STORAGE COMPUTER CORP
EX-10.1 SERIES B PREFERRED STOCK CERTIFICATE
<DOCUMENT>
<TYPE>EX-10.1
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<FILENAME>b37197scex10-1.txt
<DESCRIPTION>EX-10.1 SERIES B PREFERRED STOCK CERTIFICATE
<TEXT>

<PAGE>   1

                                  EXHIBIT 10.1

                          SECURITIES PURCHASE AGREEMENT


          This SECURITIES PURCHASE AGREEMENT, dated as of September 28, 2000
(this "AGREEMENT"), by and between Storage Computer Corporation, a Delaware
corporation, with principal executive offices located at 11 Riverside Street,
Nashua, NH 03062-1373 (the "COMPANY"), and The Shaar Fund Ltd. ("BUYER").

          WHEREAS, Buyer desires to purchase from the Company, and the Company
desires to issue and sell to Buyer, upon the terms and subject to the conditions
of this Agreement, (i) 20,000 shares of the Company's Series B 8% Convertible
Preferred Stock, par value $.001 per share (collectively, the "PREFERRED
SHARES"), and (ii) Common Stock Purchase Warrants in the form attached hereto as
Exhibit A to purchase 186,000 shares of Common Stock (as defined below)
(collectively, the "WARRANTS");

          WHEREAS, upon the terms and subject to the designations, preferences
and rights set forth in the Company's Certificate of Designation of Series B 8%
Convertible Preferred Stock in the form attached hereto as Exhibit B (the
"CERTIFICATE OF DESIGNATION"), the Preferred Shares are convertible into shares
of the Company's common stock, par value $.001 per share (the "COMMON STOCK");
and

          WHEREAS, the Warrants, upon the terms and subject to the conditions
specified in the Warrants, will be exercisable for a period of three years;

          NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:

          I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS

          A. TRANSACTION. Buyer hereby agrees to purchase from the Company, and
the Company has offered and hereby agrees to issue and sell to Buyer in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT"), the Preferred
Shares and the Warrants.

          B. PURCHASE PRICE; FORM OF PAYMENT. The purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$2,000,000 (the "PURCHASE PRICE"). Simultaneously with the execution of this
Agreement, Buyer shall pay the Purchase Price by wire transfer of immediately
available funds to the escrow agent (the "ESCROW AGENT") identified in those
certain Escrow Instructions of even date herewith, a copy of which is attached
hereto as Exhibit C (the "ESCROW INSTRUCTIONS"). Simultaneously with the
execution of this Agreement, the Company shall deliver one or more duly
authorized, issued and executed certificates (I/N/O Buyer or, if the Company
otherwise has been notified, I/N/O Buyer's nominee) evidencing the Preferred
Shares and the Warrants which Buyer is purchasing, to the

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Escrow Agent or its designated depository. By executing and delivering this
Agreement, Buyer and the Company each hereby agree to observe the terms and
conditions of the Escrow Instructions, all of which are incorporated herein by
reference as if fully set forth herein.

          C. METHOD OF PAYMENT. Payment into escrow of the Purchase Price shall
be made as set forth in the Escrow Instructions.

          II. BUYER'S REPRESENTATIONS, WARRANTIES AND COVENANTS

          Buyer represents and warrants to and covenants and agrees with the
Company as follows:

          A. Buyer is purchasing the Preferred Shares, the Warrants, the Common
Stock issuable upon exercise of the Warrants (the "WARRANT SHARES"), the Common
Stock, if any, issuable in payment of dividends on the Preferred Shares (the
"DIVIDEND SHARES"), and the Common Stock issuable upon conversion or redemption
of the Preferred Shares (the "CONVERSION SHARES" and, collectively with the
Preferred Shares, the Warrants, the Warrant Shares and the Dividend Shares, the
"SECURITIES") for its own account, for investment purposes only and not with a
view towards or in connection with the public sale or distribution thereof in
violation of the Securities Act.

          B. Buyer is (i) an "ACCREDITED INVESTOR" within the meaning of Rule
501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities. C. Buyer understands that the Securities are
being offered and sold by the Company in reliance on an exemption from the
registration requirements of the Securities Act and equivalent state securities
and "blue sky" laws, and that the Company is relying upon the accuracy of, and
Buyer's compliance with, Buyer's representations, warranties and covenants set
forth in this Agreement to determine the availability of such exemption and the
eligibility of Buyer to purchase the Securities;

          D. Buyer understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the "COMMISSION") or any
state securities commission.

          E. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.

          F. Neither Buyer nor its affiliates nor any person acting on its or
their behalf shall enter into, prior to the Closing or at any other time while
any of the Preferred Shares remain


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outstanding, any put option, short position or other similar instrument or
position with respect to the Common Stock and neither Buyer nor any of its
affiliates nor any person acting on its or their behalf will use at any time
shares of Common Stock acquired pursuant to this Agreement to settle any put
option, short position or other similar instrument or position that may have
been entered into prior to the execution of this Agreement; provided, however,
that nothing in this Section II.F. shall operate to forbid Buyer or any of its
affiliates or any person acting on its or their behalf from selling, or entering
into any other transaction with respect to, the Common Stock contemporaneously
with or following such date and time as the person or persons in whose name or
names the Common Stock delivered at conversion of Preferred Shares, as provided
in the Certificate of Designation, shall be issuable shall be deemed to have
become the holder or holders of record of the Common Shares represented thereby
and all voting and other rights associated with the beneficial ownership of such
Common Shares shall have vested with such person or persons.

          G. Buyer has performed its own due diligence investigation and has had
the opportunity to ask questions of the Company and its management and to
analyze their responses. Buyer has not relied on any representations not made by
the Company and expressly set forth in this Agreement.

                       III. THE COMPANY'S REPRESENTATIONS

          The Company represents and warrants to Buyer that:

          A. CAPITALIZATION.

               1. The authorized capital stock of the Company consists solely
     of: (x) 25,000,000 shares of Common Stock, of which 14,511,310 shares were
     issued and outstanding on September 21, 2000; and (y) 1,000,000 shares of
     preferred stock, of which 90,000 shares are designated Series A 8%
     Convertible Preferred Stock and 54,000 shares of Series A 8% Convertible
     Preferred Stock are issued and outstanding on the date hereof. As of the
     date hereof, the Company has outstanding stock options to purchase
     2,066,846 shares of Common Stock and warrants outstanding to purchase
     369,000 shares of Common Stock. The exercise price for each of such
     outstanding options and warrants is accurately set forth on Schedule
     III.A.1 hereto.

               2. The Conversion Shares, the Dividend Shares and the Warrant
     Shares have been duly and validly authorized and reserved for issuance by
     the Company, and when issued by the Company upon conversion of, or in lieu
     of cash dividends on, the Preferred Shares and on exercise of the Warrants
     will be duly and validly issued, fully paid and nonassessable and will not
     subject the holder thereof to personal liability by reason of being such
     holder.

               3. Except as disclosed on Schedule III.A.3. hereto, there are no
     preemptive, subscription, "call," right of first refusal or other similar
     rights to acquire any capital stock of the Company or any of its
     Subsidiaries or other voting securities of the Company that have been
     issued or granted to any person and no other obligations of the Company or
     any of its Subsidiaries to issue, grant, extend or enter into any security,


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     option, warrant, "call," right, commitment, agreement, arrangement or
     undertaking with respect to any of their respective capital stock.

               4. Schedule III.A.4. hereto lists all the subsidiaries of the
     Company (the "SUBSIDIARIES"). Except as disclosed on Schedule III.A.4.
     hereto, the Company does not own or control, directly or indirectly, any
     interest in any other corporation, partnership, limited liability company,
     unincorporated business organization, association, trust or other business
     entity.

