Document:

<PAGE>   1
                                                                  EXECUTION COPY
                                                                    EXHIBIT 10.1

                            ASSET PURCHASE AGREEMENT

                                      among

                        WAVO CORPORATION and EWATCH, INC.

                                  (the Sellers)

                                       and

                                     PRNNET

                                   (the Buyer)

                             Dated January 24, 2000
<PAGE>   2
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                             Page
 <S>       <C>                                                                <C>
           ARTICLE I  Definitions                                              1

           ARTICLE II Sale and Purchase of Assets .....................        5
   2.1     Sale and Purchase of Assets ................................        5
   2.2     Excluded Assets ............................................        6
   2.3     Assumption of Liabilities ..................................        6
   2.4     Closing ....................................................        8
   2.5     Purchase Price .............................................        8
   2.6     Earn Out ...................................................        8
   2.7     Nonassignable Assets .......................................        8
   2.8     Transfer Tax ...............................................        9
   2.9     Receipt of Funds ...........................................        9
   2.10    Right of Offset ............................................        9

           ARTICLE III Representations and Warranties of Seller .......        9
   3.1     Organization; Good Standing; Qualification .................       10
   3.2     Authorization and Validity of Agreement ....................       10
   3.3     No Approvals, Consents or Notices Required .................       10
   3.4     Contracts ..................................................       11
   3.5     eWatch Software and Technology; Other Proprietary Rights ...       12
   3.6     Ownership; Liens ...........................................       14
   3.7     Taxes ......................................................       14
   3.8     Legal Proceedings ..........................................       14
   3.9     Compliance With Law ........................................       14
   3.10    Title to and Condition of Properties .......................       15
   3.11    Financial Information. The Sellers .........................       15
   3.12    Liabilities ................................................       16
   3.13    Payables ...................................................       16
   3.14    Receivables ................................................       17
   3.15    Customers ..................................................       17
   3.16    Employees; Independent Contractors; Contracts ..............       17
   3.17    Brokerage Commissions ......................................       17
   3.18    Insurance ..................................................       18
   3.19    Real Property ..............................................       18
   3.20    Environmental Compliance ...................................       18
   3.21    Employee Benefit Plans .....................................       18
   3.22    Year 2000 ..................................................       19
   3.23    Web Site Software ..........................................       19
   3.24    Full Disclosure ............................................       20
</TABLE>
<PAGE>   3
<TABLE>
<CAPTION>
<S>       <C>                                                                <C>
          ARTICLE IV Representations and Warranties of Buyer ...........      20
   4.1    Organization; Good Standing ..................................      20
   4.2    Authorization and Validity of Agreement ......................      20
   4.3    No Approvals, Consents or Notices Required ...................      20
   4.4    Brokerage Commissions ........................................      20

          ARTICLE V Pre-Closing Covenants of Sellers ...................      21
   5.1    Conduct of Business ..........................................      21
   5.2    No Breach of Representations and Warranties ..................      21
   5.3    Access by Buyer ..............................................      21
   5.4    No Solicitation ..............................................      22
   5.5    Consents .....................................................      22
   5.6    Confidential Treatment .......................................      22
   5.7    Update of Assumed Liabilities ................................      22
   5.8    Update of Outstanding Receivable .............................      22
   5.9    Best Efforts .................................................      22

          ARTICLE VI Pre-Closing Covenants of Buyer ....................      23
   6.1    No Breach of Representations and Warranties ..................      23
   6.2    Best Efforts .................................................      23

          ARTICLE VII Conditions to Buyer's Obligations ................      23
   7.1    Representations and Warranties ...............................      23
   7.2    Covenants ....................................................      23
   7.3    Officer's Certificate ........................................      23
   7.4    Opinion of Counsel ...........................................      23
   7.5    Good Standing Certificate ....................................      24
   7.6    Institution of Proceedings; Injunction .......................      24
   7.7    Consents .....................................................      24
   7.8    Bill of Sale and Assignment ..................................      24
   7.9    Assignment of Copyrights, Patents, Marks and Domain Names ....      24
   7.10   Services Agreement ...........................................      24
   7.11   Assignment of Employment Agreements ..........................      24
   7.12   Pro Rated Receivable Payment .................................      25
   7.13   eWatch Software Documentation ................................      25
   7.14   Documentation ................................................      25
   7.15   Sellers' Obligations .........................................      25
   7.16   Due Diligence ................................................      25
   7.17   Other Deliveries .............................................      25

          ARTICLE VIII Conditions to Sellers' Obligations ..............      25
   8.1    Representations and Warranties ...............................      26
   8.2    Covenants ....................................................      26
   8.3    Officer's Certificate ........................................      26
   8.4    Purchase Price ...............................................      26
</TABLE>
<PAGE>   4
<TABLE>
<CAPTION>
<S>        <C>                                                               <C>
    8.5    Opinion of Counsel ..........................................      26
    8.6    Institution of Proceedings; Injunction ......................      26
    8.7    Services Agreement ..........................................      26
    8.8    Outstanding Receivable ......................................      26
    8.9    Other Deliveries ............................................      26

           ARTICLE IX Post-Closing Covenants ...........................      27
    9.1    Further Assurances ..........................................      27
    9.2    Public Announcements ........................................      27
    9.3    Noncompetition; Nonsolicitation .............................      27
    9.4    Access to Books and Records .................................      28
    9.5    Confidentiality .............................................      29
    9.6    Vesting of Options ..........................................      29

           ARTICLE X Termination .......................................      30
   10.1    Termination .................................................      30
   10.2    No Waiver ...................................................      30

           ARTICLE XI Indemnification ..................................      30
   11.1    Survival of Representations, Warranties and Covenants .......      30
   11.2    By Sellers ..................................................      31
   11.3    By Buyer ....................................................      32
   11.4    Limitation on Indemnification ...............................      32
   11.5    Exclusivity of Indemnification Remedies .....................      32

           ARTICLE XII Miscellaneous ...................................      33
   12.1    Survival of Representations and Warranties ..................      33
   12.2    Notices .....................................................      33
   12.3    Severability ................................................      34
   12.4    Interpretation, Arbitration .................................      34
   12.5    Entire Agreement ............................................      35
   12.6    Termination, Revocation, Waiver, Modification or Amendment ..      35
   12.7    Counterparts; Effective Date ................................      36
   12.8    Assignability ...............................................      36
   12.9    Binding Effect ..............................................      36
   12.10   Waiver ......................................................      36
   12.11   Additional Remedies .........................................      36
   12.12   Expenses ....................................................      36
   12.13   No Reliance by Third Parties ................................      37
   12.14   Headings ....................................................      37
</TABLE>
<PAGE>   5
                                   SCHEDULES*
<TABLE>
<CAPTION>
<S>                  <C>
Schedule 2.2         Excluded Assets

Schedule 2.3         Assumption of Liabilities

Schedule 3.1         Organization; Good Standing; Qualification

Schedule 3.3         Approval, Consents or Notices Required

Schedule 3.4(a)      Subscriber Agreements

Schedule 3.4(b)      Advertising Agreements

Schedule 3.4(c)      Reseller Agreements

Schedule 3.4(d)      Technology Licenses

Schedule 3.4(e)      Other Contracts

Schedule 3.4(g)      Assignability of Contracts included in the Assets

Schedule 3.5(a)      eWatch Software and Technology

Schedule 3.5(b)      Software language and hardware

Schedule 3.5(c)      eWatch Marks and Domain Names

Schedule 3.6         Ownership; Liens

Schedule 3.8         Legal Proceedings

Schedule 3.11        Financial Information

Schedule 3.12        Liabilities

Schedule 3.14        Receivables

Schedule 3.15        Customers

Schedule 3.16        Employees

Schedule 3.18        Insurance

Schedule 3.19        Real Property Leases

Schedule 3.20        Environmental Compliance

Schedule 3.21        Employee Benefit Plans
</TABLE>

-----------
* In accordance with Item 601(b)(2) of Regulation S-K, these Schedules have not
  been included with this filing. Upon request, the Company will furnish
  supplementally a copy of any of the listed Schedules.

<PAGE>   6
                                    EXHIBITS
<TABLE>
<CAPTION>
<S>                        <C>
A                          Form of Transition Services Agreement
B                          Form of Opinion of Sellers' Counsel
C                          Form of Opinion of Buyer's Counsel
</TABLE>
<PAGE>   7
                            ASSET PURCHASE AGREEMENT

         AGREEMENT (the "AGREEMENT"), dated January 24, 2000, among WAVO
CORPORATION, an Indiana corporation ("WAVO"), EWATCH, INC., a Minnesota
corporation ("eWATCH"; Wavo and eWatch are hereinafter referred to individually
as a "SELLER" and collectively as the "SELLERS"), and PRNNET (formerly,
Shayone), a private, unlimited company registered in Ireland (the "BUYER").

         WHEREAS, the Sellers desire to sell, and the Buyer desires to purchase,
all of the assets, business and goodwill of the Sellers relating to the Sellers'
eWatch Business (as hereinafter defined), upon the terms and conditions
hereinafter set forth.

         NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants and agreements herein contained, the parties hereto hereby
agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         The capitalized terms used in this Agreement shall have the meanings
specified in this Article I. As used in this Agreement, all pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine, neuter,
singular, or the plural, as the context may require. The words "this Agreement,"
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole, including the Exhibits and Schedules hereto, as the
same may from time to time be amended or supplemented. The word "including" when
used herein is not intended to be exclusive, or to limit the generality of the
preceding words, and means "including, without limitation."

         "1998 FINANCIAL STATEMENTS" shall have the meaning set forth in Section
3.11.

         "1999 FINANCIAL STATEMENTS" shall have the meaning set forth in Section
3.11.

         "AAA" shall have the meaning set forth in Section 12.4.

         "ADVERTISING AGREEMENT" shall mean any Contract pursuant to which
either Seller has agreed to provide advertising space on the Web Site or on
e-mails distributed as part of the eWatch Business.

         "AFFILIATE" shall mean, with respect to any Person, a Person who
directly or indirectly, through one or more intermediaries, has control of, is
controlled by, or is under common control with, such Person. For these purposes,
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management of any Person, whether through the
ownership of voting securities, by contract or otherwise.

         "ARBITRATORS" shall have the meaning set forth in Section 12.4.

         "ASSETS" shall have the meaning set forth in Section 2.1.
<PAGE>   8
         "ASSUMED LIABILITIES" shall have the meaning set forth in Section 2.3.

         "BUSINESS DAY" shall mean a day other than Saturday or Sunday on which
banks are open for business in New York City.

         "BUYER" shall have the meaning set forth in the Preamble to this
Agreement.

         "BUYER INDEMNITEES" shall have the meaning set forth in Section 11.2.

         "CLAIMS" shall have the meaning set forth in Section 11.2.

         "CLOSING" shall have the meaning set forth in Section 2.4.

         "CLOSING DATE" shall have the meaning set forth in Section 2.4.

         "CLOSING PAYABLES" shall have the meaning set forth in Section 5.7.

         "CODE" shall mean the Internal Revenue Code of 1986, as amended.

         "CONTENT" shall mean any graphical, audio, visual, audiovisual,
textual, or multimedia materials displayed or displayable on and over the
Internet or distributed by e-mails.

         "CONTRACT" shall mean any contract, indenture, mortgage, deed of trust,
note, instrument, lease, license, arrangement or other agreement, whether oral
or written, including without limitation, all personal property leases,
Subscriber Agreements, Advertising Agreements, Technology Licenses and Reseller
Agreements.

         "EARN-OUT" shall have the meaning set forth in Section 2.6.

         "ENVIRONMENTAL LAW" shall mean any applicable federal, state, local or
foreign law, regulation, order, decree, permit, authorization, common law or
Governmental Authority requirement (whether now existing or hereafter enacted or
promulgated) relating to: (A) the protection, investigation or restoration of
the environment, health, safety, or natural resources; (B) the handling, use,
presence, disposal, release or threatened release of any hazardous or harmful
substance; or (C) noise, odor, indoor air, employee exposure, wetlands,
pollution, contamination or any injury or threat of injury to person or property
relating to any hazardous or harmful substance.

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

         "ERISA AFFILIATE" shall mean all members of a controlled group of
corporations and all trades and businesses (whether or not incorporated) under
common control and all other entities which, together with either Seller, are
treated as a single employer under any or all of sections 414(b), (c), (m) or
(o) of the Code on either the date of this Agreement or the Closing Date or at
any time during the period of five years ending on the Closing Date.

                                       2
<PAGE>   9
         "eWATCH BUSINESS" shall mean the Internet-based service operated by the
Sellers as of the date of this Agreement, which provides monitoring, clipping
and other Internet news, web publication, message board, chat room and other
forum searching, reporting and linking-related services to a base of
Subscribers.

         "eWATCH DOMAIN NAMES" shall mean all domain names owned by, used by or
assigned to the Sellers or any of their Affiliates in connection with the eWatch
Business, including the domain names set forth in Schedule 3.5(c).

         "eWATCH MARKS" shall mean all trade names, trademarks and service marks
used by the Sellers in connection with the eWatch Business and all marks and
logos associated therewith, including such trade names, trademarks and service
marks set forth in Schedule 3.5(c).

         "eWATCH SOFTWARE" shall mean the computer programs developed or
designed by employees of the Sellers, or by consultants on the Sellers' behalf,
or otherwise acquired, and owned by the Sellers, used in the eWatch Business,
including all object code, source code, technical manuals, user manuals and
other documentation thereof, whether in machine-readable form, programming
language or any other language or symbols and whether stored, encoded, recorded
or written on disk, tape, film, memory device, paper or other media of any
nature.

         "eWATCH TECHNOLOGY" shall mean the computer hardware, processes,
inventions, trade secrets and technology, other than the eWatch Software,
designed or developed by the Sellers, or by consultants on the Sellers' behalf,
or otherwise acquired, and owned by the Sellers, used in the eWatch Business.

         "EXCESS PAYABLES" shall have the meaning set forth in Section 2.3.

         "EXCLUDED ASSETS" shall have the meaning set forth in Section 2.2.

         "EXCLUDED LIABILITIES" shall have the meaning set forth in Section 2.3.

         "FINANCIAL STATEMENTS" shall have the meaning set forth in Section
3.11.

         "GAAP" shall mean generally accepted accounting principles in the
United States of America, as in effect from time to time, applied on a
consistent basis.

         "GOVERNMENTAL AUTHORITY" shall mean any federal, state, local, foreign
or other governmental or administrative body, instrumentality, department or
agency or any court, tribunal, administrative hearing, arbitration panel,
commission or other similar dispute resolving panel or body.

         "HAZARDOUS SUBSTANCE" shall mean any substance that is: (A) listed,
classified or regulated pursuant to any Environmental Law; (B) any petroleum
product or by-product, asbestos-containing material, lead-containing paint or
plumbing, polychlorinated biphenyl, radioactive material or radon; and (C) any
other substance which is subject to regulatory action by any governmental
authority in connection with any Environmental Law.

         "INDEMNIFIED PARTY" shall have the meaning set forth in Section 11.1.

                                       3
<PAGE>   10
         "INDEMNIFYING PARTY" shall have the meaning set forth in Section 11.1.

         "INTELLECTUAL PROPERTY RIGHTS" shall mean all industrial and
intellectual property rights owned by eWatch and used or useful in the eWatch
Business (other than such intellectual property rights that are Excluded
Assets), including patents, patent applications, patent rights, trademarks,
trademark applications, trade names, service marks, service mark applications,
copyrights, copyright registrations, know-how, certificates of public
convenience and necessity, franchises, licenses, trade secrets, proprietary
processes, computer programs and other computer software, technology and
formulae, including any and all rights of the Sellers with respect thereto as a
licensee.

         "LIEN" shall mean any mortgage, charge, pledge, lien, security
interest, claim, encumbrance or restriction of any kind or nature.

         "MATERIAL ADVERSE EFFECT" shall mean any event or circumstance which
results in, or is reasonably likely to result in, a material adverse effect on
the value of the Assets or any of the rights in the Assets herein granted to the
Buyer or to the eWatch Business.

         "NON-COMPETE PERIOD" shall have the meaning set forth in Section 9.3.

         "OFFSET AMOUNT" shall have the meaning set forth in Section 2.10.

         "PERSON" shall mean any individual, partnership, corporation, limited
liability company, unincorporated organization or association, trust, or other
entity.

         "PLANS" shall have the meaning set forth in Section 3.21.

         "PRO RATED RECEIVABLES" shall have the meaning set forth in Section
7.12.

         "PROCEEDING" shall mean any claim, audit, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding) or prosecution.

         "PURCHASE PRICE" shall have the meaning set forth in Section 2.5.

         "RECEIVABLES" shall mean any and all accounts receivable, notes and
other amounts receivable by either Seller from third parties, including, without
limitation, customers and advertisers, arising in any manner from the eWatch
Business, together with all unpaid financing and other charges with respect
thereto.

         "RESELLER" shall mean any party to a Reseller Agreement other than the
Sellers.

         "RESELLER AGREEMENT" shall mean any Contract between either Seller and
a third party pursuant to which such third party has agreed to resell any or all
of the services offered by the eWatch Business.

         "SELLER INDEMNITEES" shall have the meaning set forth in Section 11.3.

                                       4
<PAGE>   11
         "SELLERS" shall have the meaning set forth in the Preamble to this
Agreement.

         "SERVICES AGREEMENT" shall mean the Transition Services Agreement in
the form attached as Exhibit A hereto, between Wavo and the Buyer, pursuant to
which Wavo shall furnish to the Buyer certain services following the Closing
Date.

         "SUBSCRIBER" shall mean any subscriber of at least one service of the
eWatch Business pursuant to a signed Contract between such subscriber and one or
both of the Sellers.

         "SUBSCRIBER AGREEMENT" shall mean any Contract setting forth the terms
and conditions pursuant to which a Subscriber subscribes to any or all of the
services offered to Subscribers by the eWatch Business.

         "SYSTEMS" shall have the meaning set forth in Section 3.22.

         "TAX" or "TAXES" shall mean any and all taxes, charges, fees, levies or
other assessments of any nature whatsoever (including, without limitation, all
federal, state, local and foreign income taxes, estimated taxes, withholding
taxes, excise taxes, sales taxes, use taxes, transfer taxes, gross receipts
taxes, franchise taxes, employment and payroll related taxes, property taxes and
import duties) together with any related penalties, interest and additions to
taxes.

         "TECHNOLOGY LICENSE" shall mean any Contract pursuant to which the
Sellers have acquired any right with respect to any invention, process, design,
computer program, computer hardware or other form of technology for use in the
eWatch Business.

         "TERM SHEET" shall mean the Term Sheet, dated November 24, 1999,
between PR Newswire Association, Inc. and the Sellers.

         "TRANSACTION DOCUMENTS" shall mean this Agreement and the Services
Agreement and any other agreements executed and delivered by the parties in
connection with the transactions contemplated hereby and thereby.

         "WEB SITE" shall mean the multimedia, interactive computer program, or
group of programs, designed to run on the World Wide Web protocol of the
Internet, and currently accessible at the url: http://www.ewatch.com and all
elements thereof, including without limitation, all Content displayed or
displayable thereon, any and all rights therein under any copyright, patent,
trademark, trade secret or other laws affecting intellectual property, any
associated computer programs (including any server applications) and any
proprietary information contained thereon.

                                   ARTICLE II

                           SALE AND PURCHASE OF ASSETS

         2.1 SALE AND PURCHASE OF ASSETS. At the Closing, the Sellers shall
convey, sell, transfer, assign and deliver to the Buyer or its designee
(provided such designee is an Affiliate of the Buyer), all of the Sellers'
right, title and interest in and to the assets and properties of every kind and
description, wherever located, used, useful, owned or held by the

                                       5
<PAGE>   12
Sellers for use in the eWatch Business, tangible and intangible, and whether or
not specifically referred to herein (collectively, the "ASSETS"), including,
without limitation, all of the Sellers' rights under all Subscriber Agreements,
Technology Licenses, Advertising Agreements and other Contracts relating to the
eWatch Business; all of the Sellers' right, title and interest in and to the
Content relating to the eWatch Business; all of the Sellers' rights with respect
to any eWatch Technology and eWatch Software, the eWatch Marks and eWatch Domain
Names and any variations or derivations thereof, in perpetuity, including all
logos, trademarks and other materials containing such names and all goodwill of
the eWatch Business as a going concern; all other Intellectual Property Rights;
the Web Site; all vendor and customer lists relating to the eWatch Business
(which shall be electronically transferred or delivered in hard copy at the
Closing); works in progress and computerized information with respect to the
eWatch Business; and any certifications, licenses, permits, authorizations and
approvals issued by any domestic or foreign Governmental Authority in connection
with the eWatch Business; all of the Sellers' claims and causes of action
against others arising out of or relating to the eWatch Business; all of the
Sellers' rights, privileges and franchises relating to or arising out of the
eWatch Business; and originals or copies of all of the Sellers' books, records,
forms, promotional materials and documents relating to the eWatch Business or
the Assets in whatever format.

         2.2 EXCLUDED ASSETS. Notwithstanding anything to the contrary contained
herein, the Sellers shall retain all of their right, title and interest in and
to the cash and cash equivalents pertaining to the eWatch Business, all assets
of Wavo unrelated to the eWatch Business and all assets of Wavo used both in the
eWatch Business and other Wavo business set forth in Schedule 2.2 (collectively,
the "EXCLUDED ASSETS").

