DIRECT INSITE CORP
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>dikex10-1.txt
<TEXT>
                STOCK PURCHASE AND REGISTRATION RIGHTS AGREEMENT
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     STOCK PURCHASE AND REGISTRATION  RIGHTS AGREEMENT dated as of September 25,
2002, between DIRECT INSITE CORP., a Delaware  corporation (the "Company"),  and
METROPOLITAN  VENTURE  PARTNERS II, L.P., a Delaware  limited  partnership  (the
"Purchaser").

     WHEREAS, the Purchaser desires to subscribe for, and the Company desires to
issue to the  Purchaser,  93,458  shares of the  Company's  Series A Convertible
Preferred Stock, par value $0.0001 per share (the "Preferred  Stock"),  all upon
the terms and conditions set forth in this Agreement.

     NOW,  THEREFORE,  in  consideration  of the  foregoing  and  of the  mutual
premises,  covenants,  representations  and warranties herein  contained,  it is
hereby agreed as follows:

1.      Definitions.
        -----------

     1.1 Except for any terms that are defined elsewhere in this Agreement,  the
following terms, as used herein, have the following meanings:

     "Accredited Investor" has the meaning set forth in Rule 501 of Regulation D
promulgated under the Securities Act.

     "Affiliate"  of any  specified  Person means any other  Person  directly or
indirectly  controlling  or  controlled  by or under  direct or indirect  common
control  with  such  specified  Person.  For the  purposes  of this  definition,
"control,"  when used with respect to any Person,  means the power to direct the
management and policies of such Person, directly or indirectly,  whether through
the  ownership of voting  securities,  by contract or  otherwise;  and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.

     "Agreement"  means this Stock Purchase and Registration  Rights  Agreement,
together  with all Exhibits and  Schedules  hereto,  as the same may be amended,
supplemented or modified in accordance with the terms hereof from time to time.

     "Annual Report" has the meaning set forth in Section 3.9 hereof.

     "Balance Sheet" has the meaning set forth in Section 3.9 hereof.

     "Balance Sheet Date" has the meaning set forth in Section 3.9 hereof.

     "Board of Directors" means the board of directors of the Company.

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     "Cause" means, with respect to the Purchaser Designee,  as applicable,  (i)
any act of breach of such  individual's  fiduciary  duty to the  Company  or its
stockholders  by  the  Purchaser   Designee  which  under   applicable  law  (A)
constitutes a violation of any legal obligation of the Purchaser Designee to the
Company  or (B)  creates  or results in any  material  legal  liability  for the
Company;  (ii) the Purchaser  Designee is convicted of, or pleads guilty or nolo
contendere with respect to, theft, fraud or a felony under federal or applicable
state law; or (iii) if such individual  commits and is convicted of any act that
results  in the  Company  or any  member  of the  Board of  Directors  suffering
liability under federal or applicable state law for  discrimination or sexual or
other forms of harassment or other similar liabilities from any employees of the
Company or any of its Affiliates.

     "Certificate  of  Designation"  means the Certificate of Designation of the
Company, which, among other things, sets forth the number, designation, relative
rights, preferences and limitations of the Preferred Stock as fixed by the Board
of  Directors,  and which is  substantially  in the form set forth in  Exhibit A
hereto.

     "Closing"  means the closing of the sale of the Series A Preferred Stock by
the Company to the Purchaser.

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

     "Commission"  means the Securities  and Exchange  Commission or any similar
agency then having  jurisdiction  to enforce the  Securities Act or the Exchange
Act.

     "Common Stock" means the common stock,  par value $0.0001 per share, of the
Company.

     "Company" has the meaning set forth in the preamble of this Agreement.

     "Company  Indemnified  Person" has the meaning set forth in Section  6.6(b)
hereof.

     "Disclosure Schedule" means the Disclosure Schedule of the Company attached
to this Agreement and hereby made a part hereof.

     "Environmental  Law" means any federal,  state, or local (including  common
law), statute,  code, ordinance,  rule, regulation or other requirement relating
to the environment,  or natural resources,  and includes, but is not limited to,
the  Comprehensive  Environmental  Response,  Compensation and Liability Act, 42
U.S.C. 9601 et seq., the Hazardous Materials  Transportation Act, 49 U.S.C. 1801
et seq., the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq., the
Clean Water Act, 33 U.S.C.  Section  1251 et seq.,  the Clean Air Act, 33 U.S.C.
2601 et seq.,  the Toxic  Substances  Control Act, 15 U.S.C.  2601 et seq.,  the
Federal Insecticide,  Fungicide,  and Rodenticide Act, 7 U.S.C. 136 et seq., the

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Oil Pollution Act of 1990, 33 U.S.C.  2701 et seq. and the  Occupational  Safety
and Health Act, 29 U.S.C.  651 et seq., as such laws have been and may from time
to time be further  amended or  supplemented,  and the  regulations  promulgated
pursuant thereto.

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

     "Exchange Act" means the Securities  Exchange Act of 1934, as amended,  and
the rules and regulations of the Commission thereunder.

     "Financial Statements" has the meaning set forth in Section 3.9 hereof.

     "Form 10-Q" has the meaning set forth in Section 3.9 hereof.

     "Hazardous   Substances"   or  "Hazardous   Waste"  means  any   pollutant,
contaminant,  chemical or  industrial  or toxic  substance  or waste,  petroleum
products,   asbestos,  urea  formaldehyde,   radon,  polychlorinated  biphenyls,
flammable explosives,  nuclear radioactive fuel or waste or any other substance,
waste,  material,  substance,  pollutant  or  contaminant  that is  defined as a
hazardous waste or substance under any applicable  Environmental  Law and/or any
substance for which the generation,  manufacture,  storage, treatment or release
is prohibited or regulated under any applicable Environmental Law.

     "Holder" shall mean any Person that owns Registrable Securities,  including
such  successors  and  assigns as acquire  Registrable  Securities,  directly or
indirectly,  from such Person.  For purposes of this Agreement,  the Company may
deem the registered holder of a Registrable Security as the Holder thereof.

     "Liens" means any and all security interests, liens, claims,  encumbrances,
pledges, options, Taxes and charges of any kind or nature.

     "Managing Underwriter" has the meaning set forth in Section 6.1(c) hereof.

     "Material  Adverse Effect" means,  with respect to the Company,  a material
adverse  effect on the business,  assets,  condition  (financial or  otherwise),
results of operations or prospects of the Company and its subsidiaries  taken as
a whole.

     "Material Development Election" shall have the meaning set forth in Section
6.4(a) hereof.

     "Other  Approved  Holders"  shall  mean  holders  of  Common  Stock  having
registration rights with respect to the Common Stock, other than pursuant to the
terms of this Agreement.

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     "Person" means any individual, company, corporation,  partnership,  limited
liability  company,   trust,  division,   governmental,   quasi-governmental  or
regulatory entity or authority or other entity.

     "Plans" has the meaning set forth in Section 3.24(a) hereof.

     "Preferred  Stock"  has  the  meaning  set  forth  in the  recital  to this
Agreement.

     "Prospectus" shall mean the prospectus (including a preliminary prospectus)
included  in  any  Registration  Statement,  as  amended  or  supplemented  by a
prospectus  supplement  with respect to the terms of the offering of any portion
of the Registrable  Securities covered by such Registration Statement and by all
other  amendments and  supplements to the prospectus,  including  post-effective
amendments and all material incorporated by reference in such prospectus.

     "Purchase Price" has the meaning set forth in Section 2.1 hereof.

     "Purchaser" has the meaning set forth in the preamble of this Agreement.

     "Purchaser  Designee"  has the  meaning  assigned  to such term in  Section
5.1(a) hereof.

     "Purchaser Expenses" means all legal and out-of-pocket  expense incurred by
the Purchaser or its agents in connection with the transactions  contemplated by
this  Agreement,  in an  amount  not to  exceed  $35,000.00  in  the  aggregate,
including all fees and expenses of Kramer Levin Naftalis & Frankel LLP,  counsel
to the Purchaser, incurred in connection with the Transaction Documents.

     "Purchaser  Indemnified Person" has the meaning set forth in Section 7.1(a)
hereof.

     "Registrable  Securities"  shall mean the Common Stock issuable on or after
the date hereof upon  conversion  of the  Preferred  Stock and any other capital
stock or other  securities  issued or issuable  as a result of or in  connection
with any stock  dividend,  stock  split or  reverse  stock  split,  combination,
recapitalization,   reclassification,   merger   or   consolidation,   exchange,
distribution  or similar  transaction  in respect of the Preferred  Stock or the
Common Stock.

     "Registration  Expenses" shall have the definition set forth in Section 6.5
hereof.

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     "Registration Statement" shall mean any registration statement which covers
any of the Registrable  Securities pursuant to the provisions of this Agreement,
including the Prospectus  included  therein,  all amendments and  supplements to
such  Registration  Statement,  including  post-effective  amendments,  and  all
exhibits  and all  material  incorporated  by  reference  in  such  Registration
Statement.

     "Requesting  Securityholder"  has the  meaning  set  forth in  Section  6.2
hereof.

     "Rule 144" shall mean Rule 144  promulgated  under the  Securities  Act, as
amended  from time to time,  or any similar  successor  rule thereto that may be
promulgated  by the  Commission.

     "Rule 144A" shall mean Rule 144A  promulgated  under the Securities Act, as
amended  from time to time,  or any similar  successor  rule thereto that may be
promulgated by the Commission.

     "SEC  Filings"  means all  forms,  reports  and  documents  filed  with the
Commission  pursuant to the Securities Act and Exchange Act from January 1, 2001
through the date hereof.

     "Securities  Act" means the  Securities  Act of 1933,  as amended,  and the
rules and regulations of the Commission thereunder.

     "Senior  Indebtedness"  means the  principal  of and  premium,  if any, and
interest on:

     (a)  all  indebtedness  of  the  Company  and  its   subsidiaries   whether
outstanding on the date of this Agreement or hereafter created and which is;

     (i) for money borrowed from a commercial lending  institution,  whether the
same  be  evidenced  by  bonds,  notes  or  debentures  or  evidenced  by a loan
agreement, promissory note or an indenture or similar instrument; or

     (ii) secured by mortgage or other security instrument  (including,  without
limitation,  conditional sales  agreements,  chattel  mortgages,  purchase money
bonds or notes or debentures or mortgages, mortgages made or given or guaranteed
by the Company as  mortgagor or guarantor  and assumed or  guaranteed  mortgages
upon   property)  for  the  payment  of  which  the  Company  is,   directly  or
contingently, liable or on which the Company customarily pays interest; and

     (iii) all obligations of the Company as lessee,  or as the guarantor of any
lessee,  under  leases  of  personal  property  of any  kind  or  nature  and/or
equipment; and

     (b) all renewals,  extensions and refundings of any such indebtedness or of
any such obligations.

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     "Stock Option  Plans" means,  collectively,  the 1993  Non-Qualified  Stock
Option Plans, the 1995 Stock Option Plan, the 2000 Stock Option Plan, 2001 Stock
Option/stock Issuance Plan, 2001-A Stock Option Plan, the 2002 Stock Option Plan
and the 2002-A Stock Plan.

     "Suspension  Period"  shall have the  meaning  set forth in Section  6.4(a)
hereof.

     "To the best knowledge of the Company" means the actual knowledge of Warren
Wright, Anthony Coppola or George Aronson.

     "Threshold  Percentage"  means 50.1  percent of (i) the shares of Preferred
Stock  issued and  outstanding  on the Closing Date or (ii) the shares of Common
Stock issuable upon conversion of the Preferred Stock thereof as the same may be
adjusted pursuant to the terms of the Certificate of Designation.

     "Transaction  Documents"  means this  Agreement  (including  the Disclosure
Schedule),  the Certificate of Designation and any other documents,  instruments
or agreements executed in connection herewith or therewith.

The foregoing  definitions shall be equally  applicable to both the singular and
plural forms of the defined terms. The use of the word "including"  herein shall
be  interpreted  to mean  "including,  without  limitation,"  unless the context
clearly requires another interpretation.

     2. Authorization and Sale of the Preferred Stock.
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     2.1   Purchase   and  Sale  of   Preferred   Stock.   In  reliance  on  the
representations  and  warranties  contained  herein and subject to the terms and
conditions  hereof,  the Company agrees that it will sell to the Purchaser,  and
the Purchaser  agrees that it will purchase from the Company at the Closing,  an
aggregate of 93,458  shares of Preferred  Stock and  concurrently  with delivery
hereof the Purchaser has agreed to pay the Company an amount equal to $21.40 per
share of Preferred  Stock,  or an aggregate  purchase  price of $2,000,000  (the
"Purchase Price") by wire transfer in immediately  available funds to an account
designated  by notice from the Company;  provided,  however,  that the Purchaser
shall deduct the Purchaser Expenses from the Purchase Price.

     2.2 Deliverables at Closing. In addition to the foregoing,  at the Closing,
the Company shall deliver to the Purchaser:

     (a) a stock  certificate  representing  93,458  shares of  Preferred  Stock
registered in the name of the Purchaser;

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     (b) a opinion  of counsel of the  Company  in the form  attached  hereto as
Exhibit C;

     (c) an executed copy of this Agreement;

     (d) a certificate,  dated the date of Closing  signed by a duly  authorized
officer of the Company dated as of the date of the Closing certifying as to:

          (i) a true and correct copy of the certificate of incorporation of the
     Company (including all amendments),  as attached thereto, and the filing of
     the Certificate of Designation  with the Secretary of State of the State of
     Delaware;

          (ii) the By-laws, as attached thereto, are in full force and effect;

          (iii)  the  satisfactory  waiver  of  all  preemptive  rights  by  the
     stockholders of the Company on or before the date of Closing;

          (iv) the resolutions, in form and substance reasonably satisfactory to
     the Purchaser,  of the Board of Directors duly  authorizing  the execution,
     delivery and performance of this  Agreement,  the filing of the Certificate
     of  Designation,  the issuance of the Preferred Stock and the execution and
     delivery of any other  documents,  instruments  or  agreements  executed in
     connection herewith or therewith;

          (v) the  incumbency  and  signature of the  individuals  authorized to
     execute and deliver documents on the Company's behalf; and

          (vi) the performance and compliance in all material  respects with all
     of  the  Company's  agreements,  representations,   warranties,  covenants,
     obligations,  duties and  conditions  under this  Agreement  required to be
     performed  or  complied  with by it on or  prior  to the  date of  closing,
     including,  but not limited to, the appointment of Peter B. Yunich to Class
     II of the Board of Directors.

     2.3 Reservation of Shares. The Company shall reserve and keep available for
issuance such number of its  authorized  but unissued  shares of Common Stock as
will be sufficient to permit the conversion in full of the Preferred  Stock into
Common Stock in accordance with the terms of the Certificate of Designation. All
shares of Common Stock that are so issuable shall,  when issued upon conversion,
be duly authorized,  validly issued and fully paid and non-assessable,  free and
clear of any and all Liens and preemptive or similar rights or encumbrances.

     2.4 Use of Cash Proceeds. The Company, shall use the cash proceeds from the
issuance of the Preferred Stock for development and working capital  purposes as
determined by the Board of Directors.

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     3. Representations and Warranties of the Company.
        ----------------------------------------------

     The Company  makes the  following  representations  and  warranties  to the
Purchaser  as of the  date  hereof  and of as the  date of  Closing,  except  as
otherwise provided herein:

     3.1  Corporate  Status.  The  Company  and  each of its  subsidiaries  is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it was  incorporated  with full corporate power and
authority  to carry on its  business  as now  conducted  and as  proposed  to be
conducted  and to own and lease the  properties  and assets it now owns or holds
under lease.

     3.2 Authority.  The Company has all necessary corporate power and authority
to execute and deliver the  Transaction  Documents  and to carry out and perform
its  obligations  thereunder.  The  execution,  delivery and  performance by the
Company of the Transaction  Documents and the  consummation of the  transactions
contemplated  hereby and thereby,  including the issuance of the Preferred Stock
and the Common Stock issuable upon conversion thereof, have been duly authorized
by all  necessary  corporate  action on the part of the  Company  and no further
authorization  on the part of the Company,  or the  Company's  stockholders,  is
necessary to authorize such execution, delivery and performance. The Transaction
Documents, when executed and delivered by the Company, will be duly executed and
delivered by the Company.  The  Transaction  Documents,  when so executed,  will
constitute the legal, valid and binding obligations of the Company,  enforceable
against the Company in accordance  with their  respective  terms,  except as the
same may be  limited by  bankruptcy,  insolvency,  reorganization  or other laws
affecting the  enforcement  of creditors'  rights  generally now or hereafter in
effect  and  subject  to  the  application  of  equitable   principles  and  the
availability of equitable  remedies.  The issuance of the Preferred Stock is not
and will not be subject to  preemptive  rights or rights of first  refusal  that
have not been properly waived or complied with prior to the date hereof.

