for the purposes of this Agreement,  irrevocably  submit to
the jurisdiction of any such court in any such suit, action or proceeding.

         10.2     Survival.

         The representations,  warranties,  covenants and agreements made herein
shall  survive any  investigation  made by any  Purchaser  and shall survive the
Closing.

         10.3     Successors and Assigns.

         Except as otherwise  expressly  provided herein,  the provisions hereof
shall inure to the benefit of, and be binding  upon,  the  successors,  assigns,
transferees,   heirs,  executors  and  administrators  of  the  parties  hereto;
provided,  however,  that the Company Subsidiary,  if added to Agreement may not
assign its rights  hereunder.  Without limiting the generality of the foregoing,
all  representations,  covenants and agreements  benefiting the Purchasers shall
inure to the benefit of any and all subsequent  holders from time to time of the
Shares.  Notwithstanding  any other provision of this Agreement,  this Agreement
and the rights and  obligations  hereunder  and the Acquired  Securities  may be
transferred by each of the  Purchasers in their sole  discretion at any time, in
whole or in part,  including  without  limitation  transfers  to  Affiliates  or
Affiliated  Groups of the  transferor,  without  the  consent of any other party
hereto; provided that such transferees agree in writing with the Company and the
Subsidiary to be bound by all of the provisions contained herein.

          10.4    Entire Agreement; Amendment.

         (a) This Agreement  (including  the Schedules and Exhibits  hereto) and
the other documents  (including each of the other Financing Documents) delivered
pursuant  hereto  constitute  the full and entire  understanding  and  agreement
between  the  parties   with  regard  to  the   subjects   hereof  and  thereof.
Notwithstanding  anything to the contrary contained herein, nothing contained in
this Agreement  shall be deemed to modify or limit any of the rights pursuant to
the Series B Purchase Agreement.  Except as otherwise expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated, except by a written instrument signed by the Company and the holders
of two-thirds  (2/3) or more of the shares of Series C Preferred  which have not
been converted to Common Stock,  but in no event shall this paragraph be amended
or the obligation of any Purchaser hereunder increased,  except upon the written
consent of such  Purchaser;  provided  however  that the  Company may amend this
Agreement for the sole purpose of adding  Purchasers hereto pursuant to sales in
accordance with Section 2.3 hereof without the Consent of the Purchasers.

         (b)  For  purposes  of  determining  whether  a  Purchaser  has met the
Ownership Threshold, a Purchaser shall be deemed to hold the number of shares of
Series C Preferred owned by such Purchaser and any of its Affiliates.

         (c) For purposes of determining  whether, for any provision hereof, the
number of shares of Common Stock,  Warrant Shares,  Conversion  Shares or Shares
held by a Tudor Entity is  sufficient to meet a required  threshold,  such Tudor
Entity  shall be  deemed  to hold the  number  of  Shares,  Warrant  Shares,  or
Conversion  Shares, as the case may be, held by such Tudor Entity and any of its
Affiliates  and  other  Tudor  Entities;  provided,  however,  for  purposes  of
determining whether a Tudor Entity has met the Ownership  Threshold,  such Tudor
Entity  shall be deemed to hold only the number of shares of Series C  Preferred
(without including in such calculation any Warrants,  Warrant Shares, Conversion
Shares  or  other  Common  Stock)  held  by  such  Tudor  Entity  and any of its
Affiliates and other Tudor Entities.

          10.5    Notices, etc.

         (a)  All  notices  and  other  communications   required  or  permitted
hereunder shall be in writing and shall be mailed by first-class,  registered or
certified mail, postage prepaid, or delivered either by hand, overnight delivery
service, or by messenger, or sent via telex, telecopier,  computer mail or other
electronic means,  addressed (i) if to a Purchaser,  at the address shown on the
Schedule of Purchasers,  or at such other address as such  Purchaser  shall have
furnished  to the  Company  in  writing,  or (ii) if to any other  holder of any
Acquired Securities,  at such address as such holder shall have furnished to the
Company in writing,  or,  until any such holder so  furnishes  an address to the
Company,  then to and at the  address  of the  last  holder  thereof  who has so
furnished an address to the Company,  or (iii) if to the Company or  Subsidiary,
Five Clock Tower Place,  Suite 440,  Maynard,  Massachusetts  01754,  or at such
other address as the Company  shall have  furnished to the  Purchasers  and each
such other holder in writing.

