NOTE AND WARRANT PURCHASE AGREEMENT

Exhibit 10.22

Execution Copy

NOTE AND WARRANT PURCHASE AGREEMENT

Dated as of February 22, 2005

between

FISCHER IMAGING CORPORATION
and
COMVEST INVESTMENT PARTNERS II LLC

Execution Copy

TABLE OF CONTENTS

NOTE AND WARRANT PURCHASE AGREEMENT

        THIS NOTE AND WARRANT PURCHASE AGREEMENT (this " Agreement "), dated as of the 22nd day of February, 2005, is made by and between Fischer Imaging Corporation a Delaware corporation (the " Company ") and ComVest Investment Partners II LLC, a Delaware limited liability company (" ComVest ").

RECITALS

        WHEREAS, ComVest wishes to purchase, and the Company wishes to sell and issue to ComVest, upon the terms and subject to the conditions stated in this Agreement, a senior secured promissory note of the Company in the principal amount of $5,000,000, in the form attached hereto as Exhibit A (the " Initial Note "); and

        WHEREAS, upon the terms and subject to the conditions stated in this Agreement, ComVest will commit to purchase additional senior secured promissory notes of the Company (i) in the principal amount of $2,000,000 (the " Second Note ") upon the performance of certain conditions and (ii) subject to the purchase of the Second Note and certain further conditions, up to an aggregate principal amount of $3,000,000 (the " Additional Notes ", and together with the Initial Note and the Second Note, the " Notes "), each of which shall be in substantially the form of the Initial Note and shall have the same maturity as the Initial Note; and

        WHEREAS, in connection with the sale of the Initial Note, the Company will also issue to ComVest warrants to purchase 2,000,000 shares of the Company's Common Stock upon the terms and subject to the conditions of this Agreement in the form attached hereto as Exhibit B (each a " Warrant " and collectively, the " Warrants "); and

        WHEREAS, in connection with the consummation of the transactions contemplated by this Agreement, the parties hereto are also entering into, of even date herewith, a Registration Rights Agreement in the form attached hereto as Exhibit C (the " Registration Rights Agreement ") and a Security Agreement in the form attached hereto as Exhibit D (the " Security Agreement ").

        NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

AGREEMENTS:

ARTICLE 1
DEFINITIONS

        " Activities to Date " shall have the definition provided in Section 4.19(b).

        " Additional Note Purchase Price " shall have the definition provided in Section 2.3.

        " Additional Notes " shall have the definition provided in the second paragraph of the Recitals.

        " Affiliate " of a specified person shall mean a person who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified person.

        " Approvals " shall have the definition provided in Section 4.19(b).

        " Agreement " shall have the definition provided in the introductory paragraph.

        " Balance Sheet " shall have the definition provided in Section 4.8(b).

        " Board of Directors " shall mean the Board of Directors of the Company.

        " Capital Expenditures " shall mean all expenditures of the Company and its subsidiaries for tangible assets which are capitalized, and the fair value of any tangible assets leased by the Company or any of its subsidiaries under any lease which is or should be capitalized on the Company's consolidated balance sheet in accordance with GAAP, consistently applied, including all amounts paid or accrued in connection with the purchase (whether on a cash or deferred payment bases) or lease (including capitalized lease obligations) of any machinery, equipment, tooling, real property, improvements to real property (including leasehold improvements) or any other tangible asset of the Borrower or any of its subsidiaries which is required, in accordance with GAAP, consistently applied, to be treated as a fixed asset on the consolidated balance sheet of the Company and its subsidiaries.

        " Claim " shall have the definition provided in Section 7.3.

        " Closing " shall have the definition provided in Section 2.2.

        " Closing Date " shall have the definition provided in Section 2.2.

        " CMS " shall have the definition provided in Section 4.19(a).

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

        " Commitment Fee " shall have the definition provided in Article 8.

        " Common Stock " shall have the definition provided in the first paragraph of the Recitals.

        " Company " shall have the definition provided in the introductory paragraph.

        " Company Indemnitees " shall have the definition provided in Section 7.2.

        " Company Products " shall have the definition provided in Section 4.19(b).

        " ComVest " shall have the definition provided in the introductory paragraph.

        " ComVest Director " shall have the definition provided in Section 5.13.

        " ComVest Expenses " shall have the definition provided in Article 8.

        " ComVest Indemnitees " shall have the definition provided in Section 7.1.

        " ComVest Observer " shall have the definition provided in Section 5.13.