     3.3  No  Conflicts.   The  execution,   delivery  and  performance  of  the
Transaction  Documents and the other  instruments and agreements to be executed,
delivered and performed by the Company  pursuant hereto and the  consummation of
the transactions contemplated hereby and, thereby by the Company,  including the
issuance of the Preferred Stock, and upon conversion of the Preferred Stock, the
Common  Stock,  do not and will not with or without  the giving of notice or the
passage of time or both,  (a) violate or conflict  with or result in a breach of
or a right of  termination  by any Person of any  provision  of, or constitute a
default under,  or create a Lien upon any properties or assets of the Company or
any of its subsidiaries  pursuant to (i) the Certificate of Incorporation or the
By-Laws of the Company or any of its  subsidiaries or (ii) any order,  judgment,
decree, statute, regulation, contract, agreement or any other restriction of any
kind or  description  to which the  Company  or any of its  subsidiaries  or its
assets  may  be  bound  or  subject;  (b)  violate  any  applicable  law,  rule,

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regulation,  judgment,  injunction,  order or decree binding upon the Company or
any of its  subsidiaries  or to which  any of their  properties  and  assets  is
subject;  (c)  result  in the  loss  or  impairment  of any  approval,  license,
franchise,  permit,  legal  privilege or legal right enjoyed or possessed by the
Company or any of its subsidiaries;  (d) otherwise result in the creation of any
Lien;  or (e)  require  the  consent or  approval  of any Person  other than the
consent of the Board of Directors  and those  consents or approvals set forth in
Section 3.15. Neither the Company nor any of its subsidiaries is in violation of
or (with or  without  notice  or lapse of time or both) in  default  under,  any
material term or provision of its  respective  certificate of  incorporation  or
by-laws or any indenture,  loan or credit agreement,  note agreement,  mortgage,
security agreement or other agreement, lease or other instrument,  commitment or
arrangement  to which the  Company or any of its  subsidiaries  is a party or by
which the Company's or any of its subsidiaries  assets are bound. 3.4 Fully Paid
and  Non-Assessable.  Upon issuance of the Preferred Stock and payment  therefor
pursuant  to the terms  hereof,  each  share of  Preferred  Stock  shall be duly
authorized,  validly issued, fully paid and non-assessable and free and clear of
any and all Liens (other than those created by the  Purchaser on such  Preferred
Stock),  and is not  subject to any  preemptive  right,  right of first  refusal
created by the  Company,  redemption  right or  similar  right that has not been
waived on or prior to the date of Closing,  and upon conversion of the Preferred
Stock,  each share of Common Stock issued upon such  conversion  shall have been
duly authorized and reserved for issuance and will be validly issued, fully paid
and  non-assessable  and free and clear of any and all Liens  (other  than those
created by the Purchaser on such  Preferred  Stock),  and will not be subject to
any preemptive right, right of first refusal granted by the Company,  redemption
right or similar right that has not been waived on or prior to the date thereof.

     3.5 Compliance with Laws and Instruments.

     (a) Copies of the  certificate of  incorporation  and bylaws of the Company
and each of its subsidiaries which have been delivered to (or made available for
inspection  by) the Purchaser  prior to the execution of this Agreement are true
and  complete and have not been  amended or repealed  (other than in  connection
with the Certificate of Designation).

     (b) The Company and each of its  subsidiaries  is, and their  business  has
been operated, in compliance with their respective  certificate of incorporation
and  bylaws  and,  in  all  material  respects,   all  applicable  laws,  rules,
regulations,   decrees,   injunctions,   judgments,   orders,  rulings,  awards,
settlements and writs.

     3.6  Qualification.  The  Company  and  each  of its  subsidiaries  is duly
qualified  or  licensed  to do  business  and is in good  standing  as a foreign
corporation  in the State of New York. The Company is not and is not required to
be qualified to do business as a foreign  corporation in any other  jurisdiction
except where the failure to be so qualified  would not  individually,  or in the
aggregate, have a Material Adverse Effect on the Company.

                                       9
<PAGE>

     3.7 Capital Stock.


     (a) As of the  date  hereof  and  immediately  prior  to the  Closing,  the
authorized capital stock of the Company consists and will consist, respectively,
of (i) 2,000,000 shares of preferred stock, par value $.0001 per share, of which
93,458 shares shall be designated as Series A Preferred Stock of which no shares
are outstanding; and (ii) 150,000,000 shares of Common Stock of which:

     (A) 3,780,424 shares are issued and outstanding;

     (B)  2,291,441  shares are  authorized  for issuance under the Stock Option
          Plans,  of which  1,921,441  shares are reserved for issuance upon the
          exercise of options granted and issuable by the Company thereunder;

     (C)  1,200,000  shares are reserved for issuance upon the conversion of the
          Preferred Stock; and

     (D)  No shares are reserved for issuance upon the exercise of warrants.

     (b) All such  outstanding  shares of Common Stock and  Preferred  Stock and
other securities have been duly authorized and validly issued and are fully paid
and nonassessable and were issued in compliance with all applicable  Federal and
state securities laws.

     (c) Except as  contemplated  by this  Agreement and as set forth in the SEC
Filings, the Company has no outstanding subscription,  option, warrant, right of
first refusal, preemptive right, call, contract, demand, commitment, convertible
security or other  instrument,  agreement  or  arrangement  of any  character or
nature  whatever  under which the Company is or may be obligated to issue Common
Stock,  Preferred  Stock  or any  other  equity  security  of any  kind or which
otherwise relates to the Company's securities.

     (d) Without limiting the generality of the foregoing and except as provided
herein, neither the Company nor any of its subsidiaries has granted or agreed to
grant any registration rights, including piggyback rights, to any Person.

     3.8 Securities  Laws.  Subject to the accuracy of the  representations  and
warranties of the Purchaser  contained in Section 4 hereof, the offer, issue and
sale of the  Preferred  Stock,  and the  shares of Common  Stock  issuable  upon
conversion   thereof,   (i)  are  and  will  be  exempt  from  the  registration
requirements of the Securities Act and (ii) are and will be issued in compliance
with all applicable  Federal and state securities laws.  Neither the Company nor
any agent on its behalf has  solicited or will solicit any offers to sell or has
offered to sell or will offer to sell all or any part of the Preferred  Stock to
any Person or Persons  other  than the  Purchaser  or has taken or will take any

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other  action  that  would  require  the  Company to  register  the sale of such
Preferred Stock under the Securities Act.

     3.9 Financial Statements; Liabilities.

     (a) Included in the Form 10-Q for the six months ended June 30, 2002 ("Form
10-Q") are the  Company's  consolidated  unaudited  balance  sheet (the "Balance
Sheet") as of June 30, 2002 (the  "Balance  Sheet Date"),  and the  consolidated
unaudited   statement  of  operations  for  the  six-month   period  then  ended
("Operating Statement"). Included in its annual report on Form 10-K for the year
ended December 31, 2001 ("Annual Report") are the Company's consolidated audited
balance sheets as of December 31, 2001 and the consolidated  audited  statements
of operations, cash flow and changes of stockholders' equity for the period then
ended,  together with the related  report of Marcum & Kliegman LLP,  independent
certified  public  accountants  (such  year-end  balance  sheet,   statement  of
operations,  cash flow and changes of stockholders' equity and report,  together
with the Balance Sheet and Operating Statement, the "Financial Statements"). The
Financial Statements (including any notes thereto):

     (i) are complete and correct in all material respects and are in accordance
with the books and records of the Company;

     (ii)  present  fairly  the  consolidated  financial  condition,  results of
operations and cash flows of the Company and its  subsidiaries at the respective
dates therein  specified and the results of operations  and changes in financial
position of the Company and its subsidiaries for the respective  periods therein
specified; and

     (iii) were  prepared  in  accordance  with  generally  accepted  accounting
principles  applied on a basis consistent with prior accounting  periods (except
that  the  unaudited   financial   statements  are  subject  to  year-end  audit
adjustments  which will not be material  in amount and do not  contain  complete
footnotes).

     (b) The Company and its subsidiaries  have no liabilities or obligations of
any nature,  either actual or absolute,  contingent or otherwise,  which are not
reflected or provided for in the  Financial  Statements  or related notes except
liabilities  included in the estimated loss from operations set forth in Section
3.9(c) of the Disclosure Schedule.

     (c) The  Company  anticipates  a loss from  operations,  during the quarter
ended  September  30,  2002,  as set forth in Section  3.9(c) of the  Disclosure
Schedule.

                                       11
<PAGE>

     3.10  Changes.  Since  December 31,  2001,  except as disclosed in the Form
10-Q, the Annual Report, or Section 3.9(c) of the Disclosure Schedule, there has
been no event which was has had,  or could  reasonably  be  expected to have,  a
Material  Adverse  Effect.  Since June 30, 2002,  except as disclosed in Section
3.9(c)  of the  Disclosure  Schedule,  the  Company  and its  subsidiaries  have
conducted  its  business  in  all  material  respects  in  the  ordinary  course
consistent  with past  practices,  and without  limiting the  generality  of the
foregoing, there has not been any:

     (a) change,  occurrence  or  circumstance  in or  affecting  the  business,
assets, liabilities, financial condition, operations or prospects of the Company
or any of its subsidiaries  that has had or may reasonably be expected to have a
Material Adverse Effect;

     (b)   resignation  or  termination  of  any  key  officers,   employees  or
consultants of the Company or any of its subsidiaries;

     (c)  material  change,  except in the ordinary  course of business,  in the
contingent  obligations  of the  Company  or any of its  subsidiaries  by way of
guaranty,  endorsement,  indemnity,  warranty or otherwise  which has had or may
reasonably be expected to have a Material Adverse Effect;

     (d) damage,  destruction or loss, whether or not covered by insurance, that
has had or may  reasonably be expected to have a Material  Adverse Effect on the
Company;

     (e) waiver by the Company or any of its subsidiaries of a material right or
of a  material  debt  owed to any of them  which  has had or may  reasonably  be
expected to have a Material Adverse Effect;

     (f) direct or indirect  loans or advances made by the Company or any of its
subsidiaries to any  stockholder,  employee,  consultant,  officer,  director or
Affiliate  of the  Company  or any of its  subsidiaries,  other  than  loans  or
advances  made in the  ordinary  course of business  or, in the  aggregate,  not
exceeding $250,000;

     (g) material change in any  compensation  arrangement or agreement with any
employee, consultant, officer, director or shareholder has had or may reasonably
be expected to have a Material Adverse Effect;

     (h) declaration or payment of any dividend or other  distribution of assets
of the Company or any of its subsidiaries or any direct or indirect  redemption,
purchase, retirement or other acquisition of any shares of its capital stock has
had or may reasonably be expected to have a Material Adverse Effect;

                                       12
<PAGE>

     (i) debt,  obligation or liability  incurred,  assumed or guaranteed by the
Company or any of its  subsidiaries,  except  those for  amounts  not  exceeding
$250,000 in the  aggregate or for current  liabilities  incurred in the ordinary
course of business;

     (j) sale,  assignment  or  transfer  of any of the  assets or rights of the
Company  or any of its  subsidiaries  (other  than the sale of their  respective
inventory in the ordinary course of business),  including  patents,  trademarks,
copyrights,  trade secrets or other intangible assets or intellectual  property,
or any  mortgage  or  pledge  of or  Lien  imposed  upon  any of the  assets  or
properties  of the Company or any of its  subsidiaries,  except in the  ordinary
course of business  except any such sales,  assignments,  transfers,  mortgages,
pledges or liens  which,  in the  aggregates,  have had,  or may  reasonably  be
expected to have, a Material Adverse Effect;

     (k) change in or event of default under any material agreement to which the
Company or any of its  subsidiaries  is a party or by which any of them is bound
which  modification or event of default has had or may reasonably be expected to
have, a Material Adverse Effect;

     (l) purchase or other  acquisition of any operating  business or a material
amount of assets or the capital stock of any other Person; or

     (m) other event or condition of any character that, either  individually or
cumulatively,  has had or may reasonably be expected to have a Material  Adverse
Effect.

     3.11 Material Agreements of the Company. Neither the Company nor any of its
subsidiaries  is a party to or otherwise bound by any written or oral agreement,
instrument  or  arrangement  that is material  to the  Company  except for those
agreements  included as exhibits to, or disclosed in the Annual Report, the Form
10-Q  or  any  other   documents   filed  with  the  Commission  (the  "Material
Contracts").  The Company has furnished or made  available to the Purchaser true
and complete copies of all such agreements and all other agreements, instruments
and other documents requested by the Purchaser or its authorized representative.
Neither the  Company  nor any of its  subsidiaries,  and to the  Company's  best
knowledge, any other party to a Material Contract, is in default of any Material
Contract. Each Material Contract is in full force and effect. To the best of the
Company's knowledge, IBM has not notified the Company of its intention to modify
or amend in any material respect the Material  Contracts between the Company and
IBM.

     3.12  Litigation.  Except as disclosed in the Form 10-Q, there is no action
pending and, to the best knowledge of the Company, there is no action threatened
against  the  Company  or any of its  subsidiaries  or any of  their  respective
directors,  officers or employees or to which any of the properties or assets of
the  Company  or any of its  subsidiaries  is subject  or which  challenges  the
validity of any Transaction Document, the issuance of the Preferred Stock or any
action taken or to be taken pursuant hereto or thereto, which seeks to impose or
confirm any  limitation on the ability of the Purchaser  effectively to acquire,
hold or exercise full rights of ownership of the  Preferred  Stock or the shares

                                       13
<PAGE>

of Common Stock issuable upon conversion thereof, which action, in the aggregate
with all other such investigations, claims, actions and proceedings would have a
Material  Adverse  Effect.  Except as  disclosed  in the Form 10-Q or the Annual
Report or any other SEC Filing,  neither the Company nor any of its subsidiaries
is a party  or is  subject  to the  provisions  of any  order,  writ,  judgment,
injunction,  decree,  determination or award of any court or of any governmental
entity or regulatory  authority.  Except as disclosed in the Annual Report,  the
Form  10-Q or any  press  release  of the  Company,  there is no  action,  suit,
proceeding or investigation by the Company or any of its subsidiaries  currently
pending  which has had,  or if  finally  determined  in a manner  adverse to the
Company could reasonably be expected to have, a Material Adverse Effect.

     3.13  Disclosure.   The  representations  and  warranties  of  the  Company
contained  herein,  when read together with the Form 10-Q and the Annual Report,
do not contain any untrue statement of material fact or omit to state a material
fact necessary to make the  statements  therein,  in light of the  circumstances
under which they are made, not misleading.

     3.14 Intellectual Property.

     (a)  Section  3.14(a)  of the  Disclosure  Schedule  contains a list of all
material  Intellectual Property Rights (as defined below) including all material
licenses  and  sublicenses  (whether  as  licensee,  sublicensee,   licensor  or
sublicensor)  and  other  agreements  as to  which  the  Company  or  any of its
subsidiaries  is a party and pursuant to which any Person is  authorized  to use
any such  Intellectual  Property  Right,  including  the identity of all parties
thereto.  As used herein, the term  "Intellectual  Property Right" means any and
all material  trademarks,  service marks, and trade names,  patents,  copyrights
(whether  or not  registered  and  whether  or not  published),  (including  any
registrations  or applications  for registration of any of the foregoing) or any
other material  Intellectual  Property  Right, in any country or jurisdiction in
the world,  in each case which is owned or  licensed  by and either used or held
for use or otherwise  related and material to the conduct of the business of the
Company.

     (b) Except as indicated in any of the SEC Filings,  (i) the Company owns or
has the legally  enforceable right to use, sell,  execute,  reproduce,  display,
perform, modify, enhance,  distribute,  prepare derivative works of, and license
and  sublicense  without  further  payment  to any other  Person,  all  material
Intellectual  Property Rights,  free and clear of all Liens; (ii) the execution,
delivery and  performance of the  Transaction  Documents will not conflict with,
result in a breach of,  constitute  an event of default under (or an event that,
with notice or lapse of time or both,  would  constitute  a conflict,  breach or
default  under),  or accelerate  the  performance  required by, or create in any
Person the right to  accelerate,  terminate,  modify,  or cancel (with notice or
lapse of time or both), or require any notice under, any contract  involving any
Intellectual Property Rights, which default,  conflict, breach or event has had,
or may reasonably be expected to have, a Material  Adverse Effect,  and will not
cause the  forfeiture or termination of or give rise to a right of forfeiture or
termination (with notice or lapse of time or both) of any Intellectual  Property

                                       14
<PAGE>

Rights or otherwise impair the rights of the Company to use, sell or license any
Intellectual Property Rights which forfeiture,  termination, right of forfeiture
or termination or impairment has had, or could reasonably be expected to have, a
Material Adverse Effect.

     (c) Except as  indicated  in any of the SEC Filings or set forth in Section
3.14(c) of the  Disclosure  Schedule,  (i) all  current  and  former  employees,
officers and consultants of the Company  (including the Principal  Stockholders)
that, during the term of such Persons' respective employment or consultancy with
the Company has contributed to or participated in the conception and development
of products  currently offered by the Company and the products which the Company
proposes to offer have acted  during such  respective  terms within the scope of
their  employment in so contributing or  participating;  and (ii) no current and
former officers, employees or consultants of the Company has a right to claim an
ownership  interest in any  Intellectual  Property  Rights as a result of having
been  involved in the  development,  creation or licensing  of any  Intellectual
Property  Rights while  employed or serving as  consultants to the Company which
claim has had or could reasonably be expected to have a Material Adverse Effect.