         2.3 ASSUMPTION OF LIABILITIES. Subject to the terms and conditions set
forth herein (provided, however, that upon the consummation of the transactions
herein contemplated, the terms and conditions set forth herein shall be deemed
to have been met), at the Closing, the Buyer or its designee shall assume (i) up
to $75,000 of the Sellers' current trade payables and accrued expenses
(including payroll expenses) as of the Closing Date pertaining to the eWatch
Business and incurred in the ordinary course of business all as set forth on
Schedule 2.3, and (ii) all monetary and non-monetary obligations of the Sellers
required to be performed after the Closing Date under the Subscriber Agreements,
as well as the Advertising Agreements, Reseller Agreements and Technology
Licenses set forth in Schedule 3.4(a), 3.4(b), 3.4(c), 3.4(d) and other
Contracts including those set forth in Schedule 3.4(e) (collectively, the
"ASSUMED LIABILITIES"). The Sellers acknowledge that they shall remain liable
for all other monetary and non-monetary obligations under any Contract not
specifically included in the Assumed Liabilities; provided that if any Contract
has been inadvertently excluded from the aforementioned Schedules, the Buyer
shall be entitled to the benefits of such Contract so long as it agrees to
accept the monetary and non-monetary obligations of the Sellers under such
Contract required to be performed after the date from which the Buyer begins to
receive the benefits thereof. Except for the Assumed Liabilities, the Buyer
shall not incur or assume any of the Sellers' liabilities or obligations of any
kind or nature whatsoever, whether known or unknown, liquidated or contingent,
with respect to the Assets, the eWatch Business or otherwise. Without limiting
the generality of the foregoing, Buyer shall not assume the following
liabilities (the "EXCLUDED LIABILITIES"):

                                       6
<PAGE>   13
         (a) any of the Sellers' current trade payables and accrued expenses
(including payroll expenses) pertaining to the eWatch Business in excess of
$75,000 as of the Closing Date and not set forth on Schedule 2.3 (the "EXCESS
PAYABLES");

         (b) any liability or obligation, direct, indirect or contingent, of
either Seller to the extent the same was required to be (without giving effect
to any applicable grace period) paid, performed or discharged prior to the
Closing including, without limitation, any liability for breach of any Contract
prior to the Closing and any outstanding financial obligations or commitments
made by or to employees of either Seller who become employees of the Buyer,
except for liabilities specifically assumed under Section 2.3 hereof;

         (c) any liability or obligation, direct, indirect or contingent, of
either Seller to the other Seller or either Seller to any Affiliate of such
Seller, including, without limitation, the intercompany payable listed on the
Financial Statements;

         (d) any liability or obligation, direct, indirect or contingent, of
either Seller arising out of or in connection with any Claim or Proceeding
(regardless of whether made or instituted prior to or subsequent to the Closing
Date) to the extent arising out of or in connection with any transaction or
event which occurred prior to the Closing (including, without limitation, in
respect of any audit by any Person relating to royalties or other amounts
payable pursuant to a Subscription Agreement, Technology License, Advertising
Agreement or other Contract, to the extent that such audit relates to royalties
or other amounts accrued prior to the Closing Date);

         (e) any liability or obligation, direct, indirect or contingent,
arising under or with respect to any employment agreements and employee benefit
and pension plans, including any liability arising under or with respect to any
option plan or options granted to any employee of either Seller or any employee
benefit plan within the meaning of Section 3(3) of ERISA at any time sponsored
by, maintained by or contributed to by either Seller or any Affiliate of such
Seller or with respect to which either Seller or any Affiliate of such Seller at
any time had any obligation to make any contributions;

         (f) any liability or obligation, direct, indirect or contingent, of the
Sellers for Taxes;

         (g) any liability or obligation, direct, indirect or contingent, of
either Seller arising out of or in connection with non-compliance with any law,
regulation or order applicable to the eWatch Business, the Assets or the
Excluded Assets (including, without limitation, those relating to occupational
safety and health, privacy, protection of minors, foreign and corrupt practices,
antitrust, hiring, wages, hours, employee benefit plans and programs, collective
bargaining, exchange control, environmental conditions, or the payment of
withholding, social security and other Taxes) prior to the Closing; or

         (h) any liability or obligation, direct, indirect or contingent,
arising out of or relating to any Excluded Asset.

         2.4 CLOSING. The closing (the "CLOSING") of the transactions
contemplated in this Article II shall take place at 10:00 a.m. on the later of
January 24, 2000 or the third Business Day after the fulfillment or waiver of
the last of the conditions specified in Article VII or VIII

                                       7
<PAGE>   14
hereof, at the offices of Rosenman & Colin LLP, 575 Madison Avenue, New York,
New York 10022. The date on which the Closing shall take place is herein
referred to as the "CLOSING DATE". The Closing may be held at such other date,
time and place as may be agreed upon in writing by the parties.

         2.5 PURCHASE PRICE. In consideration of the Sellers' representations,
warranties and agreements hereunder and Sellers' sale of the Assets, at the
Closing, Buyer, or its designee, shall pay to Wavo by wire transfer to an
account designated by Wavo the sum of Three Million Two Hundred Fifty Thousand
Dollars ($3,250,000) (the "PURCHASE PRICE").

         2.6 EARN OUT. On or prior to April 30, 2001, the Buyer shall pay to
Wavo an amount equal to ten percent (10%) of the sales (including renewals of
subscriptions) from the eWatch Business as currently conducted by the Sellers on
the date hereof during the first 12 months following the Closing Date, less
$50,000 (the "EARN OUT"). The Buyer's obligation to pay the Earn Out shall be
without regard to the division, subsidiary or Affiliate of the Buyer within
which such sales were recorded. If the Buyer sells, transfers, assigns or
otherwise disposes of all or part of the eWatch Business to another Person
during the Earn Out period, the Buyer shall make adequate provision to ensure
that the obligation to pay the Earn Out to Wavo survives such transaction and is
expressly assumed by such Person. The Buyer shall deliver to the Sellers a
schedule of sales, by month and customer, within 60 days after each of July 31,
2000 and January 24, 2001. Subject to Section 2.10, the Buyer shall pay the Earn
Out to Wavo by wire transfer to an account designated by Wavo. Unless the
parties mutually agree in advance, any disputes arising in connection with the
calculation or payment of the Earn Out shall be resolved by arbitration as
provided in Section 12.4.

         2.7 NONASSIGNABLE ASSETS. Subject to Section 7.7 hereof, to the extent
that the assignment or attempted assignment of any Asset hereunder would be
invalid or would constitute a breach of any Contract or other commitment to
which either Seller is a party or by which it or any of the Assets may be bound,
or if any consent of a licensor would be required in connection with the
assignment of any such Contract or commitment, this Agreement shall not
constitute an assignment of such Asset; provided, however, that any such Asset
shall be held and/or received by the Sellers for the benefit of the Buyer, its
successors and assigns. The Sellers will use their reasonable efforts to obtain
all consents required for the assignment of any Asset to the Buyer. Until such
consent is obtained, the Sellers will cooperate at Sellers' expense with the
Buyer, its successors and assigns in any reasonable arrangement designed to
provide for the Buyer, its successors and assigns the benefit of such Asset,
including enforcement for the benefit of the Buyer, its successors and assigns,
of any and all rights of the Sellers arising out of the breach or cancellation
of any Contract or other commitment constituting such Asset; provided, however,
that Sellers shall not be required to pay any of Buyer's expenses in connection
with any enforcement action brought by the Buyer with respect to such Asset.

         2.8 TRANSFER TAX. The Sellers shall be responsible for the payment of
any and all sales, use, recordation, gains, transfer or similar Taxes or fees
imposed by any taxing authority with regard to the sale of the Assets hereunder,
and shall deliver copies of any Tax returns or other documentation filed with
respect thereto to the Buyer promptly after filing.

                                       8
<PAGE>   15
         2.9 RECEIPT OF FUNDS. From and after the Closing, if either Seller
receives any amounts arising out of or on account of the conduct of the eWatch
Business or the Assets, but not such amounts arising out of or on account of the
exploitation of the Excluded Assets, such Seller shall promptly pay such amounts
to the Buyer.

         2.10 RIGHT OF OFFSET. Sellers agree that, notwithstanding anything to
the contrary contained in this Agreement, and in addition to any other remedy
which is available to the Buyer hereunder, if, at the time of any payment or
payments payable by the Buyer to either Seller under the provisions of this
Agreement, there is any amount due and payable or claimed to be due and payable
(the "OFFSET AMOUNT") to the Buyer arising out of or relating, directly or
indirectly, to this Agreement, and the transactions contemplated hereby,
including the indemnification provisions set forth in Section 11 hereof, the
amount otherwise payable to the Sellers under this Agreement shall be delivered
to The Chase Manhattan Bank (the "ESCROW AGENT") by the Buyer to be held in
escrow and deposited into an interest bearing account (the "ESCROW ACCOUNT"). In
such event, the Buyer shall deliver to the Sellers a written notice stating the
amount deposited into the Escrow Account and the Buyer's reason(s) for
delivering same to the Escrow Agent. It is understood and agreed to by the
parties that the Escrow Agent shall not release the monies deposited into the
Escrow Account to either party until such time as the Escrow Agent receives
either (i) a letter executed by each of the parties authorizing the release of
the monies in the Escrow Account to the party or parties specified therein or
(ii) a decision by the Arbitrators (as defined in Section 12.4), which
determines to which party or parties and in what amount to release the monies
from the Escrow Account. The parties agree that disputes arising in connection
with such monies delivered to the Escrow Agent shall be resolved by arbitration
as provided in Section 12.4.

                                  ARTICLE III

                    REPRESENTATIONS AND WARRANTIES OF SELLER

         The Sellers hereby jointly and severally represent and warrant to the
Buyer as follows:

         3.1 ORGANIZATION; GOOD STANDING; QUALIFICATION. Wavo is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Indiana. eWatch is a corporation duly organized, validly existing and
in good standing under the laws of the State of Minnesota. The Sellers have the
power and authority to own and operate the Assets and to carry on the eWatch
Business as now being conducted. The Sellers use no trademarks, trade names or
service marks in connection with the eWatch Business, other than the eWatch
Marks set forth on Schedule 3.5(c). Each Seller is duly qualified or licensed to
do business as a foreign corporation and is in good standing in the
jurisdictions set forth on Schedule 3.1, which jurisdictions constitute all
jurisdictions in which it is required to be so qualified or licensed, except
where the failure to be so qualified or licensed has not had and will not have a
Material Adverse Effect.

         3.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Each Seller has the
corporate power and authority and has taken all necessary corporate actions to
execute and

                                       9
<PAGE>   16
deliver this Agreement and the other Transaction Documents to which it is a
party, to consummate the transactions contemplated hereby and thereby and to
take all other actions required to be taken by it pursuant to the provisions
hereof and thereof. This Agreement has been duly executed and delivered by each
Seller. This Agreement is, and the other Transaction Documents when executed and
delivered will be, legal, valid and binding upon and enforceable against each
Seller party thereto, in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, moratorium, insolvency, fraudulent
conveyance, reorganization, or other similar laws affecting the enforcement of
creditors' rights generally. Neither the execution, delivery or performance of
this Agreement or the other Transaction Documents, nor the consummation of the
transactions contemplated hereby or thereby will (a) violate (with or without
the giving of notice or the lapse of time or both) any law, rule, regulation,
court order, writ, judgment, injunction or decree applicable to either Seller,
except where the violation of such law, rule, regulation, court order, writ,
judgment, injunction or decree applicable to either Seller will not have a
Material Adverse Effect, (b) violate or breach the Certificate of Incorporation,
Bylaws or other governing instruments of either Seller or (c) violate or breach,
or constitute a default under or constitute grounds for termination of, or
result in the acceleration of the performance of the obligations of either
Seller under any Contract relating to the eWatch Business to which such Seller
is a party or by which such Seller or any of its respective assets (including
the Assets) are bound or affected, except where such violation or breach would
not have a Material Adverse Effect.

         3.3 NO APPROVALS, CONSENTS OR NOTICES REQUIRED. Except as set forth on
Schedule 3.3, no authorization, approval, order, license, permit, franchise or
consent of, and no registration, declaration, notice or filing by or with, any
third Person or any domestic or foreign Governmental Authority is required in
connection with the execution, delivery and performance of this Agreement or the
other Transaction Documents by the Sellers, or the consummation by the Sellers
of the transactions contemplated hereby or thereby, including the assignment and
transfer of the Contracts included in the Assets to the Buyer or its designee.

         3.4 CONTRACTS.

         (a) Schedule 3.4(a) is a complete and correct list of all Subscriber
Agreements to which either Seller is a party, including the name of the
Subscriber, the services contracted for by the Subscriber, the fee paid and
payable by the Subscriber, and the expiration date of each such Subscriber
Agreement.

         (b) Schedule 3.4(b) is a complete and correct list of all Advertising
Agreements to which either Seller is a party, including the name of each
advertiser, a summary of the rates charged under each such Agreement, the term
of each advertising commitment and the number of guaranteed impressions
thereunder.

         (c) Schedule 3.4(c) is a complete and correct list of all Reseller
Agreements, including the name of each Reseller, and the expiration date of each
Reseller Agreement.

         (d) Schedule 3.4(d) is a complete and correct list of all Technology
Licenses, and the expiration date of each Technology License.

                                       10
<PAGE>   17
         (e) Schedule 3.4(e) is a complete and correct list of all other
Contracts involving amounts greater than $5,000 or which are equipment leases
(which are not Subscriber Agreements, Advertising Agreements, Reseller
Agreements or Technology Licenses) included in or relating to any of the Assets
to which either Seller is a party.

         (f) Each Subscriber Agreement, Advertising Agreement, Reseller
Agreement, Technology License and other Contract included in the Assets is a
legal, valid and binding obligation of the Seller party or parties thereto and
each of the other parties signatory thereto, enforceable in accordance with its
terms, and is in full force and effect, and there are no defaults (or events
which, with notice or lapse of time or both, would constitute a default) by the
Seller party or parties thereto or, to the Sellers' knowledge, by any other
Person party to any such Subscriber Agreement, Technology License, Advertising
Agreement, Reseller Agreement or other Contract included in the Assets. The
Sellers have made available to the Buyer or its advisers true and complete
copies of the Subscriber Agreements, Technology Licenses, Advertising
Agreements, Reseller Agreements and other Contracts set forth on Schedules
3.4(a), 3.4(b), 3.4(c), 3.4(d) and 3.4(e) for review.

         (g) Except as otherwise set forth on Schedule 3.4(g), all of the
Subscriber Agreements, Technology Licenses, Advertising Agreements, Reseller
Agreements and other Contracts included in the Assets are freely assignable, in
whole or in part by the Seller party or parties thereto without the consent of
any other Person. No Subscriber Agreement, Technology License, Advertising
Agreement, Reseller Agreement or other Contract included in the Assets contains
a provision permitting it to be terminated upon a change of control or ownership
of the eWatch Business or a sale of the Assets or if a specific individual
ceases to be employed by or otherwise associated with the eWatch Business.
Except as set forth herein or in the Schedules hereto, no waiver of any right of
first refusal or consent of any third party is required for the consummation of
the transactions contemplated hereby by the Sellers, including, without
limitation, for the transfer of the Assets to the Buyer.

         (h) There are no pending royalty claims, requests for audits, or
pending audits and disputes or, to the best knowledge of the Sellers, threats
thereof against either Seller, in connection with any Contract included in the
Assets.

         3.5 eWATCH SOFTWARE AND TECHNOLOGY; OTHER PROPRIETARY RIGHTS.

         (a) Schedule 3.5(a) is a complete and correct list and brief
description of all eWatch Software and eWatch Technology. The Sellers (i) own
all right, title and interest in each item of eWatch Software and eWatch
Technology and have the full right to use all of the eWatch Software and eWatch
Technology as used or required to conduct the eWatch Business as currently
conducted and (ii) have not granted to any other Person any interest in or right
to exploit any such eWatch Software or eWatch Technology, as licensee or
otherwise. Except as set forth on Schedule 3.5(a), (i) the Sellers own free from
contractual restrictions and any other restrictions all of the eWatch Software
and eWatch Technology, (ii) none of such eWatch Software or eWatch Technology
infringes upon or violates the rights of any Person, including any rights under
the laws of copyright, United States patent, trademark and trade secret, and no
claim alleging any such infringement or violation has been made to the Sellers,
(iii) there are no sums owing or to become due to any Person in respect of the
Sellers' ownership, use or

                                       11
<PAGE>   18
exploitation of such eWatch Software or eWatch Technology, (iv) neither Seller
is aware or has reason to be aware of any infringement by any other Person of
any eWatch Software or eWatch Technology, (v) no rights of any third party not
previously obtained are necessary to market, license, sell, modify, update,
and/or create derivative works for any eWatch Software and (vi) the eWatch
Software and eWatch Technology are fully transferable to the Buyer in the manner
contemplated in this Agreement (in, object code, and if applicable, source code
forms, including all related documentation, to the extent that such
documentation has been created). Schedule 3.5(a) identifies the owner of each
item listed thereon and all registrations and applications for registration
filed with the United States Copyright Office, the United States Patent and
Trademark Office or any similar foreign intellectual property rights depository
with respect to the eWatch Software and eWatch Technology. Except as set forth
in Schedule 3.5(a), the Sellers do not own any patents, patent applications,
registered copyrights or copyright applications used or useful in or related to
the eWatch Business.

         (b) With respect to eWatch Software that is used or useful in
connection with the providing of services to Subscribers:

         (i) The Sellers maintain machine-readable master-reproducible copies,
         reasonably complete technical documentation and/or user manuals for the
         most current releases or versions thereof and for all earlier releases
         or versions thereof currently being supported by the Sellers;

         (ii) In each case, the machine-readable copy substantially conforms to
         the corresponding source code listing;

         (iii) Such eWatch Software is written in the language set forth on
         Schedule 3.5(b), for use on the hardware set forth on Schedule 3.5(b)
         with standard operating systems;

         (iv) Such eWatch Software can be maintained and modified by reasonably
         competent programmers familiar with such language, hardware and
         operating systems; and

         (v) In each case the eWatch Software operates in accordance with the
         user manual thereof without operating defects of any material nature.

         (c) Schedule 3.5(c) is a complete and correct list of the eWatch Marks
and eWatch Domain Names. The Sellers (i) own all right, title and interest in
each of the eWatch Marks and the eWatch Domain Names, (ii) have not granted to
any other Person any interest in any of the eWatch Marks or eWatch Domain Names,
as licensee or otherwise, and (iii) have filed all certificates, affidavits and
other documents, required to be filed under the U.S. Trademark Act, and have
taken all precautions necessary to retain its title to such eWatch Marks and
eWatch Domain Names and to keep the same in effect. None of the eWatch Marks or
eWatch Domain Names is invalid and none infringes upon or violates the rights or
claimed rights of any Person, including any rights under the laws of copyright,
patent, trademark and trade secret, and no claim alleging any such infringement
or violation has been received by Seller. The Sellers have no reason to be aware
of any potential claim alleging any such infringement or violation. The

                                       12
<PAGE>   19
representations in this Section 3.5(c) shall not apply to any intellectual
property rights which are Excluded Assets.

         (d) Schedules 3.4(d), 3.5(a), 3.5(b) and 3.5(c) set forth all of the
Intellectual Property Rights used or useful in or required by the Sellers in the
normal operation and conduct of the eWatch Business, other than Excluded Assets
and such Intellectual Property Rights, the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect and such
intellectual property rights that are Excluded Assets.

         (e) The Sellers own all right, title and interest in, or possess valid
licenses to use for all purposes material to the operation of the eWatch
Business, all the Intellectual Property Rights included in the Assets and not
set forth on Schedules 3.5(a) and 3.5(c) (collectively, the "RESIDUAL
INTELLECTUAL PROPERTY"). The Sellers have not granted to any other Person any
interest in any Residual Intellectual Property, as licensee, sublicense or
otherwise. The Residual Intellectual Property does not infringe upon the rights
of any Person, including any rights under the laws of copyright, patent,
trademark or trade secret, and no claim alleging any such infringement or
violation has been received by either Seller. The Sellers have no reason to be
aware of any potential claim alleging any such infringement or violation. The
representations in this Section 3.5(e) shall not apply to any intellectual
property rights that are Excluded Assets.

         (f) None of the processes, methodologies, trade secrets, research and
development results and other know-how included in the Intellectual Property
Rights, the value of which is contingent upon maintenance of the confidentiality
thereof, has been disclosed by either Seller to any Person other than employees,
contractors, customers, representatives and agents of the Sellers who are
parties to customary confidentiality and non-disclosure agreements with such
Seller.

         (g) The eWatch Technology, the eWatch Software, and the Residual
Intellectual Property do not contain any copy protection, computer virus,
malicious code, or destructive feature. The representations in this Section
3.5(g) shall not apply to any intellectual property rights that are Excluded
Assets. No third party has asserted any claim, or to Sellers' knowledge has any
reasonable basis to assert any valid claim, against either Seller with respect
to (i) the continued employment by, or association with, such Seller of any of
the present employees or consultants of such Seller that are providing services
to or for the eWatch Business or (ii) the use by such Seller or any of such
Persons in connection with their activities for or on behalf of the eWatch
Business of any information that such Seller or any Persons would be prohibited
from using under any prior agreements or arrangements or any laws applicable to
unfair competition, trade secrets or proprietary information.

         3.6 OWNERSHIP; LIENS. All of the Assets are owned directly by the
Sellers, free and clear of all Liens, except as set forth on Schedule 3.6 and
except for those leased Assets which are leased from third parties. No Affiliate
of either Seller (except Wavo or eWatch) owns or holds any right, title or
interest in or to any of the Assets.