        " Default " shall mean any act, event, condition or circumstance which, with the giving of notice, the passage of time, or both, would constitute an Event of Default.

        " Derivative Securities " shall have the definition provided in Section 4.2.

        " Disclosure Schedules " shall have the definition provided in Article 4.

        " EBITDA " shall have the definition provided in the Initial Note.

        " Employee Plan " shall mean any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written, unwritten or otherwise, funded or unfunded, including, without limitation, each "employee benefit plan," within the meaning of Section 3(3) of ERISA (whether or not ERISA is applicable to such plan), that is or has been maintained, contributed to, or required to be contributed to, by the Company, any Affiliate or any predecessor of the Company for the benefit of any employee of the Company, or with respect to which the Company or any Affiliate has or may have any liability or obligation.

        " Environmental Law " shall mean any federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all those relating to (i) releases or threatened releases of Hazardous Substances or materials containing Hazardous Substances; (ii) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Substances or materials containing Hazardous Substances; or (iii) pollution or protection of the environment, health, safety or natural resources.

        " Environmental Permit " shall have the definition provided in Section 4.18.

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

        " Event of Default " shall mean any of the events specified in Section 6 of the Initial Note or the corresponding section of any Additional Note, provided that any requirement for the giving of notice, the passage of time, or both, or any other condition, has been satisfied.

        " Exchange Act " shall have the definition provided in Section 3.2.

         "Executive Officers" shall mean Harris Ravine, the Company's President and Chief Executive Officer, David Kirwan, the Company's Senior Vice President, Finance, Chief Financial Officer and Secretary, Mary Beth Wallingford, the Company's Controller, Scott Yarde, the Company's Vice President of Sales and Marketing, and Steven Moseley, the Company's Vice President of Business Development.

        " FDA " shall have the definition provided in Section 4.19(a).

        " FDA Certificate " shall have the definition provided in Section 2.3.

        " Financials " shall have the definition provided in Section 4.8(b).

        " Financing Fee " shall have the definition provided in Article 8.

        " Fischer Europe " shall have the definition provided in Section 6.5.

        " Fischer International " shall have the definition provided in Section 6.5.

        " GAAP " shall have the definition provided in Section 4.8(b).

        " Hazardous Substances " means (i) those substances defined in or regulated under the following United States federal statutes and their state counterparts, as each may be amended from time to time, and all regulations thereunder: the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act; (ii) petroleum and petroleum products, including crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any mixtures thereof; (iv) polychlorinated biphenyls, asbestos and radon; and (v) any other contaminant, substance, material or waste regulated by any governmental or regulatory authority pursuant to any Environmental Law.

        " HHS " shall have the definition provided in Section 4.19(a).

        " Indebtedness " shall mean, with respect to any person, (a) all indebtedness of such person, whether or not contingent, for borrowed money, (b) all obligations of such person for the deferred purchase price of property or services, (c) all obligations of such person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such person as lessee under leases that have been or should be, in accordance with GAAP, consistently applied, recorded as capital leases, (f) all obligations, contingent or otherwise, of such person under acceptance, letter of credit or similar facilities, (g) all obligations of such person to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of such person or any warrants, rights or options to acquire such capital stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Indebtedness of others referred to in clauses (a) through (g) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (i) all Indebtedness referred to in clauses (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien or other encumbrance on property (including accounts and contract rights) owned by such person, even though such person has not assumed or become liable for the payment of such Indebtedness.

        " Indemnified Party " shall have the definition provided in Section 7.3.

        " Indemnifying Party " shall have the definition provided in Section 7.3.

        " Initial Note " shall have the definition provided in the first paragraph of the Recitals.

        " Initial Note PurIchase Price " shall have the definition provided in Section 2.1.

        " Intellectual Property " shall mean any: (a) patent, patent application, trademark (whether registered or unregistered), trademark application, trade name, fictitious business name, domain name, service mark (whether registered or unregistered), service mark application, copyright or rights of copyright (whether registered or unregistered), copyright application, mask work, mask work application, trade secret, customer list, system, computer software (including source code and object code), computer program, invention, design, blueprint, engineering drawing, proprietary product, technology, proprietary right or other intellectual property right or intangible asset, confidential information, ideas, and all other intellectual property or proprietary rights of any kind, including without limitation writings of any kind, printed or graphic matter (including all preparatory materials such as sketches, drafts, outtakes, outlines and drawings), and any audiovisual works, artwork, designs, photographs, video tapes, films, slides, tape recordings, music, and mechanicals; or (b) right to use or exploit any of the foregoing.