     (d) Except as indicated  in the SEC  Filings,  (i) the Company has not been
sued or  charged  with or  otherwise  been  notified  of, or been a party in any
claim, suit, action or proceeding relating to its business that has not been the
subject of a final  disposition  prior to the date  hereof  and that  involves a
claim of  interference,  infringement,  misappropriation  or  opposition  by the
Company of any trademark,  patent,  trade secret,  copyright,  know-how or other
proprietary information or intellectual property right of any other Person which
claim,  if  subject  of a  final  disposition  adverse  to  the  Company,  could
reasonably be expected to have a Material Adverse Effect, and the Company has no
knowledge of any reasonable  basis for any such claims,  (ii) the Company has no
knowledge of any interference,  infringement,  misappropriation or opposition by
any  other  Person  of any  Intellectual  Property  Rights  which  interference,
infringement,  misappropriation  or opposition  could  reasonably be expected to
have a Material Adverse Effect; (iii) no Intellectual  Property Right is subject
to any outstanding order, judgment, injunction, decree, stipulation or agreement
prohibiting  or  restricting  the use thereof by the Company or  prohibiting  or
restricting the assignment,  licensing or transfer thereof by the Company to any
Person which has had or could  reasonably be expected to have a Material Adverse
Effect;  (iv) no  Intellectual  Property Rights are currently the subject of any
re- examination,  opposition, cancellation or invalidation proceeding before any
governmental  authority  which  re-examination,   opposition,   cancellation  or
invalidation  proceeding could reasonably be expected to have a Material Adverse
Effect,  and  all  Intellectual  Property  Rights  registered  or,  to the  best
knowledge of the Company,  filed with a governmental  authority are currently in
compliance  with  all  material  formal  legal  requirements  and,  to the  best
knowledge of the Company, are valid and enforceable; and (v) the Company has not
entered into any agreement to indemnify  any other Person  against any charge of
infringement or  misappropriation  of any  Intellectual  Property Right or other
proprietary information or intellectual property right of any other Person.

                                       15
<PAGE>

     (e) With respect to software  licensed to the Company  from third  parties,
such as  operating  systems  and  databases  required  by the Company to deliver
services to its  customers,  to the best of the  Company's  knowledge,  all such
licenses  are in good  standing  and the Company is  authorized  to deliver such
services to its customers,  except to the extent that the failure of any license
or licenses to be in good  standing or the absence of such  authorization  would
not have,  or could not  reasonably  be  expected  to have,  a Material  Adverse
Effect.

     (f) To the best of the Company's  knowledge,  none of the operations of the
Company   involves  the  unlicensed  or  unauthorized  use  of  confidential  or
proprietary  information.  The  Company  has taken all  reasonable  measures  to
protect the trade secrets and the  confidential  and proprietary  information of
third Persons used in or related to the Company's operations. To the best of the
Company's knowledge, to the extent that information of a confidential nature has
been used in the  operations of the Company in the five year period prior to the
date hereof,  such information  (except insofar as it has fallen into the public
domain  through  no fault  of the  Company  or is not  material)  has been  kept
strictly  confidential  and has not been disclosed  otherwise than subject to an
obligation  of  confidentiality  being  imposed  on  the  Person  to  whom  such
information was disclosed.

     3.15 No Governmental  Consent or Approval Required.  Assuming the truth and
accuracy of the  representations  made by the Purchaser in Section 4 hereof,  no
authorization,   consent,  approval  or  other  order  of,  declaration  to,  or
registration,  qualification,  designation or filing with, any federal, state or
local  governmental  agency or body is  required  by or from the Company for the
valid and lawful  authorization,  execution  and  delivery by the Company of the
Transaction  Documents and consummation of the transactions  contemplated hereby
or  thereby,  or for the  valid and  lawful  authorization,  issuance,  sale and
delivery  of the  Preferred  Stock or for the  valid and  lawful  authorization,
reservation,  issuance, sale and delivery of the Preferred Stock, other than (i)
the filing of the Certificate of Designation  with the Secretary of State of the
State of Delaware and (ii) the qualification (or taking of such action as may be
necessary to secure an exemption from qualification,  if available) of the offer
and sale of the Preferred Stock under  applicable  state and Federal  securities
laws, which filings and qualifications,  if required,  will be accomplished in a
timely  manner  so as to  comply  with  such  qualification  or  exemption  from
qualification requirements.

     3.16 Nasdaq Listing  Compliance.  The Company's  Common Stock is registered
pursuant to Section  12(g) of the Exchange Act and is listed on the Nasdaq Small
Cap Market and the  Company has taken no action  designed  to, or likely to have
the effect of,  terminating  the  registration  of the  Common  Stock  under the
Exchange Act or de-listing the Common Stock from the Nasdaq Small Cap Market. In
addition, except for the correspondence from NASDAQ to the Company on August 20,
2002, a copy of which has been previously provided to the Purchaser, the Company
has not received any notification  from the Commission or NASDAQ indicating that
the Company is subject to or in risk of being delisted from the Nasdaq  SmallCap
Market.

                                       16
<PAGE>

     3.17 Reporting Status. Except as otherwise set forth in Section 3.17 of the
Disclosure Schedule, the Company has filed in a timely manner all forms, reports
and other documents that the Company was required to file under the Exchange Act
and the Securities Act during the 12 months preceding the date of this Agreement
and  such  documents  complied  as to form in all  material  respects  with  the
Commission's   requirements  as  of  their  respective  filing  dates,  and  the
information contained therein as of the respective dates thereof did not contain
any  untrue  statement  of a  material  fact or omit to  state a  material  fact
required to be stated  therein or  necessary to make the  statements  therein in
light of the circumstances under which they were made not misleading.

     3.18 Compliance with Nasdaq Requirements. The Company has complied with all
requirements of Nasdaq, Inc. with respect to the issuance of the Preferred Stock
and the shares of Common Stock  issuable upon  conversion  thereof and agrees to
file a listing  application with NASDAQ covering such common stock in compliance
with applicable NASD rules.

     3.19  Eligibility  to File Form S-3. The Company is  currently  eligible to
register  the resale of Common Stock in a secondary  offering on a  registration
statement on Form S-3 under the Securities Act.

     3.20 Subsidiaries.  Except as set forth in the SEC Filings, (i) the Company
does not have, and is not committed to purchase or acquire,  any equity interest
or  equivalent  interest  (direct  or  indirect)  in any  Person  other than the
subsidiaries  of the Company  listed  therein,  (ii) all  outstanding  shares of
capital stock of each subsidiary are owned of record and beneficially  solely by
the Company and have been duly  authorized and validly issued and are fully paid
and non- assessable and (iii) the Company owns all of the issued and outstanding
capital stock of each of its subsidiaries free and clear of any and all Liens.

     3.21  Brokerage.  No placement  agent,  banker,  broker or finder has acted
directly or indirectly for the Company in connection  with this Agreement or the
transactions  contemplated  hereby,  and no placement agent,  banker,  broker or
finder is  entitled to any  commission,  brokerage  or  finder's  fee in respect
thereof based in any way on agreements,  arrangements or understandings  made by
or on behalf of the Company.

     3.22  Employees.  Neither  the Company  nor any of its  subsidiaries  has a
collective  bargaining  agreement with any of its  employees.  There is no labor
union  organizing   activity  pending  or,  to  the  Company's  best  knowledge,
threatened  with  respect to the Company or any of its  subsidiaries.  Except as
disclosed  in any of the  SEC  Filings,  to the  Company's  best  knowledge,  no
employee of the Company or any of its subsidiaries, nor any consultant with whom
the Company or any of its  subsidiaries  has contracted,  is in violation of any
term of any employment contract,  proprietary information agreement or any other
agreement  relating to the right of any such individual to be employed by, or to
contract with, the Company or any such  subsidiary  because of the nature of the
business  to be  conducted  by the Company or any such  subsidiary;  and, to the
Company's  best  knowledge,  the  continued  employment  by the Company and each

                                       17
<PAGE>

subsidiary of its current officers and significant employees, will not result in
any such violation.  Except as disclosed in any of the SEC Filings:  the Company
and each of its subsidiaries  have not received any written notice alleging that
any such  violation  has  occurred;.  and no  employee of or  consultant  to the
Company  or any of its  subsidiaries  has been  granted  the right to  continued
employment  by the Company or such  subsidiary  or to any material  compensation
following termination of employment with or by the Company or such subsidiary.

     3.23 Taxes. "Taxes" shall mean all taxes,  charges,  fees, Liens, duties or
other assessments, however denominated, including any interest or penalties that
may become payable in respect thereof,  imposed by the United States government,
any state, local or foreign government or any agency or political subdivision of
any such government (a "Tax Authority"),  which shall include,  without limiting
the  generality  of the  foregoing,  all  income  taxes,  payroll  and  employee
withholding taxes, unemployment insurance, social security, sales and use taxes,
excise taxes,  capital taxes,  franchise taxes, gross receipt taxes,  occupation
taxes,  real and  personal  property  taxes,  value added  taxes,  stamp  taxes,
transfer taxes, workers' compensation taxes and other obligations of the same or
of a similar  nature.  All tax returns or reports  required to be filed by or on
behalf of the  Company  or any of its  subsidiaries  have been  timely  filed or
requests  for  extensions  have been timely  filed or any amounts due and unpaid
have been accrued on the Financial  Statements and, to the best knowledge of the
Company,  any such extension has been granted and has not expired,  and all such
filed returns are complete and accurate in all material respects.  All Taxes due
from the  Company or any of its  subsidiaries  through the date hereof have been
paid in full or an  adequate  provision  has been made for any such Taxes on the
Financial   Statements  (in  accordance  with  generally   accepted   accounting
principles).  Except as otherwise disclosed in any of the SEC Filings:  there is
no audit,  examination,  deficiency, or refund litigation pending or threatened,
with respect to any Taxes of the Company or any of its  subsidiaries;  all Taxes
due with respect to completed and settled  examinations or concluded  litigation
relating  to it have been paid in full or adequate  provision  has been made for
any  such  Taxes on the  Financial  Statements  (in  accordance  with  generally
accepted  accounting  principles);  the Company has not executed an extension or
waiver of any statute of  limitations on the assessment or collection of any Tax
that is  currently in effect;  and no rulings have been issued by or  agreements
entered  into with any Tax  Authority  with respect to the Company or any of its
subsidiaries.

3.24    ERISA and Employee Benefit Plans.

     (a) Except as disclosed  in any of the SEC Filings,  neither of the Company
nor  any  of  its  subsidiaries   maintains,   sponsors,  is  required  to  make
contributions to or otherwise has any liability, direct, indirect, contingent or
otherwise,  with  respect  to any  pension,  profit  sharing,  thrift  or  other
retirement plan,  employee stock ownership plan,  deferred  compensation,  stock

                                       18
<PAGE>

ownership,  stock purchase,  performance  share,  bonus or other incentive plan,
severance plan,  health or group insurance plan,  welfare plan, or other similar
plan, agreement, policy, arrangement or understanding,  whether written or oral,
whether or not such plan is intended to be qualified under Section 401(a) of the
Code,  including any employee benefit plan within the meaning of Section 3(3) of
ERISA,  which plan covers any employee or former  employee of the Company or any
of its subsidiaries (collectively, the "Plans").

     (b) The Company has delivered to the  Purchaser,  or the same are available
as exhibits to or are disclosed  into reports,  registration  statements,  proxy
statements  or other  filings  made by the Company  with the  Commission,  true,
correct and complete copies of each of the following:

     (i) any employment agreements and any procedure and policy manuals relating
to the employment of employees of the Company and each of its  subsidiaries  and
the use of temporary  employees and  independent  contractors by the Company and
each of its subsidiaries;

     (ii)  each  Plan and all  related  trust  agreements,  insurance  and other
material  contracts,  and summary plan  descriptions  and  summaries of material
modifications  relating  to each Plan and any  related  material  communications
distributed to participants under the Plans; and

     (iii) the latest  reports which have been filed (or are in fully  completed
form for filing) with the Internal  Revenue  Service and the Department of Labor
with respect to each Plan.

     (c) With respect to each Plan,  to the best  knowledge  of the Company,  no
party in interest or  disqualified  person (as defined in Section 3(14) of ERISA
and  Section  4975 of the  Code,  respectively)  has at any  time  engaged  in a
transaction  which could subject the Company or any of its subsidiaries to a Tax
in a material  amount for  prohibited  transactions  imposed by ERISA or Section
4975 of the Code.

     (d) To the best  knowledge  of the  Company,  no  fiduciary  (as defined in
Section  3(21) of  ERISA)  with  respect  to any Plan  has  breached  any of the
material  responsibilities or obligations imposed upon fiduciaries under Title I
of ERISA.  Each Plan is and has been  operated  in  compliance  in all  material
respects  with its  terms and all  applicable  reporting,  disclosure  and other
requirements of ERISA and the Code as they relate to such Plan,  including where
applicable,  the group health plan continuation  coverage requirements set forth
in Part 6 of Subtitle B of Title I of ERISA and Section  4980B of the Code,  and
by its terms can be terminated at any time.

                                       19
<PAGE>

     (e) As of the date hereof,  the Company and each of its subsidiaries  shall
have made all required  contributions under each Plan for all applicable periods
or adequate accruals therefor will have been provided for by the Company or such
subsidiary.

     (f)  Except  as set  forth in any of the SEC  Filings,  no  Person  will be
entitled to any severance  benefits under the terms of any Plan solely by reason
of  the  transactions   contemplated  by  this  Agreement  or  the  Stockholders
Agreement. Except as otherwise disclosed in any of the SEC Filings, there are no
actions,  claims, suits or arbitrations pending or, to the best knowledge of the
Company,  threatened with respect to any Plan, which actions,  claims,  suits or
arbitrations  has or could  reasonably  be  expected to have,  alone,  or in the
aggregate, a Material Adverse Effect.

     (g)  Neither  the  Company nor any of its  subsidiaries  has  incurred  any
outstanding  liability in any material  amount to the Pension  Benefit  Guaranty
Corporation. Each Plan which is intended to be "qualified" within the meaning of
Section  401(a)  of the  Code  (and  the  exempt  trust  thereunder),  has  been
determined  by  the  Internal  Revenue  Service  to  satisfy  the  qualification
requirements  of  Sections  401(a)  and  501(a) of the Code and every  Plan (and
related  trust) which is intended to comply with the terms and  requirements  of
applicable statutes does so comply in all material respects.

     (h) Neither the Company nor any of its subsidiaries,  other than Softworks,
Inc.,  has  adopted,  during  the last six (6) years,  any Plan or any  employee
benefit plan  subject to Title IV of ERISA,  giving rise to any  liabilities  to
which the Company or any of its subsidiaries is now or may hereafter be subject,
which  liabilities  have,  or could  reasonably  be expected to have, a Material
Adverse Effect.

     (i) The consummation of the transactions contemplated by this Agreement and
the  Stockholders  Agreement  will not  result in an  increase  in the amount of
compensation  or benefits or accelerate  the vesting or timing of payment of any
benefits or compensation payable in respect of any employee.

     3.25  Transactions  with Related  Persons.  Except as  otherwise  disclosed
herein, in the Disclosure Schedule or any of the SEC Filings:

     (a) Neither the Company nor any of its  subsidiaries  has entered  into any
agreement  with, and no debts,  obligations or liabilities of the Company or any
of its  subsidiaries is owed to, any of their  respective  officers,  directors,
shareholders,  employees,  consultants  or Affiliates  or any Affiliate  thereof
other than:

     (i) for  payment of salary,  consulting  or  director's  fees for  services
rendered;

                                       20
<PAGE>

     (ii)  reimbursement  for  reasonable  expenses  incurred  on  behalf of the
Company or any such subsidiary; and

     (iii) for other standard employee benefits made generally  available to all
employees (including stock option agreements  outstanding under any stock option
plan  approved  by the board of  directors  either of the  Company or any of its
subsidiaries);

     (b) None of the officers,  directors or  stockholders of the Company or any
of its subsidiaries,  or any members of their immediate families or any of their
Affiliates,  is indebted to, or has any cause of action or legal claim  against,
the Company or any of its subsidiaries or, to the best knowledge of the Company,
has any direct or  indirect  ownership  interest  in any  Person  with which the
Company or any of its  subsidiaries  is  affiliated or with which the Company or
any of its  subsidiaries  has a  business  relationship,  or  any  Person  which
competes  with the Company or any of its  subsidiaries,  except  that  officers,
directors and/or  stockholders of the Company or any of its subsidiaries may own
less than two  percent  (2%) of the  issued  and  outstanding  capital  stock in
publicly  traded  companies  which may  compete  with the  Company or any of its
subsidiaries;

     (c) No  officer,  director  or  stockholder  of the  Company  or any of its
subsidiaries,  or any  member  of  their  immediate  families  or  any of  their
Affiliates, is, directly or indirectly, interested in any material contract with
the Company or any of its subsidiaries; and

     (d)  Neither  the  Company  nor  any of its  subsidiaries  is a  guarantor,
indemnitor or contributor of any  indebtedness  or liability of any other Person
involving any guaranty, indemnification or contribution required to be disclosed
in any such SEC Filings.

     3.26. Title to Properties and Assets; Liens, etc.

     (a) Except as otherwise disclosed in the SEC Filings,  the Company and each
of its subsidiaries has good and marketable title to its material properties and
assets, and good title to its material  leasehold estates,  in each case subject
to no material Liens, other than (i) those identified on the Balance Sheet, (ii)
those  resulting  from taxes which have not yet become  delinquent,  (iii) minor
Liens  which do not  materially  detract  from  the  value  of the  property  or
materially  impair the  operations  of the Company or such  subsidiary  and (iv)
those that have otherwise arisen in the ordinary course of business.

     (b) All material facilities,  machinery,  equipment, fixtures, vehicles and
other  properties  owned,  leased  or  used  by  the  Company  and  each  of its
subsidiaries  are in good operating  condition and repair and are reasonably fit
and usable for the purposes for which they are being used.