               5. The Company has delivered to Buyer complete and correct copies
     of the Certificate of Incorporation and the By-Laws of the Company, in each
     case as amended to the date of this Agreement.

          B. ORGANIZATION; REPORTING COMPANY STATUS.

               1. Each of the Company and the Subsidiaries is a corporation duly
     organized, validly existing and in good standing under the laws of the
     state or jurisdiction in which it is incorporated and is duly qualified as
     a foreign corporation in all jurisdictions in which the failure so to
     qualify would reasonably be expected to have a material adverse effect on
     the business, properties, prospects, condition (financial or otherwise) or
     results of operations of the Company and the Subsidiaries taken as a whole
     or on the consummation of any of the transactions contemplated by this
     Agreement (a "MATERIAL ADVERSE EFFECT").

               2. The Company has registered the Common Stock pursuant to
     Section 12 of the Securities Exchange Act of 1934, as amended (the
     "EXCHANGE ACT"). The Common Stock is listed and traded on the American
     Stock Exchange ("AMEX") and the Company has not received any notice
     regarding, and to its knowledge there is no threat of, the termination or
     discontinuance of the eligibility of the Common Stock for such listing.

          C. AUTHORIZATION. The Company (i) has duly and validly authorized and
reserved for issuance 1,000,000 shares of Common Stock, which is a number
sufficient for the conversion of and the payment of dividends (in lieu of cash
payments) on the 20,000 Preferred Shares and the exercise of the Warrants in
full, and (ii) at all times from and after the date hereof shall have a
sufficient number of shares of Common Stock duly and validly authorized and
reserved for issuance to satisfy the conversion of Preferred Shares, the payment
of dividends (in lieu of cash payments) on the Preferred Shares and the exercise
of the Warrants in full. The Company understands and acknowledges the
potentially dilutive effect on the Common Stock of the issuance of the Preferred
Shares and of the Conversion Shares, the Dividend Shares and the Warrant Shares
upon the conversion of, and payment of dividends on, the Preferred Shares and
the exercise of the Warrants, respectively. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Shares and Warrant Shares upon exercise of the Warrants in accordance with this
Agreement, the Certificate of Designation and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and notwithstanding
the commencement of any case under 11 U.S.C. ss. 101 et seq. (the "BANKRUPTCY


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CODE"). In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. ss. 362 in respect of the conversion of the Preferred
Shares and the exercise of the Warrants. The Company agrees, without cost or
expense to Buyer, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. ss. 362. Schedule III.C. hereto sets forth (i)
all issuances and sales by the Company since December 31, 1999 of its capital
stock, and other securities convertible into or exercisable or exchangeable for
capital stock of the Company, (ii) the amount of such securities sold, including
the amount of any underlying shares of capital stock, (iii) the purchaser
thereof, (iv) the amount paid therefor, and (v) the material terms of all
outstanding capital stock of the Company (other than the Common Stock).

          D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has the
requisite corporate power and authority to file, and perform its obligations
under, the Certificate of Designation and to enter into the Documents (as
hereinafter defined) and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation with the Delaware Secretary of State's office, the issuance of
the Preferred Shares and the Warrants and the issuance and reservation for
issuance of the Conversion Shares, the Dividend Shares and the Warrant Shares)
have been duly and validly authorized by all necessary corporate action on the
part of the Company. Each of the Documents has been duly and validly executed
and delivered by the Company and the Certificate of Designation has been duly
filed with the Delaware Secretary of State's office by the Company, and each
Document constitutes a valid and binding obligation of the Company enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws. The Securities have been duly and
validly authorized for issuance by the Company and, when executed and delivered
by the Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally. For purposes of this
Agreement, the term "DOCUMENTS" means (i) this Agreement; (ii) the Registration
Rights Agreement of even date herewith between the Company and Buyer, a copy of
which is annexed hereto as Exhibit D (the "REGISTRATION RIGHTS AGREEMENT");
(iii) the Certificate of Designation; (iv) the Warrants; and (v) the Escrow
Instructions.

          E. VALIDITY OF ISSUANCE OF THE SECURITIES. The Preferred Shares and
the Warrants as of the Closing Date, AND the Conversion Shares, the Dividend
Shares and the Warrant Shares upon their issuance in accordance with the
Certificate of Designation and the Warrants, respectively, will be validly
issued and outstanding, fully paid and nonassessable, and not subject to any
preemptive rights, rights of first refusal, tag-along rights, drag-along rights
or other similar rights.

          F. NON-CONTRAVENTION. Except as set forth on Schedule III.F., the
execution and delivery by the Company of the Documents, the issuance of the
Securities, and the


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consummation by the Company of the other transactions contemplated hereby and
thereby, including, without limitation, the filing of the Certificate of
Designation with the Delaware Secretary of State's office, do not, and
compliance with the provisions of this Agreement and other Documents will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or result in the creation of any Lien (as defined in Section III.V.) upon
any of the properties or assets of the Company or any of its Subsidiaries under,
or result in the termination of, or require that any consent be obtained or any
notice be given with respect to, (i) the Certificate of Incorporation or By-Laws
of the Company or the comparable charter or organizational documents of any of
its Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease, contract or other agreement, instrument or permit applicable
to the Company or any of its Subsidiaries or their respective properties or
assets, or (iii) any Law (as defined in Section III.N.) applicable to, or any
judgment, decree or order of any court or government body having jurisdiction
over, the Company or any of its Subsidiaries or any of their respective
properties or assets.

          G. APPROVALS. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
the issuance and sale of the Preferred Shares or the Warrants (or the Conversion
Shares, the Dividend Shares or Warrant Shares) to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents as have been
obtained by the Company prior to the date hereof.

          H. COMMISSION FILINGS. Except as specified in Schedule III.H, the
Company has properly and timely filed with the Commission all reports, proxy
statements, forms and other documents required to be filed with the Commission
under the Securities Act and the Exchange Act since September, 1997 (the
"COMMISSION FILINGS"). As of their respective dates, (i) the Commission Filings
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the
Commission promulgated thereunder applicable to such Commission Filings, and
(ii) none of the Commission Filings contained at the time of its filing any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the Commission Filings, as of
the dates of such documents, were true and complete in all material respects and
complied with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto, were prepared in accordance
with generally accepted accounting principles in the United States ("GAAP")
(except in the case of unaudited statements permitted by Form 10-Q under the
Exchange Act) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly presented the consolidated
financial position of the Company and its Subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments that in the aggregate are not material and to any other
adjustment described therein).

          I. ABSENCE OF CERTAIN CHANGES. Except as set forth on Schedule III.I.,
since the Balance Sheet Date (as defined in Section III.M.), there has not
occurred any change, event or development in the business, financial condition,
prospects or results of operations of the


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Company and the Subsidiaries, there has not existed any condition having or
reasonably likely to have a Material Adverse Effect, and the Company and the
Subsidiaries have conducted their respective businesses only in the ordinary
course.

          J. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that has
not been fully disclosed in writing to Buyer that (i) reasonably could be
expected to have a Material Adverse Effect or (ii) reasonably could be expected
to materially and adversely affect the ability of the Company to perform its
obligations pursuant to the Documents.

          K. ABSENCE OF LITIGATION. Except as set forth on Schedule III.K.,
there are (i) no suits, actions or proceedings pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries, (ii) no
complaints, lawsuits, charges or other proceedings pending or, to the knowledge
of the Company, threatened in any forum by or on behalf of any present or former
employee of the Company or any of its Subsidiaries, any applicant for employment
or classes of the foregoing alleging breach of any express or implied contract
of employment, any applicable law governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection with
the employment relationship, and (iii) no judgments, decrees, injunctions or
orders of any court or other governmental entity or arbitrator outstanding
against the Company or any Subsidiary.