        " knowledge of the Company " shall mean the actual knowledge of any director of the Company or any Executive Officer and such knowledge that any such individual would obtain after the exercise of reasonable investigation.

        " Lease Documents " shall have the definition provided in Section 4.22(b).

        " Licensed Intellectual Property " shall have the definition provided in Section 4.15(b), and excludes any subscription or license to third party commercial publications, online services, online applications, and software applications, each of which are generally available for license or subscription fees of $25,000 or less per year.

        " Losses " shall have the definition provided in Section 7.1.

        " Material Adverse Effect " shall mean, when used in connection with the Company or any subsidiary of the Company, any event, circumstance, change or effect that is or is reasonably likely to be materially adverse to the business, condition (financial or otherwise), assets, liabilities or results of operations of the Company and its subsidiaries taken as a whole.

        " Material Contracts " shall have the definition provided in Section 4.20.

        " Notes " shall have the definition provided in the second paragraph of the Recitals.

        " OIG " shall have the definition provided in Section 4.19(a).

        " Option Plans " shall have the definition provided in Section 4.2.

        " Owned Intellectual Property " shall have the definition provided in Section 4.15(a).

        " PBGC " shall have the definition provided in Section 4.17(a).

        " Permits " shall have the definition provided in Section 4.11.

        " Post-Closing Commitment " shall mean the commitment of ComVest to purchase the Second Note and the Additional Notes subject to and in accordance with Section 2.3.

        " Preferred Stock " shall have the definition provided in Section 4.2.

        " Registration Rights Agreement " shall have the definition provided in the fourth paragraph of the Recitals.

        " Returns " shall have the definition provided in Section 4.21.

        " Rights Agreement " shall mean the Amended and Restated Rights Agreement between the Company and Computershare Trust Company, Inc. (as Rights Agent), dated as of November 9, 2001.

        " Rights " shall have the definition under the Rights Agreement.

        " Second Note " shall have the meaning provided in the first paragraph of the Recitals.

        " Second Note Closing Date " shall have the meaning provided in Section 2.3(a).

        " Second Note Purchase Price " shall have the meaning provided in Section 2.3(a).

        " SEC Reports " shall have the definition provided in Section 4.8(a).

        " Securities " shall mean the collective reference to the Notes, the Warrants and the Warrant Shares.

        " Securities Act " shall have the definition provided in Section 3.3.

        " Security Agreement " shall have the definition provided in the fourth paragraph of the Recitals.

        " Tax " or collectively, " Taxes ", shall mean any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and valued added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity.

        " Transaction Documents " shall mean this Agreement, the Notes, the Warrants, the Registration Rights Agreement and the Security Agreement (including collateral assignments of Intellectual Property pursuant thereto).

        " Warrant " and " Warrants " shall have the definition provided in the third paragraph of the Recitals.

        " Warrant Shares " shall mean the shares of Common Stock issued or issuable upon exercise of the Warrants.

ARTICLE 2
AGREEMENT TO PURCHASE; CLOSING

         2.1    Purchase of Initial Note.     Upon the terms and subject to the conditions set forth herein, the Company hereby agrees to issue and sell to ComVest and ComVest hereby agrees to purchase from the Company, at the Closing, the Initial Note in the principal amount of $5,000,000. The purchase price (the " Initial Note Purchase Price ") for the Initial Note to be purchased hereunder is $5,000,000. In connection with the purchase of the Initial Note by ComVest, the Company shall issue the Warrants to ComVest at the Closing.

         2.2    Closing.     The closing (the " Closing ") of the purchase and sale of the Initial Note and the issuance of the Warrants will take place at the offices of Davis Graham & Stubbs LLP (or such other place as the parties may agree) on the date hereof. The date of the Closing is referred to herein as the " Closing Date ." At the Closing, the parties shall take such actions and make such deliveries as are provided in Article 6 below.