         3.7 TAXES. The Sellers have filed within the time (subject to
applicable extensions, if any) and in the manner prescribed by law all federal,
state, local and foreign Tax returns which are required to be filed by the
Sellers. Such returns reflect accurately all liability

                                       13
<PAGE>   20
for Taxes for the period covered thereby. All such Taxes have been paid when due
(subject to applicable extensions, if any). There are no claims against the
Sellers for any alleged deficiency in Tax, and there are no current or pending
Tax audits or Proceedings with respect to either Seller. There are no Liens for
Taxes on any Asset.

         3.8 LEGAL PROCEEDINGS. Except as set forth on Schedule 3.8, there are
no Proceedings pending or, to the knowledge of the Sellers, threatened against
either Seller or affecting any of the Assets. The Sellers are not subject to any
judgment, order or decree of any Governmental Authority with respect to or
affecting the Assets.

         3.9 COMPLIANCE WITH LAW. The Sellers have operated the eWatch Business
so as to comply with all applicable domestic and foreign, federal, state and
local statutes, laws, ordinances, codes, governmental rules and regulations
(including, without limitation, those relating to occupational safety and
health, privacy, protection of minors, foreign and corrupt practices, antitrust,
hiring, wages, hours, employee benefit plans and programs, copyright, collective
bargaining, exchange control, environmental conditions, or the payment of
withholding, social security and other Taxes). Neither Seller is in violation of
any foreign or domestic statutes, laws, ordinances, codes, governmental rules or
regulations, or any judgment, order or decree (federal, state, local or foreign)
to which it is subject, except where such violation would not have a Material
Adverse Effect. Except as set forth in Schedule 3.3, no licenses, permits,
franchises or other governmental authorizations are necessary for the ownership
or operation of the Assets or the conduct of the eWatch Business as presently
conducted, except where the failure to obtain such authorizations would not have
a Material Adverse Effect.

         3.10 TITLE TO AND CONDITION OF PROPERTIES. The Sellers have good and
merchantable title to or, in the case of leased Assets, valid and subsisting
leasehold interests in, all tangible personal property included in the Assets.
All tangible personal property included in the Assets (including all operating
equipment, computers and peripheral equipment) is in good condition and repair,
normal wear and tear excepted, and is usable for the purposes for which it is
used and intended.

         3.11 FINANCIAL INFORMATION. The Sellers have furnished to the Buyer (a)
true and correct copies of the unaudited balance sheet of eWatch as of December
31, 1998, and related unaudited statement of operations of eWatch for the fiscal
year ended December 31, 1998 (the "1998 FINANCIAL STATEMENTS"), and (b) the
unaudited pro forma balance sheet of the eWatch Business as of September 30,
1999, and related unaudited pro forma statement of operations for the eWatch
Business for the nine months ended September 30, 1999 (the "1999 FINANCIAL
STATEMENTS"; collectively, the "FINANCIAL STATEMENTS"). The 1998 Financial
Statements in all material respects (x) are in accordance with the books and
records of eWatch and were compiled in part from the eWatch-prepared, internal
financial statements of eWatch prior to its acquisition by Wavo on November 10,
1998, (y) fairly present the financial condition of eWatch as at the respective
dates indicated and the results of operations of eWatch for the period indicated
and (z) have been prepared in accordance with GAAP (other than with respect to
the preparation of notes) applied consistently with the past practices of
eWatch. The 1999 Financial Statements in all material respects (x) are in
accordance with the books and records of the eWatch Business, (y) fairly present
the financial condition of the eWatch Business as at September 30, 1999 and the
results of operations of the eWatch Business for the period indicated and (z)
have been

                                       14
<PAGE>   21
prepared in accordance with GAAP applied consistently. There has been no fact,
change, event or circumstance which has caused a Material Adverse Effect since
September 30, 1999. Since December 31, 1998, the Sellers have conducted the
eWatch Business only in the ordinary course. Except as set forth on Schedule
3.11, since September 30, 1999, there has not been any of the following:

         (a) Any damage, destruction or loss relating to the Assets, whether or
not covered by insurance, that could cause a Material Adverse Effect;

         (b) Any indebtedness for money borrowed, created, assumed, guaranteed
or incurred, or other liability or any material transaction, contract or
commitment entered into by either Seller affecting the Assets or the eWatch
Business other than in the ordinary course of business;

         (c) Any payment, discharge or satisfaction of any material Lien or
liability by either Seller or any cancellation by either Seller of any material
debts or claims or any amendment, termination or waiver of any rights of either
Seller having or which could have a Material Adverse Effect;

         (d) Any license, sale, transfer, pledge, mortgage or other disposition
of any tangible or intangible Asset (including any Intellectual Property Rights)
of either Seller, other than in the ordinary course of business;

         (e) Any termination of, or written indication of an intention to
terminate or not renew, any Subscriber Agreement or any other material Contract
relating to the eWatch Business;

         (f) Any material write-down or write-up of the value of any Asset;

         (g) Any lease or acquisition of any capital asset to be used by the
eWatch Business other than in the ordinary course of business and in any event
not in excess of $5,000 in the aggregate;

         (h) Any agreement entered into with any Affiliates, employees, officers
or directors of either Seller affecting the Assets;

         (i) Any increase in the rate of compensation of, or the payment of any
bonus to, any of the employees of the eWatch Business, other than periodic
increases in the ordinary course of business consistent with past practice, or
any employment, management, consulting, deferred compensation, severance or
other similar contract or agreement entered into or amended with respect to such
employees;

         (j) Any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any of the employees of the eWatch Business, or any lockouts, strikes,
slowdowns, work stoppages or threats thereof by or with respect to any of such
employees;

                                      15
<PAGE>   22
         (k) Any transaction, contract or agreement relating to the eWatch
Business (including for the acquisition or disposition of any of the Assets) or
to the relinquishment by either Seller of any Contract or other right of the
eWatch Business, other than non-material transactions, contracts, agreements and
relinquishments entered into in the ordinary course of business consistent with
past practices and those contemplated hereby; or

         (l) Any agreement, understanding, authorization or proposal, whether in
writing or otherwise, for either Seller to take any of the actions specified in
paragraphs (a) through (k) above.

         3.12 LIABILITIES. Except as set forth on Schedule 3.12, the Sellers do
not have any liabilities, absolute, contingent or otherwise, direct or indirect,
matured or unmatured, that are not reflected in the Financial Statements or
disclosed with reasonable specificity in the Schedules to this Agreement and
which are associated with the Assets or the eWatch Business.

         3.13 PAYABLES. All of the current trade payables and accrued expenses
(including payroll expenses) of the eWatch Business listed on Schedule 2.3 (as
such Schedule 2.3 is updated as of the Closing Date pursuant to Section 5.7) to
be assumed by the Buyer were and will have been incurred by the Sellers for
services or products provided to the eWatch Business in the ordinary course of
business consistent with past practice.

         3.14 RECEIVABLES. Except as set forth on Schedule 3.14, the Receivables
reflected in the Financial Statements arose from, and the Receivables existing
as of the Closing Date will have arisen from, the sale of services by the
Sellers in the ordinary course of the eWatch Business consistent with past
practices, to Persons who or which are not Affiliates of either Seller or any of
their Affiliates, and constitute or will, as of Closing Date, constitute, as the
case may be, valid, undisputed and fully collectible claims of the Sellers, not
subject to any claims or set-off, off-set or other defenses or counterclaims,
except to the extent that an appropriate bad debt reserve therefor is included
in the Financial Statements.

         3.15 CUSTOMERS. Except for the Subscribers listed on Schedule 3.4(a),
Schedule 3.15 is a complete and correct list of all current Subscribers and
material suppliers and vendors of the eWatch Business. Except as disclosed on
Schedule 3.11, the Sellers have not received any oral or written threat to
cancel or terminate any business relationship with any Subscriber, supplier,
significant vendor, licensor or Reseller of the eWatch Business.

         3.16 EMPLOYEES; INDEPENDENT CONTRACTORS; CONTRACTS.

         (a) Schedule 3.16 sets forth a true and complete list of the names,
titles, annual salaries and other compensation of all employees of the Sellers
that provide services to or for the eWatch Business, and the percentage of such
employees' time spent on providing services to the eWatch Business. To the
knowledge of the Sellers (excluding the knowledge of Mr. Alexander and Mr.
Lukaszewski), no key employee of the Sellers that provides services to or for
the eWatch Business has indicated to either Seller (orally or in writing) that
he or she intends to resign or retire as a result of the transactions
contemplated by this Agreement.

         (b) All of the current and past employees of the Sellers who are or
were involved in the creation of Intellectual Property Rights are or were
employed pursuant to "work-for-hire"

                                       16
<PAGE>   23
agreements which also contain or contained appropriate assignments to the
applicable Seller of such employees' work product, including invention
assignment agreements, where appropriate. The Sellers have executed appropriate
contracts with all independent contractors of the Sellers involved in the
creation of Intellectual Property Rights containing assignments to the Sellers
of all rights of such independent contractors in their work product.

         3.17 BROKERAGE COMMISSIONS. Neither Seller has incurred any liability
for finder's, brokerage, agent's or advisory fees or commissions in connection
with this Agreement, the Services Agreement or the transactions hereby or
thereby contemplated.

         3.18 INSURANCE. Schedule 3.18 sets forth a true and complete list of
all liability, property and other insurance policies currently in effect that
insure the eWatch Business, the Assets or any of the employees of the Sellers
that provide services to or for the eWatch Business, listing for each such
policy the identity of the insurance carrier, the policy period, the limits and
retentions and any special exclusions. Each such policy is valid and binding and
in full force and effect, all premiums thereunder have been paid and neither
Seller has received notice of cancellation or termination thereof or is in
default thereunder.

         3.19 REAL PROPERTY. Schedule 3.19 sets forth a true and correct and
complete list of all leases of real property that is used in the operation of
the eWatch Business, including the term and annual rent payable thereunder. Each
such lease is a legal, valid and binding obligation of the Seller party or
parties thereto and each of the other parties signatory thereto, enforceable in
accordance with its terms, and is in full force and effect, and there are no
defaults (or events which, with notice or lapse of time or both, would
constitute a default) by the Seller party or parties thereto or, to the Sellers'
knowledge, by any other Person party to any such lease. The Sellers have made
available to the Buyer or its advisers true and complete copies of such leases.
Except as otherwise set forth on Schedule 3.3, all of such leases are freely
assignable by the Seller party or parties thereto without the consent of any
other Person. The representations in this Section 3.19 shall not apply to any
leases of real property which are Excluded Assets.

         3.20 ENVIRONMENTAL COMPLIANCE. Except as disclosed on Schedule 3.20,
(a) the eWatch Business is being conducted in compliance with all applicable
Environmental Laws or Governmental Authority requirements in effect as of the
date hereof and will be so maintained to the Closing, and neither Seller is
aware of the existence of any applicable condition or event that would
constitute a violation of or give rise to any violation under any Environmental
Law or governmental agency requirement that may cause a Material Adverse Effect
on the Business; (b) neither Seller has received any written claim or written
notice, or to the Sellers' knowledge, oral notice, from any governmental agency
or any other person stating that: (i) any aspect of the operation of the eWatch
Business or the Assets is in violation of any Environmental Law or permit; or
(ii) either Seller in connection with the operation of the eWatch Business or
the Assets is subject to or liable for any investigation, cleanup, treatment,
personal injury or property damage relating to any substance released or
disposed at any location (including, without limitation, any liability for
off-site disposal or contamination); (c) no Hazardous Substances that could be
expected to result in liability has been discharged, disposed of, dumped,
deposited, spilled, leaked, emitted or released at, on or under the real
property used in the operation of the Business; and (d) there are no
circumstances involving either Seller that could result in any claims,
liability, costs or losses pursuant to any Environmental Law or governmental
agency

                                       17
<PAGE>   24
requirement relating to the eWatch Business or the Assets or any restrictions on
the ownership, use or transfer of the Assets.

         3.21 EMPLOYEE BENEFIT PLANS.

         (a) The name of each plan, program, arrangement, agreement or
commitment sponsored or maintained by or on behalf of eWatch or any ERISA
Affiliate or to which eWatch or any ERISA Affiliate makes or is obligated to
make contributions or to which eWatch or any ERISA Affiliate made or was
obligated to make contributions during the five-year period ending on the date
hereof, which is a pension, profit sharing, savings, thrift or other retirement
plan, deferred compensation, stock purchase, stock option, performance share,
bonus or other incentive plan, severance pay plan, policy or procedure, life,
health, disability or accident insurance plan, including, without limitation,
each "employee benefit plan" as defined in section 3(3) of ERISA, or vacation or
other employee benefit plan, program, arrangement, agreement or commitment,
whether or not written (collectively, the "PLANS") is set forth on Schedule 3.21
hereto.

         (b) The Sellers have complied in all material respects with the
provisions of each Plan and the applicable provisions of the Code and ERISA,
have administered each such Plan in material compliance with the provisions of
each such Plan and the applicable requirements of the Code and ERISA, have
timely made all required contributions thereto and have not directly or
indirectly withdrawn or borrowed against any amounts in any such Plan.

         (c) No Plan is an "employee pension benefit plan" within the meaning of
section 3(2) of ERISA which is subject to Subtitle B of Title IV of ERISA.

         (d) No Plan is a "multiemployer plan" within the meaning of section
3(37) of ERISA or section 4001(a)(3) of the Code.

         (e) Neither Seller is subject to any obligation to pay retiree medical
or other retiree welfare or similar benefits.

         3.22 YEAR 2000. All of the software, data and data bases included in
the Assets (collectively, the "SYSTEMS") comply with the following standards:
(i) the occurrence in or use by the Systems of dates before, on or after January
1, 2000 will not adversely affect the performance of the Systems with respect to
date-dependent data, computations, output or other functions, including, without
limitation, calculating, comparing and sequencing; (ii) the Systems will not
abnormally end or provide invalid or incorrect results as a result of
date-dependent data; and (iii) the Systems can accurately process and manipulate
date-dependent data, including, without limitation, single century formulas and
leap years. The representations set forth in this Section 3.22 shall not apply
to output, results, errors or abnormal terminations caused by (a) any
modifications to the Systems made after the Closing other than such
modifications made by or on behalf of the Sellers or (b) any data provided to
the Systems which does not specify the century or is incorrect, other than any
such data provided by or on behalf of the Sellers, or data or Content provided
to the Systems by third parties.

         3.23 WEB SITE SOFTWARE. The items set forth on Schedule 3.5(a)
constitute all of the computer programs necessary to operate the Web Site.

                                       18
<PAGE>   25
         3.24 FULL DISCLOSURE. Neither this Agreement nor any written
information furnished by or on behalf of the Sellers to the Buyer in connection
with the negotiation of this Agreement and the transactions contemplated hereby,
contains any untrue statement of a material fact or omits to state a material
fact required to be stated herein or therein necessary to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.

                                   ARTICLE IV

                     REPRESENTATIONS AND WARRANTIES OF BUYER

The Buyer hereby represents and warrants to the Sellers as follows:

         4.1 ORGANIZATION; GOOD STANDING. The Buyer is a private, unlimited
company duly organized and validly existing under the laws of Ireland. The Buyer
has full corporate power to own or lease and operate its properties and to carry
on its business and activities as now being conducted.

         4.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. The Buyer has the power
and authority and has taken all necessary actions to execute and deliver this
Agreement and the other Transaction Documents, to consummate the transactions
contemplated hereby and to take all other actions required to be taken by it
pursuant to the provisions hereof. This Agreement is, and the other Transaction
Documents when executed and delivered will be, valid and binding upon and
enforceable against the Buyer in accordance with their respective terms, except
as such enforceability may be limited by bankruptcy, moratorium, insolvency,
fraudulent conveyance, reorganization, or other similar laws affecting the
enforcement of creditors' rights generally. Neither the execution, delivery or
performance of this Agreement or the other Transaction Documents, nor the
consummation of the transactions contemplated hereby will (a) violate (with or
without the giving of notice or the lapse of time or both) any law, rule,
regulation, court order, writ, judgment, injunction or decree applicable to the
Buyer, (b) violate or breach the constitutional documents of the Buyer, or (c)
violate or breach, or constitute a default under or grounds for termination of,
any obligation of the Buyer.

         4.3 NO APPROVALS, CONSENTS OR NOTICES REQUIRED. No authorization,
approval, order, license, permit, franchise or consent of, and no registration,
declaration, notice or filing by or with any third Person or any domestic or
foreign Governmental Authority, is required in connection with the execution,
delivery and performance of this Agreement or the other Transaction Documents by
the Buyer, or the consummation by the Buyer of the transactions contemplated
hereby or thereby.

         4.4 BROKERAGE COMMISSIONS. The Buyer has not incurred any liability for
finder's, brokerage, agent's or advisory fees or commissions in connection with
this Agreement or the Services Agreement or the transactions hereby or thereby
contemplated.

                                       19
<PAGE>   26
                                   ARTICLE V

                        PRE-CLOSING COVENANTS OF SELLERS

         From and after the date hereof to the Closing Date:

         5.1 CONDUCT OF BUSINESS. The Sellers shall conduct the eWatch Business
in the ordinary course of business and shall not take any action, or omit to
take any action which could diminish the value of the eWatch Business or the
Assets. Specifically, without limiting the foregoing, the Sellers shall not,
without the Buyer's consent, except in the ordinary course of business:

         (a) Sell, transfer or assign any of the Assets or any rights therein;

         (b) Take any action that could delay the consummation or delivery of
any Subscriber Agreement or other Contract prior to the Closing;

         (c) Fail to pay any liabilities of the eWatch Business when they are
due in the ordinary course of business, consistent with past practice;

         (d) Place or permit any Person to place any Liens on the Assets;

         (e) Commit any breach of any Subscriber Agreement, Technology License,
Advertising Agreement, Reseller Agreement or other Contract; or

         (f) Amend or waive any defaults under any Subscriber Agreement,
Technology License, Advertising Agreement, Reseller Agreement or other Contract.

         5.2 NO BREACH OF REPRESENTATIONS AND WARRANTIES. The Sellers will not
take any action which would cause or constitute a material breach, or would, if
it had been taken prior to the date hereof, have caused or constituted a
material breach, of any of the representations and warranties set forth in
Article III hereof. The Sellers will, in the event of, or promptly after the
occurrence of, or promptly after obtaining knowledge of the occurrence of or the
impending or threatened occurrence of, any fact or event which would cause or
constitute a material breach of any of the representations and warranties set
forth in Article III hereof as of the Closing Date, give reasonably detailed
notice thereof to the Buyer; and the Sellers will use their best efforts to
prevent, or promptly remedy, such breach.

         5.3 ACCESS BY BUYER. The directors, officers, employees and
representatives of the Buyer will be permitted, at the Buyer's cost, access, on
reasonable prior notice, during usual business hours, and as often as may be
reasonably requested, to, and will be permitted to make copies of and extracts
from, the Subscriber Agreements, Technology Licenses, Advertising Agreements,
Reseller Agreements and other Contracts of the Sellers, the Sellers' books and
records to the extent such books and records relate to the eWatch Business and
such other information relating to the Assets and the eWatch Business as the
Buyer shall request.

         5.4 NO SOLICITATION. The Sellers will not, directly or indirectly, (i)
solicit, initiate, encourage or entertain the submission of inquiries, proposals
or offers or accept any such

                                       20
<PAGE>   27
proposals or offers from any Person relating to, or otherwise negotiate or
cooperate with any Person or entity in respect of, any acquisition or purchase
of all or any portion of the eWatch Business or any of the Assets, or (ii)
participate in any discussion or negotiation regarding, or furnish to any other
Person any financial or other information with respect to, any of the foregoing.

         5.5 CONSENTS. The Sellers will use their best efforts to obtain all
those third party consents and approvals of Governmental Authorities and other
third parties set forth on Schedule 3.3.

         5.6 CONFIDENTIAL TREATMENT. In obtaining the consents and approvals set
forth on Schedule 3.3, Seller will use its best efforts to obtain agreements
from such entities from which such consents are required not to disclose the
transaction that is the subject of this Agreement or any other confidential
information of the Buyer, which agreements shall provide that the Buyer shall be
a third party beneficiary thereof, and, upon the Buyer's request and at the
Buyer's expense, provide for Buyer's ability to enforce such agreements.

         5.7 UPDATE OF ASSUMED LIABILITIES. Immediately prior to the Closing,
the Sellers shall deliver an updated Schedule 2.3 listing current trade payables
and accrued expenses (including payroll expenses) of the eWatch Business
incurred in the ordinary course of business as of a date not more than one
Business Day immediately prior to the Closing (the "CLOSING PAYABLES").

         5.8 UPDATE OF OUTSTANDING RECEIVABLE. Immediately prior to the Closing,
the Sellers shall deliver an up-to-date accounts receivable record of eWatch
relating to the amount outstanding of the Buyer to eWatch as of a date not more
than one Business Day immediately prior to the Closing.

         5.9 BEST EFFORTS. The Sellers will use their best efforts to effectuate
the transactions hereby contemplated and to fulfill the conditions to Buyer's
obligations under Article VII of this Agreement.

                                   ARTICLE VI

                         PRE-CLOSING COVENANTS OF BUYER

         6.1 NO BREACH OF REPRESENTATIONS AND WARRANTIES. The Buyer will not
take any action which would cause or constitute a material breach, or would, if
it had been taken prior to the date hereof, have caused or constituted a
material breach, of any of the representations and warranties set forth in
Article IV hereof. The Buyer will, in the event of, or promptly after the
occurrence of, or promptly after obtaining knowledge of the occurrence or the
impending or threatened occurrence of, any fact or event which would cause or
constitute a material breach of any of the representations and warranties set
forth in Article IV hereof as of the Closing Date, give reasonably detailed
notice thereof to the Sellers; and the Buyer will use its best efforts to
prevent, or promptly to remedy, such breach.