     (c) The SEC Filings sets forth true,  complete and correct  descriptions of
each  leasehold  interest of the Company  and each of its  subsidiaries  in real

                                       21
<PAGE>
property that is material to the business and  operations of the Company and its
subsidiaries,  taken as a whole. The Company and each of its subsidiaries enjoys
peaceful and undisturbed possession of all such real property.

     (d) Neither the Company  nor any of its  subsidiaries  has ever owned,  nor
does the Company nor any of its subsidiaries or currently own any real property.

     (e)  Except  as set  forth  in the  SEC  Filings,  the  Company  has  never
manufactured or produced,  and does not presently manufacture or produce, any of
its products or goods and such  products  and goods have been and are  presently
manufactured and produced by independent third Persons.

     3.27 Permits.  The Company and each of its subsidiaries has all franchises,
permits, licenses, consents and approvals and any similar authorization required
for their operations,  the absence of which could not be reasonably  expected to
have  alone,  or  in  the  aggregate,   a  Material  Adverse  Effect,   and  all
authorizations they have are in full force and effect.

     3.28. Environmental Matters.

     (a) As used herein,  "Subject  Premises" means the real property now owned,
operated, used or leased or previously owned, operated, used or leased (but only
through the date of termination of such ownership,  operation, use or lease) by,
to or for the Company or any of its subsidiaries.

     (b) To the best knowledge of the Company,  none of the Subject Premises has
any condition or conditions  which would require  notification or remediation by
the  Company  or  any  of  its   subsidiaries   under  any   Environmental   Law
(collectively, "Environmental Defects").

     (c) Neither the Company nor any of its subsidiaries,  nor, to the Company's
best  knowledge,  any other Person has at any time during its  possession of the
Subject  Premises  disposed of any wastes,  Hazardous Waste or otherwise,  other
than in accordance with applicable Environmental Laws and Environmental Permits.

     (d)  Neither  the  Company nor any of its  subsidiaries  has  received  any
written  communication from the Federal  Environmental  Protection Agency or any
other local, state or Federal  regulatory  agencies or any other Person relating
to the existence of Environmental Defects at the Subject Premises.

     (e) Except as disclosed in any of the SEC Filings, to the best knowledge of
the Company, there do not exist any judgments,  orders,  directives,  decrees or
awards of any court,  arbitrator or  administrative  or  governmental  agency or
entity or any other Person  concerning the Company or any of its subsidiaries or
any of their agents' or contractors'  compliance with any  Environmental  Law or
Environmental  Permit (in the case of agents and  contractors,  relating  to the
Company, any of its subsidiaries or the Subject Premises).

                                       22
<PAGE>

     (f) Except as  disclosed  in any of the SEC  Filings,  no claims  have been
asserted or, to the best knowledge of the Company,  are  threatened  against the
Company  or any of its  subsidiaries  relating  to any  Environmental  Defect or
condition which with the passage of time could become an Environmental Defect.

     (g) Except as disclosed in any of the SEC Filings, to the best knowledge of
the  Company,  there do not exist any consent  decrees,  administrative  orders,
settlement  agreements  or other  settlement  documents  entered  into  with any
administrative  or governmental  agency or entity or any other Person concerning
compliance with any Environmental Law or Environmental  Permit applicable to the
Company or any subsidiary or any of the Subject Premises.

     (h) Except as disclosed in any of the SEC Filings, the Subject Premises and
all operations  conducted  thereon by the Company or any of its subsidiaries are
and have at all times  been in  compliance  in all  material  respects  with all
Environmental Laws and Environmental Permits.

     (i) The Company and each of its  subsidiaries  have  obtained and currently
maintain in full force and effect all material environmental permits, approvals,
authorizations,    licenses,    variances,    registrations    and   permissions
(collectively,  "Environmental  Permits")  required  for the  conduct  of  their
respective businesses and operations.

     (j) To the best knowledge of the Company, there are no Hazardous Substances
or  Hazardous  Waste on,  under or about the Subject  Premises  other than those
customarily  used in or  incident  to the  business of the Company or any of its
subsidiaries,  which in any event are used or  maintained  by the Company or its
subsidiaries  in  all  material  respects  in  accordance  with  all  applicable
Environmental Laws and Environmental Permits.

     3.29 Customers and Suppliers. Except as disclosed on in the SEC Filings, no
customer or supplier of the Company or any of its  subsidiaries  has taken,  and
the Company has not received any written  notice,  and the Company does not have
any knowledge that any customer or supplier of the Company  contemplates taking,
any steps that could disrupt the business  relationship of the Company with such
customer or supplier or could result in a diminution in the value of the Company
in a manner that, in either event, would be reasonably likely to have a Material
Adverse  Effect.  The Company has no knowledge of any activities by ex-employees
that have disrupted the business  relationship of the Company with its customers
or suppliers in any material respect.

     3.30 Rights  Agreement;  Interested  Stockholder.  All necessary and proper
action has been taken by the  Company and its Board of  Directors  such that the

                                       23
<PAGE>

execution,  delivery and performance of the Transaction Documents, the purchase,
sale and  issuance  of the Series A  Preferred  Stock and,  the  issuance of the
Common Stock upon conversion of the Series A Preferred Stock,  will not (a) give
rise to the exercise of the rights issued under the Rights  Agreement,  dated as
of August 28,  2001,  between  the  Company  and  Manhattan  Transfer  Registrar
Company, or (b) cause the Purchaser to become an "interested  stockholder" under
Section 203 of the Delaware General Corporation Law.

     3.31  Directors  and Officers  Insurance.  The Company has furnished to the
Purchaser a true,  correct and  complete  copy of the  Company's  directors  and
officers  insurance  policy.  There  is no claim  by the  Company  or any of its
directors or officers  pending  under such policy as to which  coverage has been
questioned,  denied or disputed by the underwriters of such policy. All premiums
due and payable  under such  policy  have been paid and the Company  have in all
material  respects  complied fully with the terms and conditions of such policy.
Such policy is in full force and effect.  Such policy is in the coverage  amount
of $7 million.  The  Company  knows,  to its best  knowledge,  of no  threatened
termination of such policy.

     4.   Representations  and  Warranties  of  the  Purchaser.   The  Purchaser
represents  and  warrants  to the  Company as of the date of this  Agreement  as
follows:

     4.1 Status. The Purchaser is a limited partnership duly organized,  validly
existing  and in  good  standing  under  the  laws  of the  jurisdiction  of its
organization  with full power and authority to execute,  deliver and perform its
obligations under this Agreement and each of the other Transaction  Documents to
which the Purchaser is a party.

     4.2  Authority.  The  Purchaser  has the power and authority to execute and
deliver the  Transaction  Documents  to which it is a party and to carry out its
obligations hereunder and thereunder. The execution, delivery and performance by
the  Purchaser  of the  Transaction  Documents  to which  it is a party  and the
consummation of the transactions  contemplated hereby and thereby have been duly
authorized  by all  necessary  limited  partnership  action  on the  part of the
Purchaser,  and the  Transaction  Documents  to which the  Purchaser  is a party
constitute the legal, valid and binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with their respective  terms,  except as the
same may be  limited by  bankruptcy,  insolvency,  reorganization  or other laws
affecting the  enforcement  of creditors'  rights  generally now or hereafter in
effect  and  subject  to  the  application  of  equitable   principles  and  the
availability of equitable remedies.

     4.3  No  Conflicts.   The  execution,   delivery  and  performance  of  the
Transaction  Documents to which the Company is a party and the  consummation  of
the  transactions  contemplated  hereby and thereby by the  Purchaser do not and
will not with or without  the  giving of notice or the  passage of time or both,
violate or conflict with or result in a breach or  termination  of any provision
of, or constitute a default under any organizational instrument of the Purchaser
or any order, judgment, decree, statute, regulation,  contract, agreement or any
other  restriction  of any kind or description to which the Purchaser is a party
or by which the Purchaser is or may be bound.

                                       24
<PAGE>

     4.4 Investor Representations and Acknowledgments.

     (a) The Purchaser is acquiring the Preferred  Stock for the Purchaser's own
account for investment  only and not as nominee or agent and not with a view to,
or for sale in connection  with, a  distribution  of the Preferred  Stock or the
shares of Common  Stock  issuable  upon  conversion  thereof and with no present
intention of selling,  transferring,  granting a  participation  in or otherwise
distributing,  the Preferred  Stock or the shares of Common Stock  issuable upon
conversion  thereof,  all  within  the  meaning  of the  Securities  Act and any
applicable state, securities or blue-sky laws.

     (b) The  Purchaser  is not a party or subject to or bound by any  contract,
undertaking,  agreement  or  arrangement  with any Person to sell,  transfer  or
pledge the Preferred Stock or any part thereof to any Person, and has no present
intention to enter into such a contract, undertaking, agreement or arrangement.

     (c) The Purchaser acknowledges that:

     (i) The Company has advised the Purchaser that neither the Preferred  Stock
nor the  shares of Common  Stock  issuable  upon  conversion  thereof  have been
registered  under the Securities Act or under the laws of any state on the basis
that the issuance  thereof  contemplated  by this  Agreement is exempt from such
registration in accordance with Section 4(2) of the Securities Act;

     (ii) The Company's  reliance on the  availability of an exemption under the
Securities Act for the issuance of the Preferred  Stock and the shares of Common
Stock issuable upon conversion  thereof without  registration is, in part, based
upon the accuracy and truthfulness of the Purchaser's  representations contained
herein;

     (iii) The  Preferred  Stock and the shares of Common  Stock  issuable  upon
conversion  thereof cannot be resold without  registration  or an exemption from
registration  under the Securities Act and any applicable state securities laws,
and that certificates  representing the Preferred Stock and the shares of Common
Stock issuable upon  conversion  thereof will bear a restrictive  legend to such
effect in substantially the following form;

     THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
     AS AMENDED,  OR ANY STATE  SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED
     FOR SALE IN THE ABSENCE OF AN  EFFECTIVE  REGISTRATION  STATEMENT AS TO THE
     SECURITIES  UNDER SAID ACT AND ANY APPLICABLE  STATE  SECURITIES LAW OR THE
     AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT.

                                       25
<PAGE>


     (iv) The Purchaser  has  evaluated  the merits and risks of purchasing  the
Preferred Stock, and has such knowledge and experience in financial and business
matters that the Purchaser is capable of evaluating the merits and risks of such
purchase,  is aware of and has  considered  the  financial  risks and hazards of
purchasing  the  Preferred  Stock,  and is  able to bear  the  economic  risk of
purchasing  the Preferred  Stock,  including the  possibility of a complete loss
with respect thereto;

     (v) The Purchaser has had access to such information regarding the business
and finances of the Company,  and has been provided the  opportunity  to discuss
with the Company's  management the business,  affairs and financial condition of
the Company and such other  matters with respect to the Company as would concern
a reasonable person considering the transactions  contemplated by this Agreement
and/or concerned with the operation of the Company;

     (vi) The  representations  and warranties of the Purchaser set forth herein
are true,  correct and  complete as of the date of this  Agreement,  and will be
true,  complete  and correct on the date of closing of the  purchase and sale of
the Preferred Stock pursuant to the terms hereof,  provided,  however,  if there
should be any material change in the information underlying such representations
and warranties at any time prior to such closing the Purchaser shall immediately
furnish such revised or corrected information to the Company; and

     (vii) The Purchaser,  by initialing the paragraphs in (a) through (g) below
applicable to the Purchaser,  hereby  represents and warrants that the Purchaser
is an Accredited Investor, because the Purchaser comes within one or more of the
enumerated categories set forth in (a) through (g) below. Check the box provided
in  the  beginning  of  each  applicable  paragraph,  thereby  representing  and
warranting as to the  applicability to the Purchaser of the checked paragraph or
paragraphs:

     [ ]  A  bank as defined in  Section  3(a)(2) of the  Securities  Act,  or a
          savings  and loan  association  or other  institution  as  defined  in
          Section  3(a)(5)(A)  of the  Securities  Act,  whether  acting  in its
          individual  or  fiduciary  capacity;  a broker  or  dealer  registered
          pursuant to Section 15 of the Exchange  Act; an  insurance  company as
          defined in Section 2(13) of the Securities Act; an investment  company
          registered  under the Investment  Company Act of 1940 (the "Investment
          Company Act") or a business  development company as defined in Section
          2(a)(48) of the Investment  Company Act; a Small  Business  Investment
          Company  licensed  by the U.S.  Small  Business  Administration  under
          Section 301(c) or (d) of the Small Business  Investment Act of 1958; a
          plan established and maintained by a state, its political subdivisions
          or  any  agency  or  instrumentality  of  a  state  or  its  political
          subdivisions for the benefit of its employees,  if such plan has total
          assets in excess of  $5,000,000;  an employee  benefit plan within the
          meaning  of the  Employee  Retirement  Income  Security  Act  of  1974
          ("ERISA"),  if the investment decision is made by a plan fiduciary, as
          defined in Section 3(21) of ERISA, which is either a bank, savings and

                                       26
<PAGE>

          loan association, insurance company, or registered investment advisor,
          or if the  employee  benefit  plan  has  total  assets  in  excess  of
          $5,000,000 or, if a self-directed plan, with investment decisions made
          solely by persons that are accredited investors.

     [ ]  A  private  business  development  company   as  defined   in  Section
          202(a)(22) of the Investment Advisers Act of 1940.

     [x]  An  organization   described   in   Section  501(c)(3)  of  the  Code,
          corporation,  Massachusetts or similar business trust, or partnership,
          not  formed  for the  specific  purpose of  acquiring  the  securities
          offered,  with total assets in excess of  $5,000,000.

     [ ]  A director or executive officer of the Company.

     [ ]  A  natural  person whose individual net worth, or joint net worth with
          that  person's  spouse,  at the  time of his or her  purchase  exceeds
          $1,000,000.

     [ ]  A  natural  person who had an individual  income in excess of $200,000
          in each of the two  most  recent  years  or  joint  income  with  that
          person's spouse in excess of $300,000 in each of those years and has a
          reasonable  expectation  of  reaching  the  same  income  level in the
          current  year.

     [ ]  A  trust,  with  total assets in excess of $5,000,000,  not formed for
          the  specific  purpose of  acquiring  the  securities  offered,  whose
          purchase is directed by a  sophisticated  person as  described in Rule
          506(b)(2)(ii) (i.e., a person who has such knowledge and experience in
          financial and business  matters that he is capable of  evaluating  the
          merits and risks of the prospective investment).

     [ ]  An  entity  in  which   all  of   the  equity  owners  are  accredited
          investors.  (If  this  alternative  is  checked,  the  Purchaser  must
          identify  each  equity  owner and  provide  statements  signed by each
          demonstrating how each is qualified as an accredited investor.)

     (d) As long as the Purchaser or its affiliates  owns any shares of Series A
Preferred Stock or Common Stock, neither the Purchaser nor its affiliates shall,
directly  or  indirectly,  engage in any form of "short"  sales of any shares of
Common Stock,  whether  "covered" or "uncovered"  short sales,  or engage in any
transaction,  the  purpose of which is to  effectuate  a short sale of or a sale

                                       27
<PAGE>

with a declared  delivery  (more than three days from the actual sale) of any of
the shares sold.

     5. Certain Covenants of the Company.
        --------------------------------

     5.1 Board Designee

     (a) The Company hereby covenants and agrees that all times during which the
Purchaser owns not less than the Threshold Percentage, provided that the Company
then has a classified Board of Directors,  the Purchaser shall have the right to
designate  one  director to the  Company's  Board of Directors  (the  "Purchaser
Designee"),  which right shall not be assigned without the prior written consent
of the Company.  The Company agrees that on or prior to the date hereof, it will
fill the current  vacancy on its Board of  Directors  in Class II by  appointing
Peter B. Yunich as a director thereto,  to serve on the Board of Directors until
the  annual  meeting of  stockholders  in 2004 and until his  successor  is duly
elected and qualified or his earlier resignation or removal. The Company further
agrees that it shall nominate Mr. Yunich, or such other Person designated by the
Purchaser and acceptable to the Board of Directors in the good faith exercise of
its reasonable  business  judgment,  to the slate of the Company's  nominees for
election as Class II directors of the Company at the Company's annual meeting of
stockholders in 2004 and that in the event Mr. Yunich shall resign or be removed
from the  Board of  Directors  prior  thereto,  that the  Company  will fill the
vacancy in Class II members of its Board with another  Person  designated by the
Purchaser and acceptable to the Board of Directors in the good faith exercise of
its reasonable  business  judgment.  Notwithstanding  anything contained in this
Section  5.1 to the  contrary,  at any time during  which the  Company  does not
maintain a classified  board of  directors,  so long as the  Purchaser  owns the
Threshold  Percentage,  the Company  shall  comply with the  provisions  of this
Section 5.1 to appoint the Purchaser  Designee to the Board of Directors as then
composed.

     (b) The  Company  agrees to use its best  efforts  to cause  the  Purchaser
Designee to be  nominated  to the Board of Directors of the Company for election
to such Board (and any committees of the Board, to the extent deemed appropriate
by  the   non-Purchaser   Designee  members  of  the  Board)  by  the  Company's
stockholders  at the time and in the manner  provided  for such  nomination  and
election in the Company's bylaws and certificate of  incorporation.  For as long
as the  Purchaser  owns not less than the  Threshold  Percentage,  the Purchaser
Designee may not be removed or replaced  without the  Purchaser's  prior written
consent, except for any removal of such individual for Cause (but subject to the
rights of the  Purchaser  to fill such  vacancy and of the Board of Directors to
except the Purchaser's  designee as provided herein).