          L. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in Schedule
III.L., no "EVENT OF DEFAULT" (as defined in any agreement or instrument to
which the Company is a party) and no event which, with notice, lapse of time or
both, would constitute an Event of Default (as so defined), has occurred and is
continuing (without waiver).

          M. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The Company has
delivered to Buyer true and complete copies of the (i) audited balance sheet of
the Company and the Subsidiaries as at December 31, 1999, 1998 and 1997,
respectively, and the related audited statements of income, changes in
stockholders' equity and cash flows for the three fiscal years ended December
31, 1999, 1998 and 1997 including the related notes and schedules thereto and
(ii) unaudited balance sheets of the Company and the Subsidiaries and the
statements of income, changes in stockholders' equity and cash flows as at the
end of and for each fiscal quarter ended since December 31, 1999 including the
related notes and schedules thereto, all certified by the chief financial
officer of the Company (collectively, the "FINANCIAL STATEMENTS"), and all
management letters, if any, from the Company's independent auditors relating to
the dates and periods covered by the Financial Statements. Each of the Financial
Statements is complete and correct in all material respects, has been prepared
in accordance with GAAP (subject, in the case of the interim Financial
Statements, to normal year end adjustments and the absence of footnotes), and
fairly presents the financial position, results of operations and cash flows of
the Company as at the dates and for the periods indicated. For purposes hereof,
the audited balance sheet of the Company as at December 31, 1999 is hereinafter
referred to as the "BALANCE SHEET" and December 31, 1999 is hereinafter referred
to as the "BALANCE SHEET DATE". The Company has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due), which was not fully reflected in, reserved
against or otherwise described in the Balance Sheet or the notes thereto or
incurred in the


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ordinary course of business consistent with the Company's past practices since
the Balance Sheet Date.

          N. COMPLIANCE WITH LAWS; PERMITS. Each of the Company and its
Subsidiaries is in material compliance with all material laws, rules,
regulations, codes, ordinances and statutes (collectively, "LAWS") applicable to
it or to the conduct of its business. The Company possesses all material
permits, approvals, authorizations, licenses, certificates and consents from all
public and governmental authorities which are necessary to conduct its business.

          O. RELATED PARTY TRANSACTIONS. Except as set forth on Schedule III.O.
hereto, neither the Company nor any of its officers, directors or "AFFILIATES"
(as such term is defined in Rule 12b-2 under the Exchange Act) nor any family
member of any officer, director or Affiliate of the Company has borrowed any
moneys from or has outstanding any indebtedness or other similar obligations to
the Company or any of the Subsidiaries. Except as set forth on Schedule III.O.
hereto, neither the Company nor, to the best of the Company's knowledge after
due inquiry, any of its officers, directors or Affiliates nor any family member
of any officer, director or Affiliate of the Company (i) owns any direct or
indirect interest constituting more than a 1% equity (or similar profit
participation) interest in, or controls or is a director, officer, partner,
member or employee of, or consultant or lender to or borrower from, or has the
right to participate in the profits of, any person or entity which is (x) a
competitor, supplier, customer, landlord, tenant, creditor or debtor of the
Company or any Subsidiary, (y) engaged in a business related to the business of
the Company or any Subsidiary, or (z) a participant in any transaction to which
the Company or any Subsidiary is a party or (ii) is a party to any contract,
agreement, commitment or other arrangement with the Company or any Subsidiary.

          P. INSURANCE. Each of the Company and the Subsidiaries maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate and consistent with industry
standards and the Company's historical claims experience. None of the Company or
the Subsidiaries has received notice from, and none of them has knowledge of any
threat by, any insurer (that has issued any insurance policy to the Company or
any Subsidiary) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.

          Q. SECURITIES LAW MATTERS. Assuming the accuracy of the
representations and warranties of Buyer set forth in Article II hereof, the
offer and sale by the Company of the Securities is exempt from (i) the
registration and prospectus delivery requirements of the Securities Act and the
rules and regulations of the Commission thereunder and (ii) the registration
and/or qualification provisions of all applicable state securities and "blue
sky" laws. Other than pursuant to an effective registration statement under the
Securities Act, the Company has not issued, offered or sold the Preferred Shares
or any shares of Common Stock (including for this purpose any securities of the
same or a similar class as the Preferred Shares or Common Stock, or any
securities convertible into or exchangeable or exercisable for the Preferred
Shares or Common Stock or any such other securities) within the one-year period
next preceding the date hereof, except as disclosed on Schedule III.Q. hereto,
and the Company shall not directly or indirectly take, and shall not permit any
of its directors, officers or Affiliates directly or indirectly to take, any
action (including, without limitation, any offering or sale to any person or


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<PAGE>   9

entity of the Preferred Shares or shares of Common Stock) which will make
unavailable the exemption from Securities Act registration being relied upon by
the Company for the offer and sale to Buyer of the Preferred Shares and the
Warrants (and the Conversion Shares, the Dividend Shares and the Warrant Shares)
as contemplated by this Agreement. No form of general solicitation or
advertising has been used or authorized by the Company or any of its officers,
directors or Affiliates in connection with the offer or sale of the Preferred
Shares and the Warrants (and the Conversion Shares, the Dividend Shares and the
Warrant Shares) as contemplated by this Agreement or any other agreement to
which the Company is a party.

          R. ENVIRONMENTAL MATTERS.

          Except as set forth on Schedule III.R. hereto:

               1. The Company, the Subsidiaries and their respective operations
     are in material compliance with all applicable Environmental Laws and all
     permits (including terms, conditions, and limitations therein) issued
     pursuant to Environmental Laws or otherwise;

               2. Each of the Company and the Subsidiaries has all permits,
     licenses, waivers, exceptions, and exemptions required under all applicable
     Environmental Laws necessary to operate its business;

               3. None of the Company or the Subsidiaries is the subject of any
     outstanding written order of or agreement with any governmental authority
     or person respecting (i) Environmental Laws or permits, (ii) Remedial
     Action or (iii) any Release or threatened Release of Hazardous Materials;

               4. None of the Company or the Subsidiaries has received any
     written communication alleging that it may be in violation of any
     Environmental Law or any permit issued pursuant to any Environmental Law,
     or may have any liability under any Environmental Law;

               5. To the best of the Company's knowledge, none of the Company or
     the Subsidiaries has any liability, contingent or otherwise, in connection
     with any presence, treatment, storage, disposal or Release of any Hazardous
     Materials whether on property owned or operated by the Company or any
     Subsidiary or property of third parties, and none of the Company or the
     Subsidiaries has transported, or arranged for transportation of, any
     Hazardous Materials for treatment or disposal on any property;

               6. To the best of the Company's knowledge, there are no
     investigations of the business, operations, or currently or previously
     owned, operated or leased property of the Company or any Subsidiary pending
     or threatened which could lead to the imposition of any case or liability
     pursuant to any Environmental Law;

               7. There is not located at any of the properties owned or
     operated by the Company or any Subsidiary any (A) underground storage
     tanks, (B) asbestos-containing material or (C) equipment containing
     polychlorinated biphenyls;


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<PAGE>   10

               8. Each of the Company and the Subsidiaries has provided to Buyer
     all environmentally related assessments, audits, studies, reports,
     analyses, and results of investigations that have been performed with
     respect to the currently or previously owned, leased or operated properties
     or activities of the Company and such Subsidiaries;

               9. There are no liens arising under or pursuant to any
     Environmental Law on any real property owned, operated, or leased by the
     Company or any Subsidiary, and no action of any governmental authority has
     been taken or, to the knowledge of the Company, is in process of being
     taken which could subject any of such properties to such liens, and none of
     the Company or the Subsidiaries has been or is expected to be required to
     place any notice or restriction relating to the presence of Hazardous
     Material at any real property owned, operated, or leased by it in any deed
     to such property;