          (b) Any  notice  or other  communications  so  addressed  and  mailed,
postage  prepaid,  by  registered or certified  mail (in each case,  with return
receipt  requested)  shall be deemed to be given when so  mailed.  Any notice so
addressed  and  otherwise  delivered  shall be deemed to be given when  actually
received by the addressee.

         10.6     Delays or Omissions.

         No delay or omission to exercise any right, power or remedy accruing to
any holder of  Acquired  Securities,  upon any breach or default of the  Company
and/or  Subsidiary under this Agreement,  shall impair any such right,  power or
remedy  of such  holder  nor  shall it be  construed  to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default  thereafter  occurring;  nor shall any  waiver of any  single  breach or
default  be deemed a waiver  of any  other  breach  or  default  theretofore  or
thereafter  occurring.  Any waiver,  permit,  consent or approval of any kind or
character  on the  part of any  holder  of any  breach  or  default  under  this
Agreement,  or any  waiver  on the  part  of any  holder  of any  provisions  or
conditions of this Agreement must be made in writing and shall be effective only
to the  extent  specifically  set forth in such  writing.  No course of  dealing
between the Company and/or  Subsidiary and any of the Purchasers will operate as
a waiver of any of the Company's,  the  Subsidiary's or any  Purchaser's  rights
under this  Agreement.  All remedies,  either under this  Agreement or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.

         10.7     Rights; Severability.

         In case any provision of this  Agreement  shall be invalid,  illegal or
unenforceable,  the  validity,  legality  and  enforceability  of the  remaining
provisions shall not in any way be affected or impaired thereby.

          10.8    Agent's Fees and Services.

          (a) The Company represents and warrants that it has retained no finder
or  broker  or  other  person  or  firm  in  connection  with  the  transactions
contemplated  by this  Agreement.  The Company hereby agrees to indemnify and to
hold the  Purchasers  harmless of and from any liability  for any  commission or
compensation  in the nature of an  agent's  fee to any  broker,  finder or other
person or firm (and the costs and expenses of defending  against such  liability
or  asserted  liability)  arising  from  any  act by the  Company  or any of its
employees or representatives.

          (b) Each  Purchaser  represents and warrants as to itself only that it
has  retained  no  finder  or  broker  in  connection   with  the   transactions
contemplated by this Agreement. Each Purchaser hereby agrees to indemnify and to
hold the  Company  harmless  of and from any  liability  for any  commission  or
compensation  in the nature of an  agent's  fee to any  broker,  finder or other
person or firm (and the costs and expenses of defending  against such  liability
or asserted  liability)  arising  from any act by such  Purchaser  or any of its
members, employees or representatives.

         10.9     Legal Fees and Expenses.

         The Company  shall bear its own expenses and legal fees incurred on its
behalf with respect to this Agreement and the transactions  contemplated hereby.
At the Closing (or if the Closing shall not take place,  within thirty (30) days
of  receiving  any  statement  or invoice  therefor),  the Company  will pay the
reasonable  legal fees and  out-of-pocket  expenses  actually  incurred  for the
services of (i) Shipman & Goodwin, LLP, special counsel to the Purchasers (which
fees and expenses shall not exceed $35,000 without the prior, written consent of
the  Company)  and $2,000 for each  additional  counsel to the  Purchasers  with
respect to this Agreement and the transactions contemplated hereby.

         10.10    Titles and Subtitles.

         The titles of the Sections and  subsections  of this  Agreement are for
convenience  or reference  only and are not to be considered in construing  this
Agreement.

         10.11    Counterparts.

         This Agreement may be executed in  counterparts,  each of which when so
executed and delivered shall  constitute a complete and original  instrument but
all of which together shall constitute one and the same agreement,  and it shall
not be necessary when making proof of this Agreement or any counterpart  thereof
to account for any other counterpart.

         10.12    Construction.

         The  language  used in this  Agreement  is the  language  chosen by the
parties to express their mutual intent, and no rule of strict  construction will
be applied against either party.

         10.13    Further Assurances.

         From time to time on and after the  Closing  Date,  the Company and the
Subsidiary will each promptly  execute and deliver all such further  instruments
and  assurances,  and  will  promptly  take  all such  further  actions,  as the
Purchasers or any of them may  reasonably  request in order more  effectively to
effect or confirm the transactions  contemplated by this Agreement and/or any of
the other Financing Documents and to carry out the purposes hereof and thereof.