     (c) The  Company  shall  also use its best  efforts  to cause  its Board of
Directors to take all necessary and appropriate action to effect the election of
the Purchaser Designee pursuant to the terms of this Section 5.1.

                                       28
<PAGE>

     (d) The Company agrees that the Purchaser Designee shall be entitled to and
shall receive the same  compensation  as other members of the Board of Directors
receive for serving on the Board of Directors.

     (e) Anything contained in this Section 5.1 to the contrary notwithstanding,
neither the Company nor its Board of Directors  shall have any obligation  under
this  Section to do any act or thing which  violates  any  provision of Delaware
law,  the  Exchange  Act,  the  proxy  rules or any other  rules or  regulations
promulgated  under the  Exchange  Act or any other  applicable  Federal or state
securities laws, rules or regulations.

     5.2 Incurrence of Indebtedness; Right of First Refusal.

     (a) If, at any time when the Purchaser owns the Threshold  Percentage,  and
at  least  25%  of the  Preferred  Stock,  the  Company  desires  to  incur  any
indebtedness  (other than Senior  Indebtedness),  the  Company  shall  deliver a
written notice to the Purchaser of the Company's good faith desire to incur such
indebtedness, specifying the amount of indebtedness the Company desires to incur
and a detailed  explanation for the reason it desires to incur such indebtedness
(the "Offer  Notice").  The Offer Notice shall set forth the principal amount of
the desired  indebtedness,  the term, the  facilities  for payment,  schedule of
payments,  interest  rate,  and any other  material  terms and conditions of the
desired indebtedness.

     (b) As promptly as practicable  but in no event later than 15 calendar days
after receipt of an Offer Notice (the "Offer Period"),  the Purchaser shall have
the right, but not the obligation,  to elect to provide the Company with all the
financing so desired by the Company in accordance with such Offer Notice. If the
Purchaser  elects to provide such financing to the Company,  the Purchaser shall
give written notice to the Company, prior to the expiration of the Offer Period,
of the Purchaser's election to provide such financing to the Company (a "Funding
Notice").

     (c) Any financing to be provided by the Purchaser  pursuant to this Section
5.2  shall  close  within  fifteen  (15)  calendar  days  after  the date of the
applicable  Funding  Notice.  The Company and the Purchaser  shall enter into an
agreement to effect such  transaction  on the terms and  conditions set forth in
the  Offer  Notice  and  with  such  representations,   warranties,   covenants,
conditions  and  indemnities  as  are  customary  under  the  circumstances  and
otherwise commercially reasonable.

     (d) In the event the Purchaser  declines (by written  notice  declining the
offer  pursuant to the Offer  Notice) or shall fail to provide a Funding  Notice
prior to the expiration of the Offer Period (the "Date of Rejection"),  then the
Company  shall have the right to engage in a  transaction  pursuant to the terms
set forth in the  Offer  Notice  at any time  within  45 days  after the Date of
Rejection  (the "Sale  Period") upon terms and  conditions no more  favorable to
such party than those specified in the Offer Notice.

                                       29
<PAGE>

     (e) For the  purposes of this Section 5.2,  "terms and  conditions  no more
favorable"  shall mean that the  price,  facilities  for  payment,  schedule  of
payments,  interest  rates,  indemnification  provisions  and any other material
terms and  conditions  of the  agreement  pursuant  to which such  financing  is
obtained  by the Company  shall not,  in the  aggregate,  be  economically  more
favorable to such Person than the terms and conditions offered to the Purchaser.

     (f) If such  financing  is not  obtained  by the  Company  within  the Sale
Period, any proposed incurrence of indebtedness (other than Senior Indebtedness)
shall again be subject to the notice  requirements  and rights of first  refusal
set forth in this Section 5.2.

     (g) For purposes of this Section 5.2 only,  the term "the Company" shall be
deemed to include the  Company and any of its  subsidiaries.  5.3  Issuances  of
Company Securities.

     (a) As long as the Purchaser  owns not less than the  Threshold  Percentage
and at least 25% of the Preferred  Stock,  the Company only shall have the right
to issue  shares  of  Common  Stock or  preferred  stock  ranking  junior to the
Preferred   Stock  with  respect  to   liquidation   preferences   (the  "Junior
Securities") as long as such issuance does not result in a limitation on the use
of the Company's net operating loss carryforwards under Section 382 of the Code.
Notwithstanding  the  foregoing,  the  issuance  of  Junior  Securities  will be
permissible  even if it results in a limitation  on the use of the Company's net
operating  loss  carryforwards;  provided that at least two (2) of the Company's
directors do not vote in opposition to such issuance.

     (b) Notwithstanding  anything contained herein to the contrary, the Company
agrees  that  for as long as the  Purchaser  owns not  less  than the  Threshold
Percentage  and at least 25% of the Preferred  Stock,  without the prior written
consent of the Purchaser the Company will not:

     (i) create or authorize the creation or increase the  authorized  amount of
or alter the rights of any  additional or existing  class or series of shares of
stock,  unless  the same  ranks  junior to the  Preferred  Stock as  liquidation
preferences;

     (ii)  create  or  authorize  any  obligation  or  security  convertible  or
exercisable into or exchangeable  for shares of Preferred  Stock,  regardless of
whether  any  such  creation,  authorization  or  increase  shall be by means of
amendment  to  the  Company's  certificate  of  incorporation,   or  by  merger,
consolidation or otherwise; or

     (c) alter or amend the rights,  preferences  or privileges of the Preferred
Stock (whether by merger, consolidation, or otherwise).

                                       30
<PAGE>

     (d)  Notwithstanding  anything contained in this Agreement to the contrary,
there shall be no limitation  whatsoever at any time on the right of the Company
to issue Junior Securities.

     5.4 Delisting.

     In the event that the Company's Common Stock, for any reason, is not listed
on the Nasdaq SmallCap Market, the Over-the-Counter  Bulletin Board or a similar
national exchange,  (absent any time frame applicable to any transition from one
exchange  to  another)  and the  Company is no longer  subject to the  reporting
requirements  of the Exchange Act, the Company hereby  covenants and agrees with
the Purchaser  that, so long as the Purchaser or any of its Affiliates  owns the
Threshold  Percentage,  except as  otherwise  required  in this  Agreement,  the
Company shall:

     (a) Financial and Other Information Rights.

     (i) As soon as  practicable  after the end of each fiscal year,  and in any
event  within  ninety (90) days after each fiscal year  beginning  with the year
ending  December 31, 2002, the Company shall furnish to the Purchaser an audited
consolidated  (and  consolidating)  balance sheet of the Company and each of its
subsidiaries, as of the end of such fiscal year and an audited consolidated (and
consolidating) statements of operations,  accumulated earnings and cash flows of
the Company and each of its  subsidiaries,  for such  fiscal  year,  prepared in
accordance with generally accepted accounting principles,  setting forth in each
case in  comparative  form the  figures for the  previous  fiscal  year,  all in
reasonable  detail and audited by a  nationally  recognized  independent  public
accounting firm selected by the Company and satisfactory to the Purchaser.

     (ii) As soon as practicable  after the end of each fiscal  quarter,  and in
any event within  forty-five (45) days after each fiscal quarter  beginning with
the quarter ending after the Company is subject to such  delisting,  the Company
shall furnish to the  Purchaser an unaudited  consolidated  (and  consolidating)
balance sheet of the Company and each of its subsidiaries, as of the end of such
fiscal  quarter and unaudited  consolidated  (and  consolidating)  statements of
operations,  accumulated  earnings and cash flows of the Company and each of its
subsidiaries,  for such fiscal  quarter and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in  comparative  form the  figures  for the  previous  fiscal
quarter, subject to charges resulting from year-end adjustment,  and accompanied
by a brief narrative  description of the Company's  business  activities  during
said fiscal quarter  setting forth events which could  reasonably be expected to
have a Material Adverse Effect,  all in reasonable  detail, and certified by the
chief financial officer and/or chief executive officer of the Company.

     (iii) As soon as practicable  after the end of each month, and in any event
within thirty (30) days thereafter, the Company shall furnish to the Purchaser a

                                       31
<PAGE>

consolidated  balance sheet of the Company and each of its  subsidiaries,  as of
the end of such month,  and consolidated  statements of operations,  accumulated
earnings and cash flow of the Company each of its  subsidiaries,  for such month
and for the current fiscal year to date,  prepared in accordance  with generally
accepted  accounting  principles,  with such  statements  certified by the chief
financial  officer of the Company as having been  prepared  in  accordance  with
generally accepted accounting principles.

     (iv) No later than the end of each fiscal year,  the Company  shall furnish
to the  Purchaser  a business  plan and budget for the  Company  and each of its
subsidiaries,  for the next fiscal  year.  Such  business  plan and budget shall
contain  information,  data and other materials typically included in a business
plan and  budget  of a  company  similar  in size  and  nature  to the  Company,
including budget data (including without limitation revenues,  expenses and cash
position) for each month of such fiscal year, and which budget and business plan
shall be approved by a majority of the Board of Directors.

     (v) From the date the Company becomes subject to the reporting requirements
of the Exchange Act, and in lieu of the financial  information required pursuant
to this  Agreement,  but within the time  periods  required  for the  furnishing
thereof,  the Company shall furnish to the Purchaser copies of its reports filed
on Form 10-K, Form 10-Q, Form 8-K or any successor form or forms.

     (vi) Each set of financial  statements delivered to the Purchasers pursuant
to this  Section  5.4 will be  accompanied  by a  certificate  of the  Chairman,
President or a Vice President and the Treasurer or an Assistant Treasurer of the
Company setting forth:

     (1)  Covenant  Compliance - any information  required in order to establish
          whether  the Company and any of its  subsidiaries  were in  compliance
          with the requirements of this Section 5.4 during the period covered by
          the income statement then being furnished; and

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

                                       32
<PAGE>

     (vii) The Company shall permit at least one representative of the Purchaser
to:

     (1)  visit and inspect any of the  properties  of the Company or any of its
          subsidiaries  and to  discuss  its and  their  affairs,  finances  and
          accounts with the officers of the Company and its subsidiaries, all at
          such  reasonable  times during regular  business hours and as often as
          may be reasonably requested; and

     (2)  discuss the  affairs,  finances  and  accounts of the Company with its
          officers and consult with and advise the officers of the Company as to
          the management of the Company at all reasonable  times and as often as
          reasonably requested;

provided that such Purchaser shall maintain and shall take appropriate  steps to
ensure that any Purchaser  representative  maintains the  confidentiality of any
proprietary  information of the Company thereby obtained and,  provided further,
that such Purchaser  shall cause all its inspections to be conducted in a manner
that is not materially disruptive to the employees or operations of the Company.

     (viii) Except as otherwise  indicated,  the Company shall provide notice to
such Purchaser of a Reportable  Event (as  hereinafter  defined) within ten (10)
days (twenty (20) days in the case of clause (iii))  following the occurrence of
said event. The following events shall be "Reportable Events":

     (1)  receipt  by the  Company  of a bona  fide  offer to buy a  controlling
          interest in the capital stock of the Company;

     (2)  the  receipt by the Company of a notice that the Company is in default
          under any loan agreement to which the Company is a party;

     (3)  the   existence  of  any  known  default  by  the  Company  under  its
          certificate of incorporation  (as the same may be amended from time to
          time), including,  without limitation, any certificate of designations
          or this Agreement;

     (4)  as soon as  available,  information  and data on any material  adverse
          changes in or any event or condition  which has or could be reasonably
          expected to have a Material Adverse Effect;

     (5)  immediately  upon  becoming  aware of any  condition  or  event  which
          constitutes  a breach of any  Transaction  Document  or any  agreement
          contemplated  hereby or thereby,  written notice specifying the nature

                                       33
<PAGE>

          and period of existence  thereof and what action the Company is taking
          or proposes to take with respect thereto;

     (6)  as soon as  reasonably  possible and in any event within five (5) days
          of becoming aware of any condition or event which  reasonably could be
          considered to materially  affect the operating results or valuation of
          the Company, written notice describing such condition or event;

     (7)  as soon as  reasonably  possible and in any event within five (5) days
          of  becoming  aware that any  employee  of the  Company  (other than a
          secretarial  or  clerical  employee  or  employees  earning  less than
          $100,000 per year) has been or will be  terminated or has left or will
          leave his or her employment, written notice thereof;

     (8)  as soon as  reasonably  possible and in any event within five (5) days
          of becoming  aware of any contact with or proposal from any investment
          banker or any other Person expressing an interest in acquiring all, or
          a part of, the Company, written notice thereof describing such contact
          or proposal;

     (9)  as soon as  reasonably  possible and in any event  within  thirty (30)
          days of becoming aware of any significant  development with respect to
          the  Company's  market,  competition,  price  levels or  technologies,
          written notice describing such development;

     (10) immediately   upon  becoming   aware  of  any  pending  or  threatened
          litigation involving the Company, written notice thereof together with
          a description of the Company's proposed response thereto; and

     (11) with  reasonable  promptness,  such  other  information  and data with
          respect to the Company and any Subsidiaries as any such party may from
          time to time reasonably request.

     (b) Additional Covenants.  In addition,  the Company shall, and shall cause
each of its subsidiaries, as applicable, to:

                                       34
<PAGE>

     (i) Taxes. Promptly pay and discharge,  or cause to be paid and discharged,
when due and payable, all lawful Taxes,  assessments and governmental charges or
levies imposed upon the income, profits,  property or business of the Company or
any subsidiary; provided, however, that any such Tax, assessment, charge or levy
need not be paid if the validity  thereof  shall  currently be contested in good
faith and if the  Company  shall have set aside on its books  adequate  reserves
with respect thereto; and provided, further, that the Company shall pay all such
Taxes,  assessments,  charges  or  levies  forthwith  upon the  commencement  of
proceedings to foreclose any Lien that may have attached as security therefor.

     (ii)  Indebtedness.  Promptly  pay,  or  cause  to be paid,  when  due,  in
conformance  with  the  Company's  past  practices,  all  material  indebtedness
incident to the operations of the Company and its subsidiaries.

     (iii)  Maintenance  of  Property.  Keep  its  properties  and  those of its
subsidiaries  in good repair,  working order and condition,  reasonable wear and
tear  excepted,  and from time to time make all  necessary  and proper  repairs,
renewals, replacements, additions and improvements thereto.

     (iv) Leases.  Comply, and cause its subsidiaries to comply, in all material
respects,  at all times  with the  provisions  of all leases to which any of the
Company and its subsidiaries is a party or under which any of them occupies real
property.

     (v) Insurance. Keep its assets and those of its subsidiaries that are of an
insurable  character insured by financially sound and reputable insurers against
loss or damage by fire,  extended revenge and explosion in amounts customary for
companies  in  similar  businesses  similarly  situated;   and  maintain,   with
financially  sound and reputable  insurers,  insurance against other hazards and
risks and  liability  to persons  and  property  to the extent and in the manner
customary  for  companies in similar  businesses  similarly  situated.  All such
policies  of  insurance  shall  be  occurrence  policies  with  "tail  coverage"
so-called   respecting  all  prior  "claims  made"  policies,   all  in  a  form
satisfactory to the Purchaser.  The Company shall give immediate  written notice
to the  Purchaser  and to insurers of loss or damage to the  property  and shall
promptly file proof of loss with insurers.

     (vi) Books and  Records.  Keep true  records  and books of account in which
full,  true and correct  entries will be made of all dealings or transactions in
relation to its  business  and affairs in  accordance  with  generally  accepted
accounting principles.

     (vii)  Compliance  with  Requirements  of  Governmental  Authorities.  Duly
observe and conform to, and cause its subsidiaries to so observe and conform to,
in  all  material  respects,   all  applicable  statutes,   ordinances,   rules,
regulations,  orders  and all valid  requirements  of  governmental  authorities
relating to the conduct of its businesses or to its property or assets.  Without
limiting the generality of the foregoing, the Company will:

                                       35
<PAGE>

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

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

     (3)  so conduct its business  that  neither the Company nor any  Subsidiary
          nor any property owned or occupied by the Company or any Subsidiary is
          in violation of any  Environmental  Law of any sort or in violation of
          any federal or state "OSHA" law so-called.

     (viii)  Organizational   Documents.   Duly  observe  and  comply  with  the
certificate of incorporation,  as the same may be amended from time to time, and
Bylaws of the Company as then in effect.

     (ix) Transfer or Replacement  of Stock.  Use its best efforts to facilitate
the transfer or surrender of stock in the Company,  and to replace  certificates
of stock if lost or damaged.

     (x) Maintenance of Corporate Existence.

     (1)  Maintain in full force and effect its corporate existence,  rights and
          franchises and use its commercially  reasonable efforts to maintain in
          full  force  and  effect  all   licenses   and  other  rights  to  use
          Intellectual   Property  Rights  owned  or  possessed  by  it  or  any
          Subsidiary and necessary to the conduct of its business.

     (2)  Not  transfer,  assign or  license  any of its  Intellectual  Property
          Rights now owned or hereafter  acquired by it without  approval of the
          Company's Board of Directors without two (2) or more dissenting votes.

                                       36
<PAGE>

(xi)    Proprietary Information.