                                       21
<PAGE>   28
         6.2 BEST EFFORTS. The Buyer will use its best efforts to effectuate the
transactions hereby contemplated and to fulfill the conditions to the Sellers'
obligations under Article VIII of this Agreement.

                                  ARTICLE VII

                        CONDITIONS TO BUYER'S OBLIGATIONS

         All obligations of the Buyer under this Agreement are subject to
fulfillment at the Closing of each of the following conditions, any or all of
which may be waived in whole or in part, at or prior to the Closing Date, by the
Buyer in its sole discretion:

         7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Sellers contained in Article III hereof shall be true in all material
respects (i) as of the date of this Agreement, and (ii) at and as of the Closing
Date as though such representations and warranties were made at and as of such
time.

         7.2 COVENANTS. The Sellers shall have performed and complied in all
material respects with all covenants, agreements and conditions on their part
required by this Agreement to be performed or complied with prior to or at the
Closing Date.

         7.3 OFFICER'S CERTIFICATE. The Buyer shall have received a certificate
of an officer of the Sellers, dated the Closing Date, certifying to the
fulfillment of the conditions specified in Sections 7.1 and 7.2 hereof.

         7.4 OPINION OF COUNSEL. The Buyer shall have received an opinion of
counsel for the Sellers, dated the Closing Date, in the form annexed hereto as
Exhibit B.

         7.5 GOOD STANDING CERTIFICATE. The Buyer shall have received a Good
Standing Certificate for each Seller dated within ten (10) days of the Closing
Date, issued by the Secretary of State of the state of incorporation of such
Seller.

         7.6 INSTITUTION OF PROCEEDINGS; INJUNCTION. There shall not have been
instituted by any Person (including any Governmental Authority) any Proceeding
to restrain or invalidate the transactions contemplated by this Agreement, and
there shall not be in effect any injunction or restraining order issued by a
court of competent jurisdiction in a Proceeding against the consummation of the
transactions contemplated by this Agreement.

         7.7 CONSENTS. The Sellers shall have delivered to the Buyer all
consents of third Persons and governmental approvals set forth on Schedule 3.3.

         7.8 BILL OF SALE AND ASSIGNMENT. The Buyer shall have received from the
Sellers a Bill of Sale transferring title to the Assets, in form and substance
satisfactory to the Buyer.

         7.9 ASSIGNMENT OF COPYRIGHTS, PATENTS, MARKS AND DOMAIN NAMES. The
Buyer shall have received from the Sellers the following:

                                       22
<PAGE>   29
         (a) An assignment of trademark, in a form suitable for recordation in
the United States Patent and Trademark Office, for each registered trademark and
service mark included in the Assets, in form and substance satisfactory to the
Buyer.

         (b) An executed Registrant Name Change Agreement - Transfers, in a form
suitable for recordation with Network Solutions, Inc. for each domain name
included in the Assets, in form and substance satisfactory to the Buyer.

         7.10 SERVICES AGREEMENT. The Buyer shall have received the Services
Agreement, duly executed by Wavo.

         7.11 ASSIGNMENT OF EMPLOYMENT AGREEMENTS. The Sellers shall have
delivered an assignment and assumption agreement covering (a) the Employment
Agreement dated as of November 10, 1998 among the Sellers and James M. Alexander
and (b) the Employment Agreement dated as of November 10, 1998 among the Sellers
and Charles T. Lukaszewski.

         7.12 PRO RATED RECEIVABLE PAYMENT. The Sellers shall have paid to the
Buyer an amount equal to the Pro Rated Receivables as of the Closing Date and
shall have provided to the Buyer documentation evidencing such amount paid to
the Buyer. "PRO RATED RECEIVABLES" shall mean, with respect to all Contracts
entered into by the Sellers in connection with the eWatch Business on and after
November 24, 1999, the aggregate of the pro rata amount prepaid under each such
Contract by the other party thereto for services that are required to be
rendered pursuant to such Contract after the Closing Date.

         7.13 eWATCH SOFTWARE DOCUMENTATION. The Sellers shall have delivered to
the Buyer machine-readable master-reproducible copies, reasonably complete
technical documentation and/or user manuals for the most current releases or
versions of eWatch Software used in connection with providing services to
Subscribers and for all earlier releases or versions thereof currently being
supported by the Sellers.

         7.14 DOCUMENTATION. All documentation and instruments necessary to give
effect to the transaction contemplated hereby shall be satisfactory in form and
substance to the Buyer.

         7.15 SELLERS' OBLIGATIONS. The Sellers shall have satisfied all
outstanding financial obligations or commitments due and required to be
performed at or prior to the Closing to employees of the Sellers that perform
services for the eWatch Business.

         7.16 DUE DILIGENCE. The Buyer shall have completed its due diligence
investigation of the business, properties, licenses, Contracts and financial
condition of the eWatch Business, and shall be satisfied, as determined by the
Buyer in its sole discretion, with the results of such investigation.

         7.17 OTHER DELIVERIES. The Sellers shall deliver or cause to be
delivered such other documents and instruments as may reasonably be requested by
the Buyer or its counsel to consummate the transactions contemplated hereby.

                                       23
<PAGE>   30
                                  ARTICLE VIII

                       CONDITIONS TO SELLERS' OBLIGATIONS

         All obligations of the Sellers under this Agreement are subject to the
fulfillment, at the Closing Date, of each of the following conditions, any or
all of which may be waived in whole or in part, at or prior to the Closing Date,
by the Sellers in their sole discretion:

         8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Buyer contained in Article IV hereof shall be true in all material
respects (i) as of the date of this Agreement, and (ii) at and as of the Closing
Date as though such representations and warranties were made at and as of such
time.

         8.2 COVENANTS. The Buyer shall have performed and complied in all
material respects with all agreements and conditions on its part required by
this Agreement to be performed or complied with prior to or at the Closing Date.

         8.3 OFFICER'S CERTIFICATE. The Sellers shall have received a
certificate of an officer of the Buyer, dated the Closing Date, certifying to
the fulfillment of the conditions specified in Sections 8.1 and 8.2 hereof.

         8.4 PURCHASE PRICE. The Purchase Price shall have been paid as set
forth in Section 2.5.

         8.5 OPINION OF COUNSEL. The Sellers shall have received an opinion of
counsel for the Buyer, dated the Closing Date, in the form annexed hereto as
Exhibit C.

         8.6 INSTITUTION OF PROCEEDINGS; INJUNCTION. There shall not have been
instituted by any Person (including any Governmental Authority) any Proceeding
to restrain or invalidate the transactions contemplated by this Agreement or the
Services Agreement, and there shall not be in effect any injunction or
restraining order issued by a court of competent jurisdiction in a Proceeding
against the consummation of the transactions contemplated by this Agreement or
the Services Agreement.

         8.7 SERVICES AGREEMENT. The Sellers shall have received the Services
Agreement, duly executed by the Buyer.

         8.8 OUTSTANDING RECEIVABLE.The Sellers shall have received at the
Closing an amount equal to the accounts receivable on the books of eWatch due
and payable by the Buyer to eWatch as set forth in the updated record described
in Section 5.8.

         8.9 OTHER DELIVERIES. The Buyer shall deliver or cause to be delivered
such other documents and instruments as may reasonably be requested by the
Sellers or its counsel to consummate the transactions contemplated hereby.

                                       24
<PAGE>   31
                                   ARTICLE IX

                             POST-CLOSING COVENANTS

         9.1 FURTHER ASSURANCES. From and after the Closing Date, each party to
this Agreement shall, at any time and from time to time, make, execute and
deliver, or cause to be made, executed and delivered, such assignments, deeds,
bills of sale, drafts, checks, returns, filings and other instruments,
agreements, consents and assurances, and take or cause to be taken all such
actions as counsel for the other party may reasonably request to effectuate the
transactions contemplated by this Agreement. The Sellers shall cause their
employees to cooperate reasonably with the Buyer as needed from and after the
Closing Date to facilitate the transfer of the Assets and eWatch Business and
shall make such employees reasonably available to answer questions relating to
the Subscriber Agreements, Technology Licenses, Advertising Agreements, Reseller
Agreements and other Contracts, Intellectual Property Rights and other Assets
being transferred.

         9.2 PUBLIC ANNOUNCEMENTS. Except as provided in the next sentence or as
required by law, the parties hereto shall not (and each party shall cause its
directors, officers, employees and agents not to) issue or cause the publication
of any press release or other public announcement with respect to the
transactions contemplated by this Agreement prior to the Closing without the
prior written consent of the other party hereto. On the Closing Date, the
parties hereto shall prepare and issue a joint press release or make a joint
public announcement. If any party hereto is required to make any public
disclosure or filing with respect to the transactions contemplated by this
Agreement by applicable law or pursuant to the rules or regulations of, any
securities exchange on which the securities of such party or any of its
Affiliates are listed or traded, such party shall use reasonable efforts to give
the other party prior notice of such disclosure and, to the extent confidential
treatment of such information is available, to use reasonable efforts to obtain
such treatment.

         9.3 NONCOMPETITION; NONSOLICITATION. Each Seller covenants and agrees
that for a period of two years after the Closing Date (the "NON-COMPETE
PERIOD"), it shall not, and shall cause all of its Affiliates or other entities
of which such Seller otherwise exercises management control not to:

         (a) Directly or indirectly, Compete (as defined herein) with the Buyer
or any of its Affiliates. "COMPETE" or "COMPETING" means (i) managing,
supervising, or otherwise participating in a management or sales capacity; or
(ii) otherwise managing, operating, controlling, participating in the ownership,
management, or control of, or being connected with or having any interest in, as
a stockholder, agent, partner, member, lender, consultant, advisor or otherwise,
any business or Person that provides goods, products or services competitive
with those provided by the eWatch Business and contemplated by the Sellers to be
part of the eWatch Business, except that this covenant not to compete does not
apply to any relationship between Wavo and a third party unrelated to the
business of providing goods, products or services competitive with those
provided by the eWatch Business; or (iii) entering into or attempting to enter
into any business substantially competitive to the eWatch Business, either alone
or with any other Person. For the purpose of this Section 9.3(a), the words
"DIRECTLY OR INDIRECTLY," as they modify the word "COMPETE" or "COMPETING" mean
(i) participating as an owner, partner,

                                       25
<PAGE>   32
limited partner, joint venturer, member, creditor, or shareholder (except as
expressly permitted herein) in any Competing Person; (ii) acting as an agent,
representative or consultant of any Competing Person; or (iii) communicating to
any Competing Person the names or addresses or any other information concerning
any past, present or identified prospective client or customer or any other
confidential information of the Buyer or the eWatch Business.

(b) Directly or indirectly, go into business with any Buyer employee or solicit,
induce or recruit any Buyer employee to leave the employ of the Buyer. "BUYER
EMPLOYEE" means (i) any employee of the Buyer or any of its Affiliates during
the Non-Compete Period; or (ii) any former employee of the Buyer or any of its
Affiliates whose employment with the Buyer or any of its Affiliates ceased less
than one (1) year before the date of such co-venturing, solicitation, inducement
or recruitment.

(c) Call on, solicit, take away, accept as a client, customer, or Prospective
Customer, or attempt to call on, solicit, take away, or accept as a client,
customer, or Prospective Customer, any Person that (i) is a client, customer or
Prospective Customer of the Buyer or any of its affiliates or (ii) was a client,
customer or Prospective Customer of the eWatch Business at any time within the
one year period immediately preceding the date hereof, except that this
provision does not prevent Wavo from working with any existing or future
customers for the purpose of providing services unrelated to the eWatch
Business. For purposes of this subsection (c), "PROSPECTIVE CUSTOMER" means any
Person that either Seller has knowledge that the Buyer or any of its affiliates
or the representatives of the eWatch Business prior to the date hereof have
contacted, or have developed a strategy or plan to contact, for the purpose of
acquiring such person or entity as a client or customer.

(d) The parties acknowledge that the time, scope, geographic area and other
provisions of this Section 9.3 have been specifically negotiated by
sophisticated commercial parties and agree that all such provisions are
reasonable under the circumstances of the transactions contemplated by this
Agreement. If any portion of this Section 9.3 shall be determined to be invalid
or unenforceable as written, each such portion shall be enforced to the extent
reasonable under the circumstances and such determination shall not affect the
validity or enforceability of the balance hereof, and such balance shall remain
in full force and effect. It is understood that the Sellers are entering into
this non-competition and non-solicitation agreement in order to induce the Buyer
to enter into this Agreement. The Sellers agree that any breach by the Sellers
of the covenants in this Section 9.3 shall cause irreparable harm that cannot be
reasonably or adequately compensated for in damages in an action at law, and
that, in addition to any other remedies the Buyer may have, the Buyer shall be
entitled to injunctive relief to enforce the provisions of this Section 9.3.

9.4 ACCESS TO BOOKS AND RECORDS. (a) The Sellers covenant and agree that from
and after the Closing Date the directors, officers, employees and
representatives of the Buyer will be permitted access, on reasonable prior
notice, during usual business hours, and as often as may be reasonably
requested, to, and will be permitted to make copies of and extracts from the
Sellers' books and records to the extent such books and records are not included
in the Assets but relate to the eWatch Business.

                                       26
<PAGE>   33
         (b) The Buyer agrees that during the Earn Out period and three months
thereafter the directors, officers, employees and representatives of the Sellers
will be permitted access, on reasonable prior notice, during usual business
hours to review the Buyer's books and records solely for purposes of verifying
the calculation of the Earn Out.

9.5 CONFIDENTIALITY. Each party will hold, and will use its best efforts to
cause its Affiliates, officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all proprietary or confidential documents and information concerning the other
party and in the case of the Buyer, the eWatch Business (including any such
documents and information provided by the Buyer to the Sellers after the Closing
Date), and will not use and will use their best efforts to cause their officers,
directors, employees, consultants, advisors and agents not to use, any such
proprietary or confidential documents or information for any purpose whatsoever,
except to the extent that such information can be shown to have been in the
public domain through no fault of the disclosing party. Notwithstanding the
foregoing, any information obtained by either party pursuant to the terms of
this Agreement shall be deemed to be confidential information of such party for
purposes of the obligations of the parties under this Section 9.5.

9.6 VESTING OF OPTIONS. Wavo covenants and agrees that it will permit the
exercise of options to purchase Wavo common stock held by each employee of the
Sellers as of the Closing Date that becomes an employee of the Buyer within five
(5) Business Days following the Closing Date (except James M. Alexander and
Charles T. Lukaszewski) in accordance with the respective option agreements and
incentive plan relating thereto so long as such employees continue to be
employed by the Buyer; provided that Mr. Lukaszewski's option dated November 20,
1999 to purchase a total of 10,436 shares of Wavo's common stock shall remain
exercisable in accordance with its terms notwithstanding any termination of his
employment by the Sellers or the Buyer. In the event the employment of such an
employee is terminated, options to purchase Wavo common stock held by such
employee must be exercised within thirty (30) days of such termination;
otherwise such options to purchase Wavo common stock shall expire. The Buyer
shall provide the Sellers a list in writing on or prior to the Closing Date of
all employees of the Sellers to which the Buyer intends to offer employment. The
parties agree that the Buyer is not obligated to retain each employee of the
Sellers as of the date hereof that becomes an employee of the Buyer following
the Closing Date for a specific period of time to enable such employees to
exercise such options to purchase Wavo's common stock. The parties agree that
the Buyer is not prevented from operating its business in the ordinary course
including the termination of its employees with or without cause, except as may
be limited by employment agreements with Messrs. Alexander and Lukaszewski. The
parties agree that the Buyer shall inform the Sellers of each such termination
by notice to the Sellers within five (5) Business Days after such former eWatch
employee ceases to be employed by the Buyer.

                                   ARTICLE X

                                  TERMINATION

10.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing Date:

                                       27
<PAGE>   34
(a) By mutual consent of the Buyer and the Sellers;

(b) By the Buyer, if there has been a material violation or breach by either
Seller of any agreement, representation, warranty, or condition contained in
this Agreement not cured to the reasonable satisfaction of the Buyer prior to
the Closing Date;

(c) By the Sellers, if there has been a material violation or breach by the
Buyer of any agreement, representation, warranty, or condition contained in this
Agreement not cured to the reasonable satisfaction of the Sellers prior to the
Closing Date; or

(d) By the Sellers or the Buyer, if the Closing has not been consummated on or
prior to January 31, 2000, other than by reason of a material violation or
breach of any agreement, representation, warranty, or condition contained in
this Agreement by the party electing to terminate.

10.2 NO WAIVER. Neither the Closing nor any termination of this Agreement
pursuant to Section 10.1 shall be deemed to constitute a release or waiver by
either party of any claim against the other party based on any breach by such
party of its agreements, representations and warranties contained herein.

                                   ARTICLE XI

                                 INDEMNIFICATION

11.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as otherwise
specifically set forth herein, the representations, warranties and covenants of
each party pursuant to this Agreement shall survive the Closing and shall expire
eighteen (18) months after the Closing Date; provided, however, that if, at any
time prior to such time, any party seeking indemnification under this Section 11
(an "INDEMNIFIED PARTY") (acting in good faith) delivers to the party from whom
such indemnification is sought (an "INDEMNIFYING PARTY") a written notice
alleging the existence of a breach of any of the representations and warranties
made by the Indemnifying Party or a breach of any covenant contained herein (and
setting forth in reasonable detail the basis for such Indemnified Party's belief
that such a breach may exist) and asserting a claim for recovery under Section
11.2 or Section 11.3, whichever is applicable, based on such alleged breach,
then the claim asserted in such notice shall survive the expiration date of the
applicable representation, warranty or covenant until such time as such claim is
fully and finally resolved.

11.2 BY SELLERS. The Sellers agree to indemnify and hold harmless the Buyer, its
current and future Affiliates, directors, officers, employees, consultants and
agents and their respective successors and assigns (collectively, the "BUYER
INDEMNITEES") from and against, and to reimburse the Buyer Indemnitees on demand
with respect to, any and all loss, damage, liability, claims, cost and expense,
including reasonable attorneys' and accountants' fees (collectively, "CLAIMS"),
incurred by the Buyer Indemnitees by reason of or arising out of or in
connection with (i) any Excluded Asset, (ii) the breach by Seller or Sellers of
any representation or warranty contained in Article III hereof or in any
certificate or other document delivered to the Buyer pursuant to the provisions
of this Agreement, (iii) the failure of either Seller to perform

                                       28
<PAGE>   35
any act required under this Agreement or the Services Agreement, (iv) a Claim by
any third party with respect to any liability, obligation, Contract, other
commitment or state of facts which constitutes a breach of any representation or
warranty contained in Article III hereof or in any certificate or other document
delivered by or on behalf of the Sellers to the Buyer pursuant to the provisions
of this Agreement, (v) any liability or obligation of the Sellers or any of
their Affiliates that is not an Assumed Liability, including, without
limitation, all those liabilities and obligations set forth in Sections 2.3(a)
through (g) hereof, (vi) any Claim by any employee of the Sellers (including
James M. Alexander and Charles T. Lukaszewski) that relates to the eWatch
Business and relates to actions occurring prior to the Closing Date including,
without limitation, in the event the Buyer is a party to a Claim relating to or
arising out of the grant and/or exercise of options to purchase Wavo's common
stock as described in Section 9.6 (whether or not such actions arising out of
such grant and/or exercise of options occurred prior to or after the Closing
Date), (vii) any Claim made in connection with Wavo's acquisition of the eWatch
Business and the stock of eWatch on or about November 10, 1998, including
without limitation, any Claim made under the documents pursuant to which such
acquisition was consummated, any Claim made under or relating to any options or
other securities issued or granted in connection with such acquisition and any
Claim made pursuant to that certain Agreement and Plan of Reorganization
referred to in Section 17 of the Employment Agreements referred to in Section
7.11 hereof, or (viii) any breach by the Sellers of the agreements set forth on
Schedule 3.4, or the agreements set forth on Schedule 3.3 the consents to which
shall not be obtained by the Sellers on or prior to the Closing Date, caused by
either Seller's execution of and delivery and performance under this Agreement
or the Services Agreement. The Buyer agrees to give prompt notice to the Sellers
of any Claim for which the Buyer seeks indemnification hereunder, which notice
shall include a reasonably detailed description of such Claim. The Sellers shall
have the right, but not the obligation, at its or their sole expense to control
and assume the defense of a Claim by any third party with counsel reasonably
satisfactory to the Buyer and to compromise or settle any such matter, provided
that such compromise or settlement entirely and unconditionally releases the
Buyer from all liability with respect thereto and provided that the Sellers
shall not settle or compromise non-monetary Claims without the prior written
consent of the Buyer. If the Sellers assume the defense of the Buyer, the Buyer
shall have the right to participate in such defense but only at its expense and
the Sellers shall not be obligated to pay the Buyer's cost and expense,
including the cost and expense of attorneys' fees incurred after such
assumption. If the Sellers do not assume the defense of such matter within a
reasonable time after notice thereof, or in the event of a conflict of interest
between the parties, the Buyer may defend, settle or compromise such matter at
the Sellers' cost and expense (if indemnification is finally determined to be
due pursuant to this Section 11.2), including the cost and expense of reasonable
attorneys' fees in connection with such contest, defense, settlement or
compromise. Any amounts owed to the Buyer pursuant to this Section 11.2 shall be
reimbursed to the Buyer by the Sellers within five (5) Business Days after
notice by the Buyer, furnished pursuant to Section 12.2, of such amounts, and if
not so reimbursed, such amounts may, at the Buyer's election, be offset as
provided in Section 2.10, including against any amounts owing by Buyer to Seller
in connection with the payment of the Earn Out.

