SECURITIES PURCHASE AGREEMENT



            This Securities Purchase Agreement,  dated as of September 14, 1999,
between  Research  Engineers,   Inc.,  a  Delaware  corporation  with  principal
executive offices located at 22700 Savi Ranch Parkway,  Yorba Linda,  California
92887 (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 the  Buyer,  upon the terms  and  subject  to the
conditions of this  Agreement,  (i) 300,000 shares of the Company's  Series B 5%
Convertible  Preferred  Stock,  par value  $0.01 per  share  (collectively,  the
"Preferred  Shares"),  and  (ii)  Common  Stock  Purchase  Warrants  in the form
attached hereto as Exhibit A (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 5%
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 $0.01 per share (the "Common Stock");


            Whereas, the Warrants,  upon the terms and subject to the conditions
in the  Warrants,  will for a period of five years be  exercisable  to  purchase
40,000 shares of Common Stock;


            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 the 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 to purchase 40,000 shares of Common Stock.

            B.  Purchase  Price;  Form of Payment.  The  purchase  price for the
Preferred  Shares and the Warrants to be purchased by Buyer  hereunder  shall be
$2,100,000  (the "Purchase  Price").  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 and against  receipt by the
Escrow Agent of the Purchase  Price,  the Company shall deliver one or more duly
authorized,  issued and  executed  certificates  (I/N/O Buyer or, if the Company



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otherwise has been  notified,  I/N/O Buyer's  nominee)  evidencing the Preferred
Shares and the Warrants  which the Buyer is  purchasing,  to the Escrow Agent or
its designated depository. By executing and delivering this Agreement, Buyer and
the Company each hereby agrees 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 by wire transfer of immediately available funds to:

            The Bank of New York
            48 Wall Street
            New York, NY  10038
            ABA No.:            021000018
            For the Account of: Cadwalader, Wickersham & Taft
                                Trust Account IOLA Fund
            Account No.:        0902061070

Simultaneously  with the  execution of this  Agreement,  the Buyer shall deposit
with the Escrow Agent the Purchase  Price and the Company shall deposit with the
Escrow Agent the Preferred Shares and the Warrants.

              II. Buyer's Representations, Warranties; Access to
                     Information; Independent Investigation

            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") and
the shares of Common Stock issuable upon conversion of the Preferred Shares (the
"Conversion  Shares" and,  collectively with the Preferred Shares,  the Warrants
and the Warrant 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;


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<PAGE>
            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 and that the foregoing authorities have not reviewed
any documents or instruments in connection  with the offer and sale to it of the
Securities  and have not confirmed or determined the adequacy or accuracy of any
such documents or instruments.

            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 has the  intention of  entering,  or will enter into,  prior to the
closing or at any time during  which it or they own any of the  Securities,  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  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.

                       III. The Company's Representations

            The Company represents and warrants to Buyer that:

            A.    Capitalization.

                  1. The  authorized  capital stock of the Company  consists of:
      (i)  20,000,000  shares of Common  Stock,  of which  5,764,396  shares are
      issued and  outstanding on the date hereof;  and (ii) 5,000,000  shares of
      "blank  check"  preferred  stock,  of  which  no  shares  are  issued  and
      outstanding on the date hereof.  All of the issued and outstanding  shares
      of Common Stock and preferred stock, if any, have been duly authorized and
      validly  issued  and are  fully  paid  and  nonassessable.  As of the date
      hereof, the Company has outstanding  950,364 stock options and warrants to
      purchase shares of Common Stock. The Conversion  Shares and 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
      accrued 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.  There are no  preemptive,  subscription,  "call" or other similar
      rights to acquire the Common Stock  (including the  Conversion  Shares and
      Warrant Shares) that have been issued or granted to any person,  except as
      disclosed on Schedule III.A.1. hereto or otherwise previously disclosed in
      writing to Buyer.


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<PAGE>
                  2.  Except as  disclosed  on  Schedule  III.A.2.  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.

