EXHIBIT 2.1


         Stock and Warrant Purchase Agreement, dated December 3, 1998, between
America Orient Group, Inc. and China Energy Resources Corporation

<PAGE>

                                                                  EXECUTION COPY
                                                                  --------------




                      STOCK AND WARRANT PURCHASE AGREEMENT



                                     BETWEEN


                       CHINA ENERGY RESOURCES CORPORATION


                                       AND


                           AMERICA ORIENT GROUP, INC.




                                DECEMBER 3, 1998





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<TABLE>
<CAPTION>

                                                 TABLE OF CONTENTS

<S>      <C>                                                                                                      <C>
1.       Definitions..............................................................................................1

2.       Purchase and Sale of the Shares and Warrants.............................................................5
         (a)      Basic Transaction...............................................................................5
         (b)      Purchase Price..................................................................................5
         (c)      The Closing.....................................................................................5
         (d)      Deliveries at the Closing.......................................................................5

3.       Representations and Warranties Concerning the Transaction................................................6
         (a)      Representations and Warranties of the Buyer.....................................................6

4.       Representations and Warranties Concerning the Company and Its Subsidiaries...............................8
         (a)      Organization, Qualification, and Corporate Power................................................8
         (b)      Capitalization..................................................................................8
         (c)      Noncontravention................................................................................9
         (d)      Brokers' Fees...................................................................................9
         (e)      Title to Assets.................................................................................9
         (f)      Subsidiaries....................................................................................9
         (g)      Financial Statements...........................................................................10
         (h)      Events Subsequent to Most Recent Fiscal Year End...............................................10
         (i)      Undisclosed Liabilities........................................................................12
         (j)      Legal Compliance...............................................................................12
         (k)      Tax Matters....................................................................................12
         (l)      Real Property..................................................................................15
         (m)      Intellectual Property..........................................................................17
         (n)      Tangible Assets................................................................................19
         (o)      Inventory......................................................................................19
         (p)      Contracts......................................................................................20
         (q)      Notes and Accounts Receivable..................................................................20
         (r)      Powers of Attorney.............................................................................20
         (s)      Insurance......................................................................................20
         (t)      Litigation.....................................................................................21
         (u)      Product Warranty...............................................................................21
         (v)      Product Liability..............................................................................22
         (w)      Employees......................................................................................22
         (x)      Employee Benefits..............................................................................22
         (y)      Guaranties.....................................................................................22
         (z)      Environmental, Health and Safety...............................................................22
         (aa)     Certain Business Relationships with the Company or Its Subsidiaries............................23
         (bb)     Disclosure.....................................................................................23

5.       Pre-Closing Covenants...................................................................................23
         (a)      General........................................................................................23


                                                        (i)

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         (b)      Notices and Consents...........................................................................23
         (c)      Operation of Business..........................................................................23
         (d)      Preservation of Business.......................................................................24
         (e)      Full Access....................................................................................24
         (f)      Notice of Developments.........................................................................24
         (g)      Exclusivity....................................................................................24
         (h)      Intentionally Omitted..........................................................................24
         (i)      Listing of Shares and Approval by the Company's Shareholders...................................24
         (j)      Management of the Subsidiaries.................................................................24

6.       Post-Closing Covenants..................................................................................25
         (a)      General........................................................................................25
         (b)      Litigation Support.............................................................................25
         (c)      Debt in Default................................................................................25
         (d)      Capital Expansion..............................................................................25
         (e)      Office.........................................................................................25
         (f)      Confidentiality................................................................................25

7.       Conditions to Obligation to Close.......................................................................26
         (a)      Conditions to Obligation of the Buyer..........................................................26
         (b)      Conditions to Obligation of the Company........................................................28

8.       Remedies for Breaches of This Agreement.................................................................29
         (a)      Survival of Representations and Warranties.....................................................29
         (b)      Indemnification Provisions for Benefit of the Buyer............................................29
         (c)      Indemnification Provisions for Benefit of the Company..........................................29
         (d)      Matters Involving Third Parties................................................................30
         (e)      Determination of Adverse Consequences..........................................................31
         (f)      Other Indemnification Provisions...............................................................31

9.       Tax Matters.............................................................................................31
         (a)      Tax Sharing Agreements.........................................................................31
         (b)      Certain Taxes..................................................................................31

10.      Termination.............................................................................................32
         (a)      Termination of Agreement.......................................................................32
         (b)      Effect of Termination..........................................................................32
         (c)      Termination Fee................................................................................32

11.      Miscellaneous...........................................................................................33
         (a)      Press Releases and Public Announcements........................................................33
         (b)      No Third Party Beneficiaries...................................................................33
         (c)      Entire Agreement...............................................................................33
         (d)      Succession and Assignment......................................................................33
         (e)      Counterparts...................................................................................33