         2.3    Additional Notes.     

• •         (a)     Second Note.     Within five (5) calendar days after the receipt by ComVest of a certificate (the " FDA Certificate "), signed on behalf of the Company by its President and Chief Executive Officer, to the effect that (i) the FDA has completed its field audit at the Company and the Company has met with the lead auditor and conducted an exit (or completion) interview to review the results of the audit and to discuss with the lead auditor the findings, recommendations, citations and requirements that are likely to be, or, if then available, that are contained in the FDA's written report (including any Form 483) to be issued in connection with the audit, (ii) based on the exit interview, such written report (including any Form 483), if any, and taking into account discussions with the FDA audit team during the course of the audit, to the Company's knowledge, neither the FDA audit report, when issued, nor any interim finding, order or requirement issued by the FDA in connection with the audit contains or recommends any of the following: (A) any order requiring closure of one or more of the Company's present or contemplated lines of business; (B) any order requiring a product recall, which, if required to be implemented in accordance with its terms, would reasonably be expected to have a Material Adverse Effect; (C) the imposition of any fines that would reasonably be expected to have a Material Adverse Effect; or (D) any requirement to change the practices or business operations of the Company in a manner materially inconsistent with its present method of operation (except for such matters which the Company is then contesting in good faith) unless such changes are not reasonably expected to have a Material Adverse Effect or to have a materially adverse impact on its presently forecasted results of operations for 2005 and 2006 and (iii) the Company wishes to issue and sell the Second Note, ComVest shall purchase the Second Note. The purchase price for the Second Note to be purchased hereunder is $2,000,000 (the " Second Note Purchase Price "), which shall be payable by wire transfer of immediately available funds to the Company at the time of closing of such Second Note purchase (the " Second Note Closing Date "). If the FDA Certificate is not received by ComVest by November 15, 2005, then the Post-Closing Commitment shall automatically terminate and be of no further force or effect.

            (b)     Subsequent Notes.     Within twenty (20) calendar days after written request made by the Company at any time and from time to time subsequent to the Second Note Closing and before November 15, 2005, ComVest shall purchase one or more Additional Notes, provided that (a) each such request to purchase an Additional Note shall be in the minimum amount of $750,000 (or such lesser amount as shall constitute the remaining unfunded portion of the Post-Closing Commitment), (b) ComVest shall not be required to purchase Additional Notes in any amount in excess of (i) $750,000 in the aggregate pursuant to a request made by the Company between the Second Note Closing Date and May 5, 2005, (ii) $1,500,000 in the aggregate pursuant to a request made by the Company between the Second Note Closing Date and August 5, 2005, (iii) $2,500,000 in the aggregate pursuant to a request made by the Company between the Second Note Closing Date and November 5, 2005 and (iv) $3,000,000 in the aggregate pursuant to a request made by the Company between the Second Note Closing Date and November 15, 2005, and (c) the aggregate principal amount of Additional Notes required to be purchased hereunder shall in no event and under no circumstances exceed $3,000,000. The purchase price for each Additional Note shall be an amount equal to the principal amount of such Additional Note (the " Additional Note Purchase Price "), which shall be payable by wire transfer of immediately available funds to the Company at the time of closing of such Additional Note purchase.

            (c)     Additional Conditions.     ComVest's obligation to purchase the Second Note or any Additional Note(s) hereunder is expressly subject to and conditioned upon the following: (A) the Closing shall have occurred and, with respect to the Additional Notes, the Second Note shall have been issued, (B) no Default or Event of Default shall exist at the time of the Company's delivery of the FDA Certificate or request to ComVest under Section 2.3(b), as the case may be, and at the time of the closing of such Second Note or Additional Note purchase, (C) in the FDA Certificate or in the request for the purchase of the Additional Note, as the case may be, the Company shall certify to ComVest that no Default or Event of Default then exists, (D) immediately prior to ComVest's payment for such Second Note or Additional Note, the Company shall certify in writing to ComVest that no Default or Event of Default then exists, and (E) the Company shall pay to ComVest, at the time of the Second Note purchase and each Additional Note purchase, an additional financing fee in an amount equal to 1.25% of the subject Second Note Purchase Price or Additional Note Purchase Price, as the case may be. In no event and under no circumstances shall ComVest be required to purchase any Additional Notes based upon any request made by the Company subsequent to November 15, 2005, and in the event that any of the Notes shall be accelerated or shall be declared to be immediately due and payable in either case by reason of any Event of Default, then the Post-Closing Commitment (or the remaining portion thereof not theretofore funded) shall automatically terminate and be of no further force or effect.

         2.4    No Reborrowing.     Any principal amounts repaid or prepaid under any of the Notes may not be reborrowed.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMVEST

        ComVest hereby represents and warrants to the Company that the following representations and warranties are true and correct as of the date of this Agreement, except for representations and warranties that are made only as of a specific date, which are true and correct as of such specific date.

