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                                                                    EXHIBIT 10.3

                           AMENDED AND RESTATED BYLAWS

                                       OF

                          EASYLINK SERVICES CORPORATION

                                   ARTICLE I

                                  STOCKHOLDERS

         Section 1.1. Annual Meetings. An annual meeting of the stockholders
shall be held for the election of directors at such date, time and place either
within or without the State of Delaware as may be designated by the Board of
Directors from time to time. Any other proper business may be transacted at the
annual meeting.

         Section 1.2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute or the
certificate of incorporation of the Corporation, may be called at any time by
the Chairman or either Co-Chairman of the Board, as the case may be, the Vice
Chairman of the Board, if any, the President, if any, or the Board of Directors,
to be held at such date, time and place either within or without the State of
Delaware as may be stated in the notice of the meeting. A special meeting of
stockholders shall be called by the Secretary upon the written request, stating
the purpose of the meeting, of stockholders who together own of record a
majority of the outstanding shares of all classes of stock entitled to vote at
such meeting. Business transacted at any special meeting of the stockholders
shall be limited to the purpose or purposes stated in the notice.

         Section 1.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, directed to the stockholder at such stockholder's
address as it appears on the records of the Corporation.

         Section 1.4. Adjournments. Any meeting of stockholders, annual or
special, may be adjourned from time to time, to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.

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         Section 1.5. Quorum. At each meeting of the stockholders, except where
otherwise provided by law or by the certificate of incorporation or these
bylaws, the holders of a majority of the votes of all outstanding shares of
stock entitled to vote on a matter at the meeting, present in person or
represented by proxy, shall constitute a quorum. For purposes of the foregoing,
where a separate vote by class or classes is required for any matter, the
holders of a majority of the votes of all outstanding shares of such class or
classes, present in person or represented by proxy, shall constitute a quorum to
take action with respect to that vote on that matter. Two or more classes or
series of stock shall be considered a single class if the holders thereof are
entitled to vote together as a single class at the meeting. In the absence of a
quorum of the holders of any class of stock entitled to vote on a matter the
holders of such class so present or represented may, by majority vote, adjourn
the meeting of such class from time to time in the manner provided by Section
1.4 of these bylaws until a quorum of such class shall be so present or
represented. Shares of its own capital stock belonging on the record date of the
meeting to the Corporation or to another corporation, of which a majority of the
shares entitled to vote in the election of directors of such other corporation
is held, directly or indirectly, by the Corporation, shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
foregoing shall not limit the right of the Corporation to vote stock, including
but not limited to its own stock, held by it in a fiduciary capacity.

         Section 1.6. Organization. Meetings of the stockholders shall be
presided over by the Chairman or both Co-Chairmen of the Board, as the case may
be, or in the absence of the Chairman or Co-Chairmen of the Board, by the Vice
Chairman of the Board, if any, or, in the absence of the Vice Chairman of the
Board, by the President, or, in the absence of the President by a Vice
President, or, in the absence of the foregoing persons by a chairman designated
by the Board of Directors, or, in the absence of such designation, by a chairman
chosen at the meeting. The Secretary, or in the absence of the Secretary, an
Assistant Secretary shall act as secretary of the meeting, but in the absence of
the Secretary and any Assistant Secretary, the chairman of the meeting may
appoint any person to act as secretary of the meeting.

         Section 1.7. Voting; Proxies. Except as otherwise provided by law or in
the certificate of incorporation, each stockholder entitled to vote at any
meeting of stockholders shall be entitled to one vote for each share of stock
held by such stockholder which has voting power upon the matter in question.
Each stockholder entitled to vote at a meeting of stockholders or to express
consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power,
regardless of whether the interest with which it is coupled is an interest in
the stock itself or any interest in the Corporation generally. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or another duly
executed proxy bearing a later date with the Secretary of the Corporation.
Voting at meetings of the stockholders need not be by written ballot and need
not be conducted by inspectors unless the holders of a majority of the votes of
all outstanding shares of all classes of stock entitled to vote thereon present
in person or represented by proxy at such meeting shall so determine. On a vote
by ballot, each ballot shall be signed by the stockholder voting, or by his
proxy, if there be such proxy, and shall state the number of shares voted.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. In all other matters, unless otherwise provided by law or
by the certificate of incorporation or these bylaws, the affirmative vote of the
holders of a majority of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders.

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         Section 1.8. Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of the stockholders or any adjournment thereof, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than sixty nor less
than ten days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.

         In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to (a) its registered office in the State of Delaware,
(b) its principal place of business, or (c) an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.

         In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall not be more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.

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         Section 1.9. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, as required by applicable law.

         Section 1.10. Consent of Stockholders in Lieu of Meeting. Any action
which may be taken at a meeting of the stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the actions so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
required to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.

         Section 1.11. Conduct of Meetings. The date and time of the opening and
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors may adopt by resolution such rules and
regulations for the conduct of the meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with such rules and regulations
as adopted by the Board of Directors, the person presiding over any meeting of
stockholders shall have the right and authority to convene and to adjourn the
meeting, to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such presiding person, are appropriate for the
proper conduct of the meeting. Such rules, regulations or procedures, whether
adopted by the Board of Directors or prescribed by the presiding person of the
meeting, may include, without limitation, the following: (i) the establishment
of an agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders of
record of the Corporation, their duly authorized and constituted proxies or such
other persons as the presiding person of the meeting shall determine; (iv)
restrictions on entry to the meeting after the time fixed for the commencement
thereof; and (v) limitations on the time allotted to questions or comments by
participants. The presiding person at any meeting of stockholders, in addition
to making any other determinations that may be appropriate to the conduct of the
meeting, shall, if the facts warrant, determine and declare to the meeting that
a matter or business was not properly brought before the meeting and if such
presiding person should so determine, such presiding person shall so declare to
the meeting and any such matter or business not properly brought before the
meeting shall not be transacted or considered. Unless and to the extent
determined by the Board of Directors or the person presiding over the meeting,
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedure.

         Section 1.12. Notice of Stockholder Business and Nominations.

         (A) Annual Meetings of Stockholders.

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         (1) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders only (a) pursuant
to the Corporation's notice of meeting (or any supplement thereto), (b) by or at
the direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record of the Corporation at the time the
notice provided for in this Section 1.12 is delivered to the Secretary of the
Corporation, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this Section 1.12.

         (2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this Section 1.12, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and any such proposed business other
than the nominations of persons for election to the Board of Directors must
constitute a proper matter for stockholder action. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the ninetieth (90th)
day, nor earlier than the close of business on the one hundred twentieth (120th)
day, prior to the first anniversary of the preceding year's annual meeting
(provided, however, that in the event that the date of the annual meeting is
more than thirty (30) days before or more than seventy (70) days after such
anniversary date, notice by the stockholder must be so delivered not earlier
than the close of business on the one hundred twentieth (120th) day prior to
such annual meeting and not later than the close of business on the later of the
ninetieth (90th) day prior to such annual meeting or the tenth (10th) day
following the day on which public announcement of the date of such meeting is
first made by the Corporation; provided, further, however, that in the case of
the 2005 annual meeting of stockholders of the Corporation only, notice by the
stockholder must be so delivered not earlier than the close of business on the
ninetieth (90th) day prior to such annual meeting and not later than the close
of business on the sixtieth (60th) day prior to such annual meeting). In no
event shall the public announcement of an adjournment or postponement of an
annual meeting commence a new time period (or extend any time period) for the
giving of a stockholder's notice as described above. Such stockholder's notice
shall set forth: (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to and
in accordance with Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and (ii) such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected; (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the text of the proposal or business (including the text of
any resolutions proposed for consideration and in the event that such business
includes a proposal to amend the bylaws of the Corporation, the language of the
proposed amendment), the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such stockholder,
as they appear on the Corporation's books, and of such beneficial owner, (ii)
the class and number of shares of capital stock of the Corporation which are
owned beneficially and of record by such stockholder and such beneficial owner,
(iii) a representation that the stockholder is a holder of record of stock of
the Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to propose such business or nomination, and (iv) a
representation whether the stockholder or the beneficial owner, if any, intends
or is part of a group which intends (a) to deliver a proxy statement and/or form
of proxy to holders of at least the percentage of the Corporation's outstanding
capital stock required to approve or adopt the proposal or elect the nominee
and/or (b) otherwise to solicit proxies from stockholders in support of such
proposal or nomination. The foregoing notice requirements of this Section 1.12
shall be deemed satisfied by a stockholder if the stockholder has notified the
Corporation of his or her intention to present a proposal or nomination at an
annual meeting in compliance with applicable rules and regulations promulgated
under the Exchange Act and such stockholder's proposal or nomination has been
included in a proxy statement that has been prepared by the Corporation to
solicit proxies for such annual meeting. The Corporation may require any
proposed nominee to furnish such other information as it may reasonably require
to determine the eligibility of such proposed nominee to serve as a director of
the Corporation.

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         (3) Notwithstanding anything in the second sentence of paragraph (A)(2)
of this Section 1.12 to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation at an annual meeting
is increased and there is no public announcement by the Corporation naming the
nominees for the additional directorships at least one hundred (100) days prior
to the first anniversary of the preceding year's annual meeting, a stockholder's
notice required by this Section 1.12 shall also be considered timely, but only
with respect to nominees for the additional directorships, if it shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the tenth (10th) day following the day
on which such public announcement is first made by the Corporation.

         (B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (1) by or at the direction of the Board of
Directors or (2) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time the notice provided for
in this Section 1.12 is delivered to the Secretary of the Corporation, who is
entitled to vote at the meeting and upon such election and who complies with the
notice procedures set forth in this Section 1.12. In the event the Corporation
calls a special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder entitled to vote in
such election of directors may nominate a person or persons (as the case may be)
for election to such position(s) as specified in the Corporation's notice of
meeting, if the stockholder's notice required by paragraph (A)(2) of this
Section 1.12 shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the close of business on the one
hundred twentieth (120th) day prior to such special meeting and not later than
the close of business on the later of the ninetieth (90th) day prior to such
special meeting or the tenth (10th) day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment or postponement of a
special meeting commence a new time period (or extend any time period) for the
giving of a stockholder's notice as described above.

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     (C) General.

         (1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.12 shall be eligible to be elected at an
annual or special meeting of stockholders of the Corporation to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.12. Except as otherwise provided by law, the
chairman of the meeting shall have the power and duty (a) to determine whether a
nomination or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this Section 1.12 (including whether the stockholder or beneficial owner, if
any, on whose behalf the nomination or proposal is made solicited (or is part of
a group which solicited) or did not so solicit, as the case may be, proxies in
support of such stockholder's nominee or proposal in compliance with such
stockholder's representation as required by clause (A)(2)(c)(iv) of this Section
1.12) and (b) if any proposed nomination or business was not made or proposed in
compliance with this Section 1.12, to declare that such nomination shall be
disregarded or that such proposed business shall not be transacted.
Notwithstanding the foregoing provisions of this Section 1.12, unless otherwise
required by law, if the stockholder (or a qualified representative of the
stockholder) does not appear at the annual or special meeting of stockholders of
the Corporation to present a nomination or proposed business, such nomination
shall be disregarded and such proposed business shall not be transacted,
notwithstanding that proxies in respect of such vote may have been received by
the Corporation. For purposes of this Section 1.12, to be considered a qualified
representative of the stockholder, a person must be authorized by a writing
executed by such stockholder or an electronic transmission delivered by such
stockholder to act for such stockholder as proxy at the meeting of stockholders
and such person must produce such writing or electronic transmission, or a
reliable reproduction of the writing or electronic transmission, at the meeting
of stockholders.

         (2) For purposes of this Section 1.12, "public announcement" shall
include disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.

         (3) Notwithstanding the foregoing provisions of this Section 1.12, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 1.12. Nothing in this Section 1.12 shall be deemed to
affect any rights (a) of stockholders to request inclusion of proposals or
nominations in the Corporation's proxy statement pursuant to applicable rules
and regulations promulgated under the Exchange Act or (b) of the holders of any
series of Preferred Stock to elect directors pursuant to any applicable
provisions of the certificate of incorporation.

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                                   ARTICLE II

                               BOARD OF DIRECTORS

         Section 2.1. Powers; Number; Qualifications. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The Board of Directors shall consist of seven (7) members. The
number of the Board of Directors may be increased or decreased from time to time
by the affirmative vote of a majority of the entire Board of Directors.

         Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies.
Except as otherwise provided by statute or these bylaws, the directors (other
than members of the initial Board of Directors) shall be elected at the annual
meeting of stockholders. Each director shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. Any director may resign at any time upon written notice to the Board of
Directors or to the President or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be necessary
to make it effective. Any director or the entire Board of Directors may be
removed, with cause, by the holders of a majority of the votes of all
outstanding shares then entitled to vote at an election of directors. Unless
otherwise provided in the certificate of incorporation or these bylaws,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors or from any other cause may be filled by a
majority of the directors then in office, although less than a quorum, or by the
sole remaining director or by the stockholders at the next annual meeting
thereof or at a special meeting thereof.

         Section 2.3. Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board may from time to time determine, and if so determined
notice thereof need not be given.

         Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman or either Co-Chairman of the Board, as
the case may be, by the Vice Chairman of the Board, if any, by the President, if
any, or by any two directors. Reasonable notice thereof shall be given by the
person or persons calling the meeting.

         Section 2.5. Participation in Meetings by Conference Telephone
Permitted. Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the Board of Directors, or any committee designated by
the Board, may participate in a meeting of the Board or of such committee, as
the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this bylaw shall
constitute presence in person at such meeting.

         Section 2.6. Quorum; Vote Required for Action. At all meetings of the
Board of Directors, a majority of the entire Board shall constitute a quorum for
the transaction of business. The vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board unless the
certificate of incorporation or these bylaws shall require a vote of a greater
number. In case at any meeting of the Board a quorum is not present, the members
of the Board present may adjourn the meeting from time to time until a quorum
shall be present.

         Section 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman or jointly by Co-Chairmen of the Board, as the
case may be, or in the absence of the Chairman or both Chairmen of the Board by
the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman
of the Board by the President, if any, or in their absence by a chairman chosen
at the meeting. The Secretary, or in the absence of the Secretary an Assistant
Secretary, shall act as secretary of the meeting, but in the absence of the
Secretary and any Assistant Secretary the chairman of the meeting may appoint
any person to act as secretary of the meeting.

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         Section 2.8. Action by Directors Without a Meeting. Unless otherwise
restricted by the certificate of incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or of such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee, as the case may be.

         Section 2.9. Compensation of Directors. Unless otherwise restricted by
the certificate of incorporation or these bylaws, the Board of Directors shall
have the authority to fix the compensation of directors. All directors shall
receive their reasonable expenses, if any, of attendance at meetings of the
Board of Directors or any committee thereof. Any director may serve the
Corporation in any other capacity and receive proper compensation therefor.

                                  ARTICLE III

                                   COMMITTEES

         Section 3.1. Committees. The Board of Directors may, by resolution
adopted by a majority of the total number of directors, designate one or more
committees, each to consist of one or more of the directors of the Corporation,
which, to the extent provided in the resolution, may exercise the powers of the
Board of Directors in the management of the business and affairs of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Such committee or committees shall have
such name or names as may be determined by the resolution adopted by the
directors. The committees shall keep regular minutes of their proceedings and
report the same to the Board of Directors when required.

         Section 3.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is the present shall
be the act of such committee, and in other respects each committee shall conduct
its business in the same manner as the Board conducts its business pursuant to
Article II of these bylaws.