            B.    Organization; Reporting Company Status.

                  1.  The  Company  is a  corporation  duly  organized,  validly
      existing and in good standing  under the laws of the State of Delaware and
      is duly qualified as a foreign  corporation in all  jurisdictions in which
      the  failure to so qualify  would  have a material  adverse  effect on the
      business,  properties,  prospects,  condition  (financial or otherwise) or
      results of operations of the Company 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"), and has timely filed with the Commission all reports and
      information  required  to  be  filed  by  it  pursuant  to  all  reporting
      obligations  under Section 13(a) or 15(d), as applicable,  of the Exchange
      Act for the 12-month  period  immediately  preceding the date hereof.  The
      Common Stock is listed and traded on the Nasdaq National Market ("Nasdaq")
      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. Authorized  Shares.  The Company has duly and validly  authorized
and reserved for issuance  shares of Common Stock  sufficient  in number for the
conversion,  of the  Preferred  Shares  (assuming  for  purposes of this Section
III.C.  a Conversion  Price (as defined in the  Certificate of  Designation)  of
$1.00 per share) and the exercise of the Warrants.  The Company  understands and
acknowledges the potentially dilutive effect to the Common Stock of the issuance
of the  Preferred  Shares and Warrant  Shares upon  conversion  of the Preferred
Shares  and  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  Preferred  Shares  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  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 July 1, 1999
of  its  capital  stock,  and  other  securities  convertible,   exercisable  or
exchangeable  for  capital  stock  of the  Company,  (ii)  the  amount  of  such
securities  sold,  including any underlying  shares of capital stock,  (iii) the
purchaser thereof, and (iv) the amount paid therefor.



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            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, the Warrants and the issuance and reservation for issuance
of the Conversion  Shares and Warrant  Shares),  has been duly 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 instrument 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.  Authorization of the Securities.  The  authorization,  issuance,
sale and delivery of the Preferred  Shares and Warrants has been duly authorized
by all requisite  corporate action on the part of the Company. As of the Closing
Date, the Preferred Shares and the Warrants,  and the Conversion  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 or other similar rights.

            F.  Non-contravention.  The execution and delivery by the Company of
the  Documents,  the issuance of the  Securities,  and the  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 will not  conflict  with or
result  in a breach by the  Company  of any of the  terms or  provisions  of, or
constitute  a default (or an event which,  with  notice,  lapse of time or both,
would  constitute  a default)  under (i) the  certificate  of  incorporation  or
by-laws of the Company or (ii) any indenture,  mortgage,  deed of trust or other
material agreement or instrument to which the Company is a party or by which its
properties or assets are bound, or any law, rule, regulation,  decree,  judgment
or order of any court or public or governmental  authority  having  jurisdiction
over the  Company or any of the  Company's  properties  or assets,  except as to
clause  (ii)  above such  conflict,  breach or  default  which  would not have a
Material  Adverse  Effect  or as to which an  effective  waiver or  consent  was
obtained.


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<PAGE>
            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  (and  the
Conversion  Shares  and  Warrant  Shares)  to  Buyer  as  contemplated  by  this
Agreement,  except such  authorizations,  approvals  and consents that have been
obtained by the Company prior to the date hereof.

            H. Commission  Filings.  None of the Company's reports and documents
heretofore  filed with the  Commission  pursuant  to the  Securities  Act or the
Exchange Act (collectively, the "Commission Filings") contained at the time they
were  filed any  untrue  statement  of a  material  fact or omitted to state any
material fact required to be stated  therein or necessary to make the statements
made  therein,  in light of the  circumstances  under which they were made,  not
misleading.

            I.  Absence of Certain  Changes.  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 Company,  and there has not existed any  condition  having or
reasonably likely to have, a Material Adverse Effect.

            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 the  Commission  Filings or in writing to the
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.   There  is  no  action,  suit,  claim,
proceeding,  inquiry or  investigation  pending or, to the Company's  knowledge,
threatened, by or before any court or public or governmental authority which, if
determined adversely to the Company, would have a Material Adverse Effect.

            L.  Absence of Events of Default.  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,  which could have a Material
Adverse Effect.