         3.1    Organization.     ComVest is a limited liability company duly organized and validly existing and in good standing under the laws of the State of Delaware.

         3.2    Accredited Investor.     ComVest is: (i) experienced in making investments of the kind contemplated by this Agreement; (ii) able, by reason of its business and financial experience, to protect its own interests in connection with the transactions contemplated by this Agreement; (iii) able to afford the entire loss of its investment in the Securities; (iv) an "accredited investor" as that term is defined in Rule 501(a) of Regulation D of the Securities Act; and (v) not a broker-dealer as such term is defined in the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the " Exchange Act ").

         3.3    No Public Distribution.     ComVest is acquiring the Securities for its own account, for investment purposes only, and not with a present view towards the public sale or distribution thereof, except pursuant to a sale or sales that are registered under the Securities Act of 1933, as amended, and the rules and regulations thereunder (the " Securities Act ") or exempt from such registration. ComVest has not been organized for the purpose of investing in securities of the Company, although such investment is consistent with its purposes.

         3.4    Subsequent Offers and Sales.     All subsequent offers and sales of the Securities by ComVest shall be made pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption from such registration; with any offers and sales which are being made pursuant to an applicable exemption from registration being accompanied by a customary legal opinion obtained by ComVest, which legal opinion shall be reasonably satisfactory to the Company and the Company's legal counsel.

         3.5    Accuracy of ComVest's Representations and Warranties.     ComVest understands that the Securities are being offered and sold to it in reliance upon exemptions from the registration requirements of the United States federal securities laws, and that the Company is relying upon the truth and accuracy of ComVest's representations and warranties contained in the Transaction Documents and any ancillary documents thereto, as applicable, and ComVest's compliance with the Transaction Documents and any ancillary documents thereto, in order to determine the availability of such exemptions and the eligibility of ComVest to acquire the Securities in accordance with the terms and provisions of the Transaction Documents.

         3.6    Information.     ComVest: (i) has been provided with and has reviewed all requested information concerning the business of the Company, including, without limitation, the Company's SEC Reports and (ii) has had all requested access to the management of the Company and has had the opportunity to ask questions of the management of the Company.

         3.7    Capacity and Authority.     ComVest has the requisite capacity and authority to execute, deliver and perform each of the Transaction Documents and any and all ancillary documents thereto and to consummate the transactions contemplated thereby.

         3.8    Due Execution.     This Agreement and the other Transaction Documents, and any ancillary documents thereto, have been duly and validly authorized by ComVest and have been duly executed and delivered by ComVest, and such agreements, when executed and delivered by each of the other parties thereto, will each be a valid and binding agreement of ComVest, enforceable against ComVest in accordance with its terms, except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws now or hereafter in effect relating to creditors' rights generally, and by general principles of equity.

         3.9    Brokers.     ComVest has not employed, engaged or retained, or otherwise incurred any liability to, any person as a broker, finder, agent or other intermediary in connection with the transactions contemplated herein.

         3.10    No General Solicitation.     ComVest has not learned of the investment in the Securities as a result of any public advertising or general solicitation.

         3.11    Domicile.     ComVest has its principal place of business in the jurisdiction set forth below ComVest's name in the notice provisions of this Agreement.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

        The Company hereby represents and warrants to ComVest that the following representations and warranties are true and correct on and as of the date of this Agreement, except for representations and warranties that are made only as of a specific date, which are true and correct as of such specified date. The disclosure schedules (" Disclosure Schedules ") contemplated by this Article 4 have been arranged to correspond to the numbered and lettered sections of this Article 4 and have been delivered concurrently with the execution of this Agreement. Any items referenced in a section of such Disclosure Schedules will be deemed to be included in the Disclosure Schedule sections of any reasonably related representations.