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                                   ARTICLE IV

                                    OFFICERS

         Section 4.1. Officers; Election. The officers shall consist of at least
a Chairman or Co-Chairmen of the Board of Directors and a Secretary. As soon as
practicable after the annual meeting of stockholders in each year, the Board of
Directors shall elect a Chairman or Co-Chairmen of the Board of Directors and a
Secretary. The Board may also, if it so determines, elect as officers of the
Corporation a Vice Chairman of the Board, a President, one or more Vice
Presidents, one or more Assistant Vice Presidents, one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers and such other
officers as the Board, as the case may be, may deem desirable or appropriate and
may give any of them such further designations or alternate titles as it
considers desirable. Any number of offices may be held by the same person unless
the certificate of incorporation or these bylaws otherwise provide.

         Section 4.2. Term of Office; Resignation; Removal; Vacancies. Unless
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any officer
may resign at any time upon written notice to the Board or to the Chairman or
Co-Chairmen of the Board, as the case may be, or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein,
and unless otherwise specified therein no acceptance of such resignation shall
be necessary to make it effective. The Board may remove any officer with or
without cause at any time by a majority vote of the total number of directors.
Any such removal shall be without prejudice to the contractual rights of such
officer, if any, with the Corporation, but the election of an officer shall not
of itself create contractual rights. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise may be filled for the
unexpired term by the Board at any regular or special meeting.

         Section 4.3. Chairman of The Board. The Chairman or Co-Chairmen of the
Board, as the case may be, shall preside at all meetings of the Board of
Directors and of the stockholders at which he, she or they shall be present. In
the absence of one Co-Chairman, the other Co-Chairman shall preside at such
meetings, but if both are present they shall jointly preside at such meetings.
The Chairman or the Co-Chairmen of the Board, as the case may be, shall be the
chief executive officer[s] and, subject to the direction of the Board, shall
have general charge and supervision of the business of the Corporation and, in
general, shall perform all duties incident to the office of Chairman of a
corporation and such other duties as may, from time to time, be assigned to him,
her or them by the Board or as may be provided by law. Co-Chairmen shall have
equal power and authority in their office, unless otherwise provided in these
bylaws or by a resolution of the Board of Directors.

         Section 4.4. Vice Chairman of The Board. In the absence of the Chairman
or both Co-Chairmen of the Board, as the case may be, the Vice Chairman of the
Board, if any, shall preside at all meetings of the Board of Directors and of
the stockholders at which he or she shall be present and shall have and may
exercise such powers as may, from time to time, be assigned to him or her by the
Board or as may be provided by law.

                                       10
<PAGE>

         Section 4.5. President. In the absence of the Chairman or both
Co-Chairmen of the Board, as the case may be, and Vice Chairman of the Board,
the President, if any, shall preside at all meetings of the Board of Directors
and of the stockholders at which he or she shall be present and shall have and
may exercise such powers as may from time to time be assigned to him or her by
the Board or as may be provided by law.

         Section 4.6. Vice Presidents. The Vice President or Vice Presidents, at
the request or in the absence of the President or during the President's
inability to act, shall perform the duties of the President, and when so acting
shall have the powers of the President. If there be more than one Vice
President, the Board of Directors may determine which one or more of the Vice
Presidents shall perform such other duties as may, from time to time, be
assigned to him or her by them by the Board or the President or as may be
provided by law.

         Section 4.7. Secretary. The Secretary shall have the duty to record the
proceedings of the meetings of the stockholders, the Board of Directors and any
committees in a book to be kept for that purpose, shall see that all notices are
duly given in accordance with the provisions of these bylaws or as required by
law, shall be custodian of the records of the Corporation, may affix the
corporate seal to any document the execution of which, on behalf of the
Corporation, is duly authorized, and when so affixed may attest the same, and,
in general, shall perform all duties incident to the office of secretary of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the Chairman or Co-Chairmen of the Board of Directors, as
the case may be, or as may be provided by law.

         Section 4.8. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by or under
authority of the Board of Directors. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his or her duties, with such
surety or sureties as the Board may determine. The Treasurer shall keep or cause
to be kept full and accurate records of all receipts and disbursements in books
of the Corporation, shall render to the Chairman or Co-Chairmen of the Board, as
the case may be, and to the Board, whenever requested, an account of the
financial condition of the Corporation, and, in general, shall perform all the
duties incident to the office of treasurer of a corporation and such other
duties as may, from time to time, be assigned to him or her by the Board or the
Chairman or Co-Chairmen of the Board of Directors, as the case may be, or as may
be provided by law.

         Section 4.9. Other Officers. The other officers, if any, of the
Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in a resolution of the Board of Directors which
is not inconsistent with these bylaws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board. The Board may require any officer, agent or employee to give security for
the faithful performance of his or her duties.

         Section 4.10. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he or she is also a
director of the Corporation.

                                       11
<PAGE>

ARTICLE V

                                      STOCK

Section 5.1. Certificates. Every holder of stock in the Corporation shall be
entitled to have a certificate signed by or in the name of the Corporation by
the Chairman or either of the Co-Chairmen, as the case may be, or Vice Chairman
of the Board of Directors, if any, or the President or a Vice President, and by
the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary, of the Corporation, representing the number of shares of stock in the
Corporation owned by such holder. For purposes of ss.158 of the Corporation Law
of the State of Delaware or any other provision of law, the signature of either
Co-Chairman of the Board of Directors shall constitute the signature of "the
Chairman" as provided for therein, unless otherwise prohibited by law, the
certificate of incorporation or these bylaws.

         There shall be set forth on the face or back of the certificate a
statement referencing the restrictions on transfer of the certificates and
stating that the attempted transfer in violation of such restrictions shall not
be registered on the books of the Corporation.

         If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences and
relative, participating, option or other special rights of each class of stock
or series thereof and the qualifications of restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided by law, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.

         Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.

         Section 5.3. Transfer of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.

                                       12
<PAGE>

         Section 5.4. Transfer Agents and Registrars. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.

         Section 5.5. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its records as the
owner of shares of stock to receive dividends and to vote as such owner, shall
be entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares of stock on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.

                                   ARTICLE VI

                                  MISCELLANEOUS

         Section 6.1. Registered Office. The registered office of the
Corporation within the State of Delaware shall be in the City of Wilmington,
County of New Castle.

Section 6.2. Other Offices. The Corporation may also have an office or offices
other than said registered office at such place or places, either within or
without the State of Delaware, as the Board of Directors shall from time to time
determine or the business of the Corporation may require.

         Section 6.3. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.

         Section 6.4. Seal. The Corporation may have a corporate seal which
shall have the name of the Corporation inscribed thereon and shall be in such
form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.

         Section 6.5. Waiver of Notice of Meetings of Stockholders, Directors
and Committees. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these bylaws.

                                       13
<PAGE>

         Section 6.6. Indemnification of Directors, Officers and Employees. The
Corporation shall indemnify such persons for such liabilities in such manner,
under such circumstances and to such extent as permitted by Section 145 of the
Delaware General Corporation Law, as now enacted or hereafter amended. The Board
of Directors may authorize the purchase and maintenance of insurance and/or the
execution of individual agreements for the purpose of such indemnification, and
the Corporation shall advance all reasonable costs and expenses (including
attorney's fees) incurred in defending any action, suit or proceeding to all
persons entitled to indemnification under this section 6.6, all in the manner,
under the circumstances and to the extent permitted by Section 145 of the
Delaware General Corporation Law, as now enacted or hereafter amended.

         Section 6.7. Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.

         Section 6.8. Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
accounts and minute books, may be kept in, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.

         Section 6.9. Dividends. Subject to the provisions of law and the
certificate of incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special,
meeting. Dividends may be paid in cash, in property or in shares of stock of the
Corporation, unless otherwise provided by statute or the certificate of
incorporation.

                                       14
<PAGE>

         Section 6.10. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repair or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which it was created.
P
         Section 6.11. Checks, Notes, Drafts, Etc. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.

         Section 6.12. Execution of Contracts, Deeds, Etc. The Board of
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific-instances.

         Section 6.13. Voting of Stock in Other Corporations. Unless otherwise
provided by resolution of the Board of Directors, the Chairman or either
Co-Chairman of the Board, as the case may be, from time to time, may (or may
appoint one or more attorneys or agents to) cast the votes which the Corporation
may be entitled to cast as a shareholder or otherwise in any other corporation,
any of whose shares or securities may be held by the Corporation, at meetings of
the holders of the shares or other securities of such other corporation. In the
event one or more attorneys or agents are appointed, the Chairman or Co-Chairmen
of the Board, as the case may be, may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent. The
Chairman or Co-Chairmen of the Board, as the case may be, may, or may instruct
the attorneys or agents appointed to, execute or cause to be executed in the
name and on behalf of the Corporation and under its seal or otherwise, such
written proxies, consents, waivers or other instruments as may be necessary or
proper in the circumstances.

         Section 6.14. Amendment of Bylaws. These bylaws may be amended or
repealed by a vote of the majority of the total number of directors or a vote of
the stockholders by a majority of the votes of all outstanding shares of stock
entitled to vote in a general election of directors.

                                       15PURCHASE AGREEMENT

      This Purchase  Agreement  (this  "AGREEMENT") is dated as of April 4, 2005
among Calypte Biomedical  Corporation,  a Delaware  corporation (the "COMPANY"),
and the investors  identified on the signature  pages hereto (each an "INVESTOR"
and, collectively, the "INVESTORS").

      WHEREAS,  subject to the terms and conditions set forth in this Agreement,
the Company  desires to borrow  certain sums from each of the Investors  and, in
consideration  thereof issue certain  convertible  notes and warrants to each of
the Investors,  and each Investor,  severally and not jointly, desires to make a
loan to the Company and accept such notes and  warrants  from the  Company,  all
pursuant to the terms set forth herein.

      NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement,  and for  other  good and  valuable  consideration  the  receipt  and
adequacy of which are hereby  acknowledged,  the Company and the Investors agree
as follows:

                                   ARTICLE I.
                                   DEFINITIONS

      1.1  Definitions.  In  addition  to the terms  defined  elsewhere  in this
Agreement,  for all purposes of this  Agreement,  the following terms shall have
the meanings indicated in this Section 1.1:

            "ACTION"  means any  action,  suit,  inquiry,  notice of  violation,
proceeding   (including  any  partial   proceeding  such  as  a  deposition)  or
investigation pending or threatened in writing against or affecting the Company,
any  Subsidiary or any of their  respective  properties  before or by any court,
arbitrator,   governmental  or  administrative   agency,   regulatory  authority
(federal,  state,  county,  local or foreign),  stock market,  stock exchange or
trading facility.

            "ADDITIONAL WARRANT" means the Common Stock purchase warrant, in the
form of Exhibit D, issuable to each Investor at the Closing.

            "AFFILIATE"  means any Person that,  directly or indirectly  through
one or more  intermediaries,  controls or is  controlled  by or is under  common
control with a Person, as such terms are used in and construed under Rule 144.

            "BANKRUPTCY  EVENT"  means  any of the  following  events:  (a)  the
Company  or  any  Subsidiary   commences  a  proceeding  under  any  bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or  liquidation  or similar law of any  jurisdiction  relating to the
Company or any Subsidiary thereof; (b) there is commenced against the Company or
any Subsidiary any such case or proceeding that is not dismissed  within 60 days
after commencement;  (c) the Company or any Subsidiary is adjudicated by a court
of competent  jurisdiction insolvent or bankrupt or any order of relief or other
order  approving any such case or proceeding is entered;  (d) the Company or any
Subsidiary  suffers any  appointment  of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within 60

<PAGE>

days; (e) under  applicable  law the Company or any  Subsidiary  makes a general
assignment for the benefit of creditors; (f) the Company or any Subsidiary fails
to pay,  or states  that it is  unable  to pay or is  unable  to pay,  its debts
generally as they become due; (g) the Company or any Subsidiary  calls a meeting
of  its  creditors  with  a view  to  arranging  a  composition,  adjustment  or
restructuring of its debts; or (h) the Company or any Subsidiary,  by any act or
failure to act, expressly  indicates its consent to, approval of or acquiescence
in any of the  foregoing or takes any  corporate or other action for the purpose
of effecting any of the foregoing.

            "BASIC AMOUNT" shall have the meaning set forth in Section 4.4.

            "BENEFIT  ARRANGEMENT"  means at any time an employee  benefit  plan
within the meaning of Section 3(3) of ERISA which is not a Plan or Multiemployer
Plan and which is maintained or otherwise contributed by the Company.

            "BENEFIT PLAN" has the meaning set forth in Section 3.1(aa)(ii).

            "BUSINESS  DAY"  means any day except  Saturday,  Sunday and any day
that is a federal legal holiday or a day on which  banking  institutions  in the
State of New York are authorized or required by law or other governmental action
to close.

            "CLOSING"  means the closing of the  purchase  and sale of Notes and
Warrants contemplated by Section 2.1.

            "CLOSING DATE" means the Business Day immediately following the date
on which all of the  conditions set forth in Section 2.1(d) and 2.1(e) have been
satisfied, or such other date as the parties may agree.

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

            "COMMISSION" means the Securities and Exchange Commission.

            "COMMON STOCK" means the common stock of the Company, par value $.03
per share,  and any  securities  into which such common  stock may  hereafter be
reclassified, converted or exchanged.

            "COMMON STOCK  EQUIVALENTS"  means any  securities of the Company or
any  Subsidiary  which entitle the holder thereof to acquire Common Stock at any
time, including without limitation,  any debt, preferred stock, rights, options,
warrants  or  other   instrument  that  is  at  any  time  convertible  into  or
exchangeable  for, or otherwise  entitles the holder thereof to receive,  Common
Stock or other  securities  that  entitle  the holder to  receive,  directly  or
indirectly, Common Stock.

            "COMPANY COUNSEL" means Coudert Brothers LLP.

                                       2
<PAGE>

            "DEBT" of any Person means at any date, without duplication, (i) all
obligations  of such Person for borrowed  money,  (ii) all  obligations  of such
Person  evidenced by bonds,  debentures,  notes,  or other  similar  instruments
issued by such Person,  (iii) all  obligations  of such Person in respect of the
deferred purchase price of property or services  (including  contingent payment,
earn-out and similar obligations but excluding current accounts payable incurred
in the ordinary  course of  business),  (iv) all  obligations  of such Person as
lessee which (y) are  capitalized in accordance  with GAAP or (z) arise pursuant
to sale-leaseback transactions, (v) all reimbursement obligations of such Person
in  respect  of  letters  of  credit  or  other  similar  instruments,  (vi) all
obligations,  contingent  or  otherwise,  of such  Person in respect of bankers'
acceptances,  (vii) obligations of such Person to pay a specified purchase price
for goods or services  whether or not delivered or accepted  (e.g.,  take or pay
obligations) or similar  obligations,  (viii) all obligations and liabilities of
others of the foregoing types ("indebtedness") secured by a Lien on any asset of
such Person, whether or not such Debt is otherwise an obligation of such Person,
and (ix) any obligation, contingent or otherwise, of such Person guaranteeing or
having  the  economic  effect  of  guaranteeing  or  agreeing  to pay or  become
responsible  for any  indebtedness  of any other  Person in any manner,  whether
directly or  indirectly,  including  without  limitation  any obligation of such
Person,  direct or indirect,  (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such  indebtedness or to purchase (or to advance
or supply  funds for the  purchase  of) any  security  for the  payment  of such
indebtedness,  (b) to purchase  property or services for the purpose of assuring
the owner of such indebtedness of its payment,  or (c) to maintain the solvency,
working capital, equity, cash flow, fixed charge or other coverage ratio, or any
other  financial  condition  of the primary  obligor so as to enable the primary
obligor to pay any indebtedness or to comply with any agreement  relating to any
indebtedness  or  obligation,  provided that the term  "indebtedness"  shall not
include  endorsements  for  collection  or  deposit  in the  ordinary  course of
business.  The Debt of any Person  shall  include  the Debt of any other  entity
(including  any  partnership  in which such Person is a general  partner) to the
extent such Person is liable  therefor  as a result of such  Person's  ownership
interest in or other  relationship  with such  entity,  except to the extent the
terms of such Debt expressly provide that such Person is not liable therefor.