               10. Neither the Company nor any of the Subsidiaries owns,
     operates, or leases any hazardous waste generation, treatment, storage, or
     disposal facility, as such terms are used pursuant to the RCRA and related
     or analogous state, local, or foreign law. None of the properties owned,
     operated, or leased by the Company, any of the Subsidiaries or any
     predecessor thereof are now, or were in the past, used in any part as a
     dump, landfill, or disposal site, and neither the Company, any of the
     Subsidiaries nor any predecessor of any of them has filled any wetlands;

               11. The purchase that is the subject of this Agreement will not
     require any governmental approvals under Environmental Laws, including
     those that are triggered by sales or transfers of businesses or real
     property, including, as examples and without limitation, the New Jersey
     Industrial Site Recovery Act, N.J. Stat. 13:1K-7 et seq., and the
     Connecticut Transfer of Establishments Act, Conn. Gen. Stat. ss. 22a-134 et
     seq.;

               12. There is no currently existing requirement or requirement to
     be imposed in the future by any Environmental Law or environmental permit
     which could result in the incurrence of a cost that could be reasonably
     expected to have a Material Adverse Effect; and

               13. Each of the Company and each of the Subsidiaries has
     disclosed to Buyer all other acts or conditions that could result in any
     costs or liabilities under Environmental Laws.

          For purposes of this Section III.R.:

          "ENVIRONMENTAL LAW" means any foreign, federal, state or local
statute, regulation, ordinance, or common law as now in effect in any way
relating to the protection of human health, safety or welfare or the environment
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act ("RCRA"), the Clean Water Act, the Clean
Air Act, the Toxic Substances Control Act, the Federal Insecticide, Fungicide,
and Rodenticide Act and the Occupational Safety and Health Act, and the
regulations promulgated pursuant to any of them;


                                      -10-
<PAGE>   11

          "HAZARDOUS MATERIAL" means any substance that is listed, classified or
regulated pursuant to any Environmental Law, including petroleum, gasoline, and
any other petroleum product, by-product, fraction or derivative, asbestos or
asbestos-containing material, lead-containing paint, water, or plumbing,
polychlorinated biphenyls, radioactive materials and radon;

          "RELEASE" means any placement, release, spill, filtration, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, migration,
or leaching to, through, or under the indoor or outdoor environment, or into,
through, under, or out of any property; and

          "REMEDIAL ACTION" means any action to (x) clean up, remove, remediate,
treat or in any other way address any Hazardous Material; (y) prevent or contain
the Release of any Hazardous Material; or (z) perform studies and investigations
or post-remedial monitoring and care in relation to (x) or (y) above.

          S. LABOR MATTERS. Neither the Company nor any of the Subsidiaries is
party to any labor or collective bargaining agreement, and there are no labor or
collective bargaining agreements which pertain to any employees of the Company
or any Subsidiary. No employees of the Company or any of the Subsidiaries are
represented by any labor organization and none of such employees has made a
pending demand for recognition, and there are no representation proceedings or
petitions seeking a representation proceeding presently pending or, to the
Company's knowledge, threatened to be brought or filed, with the National Labor
Relations Board or other labor relations tribunal. There is no organizing
activity involving the Company or any Subsidiary pending or to the Company's
knowledge, threatened by any labor organization or group of employees of the
Company or any of the Subsidiaries. There are no (i) strikes, work stoppages,
slowdowns, lockouts or arbitrations or (ii) material grievances or other labor
disputes pending or, to the knowledge of the Company, threatened against or
involving the Company or any of the Subsidiaries. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of the
Company, threatened by or on behalf of any employee or group of employees of the
Company or any of the Subsidiaries.

          T. ERISA MATTERS. All Plans maintained by the Company or any of its
Subsidiaries and ERISA Affiliates are listed in Schedule III.T. and copies of
all documentation relating to such Plans (including, but not limited to, copies
of written Plans, written descriptions of oral Plans, summary plan descriptions,
trust agreements, the three most recent annual returns, employee communications
and IRS determination letters) have been delivered to or made available for
review by the Buyer. Each Plan has at all times been maintained and administered
in all material respects in accordance with its terms and the requirements of
applicable law, including ERISA and the Code, and each Plan intended to qualify
under section 401(a) of the Code has at all times since its adoption been so
qualified, and each trust which forms a part of any such plan has at all times
since its adoption been tax-exempt under section 501(a) of the Code. The Company
and each of its Subsidiaries and ERISA Affiliates are in compliance in all
material respects with all provisions of ERISA applicable to it. No Reportable
Event has occurred, been waived or exists as to which the Company or any of its
Subsidiaries and ERISA Affiliates was required to file a report with the PBGC,
and the present value of all liabilities under each Pension Plan (based on those
assumptions used to fund such Plans) listed in Schedule III.T. did not, as of
the most recent annual valuation date applicable thereto, exceed the value of
the assets of such Pension Plan. None of the Company, its Subsidiaries and ERISA
Affiliates


                                      -11-
<PAGE>   12

has incurred, or reasonably expects to incur, any Withdrawal Liability with
respect to any Multi-employer Plan that could result in a Material Adverse
Effect. None of the Company, its Subsidiaries and ERISA Affiliates has received
any notification that any Multi-employer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and no Multi-employer Plan
is reasonably expected to be in reorganization or termination where such
reorganization or termination has resulted or could reasonably be expected to
result in increases to the contributions required to be made to such Plan or
otherwise. No direct, contingent or secondary liability has been incurred or is
expected to be incurred by the Company or any of its Subsidiaries under Title IV
of ERISA to any party with respect to any Plan, or with respect to any other
Plan presently or heretofore maintained or contributed to by any ERISA
Affiliate. Neither the Company nor any of its Subsidiaries and ERISA Affiliates
has incurred any liability for any tax imposed under sections 4971 through 4980B
of the Code or civil liability under section 502(i) or (l) of ERISA. No suit,
action or other litigation or any other claim which could reasonably be expected
to result in a material liability or expense to the Company or any of its
Subsidiaries or ERISA Affiliates (excluding claims for benefits incurred in the
ordinary course of plan activities) has been brought or, to the knowledge of the
Company, threatened against or with respect to any Plan and there are no facts
or circumstances known to the Company or any of its Subsidiaries or ERISA
Affiliates that could reasonably be expected to give rise to any such suit,
action or other litigation. All contributions to Plans that were required to be
made under such Plans have been made, and all benefits accrued under any
unfunded Plan have been paid, accrued or otherwise adequately reserved in
accordance with GAAP, all of which accruals under unfunded Plans are as
disclosed in Schedule III.T., and the Company, its Subsidiaries and ERISA
Affiliates have each performed all material obligations required to be performed
under all Plans. The execution, delivery and performance of this Agreement and
the other Documents and the consummation of the transactions contemplated hereby
and thereby (including, without limitation, the offer, issue and sale by the
Company, and the purchase by the Buyer, of the Preferred Shares, the Conversion
Shares, the Warrants, the Warrant Shares and Dividend Shares) will not involve
any "prohibited transaction" within the meaning of ERISA or the Code with
respect to any Plan.

          As used in this Agreement:

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

          "ERISA" means the Employee Retirement Income Security Act of 1974, or
any successor statute, together with the regulations thereunder, as the same may
be amended from time to time.

          "ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under section
414 of the Code.

          "MULTI-EMPLOYER PLAN" means a multi-employer plan as defined in
section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding six plan years made or accrued
an obligation to make contributions.


                                      -12-
<PAGE>   13

          "PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.