     (1)  Cause each  person now or  hereafter  employed by it who has access to
          proprietary   information   concerning  the  Company  or  any  of  its
          subsidiaries  to enter into a  customary  business  protection  and or
          confidentiality and non-disclosure agreement.

     (2)  Will use its  commercially  reasonable  best  efforts and  judgment to
          cause  all  technological  developments,  inventions,  discoveries  or
          improvements  made by employees of the Company and any subsidiaries to
          be  fully   documented   in  accordance   with  the  best   prevailing
          professional standards, and where possible and appropriate,  cause all
          employees  to file and  prosecute  United  States and  foreign  patent
          applications relating to and protecting such developments.

     (xii)  Securities Law Filings.  Make any filings  necessary to perfect in a
timely fashion  exemptions  from (i) the  registration  and prospectus  delivery
requirements of the Securities Act, and (ii) the  registration or  qualification
requirements of all applicable securities or blue sky laws of any state or other
jurisdiction, for the issuance of the Series A Preferred Stock to the Purchaser.

     5.5 Additional Covenant.

     (a) The Company's Board of Directors shall not take any action for the sole
purpose of negatively impacting the Preferred Stock and to positively impact the
Common  Stock in the event  that (i) the  Purchaser  owns at least  50.1% of the
Preferred  Stock;  (ii) the  Purchaser  shall have  notified  the Company of the
Purchaser's objections to such proposed action; (iii) Peter Yunich or such other
Preferred  Designee  voted  against  such  action at a  meeting  of the Board of
Directors at which such action was  proposed;  and (iv) such action caused (A) a
material harm to the holders of the Series A Preferred  Stock and (B) a material
benefit to the Common Stock. Cash dividends to holders of Common Stock shall not
be deemed action taken within the meaning of this Section 5.5.

     (b)  Notwithstanding  paragraph 5.5(a) hereof,  nothing  contained  therein
shall  cause the  Company's  Board of  Directors  to engage in, or refrain  from
engaging in any action,  which may cause the Board of  Directors to breach their
fiduciary obligations.

                                       37
<PAGE>

     6. Registration of Restricted Stock.
        ---------------------------------

     6.1 Demand Registration.

     (a) On or after April 10,  2003,  upon  written  notice of the Holders of a
majority  of the then  outstanding  Registrable  Securities  (on a common  stock
equivalent  basis)  requesting that the Company effect a registration  under the
Securities Act of Registrable  Securities and specifying the intended  method or
methods of  distribution  thereof  (which may  include a  continuous  or delayed
offering),  the Company shall prepare and file a Registration  Statement on Form
S-3 under the Securities Act, or other appropriate Form in the event Form S-3 is
not available,  covering the Registrable  Securities then  outstanding and shall
use  commercially  reasonable  efforts to cause such  Registration  Statement to
become  effective as expeditiously as possible and to remain effective until the
earlier to occur of (i) the date on which all Registrable  Securities covered by
such  Registration  Statement have been sold and the  distribution  contemplated
thereby  has  been  completed  or (ii) the  date by  which  all the  Registrable
Securities  covered  thereby may be sold under Rule  144(k) (the  "Effectiveness
Period");  provided,  however,  that the Purchaser  shall not,  pursuant to this
Section  6.1,  be entitled to sell more than  twenty-five  percent  (25%) of the
aggregate  number of  Registrable  Securities  acquired  at the  Closing  in any
calendar quarter,  or if the Company's fiscal year is not the calendar year, any
fiscal quarter of the Company. A demand registration  requested pursuant to this
Section 6.1(a) will not be deemed to have been effected unless the  Registration
Statement  relating  thereto has become  effective  under the Securities Act and
remains effective for the period described above.

     (b) A Holder (including the Purchaser) or Holders requesting a registration
pursuant to this Section  6.1(a) may, at any time prior to the effective date of
the Registration Statement relating to such registration, revoke such request by
providing a written notice to the Company revoking such request.

     (c) The Company and any Other Approved Holder may include its securities in
any  demand  registration  effected  pursuant  to this  Section  6.1;  provided,
however,  that if the managing  underwriter(s) or the  representative(s)  of the
several  underwriters  (the "Managing  Underwriter") of a proposed  underwritten
public  offering  of Common  Stock  advises the Holder or Holders  intending  to
participate  in such  offering  in  writing  that the  total  amount  or kind of
securities  which such  Holders,  the  Company and such Other  Approved  Holders
intend to include in such offering is sufficiently large to materially adversely
affect the success of such offering, then the amount or kind of securities to be
offered for the accounts of the Other Approved Holders shall be reduced pro rata
among such Other  Approved  Holders to the extent  necessary to reduce the total
amount or kind of securities to be included in such proposed  public offering to
the  amount  or kind  recommended  by such  Managing  Underwriter  and,  if such
reduction  results in no securities  being offered for the accounts of the Other
Approved  Holders in such proposed public  offering,  then the amount or kind of

                                       38
<PAGE>

securities  to be offered for the account of the Company shall be reduced to the
extent necessary to reduce the total amount or kind of securities to be included
in such  proposed  public  offering  to the amount or kind  recommended  by such
managing underwriter or underwriters.

     6.2 Piggyback  Registration.  If the Company at any time proposes to file a
registration  statement  with  respect  to any class of its  equity  securities,
whether for its own  account  (other than in  connection  with the  Registration
Statement contemplated by Section 6.1 or a registration statement on Form S-4 or
S-8 (or any successor or substantially similar form), or the registration of (A)
an employee stock option,  stock purchase or compensation  plan or of securities
issued or  issuable  pursuant  to any such plan or (B) a  dividend  reinvestment
plan)  or  for  the  account  of  an  Other   Approved   Holder  (a  "Requesting
Securityholder"),  then the Company  shall in each case give  written  notice of
such proposed  filing to all Holders of  Registrable  Securities at least twenty
(20)  days  prior  to the  anticipated  filing  date  of any  such  registration
statement  by the  Company,  and such  notice  shall  offer to all  Holders  the
opportunity  to  have  any or all of the  Registrable  Securities  held  by such
Holders  included in such  registration  statement.  Each Holder of  Registrable
Securities  desiring to have its Registrable  Securities  registered  under this
Section  6.2 shall so advise the  Company in writing  within  fifteen  (15) days
after the date of  receipt of such  notice  (which  request  shall set forth the
amount of Registrable  Securities for which registration is requested),  and the
Company  shall  include  in such  Registration  Statement  all such  Registrable
Securities so requested to be included  therein on the same terms and conditions
as the securities being registered by the Company. Any Holder's request for such
inclusion  may be  withdrawn,  in  whole or in  part,  at any time  prior to the
effective date of such Registration Statement. Notwithstanding the foregoing, if
the  Managing  Underwriter  of any such  proposed  public  offering  advises the
Company in writing that the total amount or kind of securities which the Holders
of Registrable Securities,  the Company and the Other Approved Holders intend to
be included in such proposed public offering is sufficiently large to materially
adversely affect the success of such proposed public  offering,  then the amount
or kind of securities  to be offered for the accounts of Holders of  Registrable
Securities   and  the  Other   Approved   Holders  (other  than  the  Requesting
Securityholder)  shall be reduced pro rata to the extent necessary to reduce the
total  amount or kind of  securities  to be  included  in such  proposed  public
offering to the amount or kind recommended by such Managing  Underwriter  before
the securities  offered by the Company or any Requesting  Securityholder  are so
reduced.

     6.3 Registration Procedures.  In connection with the Company's registration
obligations  pursuant to  Sections  6.1 and 6.2 hereof,  the  Company  will,  as
expeditiously as practicable:

     (a) prepare and file with the  Commission a new  Registration  Statement or
such  amendments  and  post-effective  amendments  to an  existing  Registration
Statement as may be necessary to keep such Registration  Statement effective for
the  time  periods  set  forth  in  Section  6.1 (in  connection  with a  demand
registration); provided, that as soon as practicable, but in no event later than
three (3) business days before filing such Registration  Statement,  any related
Prospectus or any amendment or supplement  thereto,  other than any amendment or
supplement  made solely as a result of  incorporation  by reference of documents

                                       39
<PAGE>

filed  with  the  Commission  subsequent  to the  filing  of  such  Registration
Statement,  the  Company  shall  furnish  to  the  Holders  of  the  Registrable
Securities covered by such Registration  Statement and the Managing Underwriter,
if any, copies of all such documents proposed to be filed, which documents shall
be subject to the review of such Holders and underwriters;

     (b) the Company  shall not file any  Registration  Statement  or  amendment
thereto or any Prospectus or any supplement thereto (other than any amendment or
supplement  made solely as a result of  incorporation  by reference of documents
filed  with  the  Commission  subsequent  to the  filing  of  such  Registration
Statement) to which the Managing Underwriter of the applicable offering, if any,
or the Purchaser (if it is  participating  in such offering) or the Holders of a
majority of the  Registrable  Securities  (on a Common Stock  equivalent  basis)
covered by such Registration Statement shall have reasonably objected in writing
within three (3)  business  days after  receipt of such  documents to the effect
that  such  Registration   Statement  or  amendment  thereto  or  Prospectus  or
supplement   thereto  does  not  comply  in  all  material   respects  with  the
requirements  of the Securities Act (provided that the foregoing shall not limit
the  right  of  any  Holder  whose  Registrable  Securities  are  covered  by  a
Registration  Statement to reasonably object, within two (2) business days after
receipt of such documents, to any particular information that is to be contained
in such Registration Statement, amendment, Prospectus or supplement that relates
specifically to such Holder,  including any information describing the manner in
which such Holder acquired such  Registrable  Securities and the intended method
or methods of distribution of such Registrable  Securities),  and if the Company
is unable  to file any such  document  due to the  objections  of such  Managing
Underwriter,  the  Purchaser  or such  Holders,  the Company  shall use its best
efforts to cooperate with such Managing  Underwriter,  the Purchaser and Holders
to  prepare,  as soon as  practicable,  a  document  that is  responsive  in all
material  respects  to the  reasonable  objections  of  such  underwriters,  the
Purchaser and Holders;

     (c) cause the  Prospectus  to be  supplemented  by any required  Prospectus
supplement,  and as so supplemented to be filed pursuant to Rule 424; and comply
with the provisions of the Securities Act applicable to the Company with respect
to the  disposition of all  securities  covered by such  Registration  Statement
during the applicable  period in accordance  with the intended method or methods
of distribution by the sellers thereof set forth in such Registration Statement,
Prospectus or supplement to the Prospectus;

     (d) notify the selling  Holders of Registrable  Securities and the Managing
Underwriter, if any, promptly (providing confirmation in writing):

                                       40
<PAGE>

     (1)  when  a new  Registration  Statement,  Prospectus  or  any  Prospectus
          supplement  or  post-effective  amendment  has been filed,  and,  with
          respect to any new Registration Statement or post-effective amendment,
          when it has become effective;

     (2)  of any request by the  Commission for amendments or supplements to any
          Registration Statement or Prospectus or for additional information;

     (3)  of the issuance by the Commission of any written comments with respect
          to any filing;

     (4)  of any stop order  suspending the  effectiveness  of any  Registration
          Statement or the  initiation of any  proceedings  for that purpose and
          the Company agrees that it will make every reasonable effort to obtain
          as soon as possible the  withdrawal  of any such order or other action
          suspending  the   effectiveness  of  any  Registration   Statement  or
          suspending the qualification or registration (or exemption  therefrom)
          of the Registrable Securities for sale in any jurisdiction;

     (5)  in  the  case  of  an  underwritten  offering,  if  at  any  time  the
          representations   and  warranties  of  the  Company   contemplated  by
          paragraph  (n) below  cease to be true and correct as of any time they
          are required to be true and correct;

     (6)  of any suspension of the  qualification  or registration (or exemption
          therefrom) of the Registrable  Securities for sale in any jurisdiction
          or the  initiation or  threatening of any proceeding for such purpose;
          and

     (7)  of the  happening of any event which makes any statement of a material
          fact made in any  Registration  Statement,  Prospectus or any document
          incorporated  therein by reference untrue or which requires the making
          of  any  changes  in any  Registration  Statement,  Prospectus  or any
          document incorporated therein by reference so that it will not contain
          any untrue  statement of a material fact or omit to state any material
          fact required to be stated therein or necessary to make the statements
          therein, in the light of the circumstances under which they were made,
          not misleading;

     (e)  if  reasonably  requested by the Managing  Underwriter  or a Holder of
          Registrable  Securities  being sold in connection with an underwritten
          offering,   promptly   incorporate  in  a  Prospectus   supplement  or
          post-effective amendment such information as the Managing Underwriter,
          the  Purchaser  (if it is  participating  in  such  offering)  and the
          Holders of a majority of the Registrable Securities (on a Common Stock
          equivalent basis) being sold in such underwritten  offering reasonably
          agree  should  be  included  therein  relating  to  the  sale  of  the
          Registrable  Securities,  including  information  with  respect to the

                                       41
<PAGE>

          aggregate number of shares of Registrable Securities being sold to the
          underwriters,   the  purchase   price  being  paid  therefor  by  such
          underwriters  and with respect to any other terms of the  underwritten
          offering of the  Registrable  Securities to be sold in such  offering;
          and promptly make all required  filings of such Prospectus  supplement
          or post-effective amendment;

     (f) promptly after the filing of any document that is to be incorporated by
reference  into a Registration  Statement or Prospectus  relating to Registrable
Securities covered by a Registration Statement filed pursuant to this Section 6,
provide  copies of such  document  to the  selling  Holders  of the  Registrable
Securities covered thereby and the underwriters, if any;

     (g)  promptly  after the  filing  of such  documents  with the  Commission,
furnish to each  selling  Holder of  Registrable  Securities  and each  Managing
Underwriter, if any, without charge, at least one manually signed or "edgarized"
copy (but not to exceed five (5) manually  signed  copies of any document to all
selling  Holders and the Managing  Underwriter  in the  aggregate),  and as many
conformed  copies  as  may  reasonably  be  requested,  of  the  then  effective
Registration  Statement and any  post-effective  amendments  thereto,  including
financial  statements  and  schedules,  all  documents  incorporated  therein by
reference and all exhibits (including those previously furnished or incorporated
by reference);

     (h)  deliver  to each  selling  Holder of  Registrable  Securities  and the
Managing  Underwriter,  if any,  without  charge,  as many  copies  of the  then
effective  Prospectus  (including each prospectus subject to completion) and any
amendments or supplements thereto as such Persons may reasonably request;

     (i) register or qualify (or obtain  exemption  therefrom) or cooperate with
the selling Holders of Registrable Securities, the Managing Underwriter, if any,
and  their   respective   counsel  in  connection   with  the   registration  or
qualification  (or exemption  therefrom) of such Registrable  Securities for the
offer and sale under the  securities or blue sky laws of such  jurisdictions  as
any selling Holder of Registrable  Securities or Managing  Underwriter,  if any,
reasonably requests in writing;

     (j) use its best efforts to keep each such  registration  or  qualification
(or exemption therefrom)  effective during the Effectiveness  Period; and do any
and all other acts or things  reasonably  necessary  or  advisable to enable the
disposition in such  jurisdictions of the Registrable  Securities covered by the
then effective Registration Statement;  provided, however, that the Company will
not be required to qualify to do business in any jurisdiction where it would not
otherwise be required to qualify, but for this paragraph (j);

                                       42
<PAGE>

     (k) cooperate with the selling  Holders of  Registrable  Securities and the
Managing Underwriter,  if any, to facilitate the timely preparation and delivery
of certificates  representing  Registrable Securities to be sold and not bearing
any restrictive  legends;  and enable such Registrable  Securities to be in such
denominations  and  registered  in such names as the  Managing  Underwriter  may
request  at  least  two (2)  business  days  prior  to any  sale of  Registrable
Securities to the underwriters;

     (l)  upon  the  occurrence  of any  event  contemplated  by  clause  (7) of
paragraph (d) above,  promptly prepare a supplement or post-effective  amendment
to  the  Registration  Statement  or the  related  Prospectus  or  any  document
incorporated  therein by reference or file any other required  document so that,
as thereafter  delivered to the purchasers of the Registrable  Securities  being
sold  thereunder,  the  Prospectus  will not  contain an untrue  statement  of a
material  fact or  omit  to  state  any  material  fact  necessary  to make  the
statements  therein,  in the light of the  circumstances in which they are made,
not  misleading;  if any event  described in clause (2) of  paragraph  (d) above
occurs,  use its best efforts to cooperate  with the  Commission to prepare,  as
soon as practicable,  any amendment or supplement to such Registration Statement
or such related  Prospectus  and any other  additional  information,  or to take
other action that may have been requested by the Commission;

     (m) cause all Registrable  Securities covered by the Registration Statement
to be listed on each  securities  exchange (or  quotation  system  operated by a
national  securities  association) on which identical  securities  issued by the
Company are then listed (or  included) if requested by the  Purchaser  (if it is
participating  in such offering) or the Holders of a majority of the Registrable
Securities (on a Common Stock  equivalent  basis)  covered by such  Registration
Statement  or the  Managing  Underwriter,  if  any,  and  enter  into  customary
agreements  including,  if necessary,  a listing application and indemnification
agreement in customary  form, and provide a transfer agent for such  Registrable
Securities no later than the effective date of such Registration Statement;