            "DISCLOSURE MATERIALS" has the meaning set forth in Section 3.1(h).

            "EFFECTIVE  DATE"  means  the date that the  Registration  Statement
required by Section 2(a) of the Registration  Rights Agreement is first declared
effective by the Commission.

            "ELIGIBLE MARKET" means any of the New York Stock Exchange, American
Stock Exchange, NASDAQ National Market or NASDAQ SmallCap Market.

            "ERISA" means the Employee  Retirement  Income Security Act of 1974,
as amended, or any successor statute.

            "ERISA GROUP" means the Company and each  Subsidiary and all members
of a controlled group of corporations  and all trades or businesses  (whether or
not incorporated)  under common control which,  together with the Company or any
Subsidiary, are treated as a single employer under the Code.

                                       3
<PAGE>

            "EXCHANGE  ACT"  means  the  Securities  Exchange  Act of  1934,  as
amended.

            "GAAP" means U.S. generally accepted accounting principles.

            "INITIAL  WARRANT" means the Common Stock purchase  warrant,  in the
form of Exhibit C, issuable to each Investor at the Closing.

            "INTELLECTUAL  PROPERTY RIGHTS" has the meaning set forth in Section
3.1(p).

            "INVESTMENT  AMOUNT"  means,  with  respect  to each  Investor,  the
investment amount indicated below such Investor's signature to this Agreement.

            "INVESTOR DELIVERABLES" has the meaning set forth in Section 2.1(c).

            "INVESTOR PARTY" has the meaning set forth in Section 4.12.

            "LIEN" means any lien, charge, encumbrance, security interest, right
of first refusal or other restrictions of any kind.

            "LOSSES" has the meaning set forth in Section 4.12.

            "MATERIAL  ADVERSE  EFFECT"  means any of (i) a material and adverse
effect on the legality,  validity or enforceability of any Transaction Document,
(ii) a  material  and  adverse  effect on the  results  of  operations,  assets,
prospects, business or condition (financial or otherwise) of the Company and the
Subsidiaries or (iii) an adverse  impairment to the Company's  ability to timely
perform its obligations under any Transaction Document.

            "NEW YORK COURTS" means the state and federal  courts sitting in the
City of New York, Borough of Manhattan.

            "NOTES" means the secured  convertible  promissory notes issuable by
the  Company  to the  Investors  at Closing in the Form of Exhibit A, due on the
three year anniversary of the Closing Date.

            "NOTICE OF  ACCEPTANCE"  shall have the meaning set forth in Section
4.4.

            "OFFER" shall have the meaning set forth in Section 4.4.

            "OFFERED  SECURITIES"  shall have the  meaning  set forth in Section
4.4.

            "OUTSIDE DATE" means April 6, 2005.

            "PBGC" means the Pension Benefit Guarantee Corporation or any entity
succeeding to any or all of its functions under ERISA.

                                       4
<PAGE>

            "PERMITTED  FOREIGN  SUBSIDIARY  DEBT"  means  Debt  of all  foreign
Subsidiaries  and  guarantees  by the  Company  of such  Debt,  in an  aggregate
principal  amount  (without  duplication)  not to exceed  $5,000,000 at any time
outstanding.

            "PERMITTED  INDEBTEDNESS"  means:  (a) Debt in existence on the date
hereof, as shown on Schedule 5.3,  including any extensions or renewals thereof,
provided,  there  is no  increase  in the  principal  amount  thereof  or  other
significant change in the terms thereof, (b) trade payables incurred and paid in
the ordinary course of business,  (c) the Vencore Purchase Money Financing,  (d)
Debt of the  Company  incurred to finance the  purchase  of  equipment  or other
personal property,  which is secured by the property being purchased  (including
obligations of the Company as lessee which are  capitalized  in accordance  with
GAAP or arise pursuant to sale-leaseback transactions) in an aggregate principal
amount not to exceed  $3,000,000 at any time outstanding  (excluding the Vencore
Purchase Money  Financing),  provided that such Debt is incurred  promptly after
the  acquisition of such equipment or personal  property,  but in no event later
than 90 days  thereafter,  (e) unsecured Debt of the Company in connection  with
transactions involving acquisitions, equipment or real property leases, sale and
leasebacks,  strategic partnering, or licensing arrangements,  provided that (i)
the aggregate  principal amount of such Debt shall not exceed  $3,000,000 at any
time outstanding and (ii) such Debt is subordinated to the Obligations  pursuant
to subordination  agreements in form and substance  acceptable to the Investors,
(f)  unsecured  Debt of the Company  incurred in  connection  with any financing
arrangement  with Marr  Technologies BV in an aggregate  principal amount not to
exceed  $5,500,000  at any  time  outstanding  and  (g)  the  Permitted  Foreign
Subsidiary Debt.

            "PERMITTED  LIENS"  means:  (a)  Liens  for  taxes,  assessments  or
governmental  charges not  delinquent  or being  contested  in good faith and by
appropriate  proceedings and for which adequate reserves in accordance with GAAP
are  maintained on the books of the Company or the  applicable  Subsidiary;  (b)
Liens  arising  out  of  deposits  in  connection  with  workers'  compensation,
unemployment insurance, old age pensions, social security or retirement benefits
legislation incurred in the ordinary course of business; (c) deposits or pledges
to secure bids,  tenders,  contracts  (other than  contracts  for the payment of
money),  leases,  statutory  obligations,  surety  and appeal  bonds,  and other
obligations  of like nature  arising in the  ordinary  course of business of the
Company or a Subsidiary; (d) Liens imposed by law, such as mechanics', workers',
materialmens',  carriers' or other like liens arising in the ordinary  course of
business of the Company or a Subsidiary  which secure the payment of obligations
which are not past due or which are being diligently  contested in good faith by
appropriate  proceedings and for which adequate reserves in accordance with GAAP
are  maintained on the books of the Company or the  applicable  Subsidiary;  (e)
Liens  existing on the date hereof and specified on Schedule  3.1(dd),  provided
that each such Lien does not apply to other  property or asset of the Company or
any Subsidiary and such Lien shall secure only those  obligations its secures on
the date  hereof  (including  any  extensions  or renewals  thereof  that do not
increase in the principal  amount  thereof);  (f) Liens on the assets of foreign
Subsidiaries securing Permitted Foreign Subsidiary Debt, (g) Liens of commercial
depository   institutions,   arising  in  the   ordinary   course  of  business,
constituting  a  statutory  or common  law right of setoff  against  amounts  on
deposit with such institution; (h) rights of way, zoning restrictions, easements
and similar  encumbrances  affecting  the Company's  real property  which do not
materially  interfere  with  the use of such  property;  (i)  Liens  on fixed or

                                       5
<PAGE>

capital assets  acquired by the Company,  provided that (1) such Lien secures in
connection  with  Debt  described  in  clause  (c) or (d) of the  definition  of
Permitted Indebtedness,  (2) such Lien and the Debt secured thereby are incurred
within 90 days after such  acquisition,  (3) the Debt  secured  thereby does not
exceed the cost of  acquiring  such  assets and (4) such Lien shall not apply to
any other  assets or property of the  Company or any  Subsidiary;  and (j) Liens
created under the Security Agreement.

            "PERSON"  means an individual or  corporation,  partnership,  trust,
incorporated or  unincorporated  association,  joint venture,  limited liability
company,  joint stock company,  government (or an agency or subdivision thereof)
or other entity of any kind.

            "PLAN" means at any time an employee pension plan benefit plan which
is  covered by Title IV of ERISA or subject  to the  minimum  funding  standards
under the Code and either (i) is maintained, or contributed to, by any member of
the ERISA  group for  employees  of any member of the ERISA group or (ii) has at
any time within the preceding five years been maintained,  or contributed to, by
any Person  which was at such time a member of the ERISA Group for  employees of
any Person which was at such time a member of the ERISA group.

            "PRIOR PLACEMENTS" means that certain Securities Purchase Agreement,
dated May 28, 2004, and that certain Securities Purchase  Agreement,  dated July
9,  2004,  as each have been  amended  pursuant  to that  certain  Amendment  to
Securities Purchase Agreement, dated as of the date hereof ("AMENDMENT").

            "PROCEEDING"  means  an  action,   claim,  suit,   investigation  or
proceeding   (including,   without  limitation,   an  investigation  or  partial
proceeding, such as a deposition), whether commenced or threatened.

            "REFUSED  SECURITIES"  shall have the  meaning  set forth in Section
4.4.

            "REGISTRATION  STATEMENT" means a registration statement meeting the
requirements  set forth in the  Registration  Rights  Agreement and covering the
resale by the Investors of the Underlying Shares and Warrant Shares.

            "REGISTRATION   RIGHTS  AGREEMENT"  means  the  Registration  Rights
Agreement,  dated as of the date of this  Agreement,  among the  Company and the
Investors, in the form of Exhibit B hereto.

            "REQUIRED  INVESTORS"  means  one  or  more  Investors  representing
greater  than  50%  of  the  aggregate   principal  amount  of  all  Notes  then
outstanding.

            "REQUIRED  MINIMUM"  means,  as of any date,  the maximum  aggregate
number of shares of Common  Stock then  issued or  potentially  issuable  in the
future  pursuant to the  Transaction  Documents that the Company is obligated to
issue, whether  contingently or otherwise,  including,  without limitation,  any
Underlying  Shares  issuable  upon  conversion  in full of all Notes and Warrant
Shares  issuable  upon exercise in full of all Warrants  (without  regard to any
otherwise  applicable  conversion or exercise  restrictions  contained  therein)
(assuming for such purpose that the  Conversion  Price (as defined in the Notes)
and the Exercise Price (as defined in the Warrants) equals 75% of the Conversion
Price and Exercise Price in effect on the Closing Date).

                                       6
<PAGE>

            "RESTRICTED  PAYMENT"  means,  with  respect to any Person,  (a) any
direct or indirect  distribution,  dividend or other  payment  (whether in cash,
securities or other property) on account of any equity interest in, or shares of
capital stock or other  securities of, such Person,  (b) any payment (whether in
cash,  securities  or other  property),  including  any sinking  fund or similar
deposit,  on  account  of the  purchase,  redemption,  retirement,  acquisition,
cancellation  or  termination  of any such equity  interest,  (c) any payment of
principal or interest or any purchase,  redemption,  retirement,  acquisition or
defeasance  with respect to any Debt of such Person which is subordinated to the
payment of the Notes, unless such payment is expressly permitted by the terms of
the applicable  subordination  agreement, (d) other than as permitted by Section
5.10, the  acquisition  for value by such Person of any Debt or equity  interest
issued by any Affiliate (other than a wholly-owned  subsidiary) thereof, and (e)
any  management,  consulting or other  similar  fees,  or any interest  thereon,
payable by such Person to any Affiliate of such Person (other than the Company),
or to any other Person other than an unrelated third party;  provided,  however,
that Restricted Payments shall not include payments under consulting  agreements
so long as such consulting  agreements which contain equity components have been
approved by the Board of Directors of the Company.

            "RULE 144" means Rule 144 promulgated by the Commission  pursuant to
the  Securities  Act,  as such Rule may be  amended  from  time to time,  or any
similar  rule  or  regulation   hereafter   adopted  by  the  Commission  having
substantially the same effect as such Rule.

            "SEC REPORTS" has the meaning set forth in Section 3.1(h).

            "SECURITIES"  means the Notes, the Warrants,  the Underlying  Shares
and the Warrant Shares.

            "SECURITIES ACT" means the Securities Act of 1933, as amended.

            "SECURITY AGREEMENT" has the meaning set forth in Section 2.1(b).

            "SHORT  SALES"  include,  without  limitation,  all "short sales" as
defined  in Rule  3b-3  of the  Exchange  Act and  Rule  200  promulgated  under
Regulation SHO under the Exchange Act and all types of direct and indirect stock
pledges,  forward sale contracts,  options,  puts, calls, short sales, swaps and
similar  arrangements  (including on a total return basis),  and sales and other
transactions through non-US broker dealers or foreign regulated brokers.

            "STRATEGIC TRANSACTION" means a transaction or relationship in which
the Company issues shares of Common Stock or other  securities of the Company to
a Person which is, itself or through its subsidiaries, an operating company in a
business  synergistic  with the business of the Company and in which the Company
receives  benefits in addition to the investment of funds, but shall not include
a  transaction  in which the  Company is issuing  securities  primarily  for the
purpose of raising  capital or to an entity whose primary  business is investing
in  securities.  Strategic  Transaction  includes  bona fide  equipment  or real
property leases, sale and leaseback, or licensing agreements, provided that such
transaction  is approved by the Board of Directors of the company and is not for
the purpose of raising capital.

                                       7
<PAGE>

            "SUBSEQUENT  PLACEMENT"  shall have the meaning set forth in Section
4.4.

            "SUBSIDIARY"  means any  subsidiary  of the Company now or hereafter
existing in which the Company,  directly or  indirectly,  owns a majority of the
voting stock or other voting equity interests.

            "TRADING DAY" means (i) a day on which the Common Stock is traded on
an  Eligible  Market,  or (ii) if the Common  Stock is not listed on an Eligible
Market,  a day on which  the  Common  Stock is  traded  in the  over-the-counter
market,  as reported by the OTC Bulletin Board or the National  Quotation Bureau
Incorporated,  or (iii) if the Common  Stock is not  quoted on the OTC  Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter  market
as  reported  by the  National  Quotation  Bureau  Incorporated  (or any similar
organization  or  agency  succeeding  to its  functions  of  reporting  prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

            "TRADING MARKET" means whichever of the New York Stock Exchange, the
American Stock Exchange,  the NASDAQ National Market, the NASDAQ SmallCap Market
or OTC Bulletin  Board on which the Common Stock is listed or quoted for trading
on the date in question.

            "TRANSACTION  DOCUMENTS"  means  this  Agreement,   the  Notes,  the
Registration  Rights  Agreement,  the  Warrants,  the  Security  Agreement,  the
Amendment,  the Voting Agreement and any other documents or agreements  executed
in connection with the transactions contemplated hereunder.

            "UNDERLYING  SHARES" means the shares of Common Stock  issuable upon
conversion of the Notes and payment of interest thereunder.

            "VENCORE  PURCHASE  MONEY  FINANCING"  means  Debt  of  the  Company
incurred  in  connection  with the Vencore  equipment  financing  line  (whether
pursuant to a loan,  capital lease  obligation,  sale/leaseback  transaction  or
otherwise) in an aggregate  principal  amount not to exceed one million  dollars
($1,000,000) at any time outstanding, provided that such Debt is incurred within
90 days after such acquisition of such equipment.

            "VOTING AGREEMENT" means that certain voting agreement, by and among
the  Company  and the  stockholders  identified  therein,  dated  as of the date
hereof.

            "VWAP" means, with respect to any date of  determination,  the daily
volume weighted  average price (as reported by Bloomberg using the VAP function)
of the Common Stock on such date of determination,  or if there is no such price
on such date of  determination,  then the daily volume weighted average price on
the date nearest preceding such date.