                                                        (ii)

<PAGE>



         (f)      Headings.......................................................................................33
         (g)      Notices........................................................................................33
         (h)      Governing Law..................................................................................34
         (i)      Amendments and Waivers.........................................................................34
         (j)      Severability...................................................................................34
         (k)      Expenses.......................................................................................34
         (l)      Construction...................................................................................35
         (m)      Incorporation of Exhibits, Annexes and Schedules...............................................35
         (n)      Specific Performance...........................................................................35
         (o)      Submission to Jurisdiction.....................................................................35
</TABLE>

Exhibit A--Form of Warrant
Exhibit B--Form of Registration Rights Agreement
Exhibit C--Historical Financial Statements
Exhibit D--Holders of Convertible Notes and Terms of Amendment of the
Convertible Notes
Exhibit E--Forms of Side Agreements
Exhibit F--Form of Opinion of Counsel to the Company
Disclosure Schedule--Exceptions to Representations and Warranties Concerning the
Company and Its Subsidiaries




                                      (iii)

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                      STOCK AND WARRANT PURCHASE AGREEMENT

         This STOCK and WARRANT PURCHASE AGREEMENT (this "Agreement") is made
and entered into on December 3, 1998, between America Orient Group, Inc., a
Maryland corporation, or its designee (the "Buyer"), and China Energy Resources
Corporation, a corporation organized under the International Business Companies
Act of the British Virgin Islands (the "Company"). The Buyer and the Company are
referred to together herein as the "Parties".

         The Company is offering for sale 5,000,000 shares of its common stock
(the "Common Stock") par value $0.01 per share (the "Shares") and a warrant to
purchase 5,000,000 shares of Common Stock in the form attached hereto as Exhibit
A (the "Warrant," together with the Common Stock, the "Securities").

         This Agreement contemplates a transaction in which the Buyer will
purchase from the Company, and the Company will issue and sell to the Buyer, the
Securities.

         Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.

1.       DEFINITIONS.

         "ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.

         "ADVERSE CONSEQUENCES" means material actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses arising from the foregoing.

         "AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.

         "AFFILIATED GROUP" means any affiliated group within the meaning of
Code ss.1504 or any similar group defined under a similar provision of state,
local or foreign law.

         "AMEX" has the meaning set forth in Section ss.7(a) below.

         "APPLICABLE RATE" means the corporate base rate of interest announced
from time to time by Citibank N.A. plus 2% per annum.

         "BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.




<PAGE>



         "BUYER"  has the meaning set forth in the preface above.

         "CLOSING"  has the meaning set forth in ss.2(c) below.

         "CLOSING DATE"  has the meaning set forth in ss.2(c) below.

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

         "COMMON STOCK" has the meaning set forth in the preface above.

         "COMPANY" has the meaning set forth in the preface above.

         "CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of the Company and its Subsidiaries that is not already
generally available to the public.

         "CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
ss.1563 or any similar provision of any tax law of any other jurisdiction.

         "CONVERTIBLE NOTES" has the meaning set forth in ss.7(a).

         "DEFINITIVE AGREEMENTS" means this Agreement, the Warrant and the
Registration Rights Agreement.

         "DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in Treas.
Reg. ss.1.1502-13 or any similar provision of any tax law of any other
jurisdiction.

         "DISCLOSURE SCHEDULE" has the meaning set forth in ss.4 below.

         "EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan, (d)
Employee Welfare Benefit Plan or material fringe benefit plan or program, or (e)
any Multiemployer Plan.

         "EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
ss.3(2).

         "EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
ss.3(1).

         "ENVIRONMENTAL, HEALTH AND SAFETY LAWS" means all laws (including
rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or protection of the
environment, public health and safety, or employee health and safety, including
laws relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,


                                       -2-

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disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes.

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

         "EXCESS LOSS ACCOUNT" has the meaning set forth in Treas. Reg.
ss.1.1502-19 or any similar provision of any tax law of any other jurisdiction.

         "FIDUCIARY" has the meaning set forth in ERISA ss.3(21).

         "FINANCIAL STATEMENT" has the meaning set forth in ss.4(g) below.

         "GAAP" means United States generally accepted accounting principles as
in effect from time to time.

         "INDEMNIFIED PARTY" has the meaning set forth in ss.8(d) below.

         "INDEMNIFYING PARTY" has the meaning set forth in ss.8(d) below.

         "INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).

         "KNOWLEDGE" means actual knowledge after reasonable investigation.

         "LETTER OF INTENT" means the Letter Agreement, dated November 23, 1998,
between the Buyer and the Company.

         "LIABILITY" means any material liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.



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         "MOST RECENT BALANCE SHEET" means the balance sheet contained within
the Most Recent Financial Statements.

         "MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in ss.4(g)
below.