     (n)  enter  into  customary  agreements   (including  in  the  case  of  an
underwritten  offering, an underwriting  agreement with the Managing Underwriter
in form customary with respect to issuers of similar market  capitalization  and
reporting and financial histories) and take all such other actions in connection
therewith in order to expedite or facilitate the disposition of such Registrable
Securities included in such Registration  Statement, in each case, in connection
with  an  underwritten  offering,  as the  Managing  Underwriter  determines  is
reasonable and customary, and in connection therewith:

     (1)  make  such  representations  and  warranties  to the  Holders  of such
          Registrable  Securities  and each of the  underwriters  in such  form,
          substance and scope as are customarily made by issuers to underwriters
          in secondary underwritten offerings of securities listed on the NASDAQ
          SmallCap  Market or any other  system of  automated  dissemination  of
          quotation of securities prices;

                                       43
<PAGE>

     (2)  obtain  opinions of counsel to the Company  addressed  to each selling
          Holder of such Registrable  Securities and to each of the underwriters
          and updates  thereof (which  counsel and opinions (in form,  scope and
          substance)  shall be reasonably  satisfactory to the  underwriters and
          the selling Holders of such Registrable Securities and shall cover the
          matters   customarily  covered  in  opinions  requested  in  secondary
          underwritten  offerings of  securities  listed on the NASDAQ  SmallCap
          Market or any other system of automated  dissemination of quotation of
          securities  prices  and  such  other  matters  as  may  be  reasonably
          requested by such Holders and underwriters);

     (3)  obtain "cold comfort" letters and updates thereof from the independent
          certified public  accountants of the Company addressed to each selling
          Holder of such  Registrable  Securities and each of the  underwriters,
          such letters to be in customary form and covering  matters of the type
          customarily  covered  in "cold  comfort"  letters in  connection  with
          secondary  underwritten  offerings of securities  listed on the NASDAQ
          SmallCap  Market or any other  system of  automated  dissemination  of
          quotation of securities prices;

     (4)  the   underwriting   agreement  shall  contain   indemnification   and
          contribution  provisions  and  procedures no less favorable than those
          set forth in Section 6.6 (and, to the extent applicable,  Section 7.1)
          hereof  with  respect to all  parties to be  indemnified  pursuant  to
          Section 6.6 (and, to the extent applicable, Section 7.1); and

     (5)  the Company shall deliver such  documents and  certificates  as may be
          reasonably  requested  by the  selling  Holders  of  such  Registrable
          Securities and the Managing  Underwriter to evidence  compliance  with
          clause (1) above and with any  customary  conditions  contained in the
          underwriting  agreement or other agreement entered into by the Company
          in respect of the relevant offering;

     (o) provide a CUSIP number (if necessary) for the Registrable Securities no
later than the effective date of such registration statement;

     (p) in the case of any non-underwritten offering:

     (1)  obtain opinions of counsel to the Company at the time of effectiveness
          of such  Registration  Statement  covering  such  offering and updates
          thereof  of  customary  frequency,  addressed  to each  Holder  of any

                                       44
<PAGE>

          Registrable  Securities  participating  in such  offering and covering
          matters that are no more  extensive in scope than would be customarily
          covered in opinions  obtained in secondary  underwritten  offerings by
          issuers with similar market capitalization and reporting and financial
          histories;

     (2)  obtain "cold comfort"  letters from the independent  certified  public
          accountants  of the  Company  at the  time  of  effectiveness  of such
          Registration  Statement  and, upon the request of the Purchaser (if it
          is participating in such offering) or the Holders of a majority of the
          Registrable Securities (on a Common Stock equivalent basis) covered by
          such Registration  Statement,  updates thereof of customary frequency,
          in each  case  addressed  to each  Holder  of  Registrable  Securities
          participating  in such offering and covering  matters that are no more
          extensive in scope than would be customarily covered in "cold comfort"
          letters and updates  obtained in secondary  underwritten  offerings by
          issuers with similar market capitalization and reporting and financial
          histories; and

     (3)  deliver a  certificate  of an executive  officer of the Company at the
          time of  effectiveness  of such  Registration  Statement and, upon the
          request of the Purchaser (if it is  participating in such offering) or
          the Holders of a majority of the  Registrable  Securities (on a Common
          Stock  equivalent  basis)  covered  by  such  Registration  Statement,
          updates  thereof of customary  frequency,  such  certificates to cover
          matters no more  extensive  in scope than  those  matters  customarily
          covered  in  officer's   certificates  delivered  in  connection  with
          underwritten  offerings by issuers with similar market  capitalization
          and reporting and financial histories;

     (q) otherwise use its best efforts to comply with all applicable  rules and
regulations of the Commission relating to such registration and the distribution
of the securities  being offered and make generally  available to its securities
holders  earnings  statements  satisfying the provisions of Section 11(a) of the
Securities  Act, no later than 60 days after the end of any 12-month  period (or
120 days,  if such period is a fiscal year)  commencing at the end of any fiscal
quarter in which the  Registrable  Securities are sold to underwriters in a firm
commitment  or  best  efforts  underwritten   offering,   or,  if  not  sold  to
underwriters  in such  an  offering,  beginning  with  the  first  month  of the
Company's  first fiscal  quarter  commencing  after the  effective  date of such
Registration  Statement,  which earnings  statements  shall cover such 12- month
periods;

     (r)  cooperate  and  assist  in any  filings  required  to be made with the
National  Association of Securities Dealers,  Inc. and in the performance of any
customary due diligence investigation;

                                       45
<PAGE>

     (s) make  available,  upon  reasonable  notice and during  normal  business
hours,  for inspection by the Holders of the Registrable  Securities  covered by
such Registration  Statement,  any underwriter  participating in any disposition
pursuant  to  such   registration,   and  any  attorney,   accountant  or  other
representative retained by such sellers or underwriter,  all financial and other
records,  pertinent  corporate documents and properties of the Company and cause
the  Company's  officers,  directors  and  employees  to supply all  information
reasonably  requested by, and to cooperate fully with, any such  representative,
underwriter, attorney or accountant in connection with such registration;

     (t) cause the Registrable  Securities covered by the Registration Statement
to be  registered  with or  approved  by such  other  governmental  agencies  or
authorities  as may be  reasonably  necessary  to enable  the  seller or sellers
thereof or the  underwriters,  if any, to  consummate  the  disposition  of such
Registrable  Securities;  provided,  however,  that  the  Company  shall  not be
required  to  qualify  to do  business  in any  jurisdiction  where it would not
otherwise be required to qualify, but for this paragraph (t); and

     (u) use its best  efforts  to take all action  necessary  or  advisable  to
effect such registration in the manner contemplated by this Agreement.

     6.4 Material Development Election.

     (a) Subject to Section 6.4(b) below,  the Company shall be entitled,  for a
period  of time  not to  exceed  thirty  consecutive  (30)  days (a  "Suspension
Period"),  to  postpone  the  filing  of any  Registration  Statement  otherwise
required  to be filed by it  pursuant  to Section  6.1 and/or  request  that the
Holders  refrain  from  effecting  any public  sales or  distributions  of their
Registrable Securities if the Company's Board of Directors shall have reasonably
determined  in good  faith and in its  reasonable  business  judgment  that such
registration  would interfere in any material  respect with any financing (other
than an  underwritten  secondary  offering of any  securities  of the  Company),
acquisition,  corporate  reorganization  or  other  transaction  or  development
involving the Company or any  subsidiary  of the Company that in the  reasonable
good faith business  judgment of such board is a transaction or development that
is or would be material to the Company (a "Material Development Election").

     (b) The Board of  Directors  shall,  as promptly as  practicable,  give the
Holders written notice of any such Material Development  Election.  In the event
of a  determination  by the  Board of  Directors  to  postpone  the  filing of a
Registration  Statement required to be filed pursuant to Section 6.1 hereof, the
Company  shall  be  required  to file  such  Registration  Statement  as soon as
practicable after the Board of Directors of the Company shall determine,  in its
reasonable business judgment, that the filing of such Registration Statement and
the  offering   thereunder  will  not  interfere  with  the  aforesaid  material
transaction  or  development,  but in any  event no  later  than the end of such
Suspension  Period.  In  addition,  if the Board of Directors of the Company has
requested that the Holders refrain from making public sales or  distributions of

                                       46
<PAGE>

their  Registrable  Securities,  such board  shall,  as promptly as  practicable
following its  determination  that the Holders may recommence  such public sales
and distributions,  notify such Holders in writing of such determination (but in
any event no later  than the end of such  Suspension  Period).  In the event the
Company shall exercise a Material  Development  Election  during a period when a
Registration  Statement  filed pursuant to Section 6.1 hereof is effective,  the
time period  specified  in Section  6.1 hereof  during  which such  Registration
Statement  is required to be kept  effective  shall be extended by the number of
days during  which the  Holders are  prohibited  by the  Company  from  publicly
selling or distributing their securities.

     (c) The Purchaser  agrees that, upon receipt of any notice from the Company
of a Suspension Period, the Purchaser shall forthwith discontinue disposition of
shares of Common Stock  covered by such  Registration  Statement  or  Prospectus
until the  Purchaser  (i) is notified in writing by the Company  that the use of
the  applicable  prospectus  may be  resumed,  (ii)  has  received  copies  of a
supplemental or amended prospectus, if applicable, and (iii) has received copies
of any additional or supplemental filings which are incorporated or deemed to be
incorporated  by  reference  into  such  prospectus.   (c)  Notwithstanding  the
foregoing,  no more than one Suspension Period may occur during any twelve-month
period,  unless  approved  by a  majority-in-interest  of the  then  outstanding
Holders of Registrable  Securities (on a common equivalent  basis).  The Company
shall use its best  efforts to limit the duration  and  aggregate  number of any
Suspension Periods.

     6.5  Registration   Expenses.   All  expenses  incident  to  the  Company's
performance  of or compliance  with Section 6 of this  Agreement,  including all
registration and filing fees, fees and expenses of compliance with securities or
blue  sky laws  (including  reasonable  fees and  disbursements  of  counsel  in
connection with blue sky  qualifications  or registrations  (or the obtaining of
exemptions  therefrom)  of  the  Registrable   Securities),   printing  expenses
(including expenses of printing Prospectuses),  messenger and delivery expenses,
internal  expenses  (including  all  salaries  and  expenses of its officers and
employees performing legal or accounting duties),  fees and disbursements of its
counsel and its independent certified public accountants (including the expenses
of any  special  audit or  "comfort"  letters  required  by or  incident to such
performance or compliance),  securities acts liability insurance (if the Company
elects to obtain such  insurance),  fees and  expenses  of any  special  experts
retained by the Company in connection with any registration hereunder,  fees and
expenses of other  Persons  retained by the Company,  (all such  expenses  being
referred to as "Registration Expenses"),  shall be borne by the Company, whether
or not any registration statement becomes effective;  provided that Registration
Expenses  shall not  include any  underwriting  discounts,  commissions  or fees
attributable to the sale of the Registrable Securities.

     6.6 Registration Rights Indemnification.

     (a) Indemnification by the Company.

                                       47
<PAGE>

     (i) The Company will  indemnify and hold  harmless,  to the fullest  extent
permitted by law, but without duplication, each Holder of Registrable Securities
and each of their  respective  Affiliates,  including  any  managed  or  advised
accounts and any  investment  advisor or agent  therefor,  officers,  directors,
employees,  partners,  representatives  and agents, and each Person who controls
such Holder or such other  Persons  (within the meaning of the  Securities  Act)
(for purposes of this Section 6.6(a), a "Holder Indemnified  Person"),  from and
against,  and will reimburse such Holder Indemnified Person with respect to, any
and all  claims,  actions,  demands,  losses,  damages,  liabilities,  costs and
expenses (including  reasonable costs of investigation and reasonable legal fees
and  expenses)  ("Indemnifiable  Costs  and  Expenses")  to  which  such  Holder
Indemnified  Person may become subject under the Securities Act or otherwise and
arise out of or are based  upon (i)  violation  of  securities  laws or (ii) any
untrue  statement or alleged untrue statement of any material fact contained in,
or any omission or alleged omission to state therein a material fact required to
be stated in, any such Registration Statement,  any Prospectus contained therein
or any  amendment or  supplement  thereto or  necessary  to make the  statements
contained therein, in light of the circumstances under which they were made, not
misleading;  provided,  however, that the Company will not be liable in any such
case to the extent that any costs or expense  covered by the  preceding  clauses
(i) or (ii) arises out of or results from any untrue or alleged untrue statement
of any material fact contained in such  Registration  Statement,  any Prospectus
contained  therein or any  amendment  or  supplement  thereto or any omission or
alleged  omission to state therein a material fact required to be stated therein
or necessary to make the statements  therein,  in light of the  circumstances in
which they were made, not  misleading,  in each case to the extent,  but only to
the extent,  that such untrue  statement or alleged untrue statement or omission
or alleged  omission  was so made  solely in  reliance  upon and in  substantial
conformity with written information  furnished by such Holder Indemnified Person
specifically  for use in the  preparation  of any such  Registration  Statement,
Prospectus or amendment or supplement thereto.

     (ii) The  Company  further  agrees  promptly  upon  demand  by each  Holder
Indemnified  Person to reimburse each Holder  Indemnified  Person for any Holder
Indemnifiable  Costs and Expenses as they are incurred by it;  provided  that if
the Company  reimburses a Holder  Indemnified  Person hereunder for any expenses
incurred in connection  with a lawsuit,  claim,  inquiry or other  proceeding or
investigation  for which  indemnification  is sought,  such  Holder  Indemnified
Person agrees to refund such  reimbursement  of Holder  Indemnifiable  Costs and
Expenses to the extent it is finally  judicially  determined  that the indemnity
provided for in this Section  6.6(a) is not applicable to, or the Company is not
otherwise  obligated to pay, such Holder  Indemnified  Person in accordance with
the  terms  hereof  or  otherwise.  The  indemnity,   contribution  and  expense
reimbursement  obligation of the Company  under this Section  6.6(a) shall be in
addition to any liability it may otherwise have.

     (iii) The  obligations of the Company  hereunder  shall survive the Closing
and the  termination of any  Registration  Statement under which any Registrable
Securities  were  registered the  termination of this Agreement and shall not be
extinguished with respect to any Person because any other Person is not entitled
to indemnity or contribution hereunder.

                                       48
<PAGE>

     (b)  Indemnification by Holders of Registrable  Securities.  Each Holder of
Registrable Securities which is included in a Registration Statement pursuant to
the  provisions of this Section 6 will  indemnify and hold harmless the Company,
each of its subsidiaries and Affiliates, the Company, any of its subsidiaries or
Affiliates  and  their  respective  officers,  directors,  employees,  partners,
stockholders,  agents,  representatives,  any Person who  controls  (within  the
meaning of the Securities Act) (each, a "Company Indemnified Person"),  from and
against, and will reimburse such Company Indemnified Person with respect to, any
and all  Indemnifiable  Costs and  Expenses to which the Company or such Company
Indemnified  Person may become subject under the Securities Act or otherwise and
which arise out of or result from any untrue or alleged untrue  statement of any
material fact contained in such Registration Statement, any Prospectus contained
therein or any amendment or supplement  thereto,  or any omission or the alleged
omission to state  therein any material  fact  required to be stated  therein or
necessary to make the statements therein, in light of the circumstances in which
they were made,  not  misleading,  in each case to the  extent,  but only to the
extent,  that such untrue  statement or omission or alleged untrue  statement or
alleged  omission  was so  made  solely  in  reliance  upon  and in  substantial
conformity  with written  information  furnished  by such Holder of  Registrable
Securities specifically for use in the preparation thereof;  provided,  however,
that the  liability  of any Holder of  Registrable  Securities  pursuant to this
subsection  (b) shall be limited  to an amount  not to exceed  the net  proceeds
received by such Holder of Registrable  Securities  pursuant to the Registration
Statement which gives rise to such obligation to indemnify.

     (c) Conduct of Indemnification Proceedings; Contribution.

     (i) Each  indemnifying  party and indemnified  party under this Section 6.6
shall comply with the procedures set forth in Section 7.1(c) with respect to any
indemnity sought pursuant to this Section 6.6.

     (ii) Each  indemnifying  party and indemnified party under this Section 6.6
also agrees to comply with the  provisions  in Section  7.1(d) as they relate to
contribution.

                                       49
<PAGE>

     6.7  Reporting  Requirements  Under the Exchange Act. The Company shall use
its best  efforts to make  publicly  available  and  available  to the  Holders,
pursuant to Rule 144, such  information as is necessary to enable the Holders to
make sales of  Registrable  Securities  pursuant to that Rule. The Company shall
use its best  efforts to file  timely  with the  Commission  all  documents  and
reports  required of the  Company  under the  Exchange  Act.  The Company  shall
furnish to any Holder,  upon request,  a written statement executed on behalf of
the Company as to compliance with the current public information requirements of
Rule 144. In addition,  the Company will provide to any Holder of a  Registrable
Security,  or any potential purchaser of a Registrable  Security,  upon any such
Person's  reasonable  request,  the information  required by paragraph (d)(4) of
Rule 144A.

     6.8  Stockholder  Information.  The  Company  may  require  each  seller of
Registrable Securities as to which any registration is being effected to furnish
to the Company such  information  regarding such seller and the  distribution of
such securities as the Company or the Managing Underwriter may from time to time
reasonably request in writing.