                                       8
<PAGE>

            "WARRANTS"  means,  collectively,   the  Initial  Warrants  and  the
Additional Warrants.

            "WARRANT  SHARES"  means the shares of Common  Stock  issuable  upon
exercise of the Warrants.

                                  ARTICLE II.
                                PURCHASE AND SALE

      2.1 Closing.

            (a) Subject to the terms and conditions set forth in this Agreement,
at the  Closing  the Company  shall  issue and sell to each  Investor,  and each
Investor shall, severally and not jointly,  purchase from the Company, the Notes
and the Warrants  representing such Investor's  Investment  Amount.  The Closing
shall take place at the offices of Bryan Cave LLP,  1290 Avenue of the Americas,
New York,  NY 10104 at 4:30 p.m.  (New York City time) on the Closing Date or at
such other location or time as the parties may agree.

            (b) At the  Closing,  the  Company  shall  deliver  or  cause  to be
delivered to each Investor the following (the "COMPANY DELIVERABLES"):

                  (i) Notes in the aggregate  principal amount of the Investment
Amount  indicated  below  such  Investor's  name on its  signature  page of this
Agreement, registered in the name of such Investor;

                  (ii)  Initial  Warrants,   registered  in  the  name  of  such
Investor,  pursuant to which such  Investor  shall have the right to acquire the
number of shares of Common Stock equal to 100% of the Underlying Shares issuable
upon an assumed  conversion of the Notes issuable to such Investor in accordance
with Section 2.1(b)(i) (without regard to any conversion  restrictions contained
thereunder);

                  (iii)  Additional  Warrants,  registered  in the  name of such
Investor,  pursuant to which such  Investor  shall have the right to acquire the
number of shares of Common Stock equal to 45% of the Underlying  Shares issuable
upon an assumed  conversion of the Notes issuable to such Investor in accordance
with Section 2.1(b)(i) (without regard to any conversion  restrictions contained
thereunder);

                  (iv) the legal  opinion of Company  Counsel,  in agreed  form,
addressed to the Investors;

                  (v) the Registration  Rights  Agreement,  duly executed by the
Company;

                  (vi) a security  agreement,  duly executed by the Company,  in
the form  attached  hereto as Exhibit D (as amended,  supplemented  or otherwise
modified from time to time, the "SECURITY AGREEMENT");

                                       9
<PAGE>

                  (vii) a certificate  executed by a duly authorized  officer of
the Company certifying that (i) all  representations  and warranties made by the
Company  and  information  furnished  by the  Company in any  schedules  to this
Agreement, are true and correct in all material respects as of the Closing Date,
(ii) all covenants,  agreements and obligations required by this Agreement to be
performed or complied with by the Company, prior to or at the Closing, have been
performed  or  complied  with  and  (iii)  the  items   referenced  in  Sections
2.1(d)(iv)-(vi) are true and correct as of the Closing Date;

                  (viii) lien and record  search  reports in form and  substance
acceptable  to the Investors  showing that there are no Liens on the  collateral
security  granted  under the  Security  Agreement,  other than  Liens  expressly
permitted thereby; and

                  (ix)  any  other  documents   reasonably   requested  by  such
Investor.

            (c) At the  Closing,  each  Investor  shall  deliver  or cause to be
delivered to the Company the following (the "INVESTOR DELIVERABLES"):

                  (i) the Investment Amount indicated below such Investor's name
on its  signature  page of this  Agreement,  in  United  States  dollars  and in
immediately  available  funds,  by wire  transfer  to an account  designated  in
writing by the Company for such purpose;

                  (ii) the Registration Rights Agreement,  duly executed by such
Investor; and

                  (iii) the Security Agreement, duly executed by such Investor.

            (d)  Conditions  Precedent  to the  Obligations  of an  Investor  to
Purchase  Notes and Warrants.  The  obligation of each Investor to acquire Notes
and  Warrants  and make loans at the Closing is subject to the  satisfaction  or
waiver by such  Investor,  at or before the  Closing,  of each of the  following
conditions:

                  (i)  Representations  and Warranties.  The representations and
warranties of the Company  contained in the Transaction  Documents shall be true
and correct as of the date when made and as of the  Closing  Date as though made
on and as of such date;

                  (ii) Performance. The Company shall have performed,  satisfied
and complied  with all  covenants,  agreements  and  conditions  required by the
Transaction  Documents to be  performed,  satisfied or complied with by it at or
prior to the Closing;

                  (iii)  Officer's   Certificate.   The  officer's   certificate
described in Section 2.1(b)(vii) hereof shall have been delivered;

                  (iv) No Injunction.  No statute, rule,  regulation,  executive
order,  decree,   ruling  or  injunction  shall  have  been  enacted,   entered,
promulgated  or endorsed by any court or  governmental  authority  of  competent
jurisdiction  that  prohibits  the  consummation  of  any  of  the  transactions
contemplated by the Transaction Documents;

                                       10
<PAGE>

                  (v) Adverse Changes. Since the execution of this Agreement, no
event or series of events shall have occurred  that has had or would  reasonably
be expected to result in a Material Adverse Effect;

                  (vi) No  Suspensions  of  Trading  in Common  Stock;  Listing.
Trading in the Common Stock shall not have been  suspended by the  Commission or
any Trading Market  (except for any  suspensions of trading of not more than one
Trading Day solely to permit dissemination of material information regarding the
Company)  at any time since the date of  execution  of this  Agreement,  and the
Common  Stock shall have been at all times since such date listed for trading on
an Eligible Market; and

                  (vii) Company  Deliverables.  The Company shall have delivered
the Closing Company Deliverables in accordance with Section 2.1(b).

                  (e) Conditions  Precedent to the Obligations of the Company to
sell  Notes and  Warrants.  The  obligation  of the  Company  to sell  Notes and
Warrants at the Closing is subject to the satisfaction or waiver by the Company,
at or before the Closing, of each of the following conditions:

                  (i)  Representations  and Warranties.  The representations and
warranties of each Investor contained herein shall be true and correct as of the
date when made and as of the Closing Date as though made on and as of such date;

                  (ii)   Performance.   Each  Investor  shall  have   performed,
satisfied and complied in all material  respects with all covenants,  agreements
and conditions required by the Transaction Documents to be performed,  satisfied
or complied with by such Investor at or prior to the Closing;

                  (iii) No Injunction.  No statute, rule, regulation,  executive
order,  decree,   ruling  or  injunction  shall  have  been  enacted,   entered,
promulgated  or endorsed by any court or  governmental  authority  of  competent
jurisdiction  that  prohibits  the  consummation  of  any  of  the  transactions
contemplated by the Transaction Documents; and

                  (iv)   Investors   Deliverables.   Each  Investor  shall  have
delivered its Investor Deliverables in accordance with Section 2.1(c).

            (f) American  Stock Exchange  Approval.  The American Stock Exchange
shall have orally  approved  the  American  Stock  Exchange  Additional  Listing
Application  submitted by the Company (in a form  acceptable  to the  Investors)
with respect to the transactions contemplated by the Transaction Documents.

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

      3.1  Representations  and  Warranties of the Company.  The Company  hereby
makes the following representations and warranties to each Investor:

                                       11
<PAGE>

            (a) Subsidiaries. The Company has no direct or indirect Subsidiaries
other than as  specified  in the SEC  Reports.  Except as  disclosed in Schedule
3.1(a),  the Company owns,  directly or indirectly,  all of the capital stock of
each  Subsidiary  free and  clear of any and all  Liens  (other  than  Permitted
Liens),  and all the issued  and  outstanding  shares of  capital  stock of each
Subsidiary  are validly  issued and are fully paid,  non-assessable  and free of
preemptive and similar rights.

            (b) Organization and Qualification.  The Company and each Subsidiary
are duly  incorporated  or  otherwise  organized,  validly  existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as  applicable),  with the  requisite  power and  authority  to own and use its
properties  and  assets and to carry on its  business  as  currently  conducted.
Neither the Company nor any  Subsidiary is in violation of any of the provisions
of its  respective  certificate  or articles of  incorporation,  bylaws or other
organizational  or charter  documents.  The Company and each Subsidiary are duly
qualified to conduct its  respective  businesses  and are in good  standing as a
foreign  corporation or other entity in each jurisdiction in which the nature of
the  business  conducted  or  property  owned  by it  makes  such  qualification
necessary,  except where the failure to be so qualified or in good standing,  as
the case may be, could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.

            (c)  Authorization;  Enforcement.  The  Company  has  the  requisite
corporate  power and authority to enter into and to consummate the  transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations  thereunder.  The execution and delivery of each of the  Transaction
Documents  by  the  Company  and  the  consummation  by it of  the  transactions
contemplated  thereby have been duly  authorized by all necessary  action on the
part of the  Company  and no  further  action  is  required  by the  Company  in
connection therewith.  Each Transaction Document has been (or upon delivery will
have been) duly executed by the Company and, when  delivered in accordance  with
the terms  hereof,  will  constitute  the valid and  binding  obligation  of the
Company  enforceable against the Company in accordance with its terms, except as
such  enforceability  may  be  limited  by  applicable  bankruptcy,  insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting  generally the  enforcement of,  creditors'  rights and remedies or by
other equitable principles of general application.

            (d) No Conflicts.  The  execution,  delivery and  performance of the
Transaction  Documents by the Company and the consummation by the Company of the
transactions  contemplated  thereby  do not and  will not (i)  conflict  with or
violate any  provision  of the  Company's  or any  Subsidiary's  certificate  or
articles of incorporation,  bylaws or other organizational or charter documents,
or (ii) conflict  with, or constitute a default (or an event that with notice or
lapse of time or both  would  become a  default)  under,  or give to others  any
rights of termination,  amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument  (evidencing  a Company or  Subsidiary  debt or  otherwise)  or other
understanding  to which the Company or any Subsidiary is a party or by which any
property  or asset of the Company or any  Subsidiary  is bound or  affected,  or

                                       12
<PAGE>

(iii)  result in a violation  of any law,  rule,  regulation,  order,  judgment,
injunction,  decree or other restriction of any court or governmental  authority
to which the Company or a  Subsidiary  is subject  (including  federal and state
securities  laws and  regulations),  or by which  any  property  or asset of the
Company  or a  Subsidiary  is bound or  affected;  except in the case of each of
clauses (ii) and (iii),  such as could not,  individually  or in the  aggregate,
have or reasonably be expected to result in a Material Adverse Effect. Except as
set forth in Schedule  3.1(d),  payments of cash on account of  principal  of or
interest under the Notes, upon any Event of Default under the Notes, as a result
of liquidated damages under any Transaction  Document or upon a Buy-In under and
as such term is  defined  in a Warrant  will not  require  the  consent  of, any
payment to, or the  springing  of any Lien in favor of any lender to or creditor
of the Company or any  Subsidiary  (under a credit  facility,  loan agreement or
otherwise)  and will not result in a default  under any such credit  facilities,
loans or other agreements.

            (e) Filings,  Consents and Approvals. The Company is not required to
obtain any consent,  waiver,  authorization  or order of, give any notice to, or
make any filing or registration  with, any court or other federal,  state, local
or  other  governmental  authority  or  other  Person  in  connection  with  the
execution, delivery and performance by the Company of the Transaction Documents,
other  than (i) the  filing  with  the  Commission  of one or more  Registration
Statements in accordance with the requirements  Registration  Rights  Agreement,
(ii) filings  required by state securities laws, (iii) the filing of a Notice of
Sale of  Securities  on Form D with the  Commission  under  Regulation  D of the
Securities  Act (iv) the filings  required in  accordance  with  Section 4.7 and
4.10,  and (iv) those that have been made or obtained  prior to the date of this
Agreement.

            (f)  Issuance  of the  Securities.  The  Securities  have  been duly
authorized  and,  when issued and paid for in  accordance  with the  Transaction
Documents,  will be duly and validly issued, fully paid and nonassessable,  free
and clear of all  Liens.  The  Company  has  reserved  from its duly  authorized
capital stock a number of shares of Common Stock issuable upon conversion of the
Notes and upon exercise of the Warrants,  which number of reserved shares is not
less than the Required Minimum calculated as of the date hereof.

            (g) Capitalization. The number of shares and type of all authorized,
issued and  outstanding  capital stock of the Company,  and all shares of Common
Stock  reserved for issuance  under the Company's  various  option and incentive
plans, is specified in the SEC Reports.  Except as specified in the SEC Reports,
no securities of the Company are entitled to preemptive or similar  rights,  and
no  Person  has  any  right  of  first  refusal,   preemptive  right,  right  of
participation,   or  any  similar  right  to  participate  in  the  transactions
contemplated  by the  Transaction  Documents.  Except  as  specified  in the SEC
Reports,   and  except  in  connection   with  the  issuance  of   Anti-Dilution
Entitlements and New Entitlements (each as defined in the Amendment),  there are
no  outstanding  options,  warrants,  scrip  rights to  subscribe  to,  calls or
commitments of any character  whatsoever  relating to, or securities,  rights or
obligations convertible into or exchangeable for, or giving any Person any right
to  subscribe  for or  acquire,  any  shares  of  Common  Stock,  or  contracts,
commitments,  understandings  or  arrangements  by  which  the  Company  or  any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights  convertible or  exchangeable  into shares of Common Stock.
Except in connection  with the issuance of  Anti-Dilution  Entitlements  and New

                                       13
<PAGE>

Entitlements, the issue and sale of the Securities will not, immediately or with
the passage of time,  obligate  the Company to issue  shares of Common  Stock or
other securities to any Person (other than the Investors) and will not result in
a right of any holder of Company securities to adjust the exercise,  conversion,
exchange or reset price under such securities.

            (h) SEC  Reports;  Financial  Statements.  The Company has filed all
reports,  forms  or other  information  required  to be  filed  by it under  the
Securities  Act and the Exchange  Act,  including  pursuant to Section  13(a) or
15(d) thereof,  for the twelve months preceding the date hereof (or such shorter
period as the Company was required by law to file such reports)  (the  foregoing
materials  being  collectively  referred  to  herein as the "SEC  REPORTS"  and,
together  with  the  Schedules  to this  Agreement  (if  any),  the  "DISCLOSURE
MATERIALS") on a timely basis or has timely filed a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such
extension.  As of  their  respective  dates,  the SEC  Reports  complied  in all
material  respects with the  requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated thereunder,  and
none of the SEC  Reports,  when  filed,  contained  any  untrue  statement  of a
material fact or omitted to state a material fact required to be stated  therein
or  necessary  in  order  to  make  the  statements  therein,  in  light  of the
circumstances  under  which  they  were  made,  not  misleading.  The  financial
statements  of the Company  included in the SEC Reports  comply in all  material
respects with applicable  accounting  requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing.  Such
financial  statements  have been prepared in  accordance  with GAAP applied on a
consistent  basis  during  the  periods  involved,  except  as may be  otherwise
specified in such financial  statements or the notes thereto, and fairly present
in all  material  respects  the  financial  position  of  the  Company  and  its
consolidated  Subsidiaries  as of and for the dates  thereof  and the results of
operations  and cash flows for the periods then ended,  subject,  in the case of
unaudited statements,  to normal,  immaterial,  year-end audit adjustments.  For
purposes of this Agreement,  any reports, forms or other information provided to
the Commission whether by filing, furnishing or otherwise providing, is included
in the term "filed" (or any derivations thereof).

            (i) Press Releases.  The press releases  disseminated by the Company
during the twelve months  preceding the date of this Agreement  taken as a whole
do not  contain  any  untrue  statement  of a  material  fact or omit to state a
material  fact  required to be stated  therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made and
when made, not misleading.