            M. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete  copies of its audited  balance sheet as at
March 31, 1999 and the related  audited  statements of operations and cash flows
for the fiscal  years  ended March 31,  1998 and March 31,  1999  including  the
related notes and schedules thereto (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 United States  General  Accepted  Accounting
Principles ("GAAP") (subject,  in the case of the interim Financial  Statements,
to normal year end  adjustments  and the absence of footnotes) and in conformity



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with the practices  consistently  applied by the Company without modification of
the accounting  principles used in the preparation  thereof, 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 March 31, 1999 is hereinafter  referred to as
the  "Balance  Sheet"  and  March 31,  1999 is  hereinafter  referred  to as the
"Balance Sheet Date." Except as otherwise  disclosed on Schedule III.M.  hereof,
the Company has no indebtedness, obligations or liabilities of any kind (whether
accrued,  absolute,  contingent or otherwise,  and whether due or to become due)
that would have been required to be reflected in, reserved  against or otherwise
described in the Balance Sheet or in the notes thereto in accordance  with GAAP,
which was not fully reflected in, reserved against or otherwise described in the
Balance Sheet or the notes thereto or was not incurred in the ordinary course of
business  consistent  with the Company's past practices  since the Balance Sheet
Date.

            N. Compliance with Laws; Permits.  The Company is in compliance with
all laws,  rules,  regulations,  codes,  ordinances and statutes  (collectively,
"Laws")  applicable  to it or to the  conduct of its  business,  except for such
noncompliance  which  would not have a  Material  Adverse  Effect.  The  Company
possesses all permits,  approvals,  authorizations,  licenses,  certificates and
consents  from all public and  governmental  authorities  which are necessary to
conduct  its  business,  except for those the  absence of which would not have a
Material Adverse Effect.

            O. Related Party Transactions. Except as described in the Commission
Filings or 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) has borrowed  any moneys from or has  outstanding  any
indebtedness or other similar obligations to the Company. Except as set forth on
Schedule III.O. hereto,  neither the Company nor any of its officers,  directors
or Affiliates (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 to 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,  (y)  engaged in a business  related to the
business of the Company,  or (z) a participant  in any  transaction to which the
Company is a party (other than in the ordinary course of the Company's business)
or (ii) is a party to any contract,  agreement,  commitment or other arrangement
with the Company.

            P. Insurance.  The Company 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,   consistent  with  industry  standards  and  the  Company's
historical claims experience.  The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company)  that such  insurer  intends to deny  coverage  under or cancel,
discontinue or not renew any insurance policy presently in force.

            Q. Securities Law Matters.  Based, in part, upon the representations
and  warranties  of Buyer set forth in Section 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



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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 next preceding the date hereof,  except as
disclosed on Schedule III.Q. hereto or otherwise previously disclosed in writing
to Buyer,  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 entity of the Preferred  Shares or shares of Common  Stock),  so as to
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 Conversion  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  Conversion  Shares)  as  contemplated  by this
Agreement or any other agreement to which the Company is a party.

            R.    Environmental Matters.

                  1. The  operations of the Company are in  compliance  with all
      applicable   Environmental   Laws  and  all  permits  issued  pursuant  to
      Environmental Laws or otherwise;

                  2.  The  Company  has  obtained  or  applied  for all  permits
      required under all applicable  Environmental Laws necessary to operate its
      business;

                  3. The Company is not the subject of any  outstanding  written
      order of or agreement with any governmental authority or person respecting
      (i)  Environmental  Laws,  (ii)  Remedial  Action or (iii) any  Release or
      threatened Release of Hazardous Materials;

                  4. The Company has not  received,  since March 31,  1999,  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. The Company does not have any current contingent  liability
      in connection with any Release of any Hazardous  Materials into the indoor
      or outdoor environment (whether on-site or off-site);

                  6.  Except as set forth on  Schedule  III.R.6  hereto,  to the
      Company's  knowledge,   there  are  no  investigations  of  the  business,
      operations,  or currently or previously owned, operated or leased property
      of the Company pending or threatened which could lead to the imposition of
      any liability pursuant to any Environmental Law;


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<PAGE>
                  7.  There  is not  located  at any  of the  properties  of the
      Company  any  (A)  underground  storage  tanks,  (B)   asbestos-containing
      material or (C) equipment containing polychlorinated biphenyls; and,

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

            For purposes of this Section III.R.:

            "Environmental  Law"  means  any  foreign,  federal,  state or local
statute,  regulation,  ordinance,  or rule of common law as now or  hereafter in
effect in any way relating to the  protection  of human health and safety 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, 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 thereto.