          "PENSION PLAN" means any pension plan (other than a Multi-employer
Plan) subject to the provision of Title IV of ERISA or section 412 of the Code
that is maintained for employees of the Company or any of its Subsidiaries, or
any ERISA Affiliate.

          "PLAN" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of section 3(3) of ERISA, including
any Pension Plan.

          "REPORTABLE EVENT" means any reportable event as defined in section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan.

          "WITHDRAWAL LIABILITY" means liability to a Multi-employer Plan as a
result of a complete or partial withdrawal from such Multi-employer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.

          U. TAX MATTERS.

               1. The Company has filed all material Tax Returns which it is
     required to file under applicable Laws; all such Tax Returns are true and
     accurate in all material respects and have been prepared in compliance with
     all applicable Laws; the Company has paid all Taxes due and owing by it
     (whether or not such Taxes are required to be shown on a Tax Return) and
     has withheld and paid over to the appropriate taxing authorities all Taxes
     which it is required to withhold from amounts paid or owing to any
     employee, stockholder, creditor or other third parties; and since the
     Balance Sheet Date, the charges, accruals and reserves for Taxes with
     respect to the Company (including any provisions for deferred income taxes)
     reflected on the books of the Company are adequate to cover any Tax
     liabilities of the Company if its current tax year were treated as ending
     on the date hereof.

               2. No claim has been made by a taxing authority in a jurisdiction
     where the Company does not file tax returns that the Company is or may be
     subject to taxation by such jurisdiction. Except as set forth on Schedule
     III.U., There are no foreign, federal, state or local tax audits or
     administrative or judicial proceedings pending or being conducted with
     respect to the Company; no information related to Tax matters has been
     requested by any foreign, federal, state or local taxing authority; and,
     except as disclosed above, no written notice indicating an intent to open
     an audit or other review has been received by the Company from any foreign,
     federal, state or local taxing authority. There are no material unresolved
     questions or claims concerning the Company's Tax liability. The Company (A)
     has not executed or entered into a closing agreement pursuant to


                                      -13-
<PAGE>   14

     section 7121 of the Code or any predecessor provision thereof or any
     similar provision of state, local or foreign law; or (B) has not agreed to
     or is required to make any adjustments pursuant to section 481(a) of the
     Code or any similar provision of state, local or foreign law by reason of a
     change in accounting method initiated by the Company or any of its
     subsidiaries or has any knowledge that the IRS has proposed any such
     adjustment or change in accounting method, or has any application pending
     with any taxing authority requesting permission for any changes in
     accounting methods that relate to the business or operations of the
     Company. The Company has not been a United States real property holding
     corporation within the meaning of section 897(c)(2) of the Code during the
     applicable period specified in section 897(c)(1)(A)(ii) of the Code.

               3. The Company has not made an election under section 341(f) of
     the Code. The Company is not liable for the Taxes of another person that is
     not a subsidiary of the Company under (A) Treas. Reg. Section 1.1502-6 (or
     comparable provisions of state, local or foreign law), (B) as a transferee
     or successor, (C) by contract or indemnity or (D) otherwise. The Company is
     not a party to any tax sharing agreement. The Company has not made any
     payments, is not obligated to make payments and is not a party to an
     agreement that could obligate it to make any payments that would not be
     deductible under section 280G of the Code.

          As used in this Agreement:

          "IRS" means the United States Internal Revenue Service.

          "TAX" or "TAXES" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.

          "TAX RETURN" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.

          V. PROPERTY. Except as set forth on Schedule III.V., each of the
Company and the Subsidiaries has good and marketable title to all of its assets
and properties material to the conduct of its business, free and clear of any
liens, pledges, security interests, claims, encumbrances or other restrictions
of any kind (collectively, "LIENS"). With respect to any assets or properties it
leases, each of the Company and its Subsidiaries holds a valid and subsisting
leasehold interest therein, free and clear of any Liens, is in compliance, in
all material respects, with the terms of the applicable lease, and enjoys
peaceful and undisturbed possession under such lease. All of the assets and
properties of the Company and its Subsidiaries that are material to the conduct
of business as presently conducted or as proposed to be conducted by it are in
good operating condition and repair (ordinary wear and tear excepted). The
inventory of each of the Company and its Subsidiaries is (subject to customary
reserves for defects and obsolescence) in good and marketable condition, does
not include any material quantity of items


                                      -14-
<PAGE>   15

which are obsolete, damaged or slow moving, and is salable (or may be leased) in
the normal course of business as currently conducted by it.

          W. INTELLECTUAL PROPERTY. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"INTANGIBLES") necessary for the conduct of its business as now being conducted
including, but not limited to, those described on Schedule III.W. hereto. Except
as set forth on Schedule III.W, the Company has all right, title and interest in
all of the Intangibles, free and clear of any and all Liens. The Company is not
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. Except as disclosed on Schedule III.W. hereto, no claims
have been asserted by any individual, partnership, corporation, unincorporated
organization or association, limited liability company, trust or other entity
(collectively, a "PERSON") contesting the validity, enforceability, use or
ownership of any Intangibles, and the Company has no knowledge of any basis for
such claim.

          X. CONTRACTS. All contracts, agreements, notes, instruments,
franchises, leases, licenses, commitments, arrangements or understandings,
written or oral (collectively, "CONTRACTS") which are material to the business
and operations of the Company and the Subsidiaries are in full force and effect
and constitute legal, valid and binding obligations of the Company and the
Subsidiaries and, to the best knowledge of the Company, the other parties
thereto; the Company and the Subsidiaries and, to the best knowledge of the
Company, each other party thereto, have performed in all material respects all
obligations required to be performed by them under the Contracts, and no
material violation or default exists in respect thereof, nor any event that with
notice or lapse of time, or both, would constitute a default thereof, on the
part of the Company and the Subsidiaries or, to the best knowledge of the
Company, any other party thereto; none of the Contracts is currently being
renegotiated; and the validity, effectiveness and continuation of all Contracts
will not be materially adversely affected by the transactions contemplated by
this Agreement.

          Y. REGISTRATION RIGHTS. Except as set forth on Schedule III.Y., no
Person has, and as of the Closing (as defined in Article VII), no Person shall
have, any demand, "piggy-back" or other rights to cause the Company to file any
registration statement under the Securities Act, relating to any of its
securities or to participate in any such registration statement.

          Z. DIVIDENDS. The timely payment of dividends on the Preferred Shares
as specified in the Certificate of Designation is not prohibited by the
Certificate of Incorporation or By-Laws of the Company or any agreement,
Contract, document or other undertaking to which the Company or any of the
Subsidiaries is a party.

          AA. INVESTMENT COMPANY ACT. Neither the Company nor any of the
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"), nor is the
Company nor any of the Subsidiaries directly or indirectly controlled by or
acting on behalf of any Person which is an "investment company" within the
meaning of the Investment Company Act.


                                      -15-
<PAGE>   16

          BB. BUSINESS PLAN. Any business information of the Company previously
submitted to Buyer in any form, including the projections contained therein, was
prepared by the senior management of the Company in good faith and is based on
assumptions that the Company believes are reasonable. The Company is not aware
of any fact or condition that could reasonably be expected to result in the
Company not achieving the results described in such business plan.

          CC. INTERNAL CONTROLS AND PROCEDURES. The Company maintains accurate
books and records and internal accounting controls that provide reasonable
assurance that (i) all transactions to which the Company or each of the
Subsidiaries is a party or by which its properties are bound are executed with
management's authorization; (ii) the reported accountability of the Company's
and the Subsidiaries' assets is compared with existing assets at regular
intervals; (iii) access to the Company's and the Subsidiaries' assets is
permitted only in accordance with management's authorization; and (iv) all
transactions to which any of the Company and the Subsidiaries is a party or by
which its properties are bound are recorded as necessary to permit preparation
of the financial statements of the Company in accordance with GAAP.