11.3 BY BUYER. The Buyer agrees to indemnify and hold harmless the Sellers,
their respective current and future Affiliates, directors, officers, employees,
consultants and agents and their respective successors and assigns
(collectively, the "SELLER INDEMNITEES") from and against, and to reimburse the
Seller Indemnitees with respect to, any and all Claims against

                                       29
<PAGE>   36
the Seller Indemnitees by reason of or arising out of or in connection with (i)
the breach by Buyer of any representation or warranty contained in Article IV
hereof, or any certificate or other document delivered by the Buyer to the
Sellers under this Agreement, (ii) the failure of the Buyer to perform any act
required under this Agreement, (iii) a Claim by any third party with respect to
any liability, obligation, Contract, other commitment or state of facts which
constitutes a breach of any representation or warranty contained in said Article
IV or in any certificate or other document delivered by or on behalf of the
Buyer to the Sellers pursuant to the provisions of this Agreement or (iv) any
Assumed Liability. The Sellers agree to give prompt notice to the Buyer of any
Claim for which the Sellers seek indemnification hereunder, which notice shall
include a reasonably detailed description of such Claim. The Buyer shall have
the right, but not the obligation, at its sole expense, to control and assume
the defense of a Claim by any third party with counsel reasonably satisfactory
to the Sellers and to compromise or settle any such matter, provided that such
compromise or settlement entirely and unconditionally releases the Sellers from
all liability with respect thereto and provided that the Buyer shall not settle
or compromise non-monetary Claims without the prior written consent of the
Sellers. If the Buyer assumes the defense of the Sellers, the Sellers shall have
the right to participate in such defense but only at their expense and the Buyer
shall not be obligated to pay the Sellers' costs and expenses, including the
costs and expenses of attorneys' fees incurred after such assumption. If the
Buyer does not assume the defense of such matter within a reasonable time after
notice thereof, or in the event of a conflict of interest between the parties,
the Sellers may defend, settle or compromise such matter at the Buyer's cost and
expense (if indemnification is finally determined to be due pursuant to this
Section 11.3), including the cost and expense of reasonable attorneys' fees in
connection with such contest, defense, settlement or compromise. Any amounts
owed to the Sellers pursuant to this Section 11.3 shall be reimbursed to the
Sellers within five (5) Business Days after notice by the Sellers, furnished
pursuant to Section 12.2, of such amounts.

11.4 LIMITATION ON INDEMNIFICATION. The parties agree that in no event shall
either the Sellers' or the Buyer's liability in the aggregate pursuant to
Section 11.2 or Section 11.3 exceed the Purchase Price, assumed trade payables,
assumed accrued expenses (including payroll expenses), plus the Earn Out.

11.5 EXCLUSIVITY OF INDEMNIFICATION REMEDIES. The Buyer and the Sellers shall
have no claim or cause of action, whether in contract, tort, under statute or
otherwise, for monetary damages arising out of, or relating to, this Agreement
apart from the right to indemnification pursuant to this Section 11 other than
claims or causes of action based on fraud.

                                  ARTICLE XII

                                 MISCELLANEOUS

12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding any right of
any party hereto to investigate the affairs of any of the parties hereto and
notwithstanding any knowledge of facts determined or determinable by any party
hereto pursuant to such investigation or right of investigation or otherwise
acquired or learned by any of the parties hereto, each of the parties shall have
the right to rely fully upon the representations, warranties, covenants and
agreements of the other party hereto contained in this Agreement and to pursue
all

                                       30
<PAGE>   37
rights and remedies in connection therewith. Except as otherwise
specifically set forth herein, all representations, warranties, covenants and
agreements made herein shall survive the Closing and shall expire eighteen (18)
months after the Closing Date.

12.2 NOTICES. All communications required or permitted to be given hereunder
shall be in writing and shall be deemed to have been duly given if (i) delivered
personally with receipt acknowledged, (ii) sent by registered or certified mail,
return receipt requested, (iii) sent by telecopy with confirmation or (iv) sent
by recognized commercial overnight courier for next Business Day delivery,
addressed to the parties at the following addresses and facsimile numbers or to
such other addresses or facsimile numbers as any party shall hereafter specify
by communication to the other parties in the manner provided herein:

           If to the Sellers:  Wavo Corporation
                               3131 E. Camelback Road, Suite 320
                               Phoenix, Arizona 85016
                               Attn: Chief Executive Officer and General Counsel
                               Tel:   602-952-5500
                               Fax:  602-952-5517

           With a copy to:     Snell & Wilmer LLP
                               One Arizona Center
                               Phoenix, Arizona 85004
                               Attn:  Steven D. Pidgeon
                               Tel:     602-382-6252
                               Fax:     602-382-6070

             If to Buyer:      PRNnet
                               c/o PR Newswire Association
                               810 Seventh Avenue, 35th Floor
                               New York, New York  10019
                               Attn: Mr. Christopher Pederson
                                        Senior Vice President, New Ventures
                               Tel:   212-596-1530
                               Fax:   212-957- 2766

             With a copy to:   PR Newswire Association
                               810 Seventh Avenue, 35th Floor
                               New York, New York  10019
                               Attn: Mr. Ian Capps
                                        Chief Executive Officer
                               Tel:   212-596-1510
                               Fax:   212-596-1516

             and:              Rosenman & Colin LLP
                               575 Madison Avenue
                               New York, New York 10022
                               Attn:  Howard Schneider, Esq.

                                       31
<PAGE>   38
                               Tel:   212-940-8787
                               Fax:   212-940-7079

Notice of change of address shall be deemed given when actually received or upon
refusal to accept delivery thereof; all other communications shall be deemed to
have been given, received and dated on the earlier of: (i) when actually
received or upon refusal to accept delivery thereof, (ii) on the date when
delivered personally or via telecopy, (iii) one (1) Business Day after being
sent by overnight courier and (iv) four (4) Business Days after mailing, as
aforesaid.

12.3 SEVERABILITY. In case any one or more of the provisions contained in this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby and shall be valid and enforceable to the
fullest extent permitted by law.

12.4 INTERPRETATION, ARBITRATION. (a) This Agreement shall be interpreted and
construed in accordance with the laws of the State of New York without giving
effect to the principles of conflicts of laws thereof. Subject to Section
12.4(b), any controversy or claim arising out of or relating to this Agreement
or any modification or extension thereof shall be settled by arbitration in
accordance with the following provisions. The arbitration shall be through and
under the commercial arbitration rules of the American Arbitration Association
("AAA") and shall be conducted in Chicago, Illinois before a panel of three
arbitrators (the "ARBITRATORS"). Either party may give written notice to the
other of its desire to arbitrate, specifying the matter to be arbitrated. If,
within fifteen (15) days of the receipt of such written notice, the Sellers on
the one hand, and the Buyer on the other, cannot agree on two arbitrators, then
either such party on behalf of both and on notice to the other, may request
appointment of two arbitrators (or if such parties have agreed on one
arbitrator, request the appointment of the second arbitrator) by the AAA (or any
successor organization thereto) in accordance with its rules then prevailing or,
if the AAA shall fail to appoint such arbitrators within a further thirty (30)
days, either such party, on notice to the other, may apply for such appointment
to a court of competent jurisdiction in Chicago, Illinois. The two arbitrators
shall agree upon a third arbitrator, or if they are unable to so agree within
ten (10) days, the third arbitrator shall be chosen in the manner set forth
above. The decision and direction of the Arbitrators with respect to the
controversy shall be specified and shall be delivered to the parties in writing
to the addresses set forth in Section 12.2 and such decision shall be final and
binding upon the parties hereto. The Arbitrators will be bound by the
substantive law of the State of New York but will not be bound by the rules of
procedure customary in courts of law. The parties consent to the jurisdiction of
the State and Federal District Courts in and for Chicago, Illinois, for all
purposes in connection with arbitration, including the entry of judgment on any
award; and consent that any process, notice of motion or other application to
either of said courts, and any papers in connection with arbitration, may be
served by registered or certified mail, return receipt requested, by personal
service, or in such other manner as may be permissible under the rules of the
applicable court or arbitration tribunal, provided a reasonable time for
appearance is allowed. The Arbitrators shall have no power to alter or modify
any express provision of this Agreement or to render an award which has the
effect of altering or modifying any express provision hereof. The costs of any
arbitration shall be borne equally by the parties thereto except as the
Arbitrators may otherwise determine. The execution of this Agreement shall
constitute an execution of an arbitration agreement as well.

                                       32
<PAGE>   39
         (b) With respect to controversies arising from Section 9.3, the parties
hereby irrevocably submit to the non-exclusive jurisdiction of the courts of the
State of New York, sitting in New York County, and the courts of the United
States for the Southern District of New York. Each party irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such suit, action or proceeding brought
in any such court, any claim that any such suit, action or proceeding brought in
such a court has been brought in an inconvenient forum and the right to object,
with respect to any such suit, action or proceeding brought in any such court,
that such court does not have jurisdiction over such party. In any such suit,
action or proceeding, each party waives, to the fullest extent it may
effectively do so, personal service of any summons, complaint or other process
and agrees that the service thereof may be made by certified or registered mail,
addressed to such party at its address set forth in Section 12.2. EACH PARTY
IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL IN ANY SUCH SUIT, ACTION OR
PROCEEDING.

         12.5 ENTIRE AGREEMENT. The parties hereto agree that all understandings
and agreements heretofore made between them with respect to the subject matter
hereof are merged in this Agreement, which fully and completely expresses their
agreement with respect to the subject matter hereof. There are no promises,
agreements, conditions, understandings, warranties, or representations, oral or
written, express or implied, among the parties hereto, other than as set forth
in this Agreement. All prior agreements among the parties with respect to the
subject matter hereof are superseded by this Agreement, which integrates all
promises, agreements, conditions and understandings among the parties with
respect to the Assets.

         12.6 TERMINATION, REVOCATION, WAIVER, MODIFICATION OR AMENDMENT. No
termination, revocation, waiver, modification or amendment of this Agreement
shall be binding unless agreed to in writing and signed by an authorized officer
of each of the parties hereto.

         12.7 COUNTERPARTS; EFFECTIVE DATE. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original and all of
which shall constitute one agreement. The signature of any party to a
counterpart shall be deemed to be a signature to, and may be appended to, any
other counterpart. This Agreement is dated and shall be effective among the
parties as of the date first above written.

         12.8 ASSIGNABILITY. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other party hereto, provided
that the Buyer may assign its rights under this Agreement, in whole or in part,
to any Affiliate, so long as the Buyer remains jointly and severally liable with
such assignee for its obligations hereunder.

         12.9 BINDING EFFECT. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns.

         12.10 WAIVER. No consent or waiver, express or implied, by any party
hereto to or of any breach or default by any other party in the performance by
any other party of its obligations hereunder shall be deemed or construed to be
a consent to or waiver of any other breach or default in the performance by such
other party of the same or any other obligation of such party hereunder. Failure
on the part of a party to complain of any act or failure to act of any

                                       33
<PAGE>   40
other party or to declare such other party in default, irrespective of how long
such failure continues, shall not constitute a waiver by such party of its
rights hereunder.

         12.11 ADDITIONAL REMEDIES. The rights and remedies of any party hereto
under this Agreement shall not be mutually exclusive. The respective rights and
obligations hereunder shall be enforceable by specific performance, injunction
or other equitable remedy, but nothing herein contained is intended to, nor
shall it limit or affect, any other rights in equity or any rights at law or by
statute or otherwise of any party aggrieved as against the other for breach or
threatened breach of any provision hereof, it being the intention of this
Section 12.11 to make clear the agreement of the parties hereto that their
respective rights and obligations hereunder shall be enforceable in equity as
well as at law or otherwise.

         12.12 EXPENSES. Each of the parties hereto shall pay the fees and
expenses incurred by it in connection with the negotiation, preparation,
execution and performance of this Agreement, including, without limitation,
attorneys' fees and accountants' fees. The Sellers shall pay all income, capital
gains, franchise or other Taxes, together with any fees or other charges,
imposed on it in respect of the transfer of the Assets to the Buyer.

         12.13 NO RELIANCE BY THIRD PARTIES. The provisions of this Agreement
are not for the benefit of any creditor or other Person other than the parties
hereto, and no creditor or Person other than the parties hereto shall obtain any
rights under this Agreement or by reason of this Agreement.

         12.14 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

                            [SIGNATURE PAGE FOLLOWS]

                                       34
<PAGE>   41
         IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed on their behalf, as of the day
and year first hereinabove set forth.

                                 WAVO CORPORATION

                                 By:
                                    -------------------------------------------
                                      Name:  Kenneth D. Swenson
                                      Title: Executive Vice President and Chief
                                             Financial Officer

                                 eWATCH, INC.

                                 By:
                                    -------------------------------------------
                                      Name:  Kenneth D. Swenson
                                      Title: Treasurer

                                 PRNNET

                                 By:
                                    -------------------------------------------
                                      Name:  Ian Capps
                                      Title: Attorney - In - Fact

                [SIGNATURE PAGE TO THE ASSET PURCHASE AGREEMENT]

                                       35EXHIBIT 10.7
--------------------------------------------------------------------------------
SILICON VALLEY BANK

                           LOAN AND SECURITY AGREEMENT

BORROWERS:      MICROLOG CORPORATION
                MICROLOG CORPORATION OF MARYLAND

ADDRESS:        20270 GOLDENROD LANE
                GERMANTOWN, MD 20876

DATE:           MARCH 24, 1999

THIS LOAN AND  SECURITY  AGREEMENT  is entered  into on the above  date  between
SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION  ("Silicon"),  whose address is
3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named above
(jointly and severally, the "Borrower"), whose chief executive office is located
at the above address ("Borrower's Address"). The Schedule to this Agreement (the
"Schedule") shall for all purposes be deemed to be a part of this Agreement, and
the same is an integral part of this  Agreement.  (Definitions  of certain terms
used in this Agreement are set forth in Section 8 below.)

1.   LOANS.

   1.1 LOANS.  Silicon  will make loans to Borrower  (the  "Loans"),  in amounts
determined  by Silicon in its sole  discretion,  up to the amounts  (the "Credit
Limit")  shown on the  Schedule,  provided  no Default  or Event of Default  has
occurred and is continuing, and subject to deduction of any Reserves for accrued
interest and such other Reserves as Silicon deems proper from time to time.

   1.2  INTEREST.  All Loans  and all  other  monetary  Obligations  shall  bear
interest at the rate shown on the Schedule,  except where expressly set forth to
the contrary in this Agreement.  Interest shall be payable monthly,  on the last
day of  the  month.  Interest  may,  in  Silicon's  discretion,  be  charged  to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans.  Silicon  may, in its  discretion,  charge  interest to
Borrower's Deposit Accounts maintained with Silicon. Regardless of the amount of
Obligations  that may be  outstanding  from  time to time,  Borrower  shall  pay
Silicon minimum monthly interest during the term of this Agreement in the amount
set forth on the Schedule (the "Minimum Monthly Interest").

   1.3  OVERADVANCES.  If at any  time  or  for  any  reason  the  total  of all
outstanding  Loans  and all  other  Obligations  exceeds  the  Credit  Limit (an
"Overadvance"),  Borrower  shall  immediately  pay the  amount of the  excess to
Silicon,  without notice or demand.  Without limiting  Borrower's  obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding  amount of any Overadvance,  on demand, at a
rate equal to the  interest  rate which would  otherwise  be  applicable  to the
Overadvance, plus an additional 2% per annum.

   1.4 FEES. Borrower shall pay Silicon the fee(s) shown on the Schedule,  which
are in addition to all  interest  and other sums  payable to Silicon and are not
refundable.

   1.5 LETTERS OF CREDIT.  At the request of Borrower,  Silicon may, in its sole
discretion,  issue or  arrange  for the  issuance  of  letters of credit for the
account of Borrower, in each case in form and substance  satisfactory to Silicon
in its sole discretion  (collectively,  "Letters of Credit"). The aggregate face
amount of all  outstanding  Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be
reserved  against Loans which would otherwise be available  hereunder.  Borrower
shall pay all bank  charges  (including  charges of Silicon) for the issuance of
Letters of Credit,  together  with such  additional  fee as Silicon's  letter of
credit department shall charge in connection with the issuance of the Letters of
Credit.  Any payment by Silicon under or in  connection  with a Letter of Credit
shall  constitute a Loan hereunder on the date such payment is made. Each Letter
of Credit  shall  have an expiry  date no later  than  thirty  days prior to the
Maturity  Date.  Borrower  hereby

                                      -1-

<PAGE>

SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

agrees to  indemnify,  save,  and hold  Silicon  harmless  from any loss,  cost,
expense,  or  liability,  including  payments  made by  Silicon,  expenses,  and
reasonable  attorneys'  fees incurred by Silicon arising out of or in connection
with any Letters of Credit.  Borrower  agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Silicon and
opened for Borrower's  account or by Silicon's  interpretations of any Letter of
Credit issued by Silicon for Borrower's  account,  and Borrower  understands and
agrees that Silicon shall not be liable for any error,  negligence,  or mistake,
whether of omission or commission, in following Borrower's instructions or those
contained  in the  Letters  of  Credit  or  any  modifications,  amendments,  or
supplements  thereto.  Borrower  understands  that Letters of Credit may require
Silicon to indemnify the issuing bank for certain costs or  liabilities  arising
out of claims by Borrower  against such issuing bank.  Borrower hereby agrees to
indemnify and hold Silicon harmless with respect to any loss, cost,  expense, or
liability  incurred  by  Silicon  under  any  Letter  of  Credit  as a result of
Silicon's  indemnification of any such issuing bank. The provisions of this Loan
Agreement,  as it pertains to Letters of Credit, and any other present or future
documents or  agreements  between  Borrower  and Silicon  relating to Letters of
Credit are cumulative.

2.  SECURITY INTEREST.

   2.1 SECURITY  INTEREST.  To secure the payment and  performance of all of the
Obligations when due,  Borrower hereby grants to Silicon a security  interest in
all of  Borrower's  interest in the  following,  whether now owned or  hereafter
acquired, and wherever located (collectively,  the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles*, including, without limitation,
all of Borrower's  Deposit  Accounts,  and all money, and all property now or at
any time in the  future in  Silicon's  possession  (including  claims and credit
balances),  and all  proceeds  (including  proceeds of any  insurance  policies,
proceeds of proceeds and claims  against  third  parties),  all products and all
books  and  records  related  to any of the  foregoing  (all  of the  foregoing,
together  with all other  property in which  Silicon may now or in the future be
granted a lien or security interest, is referred to herein, collectively, as the
"Collateral").

   *(TO THE  EXTENT PERMITTED  BY ANY  CONTRACTS  OR LICENSES  WHICH  CONSTITUTE
GENERAL INTANGIBLES OR RECEIVABLES)

3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.

   In order to induce  Silicon to enter into this  Agreement  and to make Loans,
Borrower  represents and warrants to Silicon as follows,  and Borrower covenants
that the following  representations  will continue to be true, and that Borrower
will at all times comply with all of the following covenants:

   3.1 CORPORATE  EXISTENCE AND AUTHORITY.  Borrower,  if a corporation,  is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will continue
to be qualified  and licensed to do business in all  jurisdictions  in which any
failure  to do so  would  have  a  material  adverse  effect  on  Borrower.  The
execution, delivery and performance by Borrower of this Agreement, and all other
documents  contemplated hereby (i) have been duly and validly  authorized,  (ii)
are  enforceable  against  Borrower in  accordance  with their terms  (except as
enforcement   may  be  limited  by  equitable   principles  and  by  bankruptcy,
insolvency,  reorganization,  moratorium  or similar laws relating to creditors'
rights generally),  and (iii) do not violate Borrower's  articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument  which is binding  upon  Borrower  or its  property,  and (iv) do not
constitute  grounds for acceleration of any material  indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.

   3.2 NAME;  TRADE  NAMES AND  STYLES.  The name of  Borrower  set forth in the
heading to this  Agreement is its correct  name.  Listed on the Schedule are all
prior names of Borrower  and all of  Borrower's  present and prior trade  names.
Borrower  shall give Silicon 30 days' prior written  notice before  changing its
name or doing business under any other name. Borrower has complied,  and will in
the future  comply,  with all laws  relating to the conduct of business  under a
fictitious business name.

   3.3 PLACE OF BUSINESS;  LOCATION OF COLLATERAL.  The address set forth in the
heading to this Agreement is Borrower's  chief  executive  office.  In addition,
Borrower has places of business and  Collateral is located only at the locations
set forth on the  Schedule.  Borrower  will give  Silicon at least 30 days prior
written  notice before opening any  additional  place of business,  changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.

   3.4 TITLE TO COLLATERAL;  PERMITTED  LIENS.  Borrower is now, and will at all
times in the future be, the sole owner of all the  Collateral,  except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges,  security interests,  encumbrances
and adverse  claims,  except for  Permitted  Liens.  Silicon  now has,  and will
continue to have, a first-priority  perfected and enforceable  security interest
in all of the Collateral, subject only to the Permitted Liens, and Borrower will
at all times  defend  Silicon and the  Collateral  against all claims of others.
None of the  Collateral now is or will be affixed to any real property in such a
manner,  or with such intent,  as to become a fixture.  Borrower is not and

                                      -2-
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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

will not become a lessee  under any real  property  lease  pursuant to which the
lessor  may obtain  any  rights in any of the  Collateral  and no such lease now
prohibits,  restrains,  impairs or will prohibit,  restrain or impair Borrower's
right to remove any Collateral from the leased premises. Whenever any Collateral
is located  upon  premises in which any third party has an interest  (whether as
owner,  mortgagee,  beneficiary  under a deed  of  trust,  lien  or  otherwise),
Borrower  shall,  whenever  requested by Silicon,  use its best efforts to cause
such third  party to execute  and  deliver to  Silicon,  in form  acceptable  to
Silicon,  such waivers and  subordinations  as Silicon shall  specify,  so as to
ensure that  Silicon's  rights in the  Collateral  are, and will continue to be,
superior to the rights of any such third party. Borrower will keep in full force
and effect,  and will  comply with all the terms of, any lease of real  property
where any of the Collateral now or in the future may be located.