            "Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces,  or any state or
local governmental  authority including,  without limitation,  petroleum and its
by-products,  asbestos,  and any  material  or  substance  which is defined as a
"hazardous  waste," "hazardous  substance,"  "hazardous  material,"  "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or "toxic substance" under any provision of any Environmental Law;

            "Release" means any release, spill, filtration,  emission,  leaking,
pumping, injection,  deposit, disposal,  discharge,  dispersal, or leaching into
the indoor or outdoor environment, or into or out of any property;

            "Remedial  Action" means all actions to (x) clean up, remove,  treat
or in any other way address any Hazardous  Material;  (y) prevent the Release of
any  Hazardous  Material so it does not endanger or threaten to endanger  public
health  or  welfare  or the  indoor  or  outdoor  environment;  or  (z)  perform
pre-remedial studies and investigations or post-remedial monitoring and care.

            S.  Labor  Matters.  The  Company  is  not  party  to any  labor  or
collective  bargaining agreement and there are no labor or collective bargaining
agreements  which  pertain to  employees  of the  Company.  No  employees of the
Company 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 pending or to the Company's knowledge,
threatened by any labor organization or group of employees of the Company. There



                                       9
<PAGE>
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. 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.

            T.  ERISA  Matters.  The  Company  and its 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 ERISA  Affiliate  was  required to file a report with the Pension
Benefits  Guaranty  Corporation,  and the present value of all liabilities under
all Plans  (based on those  assumptions  used to fund such Plans) did not, as of
the most recent annual  valuation date applicable  thereto,  exceed the value of
the  assets of all such  Plans in the  aggregate.  None of the  Company or ERISA
Affiliates has incurred any Withdrawal Liability that could result in a Material
Adverse  Effect.  None of the  Company  or ERISA  Affiliates  has  received  any
notification  that  any  Multiemployer  Plan is in  reorganization  or has  been
terminated within the meaning of Title IV of ERISA, and no Multiemployer 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.

            For purposes of this Section III.T.:

            "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 Internal  Revenue Code of 1986,  as amended  (the  "Internal  Revenue
Code").

            "Multiemployer  Plan"  means  a  multiemployer  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 Internal Revenue Code) is making or accruing an obligation to
make  contributions,  or has within any of the preceding five plan years made or
accrued an obligation to make contributions.

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

            "Plan"  means any pension  plan (other  than a  Multiemployer  Plan)
subject to the  provision  of Title IV of ERISA or Section  412 of the  Internal
Revenue  Code that is  maintained  for  employees  of the  Company  or any ERISA
Affiliate.

            "Reportable  Event" means any reportable event as defined in Section
4043(b) of ERISA or the  regulations  issued  thereunder  with respect to a Plan
(other than a Plan  maintained by an ERISA Affiliate that is considered an ERISA
Affiliate  only pursuant to subsection (m) or (o) of Section 414 of the Internal
Revenue Code).



                                       10
<PAGE>
            "Withdrawal  Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer 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 Tax Returns  which it is required
      to file under applicable  Laws,  except for such Tax Returns in respect of
      which  the  failure  to so file  does not and  could  not have a  Material
      Adverse Effect; 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 have 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  such
      corporation is or may be subject to taxation by that  jurisdiction.  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
      Section 7121 of the Internal  Revenue  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 Internal  Revenue 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  Internal  Revenue  Code during the  applicable
      period specified in Section 897(c)(1)(A)(ii) of the Internal Revenue Code.

                  3. The Company has not made an election  under Section  341(f)
      of the Internal  Revenue 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 obligated to make payments or is
      a party to an agreement  that could  obligate it to make any payments that
      would not be deductible under Section 280G of the Internal Revenue Code.