            (j) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports,  except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not  incurred any  liabilities  (contingent  or  otherwise)
other than (A) trade payables,  accrued expenses and other liabilities  incurred
in the  ordinary  course  of  business  consistent  with past  practice  and (B)
liabilities  (not  to  exceed  $50,000)  not  required  to be  reflected  in the
Company's  financial  statements pursuant to GAAP or required to be disclosed in
filings made with the  Commission,  (iii) the Company has not altered its method
of accounting or the identity of its auditors, (iv) the Company has not declared

                                       14
<PAGE>

or  made  any  dividend  or  distribution  of  cash  or  other  property  to its
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital  stock,  and (v) the Company has not issued any equity
securities to any officer,  director or Affiliate,  except  pursuant to existing
Company stock option plans and consistent  with past practice.  The Company does
not have pending before the Commission any request for confidential treatment of
information.

            (k)  Litigation.  There is no Action which (i) adversely  affects or
challenges the legality,  validity or  enforceability  of any of the Transaction
Documents or the Securities or (ii) except as specifically  disclosed in the SEC
Reports,  would, if there were an unfavorable  decision,  individually or in the
aggregate,  have or  reasonably  be  expected  to result in a  Material  Adverse
Effect.  Neither  the Company nor any  Subsidiary,  nor any  director or officer
thereof  (in his or her  capacity  as such),  is or has been the  subject of any
Action  involving a claim of violation of or  liability  under  federal or state
securities laws or a claim of breach of fiduciary  duty,  except as specifically
disclosed in the SEC Reports.  There has not been,  and to the  knowledge of the
Company there is not pending,  any investigation by the Commission involving the
Company or any  current or former  director or officer of the Company (in his or
her  capacity as such).  The  Commission  has not issued any stop order or other
order suspending the  effectiveness  of any registration  statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.

            (l) Labor  Relations.  No material  labor dispute  exists or, to the
knowledge of the Company,  is imminent  with respect to any of the  employees of
the Company.

            (m)  Compliance.  Neither the Company nor any  Subsidiary  (i) is in
default  under or in violation  of (and no event has occurred  that has not been
waived that, with notice or lapse of time or both,  would result in a default by
the Company or any  Subsidiary  under),  nor has the  Company or any  Subsidiary
received  notice  of a  claim  that  it is in  default  under  or  that it is in
violation of, any indenture,  loan or credit agreement or any other agreement or
instrument  to which it is a party  or by which it or any of its  properties  is
bound  (whether or not such default or violation  has been  waived),  (ii) is in
violation of any order of any court,  arbitrator or governmental  body, or (iii)
is or  has  been  in  violation  of  any  statute,  rule  or  regulation  of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection,  occupational health
and safety, product quality and safety and employment and labor matters,  except
in each case as could not, individually or in the aggregate,  have or reasonably
be expected to result in a Material Adverse Effect. The Company is in compliance
with all effective  requirements of the  Sarbanes-Oxley Act of 2002, as amended,
and the rules and  regulations  thereunder,  that are  applicable  to it, except
where such noncompliance could not have or reasonably be expected to result in a
Material Adverse Effect.

            (n) Regulatory Permits. The Company and the Subsidiaries possess all
certificates,  authorizations  and permits  issued by the  appropriate  federal,
state,  local or foreign  regulatory  authorities  necessary  to  conduct  their
respective businesses as described in the SEC Reports,  except where the failure
to possess such permits could not,  individually  or in the  aggregate,  have or
reasonably be expected to result in a Material  Adverse Effect,  and neither the
Company nor any Subsidiary  has received any notice of  proceedings  relating to
the revocation or modification of any such permits.

                                       15
<PAGE>

            (o) Title to Assets.  The Company and the Subsidiaries have good and
marketable  title in fee  simple  to all  real  property  owned by them  that is
material to their respective businesses and good and valid title in all personal
property owned by them that is material to their respective businesses,  in each
case free and clear of all Liens,  except for Permitted Liens. Any real property
and facilities held under lease by the Company and the  Subsidiaries are held by
them under valid, subsisting and enforceable leases of which the Company and the
Subsidiaries  are in  compliance,  except as could not,  individually  or in the
aggregate,  have or  reasonably  be  expected  to result in a  Material  Adverse
Effect.

            (p) Patents and Trademarks.

                  (i)  Schedule  3.1(p)   accurately  sets  forth  all  material
Intellectual  Property that is used in the Company's  business.  The Company and
the Subsidiaries have, or have rights to use, all patents,  patent applications,
trademarks,  trademark  applications,  service marks,  trade names,  copyrights,
licenses  and other  similar  rights that are  necessary  or material for use in
connection with their respective  businesses as described in the SEC Reports and
which the failure to so have could,  individually  or in the aggregate,  have or
reasonably be expected to result in a Material Adverse Effect (collectively, the
"INTELLECTUAL  PROPERTY  RIGHTS").  Neither the Company nor any  Subsidiary  has
received a written  notice  that the  Intellectual  Property  Rights used by the
Company or any  Subsidiary  violates or infringes upon the rights of any Person.
Except as set forth in the SEC Reports,  to the  knowledge  of the Company,  all
such  Intellectual  Property  Rights  (i) are  enforceable  and (ii) there is no
existing  infringement  by another  Person of any of the  Intellectual  Property
Rights.

                  (ii) Except as set forth in Schedule  3.1(p),  the Company has
not transferred any rights or interest in, or granted any exclusive license with
respect to, any of its Intellectual Property Rights, to any third party.

                  (iii) To the Company's  knowledge,  all Intellectual  Property
Rights of the Company and its  Subsidiaries are currently in compliance with all
legal requirements  (including timely filings,  proofs and payments of fees). To
the Company's knowledge,  no Intellectual  Property Rights of the Company or its
Subsidiaries  which are  necessary  for the conduct of the Company's and each of
its Subsidiaries'  respective  businesses as currently conducted or as currently
proposed  to  be  conducted  are  involved  in  any  cancellation,   dispute  or
litigation,  and, to the Company's knowledge,  no such action is threatened.  No
patent of the  Company or its  Subsidiaries  is  involved  in any  interference,
reissue, re-examination or opposition proceeding.

                  (iv) All of the licenses and sublicenses and consent,  royalty
or other agreements  concerning  Intellectual  Property Rights which the Company
uses in its and each of its  Subsidiaries'  respective  businesses  as currently
conducted or as  currently  proposed to be conducted to which the Company or any
Subsidiary  is a party or by which any of their  assets  are bound  (other  than
generally commercially available, non-custom, off-the-shelf software application

                                       16
<PAGE>

programs  having a retail  acquisition  price of less than  $10,000 per license)
(collectively,  "License  Agreements") are valid and binding  obligations of the
Company or its  Subsidiaries  that are parties  thereto  and,  to the  Company's
knowledge,  the other parties  thereto,  enforceable  in  accordance  with their
terms,  except  to  the  extent  that  enforcement  thereof  may be  limited  by
bankruptcy,  insolvency,  reorganization,  moratorium,  fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally, and
which the failure to so have could,  individually  or in the aggregate,  have or
reasonably be expected to result in a Material Adverse Effect.

                  (vii) The consummation of the transactions contemplated hereby
and by the other Transaction Documents will not result in the alteration,  loss,
impairment  of or  restriction  on the  Company's  or  any of its  Subsidiaries'
ownership  or right to use any of the  Intellectual  Property  Rights  which are
necessary for the conduct of Company's and each of its Subsidiaries'  respective
businesses as currently conducted or as currently proposed to be conducted.

                  (viii) The Company and its Subsidiaries  have taken reasonable
steps to protect  the  Company's  and its  Subsidiaries'  Intellectual  Property
Rights.  Each  employee,  consultant  and contractor who have access to material
confidential information which is necessary for the conduct of the Company's and
each of its  Subsidiaries'  respective  businesses as currently  conducted or as
currently  proposed to be  conducted  has  executed an agreement to maintain the
confidentiality  of such confidential  information and has executed  appropriate
agreements that are substantially  consistent with the Company's  standard forms
thereof.  Except  under  confidentiality   obligations,   the  Company  has  not
materially  disclosed  any of the  Company's or its  Subsidiaries'  confidential
information to any third party.

            (q)  Insurance.  The  Company  and the  Subsidiaries  are insured by
insurers of recognized  financial  responsibility  against such losses and risks
and in such amounts as are prudent and customary in the  businesses in which the
Company and the Subsidiaries  are engaged.  The Company has no reason to believe
that it will not be able to renew its and the Subsidiaries'  existing  insurance
coverage as and when such coverage  expires or to obtain  similar  coverage from
similar  insurers  as may  be  necessary  to  continue  its  business  on  terms
consistent with market for the Company's and such Subsidiaries' respective lines
of business.

            (r) Transactions With Affiliates and Employees.  Except as set forth
in the SEC Reports, none of the officers or directors of the Company and, to the
knowledge  of the Company,  none of the  employees of the Company is presently a
party to any  transaction  with the  Company or any  Subsidiary  (other than for
services  as  employees,  officers  and  directors),   including  any  contract,
agreement or other  arrangement  providing for the  furnishing of services to or
by,  providing for rental of real or personal  property to or from, or otherwise
requiring payments to or from any officer,  director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee  has a  substantial  interest  or is an officer,  director,  trustee or
partner.

            (s)  Internal  Accounting  Controls.  The Company  believes  that it
maintains  controls   sufficient  to  provide  reasonable   assurance  that  (i)
transactions are executed in accordance with management's general or specific

                                       17
<PAGE>

authorizations,   (ii)   transactions   are  recorded  as  necessary  to  permit
preparation  of financial  statements  in  conformity  with GAAP and to maintain
asset  accountability,  (iii) access to assets is permitted  only in  accordance
with  management's  general or  specific  authorization,  and (iv) the  recorded
accountability  for assets is compared  with the existing  assets at  reasonable
intervals and appropriate action is taken with respect to any differences. Based
on  its  status  as  a  non-accelerated  filer,  the  Company  believes  it  has
established disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the Company and designed such  disclosure  controls
and  procedures  to ensure that  material  information  relating to the Company,
including its Subsidiaries,  is made known to the certifying  officers by others
within those  entities,  particularly  during the period in which the  Company's
Form  10-KSB or 10-QSB,  as the case may be, is being  prepared.  The  Company's
certifying  officers have evaluated the effectiveness of the Company's  controls
and procedures in accordance  with Item 307 of Regulation S-B under the Exchange
Act for the Company's  most  recently  ended fiscal  quarter or fiscal  year-end
(such date, the "EVALUATION  DATE").  The Company presented in its most recently
filed Form  10-KSB or Form 10-QSB the  conclusions  of the  certifying  officers
about the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation  Date.  Since the Evaluation  Date,  there have
been no changes in the Company's  internal controls that would be required to be
disclosed  pursuant to Item 308(c) of Regulation  S-B under the Exchange Act or,
to the Company's  knowledge,  in other factors that could reasonably be expected
to have a Material Adverse Effect on the Company's internal controls.

            (t) Solvency.  Based on the financial condition of the Company as of
the Closing Date and assuming that the Closing shall have occurred,  the current
cash flow of the Company,  together with the proceeds the Company would receive,
were  it to  liquidate  all  of  its  assets,  after  taking  into  account  all
anticipated  uses of the cash,  would be  sufficient to pay all amounts on or in
respect of its current  liabilities  when such  amounts are required to be paid.
The Company has no current  intention  to incur debts  beyond its ability to pay
such debts as they mature (taking into account the timing and amounts of cash to
be payable on or in respect of such liabilities).

            (u)  Certain  Fees.  Except  as set  forth in  Schedule  3.1(u),  no
brokerage or finder's fees or commissions  are or will be payable by the Company
to any  broker,  financial  advisor  or  consultant,  finder,  placement  agent,
investment  banker,  bank or  other  Person  with  respect  to the  transactions
contemplated  by this  Agreement.  The Investors  shall have no obligation  with
respect  to any fees or with  respect  to any  claims  (other  than such fees or
commissions owed by a Investor pursuant to written  agreements  executed by such
Investor  which fees or  commissions  shall be the sole  responsibility  of such
Investor) made by or on behalf of other Persons for fees of a type  contemplated
in this Section that may be due in connection with the transactions contemplated
by this Agreement.

            (v)  Certain  Registration  Matters.  Assuming  the  accuracy of the
Investors'  representations and warranties set forth in Section  3.2(b)-(e),  no
registration  under the Securities Act is required for the offer and sale of the
Securities by the Company to the Investors under the Transaction Documents.  The
Company is eligible to register the resale of its Common Stock for resale by the
Investors  under Form SB-2 or Form S-3  promulgated  under the  Securities  Act.
Except as specified in Schedule 3.1(v), the Company has not granted or agreed to
grant to any Person any rights (including  "piggy-back"  registration rights) to
have any securities of the Company  registered  with the Commission or any other
governmental authority that have not been satisfied or exercised.

                                       18
<PAGE>

            (w) Listing and Maintenance Requirements. Except as specified in the
SEC Reports,  the Company has not, in the two years  preceding  the date hereof,
received notice from any Trading Market to the effect that the Company is not in
compliance with the listing or maintenance requirements thereof. The Company is,
and has no reason to believe that it will not in the foreseeable future continue
to be, in compliance with the listing and maintenance requirements for continued
listing of the Common  Stock on the Trading  Market on which the Common Stock is
currently  listed or quoted.  The issuance and sale of the Securities  under the
Transaction  Documents  does not  contravene  the rules and  regulations  of the
Trading  Market  on which  the  Common  Stock is  currently  listed  or  quoted,
including, without limitation, the issuance and delivery to the Investors of the
Securities  contemplated  by  the  Transaction  Documents,  provided,  that  the
Company's  stockholders  will be required to approve any shares of Common  Stock
issuable in connection with payments of interest on the principal of the Notes.

            (x) Investment Company.  The Company is not, and is not an Affiliate
of, and  immediately  following  Closing  will not have become,  an  "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

            (y) Application of Takeover  Protections.  The Company has taken all
necessary  action,  if any, in order to render  inapplicable  any control  share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation  (or similar charter  documents) or the laws of its
state of  incorporation  that is or could become  applicable to the Investors or
stockholders  of the  Company  prior  to any  Closing  Date as a  result  of the
Investors and the Company  fulfilling  their  obligations  or  exercising  their
rights  under  the  Transaction  Documents,  including  without  limitation  the
Company's  issuance  of the  Securities  and  the  Investors'  ownership  of the
Securities.

            (z)  No  Additional  Agreements.  The  Company  does  not  have  any
agreement or  understanding  with any Investor with respect to the  transactions
contemplated  by the  Transaction  Documents  other  than  as  specified  in the
Transaction Documents.

            (aa) Compliance  with ERISA.  (i) Each member of the ERISA Group has
fulfilled its obligations  under the minimum funding  standards of ERISA and the
Code with respect to each Plan and is in  compliance  in all  material  respects
with the presently  applicable  provisions of ERISA and the Code with respect to
each Plan.  No member of the ERISA  Group has (i) sought a waiver of the minimum
funding  standard  under  Section  412 of the Code in respect of any Plan,  (ii)
failed to make any required contribution or payment to any Plan or Multiemployer
Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan
or Benefit Arrangement,  which has resulted or could result in the imposition of
a Lien or the  posting of a bond or other  security  under  ERISA or the Code or
(iii)  incurred any liability  under Title IV of ERISA other than a liability to
the PBGC for premiums under Section 4007 of ERISA.