   3.5 MAINTENANCE OF COLLATERAL.  Borrower will maintain the Collateral in good
working  condition,  and Borrower will not use the  Collateral  for any unlawful
purpose.  Borrower will  immediately  advise  Silicon in writing of any material
loss or damage to the Collateral.

   3.6  BOOKS  AND  RECORDS.  Borrower  has  maintained  and  will  maintain  at
Borrower's  Address  complete and  accurate  books and  records,  comprising  an
accounting system in accordance with generally accepted accounting principles.

   3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now
or in the future  delivered  to  Silicon  have been,  and will be,  prepared  in
conformity  with  generally  accepted  accounting  principles and now and in the
future will  completely  and  accurately  reflect  the  financial  condition  of
Borrower, at the times and for the periods therein stated. Between the last date
covered by any such statement provided to Silicon and the date hereof, there has
been no  material  adverse  change in the  financial  condition  or  business of
Borrower. Borrower is now and will continue to be solvent.

   3.8 TAX RETURNS AND  PAYMENTS;  PENSION  CONTRIBUTIONS.  Borrower  has timely
filed,  and will timely file,  all tax returns and reports  required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all  foreign,  federal,  state  and  local  taxes,  assessments,   deposits  and
contributions  now or in the future owed by  Borrower.  Borrower  may,  however,
defer payment of any contested  taxes,  provided that Borrower (i) in good faith
contests  Borrower's  obligation  to pay the  taxes by  appropriate  proceedings
promptly and  diligently  instituted  and  conducted,  (ii) notifies  Silicon in
writing  of  the  commencement   of,  and  any  material   development  in,  the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested  taxes from  becoming a lien upon any of the  Collateral.  Borrower is
unaware of any claims or  adjustments  proposed for any of Borrower's  prior tax
years  which  could  result in  additional  taxes  becoming  due and  payable by
Borrower.  Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future  pension,  profit sharing and deferred  compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete  termination of, or permit the
occurrence  of any other event with respect to, any such plan which could result
in any liability of Borrower,  including  any  liability to the Pension  Benefit
Guaranty  Corporation  or its  successors  or  any  other  governmental  agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.

   3.9  COMPLIANCE  WITH LAW.  Borrower has  complied,  and will comply,  in all
material respects, with all provisions of all foreign,  federal, state and local
laws and regulations relating to Borrower,  including, but not limited to, those
relating to Borrower's  ownership of real or personal property,  the conduct and
licensing of Borrower's business, and all environmental matters.

   3.10  LITIGATION.  Except as  disclosed in the  Schedule,  there is no claim,
suit, litigation,  proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any  governmental  agency (or any basis  therefor  known to Borrower)  which may
result, either separately or in the aggregate, in any material adverse change in
the financial  condition or business of Borrower,  or in any material impairment
in the ability of Borrower to carry on its  business in  substantially  the same
manner as it is now being  conducted.  Borrower will promptly  inform Silicon in
writing of any claim,  proceeding,  litigation  or  investigation  in the future
threatened or instituted  by or against  Borrower  involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.

   3.11 USE OF  PROCEEDS.  All  proceeds  of all Loans  shall be used solely for
lawful  business  purposes.  Borrower is not  purchasing or carrying any "margin
stock" (as  defined in  Regulation  U of the Board of  Governors  of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any  "margin  stock" or to extend  credit to others for the  purpose of
purchasing or carrying any "margin stock."

4.  RECEIVABLES.

   4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants
to Silicon as follows: Each Receivable with respect to which Loans are requested
by Borrower shall, on the date each Loan is requested and made, (i) represent an
undisputed  bona fide existing  unconditional  obligation of the Account  Debtor
created by the sale,  delivery,  and  acceptance  of goods or the  rendition  of
services  in the  ordinary  course

                                      -3-

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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

of Borrower's business,  and (ii) meet the Minimum Eligibility  Requirements set
forth in Section 8 below.

4.2    REPRESENTATIONS  RELATING TO  DOCUMENTS  AND LEGAL  COMPLIANCE.  Borrower
       represents and warrants to Silicon as follows:  All  statements  made and
       all unpaid  balances  appearing in all  invoices,  instruments  and other
       documents  evidencing the  Receivables  are and shall be true and correct
       and  all  such  invoices,  instruments  and  other  documents  and all of
       Borrower's books and records are and shall be genuine and in all respects
       what they  purport to be, and all  signatories  and  endorsers * have the
       capacity to  contract.  All sales and other  transactions  underlying  or
       giving rise to each  Receivable  shall fully  comply with all  applicable
       laws  and  governmental   rules  and  regulations.   All  signatures  and
       endorsements * on all documents,  instruments, and agreements relating to
       all  Receivables  are and  shall  be  genuine,  and all  such  documents,
       instruments  and  agreements  are and  shall be  legally  enforceable  in
       accordance with their terms.

   * , TO THE BEST OF BORROWER'S KNOWLEDGE,

   4.3 SCHEDULES AND DOCUMENTS  RELATING TO RECEIVABLES.  Borrower shall deliver
to Silicon transaction  reports and loan requests,  schedules and assignments of
all Receivables,  and schedules of collections, all on Silicon's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not  affect or limit  Silicon's  security  interest  and other  rights in all of
Borrower's Receivables, nor shall Silicon's failure to advance or lend against a
specific Receivable affect or limit Silicon's security interest and other rights
therein.  Loan  requests  received  after 12:00 Noon will not be  considered  by
Silicon  until the next  Business  Day.  Together  with each such  schedule  and
assignment,  or later if requested by Silicon,  Borrower  shall furnish  Silicon
with copies (or, at Silicon's  request,  originals)  of all  contracts,  orders,
invoices,  and other similar documents,  and all original shipping instructions,
delivery  receipts,  bills of lading,  and other  evidence of delivery,  for any
goods  the sale or  disposition  of which  gave  rise to such  Receivables,  and
Borrower  warrants the genuineness of all of the foregoing.  Borrower shall also
furnish to Silicon an aged accounts receivable trial balance in such form and at
such intervals as Silicon shall request. In addition,  Borrower shall deliver to
Silicon the originals of all instruments,  chattel paper,  security  agreements,
guarantees  and  other  documents  and  property   evidencing  or  securing  any
Receivables,  immediately upon receipt thereof and in the same form as received,
with all necessary indorsements,  all of which shall be with recourse.  Borrower
shall also provide Silicon with copies of all credit memos within two days after
the date issued.

   4.4 COLLECTION OF  RECEIVABLES.  Borrower shall have the right to collect all
Receivables,  unless and until a Default or an Event of  Default  has  occurred.
Borrower  shall hold all payments on, and proceeds of,  Receivables in trust for
Silicon,  and Borrower shall immediately  deliver all such payments and proceeds
to Silicon in their original form,  duly endorsed in blank, to be applied to the
Obligations  in such order as  Silicon  shall  determine.  Silicon  may,  in its
discretion,  require  that all proceeds of  Collateral  be deposited by Borrower
into a lockbox account,  or such other "blocked account" as Silicon may specify,
pursuant to a blocked  account  agreement  in such form as Silicon may  specify.
Silicon or its  designee  may,  at any time,  notify  Account  Debtors  that the
Receivables have been assigned to Silicon.

   4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of any
Collateral  shall be delivered,  in kind, by Borrower to Silicon in the original
form in which  received by Borrower  not later than the  following  Business Day
after  receipt by Borrower,  to be applied to the  Obligations  in such order as
Silicon shall  determine;  provided  that, if no Default or Event of Default has
occurred,  Borrower  shall not be  obligated to remit to Silicon the proceeds of
the sale of worn out or obsolete equipment disposed of by Borrower in good faith
in an arm's length  transaction  for an aggregate  purchase  price of $25,000 or
less (for all such  transactions  in any fiscal year).  Borrower  agrees that it
will not commingle  proceeds of Collateral with any of Borrower's other funds or
property,  but will hold such proceeds  separate and apart from such other funds
and property and in an express trust for Silicon. Nothing in this Section limits
the  restrictions  on  disposition  of  Collateral  set forth  elsewhere in this
Agreement.

   4.6  DISPUTES.  Borrower  shall  notify  Silicon  promptly of all disputes or
claims  relating  to  Receivables.  Borrower  shall not forgive  (completely  or
partially),  compromise or settle any  Receivable for less than payment in full,
or agree to do any of the  foregoing,  except that Borrower may do so,  provided
that: (i) Borrower does so in good faith, in a commercially  reasonable  manner,
in the ordinary course of business, and in arm's length transactions,  which are
reported to Silicon on the regular reports provided to Silicon;  (ii) no Default
or Event of Default  has  occurred  and is  continuing;  and (iii)  taking  into
account all such discounts  settlements and forgiveness,  the total  outstanding
Loans  will not  exceed the Credit  Limit.  Silicon  may,  at any time after the
occurrence of an Event of Default,  settle or adjust disputes or claims directly
with  Account  Debtors  for  amounts  and upon  terms  which  Silicon  considers
advisable in its  reasonable  credit  judgment and, in all cases,  Silicon shall
credit  Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.

   4.7 RETURNS.  Provided no Event of Default has occurred and is continuing, if
any Account Debtor  returns any Inventory to Borrower in the ordinary  course of
its business,  Borrower shall promptly  determine the reason for such return and
promptly  issue a credit  memorandum  to the Account  Debtor in the  appropriate
amount  (sending a copy to Silicon).  In the event any  attempted  return occurs
after  the  occurrence  of any  Event of

                                      -4-
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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

Default,  Borrower  shall (i) hold the returned  Inventory in trust for Silicon,
(ii)  segregate all returned  Inventory from all of Borrower's  other  property,
(iii) conspicuously label the returned Inventory as Silicon's property, and (iv)
immediately notify Silicon of the return of any Inventory, specifying the reason
for such return,  the location and condition of the returned  Inventory,  and on
Silicon's request deliver such returned Inventory to Silicon.

   4.8  VERIFICATION.  Silicon may, from time to time,  verify directly with the
respective  Account Debtors the validity,  amount and other matters  relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.

   4.9 NO LIABILITY. Silicon shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission,  or delay of any kind occurring in the settlement,
failure to settle,  collection  or failure  to collect  any  Receivable,  or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall  Silicon be deemed to be  responsible  for any of  Borrower's  obligations
under any  contract or agreement  giving rise to a  Receivable.  Nothing  herein
shall,  however,  relieve Silicon from liability for its own gross negligence or
willful misconduct.

5.  ADDITIONAL DUTIES OF THE BORROWER.

   5.1 FINANCIAL AND OTHER  COVENANTS.  Borrower  shall at all times comply with
the financial and other covenants set forth in the Schedule.

   5.2  INSURANCE.  Borrower  shall,  at all times  insure  all of the  tangible
personal  property  Collateral  and carry such other  business  insurance,  with
insurers  reasonably  acceptable to Silicon, in such form and amounts as Silicon
may reasonably require, and Borrower shall provide evidence of such insurance to
Silicon,  so that Silicon is satisfied that such insurance is, at all times,  in
full force and effect.  All such  insurance  policies  shall name  Silicon as an
additional  loss payee,  and shall contain a lenders loss payee  endorsement  in
form reasonably  acceptable to Silicon. Upon receipt of the proceeds of any such
insurance,  Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is  continuing,  Silicon  shall  release to
Borrower  insurance  proceeds  with  respect  to  Equipment  totaling  less than
$100,000,  which  shall be  utilized  by  Borrower  for the  replacement  of the
Equipment  with respect to which the insurance  proceeds were paid.  Silicon may
require reasonable  assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Silicon may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to Silicon copies of all reports made to insurance companies.

   5.3 REPORTS. Borrower, at its expense, shall provide Silicon with the written
reports set forth in the Schedule,  and such other written  reports with respect
to Borrower  (including  budgets,  sales projections,  operating plans and other
financial documentation), as Silicon shall from time to time reasonably specify.

   5.4 ACCESS TO COLLATERAL,  BOOKS AND RECORDS. At reasonable times, and on one
Business Day's notice,  Silicon, or its agents,  shall have the right to inspect
the Collateral,  and the right to audit and copy  Borrower's  books and records.
Silicon  shall  take  reasonable  steps  to keep  confidential  all  information
obtained in any such  inspection  or audit,  but Silicon shall have the right to
disclose  any  such  information  to  its  auditors,  regulatory  agencies,  and
attorneys,  and pursuant to any subpoena or other legal  process.  The foregoing
inspections  and audits shall be at Borrower's  expense and the charge  therefor
shall be $500 per  person  per day (or such  higher  amount  as shall  represent
Silicon's then current  standard  charge for the same),  plus  reasonable out of
pocket expenses.  Borrower will not enter into any agreement with any accounting
firm,  service bureau or third party to store Borrower's books or records at any
location  other than  Borrower's  Address,  without  first  obtaining  Silicon's
written consent,  which may be conditioned  upon such accounting  firm,  service
bureau or other  third  party  agreeing  to give  Silicon  the same  rights with
respect to access to books and records  and related  rights as Silicon has under
this Loan  Agreement.  Borrower  waives  the  benefit  of any  accountant-client
privilege or other evidentiary  privilege precluding or limiting the disclosure,
divulgence  or delivery of any of its books and records  (except  that  Borrower
does not waive any attorney-client privilege).

   5.5 NEGATIVE COVENANTS.  Except as may be permitted in the Schedule, Borrower
shall not, without Silicon's prior written consent, do any of the following: (i)
merge or  consolidate  with  another  corporation  or entity;  (ii)  acquire any
assets,  except in the ordinary  course of business;  (iii) enter into any other
transaction  outside the ordinary course of business;  (iv) sell or transfer any
Collateral,  except for the sale of finished Inventory in the ordinary course of
Borrower's  business,  and except for the sale of obsolete or unneeded Equipment
in the ordinary course of business;  (v) store any Inventory or other Collateral
with any  warehouseman  or other  third  party;  (vi)  sell any  Inventory  on a
sale-or-return,  guaranteed sale, consignment,  or other contingent basis; (vii)
make any loans of any money or other assets; (viii) incur any debts, outside the
ordinary  course of  business,  which would have a material,  adverse  effect on
Borrower or on the prospect of repayment of the  Obligations;  (ix) guarantee or
otherwise  become  liable with respect to the  obligations  of another  party or
entity;  (x) pay or declare  any  dividends  on  Borrower's  stock  (except  for
dividends

                                      -5-

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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

payable solely in stock of Borrower); (xi) redeem, retire, purchase or otherwise
acquire, directly or indirectly,  any of Borrower's stock; (xii) make any change
in Borrower's  capital  structure which would have a material  adverse effect on
Borrower or on the prospect of repayment of the Obligations; or (xiii) pay total
compensation,  including  salaries,  fees, bonuses,  commissions,  and all other
payments,  whether directly or indirectly,  in money or otherwise, to Borrower's
executives,  officers and  directors  (or any relative  thereof) in an amount in
excess of the amount set forth on the  Schedule;  or (xiv)  dissolve or elect to
dissolve. Transactions permitted by the foregoing provisions of this Section are
only permitted if no Default or Event of Default would occur as a result of such
transaction.

   5.6  LITIGATION  COOPERATION.  Should any  third-party  suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower  and its  officers,  employees  and  agents  and  Borrower's  books and
records, to the extent that Silicon may deem them reasonably  necessary in order
to prosecute or defend any such suit or proceeding.

   5.7  FURTHER  ASSURANCES.  Borrower  agrees,  at its  expense,  on request by
Silicon,  to execute all  documents and take all actions,  as Silicon,  may deem
reasonably  necessary  or  useful in order to  perfect  and  maintain  Silicon's
perfected security interest in the Collateral,  and in order to fully consummate
the transactions contemplated by this Agreement.

6.   TERM.

   6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the "Maturity Date"); provided that the Maturity
Date shall automatically be extended, and this Agreement shall automatically and
continuously  renew, for successive  additional terms of one year each, * unless
one party gives written  notice to the other,  not less than sixty days prior to
the next  Maturity  Date,  that such party  elects to terminate  this  Agreement
effective on the next Maturity Date.

   * AND BORROWER  SHALL,  UPON EACH SUCH RENEWAL,  PAY SILICON A RENEWAL FEE IN
THE AMOUNT OF ONE HALF PERCENT (0.5%) OF THE MAXIMUM  CREDIT,  AS DEFINED IN THE
SCHEDULE, IN EFFECT AS OF THE EFFECTIVE DATE OF SUCH RENEWAL,  WHICH SHALL BE IN
ADDITION  TO  ALL  INTEREST  AND  OTHER  SUMS  PAYABLE  TO  SILICON  AND  IS NOT
REFUNDABLE,

   6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity
Date as follows:  (i) by Borrower,  effective  three Business Days after written
notice of termination is given to Silicon;  or (ii) by Silicon at any time after
the occurrence of an Event of Default, without notice, effective immediately. If
this  Agreement is  terminated by Borrower or by Silicon under this Section 6.2,
Borrower  shall pay to  Silicon  a  termination  fee in an  amount  equal to The
termination  fee shall be due and payable on the effective  date of  termination
and  thereafter  shall  bear  interest  at a  rate  equal  to the  highest  rate
applicable to any of the Obligations.

   * $10,000

   6.3 PAYMENT OF OBLIGATIONS.  On the Maturity Date or on any earlier effective
date of  termination,  Borrower  shall pay and perform in full all  Obligations,
whether evidenced by installment  notes or otherwise,  and whether or not all or
any  part of such  Obligations  are  otherwise  then  due and  payable.  Without
limiting the  generality of the  foregoing,  if on the Maturity  Date, or on any
earlier  effective date of  termination,  there are any  outstanding  Letters of
Credit  issued by  Silicon  or  issued  by  another  institution  based  upon an
application,  guarantee,  indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all  interest,  fees
and cost due or to become  due in  connection  therewith,  to secure  all of the
Obligations  relating  to said  Letters of Credit,  pursuant to  Silicon's  then
standard form cash pledge  agreement.  Notwithstanding  any  termination of this
Agreement,  all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this  Agreement  shall continue in full force and
effect until all  Obligations  have been paid and  performed  in full;  provided
that,  without  limiting  the fact that Loans are subject to the  discretion  of
Silicon,  Silicon may, in its sole discretion,  refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right or
remedy of  Silicon,  nor  shall any such  termination  relieve  Borrower  of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in  full.  Upon  payment  and  performance  in full of all the  Obligations  and
termination  of this  Agreement,  Silicon  shall  promptly  deliver to  Borrower
termination  statements,  requests for reconveyances and such other documents as
may be required to fully terminate Silicon's security interests.

7.  EVENTS OF DEFAULT AND REMEDIES.

   7.1 EVENTS OF DEFAULT.  The  occurrence of any of the following  events shall
constitute an "Event of Default" under this  Agreement,  and Borrower shall give
Silicon  immediate  written notice  thereof:  (a) Any warranty,  representation,
statement, report or certificate made or delivered to Silicon by Borrower or any
of  Borrower's  officers,  employees or agents,  now or in the future,  shall be
untrue or misleading in a material  respect;  or (b) Borrower  shall fail to pay
when due any Loan or any interest thereon or any other monetary  Obligation;  or
(c) the total Loans and other  Obligations  outstanding at any time shall exceed
the Credit Limit; or (d) Borrower shall fail to comply with any of the financial
covenants  set  forth  in the  Schedule  or  shall  fail to  perform  any  other
non-monetary  Obligation  which by its nature  cannot be

                                      -6-
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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

cured; or (e) Borrower shall fail to perform any other non-monetary  Obligation,
which failure is not cured within 5 Business Days after the date due; or (f) Any
levy,  assessment,  attachment,  seizure,  lien  or  encumbrance  (other  than a
Permitted Lien) is made on all or any part of the Collateral  which is not cured
within 10 days after the  occurrence of the same; or (g) any default or event of
default occurs under any obligation  secured by a Permitted  Lien,  which is not
cured  within any  applicable  cure period or waived in writing by the holder of
the  Permitted  Lien;  or  (h)  Borrower   breaches  any  material  contract  or
obligation,  which has or may reasonably be expected to have a material  adverse
effect on  Borrower's  business  or  financial  condition;  or (i)  Dissolution,
termination  of  existence,  insolvency  or  business  failure of  Borrower;  or
appointment  of a  receiver,  trustee or  custodian,  for all or any part of the
property of,  assignment for the benefit of creditors by, or the commencement of
any proceeding by Borrower  under any  reorganization,  bankruptcy,  insolvency,
arrangement,  readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect; or (j) the commencement of any
proceeding against Borrower or any guarantor of any of the Obligations under any
reorganization,  bankruptcy,  insolvency,  arrangement,  readjustment  of  debt,
dissolution or  liquidation  law or statute of any  jurisdiction,  now or in the
future in effect,  which is not cured by the  dismissal  thereof  within 30 days
after the date commenced;  or (k) revocation or termination of, or limitation or
denial of liability  upon, any guaranty of the  Obligations or any attempt to do
any of the foregoing,  or commencement of proceedings by any guarantor of any of
the  Obligations  under any  bankruptcy or insolvency  law; or (l) revocation or
termination  of, or  limitation or denial of liability  upon,  any pledge of any
certificate  of  deposit,  securities  or  other  property  or asset of any kind
pledged  by any third  party to  secure  any or all of the  Obligations,  or any
attempt to do any of the foregoing, or commencement of proceedings by or against
any such third party under any  bankruptcy  or  insolvency  law; or (m) Borrower
makes any payment on account of any  indebtedness  or obligation  which has been
subordinated  to the  Obligations  other  than as  permitted  in the  applicable
subordination agreement, or if any Person who has subordinated such indebtedness
or obligations terminates or in any way limits his subordination  agreement;  or
(n)  there  shall  be a change  in the  record  or  beneficial  ownership  of an
aggregate of more than 20% of the  outstanding  shares of stock of Borrower,  in
one or more  transactions,  compared to the ownership of  outstanding  shares of
stock of  Borrower  in  effect on the date  hereof,  without  the prior  written
consent of Silicon;  or (o) Borrower  shall  generally not pay its debts as they
become due,  or  Borrower  shall  conceal,  remove or  transfer  any part of its
property,  with  intent to hinder,  delay or defraud its  creditors,  or make or
suffer any transfer of any of its  property  which may be  fraudulent  under any
bankruptcy,  fraudulent  conveyance  or  similar  law;  or (p) there  shall be a
material adverse change in Borrower's  business or financial  condition;  or (q)
Silicon,  acting in good faith and in a commercially  reasonable  manner,  deems
itself  insecure  because of the  occurrence  of an event prior to the effective
date hereof of which Silicon had no knowledge on the  effective  date or because
of the  occurrence of an event on or subsequent to the effective  date.  Silicon
may cease making any Loans hereunder  during any of the above cure periods,  and
thereafter if an Event of Default has occurred.