          DD. PAYMENTS AND CONTRIBUTIONS. Neither the Company nor any of its
Subsidiaries nor any of their respective directors, officers or, to their
respective knowledge, other employees has (i) used any company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to political activity; (ii) made any direct or indirect
unlawful payment of company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person with
respect to Company matters.

          EE. NO MISREPRESENTATION. No representation or warranty of the Company
contained in this Agreement or any of the other Documents, any schedule, annex
or exhibit hereto or thereto or any agreement, instrument or certificate
furnished by the Company to Buyer pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.

          FF. FINDER'S FEE. There is no finder's fee, brokerage commission or
like payment in connection with the transactions contemplated by this Agreement
for which Buyer is liable or responsible.

                    IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS

          A. RESTRICTIVE LEGEND. Buyer acknowledges and agrees that, upon
issuance pursuant to this Agreement, the Securities (including any Dividends
Shares, Conversion Shares or the Warrant Shares) shall have endorsed thereon a
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the Preferred Shares, the Warrant Shares and the
Conversion Shares until such legend has been removed):

     "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
     1933, AS AMENDED (THE "SECURITIES ACT"),


                                      -16-
<PAGE>   17

     OR THE SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED AND SOLD
     PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
     SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE SOLD OR
     TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
     THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
     REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."

          B. FILINGS. The Company shall make all necessary Commission Filings
and "blue sky" filings required to be made by the Company in connection with the
sale of the Securities to Buyer as required by all applicable Laws, and shall
provide a copy thereof to Buyer promptly after such filing.

          C. REPORTING STATUS. So long as Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed by it
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.

          D. USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Securities (net of amounts paid by the Company for Buyer's out-of-pocket
costs and expenses, whether or not accounted for or incurred in connection with
the transactions contemplated by this Agreement (including the fees and
disbursements of Buyer's legal counsel), and finder's fees in connection with
such sale) solely for general corporate and working capital purposes.

          E. LISTING. Except to the extent the Company lists its Common Stock on
The New York Stock Exchange or The Nasdaq Stock Market, the Company shall use
its best efforts to maintain its listing of the Common Stock on Amex. If the
Common Stock is delisted from Amex, the Company will use its best efforts to
list the Common Stock on the most liquid national securities exchange or
quotation system that the Common Stock is qualified to be listed on.

          F. RESERVED CONVERSION SHARES. The Company at all times from and after
the date hereof shall have such number of shares of Common Stock duly and
validly authorized and reserved for issuance as shall be sufficient for the
conversion in full of, and the payment of dividends on, the Preferred Shares and
the exercise in full of the Warrants.

          G. RIGHT OF FIRST REFUSAL. If, during the period commencing on the
date hereof and ending two years after the Closing Date (the "RIGHT OF FIRST
REFUSAL PERIOD"), the Company should propose (the "PROPOSAL") to issue Common
Stock or securities convertible into Common Stock at a price less than the
Current Market Price (as defined in the Certificate of Designation), or debt at
less than par value or having an effective annual interest rate in excess of
9.9% (each a "RIGHT OF FIRST REFUSAL SECURITY" and collectively, the "RIGHT OF
FIRST REFUSAL SECURITIES"), in each case on the date of issuance the Company
shall be obligated to offer such Right of First Refusal Securities to Buyer on
the terms set forth in the Proposal (the "OFFER") and Buyer shall have the
right, but not the obligation, to accept such Offer on such terms. The Company
shall provide written notice to Buyer of any Proposal, setting forth in full the
terms and conditions thereof, and Buyer shall then have 10 business days to
accept or reject the Offer


                                      -17-
<PAGE>   18

in writing. If the Company issues any Right of First Refusal Securities during
the Right of First Refusal Period but fails to: (i) notify Buyer of the
Proposal, (ii) offer Buyer the opportunity to complete the transaction as set
forth in the Proposal, or (iii) enter into and consummate an agreement to issue
such Right of First Refusal Securities to Buyer on the terms and conditions set
forth in the Proposal, after Buyer has accepted the Offer, then the Company
shall pay to Buyer, as liquidated damages, an amount equal to 9% of the amount
paid to the Company for the Right of First Refusal Securities. The foregoing
Right of First Refusal is and shall be senior in right to any other right of
first refusal issued by the Company to any other Person.

          H. INFORMATION. Each of the parties hereto acknowledges and agrees
that Buyer shall not be provided with, nor be given access to, any material
non-public information relating to the Company or any of the Subsidiaries.

          I. EXEMPTION FROM INVESTMENT COMPANY ACT. The Company shall conduct
its business, and shall cause the Subsidiaries to conduct their businesses, in
such a manner that neither the Company nor any Subsidiary shall become an
"investment company" within the meaning of the Investment Company Act.

          J. ACCOUNTING AND RESERVES. The Company shall maintain a standard and
uniform system of accounting and shall keep proper books and records and
accounts in which full, true and correct entries shall be made of its
transactions, all in accordance with GAAP applied on a consistent basis through
all periods, and shall set aside on such books for each fiscal year all such
reserves for depreciation, obsolescence, amortization, bad debts and other
purposes in connection with its operations as are required by such principles so
applied.

          K. TRANSACTIONS WITH AFFILIATES. Neither the Company nor any of its
Subsidiaries shall, directly or indirectly, enter into any transaction or
agreement with any stockholder, officer, director or Affiliate of the Company or
family member of any officer, director or Affiliate of the Company, unless the
transaction or agreement is (i) reviewed and approved by a majority of
Disinterested Directors (as defined below) and (ii) on terms no less favorable
to the Company or the applicable Subsidiary than those obtainable from a
non-affiliated person. A "DISINTERESTED DIRECTOR" shall mean a director of the
Company who is not and has not been an officer or employee of the Company and
who is not a member of the family of, controlled by or under common control
with, any such officer or employee.

          L. ISSUANCES OF ADDITIONAL CONVERTIBLE PREFERRED SHARES OR CONVERTIBLE
DEBENTURES. So long as Buyer beneficially owns any of the Preferred Shares, the
Company shall not issue any additional convertible preferred stock or
convertible debt securities, in each case, convertible into Common Stock at a
floating conversion price, without the prior written consent of Buyer.

          M. CERTAIN RESTRICTIONS. So long as any Preferred Shares are
outstanding, no dividends shall be declared or paid or set apart for payment nor
shall any other distribution be declared or made upon Junior Securities (as
defined in the Certificate of Designation), nor shall any Junior Securities be
redeemed, purchased or otherwise acquired (other than a redemption, purchase or
other acquisition of shares of Common Stock made for purposes of an employee
incentive or benefit plan (including a stock option plan) of the Company or any
Subsidiary, for


                                      -18-
<PAGE>   19

any consideration by the Company, directly or indirectly, nor shall any moneys
be paid to or made available for a sinking fund for the redemption of any shares
of any such stock.

          N. J.P. TURNER & COMPANY. The Company shall release and hold harmless
J.P. Turner & Company LLC from and against any losses, claims, damages or
liabilities related to the transactions contemplated by this Agreement.

                         V. TRANSFER AGENT INSTRUCTIONS

          A. The Company undertakes and agrees that no instruction other than
the instructions referred to in this Article V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement shall be given to its
transfer agent for the Common Stock and that the Conversion Shares, the Dividend
Shares and the Warrant Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement and applicable law. Nothing
contained in this Section V.A. shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of such
Common Stock. If, at any time, Buyer provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of the resale
by Buyer of such Common Stock is not required under the Securities Act and that
the removal of restrictive legends is permitted under applicable law, the
Company shall permit the transfer of such Common Stock and promptly instruct the
Company's transfer agent to issue one or more certificates for Common Stock
without any restrictive legends endorsed thereon.