                                       11
<PAGE>
            For purposes of this Section III.U.:

            "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.  The Company has good and marketable  title to all real
and personal property owned by it, free and clear of all liens, encumbrances and
defects except such as are described on Schedule III.V. hereto or such as do not
materially  affect the value of such property and do not interfere  with the use
made and  proposed  to be made of such  property  by the  Company;  and any real
property  and  buildings  held under  lease by the  Company are held by it under
valid,  subsisting  and  enforceable  leases  with  such  exceptions  as are not
material and do not interfere  with the use made and proposed to be made of such
property and buildings by the Company.

            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.
To the Company's  knowledge,  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 person
to the ownership or use of any  Intangibles  and the Company has no knowledge of
any basis for such claim.

            X. Internal Controls and Procedures.  The Company maintains accurate
books and records and internal  accounting  controls  which  provide  reasonable
assurance that (i) all  transactions to which the Company is a party or by which
its properties are bound are executed with management's authorization;  (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals;  (iii) access to the Company's assets is permitted only in
accordance with management's  authorization;  and (iv) all transactions to which
the  Company 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.



                                       12
<PAGE>
            Y.  Payments and  Contributions.  Neither the Company nor any of its
directors,  officers  or, to its  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.

            Z.  No  Misrepresentation.  No  representation  or  warranty  of the
Company  contained in this Agreement,  any schedule,  annex or exhibit hereto 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.

                  IV. Certain Covenants and Acknowledgments

            A.  Restrictive  Legend.  Buyer  acknowledges  and agrees that, upon
issuance  pursuant to this  Agreement,  the Securities (and any shares of Common
Stock issued in conversion of the Preferred  Shares or exercise of the Warrants)
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):

                  "THE  SHARES  REPRESENTED  BY THIS  CERTIFICATE  HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE
      SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT BE PLEDGED, HYPOTHECATED,
      SOLD,  TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
      REGISTRATION  STATEMENT UNDER THE ACT COVERING THE SECURITIES  REPRESENTED
      BY  THIS  CERTIFICATE,  AND  OTHER  FILINGS  UNDER  ANY  APPLICABLE  STATE
      SECURITIES  LAWS,  EXCEPT  PURSUANT  TO AN  AVAILABLE  EXEMPTION  FROM THE
      REQUIREMENTS OF THE ACT AND 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 the Buyer as required by all  applicable  Laws,  and
shall provide a copy thereof to the Buyer promptly after such filing.

            C. Reporting Status.  So long as the 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 net proceeds from the
sale of the  Securities  (excluding  amounts  paid by the  Company  for  Buyer's
out-of-pocket  costs and expenses  incurred in connection with the  transactions
contemplated  by this Agreement and finder's fees in connection  with such sale)
solely for the acquisition of NetGuru Systems, Inc. and NetGuru Consulting, Inc.


                                       13
<PAGE>
            E. Listing.  Except to the extent the Company lists its Common Stock
on The New York  Stock  Exchange,  the  Company  shall use its best  efforts  to
maintain its listing of the Common Stock on Nasdaq.

            F.  Reserved  Conversion  Shares.  The Company 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,
in full,  of 371,429  Preferred  Shares  (assuming  for purposes of this Section
IV.F.,  a Conversion  Price (as defined in the  Certificate of  Designation)  of
$1.00 per share) and upon the exercise of Warrants to purchase  50,000 shares of
Common  Stock.  In the  event  the  Current  Market  Price  (as  defined  in the
Certificate  of  Designation)  declines  to $1.00  per  share  (the  "Additional
Registration  Trigger  Price")  and upon each $0.25 per share (the  "Incremental
Decline") decline of the Current Market Price below the Additional  Registration
Trigger  Price,  the Company  shall,  within 10 days of the  occurrence  of such
event, authorize and reserve for issuance such additional shares of Common Stock
sufficient in number for the conversion,  in full, of 371,429  Preferred Shares,
assuming for purposes of this  Section  IV.F. a Conversion  Price (as defined in
the  Certificate  of  Designation)  of (i)  with  respect  to a  decline  to the
Additional  Reservation  Trigger Price, $0.75 per share (the "Assumed Conversion
Price") and (ii) with respect to each  Incremental  Decline below the Additional
Reservation Trigger Price, (a) the Assumed Conversion Price less (b) the product
of (x) the  number of  Incremental  Declines  below the  Additional  Reservation
Trigger Price times (y) $0.25 per share.