         10.14    Equitable Relief.

         Each of the parties  acknowledges that any breach by such party of his,
her,  or its  obligations  under this  Agreement  would  cause  substantial  and
irreparable  damage to one or more of the other  parties and that money  damages
would be an inadequate remedy therefor.  Accordingly, each party agrees that the
other  parties  or any of  them  will be  entitled  to an  injunction,  specific
performance,  and/or  other  equitable  relief  to  prevent  the  breach of such
obligations.

         10.15    Publicity.

         The  Purchasers  or any of them will have the right to publicize  their
investment  in the  Company  as  contemplated  hereby by means of a  "tombstone"
advertisement  or other customary  advertisement  in newspapers and other media.
The Company may issue a press  release or other form of public  announcement  as
soon as  practicable  after the Closing  announcing the issuance and sale of the
Shares,  provided that each Purchaser shall have approved the form of such press
release or other  public  announcement,  such  approval  not to be  unreasonably
withheld.

                        [ Signatures on Following Page ]

<PAGE>

         IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly
executed and  delivered by their proper and duly  authorized  officers as of the
day and year first written above.
<TABLE>
                                                     <S>     <C>

                                                     SOFTLOCK COM., INC.

                                                     By:  _______________________________
                                                     Name:
                                                     Title:

                                                     SOFTLOCK SERVICES, INC.

                                                     By:  _______________________________
                                                     Name:
                                                     Title:

                                                     RAPTOR GLOBAL PORTFOLIO, LTD.

                                                     By:  TUDOR INVESTMENT CORPORATION,
                                                          As Investment Advisor

                                                     By:  _______________________________
                                                     Name:
                                                     Title:

                                                     ALTAR ROCK FUND, L.P.

                                                     By:  Tudor Investment Corporation, as General Partner

                                                     By:  _______________________________

                                                     RC CAPITAL, L.L.C.

                                                     By:  Ritchie Capital Investments, L.L.C., its manager

                                                     By:  Ritchie Capital Management, L.L.C., its manager

                                                     By:  THR, Inc.

                                                     By: ____________________________

                                                     RAM TRADING, LTD.

                                                     By:  Ritchie Capital Management, L.L.C., its investment manager

                                                     By:  THR, Inc.

                                                     By: ____________________________

                                                     RITCHIE CAPITAL MANAGEMENT, L.L.C.
                                                     By:  THR, Inc.

                                                     By:____________________________

                                                     APEX INVESTMENT FUND IV, L.P.

                                                     By:  Apex Management IV, L.L.C., its General Partner

                                                     By: ______________________________________

                                                     APEX STRATEGIC PARTNERS IV, LLC

                                                     By:  Apex Management IV, LLC, Manager

                                                     By: ______________________________________

                                                     SI VENTURE FUND II, L.P.

                                                     By:  SI VENTURE MANAGEMENT II, L.L.C.
                                                     Its General Partner

                                                     By: ______________________________________

                                                  ASCENT VENTURE PARTNERS
                                                  By:  ASCENT VENTURE MANAGEMENT III, LLC,
                                                     Its General Partner

                                                  By: ______________________________________
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                                               Schedule 1

                                      SCHEDULE OF PURCHASERS

                                        Number of

                                         Series C         Number of Shares           Number of
                                        Preferred           Issuable Under        Shares Issuable         Price Per Share
                                        Aggregate              August 1,          Under October            of Series C
Name and Address                           Shares           2001 Warrants         15, 2001 Warrants         Preferred
----------------                           ------           -------------         -----------------         ---------
<S>                                     <C>                 <C>                   <C>                     <C>

Altar Rock Fund, L.P.                        31                      8                  207                     207

Apex Investment Fund IV, L.P.             9,528                  2,382               63,523                  63,523

Apex Strategic Partners IV, L.L.C.          289                     72                1,927                   1,927

Ascent Venture Partners                   7,853                  1,963               52,356                  52,356

Ritchie Capital Management LLC              187                     47                1,247                   1,247

RC Capital LLC                              187                     47                1,247                   1,247

Ram Trading Ltd.                            935                    234                6,234                   6,234

Raptor Global Portfolio, Ltd.             7,822                  1,956               52,149                  52,149

SI Venture Fund II, L.P.                  9,817                  2,454               65,450                  65,450
</TABLE>

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