         4.1    Organization.     The Company is a corporation duly incorporated and validly existing under the laws of the State of Delaware. Each of the Company's subsidiaries is a corporation duly incorporated and validly existing under the laws of its respective jurisdiction of incorporation. Each of the Company and its subsidiaries is duly qualified as a foreign corporation in all jurisdictions in which the failure to so qualify would, individually or in the aggregate, have a Material Adverse Effect. Except as set forth on Schedule 4.1 (which sets forth for each subsidiary of the Company the number of issued and outstanding shares of each class of capital stock of each such subsidiary of the Company and the record and beneficial owner of such outstanding shares), all of the outstanding shares of capital stock of the Company's subsidiaries is owned, beneficially and of record, either directly or indirectly (through another subsidiary) by the Company, free and clear of all liens and other encumbrances. Except as disclosed in Schedule 4.1 , the Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity. Each of the Company and its subsidiaries has all requisite corporate power and authority, and holds all licenses, permits and other required authorizations from governmental authorities, necessary to conduct its business as it is now being conducted or proposed to be conducted and to own or lease its properties and assets as they are now owned or held under lease, except to the extent the failure to hold such licenses, permits and other authorizations would not, individually or in the aggregate, have a Material Adverse Effect. The Certificates of Incorporation, By-laws or equivalent organizational documents of the Company and each of its subsidiaries are in full force and effect and (i) the Company is not in violation of any of the provisions of its Certificate of Incorporation or Bylaws and (ii) none of its subsidiaries is in violation of any of the provisions of its Certificate of Incorporation, By-laws or equivalent organizational documents except for violations that would not, individually or in the aggregate, have a Material Adverse Effect.

         4.2    Capitalization.     On the date hereof, the authorized capital of the Company consists of 25,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, $.01 par value per share (" Preferred Stock "). On the date hereof, there are 9,348,484 shares of Common Stock issued and outstanding and no shares of Preferred Stock issued and outstanding. Except for grants of rights to purchase shares of the Company's Common Stock under the Company's 1991 Stock Option Plan, as amended, 1993 Non-Employee Director Stock Option Plan, as amended, and the Company's 2004 Stock Incentive Plan and under other options granted to officers, employees, and consultants as compensation (the " Option Plans "), in each case as set forth on Schedule 4.2 (which sets forth (i) the total number of options which have been granted by the Company, whether such options were granted pursuant to the Option Plans or otherwise, (ii) the name of each person who holds such an option, (iii) the particular plan pursuant to which such option was granted, (iv) the number of shares of Company Common Stock subject to such option, (v) the exercise or purchase price of such option, (vi) the date on which such option was granted, (vii) the applicable vesting schedule, (viii) the date on which such option expires, and (ix) whether the exercisability of such option will be accelerated in any way by the transactions contemplated by this Agreement), there are no options, warrants or convertible securities of the Company or any other rights to acquire securities of the Company (collectively, the " Derivative Securities "). All outstanding securities of the Company are duly authorized, validly issued, fully paid and nonassessable. No stockholder of the Company is entitled to any preemptive rights with respect to the purchase of or sale of any securities by the Company. Except (a) for the Warrant Shares as contemplated herein, (b) for 3,392,000 shares of Common Stock reserved for issuance under the Company's Option Plans, or (c) as set forth in Schedule 4.2 , none of the shares of capital stock of the Company is reserved for any purpose, and the Company is neither subject to any obligation (contingent or otherwise), nor has any option, to repurchase or otherwise acquire or retire any shares of its capital stock. Except as set forth in Schedule 4.2, all outstanding shares of Common Stock, all outstanding Company stock options and all outstanding shares of capital stock of each subsidiary of the Company have been issued and granted in compliance with all applicable securities laws and other applicable laws, rules and regulations and all material requirements set forth in applicable contracts, except for such noncompliance that would not, individually or in the aggregate, have a Material Adverse Effect.

         4.3    Issuance of the Securities and Warrant Shares.     The Notes and the Warrants have been duly and validly authorized, issued and delivered, free and clear of any liens or other encumbrances imposed by or through the Company, and the Warrant Shares when issued in accordance with the terms of the Warrants, will be duly authorized, validly issued, fully paid and nonassessable, will be free and clear of any liens or other encumbrances imposed by or through the Company, and will not be subject to preemptive rights. There are no preemptive rights of any stockholder of the Company to acquire the Securities. The Company has duly reserved from its authorized and unissued shares of Common Stock 2,000,000 shares of Common Stock for issuance upon exercise of the Warrants.

         4.4    Legality.     The Company has the requisite corporate power and authority to enter into each of the Transaction Documents and to issue and deliver the Securities.

         4.5    Due Execution.     This Agreement and the other Transaction Documents, and any ancillary documents thereto, have been duly and validly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement and the other Transaction Documents, and this Agreement and the other Transaction Documents and any ancillary documents thereto have been duly executed and delivered by the Company, and such agreements, when executed and delivered by each of the other parties thereto, will be the legal, valid and binding agreement and obligation of the Company, enforceable in accordance with their respective terms, except to the extent that enforcement of such agreement may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws now or hereafter in effect relating to creditors' rights generally, and by general principles of equity.