                                       19
<PAGE>

                  (ii) The  benefit  plans not  covered  under  clause (a) above
(including profit sharing,  deferred compensation,  stock option, employee stock
purchase,  bonus,  retirement,  health  or  insurance  plans,  collectively  the
"BENEFIT  PLANS")  relating to the employees of the Company are duly  registered
where required by, and are in good standing in all material  respects under, all
applicable laws. All required  employer and employee  contributions and premiums
under the Benefit Plans to the date hereof have been made, the  respective  fund
or funds  established  under the  Benefit  Plans are funded in  accordance  with
applicable laws, and no past service funding liabilities exist thereunder.

                  (iii) No Benefit Plans have any unfunded  liabilities,  either
on a "going concern" or "winding up" basis and determined in accordance with all
applicable  laws and actuarial  practices and using  actuarial  assumptions  and
methods that are reasonable in the  circumstances.  No event has occurred and no
condition  exists with  respect to any Benefit  Plans that has resulted or could
reasonably  be expected to result in any  pension  plan having its  registration
revoked or wound up (in whole or in part) or  refused  for the  purposes  of any
applicable laws or being placed under the administration of any relevant pension
benefits  regulatory  authority or being  required to pay any taxes or penalties
(in any material amounts) under any applicable laws.

            (bb) Taxes. All United States federal,  state, county,  municipality
local  or  foreign  income  tax  returns  and all  other  material  tax  returns
(including  foreign tax returns)  which are required to be filed by or on behalf
of the Company and each  Subsidiary  have been filed and all material  taxes due
pursuant to such returns or pursuant to any  assessment  received by the Company
and each Subsidiary have been paid except those being disputed in good faith and
for which adequate  reserves have been  established.  The charges,  accruals and
reserves on the books of the Company and each  Subsidiary in respect of taxes or
other governmental charges have been established in accordance with GAAP.

            (cc) Absence of Any Undisclosed Liabilities or Capital Calls. Except
for  litigation  described in the SEC Reports,  there are no  liabilities of the
Company or any Subsidiary of any kind whatsoever,  whether accrued,  contingent,
absolute,  determined,  determinable  or  otherwise,  and  there is no  existing
condition,  situation or set of circumstances which could reasonably be expected
to result in such a liability,  other than (i) those liabilities provided for in
the Company's financial statements and (ii) other undisclosed liabilities which,
individually  or in the aggregate,  could not have, or reasonably be expected to
result in, a Material Adverse Effect.

            (dd) Secured Indebtedness. As of the Closing Date, other than as set
forth in Schedule 3.1(dd), the Company has no Debt that is secured by any Lien.

            (ee)  Seniority.  As of the date of this  Agreement,  except  as set
forth on Schedule 3.1(ee), no indebtedness of the Company is senior to the Notes
in right of payment,  whether  with respect to interest or upon  liquidation  or
dissolution, or otherwise.

                                       20
<PAGE>

            (ff)  No   Integrated   Offering.   Assuming  the  accuracy  of  the
Purchasers' representations and warranties set forth in Section 3.2, neither the
Company, nor any of its affiliates, nor any Person acting on its or their behalf
has,  directly  or  indirectly,  made any  offers  or sales of any  security  or
solicited any offers to buy any security,  under  circumstances that would cause
this offering of the  Securities to be  integrated  with prior  offerings by the
Company  for  purposes  of the  Securities  Act or  any  applicable  shareholder
approval  provisions,   including,  without  limitation,  under  the  rules  and
regulations  of any Trading Market on which any of the securities of the Company
are listed or designated.

            (gg) Foreign  Corrupt  Practices.  Neither the  Company,  nor to the
knowledge  of the  Company,  any agent or other  person  acting on behalf of the
Company,   has  (i)  directly  or  indirectly,   used  any  funds  for  unlawful
contributions,  gifts,  entertainment  or other  unlawful  expenses  related  to
foreign  or  domestic  political  activity,  (ii) made any  unlawful  payment to
foreign or  domestic  government  officials  or  employees  or to any foreign or
domestic  political  parties or campaigns from corporate funds,  (iii) failed to
disclose  fully any  contribution  made by the  Company  (or made by any  person
acting on its behalf of which the  Company is aware)  which is in  violation  of
law, or (iv)  violated in any  material  respect  any  provision  of the Foreign
Corrupt Practices Act of 1977, as amended.

            (hh) Disclosure. The Company confirms that neither it nor any Person
acting on its behalf has  provided  any  Investor  or its  respective  agents or
counsel with any information  that the Company  believes  constitutes  material,
non-public information except insofar as the existence and terms of the proposed
transactions hereunder may constitute such information.  The Company understands
and confirms that the Investors will rely on the foregoing  representations  and
covenants in effecting transactions in securities of the Company. All disclosure
provided  to  the  Investors  regarding  the  Company,   its  business  and  the
transactions  contemplated  hereby,  furnished  by or on behalf  of the  Company
(including  the  Company's  representations  and  warranties  set  forth in this
Agreement) are true and correct in all material  respects and do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the  statements  made  therein,  in light of the  circumstances
under which they were made, not misleading.

      3.2 Representations and Warranties of the Investors. Each Investor hereby,
for itself and for no other Investor,  represents and warrants to the Company as
follows:

            (a)  Organization;  Authority.  Such  Investor  is  an  entity  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of the
jurisdiction  of its  organization  with the requisite  corporate or partnership
power  and  authority  to  enter  into  and  to  consummate   the   transactions
contemplated by the applicable  Transaction Documents and otherwise to carry out
its  obligations  thereunder.  The execution,  delivery and  performance by such
Investor  of the  transactions  contemplated  by this  Agreement  have been duly
authorized by all necessary corporate or, if such Investor is not a corporation,
such partnership,  limited liability company or other applicable like action, on
the part of such  Investor.  Each of this  Agreement,  the  Registration  Rights
Agreement and the Security  Agreement  has been duly executed by such  Investor,
and when  delivered  by such  Investor in  accordance  with terms  hereof,  will

                                       21
<PAGE>

constitute  the  valid  and  legally   binding   obligation  of  such  Investor,
enforceable   against  it  in  accordance   with  its  terms,   except  as  such
enforceability   may  be   limited   by   applicable   bankruptcy,   insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting  generally the  enforcement of,  creditors'  rights and remedies or by
other equitable principles of general application.

            (b) Investment Intent.  Such Investor is acquiring the Securities as
principal for its own account for  investment  purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice,  however,  to such Investor's right at all times to sell or otherwise
dispose of all or any part of such  Securities  in  compliance  with  applicable
federal  and  state  securities  laws.  Subject  to  the  immediately  preceding
sentence,  nothing contained herein shall be deemed a representation or warranty
by such Investor to hold the Securities for any period of time. Such Investor is
acquiring the Securities hereunder in the ordinary course of its business.  Such
Investor does not have any agreement or  understanding,  directly or indirectly,
with any Person to distribute any of the Securities.

            (c)  Investor  Status.  At the time such  Investor  was  offered the
Securities,  it was, and at the date hereof it is, an  "accredited  investor" as
defined  in Rule  501(a)  under  the  Securities  Act.  Such  Investor  is not a
registered broker-dealer under Section 15 of the Exchange Act.

            (d)  General  Solicitation.  Such  Investor  is not  purchasing  the
Securities  as  a  result  of  any  advertisement,   article,  notice  or  other
communication  regarding the Securities published in any newspaper,  magazine or
similar media or broadcast over  television or radio or presented at any seminar
or any other general solicitation or general advertisement.

            (e) Access to Information.  Such Investor  acknowledges  that it has
reviewed the Disclosure  Materials and has been afforded (i) the  opportunity to
ask such questions as it has deemed  necessary of, and to receive  answers from,
representatives  of the  Company  concerning  the  terms and  conditions  of the
offering  of the  Securities  and the  merits  and  risks  of  investing  in the
Securities;  (ii) access to information  about the Company and the  Subsidiaries
and their  respective  financial  condition,  results of  operations,  business,
properties,  management  and  prospects  sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or expense that
is  necessary  to make an  informed  investment  decision  with  respect  to the
investment.  Neither such inquiries nor any other investigation  conducted by or
on behalf of such Investor or its representatives or counsel shall modify, amend
or affect such Investor's right to rely on the truth,  accuracy and completeness
of the  Disclosure  Materials and the Company's  representations  and warranties
contained in the Transaction Documents.

            (f) Certain  Trading  Activities.  Such Investor has not directly or
indirectly,  nor  has  any  Person  acting  on  behalf  of or  pursuant  to  any
understanding with such Investor,  engaged in any transactions in the securities
of the Company (including,  without  limitations,  any Short Sales involving the
Company's  securities)  since  the  earlier  to occur of (1) the time  that such
Investor was first  contacted by the Company or placement  agent  engaged by the

                                       22
<PAGE>

Company  regarding  an  investment  in the Company  pursuant to the  Transaction
Documents  and  (2) the  20th  day  prior  to the  time  that  the  transactions
contemplated  by this  Agreement  are publicly  disclosed  by the Company.  Such
Investor  covenants  that  neither  it nor any  Person  acting on its  behalf or
pursuant to any  understanding  with it will engage in any  transactions  in the
securities  of the Company  (including  Short  Sales) prior to the time that the
transactions  contemplated  by  this  Agreement  are  publicly  disclosed.  Such
Investor  acknowledges  that it may not use shares  registered  pursuant  to the
Registration  Statement  to cover short sales of Common  Stock made prior to the
date on which the  Registration  Statement  has been  declared  effective by the
Commission.  Notwithstanding the foregoing, in the case of an Investor that is a
multi-managed  investment  vehicle whereby  separate  portfolio  managers manage
separate portions of such Investor's  assets and the portfolio  managers have no
actual  knowledge of the  investment  decisions  made by the portfolio  managers
managing other portions of such Investor's  assets, the representation set forth
above  shall  only apply with  respect to the  portion of assets  managed by the
portfolio  manager that made the investment  decision to purchase the Securities
covered by this Agreement.

            (g) Independent Investment Decision. Such Investor has independently
evaluated  the merits of its  decision to purchase  Securities  pursuant to this
Agreement,  and such  Investor  confirms that it has not relied on the advice of
any other Investor's business and/or legal counsel in making such decision.

The  Company  acknowledges  and agrees  that no  Investor  has made or makes any
representations  or  warranties  with respect to the  transactions  contemplated
hereby other than those specifically set forth in this Section 3.2.

                                  ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

      4.1 (a) The  Securities  may only be disposed of in compliance  with state
and federal  securities  laws. In connection with any transfer of the Securities
other than pursuant to an effective registration  statement,  to the Company, to
an Affiliate of an Investor or in connection  with a pledge as  contemplated  in
Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably  satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred  Securities
under the Securities Act.

            (b)   Certificates   evidencing  the  Securities  will  contain  the
following legend, until such time as they are not required under Section 4.1(c):

                  [NEITHER THESE  SECURITIES  NOR THE  SECURITIES  ISSUABLE UPON
                  CONVERSION   OR  EXERCISE  OF  THESE   SECURITIES   HAVE  BEEN
                  REGISTERED]  [THESE  SECURITIES HAVE NOT BEEN REGISTERED] WITH
                  THE  SECURITIES  AND  EXCHANGE  COMMISSION  OR THE  SECURITIES
                  COMMISSION  OF ANY STATE IN RELIANCE  UPON AN  EXEMPTION  FROM
                  REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE

                                       23
<PAGE>
                  "SECURITIES  ACT"),  AND,  ACCORDINGLY,  MAY NOT BE OFFERED OR
                  SOLD EXCEPT  PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT
                  UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
                  FROM,  OR IN A  TRANSACTION  NOT SUBJECT TO, THE  REGISTRATION
                  REQUIREMENTS  OF THE  SECURITIES  ACT AND IN  ACCORDANCE  WITH
                  APPLICABLE  STATE  SECURITIES  LAWS  AS  EVIDENCED  BY A LEGAL
                  OPINION OF  COUNSEL  TO THE  TRANSFEROR  TO SUCH  EFFECT,  THE
                  SUBSTANCE  OF WHICH  SHALL  BE  REASONABLY  ACCEPTABLE  TO THE
                  COMPANY.  [THESE  SECURITIES AND THE SECURITIES  ISSUABLE UPON
                  CONVERSION OR EXERCISE OF THESE SECURITIES] [THESE SECURITIES]
                  MAY BE PLEDGED IN CONNECTION  WITH A BONA FIDE MARGIN  ACCOUNT
                  SECURED BY SUCH SECURITIES.

            The Company  acknowledges  and agrees that an Investor may from time
to  time  pledge,  and/or  grant  a  security  interest  in  some  or all of the
Securities  pursuant to a bona fide margin  agreement in connection  with a bona
fide  margin  account  and,  if required  under the terms of such  agreement  or
account,  such  Investor  may  transfer  pledged  or secured  Securities  to the
pledgees or secured  parties.  Such a pledge or transfer would not be subject to
approval or consent of the Company and no legal  opinion of legal counsel to the
pledgee,  secured  party or pledgor  shall be  required in  connection  with the
pledge,  but such legal opinion may be required in connection  with a subsequent
transfer  following default by the Investor  transferee of the pledge. No notice
shall be required of such pledge.  At the appropriate  Investor's  expense,  the
Company will execute and deliver such reasonable  documentation  as a pledgee or
secured party of Securities may reasonably  request in connection  with a pledge
or  transfer  of the  Securities  including  the  preparation  and filing of any
required  prospectus  supplement  under Rule  424(b)(3) of the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of selling stockholders thereunder.

            (c)  Certificates  evidencing  Underlying  Shares and Warrant Shares
shall not contain any legend (including the legend set forth in Section 4.1(b)):
(i)  while a  registration  statement  (including  the  Registration  Statement)
covering such  Underlying  Shares or Warrant Shares is then  effective,  or (ii)
following a sale or transfer of such  Securities  pursuant to Rule 144 (assuming
the  transferor  is not an  Affiliate  of the  Company),  or  (iii)  while  such
Securities are eligible for sale under Rule 144(k). The Company may not make any
notation  on its  records  or give  instructions  to any  transfer  agent of the
Company that enlarge the restrictions on transfer set forth in this Section. The
Company agrees that it shall, at its sole cost and expense, within three Trading
Days following such time as restrictive legends would not then be required under
this Section 4.1(c),  issue and deliver to such Investor  certificates  that are
free of restrictive legends representing  Underlying Shares or Warrant Shares in
replacement  of  Underlying  Shares or Warrant  Shares  previously  issued  with
restrictive legends.

      4.2  Furnishing  of  Information.   As  long  as  any  Investor  owns  the
Securities,  the  Company  covenants  to timely  file (or obtain  extensions  in
respect  thereof  and file  within the  applicable  grace  period)  all  reports

                                       24
<PAGE>

required  to be filed by the  Company  after  the date  hereof  pursuant  to the
Exchange  Act. As long as any Investor  owns  Securities,  if the Company is not
required to file reports  pursuant to such laws,  it will prepare and furnish to
the Investors and make  publicly  available in accordance  with Rule 144(c) such
information as is required for the Investors to sell the  Underlying  Shares and
Warrant Shares under Rule 144. The Company  further  covenants that it will take
such further action as any holder of Securities may reasonably  request,  all to
the  extent  required  from  time to time to  enable  such  Person  to sell  the
Underlying Shares and Warrant Shares without  registration  under the Securities
Act within the limitation of the exemptions provided by Rule 144.