     6.9 Participation in Underwritten Registrations.

     (a)  If  any  of  the  Registrable  Securities  covered  by a  Registration
Statement  required to be filed pursuant to Section 6.1 hereunder are to be sold
in an underwritten  offering,  the Company shall select the Managing Underwriter
that  will   administer   the  offering,   provided  the  Purchaser  (if  it  is
participating in such offering) or, if such Purchaser is not so participating in
such  offering,  the Holders of a majority of the  Registrable  Securities (on a
Common Stock equivalent basis) included in such offering shall have the right to
consent  to such  selection,  provided  further  that  such  consent  may not be
unreasonably withheld. .

     (b) No Person may participate in any underwritten offering hereunder unless
such Person (i) agrees to sell such Person's Registrable Securities on the basis
provided in any  underwriting  arrangements  approved  by the  Persons  entitled
hereunder  to approve  such  arrangements  and (ii)  completes  and executes all
questionnaires,  powers of attorney,  indemnities,  underwriting  agreements and
other documents  required under the underwriting or other agreement  between the
Company  and the  Managing  Underwriter.  Nothing in this  Section  6.9 shall be
construed  to  create  any  additional  rights  regarding  the  registration  of
Registrable Securities in any Person otherwise than as set forth herein.

                                       50
<PAGE>

     7. Miscellaneous.

     7.1 Indemnification.  In addition to any indemnification provided elsewhere
in this Agreement, the parties hereto agree as follows:

     (a) Company Indemnification.

     (i) The Company will  indemnify and hold  harmless,  to the fullest  extent
permitted  by law,  but  without  duplication,  the  Purchaser  and  each of its
Affiliates  including any managed or advised accounts and any investment advisor
or  agent  therefor,  and  their  respective,  officers,  directors,  employees,
partners, representatives,  agents, and each Person who controls the Company and
each of its Affiliates  within the meaning of the  Securities  Act) (each of the
foregoing Persons being a "Purchaser Indemnified Person"),  from and against any
and all  Indemnifiable  Costs and Expenses to which such  Purchaser  Indemnified
Person may become subject under the  Securities Act or otherwise  arising out of
or  based  in  any  manner   upon  any   breach  by  the   Company  of  any  its
representations,  warranties or covenants contained in the Transaction Documents
or in any agreement,  instrument or document  delivered by the Company hereunder
or thereunder.

     (ii) The Company  further  agrees  promptly  upon demand by each  Purchaser
Indemnified  Person to  reimburse  each  Purchaser  Indemnified  Person  for any
Purchaser  Indemnifiable Costs and Expenses as they are incurred by it; provided
that if the Company reimburses a Purchaser  Indemnified Person hereunder for any
Indemnifiable  Costs and Expenses incurred in connection with a lawsuit,  claim,
inquiry  or other  proceeding  or  investigation  for which  indemnification  is
sought, such Purchaser Indemnified Person agrees to refund such reimbursement of
Indemnifiable  Costs  and  Expenses  to  the  extent  it is  finally  judicially
determined  that  the  indemnity  provided  for in this  Section  7.1(a)  is not
applicable to such  Purchaser  Indemnified  Person in accordance  with the terms
hereof or otherwise or the Company is not otherwise  obligated to indemnify such
Purchaser   Indemnified   Person.   The  indemnity,   contribution  and  expense
reimbursement  obligation  of the  Company  under this  Section  7.1 shall be in
addition to any liability it may otherwise have.

     (iii) The  obligations of the Company  hereunder  shall survive the Closing
and any repurchase,  conversion, exchange or transfer of the Preferred Stock and
the termination of this Agreement and shall not be extinguished  with respect to
any Person because any other Person is not entitled to indemnity or contribution
hereunder.

     (b) Purchaser Indemnification.  The Purchaser agrees and covenants to agree
and covenant to and to hold  harmless  and  indemnify  each Company  Indemnified
Person,  from and against any and all Indemnifiable  Costs and Expenses to which
such Company  Indemnified  Person may become subject under the Securities Act or
otherwise  which  arises out of or is based in any manner upon any breach by the
Purchaser of any its  representations,  warranties or covenants contained in the
Transaction  Document or in any agreement,  instrument or document  delivered by
the Purchaser hereunder or thereunder.

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<PAGE>

     (c) Conduct of  Indemnification  Proceedings.  Promptly  after receipt by a
party  indemnified  pursuant to the  provisions  of paragraph (a) or (b) of this
Section 7.1 or paragraph (a) or (b) of Section 6.6 of notice of the commencement
of  any  action  involving  the  subject  matter  of  the  foregoing   indemnity
provisions,  such  indemnified  party  will,  if a claim  thereof  is to be made
against the  indemnifying  party  pursuant to the provisions of paragraph (a) or
(b) of this  Section  7.1 or  paragraph  (a) or (b) of Section  6.6,  notify the
indemnifying  party of the commencement  thereof;  but the omission so to notify
the indemnifying  party will not relieve it from any liability which it may have
to an  indemnified  party  otherwise  than  under  paragraph  (a) or (b) of this
Section 7.1 or  paragraph  (a) or (b) of Section  6.6, and shall not relieve the
indemnifying  party from liability  under this Section 7.1 or Section 6.6 unless
such indemnifying party is materially  prejudiced by such omission. In case such
action is brought against any indemnified party and it notifies the indemnifying
party of the commencement  thereof,  the indemnifying party shall have the right
to participate  in, and, to the extent that it may wish,  jointly with any other
indemnifying  party  similarly  notified,  to assume the defense  thereof,  with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying  party to such  indemnified  party of its election so to assume
the  defense  thereof,  the  indemnifying  party  will  not be  liable  to  such
indemnified  party  pursuant to the  provisions of such  paragraph (a) or (b) of
this Section 7.1 or  paragraph  (a) or (b) of Section 6.6 for any legal or other
expense  subsequently  incurred by such indemnified party in connection with the
defense thereof other than reasonable  costs of  investigation.  No indemnifying
party shall be liable to an  indemnified  party for any settlement of any action
or claim without the consent of the  indemnifying  party. No indemnifying  party
will  consent to entry of any judgment or enter into any  settlement  which does
not  include as an  unconditional  term  thereof  the giving by the  claimant or
plaintiff to such  indemnified  party of a release from all liability in respect
to such claim or litigation and no settlement can have non-monetary remedies.

     (d) Contribution.  If the indemnification provided for in subsection (a) or
(b) of this Section 7.1 or in subsection  (a) or (b) of Section 6.6 is held by a
court of competent  jurisdiction  to be unavailable to a party to be indemnified
with respect to any  Indemnifiable  Costs and Expenses,  then each  indemnifying
party under any such subsection,  in lieu of indemnifying such indemnified party
thereunder,  hereby  agrees to  contribute to the amount paid or payable by such
indemnified  party as a result  of  Indemnifiable  Costs and  Expenses,  in such
proportion as is appropriate  to reflect the relative fault of the  indemnifying
party on the one hand and of the  indemnified  party on the other in  connection
with the statements or omissions,  acts,  facts matters or  circumstances  which
resulted in such Indemnifiable Costs and Expenses, as well as any other relevant
equitable  considerations.  To the extent applicable to Section 6.6 hereof,  the

                                       52
<PAGE>

relative fault of the indemnifying  party and of the indemnified  party shall be
determined by reference  to, among other  things,  whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information  supplied by the indemnifying party or by
the indemnified  party and the parties'  relative intent,  knowledge,  access to
information and opportunity to correct or prevent such statement or omission. No
Person  guilty of  fraudulent  misrepresentation  (within the meaning of Section
11(f) of the Securities  Act) shall be entitled to  contribution  hereunder from
any Person who was not guilty of such fraudulent misrepresentation.

     7.2 Entire Agreement; Survival of Provisions. The Transaction Documents and
the SEC Filings referenced herein and therein constitute the entire agreement of
the parties with respect to the transactions  contemplated  hereby and supersede
all prior agreements and understandings with respect thereto, whether written or
oral. All of the covenants of the parties made herein shall remain operative and
in full  force and effect  pursuant  to their  respective  terms  regardless  of
acceptance of the Preferred Stock and payment therefor.  The representations and
warranties  set forth herein shall  survive the  execution  and delivery of this
Agreement until the second  anniversary of the date of Closing (the  "Expiration
Date") and shall survive the issuance of the Preferred Stock and the issuance of
the Common Stock upon conversion of the Preferred  Stock, and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Purchaser or the Company.  Notwithstanding  the preceding  sentence,  any
representation or warranty in respect of which an indemnity may be sought hereof
shall  survive the time at which it would  otherwise  terminate  pursuant to the
preceding sentence,  if a claim for indemnification shall have been given to the
party against whom such  indemnity may be sought prior to the  Expiration  Date.
The   representations,   warranties,   agreements  and  covenants  made  in  the
Transaction  Documents  shall be deemed to have been  relied upon by the parties
hereto.

     7.3 No Waiver;  Modifications in Writing. No failure or delay by a party in
exercising  any  right,  power or remedy  hereunder  shall  operate  as a waiver
thereof,  nor shall any single or partial  exercise of any such right,  power or
remedy  preclude  any other or further  exercise  thereof or the exercise of any
other right, power or remedy. Except as otherwise expressly provided herein with
respect to any right of  indemnification,  the remedies  provided for herein are
cumulative  and are not  exclusive of any remedies  that may be available to any
party at law or in equity or otherwise. No waiver of or consent to any departure
by a party from any provision of this Agreement shall be effective unless signed
in writing  by the  parties  entitled  to the  benefit  thereof.  No  amendment,
modification  or  termination  of any  provision  of  this  Agreement  shall  be
effective unless signed in writing by all parties. Any amendment,  supplement or
modification  of or to any  provision  of  this  Agreement,  any  waiver  of any
provision of this Agreement,  and any consent to any departure from the terms of
any  provision  of this  Agreement,  shall  be  effective  only in the  specific
instance and for the specific purpose for which made or given.

     7.4 Notices.  All notices,  demands and other  communications  provided for
hereunder  shall be in writing,  shall be given by registered or certified mail,
return  receipt  requested,  on  the  date  sent  by  telecopy  with  electronic
confirmation of such transmission,  the business day next following deposit with

                                       53
<PAGE>

a courier  service for  overnight  delivery  with written  confirmation  of such
delivery or upon personal delivery, addressed to the parties, as follows:

     If to the Company, to:

        Direct Insite Corp.
        80 Orville Drive
        Bohemia, New York  11716
        Attention:  Chief Financial Officer
        Telecopy:  (631) 563-8085

     with a copy to:

        David H. Lieberman, Esq.
        Blau, Kramer, Wactlar & Lieberman, P.C.
        100 Jericho Quadrangle, Suite 225
        Jericho, NY  11753
        Telecopy:  (516) 822-5609

     If to the Purchaser, to:

        Metropolitan Venture Partners II, L.P.
        257 Park Avenue South, 15th Floor
        New York, NY 10010
        Telecopy:   (212) 844-3699
        Attention: Peter B. Yunich, Managing Partner

     with copies to:

        Kramer, Levin, Naftalis & Frankel LLP
        919 Third Avenue
        New York, New York  10022
        Attention:  Scott S. Rosenblum, Esq.
        Telecopy:  (212) 715-8000

or to such other  address as any party shall  designate in writing in compliance
with the provisions of this Section 7.4.

     7.5 Execution in Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto on separate  counterparts,  each
of which counterparts,  when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute but one
and the same Agreement.

                                       54
<PAGE>

     7.6 Binding Effect;  Assignment.  The rights and obligations of the parties
under this  Agreement may not be assigned or otherwise  transferred to any other
Person,  without the prior written  consent of the other party hereto;  provided
that the Purchaser  may assign or otherwise  transfer the shares of Common Stock
issuable upon  conversion  of the Preferred  Stock and any or all of such rights
(except  the  Preferred  Stock)  and/or  obligations  hereunder  to  any  of its
Affiliates without obtaining any such consent, ,but only if such Affiliate:  (A)
agrees to be bound by the terms of this  Agreement;  (B) is, at the time of such
transfer,  an  Accredited  Investor;  (C)  provides  the  Company  such  written
certification  as the  Company  may  reasonably  require as to the  transferee's
status as an Accredited Investor and agreement to be so bound as the Company may
reasonably  request;  and (D)  such  transfer  to any such  transferee  does not
violate federal or state securities laws.  Except as expressly  provided in this
Agreement,  this  Agreement  shall not be construed so as to confer any right or
benefit  upon any Person  other than the  parties  to this  Agreement  and their
respective  successors and permitted  assigns.  This Agreement  shall be binding
upon and shall  inure to the benefit of the  Company,  the  Purchaser  and their
respective permitted successors and assigns.

     7.7  Governing  Law. This  Agreement  shall be deemed to be a contract made
under and shall be governed by and  construed  in  accordance  with the internal
laws of the State of New York without reference to the principles of conflict of
laws,]   provided,   however,   that  the  due   authorization,   issuance   and
enforceability of the terms of, and the designation, rights, preferences, rights
and privileges, of the Preferred Stock or the due authorization, issuance and of
the Common Stock, the conduct of, or any standard of conduct  applicable to, the
Board of Directors of the Company, or any requirement of stockholder approval or
the validity or invalidity of any action by the Board of Directors or compliance
by the Company or any subsidiary with its certificate of incorporation or bylaws
or any of their  corporate  authority,  shall be governed  by, and  construed in
accordance  with, the laws of the State of Delaware without giving effect to the
principles thereof relating to the conflict of laws.

     7.8 Consent to  Jurisdiction  and Service of Process.  Any suit,  action or
proceeding  arising  out of or  relating  to the  Transaction  Documents  or the
transactions  contemplated  hereby or thereby may be  instituted  in any Federal
court  situated  in the State of New York or any state court of the State of New
York, in each case, in the Borough of Manhattan,  City of New York, or Nassau or
Suffolk County in the State of New York, and each party agrees not to assert, by
way  of  motion,  as a  defense  or  otherwise,  in any  such  suit,  action  or
proceeding,  any claim that it is not subject  personally to the jurisdiction of
such court,  that the suit,  action or proceeding is brought in an  inconvenient
forum,  that the venue of the suit, action or proceeding is improper or that the
Transaction  Documents  or the  subject  matter  hereof  or  thereof  may not be
enforced  in or by such court.  Each party  further  irrevocably  submits to the
jurisdiction of such court in any such suit,  action or proceeding.  Any and all
service of process and any other notice in any such suit,  action or  proceeding
shall be effective  against any party if given  personally  or by  registered or
certified  mail,  return receipt  requested if sent to such party at the address
for such party set forth in Section  7.4  hereof,  or by any other means of mail

                                       55
<PAGE>

that requires a signed receipt,  postage fully prepaid,  mailed to such party as
herein provided. Nothing herein contained shall be deemed to affect the right of
any party to serve process in any manner  permitted by law or to commence  legal
proceedings  or  otherwise   proceed  against  any  other  party  in  any  other
jurisdiction.

     7.9  Further  Assurances.  Each of the  parties  hereto  shall  execute and
deliver such documents, instruments and agreements and take such further actions
as may be  reasonably  required or desirable to carry out the  provisions of the
Transaction Documents and the transactions  contemplated hereby and thereby, and
each of the parties hereto shall  cooperate  with each other in connection  with
the foregoing.

     7.11 Severability of Provisions. Any provision hereof that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render  unenforceable such provision in any
other jurisdiction. To the extent permitted by law, the parties hereto waive any
provision of law that renders any such provision  prohibited or unenforceable in
any respect.

     7.12  Headings.  The  Article,  Section  and  subsection  headings  used or
contained in this Agreement are for  convenience of reference only and shall not
affect the construction of this Agreement.

     7.13 Costs, Expenses and Taxes.

     (a) The Company  shall pay any and all stamp,  transfer  and other  similar
Taxes payable or  determined to be payable in connection  with the execution and
delivery of this Agreement or the original  issuance of the Preferred  Stock and
shall  save  and hold  the  Purchaser  harmless  from  and  against  any and all
liabilities  with respect to or resulting from any delay in paying,  or omission
to pay, such Taxes.

     (b) Each party shall bear its own fees,  costs and  expenses in  connection
with the  execution,  delivery and  performance  of the  Transaction  Documents,
except as set forth in this Agreement.

     7.14 Waiver of Jury Trial. The parties hereto hereby  irrevocably waive all
right to a trial by jury in any action,  proceeding or counterclaim  arising out
of  or  relating  to  this  Agreement  or  the  Stockholders  Agreement  or  the
transactions contemplated hereby or thereby.

     7.15  Publicity.  The parties agree that no public release or  announcement
concerning the Transaction Documents or the transactions  contemplated hereby or
thereby shall be made without  advance review and approval by each party hereto,
except as otherwise  required by  applicable  law, and which review and approval
shall not be unreasonably withheld or delayed.

                                       56
<PAGE>


                             SIGNATURE PAGE FOLLOWS

                                       57
<PAGE>


                           COUNTERPART SIGNATURE PAGE

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.


                                DIRECT INSITE CORP.

                               By:     /s/ Warren Wright
                               --------------------------
                               Name:   Warren Wright
                               Title:  Chief Executive Officer


                                       58


                           COUNTERPART SIGNATURE PAGE

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.

                                        METROPOLITAN VENTURE PARTNERS II, L.P.

                                        By: METROPOLITAN VENTURE PARTNERS
                                        (Advisors), L.P., as general partner

                                        By: METROPOLITAN VENTURE PARTNERS
                                        CORP., as general partner


                                        By:   /s/ Michael Levin
                                        ------------------------------
                                        Name: Michael Levin
                                              Title: Managing Director



                              DISCLOSURE SCHEDULE






</TEXT>
</DOCUMENT>