   7.2 REMEDIES.  Upon the  occurrence of any Event of Default,  and at any time
thereafter,  Silicon,  at its option,  and without  notice or demand of any kind
(all of which are hereby expressly  waived by Borrower),  may do any one or more
of the  following:  (a) Cease  making  Loans or  otherwise  extending  credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately  due,  payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation;  (c) Take possession of
any or all of the  Collateral  wherever  it may be found,  and for that  purpose
Borrower hereby authorizes Silicon without judicial process to enter onto any of
Borrower's  premises  without  interference  to search for, take  possession of,
keep,  store,  or remove any of the  Collateral,  and remain on the  premises or
cause a  custodian  to remain on the  premises  in  exclusive  control  thereof,
without charge for so long as Silicon deems it reasonably  necessary in order to
complete  the  enforcement  of its  rights  under  this  Agreement  or any other
agreement; provided, however, that should Silicon seek to take possession of any
of the Collateral by Court process,  Borrower hereby irrevocably waives: (i) any
bond and any surety or security relating thereto required by any statute,  court
rule or  otherwise  as an  incident  to such  possession;  (ii) any  demand  for
possession prior to the commencement of any suit or action to recover possession
thereof;  and (iii) any requirement  that Silicon retain  possession of, and not
dispose of, any such Collateral until after trial or final judgment; (d) Require
Borrower to  assemble  any or all of the  Collateral  and make it  available  to
Silicon at places  designated  by Silicon  which are  reasonably  convenient  to
Silicon and Borrower,  and to remove the Collateral to such locations as Silicon
may deem advisable; (e) Complete the processing,  manufacturing or repair of any
Collateral  prior to a  disposition  thereof  and,  for such purpose and for the
purpose of removal,  Silicon  shall have the right to use  Borrower's  premises,
vehicles,  hoists,  lifts,  cranes,  equipment  and all other  property  without
charge;  (f) Sell, lease or otherwise  dispose of any of the Collateral,  in its
condition  at  the  time  Silicon  obtains  possession  of it or  after  further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash,  exchange or other property,  or on credit, and to
adjourn  any  such  sale  from  time to time  without  notice  other  than  oral

                                      -7-
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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

announcement  at the time  scheduled  for sale.  Silicon shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Silicon deems reasonable,  or on Silicon's  premises,  or elsewhere and
the  Collateral  need not be located at the place of  disposition.  Silicon  may
directly or through any affiliated  company  purchase or lease any Collateral at
any such public  disposition,  and if permissible  under  applicable law, at any
private  disposition.  Any sale or other  disposition  of  Collateral  shall not
relieve  Borrower  of any  liability  Borrower  may  have if any  Collateral  is
defective  as to title or physical  condition  or otherwise at the time of sale;
(g) Demand  payment  of, and  collect any  Receivables  and General  Intangibles
comprising  Collateral  and,  in  connection  therewith,   Borrower  irrevocably
authorizes  Silicon  to  endorse  or sign  Borrower's  name on all  collections,
receipts,  instruments and other documents,  to take possession of and open mail
addressed to Borrower  and remove  therefrom  payments  made with respect to any
item of the Collateral or proceeds  thereof,  and, in Silicon's sole discretion,
to grant extensions of time to pay, compromise claims and settle Receivables and
the like  for less  than  face  value;  (h)  Offset  against  any sums in any of
Borrower's  general,  special or other Deposit  Accounts  with Silicon;  and (i)
Demand and receive  possession of any of Borrower's federal and state income tax
returns  and the  books and  records  utilized  in the  preparation  thereof  or
referring thereto. All reasonable attorneys' fees, expenses,  costs, liabilities
and obligations incurred by Silicon with respect to the foregoing shall be added
to and become part of the  Obligations,  shall be due on demand,  and shall bear
interest at a rate equal to the highest  interest rate  applicable to any of the
Obligations.  Without  limiting any of Silicon's  rights and remedies,  from and
after the  occurrence of any Event of Default,  the interest rate  applicable to
the Obligations shall be increased by an additional four percent per annum.

   7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and Silicon
agree that a sale or other disposition (collectively,  "sale") of any Collateral
which complies with the following  standards will  conclusively  be deemed to be
commercially  reasonable:  (i) Notice of the sale is given to  Borrower at least
seven days prior to the sale,  and, in the case of a public sale,  notice of the
sale is  published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted;  (ii) Notice of the
sale describes the collateral in general,  non-specific terms; (iii) The sale is
conducted at a place designated by Silicon, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v)
Payment of the purchase price in cash or by cashier's  check or wire transfer is
required;  (vi) With respect to any sale of any of the  Collateral,  Silicon may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same. Silicon shall be free
to  employ  other  methods  of  noticing  and  selling  the  Collateral,  in its
discretion, if they are commercially reasonable.

   7.4 POWER OF ATTORNEY.  Upon the occurrence of any Event of Default,  without
limiting  Silicon's  other rights and  remedies,  Borrower  grants to Silicon an
irrevocable  power  of  attorney  coupled  with  an  interest,  authorizing  and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time,  at its option,  but  without  obligation,  with or without  notice to
Borrower,  and at  Borrower's  expense,  to do any or all of the  following,  in
Borrower's  name or  otherwise,  but Silicon  agrees to exercise  the  following
powers in a commercially  reasonable  manner:  (a) Execute on behalf of Borrower
any documents that Silicon may, in its sole discretion,  deem advisable in order
to perfect and maintain  Silicon's  security  interest in the Collateral,  or in
order  to  exercise  a right  of  Borrower  or  Silicon,  or in  order  to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future  agreements;  (b) Execute on behalf of Borrower  any document
exercising,  transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute
on behalf of  Borrower,  any  invoices  relating  to any  Receivable,  any draft
against any Account  Debtor and any notice to any Account  Debtor,  any proof of
claim in bankruptcy,  any Notice of Lien, claim of mechanic's,  materialman's or
other lien, or assignment or satisfaction of mechanic's,  materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral;  endorse the name of Borrower upon any  instruments,  or
documents,  evidence  of  payment  or  Collateral  that may come into  Silicon's
possession;  (e) Endorse all checks and other forms of  remittances  received by
Silicon;  (f) Pay,  contest or settle any lien,  charge,  encumbrance,  security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon,  or otherwise  take any action to terminate or discharge the same;  (g)
Grant extensions of time to pay,  compromise  claims and settle  Receivables and
General  Intangibles for less than face value and execute all releases and other
documents  in  connection  therewith;  (h) Pay any sums  required  on account of
Borrower's  taxes or to secure the release of any liens  therefor,  or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the  Collateral  and obtain  payment  therefor;  (j) Instruct any third party
having custody or control of any books or records  belonging to, or relating to,
Borrower to give Silicon the same rights of access and other rights with respect
thereto as Silicon has under this Agreement;  and (k) Take any action or pay any
sum required of Borrower  pursuant to this  Agreement  and any other  present or
future  agreements.  Any and all reasonable sums paid and any and all reasonable
costs,  expenses,  liabilities,  obligations  and  attorneys'  fees  incurred by
Silicon with respect to the  foregoing  shall be added to and become

                                      -8-
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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

part of the Obligations,  shall be payable on demand, and shall bear interest at
a rate equal to the highest  interest rate applicable to any of the Obligations.
In no event shall Silicon's  rights under the foregoing power of attorney or any
of  Silicon's  other  rights  under this  Agreement  be deemed to indicate  that
Silicon is in control of the business, management or properties of Borrower.

   7.5 APPLICATION OF PROCEEDS.  All proceeds realized as the result of any sale
of the  Collateral  shall be applied by Silicon first to the  reasonable  costs,
expenses, liabilities,  obligations and * attorneys' fees incurred by Silicon in
the exercise of its rights under this Agreement, second to the interest due upon
any of the Obligations,  and third to the principal of the Obligations,  in such
order as Silicon shall  determine in its sole  discretion.  Any surplus shall be
paid to Borrower or other  persons  legally  entitled  thereto;  Borrower  shall
remain  liable  to  Silicon  for  any  deficiency.  If,  Silicon,  in  its  sole
discretion,  directly  or  indirectly  enters  into a deferred  payment or other
credit  transaction with any purchaser at any sale of Collateral,  Silicon shall
have the option,  exercisable  at any time,  in its sole  discretion,  of either
reducing the Obligations by the principal  amount of purchase price or deferring
the reduction of the Obligations until the actual receipt by Silicon of the cash
therefor.

   * REASONABLE

   7.6 REMEDIES CUMULATIVE.  In addition to the rights and remedies set forth in
this Agreement,  Silicon shall have all the other rights and remedies accorded a
secured party under the California  Uniform  Commercial Code and under all other
applicable  laws,  and under any other  instrument  or  agreement  now or in the
future  entered into between  Silicon and  Borrower,  and all of such rights and
remedies are cumulative and none is exclusive.  Exercise or partial  exercise by
Silicon  of one or more  of its  rights  or  remedies  shall  not be  deemed  an
election,  nor bar Silicon from subsequent  exercise or partial  exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver  thereof,  but all rights and remedies
shall continue in full force and effect until all of the  Obligations  have been
fully paid and performed.

8.  DEFINITIONS.  As  used in this  Agreement,  the  following  terms  have  the
following meanings:

   "Account Debtor" means the obligor on a Receivable.

   "Affiliate"  means,  with  respect  to  any  Person,  a  relative,   partner,
shareholder,  director,  officer,  or employee of such Person,  or any parent or
subsidiary  of such Person,  or any Person  controlling,  controlled by or under
common control with such Person.

   "Business Day" means a day on which Silicon is open for business.

   "Code"  means the  Uniform  Commercial  Code as adopted  and in effect in the
State of California from time to time.

   "Collateral" has the meaning set forth in Section 2.1 above.

   "Default" means any event which with notice or passage of time or both, would
constitute an Event of Default.

   "Deposit Account" has the meaning set forth in Section 9105 of the Code.

   "Eligible Inventory"  [NOT APPLICABLE].

   "Eligible  Receivables"  means Receivables  arising in the ordinary course of
Borrower's  business  from the sale of goods or  rendition  of  services,  which
Silicon, in its sole judgment, shall deem eligible for borrowing,  based on such
considerations  as  Silicon  may from  time to time  deem  appropriate.  Without
limiting the fact that the  determination of which  Receivables are eligible for
borrowing is a matter of  Silicon's  discretion,  the  following  (the  "Minimum
Eligibility  Requirements") are the minimum  requirements for a Receivable to be
an Eligible Receivable: (i) the Receivable must not be outstanding for more than
90 days from its invoice date, (ii) the Receivable  must not represent  progress
billings,  or be due  under a  fulfillment  or  requirements  contract  with the
Account Debtor,  (iii) the Receivable  must not be subject to any  contingencies
(including  Receivables  arising from sales on  consignment,  guaranteed sale or
other terms pursuant to which payment by the Account Debtor may be conditional),
(iv) the  Receivable  must not be owing  from an  Account  Debtor  with whom the
Borrower has any dispute (whether or not relating to the particular Receivable),
(v) the  Receivable  must not be owing from an Affiliate  of Borrower,  (vi) the
Receivable  must not be owing  from an  Account  Debtor  which is subject to any
insolvency  or  bankruptcy  proceeding,  or  whose  financial  condition  is not
acceptable to Silicon,  or which, fails or goes out of a material portion of its
business,  (vii) the Receivable  must not be owing from the United States or any
department, agency or instrumentality thereof (unless there has been compliance,
to Silicon's  satisfaction,  with the United  States  Assignment of Claims Act),
(viii) the Receivable  must not be owing from an Account Debtor located  outside
the United States or Canada (unless pre-approved by Silicon in its discretion in
writing,  or  backed  by a letter of credit  satisfactory  to  Silicon,  or FCIA
insured satisfactory to Silicon),  (ix) the Receivable must not be owing from an
Account  Debtor to whom  Borrower is or may be liable for goods  purchased  from
such Account Debtor or otherwise. Receivables owing from one Account Debtor will
not be deemed  Eligible  Receivables  to the extent they exceed 25% of the total
Receivables  outstanding.  * In  addition,  if more than 25% of the  Receivables
owing  from an  Account  Debtor  are  outstanding  more than 90 days from  their
invoice date (without regard to unapplied credits) or are otherwise not

                                      -9-
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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

eligible  Receivables,  then all Receivables owing from that Account Debtor will
be deemed  ineligible  for  borrowing.  Silicon may,  from time to time,  in its
discretion, revise the Minimum Eligibility Requirements,  upon written notice to
the Borrower.

   * RECEIVABLES  ARISING FROM THE SALE OF MAINTENANCE OR SUPPORT CONTRACTS WILL
NOT BE DEEMED ELIGIBLE  RECEIVABLES TO THE EXTENT THEY EXCEED THE LESSER OF: (A)
$500,000, OR (B) 25% OF THE AMOUNT AVAILABLE FOR LOANS TO BORROWER UNDER SECTION
1 OF THE SCHEDULE.

   "Equipment" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures,  motor vehicles,  tools,  parts,  dyes, jigs, goods and other tangible
personal  property (other than Inventory) of every kind and description  used in
Borrower's  operations  or  owned by  Borrower  and any  interest  in any of the
foregoing,   and  all  attachments,   accessories,   accessions,   replacements,
substitutions,  additions  or  improvements  to any of the  foregoing,  wherever
located.

   "Event of  Default"  means any of the events set forth in Section 7.1 of this
Agreement.

   "General Intangibles" means all general intangibles of Borrower,  whether now
owned  or  hereafter  created  or  acquired  by  Borrower,   including,  without
limitation,  all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions,  designs, drawings, blueprints,  patents,
patent  applications,  trademarks  and the goodwill of the  business  symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation  presently  or hereafter  pending for any cause or claim  (whether in
contract,  tort  or  otherwise),  and all  judgments  now or  hereafter  arising
therefrom,  all claims of Borrower against  Silicon,  rights to purchase or sell
real or  personal  property,  rights  as a  licensor  or  licensee  of any kind,
royalties, telephone numbers, proprietary information,  purchase orders, and all
insurance policies and claims (including without limitation life insurance,  key
man insurance,  credit insurance,  liability  insurance,  property insurance and
other insurance),  tax refunds and claims,  computer programs,  discs, tapes and
tape files,  claims under guaranties,  security interests or other security held
by or  granted  to  Borrower,  all  rights  to  indemnification  and  all  other
intangible property of every kind and nature (other than Receivables).

   "Inventory"  means all of Borrower's now owned and hereafter  acquired goods,
merchandise or other personal property,  wherever located, to be furnished under
any contract of service or held for sale or lease (including  without limitation
all raw materials,  work in process,  finished goods and goods in transit),  and
all materials and supplies of every kind,  nature and  description  which are or
might be used or consumed in Borrower's  business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.

   "Obligations"   means  all  present  and  future  Loans,   advances,   debts,
liabilities,  obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon,  whether  evidenced by this  Agreement or any
note or other  instrument  or  document,  whether  arising  from an extension of
credit,  opening of a letter of credit,  banker's  acceptance,  loan,  guaranty,
indemnification  or otherwise,  whether direct or indirect  (including,  without
limitation,  those  acquired by assignment and any  participation  by Silicon in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees,  expert  witness  fees,  audit  fees,  letter of credit  fees,  collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums  chargeable to Borrower under this Agreement or under
any other  present  or future  instrument  or  agreement  between  Borrower  and
Silicon.

   "Permitted Liens" means the following:  (i) purchase money security interests
in specific  items of  Equipment;  (ii) leases of specific  items of  Equipment;
(iii) liens for taxes not yet payable;  (iv) additional  security  interests and
liens  consented  to  in  writing  by  Silicon,   which  consent  shall  not  be
unreasonably  withheld;  (v) security  interests being terminated  substantially
concurrently  with  this  Agreement;  (vi)  liens  of  materialmen,   mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection  with the extension,  renewal or  refinancing of the  indebtedness
secured  by liens of the type  described  above in  clauses  (i) or (ii)  above,
provided  that any  extension,  renewal  or  replacement  lien is limited to the
property  encumbered  by the  existing  lien  and the  principal  amount  of the
indebtedness  being extended,  renewed or refinanced  does not increase;  (viii)
Liens in favor of  customs  and  revenue  authorities  which  secure  payment of
customs duties in connection  with the  importation of goods.  Silicon will have
the right to require,  as a condition  to its consent  under  subparagraph  (iv)
above,  that the  holder of the  additional  security  interest  or lien sign an
intercreditor  agreement on Silicon's then standard form,  acknowledge  that the
security  interest is subordinate to the security  interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security interest so
long as any  Obligations  remain  outstanding,  and that Borrower agree that any
uncured default in any obligation  secured by the subordinate  security interest
shall also constitute an Event of Default under this Agreement.

   "Person"  means  any  individual,  sole  proprietorship,  partnership,  joint
venture,   trust,   unincorporated   organiza-

                                      -10-

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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

tion, association,  corporation, government, or any agency or political division
thereof, or any other entity.

   "Receivables"  means  all of  Borrower's  now owned  and  hereafter  acquired
accounts  (whether or not earned by  performance),  letters of credit,  contract
rights, chattel paper, instruments,  securities, securities accounts, investment
property,  documents  and all other  forms of  obligations  at any time owing to
Borrower,  all guaranties and other security therefor,  all merchandise returned
to or  repossessed  by  Borrower,  and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party.

   "Reserves"  means, as of any date of  determination,  such amounts as Silicon
may from time to time  establish and revise in good faith reducing the amount of
Loans and Letters of Credit which would otherwise be available to Borrower under
the  lending  formula(s)  provided  in  the  Schedule:  (a) to  reflect  events,
conditions,  contingencies  or risks  which,  as  determined  by Silicon in good
faith, do or may affect either (i) the Collateral or any other property which is
security  for the  Obligations  or its  value,  (ii)  the  assets,  business  or
prospects of Borrower or any Guarantor or (iii) the security interests and other
rights of Silicon in the Collateral  (including the  enforceability,  perfection
and priority  thereof),  or (b) to reflect  Silicon's good faith belief that any
collateral report or financial information furnished by or on behalf of Borrower
or any  Guarantor  to  Silicon  is or may have been  incomplete,  inaccurate  or
misleading  in any  material  respect,  or (c) in  respect of any state of facts
which Silicon  determines in good faith  constitutes an Event of Default or may,
with notice or passage of time or both, constitute an Event of Default.

   Other Terms.  All accounting  terms used in this Agreement,  unless otherwise
indicated,  shall  have the  meanings  given to such  terms in  accordance  with
generally accepted accounting principles,  consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.

9.   GENERAL PROVISIONS.

   9.1 INTEREST  COMPUTATION.  In  computing  interest on the  Obligations,  all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables  and payment of the Obligations in full) shall be deemed
applied  by Silicon on account  of the  Obligations  three  Business  Days after
receipt by Silicon of  immediately  available  funds,  and,  for purposes of the
foregoing,  any such funds  received after 12:00 Noon on any day shall be deemed
received on the next Business Day.  Silicon shall not,  however,  be required to
credit  Borrower's  account  for the  amount  of any  item of  payment  which is
unsatisfactory  to  Silicon  in its sole  discretion,  and  Silicon  may  charge
Borrower's  loan account for the amount of any item of payment which is returned
to Silicon unpaid.

   9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied,  and in Silicon's sole discretion  reversed and  re-applied,  to the
Obligations,  in such order and manner as Silicon  shall  determine  in its sole
discretion.

   9.3  CHARGES TO  ACCOUNTS.  Silicon  may,  in its  discretion,  require  that
Borrower  pay  monetary  Obligations  in  cash to  Silicon,  or  charge  them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable  to the  Loans.  Silicon  may also,  in its  discretion,  charge  any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.

   9.4 MONTHLY  ACCOUNTINGS.  Silicon  shall  provide  Borrower  monthly with an
account of  advances,  charges,  expenses  and  payments  made  pursuant to this
Agreement.  Such  account  shall be deemed  correct,  accurate  and  binding  on
Borrower  and an account  stated  (except for  reverses  and  reapplications  of
payments made and corrections of errors discovered by Silicon),  unless Borrower
notifies  Silicon in  writing  to the  contrary  within  thirty  days after each
account is rendered, describing the nature of any alleged errors or admissions.