          B. Buyer shall have the right to convert the Preferred Shares by
telecopying an executed and completed Notice of Conversion (as defined in the
Certificate of Designation) to the Company. Each date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a Conversion Date (as defined in the
Certificate of Designation). The Company shall transmit the certificates
evidencing the shares of Common Stock issuable upon conversion of any Preferred
Shares (together with certificates evidencing any Preferred Shares not being so
converted) to Buyer via express courier, by electronic transfer or otherwise,
within five business days after receipt by the Company of the Notice of
Conversion (the "DELIVERY DATE"). Within 30 days after Buyer delivers the Notice
of Conversion to the Company, Buyer shall deliver to the Company a certificate
or certificates evidencing the Preferred Shares being converted. Notwithstanding
any failure or refusal by Buyer to surrender any certificates for Preferred
Shares as to which a Notice of Conversion has been given, such Preferred Shares
shall be cancelled and all rights therein terminated upon issuance of the shares
of Common Stock into which such Preferred Shares have been converted. Buyer
agrees to indemnify the Company for any losses the Company may have as a result
of Buyer not delivering Preferred Shares with respect to which Buyer has
converted such Preferred Shares into Common Shares.

          C. Buyer shall have the right to purchase shares of Common Stock
pursuant to exercise of the Warrants in accordance with its applicable terms of
the Warrants. The last date that the Company may deliver shares of Common Stock
issuable upon any exercise of Warrants is referred to herein as the "WARRANT
DELIVERY DATE."


                                      -19-
<PAGE>   20

          D. The Company understands that a delay in the issuance of the shares
of Common Stock issuable in lieu of cash dividends on the Preferred Shares or
upon the conversion of the Preferred Shares or exercise of the Warrants beyond
the applicable Dividend Payment Due Date (as defined in the Certificate of
Designation), Delivery Date or Warrant Delivery Date could result in economic
loss to Buyer. As compensation to Buyer for such loss (and not as a penalty),
the Company agrees to pay to Buyer for late issuance of Common Stock issuable in
lieu of cash dividends on the Preferred Shares or upon conversion of the
Preferred Shares or exercise of the Warrants in accordance with the following
schedule (where "NO. BUSINESS DAYS" is defined as the number of business days
beyond five days from the Dividend Payment Due Date, the Delivery Date or the
Warrant Delivery Date, as applicable):

                               COMPENSATION FOR EACH 10 SHARES
                              OF PREFERRED SHARES NOT CONVERTED
                               TIMELY OR 500 SHARES OF COMMON
                                STOCK ISSUABLE IN PAYMENT OF
                                DIVIDENDS OR UPON EXERCISE OF
     NO. BUSINESS DAYS           WARRANTS NOT ISSUED TIMELY
     -----------------        ---------------------------------
           1                               $   25
           2                                   50
           3                                   75
           4                                  100
           5                                  125
           6                                  150
           7                                  175
           8                                  200
           9                                  225
           10                                 250
       more than 10         $250 + $100 for each Business Day
                            Late beyond 10 days

The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer. In addition to any other remedies which may be
available to Buyer, in the event the Company fails for any reason to deliver
such shares of Common Stock within five business days after the relevant
Dividend Payment Due Date, Delivery Date or Warrant Delivery Date, as
applicable, Buyer shall be entitled to rescind the relevant Notice of Conversion
or exercise of Warrants by delivering a notice to such effect to the Company
whereupon the Company and Buyer shall each be restored to their respective
original positions immediately prior to delivery of such Notice of Conversion on
delivery.

                            VI. DELIVERY INSTRUCTIONS

          The Securities shall be delivered by the Company to the Escrow Agent
pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the
Closing.


                                      -20-
<PAGE>   21

                                VII. CLOSING DATE

          The date and time (the "CLOSING DATE") of the issuance and sale of the
Preferred Shares and the Warrants (the "CLOSING") shall be the date hereof or
such other date as shall be mutually agreed upon in writing. The issuance and
sale of the Securities shall occur on the Closing Date at the offices of the
Escrow Agent. Notwithstanding anything to the contrary contained herein, the
Escrow Agent shall not be authorized to release to the Company the Purchase
Price or to Buyer the certificate(s) (I/N/O Buyer or I/N/O Buyer's nominee)
evidencing the Securities being purchased by Buyer unless the conditions set
forth in Sections VIII.C. and IX.H. hereof have been satisfied.

                  VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS

          Buyer understands that the Company's obligation to sell the Securities
on the Closing Date to Buyer pursuant to this Agreement is conditioned upon:

          A. Delivery by Buyer to the Escrow Agent of the Purchase Price;

          B. The accuracy on the Closing Date of the representations and
warranties of Buyer contained in this Agreement as if made on the Closing Date
(except for representations and warranties which, by their express terms, speak
as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by Buyer in all material
respects on or before the Closing Date of all covenants and agreements of Buyer
required to be performed by it pursuant to this Agreement on or before the
Closing Date; and

          C. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.

                      IX. CONDITIONS TO BUYER'S OBLIGATIONS

          The Company understands that Buyer's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:

          A. Delivery by the Company to Buyer of evidence that the Certificate
of Designation has been filed and is effective;

          B. Delivery by the Company to the Escrow Agent of one or more
certificates (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities to
be purchased by Buyer pursuant to this Agreement;

          C. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date (except for representations and warranties which, by their express terms,
speak as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by the Company in all
respects on or before the Closing Date of all covenants and agreements of the
Company required to be performed by it pursuant to this Agreement on or before
the Closing


                                      -21-
<PAGE>   22

Date, all of which shall be confirmed to Buyer by delivery of the certificate of
the chief executive officer of the Company to that effect;

          D. Buyer having received an opinion of counsel for the Company, dated
the Closing Date, in form, scope and substance reasonably satisfactory to Buyer
as to the matters set forth in Annex A;

          E. There not having occurred (i) any general suspension of trading in,
or limitation on prices listed for, the Common Stock on Amex, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;

          F. There not having occurred any event or development, and there being
in existence no condition, having or which reasonably and foreseeably could have
a Material Adverse Effect;

          G. The Company shall have delivered to Buyer (as provided in the
Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and expenses,
whether or not accounted for or incurred in connection with the transactions
contemplated by this Agreement (including the fees and disbursements of Buyer's
legal counsel), of $50,000;

          H. There shall not be in effect any Law, order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement;

          I. Delivery by the Company of irrevocable instructions to the
Company's transfer agent to reserve 1,000,000 shares of Common Stock for
issuance of the Conversion Shares and the Warrant Shares;

          J. The Company shall have obtained all consents, approvals or waivers
from governmental authorities and third persons necessary for the execution,
delivery and performance of the Documents and the transactions contemplated
thereby, all without material cost to the Company; and

          K. Buyer shall have received such additional documents, certificates,
payment, assignments, transfers and other delivers, as it or its legal counsel
may reasonably request and as are customary to effect a closing of the matters
herein contemplated.

                                 X. TERMINATION

          A. TERMINATION BY MUTUAL WRITTEN CONSENT. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.


                                      -22-
<PAGE>   23

          B. TERMINATION BY THE COMPANY OR BUYER. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Closing shall not have occurred at or prior
to 5:00 p.m., New York City time, on October 4, 2000 (the "LATEST CLOSING
DATE"); provided, however, that the right to terminate this Agreement pursuant
to this Section X.B. shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement has been the cause of or has
resulted in the failure of the Closing to occur at or before such time and date;
provided, further, however, that if the Closing shall not have occurred on or
prior to the Latest Closing Date, the Closing may only occur after the Latest
Closing Date with the written consent of Buyer.