         4.6    Non-Contravention.     The execution and delivery of the Transaction Documents, and the performance by the Company of its obligations thereunder, does not (i) constitute or result in a violation of either the Certificate of Incorporation or By-laws of the Company, or (ii) constitute a default under (or an event which with notice or lapse of time or both could become a default) or give to others any rights of termination, amendment or cancellation of, any agreement, indenture or instrument to which the Company is a party unless the same shall have been waived or consented to by the other party, or result in a violation of any law, rule, regulation, order, judgment or decree (foreign or domestic and including federal and state securities laws and regulations) applicable to the Company or by which any property or asset of the Company is bound or affected other than any of the foregoing matters in this clause (ii) which would not, individually or in the aggregate, have a Material Adverse Effect. Except as set forth in Schedule 4.6 , neither the filing of the registration statement required to be filed by the Company pursuant to the Registration Rights Agreement nor the offering or sale of the Notes, the Warrants and the Warrant Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied on or prior to the date hereof, for or relating to the registration of any shares of the Common Stock.

         4.7    Approvals.     Other than the filing of a registration statement with the SEC as contemplated by the Registration Rights Agreement, and the receipt by the Company of approval from the SEC for such registration statement to be declared effective, no authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, stock exchange or market is required to be obtained by the Company for the entry into or the performance of the Transaction Documents.

         4.8    SEC Filings; Financial Statements.     

• •         (a)   Except as set forth on Schedule 4.8(a) , the Company has filed, and as of the Closing will have filed, all registration statements, prospectuses, reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated by reference) required to be filed by it with the SEC since December 31, 2003, and the Company has made the same available to ComVest in the form filed with the SEC. All such registration statements, prospectuses, reports, schedules, forms, statements and other documents filed since December 31, 2003 (including those that the Company may file subsequent to the date of this Agreement), as amended, are referred to herein as the " SEC Reports ." As of their respective dates, the SEC Reports (i) were prepared in accordance and complied in all material respects with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such SEC Reports, and (ii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except to the extent corrected prior to the date of this Agreement by a subsequently filed SEC Report. None of the Company's subsidiaries is required to file any forms, reports or other documents with the SEC.

            (b)   Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the SEC Reports (the " Financials ") (i) complied in all material respects as to form with the published rules and regulations of the SEC with respect thereto, (ii) was prepared in accordance with U.S. generally accepted accounting principles (" GAAP "), consistently applied, during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 10-Q, Form 8-K or any successor form under the Exchange Act), and (iii) fairly presented in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as at the respective dates thereof and the consolidated results of the Company's operations and cash flows for the periods indicated. The balance sheet of the Company as of September 30, 2004 contained in the SEC Reports is hereinafter referred to as the " Balance Sheet ."

            (c)   Except as disclosed in the Financials, since the date of the Balance Sheet and through the date of this Agreement, neither the Company nor any of its subsidiaries has any liabilities or obligations of any nature (absolute, accrued, contingent or otherwise) required under GAAP to be set forth on a consolidated balance sheet, except for (i) liabilities incurred since the date of the Balance Sheet in the ordinary course of business consistent with past practices which would not, individually or in the aggregate, have a Material Adverse Effect, (ii) liabilities set forth on Schedule 4.8(c) , and (iii) liabilities incurred pursuant to this Agreement.

            (d)   The Company has heretofore furnished to ComVest complete and correct copies of all material amendments and modifications that have not been filed by the Company with the SEC to all agreements, documents and other instruments that previously had been filed by the Company with the SEC and are currently in effect.

            (e)   The Company has made available to ComVest all comment letters received by the Company from the SEC or the staff thereof since December 31, 2003 and all responses to such comment letters filed by or on behalf of the Company.

            (f)    To the Company's knowledge, each director and executive officer of the Company has filed with the SEC all statements required by Section 16(a) of the Exchange Act and the rules and regulations thereunder since December 31, 2003.

            (g)   The Company has timely filed and made available to ComVest all certifications and statements required by (i) Rule 13a-14 or Rule 15d-14 under the Exchange Act, or (ii) 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) with respect to any SEC Report. Except as disclosed in the SEC Reports or as set forth in Schedule 4.8(g) , the Company maintains disclosure controls and procedures required by Rule 13a-15 or Rule 15d-15 under the Exchange Act and such controls and procedures are effective to ensure that all material information concerning the Company and its subsidiaries is made known on a timely basis to the individuals responsible for the preparation of the Company's SEC filings and other public disclosure documents. As used in this Section 4.8, the term "file" shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC.