   9.5 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular  first-class  mail,  or  certified  mail  return  receipt  requested,
addressed to Silicon or Borrower at the  addresses  shown in the heading to this
Agreement,  or at any other  address  designated  in writing by one party to the
other  party.  Notices to Silicon  shall be directed to the  Commercial  Finance
Division,  to the  attention  of the  Division  Manager or the  Division  Credit
Manager.  All  notices  shall be deemed to have been given upon  delivery in the
case of notices personally  delivered,  or at the expiration of one Business Day
following  delivery  to the  private  delivery  service,  or two  Business  Days
following the deposit thereof in the United States mail, with postage prepaid.

   9.6 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent  jurisdiction  to be void or  unenforceable,  such defect shall not
affect the remainder of this  Agreement,  which shall continue in full force and
effect.

   9.7 INTEGRATION. This Agreement and such other written agreements,  documents
and instruments as may be executed in connection  herewith are the final, entire
and complete  agreement between Borrower and Silicon and supersede all prior and
contemporaneous  negotiations and oral  representations  and agreements,  all of
which  are  merged  and  integrated  in  this  Agreement.   There  are  no  oral
understandings,  representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.

                                      -11-

<PAGE>

   9.8 WAIVERS.  The failure of Silicon at any time or times to require Borrower
to strictly  comply with any of the  provisions  of this  Agreement or any other
present or future  agreement  between  Borrower  and Silicon  shall not waive or
diminish  any right of Silicon  later to demand and  receive  strict  compliance
therewith.  Any  waiver of any  default  shall  not  waive or  affect  any other
default,  whether prior or subsequent,  and whether or not similar.  None of the
provisions  of  this  Agreement  or any  other  agreement  now or in the  future
executed  by  Borrower  and  delivered  to Silicon  shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or  employees,  but only
by a specific  written  waiver  signed by an  authorized  officer of Silicon and
delivered to Borrower.  Borrower waives demand,  protest,  notice of protest and
notice of  default  or  dishonor,  notice of payment  and  nonpayment,  release,
compromise,   settlement,   extension  or  renewal  of  any  commercial   paper,
instrument,  account, General Intangible,  document or guaranty at any time held
by Silicon on which  Borrower is or may in any way be liable,  and notice of any
action taken by Silicon, unless expressly required by this Agreement.

   9.9 NO LIABILITY FOR ORDINARY  NEGLIGENCE.  Neither  Silicon,  nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon shall be liable for any claims,  demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party  through the ordinary  negligence  of Silicon,  or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or  representing  Silicon,  but nothing  herein shall relieve  Silicon from
liability for its own gross negligence or willful misconduct.

   9.10 AMENDMENT.  The terms and provisions of this Agreement may not be waived
or  amended,  except in a writing  executed by  Borrower  and a duly  authorized
officer of Silicon.

   9.11 TIME OF ESSENCE.  Time is of the essence in the  performance by Borrower
of each and every obligation under this Agreement.

   9.12  ATTORNEYS  FEES AND COSTS.  Borrower  shall  reimburse  Silicon for all
reasonable attorneys' fees and all filing,  recording,  search, title insurance,
appraisal,  audit, and other reasonable costs incurred by Silicon,  pursuant to,
or in connection  with, or relating to this Agreement  (whether or not a lawsuit
is filed),  including,  but not limited to, any reasonable  attorneys'  fees and
costs Silicon  incurs in order to do the  following:  prepare and negotiate this
Agreement and the documents  relating to this Agreement;  obtain legal advice in
connection with this Agreement or Borrower;  enforce, or seek to enforce, any of
its rights;  prosecute  actions against,  or defend actions by, Account Debtors;
commence,  intervene  in,  or defend  any  action or  proceeding;  initiate  any
complaint to be relieved of the automatic stay in bankruptcy;  file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit,  copy, and inspect any of the  Collateral or any of Borrower's  books and
records;  protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral;  and otherwise represent Silicon
in any  litigation  relating to Borrower.  In satisfying  Borrower's  obligation
hereunder  to  reimburse   Silicon  for  attorneys   fees,   Borrower  may,  for
convenience, issue checks directly to Silicon's attorneys, Levy, Small & Lallas,
but Borrower  acknowledges  and agrees that Levy, Small & Lallas is representing
only  Silicon and not  Borrower in  connection  with this  Agreement.  If either
Silicon or Borrower files any lawsuit  against the other  predicated on a breach
of this  Agreement,  the  prevailing  party in such action  shall be entitled to
recover its reasonable costs and attorneys' fees, including (but not limited to)
reasonable  attorneys' fees and costs incurred in the enforcement of,  execution
upon or defense of any order, decree, award or judgment. All attorneys' fees and
costs  to  which  Silicon  may be  entitled  pursuant  to this  Paragraph  shall
immediately become part of Borrower's  Obligations,  shall be due on demand, and
shall bear interest at a rate equal to the highest  interest rate  applicable to
any of the Obligations.

   9.13 BENEFIT OF AGREEMENT.  The provisions of this Agreement shall be binding
upon and inure to the  benefit of the  respective  successors,  assigns,  heirs,
beneficiaries and  representatives of Borrower and Silicon;  provided,  however,
that Borrower may not assign or transfer any of its rights under this  Agreement
without the prior  written  consent of Silicon,  and any  prohibited  assignment
shall be void. No consent by Silicon to any  assignment  shall release  Borrower
from its liability for the Obligations.

   9.14 JOINT AND  SEVERAL  LIABILITY.  If  Borrower  consists  of more than one
Person,  their liability  shall be joint and several,  and the compromise of any
claim with,  or the release of, any Borrower  shall not  constitute a compromise
with, or a release of, any other Borrower.

   9.15 LIMITATION OF ACTIONS.  Any claim or cause of action by Borrower against
Silicon, its directors,  officers,  employees, agents, accountants or attorneys,
based upon,  arising  from,  or relating  to this Loan  Agreement,  or any other
present or future document or agreement,  or any other transaction  contemplated
hereby or thereby or relating hereto or thereto,  or any other matter,  cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its
directors,  officers,  employees,  agents,  accountants  or attorneys,  shall be
barred  unless  asserted  by  Borrower  by  the  commencement  of an  action  or
proceeding  in a court of  competent  jurisdiction  by the filing of a complaint
within one year  after the first act,  occurrence  or  omission  upon which such
claim or cause of action,  or any part thereof,  is based,  and the service of a
summons  and  complaint  on an  officer  of  Silicon,  or on  any  other  person
authorized  to accept  service on behalf of  Silicon,  within  thirty  (30) days
thereafter.  Borrower  agrees  that such  one-year  period is a  reasonable  and

                                      -12-

<PAGE>

SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

sufficient time for Borrower to investigate and act upon any such claim or cause
of action.  The one-year period provided herein shall not be waived,  tolled, or
extended except by the written consent of Silicon in its sole  discretion.  This
provision  shall  survive any  termination  of this Loan  Agreement or any other
present or future agreement.

   9.16 PARAGRAPH  HEADINGS;  CONSTRUCTION.  Paragraph headings are only used in
this  Agreement  for  convenience.  Borrower  and Silicon  acknowledge  that the
headings  may not  describe  completely  the  subject  matter of the  applicable
paragraph, and the headings shall not be used in any manner to construe,  limit,
define  or  interpret  any  term  or  provision  of  this  Agreement.  The  term
"including",  whenever used in this  Agreement,  shall mean  "including (but not
limited to)". This Agreement has been fully reviewed and negotiated  between the
parties  and no  uncertainty  or  ambiguity  in any  term or  provision  of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.

   9.17  GOVERNING  LAW;  JURISDICTION;  VENUE.  This Agreement and all acts and
transactions  hereunder and all rights and  obligations  of Silicon and Borrower
shall be governed by the laws of the State of California.  As a material part of
the  consideration to Silicon to enter into this Agreement,  Borrower (i) agrees
that all  actions  and  proceedings  relating  directly  or  indirectly  to this
Agreement  shall,  at Silicon's  option,  be litigated in courts  located within
California,  and that the exclusive  venue therefor shall be Santa Clara County;
(ii)  consents to the  jurisdiction  and venue of any such court and consents to
service of process in any such action or proceeding by personal  delivery or any
other method  permitted by law; and (iii) waives any and all rights Borrower may
have to object to the  jurisdiction  of any such court, or to transfer or change
the venue of any such action or proceeding.

   9.18 MUTUAL WAIVER OF JURY TRIAL.  BORROWER AND SILICON EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING  BASED UPON,  ARISING OUT OF,
OR IN ANY WAY  RELATING  TO,  THIS  AGREEMENT  OR ANY  OTHER  PRESENT  OR FUTURE
INSTRUMENT OR AGREEMENT  BETWEEN SILICON AND BORROWER,  OR ANY CONDUCT,  ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS,  ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER,  IN
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR SORT OR OTHERWISE.

   BORROWER:

         MICROLOG CORPORATION

         BY         /S/ STEVEN R. DELMAR
                    --------------------
                  PRESIDENT OR VICE PRESIDENT

         BY         /S/ ARLENE A. FRANCE
                    --------------------
                  SECRETARY OR ASS'T SECRETARY

         MICROLOG CORPORATION OF MARYLAND

         BY         /S/ STEVEN R. DELMAR
                    --------------------
                  PRESIDENT OR VICE PRESIDENT

         BY         /S/ ARLENE A. FRANCE
                    --------------------
                  SECRETARY OR ASS'T SECRETARY

   SILICON:

         SILICON VALLEY BANK

         BY         /S/ PETER BENDORIS
                    ------------------
                  TITLE ASSISTANT VICE PRESIDENT

                                      -13-

<PAGE>

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

                              LEVY, SMALL & LALLAS
                                815 Moraga Drive
                          Los Angeles, California 90049
                            Telephone (310) 471-3000
                            Telecopier (310) 471-7990

                                TRANSMITTAL NOTE

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

SILICON VALLEY BANK

                                   SCHEDULE TO

                           LOAN AND SECURITY AGREEMENT

BORROWERS:                 MICROLOG CORPORATION
                           MICROLOG CORPORATION OF MARYLAND

ADDRESS:                   20270 GOLDENROD LANE
                           GERMANTOWN, MD 20876

DATE:                      MARCH 24, 1999

This Schedule forms an integral part of the Loan and Security  Agreement between
Silicon Valley Bank and the above-borrower of even date.

================================================================================

1.  CREDIT LIMIT
     (Section 1.1):                    An amount  not to exceed  the  lesser of:
                                       (i)    $2,000,000   at   any   one   time
                                       outstanding (the "Maximum Credit Limit");
                                       or (ii) 75% of the  amount of  Borrower's
                                       Eligible   Receivables   (as  defined  in
                                       Section 8 above).

     LETTER OF CREDIT SUBLIMIT
     (Section 1.5):                     $500,000

================================================================================

2.  INTEREST.

         INTEREST RATE (Section 1.2):

                                       A rate  equal  to  the  "Prime  Rate"  in
                                       effect from time to time,  plus 2.25% per
                                       annum.  Interest  shall be  calculated on
                                       the  basis  of a  360-day  year  for  the
                                       actual  number  of days  elapsed.  "Prime
                                       Rate" means

<PAGE>

LEVY, SMALL & LALLAS
TRANSMITTAL NOTE

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                                                                          Page 2

                                       the rate  announced  from time to time by
                                       Silicon as its "prime rate;" it is a base
                                       rate upon which  other  rates  charged by
                                       Silicon   are   based,   and  it  is  not
                                       necessarily  the best rate  available  at
                                       Silicon.  The interest rate applicable to
                                       the Obligations shall change on each date
                                       there is a change in the Prime Rate.

         MINIMUM MONTHLY
         INTEREST (Section 1.2):       N/A.
================================================================================

3.  FEES (Section 1.4):

         Loan Fee:                     $20,000, payable concurrently herewith.

         Collateral Monitoring
         Fee:                          $1,000  per  calendar  month,  payable in
                                       arrears   (prorated   for   any   partial
                                       calendar  month at the  beginning  and at
                                       termination of this Agreement).

         Unused Line Fee.              In the event,  in any calendar  month (or
                                       portion  thereof at the beginning and end
                                       of the term  hereof),  the average  daily
                                       principal    balance    of   the    Loans
                                       outstanding during the month is less than
                                       the   amount  of  the   Maximum   Credit,
                                       Borrower shall pay Silicon an unused line
                                       fee in an amount equal to 0.25% per annum
                                       on the  difference  between the amount of
                                       the Maximum  Credit and the average daily
                                       principal    balance    of   the    Loans
                                       outstanding   during  the  month,   which
                                       unused  line fee  shall be  computed  and
                                       paid  monthly,  in arrears,  on the first
                                       day of the following month.

================================================================================

4.  MATURITY DATE
     (Section 6.1):                    One year from the date of this Agreement,
                                       subject to automatic  renewal as provided
                                       in   Section   6.1   above,   and   early
                                       termination  as  provided  in Section 6.2
                                       above.

================================================================================

5.  FINANCIAL COVENANTS
     (Section 5.1):                    Borrower  shall comply with the following
                                       covenant:

     PROFITABILITY                     With respect to Borrower's fiscal quarter
                                       ending April 30, 1999, Borrower shall not
                                       incur a loss (before  taxes) in excess of
                                       $1,320,000.

                                       With respect to Borrower's fiscal quarter
                                       ending July 31, 1999,  Borrower shall not
                                       incur a loss (before  taxes) in excess of
                                       the lesser of (a) or (b) below:

<PAGE>

LEVY, SMALL & LALLAS
TRANSMITTAL NOTE

--------------------------------------------------------------------------------
                                                                          Page 3

                                           (a)  $625,000  plus  the   difference
                                                between      $1,320,000      and
                                                Borrower's  actual loss  (before
                                                taxes)  for its  fiscal  quarter
                                                ending April 30, 1999; or

                                           (b)  $1,250,000.

                                       Borrower shall not incur any loss (before
                                       taxes) for any fiscal  quarter  beginning
                                       with the fiscal  quarter  ending  October
                                       31, 1999.

================================================================================

6.    REPORTING.
        (Section 5.3):              Borrower  shall  provide  Silicon  with  the
                                    following:

                                    1.  Monthly  Receivable   agings,   aged  by
                                        invoice date,  within fifteen days after
                                        the end of each month.

                                    2.  Monthly accounts payable agings, aged by
                                        invoice date,  and  outstanding  or held
                                        check registers,  if any, within fifteen
                                        days after the end of each month.

                                    3.  Monthly  reconciliations  of  Receivable
                                        agings    (aged   by   invoice    date),
                                        transaction reports, and general ledger,
                                        within  fifteen  days  after  the end of
                                        each month.

                                    5.  Monthly unaudited financial  statements,
                                        as soon as  available,  and in any event
                                        within thirty days after the end of each
                                        month.

                                    6.  Monthly Compliance Certificates,  within
                                        thirty days after the end of each month,
                                        in such form as Silicon shall reasonably
                                        specify,  signed by the Chief  Financial
                                        Officer of Borrower,  certifying that as
                                        of the end of such month Borrower was in
                                        full  compliance  with all of the  terms
                                        and  conditions of this  Agreement,  and
                                        setting   forth   calculations   showing
                                        compliance with the financial  covenants
                                        set  forth  in this  Agreement  and such
                                        other   information   as  Silicon  shall
                                        reasonably request,  including,  without
                                        limitation,  a statement that at the end
                                        of such month there were no held checks.

                                    7.  Quarterly       unaudited      financial
                                        statements, as soon as available, and in
                                        any event within  forty-five  days after
                                        the  end  of  each  fiscal   quarter  of
                                        Borrower.

                                    8.  Annual  operating   budgets   (including
                                        income  statements,  balance  sheets and
                                        cash flow statements,  by month) for the
                                        upcoming  fiscal
<PAGE>

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                                                                          Page 4

                                        year  of  Borrower  within  thirty  days
                                        prior to the end of each  fiscal year of
                                        Borrower.

                                    9.  Annual financial statements,  as soon as
                                        available,  and in any event  within 120
                                        days  following  the  end of  Borrower's
                                        fiscal year,  certified  by  independent
                                        certified public accountants  acceptable
                                        to Silicon.

================================================================================

7.  COMPENSATION
       (Section 5.5):                   Without Silicon's prior written consent,
                                        Borrower    shall    not    pay    total
                                        compensation,     including    salaries,
                                        withdrawals, fees, bonuses, commissions,
                                        drawing  accounts  and  other  payments,
                                        whether directly or indirectly, in money
                                        or otherwise,  during any fiscal year to
                                        all of Borrower's  executives,  officers
                                        and directors (or any relative  thereof)
                                        as a  group  in  excess  of  115% of the
                                        total amount thereof in the prior fiscal
                                        year.

================================================================================

8.  BORROWER INFORMATION:

         PRIOR NAMES OF
         BORROWER
         (Section 3.2):                 See  Representations  and  Warranties of
                                        Borrower   dated   March  5,  1999  (the
                                        "Representations and Warranties").

         PRIOR TRADE
         NAMES OF BORROWER
         (Section 3.2):                 See the Representations and Warranties.

         EXISTING TRADE
         NAMES OF BORROWER
         (Section 3.2):                 See the Representations and Warranties.

         OTHER LOCATIONS AND
         ADDRESSES (Section 3.3):       See the Representations and Warranties.

         MATERIAL ADVERSE
         LITIGATION (Section 3.10):     None

================================================================================

9.  OTHER COVENANTS
       (Section 5.1):                   Borrower  shall at all times comply with
                                        all   of   the   following    additional
                                        covenants:

                                        (1)   BANKING   RELATIONSHIP.   Borrower
                                              shall at all  times  maintain  its
                                              primary banking  relationship with
                                              Silicon.

                                        (2)   SUBSIDIARIES.
<PAGE>
LEVY, SMALL & LALLAS
TRANSMITTAL NOTE

--------------------------------------------------------------------------------
                                                                          Page 5

                                        The     following     constitute     all
                                        subsidiaries of Microlog Corporation:

                                        (i)   Microlog  Corporation of Maryland,
                                              a Maryland corporation; and

                                        (ii)  Old Dominion Systems  Incorporated
                                              of     Maryland,     a    Maryland
                                              corporation ("ODSM").

                                        The     following     constitute     all
                                        subsidiaries of Microlog  Corporation of
                                        Maryland:

                                        (iii) Systems   Financial,   a  Maryland
                                              corporation;

                                        (iv)  Microlog   Europe,  a  Netherlands
                                              corporation; and

                                        (iii) Microlog   U.K.   Ltd.,  a  United
                                              Kingdom corporation.

                                    (3) GUARANTIES.    Concurrently   with   the
                                        execution  of this  Agreement,  Borrower
                                        shall cause the  following  companies to
                                        execute  and  deliver  to  Silicon,   on
                                        Silicon's   standard  form,  a  guaranty
                                        containing   terms  and   conditions  as
                                        Silicon may require,  together with such
                                        other   documentation   as  Silicon  may
                                        require in connection therewith:

                                        (i)   Microlog Corporation;

                                        (ii)  Microlog Corporation of Maryland;

                                        (iii) ODSM; and

                                        (iv)  Systems Financial.

                                        Within  sixty  (60) days  following  the
                                        execution  of this  Agreement,  Borrower
                                        shall cause Microlog Europe and Microlog
                                        U.K. Ltd. to each execute and deliver to
                                        Silicon,  on Silicon's  standard form, a
                                        guaranty and debenture  containing terms
                                        and  conditions  as Silicon may require,
                                        together  with such other  documentation
                                        as Silicon  may  require  in  connection
                                        therewith.

                                    (5) SECURITY AGREEMENT BY ODSM. Concurrently
                                        with the  execution  of this  Agreement,
                                        Borrower shall cause ODSM to execute and
                                        deliver   to   Silicon,   on   Silicon's
                                        standard  form,  a  security   agreement
                                        containing   terms  and   conditions  as
                                        Silicon may require,  together with such
                                        other   documentation   as  Silicon  may
                                        require in connection therewith

                                    (4) PATENTS,   TRADEMARKS  AND   COPYRIGHTS.
                                        Concurrently  with the execution of this
                                        Agreement,  Borrower  shall  execute and
                                        deliver   to   Silicon,   on   Silicon's
                                        standard    form(s),     any    security

<PAGE>
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TRANSMITTAL NOTE

--------------------------------------------------------------------------------
                                                                          Page 6

                                        agreement(s)  and  other   documentation
                                        which Silicon deems necessary for filing
                                        in  the   United   States   Patent   and
                                        Trademark  Office,   the  United  States
                                        Copyright   Office,    and   any   other
                                        governmental  office,  with  respect  to
                                        Borrower's     copyrights,      patents,
                                        trademarks   and   related   collateral.
                                        Within  ninety  (90) days after the date
                                        hereof,  Borrower shall (i) cause all of
                                        its computer software,  the licensing of
                                        which  results  in  Receivables,  to  be
                                        registered   with  the   United   States
                                        Copyright Office,  and (ii) execute such
                                        additional  security   agreement(s)  and
                                        other  documentation which Silicon deems
                                        necessary  for  filing  with  respect to
                                        such additional registered copyright(s)

Borrower:                                       Silicon:

MICROLOG CORPORATION                            SILICON VALLEY BANK

By /s/ Richard A. Thompson                      By /s/ Peter Bendoris
   -----------------------                         ------------------
   President or Vice President                  Title  Assistant Vice President

By /s/ Arlene A. France
   --------------------
   Secretary or Ass't Secretary

MICROLOG CORPORATION OF
MARYLAND

By /s/ Richard A. Thompson
   -----------------------
   President or Vice President

By /s/ Arlene A. France
   --------------------
   Secretary or Ass't Secretary

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00001-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00001-of-00352.parquet"}]]