            G.  Right of First  Refusal.  If 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  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  during the period  ending on the date all of the  Preferred  Shares
have been  converted  into Common  Stock or two years  after the  Closing  Date,
whichever  comes  earlier,  (the "Right of First Refusal  Period"),  the Company
shall be obligated to offer the Buyer and Triton (as defined below) on the terms
set forth in the Proposal  (the "Offer") and the Buyer and Triton shall have the
right,  but not the  obligation,  to accept such Offer on such  terms.  "Triton"
means The Triton  Private  Equities  Fund,  Ltd.,  as "Buyer"  pursuant  to that
certain Securities  Purchase Agreement of even date herewith between the Company
and Triton (the "Triton Purchase  Agreement").  It is understood and agreed that
(x) any Offer  made by the  Company  to the Buyer and  Triton  pursuant  to this
Section IV.G. and the Triton Purchase  Agreement may be accepted by the Buyer up
to an  amount  equal  to 80% of the  aggregate  total  amount  of the  financing
proposed  in the  Offer  and by  Triton  up to an  amount  equal  to 20% of such
aggregate  total  amount and (y) any  portion of such Offer not  accepted by the
Buyer or Triton,  respectively,  may be accepted instead by Triton or the Buyer,
respectively.  If during the Right of First Refusal Period, the Company provides
written notice to the Buyer that it proposes to issue any Right of First Refusal
Securities on the terms set forth in the Proposal,  then the Buyer shall have 10
business  days to accept or reject such Offer in writing.  If the Company  fails
to: (i) issue a Proposal  during the Right of First Refusal  Period,  (ii) offer
the  Buyer the  opportunity  to  complete  the  transaction  as set forth in the



                                       14
<PAGE>
Proposal,  or (iii) enter into an agreement with the Buyer,  at such terms after
the Buyer has accepted the Offer,  then the Company  shall pay to the Buyer,  as
liquidated  damages,  an amount in total  equal to 10% of the amount paid to the
Company for the Right of First  Refusal  Securities.  Except as set forth above,
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 (as
defined in the Certificate of Designation).  Notwithstanding the foregoing,  the
Buyer shall have no rights under this Section  IV.G.  in respect of Common Stock
or any  other  securities  of the  Company  issuable  (i) upon the  exercise  or
conversion  of options,  warrants or other rights to purchase  securities of the
Company  outstanding  as of the date hereof or (ii) to  officers,  directors  or
employees of the Company or any of its subsidiaries.

            H.  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.

                         V. Transfer Agent Instructions

            A. The Company  undertakes and agrees that no instruction other than
the  instructions  referred to in this  Section V and  customary  stop  transfer
instructions  prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the  Preferred  Shares and  exercise of the Warrants  otherwise  shall 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. The Company  shall  permit Buyer to exercise its 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 instruct
its transfer agent to issue and 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  the  Preferred  Shares  being
converted.


                                       15
<PAGE>
            C. The Company  shall permit Buyer to exercise its 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."

            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,  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, 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
seven days from the Dividend  Payment Due Date, the Delivery Date or the Warrant
Delivery Date, as applicable):

<TABLE>
<CAPTION>
                                        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
            <S>                                        <C>

             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
</TABLE>

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,  and in addition to any other remedies which may
be available to Buyer,  in the event the Company  fails for any reason to effect
delivery of such shares of Common  Stock  within  five  business  days after the
relevant  Dividend  Payment Due Date, the Delivery Date or the 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.


                                       16
<PAGE>
                            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.

                                VII. Closing Date

            The date and time of the issuance and sale of the  Preferred  Shares
(the  "Closing  Date")  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  and 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 Section VIII.C.  and
IX.G. 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 in all material  respects 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;

            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;




                                       17
<PAGE>
            C.  The  accuracy  in  all  respects  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 Date;

            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 Nasdaq,  (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 $55,000;

            H. 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;
and

            I. Delivery of irrevocable  instructions  to the Company's  transfer
agent to reserve 3,764,290 shares of Common Stock for issuance of the Conversion
Shares and the Warrant Shares.