      4.3 Listing of Securities.  The Company agrees, (i) if the Company applies
to have the Common Stock traded on any other Trading Market,  it will include in
such  application the Underlying  Shares and Warrant Shares,  and will take such
other action as is necessary  or  desirable to cause the  Underlying  Shares and
Warrant  Shares  to be listed  on such  other  Trading  Market  as  promptly  as
possible,  and (ii) it will take all action reasonably necessary to continue the
listing and trading of its Common  Stock on a Trading  Market and will comply in
all material respects with the Company's reporting, filing and other obligations
under the bylaws or rules of the Trading Market.

      4.4 Participation Right. If, at any time prior to the one year anniversary
of the Closing  Date,  the Company  proposes to issue any Common Stock or Common
Stock  Equivalents  (collectively,  the  "OFFERED  SECURITIES")  in a subsequent
transaction ("SUBSEQUENT PLACEMENT"),  the Company shall first offer the Offered
Securities to the Investors in accordance with the following provisions:

            (a) The Company shall deliver to each Investor a written notice (the
"OFFER") of any proposed or intended issuance or sale or exchange of the Offered
Securities  in a  Subsequent  Placement,  which  Offer  shall (w)  identify  and
describe the Offered Securities,  (x) include the transaction documents for such
Subsequent Placement, including the price and other terms upon which the Offered
Securities are to be issued, sold or exchanged,  and the number or amount of the
Offered  Securities  to be issued,  sold or exchanged and (z) offer to issue and
sell  to or  exchange  with  each  Investor  all or a  portion  of  the  Offered
Securities,  based  on  such  Investor's  pro  rata  portion  (based  upon  such
Investor's  percentage  ownership of the total number of issued and  outstanding
Shares)  of the  Offered  Securities  for the  price  and  upon  the  terms  and
conditions set forth in the Offer (the "BASIC Amount").

            (b) To  accept  an  Offer,  in whole or in part,  an  Investor  must
deliver  a  written  notice  to the  Company  prior to the end of the  third (3)
Trading  Day from the  delivery of the Offer,  setting  forth the portion of the
Investor's  Basic Amount that such  Investor  elects to purchase (the "NOTICE OF
ACCEPTANCE").

            (c)  The  Company  shall  have  seven  (7)  Trading  Days  from  the
expiration  of the period set forth in Section  4.4(b)  above to issue,  sell or
exchange all or any part of, and publicly  announce the transaction with respect
to, such  Offered  Securities  as to which a Notice of  Acceptance  has not been
given by the  Investors  (the  "REFUSED  SECURITIES"),  but only to the offerees

                                       25
<PAGE>

described in the Offer and only upon terms and  conditions  (including,  without
limitation,  unit prices and interest  rates) that are not more favorable to the
acquiring  Person or Persons than those set forth in the Offer. If by the end of
the seven (7) Trading Days  referenced  in this  subsection  the Company has not
made a public  announcement  with  respect  to the  transaction  involving  such
Offered Securities, such transaction shall be deemed terminated and knowledge of
such transaction shall no longer be deemed material, non-public information.

            (d) Upon the  closing of the  issuance,  sale or  exchange of all or
less than all of the Refused  Securities,  each Investor  shall acquire from the
Company,  and the Company shall issue to each Investor,  the number or amount of
Offered  Securities  specified in such Investor's  Notice of Acceptance upon the
terms and conditions specified in the Offer.

            (e) The  rights  contained  in this  Section  shall not apply to the
issuance and sale by the Company, from time to time hereafter,  of (i) shares of
Common Stock or Common Stock Equivalents to consultants, employees, officers, or
directors of the Company,  as compensation  for their services to the Company or
any of its direct or indirect  Subsidiaries pursuant to arrangements approved by
the Board of Directors of the Company and consistent  with past  practice,  (ii)
the issuance of the  Securities  pursuant to the  Transaction  Documents,  (iii)
shares of Common Stock issued and sold in a firm commitment  underwritten public
offering (which shall not include an equity line of credit,  shelf takedown,  or
similar  financing  arrangement)  resulting in net proceeds to the Company of in
excess of $15,000,000, (iv) up to 250,000 shares of Common Stock or Common Stock
Equivalents  issuable  in  connection  with an  equipment  financing  by Vencore
Solutions  LLC,  (v) up to an  aggregate  of  500,000  shares  of  Common  Stock
(including  any shares of Common  Stock  issuable  in  respect  of Common  Stock
Equivalents)  issued or issuable as part of a credit  facility  provided by Marr
Technologies BV, approved by the Company's Board of Directors,  (vi) issuance of
shares  of  Common  Stock  to   Logisticorp,   Inc.,   and  Southwest   Resource
Preservation, Inc., or their successors and assigns, based upon the issuance and
conversion  of  outstanding  convertible  debentures,  with the issuance of said
Common Stock not to exceed 700,000  shares,  (vii) shares of Common Stock issued
as consideration for the acquisition of another company or business in which the
shareholders of the Company do not have an ownership interest, which acquisition
has been  approved by the Board of Directors of the  Company,  (viii)  shares of
Common  Stock  issued  in  connection  with  Anti-Dilution  Entitlements  or New
Entitlements,  or (ix) shares of Common Stock or Common Stock Equivalents issued
in connection with Strategic Transactions.

      4.5 Acknowledgment of Dilution. The Company acknowledges that the issuance
of Underlying  Shares upon  conversion of Notes and Warrant Shares upon exercise
of Warrants will result in dilution of the  outstanding  shares of Common Stock,
which dilution may be  substantial.  The Company further  acknowledges  that its
obligation to honor  conversions  under the Notes is unconditional  and absolute
and not  subject  to any  right of set off,  counterclaim,  delay or  reduction,
regardless  of the effect of any such dilution or any claim that the Company may
have against any Investor.

                                       26
<PAGE>

      4.6 Integration.  The Company shall not, and shall use its best efforts to
ensure that no Affiliate of the Company shall,  sell,  offer for sale or solicit
offers to buy or  otherwise  negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the  Securities  in a manner that would  require the  registration  under the
Securities Act of the sale of the Securities to the Investors,  or that would be
integrated  with the offer or sale of the  Securities  for purposes of the rules
and regulations of any Trading Market in a manner that would require stockholder
approval of the sale of the Securities to the Investors.

      4.7  Reservation of Shares.  The Company shall maintain a reserve from its
duly authorized shares of Common Stock to comply with its conversion obligations
under the Notes.  If on any date the Company  would be, if notice of  conversion
were to be  delivered  on such date,  precluded  from  issuing the number of (i)
Underlying  Shares,  as the case may be, issuable upon conversion in full of the
Notes or (ii) Warrant Shares, as the case may be, issuable upon exercise in full
of the Warrants,  due to the unavailability of a sufficient number of authorized
but unissued or reserved shares of Common Stock,  then the Board of Directors of
the Company shall promptly  prepare and mail to the  stockholders of the Company
proxy materials or other applicable materials requesting  authorization to amend
the Company's  certificate of incorporation or other organizational  document to
increase the number of shares of Common Stock which the Company is authorized to
issue so as to provide enough shares for issuance of the  Underlying  Shares and
Warrant Shares. In connection therewith,  the Board of Directors shall (a) adopt
proper resolutions authorizing such increase, (b) recommend to and otherwise use
its best efforts to promptly and duly obtain  stockholder  approval to carry out
such  resolutions  (and hold a special  meeting of the  stockholders  as soon as
practicable,  but in any event not later than the 60th day after delivery of the
proxy or other  applicable  materials  relating to such  meeting) and (c) within
five  Business  Days  of  obtaining  such  stockholder  authorization,  file  an
appropriate  amendment to the Company's  certificate of  incorporation  or other
organizational document to evidence such increase.

      4.8 Conversion  Procedures.  The form of Conversion Notice included in and
as defined in the Notes sets forth the  totality of the  procedures  required by
the Investors in order to convert the Notes. The Company shall honor conversions
of the Notes and shall deliver  Underlying  Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.

      4.9  Subsequent  Registrations.  Other than  pursuant to the  Registration
Statement,   prior  to  the  Effective  Date,  the  Company  may  not  file  any
registration statement with the Commission with respect to any securities of the
Company  other  than  registration  statements  on Form S-8  promulgated  by the
Commission.

      4.10 Securities Laws  Disclosure;  Publicity.  By 9:00 a.m. (New York City
time) on the Trading Day following the execution of this Agreement,  and by 9:00
a.m. (New York City time) on the Trading Day  following  the Closing  Date,  the
Company shall issue press releases in forms approved by the Investors disclosing
the transactions contemplated hereby. On the Trading Day following the execution
of this  Agreement the Company will file a Current Report on Form 8-K disclosing
the material terms of the Transaction  Documents (and attach as exhibits thereto
the  Transaction  Documents),  and on the Trading Day following the Closing Date
the Company will file an additional  Current  Report on Form 8-K to disclose the
Closing.  In addition,  the Company will make such other  filings and notices in

                                       27
<PAGE>

the manner and time required by the  Commission  and the Trading Market on which
the Common Stock is listed. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Investor,  or include the name of any Investor
in any filing with the Commission (other than the Registration Statement and any
exhibits  to filings  made in respect of this  transaction  in  accordance  with
periodic filing requirements under the Exchange Act) or any regulatory agency or
Trading Market,  without the prior written  consent of such Investor,  except to
the extent such disclosure is required by law or Trading Market regulations.

      4.11  Limitation on Issuance of Future Priced  Securities.  During the six
months  following  the Closing  Date,  the  Company  shall not issue any "Future
Priced Securities" as such term is described by NASD IM-4350-1.

      4.12  Indemnification of Investors.  In addition to the indemnity provided
in the Registration  Rights  Agreement,  the Company will indemnify and hold the
Investors and their directors, officers,  stockholders,  partners, employees and
agents  (each,  an  "INVESTOR   PARTY")   harmless  from  any  and  all  losses,
liabilities,  obligations,  claims, contingencies,  damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys'  fees and costs of  investigation  (collectively,  "LOSSES") that any
such  Investor  Party  may  suffer or incur as a result  of or  relating  to any
misrepresentation,   breach  or  inaccuracy  of  any  representation,  warranty,
covenant  or  agreement  made by the  Company in any  Transaction  Document.  In
addition to the indemnity  contained  herein,  the Company will  reimburse  each
Investor Party for its reasonable  legal and other expenses  (including the cost
of any investigation,  preparation and travel in connection  therewith) incurred
in connection therewith, as such expenses are incurred.

      4.13 Non-Public Information. The Company covenants and agrees that neither
it nor any other  Person  acting on its behalf will  provide any Investor or its
agents or counsel with any  information  that the Company  believes  constitutes
material non-public  information.

      4.14 Use of Proceeds.  The Company will use the net proceeds from the sale
of the  Securities  hereunder  for  working  capital  purposes  and  not for the
satisfaction  of any portion of the Company's  debt (other than payment of trade
payables and accrued  expenses in the ordinary course of the Company's  business
and consistent  with prior  practices),  or to redeem any Common Stock or Common
Stock  Equivalents,  provided that Marr  Technologies BV will fund $2 million of
the  purchase  price of the  Notes by  converting  $2  million  of its  existing
extension of credit to the Company into Notes.

      4.15 Existence; Conduct of Business. The Company will, and will cause each
of the Subsidiaries to, do or cause to be done all things necessary to preserve,
renew and keep in full  force and  effect its legal  existence  and the  rights,
licenses,  permits,  privileges  and  franchises  material to the conduct of its
business,  provided,  that the foregoing shall not prohibit (a) any sale, lease,
transfer or other disposition permitted by this Agreement,  or (b) any merger of
(i) any  domestic  Subsidiary  with  any  other  domestic  Subsidiary,  (ii) any
domestic  Subsidiary with and into the Company,  or (iii) any foreign Subsidiary
with any other foreign Subsidiary.

                                       28
<PAGE>

                                   ARTICLE V.
                               NEGATIVE COVENANTS

      The Company  hereby agrees that,  from and after the date hereof until the
date that the Notes have either been repaid in their entirety  and/or  converted
entirely  into  Common  Stock,  the  Company  shall  be bound  according  to the
restrictions  set forth in each of the following  negative  covenants unless any
such  restriction  shall have been  expressly  waived in writing by the Required
Investors:

      5.1 Restrictions on Certain Amendments. [Reserved].

      5.2  Restricted  Payment.  The Company shall not, and shall not permit any
Subsidiary  thereof,  to make any  Restricted  Payment,  other  than  Restricted
Payments made by one or more Subsidiaries to the Borrower.

      5.3 Debt.  The  Company  shall not,  and shall not  permit any  Subsidiary
thereof, to create,  incur, assume, become or be liable in any manner in respect
of, or suffer to exist, any Debt, except for Permitted Indebtedness.

      5.4 Liens.  The  Company  shall not,  and shall not permit any  Subsidiary
thereof,  to create or  suffer to exist any Lien upon any of its  properties  or
assets, except for Permitted Liens.

      5.5 Amendment of  Organizational  Documents.  The Company shall not permit
any  amendment to its articles of  incorporation  so as to adversely  affect the
rights or privileges granted under the Notes.

      5.6 Sale and Leaseback.  The Company shall not enter into any  arrangement
whereby it sells or transfers any of its assets,  and thereafter rents or leases
such assets,  except as otherwise  specifically  permitted in the  definition of
Permitted Indebtedness.

      5.7  Business.  The Company shall not change the nature of its business as
now  conducted  (as  described  in the  SEC  Reports),  except  for  changes  in
connection with additional diagnostic opportunities.

      5.8 Transactions with Affiliates. Except in respect of any arrangements or
agreements between the Subsidiaries and the Company, Marr Technologies BV or any
affiliates of Marr  Technologies BV which are approved by the Board of Directors
of the Company and which do not otherwise  violate any terms of the  Transaction
Documents,  the Company shall not,  directly or indirectly,  pay any funds to or
for the account  of, make any  investment  (whether by  acquisition  of stock or
indebtedness,  by  loan,  advance,  transfer  of  property,  guarantee  or other
agreement to pay,  purchase or service,  directly or  indirectly,  any Debt,  or
otherwise)  in,  lease,  sell,  transfer  or  otherwise  dispose of any  assets,
tangible or  intangible,  to, or  participate  in, or effect any  transaction in
connection  with any joint  enterprise  or other  joint  arrangement  with,  any

                                       29
<PAGE>

Affiliate,  except, on terms no less favorable than terms that could be obtained
by the  Company  from a Person  that is not an  Affiliate  of the  Company  upon
negotiation at arms' length, as determined in good faith by the Board;  provided
that no  determination  of the Board of Directors shall be required with respect
to any such  transactions  entered  into in the  ordinary  course  of  business.
Notwithstanding the foregoing,  consulting agreements shall not be restricted by
this  Section,   provided,  that  consulting  agreements  containing  an  equity
component shall be approved by the Board of Directors of the Company.

      5.9 Limitation on Restrictions. Other than as permitted by the Transaction
Documents, the Company shall not, and shall not permit any Subsidiary,  to enter
into,  or suffer to exist,  any  agreement  with any Person  which  prohibits or
limits its ability to (a) pay Debt owed to the  Investors,  except as  expressly
permitted by the Security Agreement,  (b) make loans or advances to the Company,
pay dividends or other  distributions  in respect of its equity interests to the
Company (except that  Subsidiaries may pay dividends or other  distributions) or
guarantee  Debt of the Company or (c) grant a Lien in favor of the Agent and the
Secured Parties.