          C. TERMINATION BY BUYER. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply with any of its
covenants or agreements contained in this Agreement, (ii) there shall have been
a breach by the Company of any representation or warranty made by it in this
Agreement, (iii) there shall have occurred any event or development, or there
shall be in existence any condition, having or reasonably likely to have a
Material Adverse Effect or (iv) the Company shall have failed to satisfy the
conditions provided in Article IX hereof.

          D. TERMINATION BY THE COMPANY. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) Buyer shall have failed to comply with any of
its covenants or agreements contained in this Agreement or (ii) there shall have
been a breach by Buyer of any representation or warranty made by it in this
Agreement.

          E. EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to this Article X, this Agreement shall thereafter become
void and have no effect, and no party hereto shall have any liability or
obligation to any other party hereto in respect of this Agreement, except that
the provisions of Article XI, this Section X.E and Section X.F shall survive any
such termination; provided, however, that no party shall be released from any
liability hereunder if this Agreement is terminated and the transactions
contemplated hereby abandoned by reason of (i) willful failure of such party to
perform its obligations hereunder or (ii) any misrepresentation made by such
party of any matter set forth herein.

          F. FEES AND EXPENSES OF TERMINATION. If this Agreement is terminated
for any reason, other than pursuant to Section X.D., the Company shall promptly
reimburse Buyer for all of Buyer's out-of-pocket costs and expenses incurred in
connection with the transactions contemplated by this Agreement and the other
Documents (including, without limitation, the fees and disbursements of Buyer's
legal counsel).

                          XI. SURVIVAL; INDEMNIFICATION

          A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to


                                      -23-
<PAGE>   24

whom such representations, warranties or covenants have been made shall have all
rights and remedies for such breach or violation available to it under the
provisions of this Agreement or otherwise, whether at law or in equity,
irrespective of any investigation made by or on behalf of such party on or prior
to the Closing Date.

          B. The Company hereby agrees to indemnify and hold harmless Buyer, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "BUYER INDEMNITEES") from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "LOSSES") and agrees to reimburse Buyer Indemnitees for all out
of-pocket expenses (including the fees and expenses of legal counsel), in each
case promptly as incurred by Buyer Indemnitees and to the extent arising out of
or in connection with:

               1. any misrepresentation, omission of fact or breach of any of
     the Company's representations or warranties contained in this Agreement or
     the other Documents, or the annexes, schedules or exhibits hereto or
     thereto or any instrument, agreement or certificate entered into or
     delivered by the Company pursuant to this Agreement or the other Documents;

               2. any failure by the Company to perform in any material respect
     any of its covenants, agreements, undertakings or obligations set forth in
     this Agreement or the other Documents or any instrument, certificate or
     agreement entered into or delivered by the Company pursuant to this
     Agreement or the other Documents; or

               3. resales of the Common Shares by Buyer in the manner and as
     contemplated by this Agreement and the Registration Rights Agreement.

          C. Buyer hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "COMPANY INDEMNITEES") from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel) in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:

               1. any misrepresentation, omission of fact or breach of any of
     Buyer's representations or warranties contained in this Agreement or the
     other Documents, or the annexes, schedules or exhibits hereto or thereto or
     any instrument, agreement or certificate entered into or delivered by Buyer
     pursuant to this Agreement or the other Documents; or

               2. any failure by Buyer to perform in any material respect any of
     its covenants, agreements, undertakings or obligations set forth in this
     Agreement or the other Documents or any instrument, certificate or
     agreement entered into or delivered by Buyer pursuant to this Agreement or
     the other Documents.

          D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Article XI (an "INDEMNIFIED PARTY") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "CLAIM"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to


                                      -24-
<PAGE>   25

this Article XI is being sought (the "INDEMNIFYING PARTY") of the commencement
thereof; but the omission so to notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights or defenses by reason of such failure. In connection with any
Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.

          E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.

                               XII. GOVERNING LAW

          This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York, without regard to the conflicts of law
principles of such state.


                                      -25-
<PAGE>   26

                        XIII. SUBMISSION TO JURISDICTION

          Each of the parties hereto consents to the exclusive jurisdiction of
the federal courts whose districts encompass any part of the City of New York or
the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and the other
Documents. Each party hereto hereby irrevocably and unconditionally waives, to
the fullest extent it may effectively do so, any defense of an inconvenient
forum or improper venue to the maintenance of such action or proceeding in any
such court and any right of jurisdiction on account of its place of residence or
domicile. Each party hereto irrevocably and unconditionally consents to the
service of any and all process in any such action or proceeding in such courts
by the mailing of copies of such process by certified or registered airmail at
its address specified in Article XIX. Each party hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.

                            XIV. WAIVER OF JURY TRIAL

          TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (I)
CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II) ACKNOWLEDGES THAT
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.

                           XV. COUNTERPARTS; EXECUTION

          This Agreement may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts shall
together constitute one and the same instrument. A facsimile transmission of
this signed Agreement shall be legal and binding on all parties hereto.

                                  XVI. HEADINGS

          The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.


                                      -26-
<PAGE>   27

                               XVII. SEVERABILITY

          In the event any one or more of the provisions contained in this
Agreement or in the other Documents should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.

           XVIII. ENTIRE AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS

          This Agreement and the Documents constitute the entire agreement among
the parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by all parties. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.

                                  XIX. NOTICES

          Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:

          A.   if to the Company, to:

               Storage Computer Corporation
               11 Riverside Street
               Nashua, NH 03062-1373
               Attention:  Theodore J. Goodlander
               (603) 880-3005
               (603) 889-7232 (Fax)

               with a copy to:

               Peabody & Arnold LLP
               50 Rowes Wharf
               Boston, MA 02110
               Attention:  William E. Kelly, Esq.
               (617) 951-2005
               (617) 951-2125 (fax)

          B.   if to Buyer, to:


                                      -27-
<PAGE>   28

               The Shaar Fund Ltd.
               c/o Levinson Capital Management
               2 World Trade Center, Suite 1820
               New York, NY 10048
               Attention:  Samuel Levinson
               (212) 432-7711
               (212) 432-7771 (Fax)

               with a copy to:

               Cadwalader, Wickersham & Taft
               100 Maiden Lane
               New York, NY 10038
               Attention:  Dennis J. Block, Esq.
               (212) 504-5555
               (212) 504-5557 (Fax)

          C.   if to the Escrow Agent, to:

               Cadwalader, Wickersham & Taft
               100 Maiden Lane
               New York, NY 10038
               Attention:  Dennis J. Block, Esq.
               (212) 504-5555
               (212) 504-5557 (Fax)

The Company, Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Article XIX.

                              XX. CONFIDENTIALITY

          Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).

                                XXI. ASSIGNMENT

          This Agreement shall not be assignable by either of the parties hereto
prior to the Closing without the prior written consent of the other party, and
any attempted assignment contrary to the provisions hereby shall be null and
void; provided, however, that Buyer may assign its rights and obligations
hereunder, in whole or in part, to any Affiliate of Buyer.


                                      -28-
<PAGE>   29

                            [SIGNATURE PAGE FOLLOWS.]



                                      -29-
<PAGE>   30

          IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement on the date first above written.


                                    STORAGE COMPUTER CORPORATION


                                    By: /s/ Edward A. Gardner, President
                                       ---------------------------------------
                                       Name: Edward A. Gardner
                                       Title: President


                                    THE SHAAR FUND LTD.


                                    BY: SHAAR ADVISORY SERVICES, N.V. (THE
                                        ADVISOR TO THE SHAAR FUND LTD.)


                                         By: /s/ W. J. Langevold
                                            -----------------------------------
                                            Name: W. J. Langeveld
                                            Title: Managing Director



PABOS2:WEK:409696_1
7198-37519


                                      A-1
</TEXT>
</DOCUMENT>