                                 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.

            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 September  21, 1999 (the "Latest  Closing
Date");  provided,  however, that the right to terminate this Agreement pursuant



                                       18
<PAGE>
to this Section  X.B.(i)  shall not be  available to any party whose  failure to
fulfill any of its  obligations  under this  Agreement  has been the cause of or
resulted  in the failure of the Closing to occur at or before such time and date
or (ii) any court or public  or  governmental  authority  shall  have  issued an
order,  ruling,  judgment  or  writ,  or  there  shall  be in  effect  any  Law,
restraining,  enjoining or otherwise  prohibiting the consummation of any of the
transactions contemplated by this Agreement; 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 acceptance
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 with respect to 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  and
forseeably  likely to have a Material  Adverse  Effect or (iv) the Company shall
have failed to satisfy the conditions provided in Section 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,  (ii) there shall have
been a breach by Buyer with respect to any representation or warranty made by it
in this  Agreement  or (iii) Buyer  shall have failed to satisfy the  conditions
provided in Section VIII(A) and (B) hereof.

            E. Fees and Expenses of Termination. If this Agreement is terminated
for any reason  other than Buyer's  breach or otherwise  pursuant to paragraph D
above, the Company shall 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 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 the Buyer Indemnitees for all
out of-pocket  expenses  (including the fees and expenses of legal counsel),  in
each case  promptly  as  incurred  by the Buyer  Indemnitees  and to the  extent
arising out of or in connection with:


                                       19
<PAGE>
                  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; or

                  2. any failure by the Company to perform any of its covenants,
      agreements, undertakings or obligations set forth 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; 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 Section 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 this
Section  XI is being  sought  (the  "Indemnifying  Party")  of the  commencement
thereof;  but the omission to so 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 and 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



                                       20
<PAGE>
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; Miscellaneous

            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.  Each of the parties  consents to the  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 hereby waives,  to
the maximum  extent  permitted by law, any  objection,  including  any objection
based on forum non  conveniens,  to the bringing of any such  proceeding in such
jurisdictions.  A facsimile transmission of this signed Agreement shall be legal
and binding on all parties  hereto.  This Agreement may be signed in one or more
counterparts,  each of which shall be deemed an  original.  The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.  If any provision of this Agreement shall
be  invalid  or   unenforceable   in  any   jurisdiction,   such  invalidity  or
unenforceability  shall  not  affect  the  validity  or  enforceability  of  the
remainder of this Agreement or the validity or  enforceability of this Agreement
in any other  jurisdiction.  This Agreement may be amended only by an instrument
in writing  signed by the party to be charged with  enforcement.  This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.


                                       21
<PAGE>
                                  XIII. 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:

<TABLE>
            <S>   <C>
            A.    if to the Company, to:

                  Research Engineers, Inc.
                  22700 Savi Ranch Parkway
                  Yorba Linda, CA  92887
                  Attention:  Chief Financial Officer
                  (714) 974-2500
                  (714) 921-0683(Fax)

                  with a copy to:

                  Rutan & Tucker, LLP
                  611 Anton Blvd., 14th Floor
                  Costa Mesa, CA  92626
                  Attention:  Gregg Amber, Esq.
                  (714) 641-3425
                  (714) 546-9035 (Fax)

            B.    if to the Buyer, to:

                  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)
</TABLE>

                                       22
<PAGE>
The  Company,  Buyer or the Escrow  Agent may change  the  foregoing  address by
notice given pursuant to this Section XIII.

                              XIV. 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).

                                 XV. 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  who
furnishes to the Company the representations and warranties set forth in Section
II hereof and otherwise agrees to be bound by the terms of this Agreement.



                                       23
<PAGE>
            In Witness  Whereof,  the  parties  hereto  have duly  executed  and
delivered this Agreement on the date first above written.


                                       Research Engineers, Inc.


                                       By:
                                      Name:  Jyoti Chatterjee
                                     Title:  President


                                       The Shaar Fund Ltd.


                                       By:
                                           Name:  Samuel Levinson
                                           Title:  Managing Director


                                       24

Source: OneCLE Business Contracts.