      5.10 Investments in Foreign Subsidiaries. The Company shall not, and shall
not permit any domestic Subsidiary thereof, to (a) purchase, hold or acquire any
Debt of,  permit to exist any loans or  advances  to, or make or permit to exist
any  guarantees  of any  obligations  of any foreign  Subsidiary,  other than in
respect of Permitted  Foreign  Subsidiary Debt or (b) or make or permit to exist
any investment or any other interest in, any foreign Subsidiary, in an aggregate
amount exceeding $5,000,000 at any time outstanding.

                                  ARTICLE VI.
                                  MISCELLANEOUS

      6.1 Fees and Expenses. At the Closing, the Company shall pay to Bryan Cave
LLP  $60,000.00  as partial  reimbursement  of SF Capital  Partners Ltd. for its
legal fees in connection  with the  Transaction  Documents (SF Capital  Partners
Ltd.  may deduct such  amount  from the  Investment  Amount  deliverable  to the
Company at Closing),  it being  understood that Bryan Cave LLP has only rendered
legal advice to SF Capital  Partners  Ltd.,  and not to the Company or any other
Investor in connection with the transactions  contemplated hereby, and that each
of the Company and the other Investors has relied for such matters on the advice
of its own respective counsel.  Except as specified in the immediately preceding
sentence,  each party shall pay the fees and expenses of its advisers,  counsel,
accountants and other experts,  if any, and all other expenses  incurred by such
party  incident  to  the  negotiation,   preparation,  execution,  delivery  and
performance of the  Transaction  Documents.  The Company shall pay all stamp and
other taxes and duties levied in connection with the sale of the Notes.

      6.2  Entire  Agreement.  The  Transaction  Documents,  together  with  the
Exhibits and Schedules thereto,  contain the entire understanding of the parties
with respect to the subject  matter hereof and  supersede all prior  agreements,
understandings,  discussions and representations,  oral or written, with respect
to such  matters,  which the  parties  acknowledge  have been  merged  into such
documents, exhibits and schedules.

                                       30
<PAGE>

      6.3 Notices.  Any and all notices or other  communications  or  deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of  transmission,  if
such notice or  communication  is delivered via  facsimile  (provided the sender
receives a  machine-generated  confirmation of successful  transmission)  at the
facsimile  number  specified in this Section  prior to 5:30 p.m.  (New York City
time) on a Trading Day, (b) the next Trading Day after the date of transmission,
if such notice or  communication  is delivered  via  facsimile at the  facsimile
number  specified  in this  Section on a day that is not a Trading  Day or later
than 5:30 p.m.  (New York City time) on any  Trading  Day,  (c) the  Trading Day
following the date of mailing, if sent by U.S. nationally  recognized  overnight
courier service,  or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and  communications  shall be
as follows:

   If to the Company:       Calypte Biomedical Corporation
                            5000 Hopyard Road, Suite 480
                            Pleasanton, CA  94588
                            Facsimile:  (925) 730-0146
                            Attention:  Chief Financial Officer

   With a copy to:          Coudert Brothers LLP
                            333 S. Hope St., Ste. 2300
                            Los Angeles, CA 90071
                            Facsimile:  (213) 229-2999
                            Attention:  John A. St.Clair, Esq.

   If to an Investor:       To the address set forth under such Investor's name
                            on the signature pages hereof;

or such other  address as may be designated  in writing  hereafter,  in the same
manner, by such Person.

      6.4 Amendments; Waivers; No Additional Consideration. No provision of this
Agreement may be waived or amended except in a written  instrument signed by the
Company and the Required Investors except as set forth below and except that the
conditions  precedent set forth in Sections 2.1(b) and 2.2(b) may only be waived
by each  Investor  to be bound by such  waiver.  No waiver of any  default  with
respect to any provision,  condition or  requirement of this Agreement  shall be
deemed to be a  continuing  waiver in the  future or a waiver of any  subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise  any right  hereunder in
any manner  impair the  exercise of any such right.  No  consideration  shall be
offered or paid to any Investor to amend or consent to a waiver or  modification
of any provision of any Transaction  Document unless the same  consideration  is
also offered to all Investors who then hold Notes.  Without the written  consent
or the  affirmative  vote of each  Investor  affected  thereby,  an amendment or
waiver under this Section 6.4 may not:

                                       31
<PAGE>

            (a) change the maturity of the principal  amount of, or the interest
payment date under, or the payment of liquidated damages, is due on, any Note or
Warrant;

            (b) make any change that impairs the  conversion or exercise  rights
of any Securities;

            (c) reduce the Event Equity Value under the Notes or amend or modify
in any manner adverse to the Holders of Securities  the Company's  obligation to
make such payments;

            (d) amend the definition of Required Investors;

            (e)  change  the  currency  of any  amount  owed or owing  under the
Securities or any interest thereon from U.S. Dollars;

            (f)  impair  the right of any  Investor  to  institute  suit for the
enforcement  of any payment with respect to, or  conversion  or exercise of, any
Security; or

            (g) modify the provisions of this Section 6.4 or Section 6.5.

It shall not be necessary  for the consent of the  Investors  under this Section
6.4 to approve the particular  form of any proposed  amendment,  but it shall be
sufficient if such consent approves the substance thereof.

      6.5 Termination. This Agreement may be terminated prior to the Closing:

            (a) by written agreement of the Investors and the Company;

            (b)  by the  Company  or an  Investor  (as to  itself  but no  other
Investor) upon written notice to the other,  if the Closing shall not have taken
place by 5:30 p.m. (New York City time) on the Outside Date; provided,  that the
right to  terminate  this  Agreement  under  this  Section  6.5(b)  shall not be
available to any Person whose failure to comply with its obligations  under this
Agreement  has been the cause of or  resulted  in the  failure of the Closing to
occur on or before such time.

            (c) by an  Investor  (as to  itself  but no  other  Investor)  if it
concludes  in good  faith  that any of the  conditions  precedent  contained  in
Sections  2.1(d)(iv),  (v) or (vi)  shall  have  been  breached  or shall not be
capable of being  satisfied by the Outside Date despite the assumed best efforts
of the Company.

            In the event of a termination  pursuant to this Section, the Company
shall  promptly  notify  all  non-terminating  Investors  and  shall  pay to the
terminating  Investor(s) all of the fees and expenses incurred by such Investors
(including reasonable legal fees and expenses) in connection with this Agreement
and the  transactions  contemplated  by this Agreement  through the  termination
date.  Other than as to the foregoing  fees and expenses,  upon a termination in
accordance  with this Section 6.5, the Company and the  terminating  Investor(s)
shall not have any further  obligation  or liability  (including as arising from
such  termination)  to the other and no Investor  will have any liability to any
other Investor under the Transaction Documents as a result therefrom.

                                       32
<PAGE>

      6.6  Construction.  The headings herein are for  convenience  only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent,  and no
rules of strict  construction  will be applied against any party. This Agreement
shall be construed as if drafted  jointly by the parties,  and no presumption or
burden of proof shall arise favoring or  disfavoring  any party by virtue of the
authorship  of any  provisions  of  this  Agreement  or  any of the  Transaction
Documents.

      6.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their  successors and permitted  assigns.  The
Company may not assign this  Agreement  or any rights or  obligations  hereunder
without the prior written consent of the Investors.  Any Investor may assign any
or all of its rights under this  Agreement  to any Person to whom such  Investor
assigns or transfers any Notes, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the "Investors."

      6.8 No  Third-Party  Beneficiaries.  This  Agreement  is intended  for the
benefit of the parties  hereto and their  respective  successors  and  permitted
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person,  except as otherwise set forth in Section 4.12 (as to each
Investor Party).

      6.9 Governing Law. All questions  concerning the  construction,  validity,
enforcement  and  interpretation  of this  Agreement  shall be  governed  by and
construed and enforced in accordance  with the internal laws of the State of New
York,  without regard to the principles of conflicts of law thereof.  Each party
agrees that all  Proceedings  concerning the  interpretations,  enforcement  and
defense  of the  transactions  contemplated  by this  Agreement  and  any  other
Transaction  Documents (whether brought against a party hereto or its respective
Affiliates,  employees or agents) shall be commenced exclusively in the New York
Courts.   Each  party  hereto  hereby  irrevocably   submits  to  the  exclusive
jurisdiction  of the  New  York  Courts  for  the  adjudication  of any  dispute
hereunder or in connection herewith or with any transaction  contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents),  and hereby irrevocably waives, and agrees not to assert
in  any  Proceeding,  any  claim  that  it is  not  personally  subject  to  the
jurisdiction  of any such New  York  Court,  or that  such  Proceeding  has been
commenced  in an  improper  or  inconvenient  forum.  Each party  hereto  hereby
irrevocably  waives  personal  service of process and consents to process  being
served in any such  Proceeding  by  mailing a copy  thereof  via  registered  or
certified  mail or overnight  delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this  Agreement and agrees that
such service shall constitute good and sufficient  service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve  process in any manner  permitted  by law.  Each  party  hereto  hereby
irrevocably  waives,  to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions  contemplated  hereby.  If either party shall

                                       33
<PAGE>

commence a Proceeding to enforce any provisions of a Transaction Document,  then
the prevailing  party in such Proceeding  shall be reimbursed by the other party
for its reasonable  attorneys'  fees and other costs and expenses  incurred with
the investigation, preparation and prosecution of such Proceeding.

      6.10 Survival. The representations,  warranties,  agreements and covenants
contained herein shall survive the Closing and the delivery of the Securities.

      6.11   Execution.   This   Agreement  may  be  executed  in  two  or  more
counterparts,  all of which when taken  together shall be considered one and the
same agreement and shall become effective when  counterparts have been signed by
each party and  delivered  to the other  party,  it being  understood  that both
parties need not sign the same  counterpart.  In the event that any signature is
delivered by facsimile  transmission,  such  signature  shall create a valid and
binding  obligation of the party executing (or on whose behalf such signature is
executed)  with the same force and effect as if such  facsimile  signature  page
were an original thereof.

      6.12  Severability.  If any  provision  of  this  Agreement  is held to be
invalid or unenforceable in any respect,  the validity and enforceability of the
remaining  terms  and  provisions  of  this  Agreement  shall  not in any way be
affected or impaired  thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor,  and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

      6.13  Rescission and  Withdrawal  Right.  Notwithstanding  anything to the
contrary  contained in (and  without  limiting  any similar  provisions  of) the
Transaction Documents, whenever any Investor exercises a right, election, demand
or option under a Transaction  Document and the Company does not timely  perform
its related obligations within the periods therein provided,  then such Investor
may rescind or withdraw,  in its sole  discretion from time to time upon written
notice to the Company,  any relevant  notice,  demand or election in whole or in
part without prejudice to its future actions and rights.

      6.14   Replacement  of  Securities.   If  any  certificate  or  instrument
evidencing any Securities is mutilated,  lost, stolen or destroyed,  the Company
shall  issue or cause to be issued in  exchange  and  substitution  for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument,  but only upon receipt of evidence reasonably satisfactory to the
Company  of such  loss,  theft  or  destruction  and  customary  and  reasonable
indemnity,  if requested.  The  applicants  for a new  certificate or instrument
under  such  circumstances  shall  also  pay any  reasonable  third-party  costs
associated with the issuance of such  replacement  Securities.  If a replacement
certificate  or  instrument  evidencing  any  Securities  is requested  due to a
mutilation  thereof,   the  Company  may  require  delivery  of  such  mutilated
certificate  or  instrument  as a  condition  precedent  to  any  issuance  of a
replacement.

      6.15  Remedies.  In  addition to being  entitled  to  exercise  all rights
provided herein or granted by law,  including  recovery of damages,  each of the
Investors  and the Company  will be entitled to specific  performance  under the
Transaction  Documents.  The  parties  agree that  monetary  damages  may not be
adequate  compensation  for  any  loss  incurred  by  reason  of any  breach  of
obligations  described in the  foregoing  sentence and hereby agrees to waive in
any action for specific  performance  of any such  obligation the defense that a
remedy at law would be adequate.

                                       34
<PAGE>

      6.16 Payment Set Aside.  To the extent that the Company makes a payment or
payments to any  Investor  pursuant to any  Transaction  Document or an Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such  enforcement  or exercise or any part thereof are  subsequently
invalidated,  declared to be fraudulent or  preferential,  set aside,  recovered
from, disgorged by or are required to be refunded,  repaid or otherwise restored
to the  Company,  a  trustee,  receiver  or  any  other  person  under  any  law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable  cause of action),  then to the extent of any such  restoration
the  obligation  or part thereof  originally  intended to be satisfied  shall be
revived and  continued  in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

      6.17  Independent  Nature  of  Investors'   Obligations  and  Rights.  The
obligations of each Investor under any Transaction  Document are several and not
joint with the  obligations  of any other  Investor,  and no  Investor  shall be
responsible  in any way for the  performance  of the  obligations  of any  other
Investor  under any  Transaction  Document.  The  decision  of each  Investor to
purchase Securities pursuant to the Transaction  Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction  Document,  and no action  taken by any Investor  pursuant  thereto,
shall be deemed to constitute the Investors as a partnership,  an association, a
joint  venture  or any other kind of entity,  or create a  presumption  that the
Investors  are in any way acting in  concert or as a group with  respect to such
obligations or the transactions  contemplated by the Transaction Documents. Each
Investor  acknowledges  that no other  Investor  has  acted  as  agent  for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such  Investor  in  connection  with  monitoring  its
investment  in the  Securities  or enforcing  its rights  under the  Transaction
Documents.  Each Investor shall be entitled to independently protect and enforce
its  rights,  including  without  limitation  the  rights  arising  out of  this
Agreement  or  out of the  other  Transaction  Documents,  and it  shall  not be
necessary  for any other  Investor  to be joined as an  additional  party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a  transaction  with  multiple  Investors  and not  because it was  required  or
requested to do so by any Investor.

      6.18  Limitation  of  Liability.  Notwithstanding  anything  herein to the
contrary,  the Company acknowledges and agrees that the liability of an Investor
arising directly or indirectly,  under any Transaction Document of any and every
nature  whatsoever shall be satisfied solely out of the assets of such Investor,
and that no trustee, officer, other investment vehicle or any other Affiliate of
such  Investor or any  investor,  stockholder  or holder of shares of beneficial
interest of such a Investor  shall be personally  liable for any  liabilities of
such Investor.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGES FOLLOW]

                                       35
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement
to be duly executed by their  respective  authorized  signatories as of the date
first indicated above.

                                                CALYPTE BIOMEDICAL CORPORATION

                                                By:
                                                   -----------------------------
                                                   Name:  Richard D. Brounstein
                                                   Title: EVP and CFO

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGES FOR INVESTORS FOLLOW]

                                       36
<PAGE>

         IN WITNESS  WHEREOF,  the parties  hereto  have  caused  this  Purchase
Agreement to be duly executed by their respective  authorized  signatories as of
the date first indicated above.

                                  NAME OF INVESTOR

                                  By:
                                     -------------------------------------------
                                     Name:
                                     Title:

                                  Investment Amount: $
                                                      --------------------------

                                  Tax ID No.:
                                              ----------------------------------

                                  ADDRESS FOR NOTICE

                                  c/o:
                                       -----------------------------------------

                                  Street:
                                          --------------------------------------

                                  City/State/Zip:
                                                  ------------------------------

                                  Attention:
                                             -----------------------------------

                                  Tel:
                                           -------------------------------------

                                  Fax:
                                           -------------------------------------

                                  DELIVERY INSTRUCTIONS

                                  (if different from above)

                                  c/o:
                                       -----------------------------------------

                                  Street:
                                         ---------------------------------------

                                  City/State/Zip:
                                                  ------------------------------

                                  Attention:
                                             -----------------------------------

                                  Tel:
                                           -------------------------------------

                                       37

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