         "MOST RECENT FISCAL MONTH END" has the meaning set forth in ss.4(g)
below.

         "MOST RECENT FISCAL YEAR END" has the meaning set forth in ss.4(g)
below.

         "MULTIEMPLOYER PLAN" has the meaning set forth in ERISA ss.3(37).

         "ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).

         "PARTY" has the meaning set forth in the preface above.

         "PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).

         "PROHIBITED TRANSACTION" has the meaning set forth in ERISA ss.406 and
Code ss.4975 or any similar provision of any tax law of any other jurisdiction.

         "PURCHASE PRICE" has the meaning set forth in ss.2(b) below.

         "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
between the Company and the Buyer in the form attached as Exhibit B.

         "RESALE RESTRICTION TERMINATION DATE" has the meaning set forth in
ss.3(a) below.

         "SEC" means the Securities and Exchange Commission.

         "SECURITIES" means the Common Stock and the Warrant.

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

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

         "SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease


                                       -4-

<PAGE>



arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.

         "SHARES" has the meaning set forth in the preface above.

         "SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.

         "TAX" means any British Virgin Islands or other federal, state, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code ss.59A) (or any similar provision of any tax law of
any other jurisdiction), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.

         "TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.

         "TERMINATION DATE" means the date on which either Party provides the
other Party with written notice that this Agreement is terminated.

         "THIRD PARTY CLAIM" has the meaning set forth in ss.8(d) below.

         "WARRANT" has the meaning set forth in the preface above.

         2.       PURCHASE AND SALE OF THE SHARES AND WARRANTS.

         (a) BASIC TRANSACTION. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Company, and the Company
agrees to sell to the Buyer, the Securities for the consideration specified
below in this ss.2.

         (b) PURCHASE PRICE. The Buyer agrees to pay to the Company at the
Closing $1,000,000 (the "Purchase Price") by delivery of cash payable by wire
transfer or delivery of other immediately available funds.

         (c) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Thacher Proffitt &
Wood in New York, New York, commencing by no later than January 23, 1999, or
such other date as the parties may mutually determine (the "Closing Date").

         (d) DELIVERIES AT THE CLOSING. At the Closing, (i) the Company will
deliver to the Buyer the various certificates, instruments, and documents
referred to in ss.7(a) below, (ii) the Buyer will


                                       -5-

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deliver to the Company the various certificates, instruments, and documents
referred to in ss.7(b) below, (iii) the Company will deliver to the Buyer stock
certificates and a warrant representing all of the Securities and (iv) the Buyer
will deliver to the Company the consideration specified in ss.2(b) above.

         3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.

         (a) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to the Company that the statements contained in this ss.3(a) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this ss.3(a)).

                  (i) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
         organized, validly existing, and in good standing under the laws of the
         jurisdiction of its incorporation.

                  (ii) AUTHORIZATION OF TRANSACTION. The Buyer has full power
         and authority (including full corporate power and authority) to execute
         and deliver this Agreement and to perform its obligations hereunder.
         This Agreement constitutes the valid and legally binding obligation of
         the Buyer, enforceable in accordance with its terms and conditions. The
         Buyer need not give any notice to, make any filing with, or obtain any
         authorization, consent, or approval of any government or governmental
         agency in order to consummate the transactions contemplated by this
         Agreement.

                  (iii) NONCONTRAVENTION. Neither the execution and the delivery
         of this Agreement, nor the consummation of the transactions
         contemplated hereby, will (A) violate any constitution, statute,
         regulation, rule, injunction, judgment, order, decree, ruling, charge,
         or other restriction of any government, governmental agency, or court
         to which the Buyer is subject or any provision of its charter or bylaws
         or (B) conflict with, result in a breach of, constitute a default
         under, result in the acceleration of, create in any party the right to
         accelerate, terminate, modify, or cancel, or require any notice under
         any agreement, contract, lease, license, instrument, or other
         arrangement to which the Buyer is a party or by which it is bound or to
         which any of its assets is subject.

                  (iv) BROKERS' FEES. The Buyer has no Liability or obligation
         to pay any fees or commissions to any broker, finder, or agent with
         respect to the transactions contemplated by this Agreement for which
         the Company could become liable or obligated.

                  (v) REGISTRATION OF SECURITIES. The Buyer understands that the
         Securities have not been registered under the Securities Act or any
         other applicable securities laws, and that the sale provided for in
         this Agreement is being made pursuant to the exemption provided in
         Section 4(2) of the Securities Act and that the reliance of the Company
         on such exemption is predicated in part on the Buyer's representations
         set forth herein, and none of the Securities may be offered, sold,
         pledged or otherwise transferred except in compliance with the
         registration requirements of the Securities Act and other applicable
         securities laws, pursuant


                                       -6-

<PAGE>



         to an exemption therefrom or in a transaction not subject thereto and,
         in each case, in compliance with the conditions for transfer set forth
         in ss.3(a)(vii) below.