            (h)   The Company maintains a standard system of accounting established and administered in accordance with GAAP. Except as set forth in Schedule 4.8(h) , the Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

            (i)    Since December 31, 2003, except as set forth in Schedule 4.8(i) , neither the Company nor any subsidiary nor, to the Company's knowledge, any director, officer, employee, auditor, accountant or representative of the Company or any subsidiary, has received or otherwise had or obtained knowledge of any complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any subsidiary or their respective internal accounting controls, including any complaint, allegation, assertion or claim that the Company or any subsidiary has engaged in questionable accounting or auditing practices. No attorney representing the Company or any subsidiary, whether or not employed by the Company or any subsidiary, has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by the Company or any of its officers, directors, employees or agents to the Board of Directors or any committee thereof or to any director or officer of the Company. Except as set forth in the SEC Reports or in Schedule 4.8(i), since December 31, 2003, there have been no internal investigations regarding accounting or revenue recognition discussed with, reviewed by or initiated at the direction of the chief executive officer, chief financial officer, general counsel, the Board of Directors or any committee thereof.

            (j)    To the knowledge of the Company, except at set forth on Schedule 4.8(j) , no employee of the Company or any subsidiary has provided or is providing information to any law enforcement agency regarding the commission or possible commission of any crime or the violation or possible violation of any applicable law, rule, regulation or order. Neither the Company nor any subsidiary nor any officer, employee, contractor, subcontractor or agent of the Company or any such subsidiary has discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against an employee of the Company or any Subsidiary in the terms and conditions of employment because of any act of such employee described in 18 U.S.C. § 1514A(a).

            (k)   All accounts receivable of the Company and its subsidiaries reflected on the Balance Sheet or arising thereafter have arisen from bona fide transactions in the ordinary course of business consistent with past practices and in accordance with SEC regulations and GAAP applied on a consistent basis and are not to the knowledge of the Company subject to valid defenses, set-offs or counterclaims. To the knowledge of the Company, the Company's reserve for contractual allowances and doubtful accounts is adequate and has been calculated in a manner consistent with past practices. Since the date of the Balance Sheet, neither the Company nor any of its subsidiaries has modified or changed in any material respect its sales practices or methods including, without limitation, such practices or methods in accordance with which the Company or any of its subsidiaries sells goods, fills orders or records sales.

            (l)    Other than as set forth in Schedule 4.8(l) , all accounts payable of the Company and its subsidiaries reflected on the Balance Sheet or arising thereafter are the result of bona fide transactions in the ordinary course of business and have been paid or are not yet due or payable. Since the date of the Balance Sheet, the Company and its subsidiaries have not altered in any material respects their practices for the payment of such accounts payable, including the timing of such payment.

            (m)  Other than as set forth in Schedule 4.8(m) , as of the date hereof, the Company and its subsidiaries have no Indebtedness except (i) pursuant to the credit facility with Silicon Valley Bank (which is to be repaid in full at Closing in accordance with Section 6.8, using proceeds of the Initial Note Purchase Price), and (ii) accounts payable, trade payables and capital lease obligations incurred by the Company and its subsidiaries in the ordinary course of business, consistent with past practices.

         4.9    Absence of Certain Changes.     Since December 31, 2003, except as set forth in Schedule 4.9 , or as expressly contemplated by this Agreement, or specifically disclosed in the SEC Reports filed since December 31, 2003 and prior to the date of this Agreement, (a) the Company and its subsidiaries have conducted their businesses only in the ordinary course and in a manner consistent with past practice, (b) there has not been any event, circumstance, change or effect that, individually or in the aggregate, would have a Material Adverse Effect, and (c) in furtherance, and not in limitation, of the foregoing, none of the Company or any subsidiary has, directly or indirectly:

• • • (i)

      amended or otherwise changed its Certificate of Incorporation or By-laws or equivalent organizational documents;

      (ii)

      issued, sold, pledged, disposed of, granted or encumbered, or authorized the issuance, sale, pledge, disposition, grant or encumbrance of, (A) any shares of any class of capital stock of the Company or any subsidiary, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including, without limitation, any phantom interest), of the Company or any subsidiary, or (B) any assets of the Company or any subsidiary, except in the ordinary course of business and in a manner consistent with past practice;
      
      

      (iii)

      declared, set aside, made or paid any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock;
      
      

      (iv)

      reclassified, combined, split, subdivided or redeemed,