                  (vi) ACCREDITED INVESTOR. The Buyer is not, and has not been,
         an "affiliate" (as defined in Rule 144 under the Securities Act) of the
         Company or acting on behalf of the Company, and the Buyer is an
         Accredited Investor.

                  (vii) INVESTMENT. The Buyer is acquiring the Securities for
         the Buyer's own account, for investment, and not with a view to, or for
         offer or sale in connection with, any distribution thereof in violation
         of the Securities Act or other applicable securities laws, subject to
         any requirement of law that the disposition of its property be at all
         times within its control and subject to its ability to resell such
         Securities pursuant to an effective registration statement under the
         Securities Act or any exemption from registration available under the
         Securities Act; and it agrees on its own behalf, and each subsequent
         holder of the Securities by its acceptance thereof will be deemed to
         agree, to offer, sell or otherwise transfer such Securities prior to
         the date which is two years after the later of the original issuance
         date thereof and the last date on which the Company or any "affiliate"
         of the Company was the owner of such Securities (the "Resale
         Restriction Termination Date") only (a) to the Company, (b) pursuant to
         a registration statement which has been declared effective under the
         Securities Act, or (c) pursuant to any other available exemption from
         the registration requirements of the Securities Act, subject in each of
         the foregoing cases to any requirement of law that the disposition of
         its property be at all times within its control and to compliance with
         any applicable state securities laws; it being understood further that
         the Company reserves the right prior to any offer, sale or other
         transfer prior to the Resale Restriction Termination Date pursuant to
         clause (c) above to require the delivery of an opinion of counsel,
         certifications and other information satisfactory to the Company. The
         Buyer acknowledges that any certificate evidencing the Securities will
         contain a legend substantially to the following effect:

                  THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
                  "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY OTHER
                  APPLICABLE SECURITIES LAW. NEITHER THE SECURITIES EVIDENCED
                  HEREBY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
                  REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
                  OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
                  UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
                  SUCH REGISTRATION.

                  (viii) RULE 144. The Buyer understands that the Securities may
         not be sold, transferred or otherwise disposed of without registration
         under the Securities Act or an exemption therefrom and that in the
         absence of an effective registration statement covering the Securities
         or an available exemption from registration under the Securities Act,
         the Securities must be held indefinitely. The benefits of Rule 144
         promulgated under the


                                       -7-

<PAGE>



         Securities Act are not presently available to the Buyer and the Company
         has not covenanted to make the benefits of such rule available.

         4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS
SUBSIDIARIES. The Company represents and warrants to the Buyer that the
statements contained in this ss.4 are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this ss.4), except as set forth in the disclosure
schedule delivered by the Company to the Buyer on the date hereof and initialed
by the Parties (the "Disclosure Schedule"). Nothing in the Disclosure Schedule
shall be deemed adequate to disclose an exception to a representation or
warranty made herein, unless the Disclosure Schedule identifies the exception
with reasonable particularity and describes the relevant facts in reasonable
detail. Without limiting the generality of the foregoing, with the exception of
the Company's Form 20F and 6K filings with the SEC dated July 15, 1998 and
September 29, 1998, respectively, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this ss.4.

         (a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of the
Company and its Subsidiaries is a corporation or an equity joint venture company
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its formation. Each of the Company and its Subsidiaries is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. Each of the Company and its
Subsidiaries has full corporate or equity joint venture power and authority and
all licenses, permits, and authorizations necessary to carry on the businesses
in which it is engaged and in which it presently proposes to engage and to own
and use the properties owned and used by it. ss.4(a) of the Disclosure Schedule
lists the directors and officers of each of the Company and its Subsidiaries.
The Company has delivered to the Buyer correct and complete copies of the
charter and bylaws of each of the Company and its Subsidiaries (as amended to
date). The minute books (containing the records of meetings of the stockholders,
the board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of each of the Company and its
Subsidiaries are correct and complete. None of the Company or its Subsidiaries
is in default under or in violation of any provision of its charter or bylaws.

         (b) CAPITALIZATION. The entire authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, of which 3,248,494 shares of
Common Stock are issued and outstanding and no shares of Common Stock are held
in treasury and 2,000,000 shares of preferred stock, of which no shares of
preferred stock are issued and outstanding. All of the issued and outstanding
shares have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by the respective holders as set forth in
ss.4(b) of the Disclosure Schedule. There are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require the
Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to


                                       -8-

<PAGE>



the Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.

         (c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Company and its Subsidiaries
is subject or any provision of the articles of association or memorandum of
association of any of the Company or joint venture agreements of its
Subsidiaries or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
any of the Company or its Subsidiaries is a party or by which they are bound or
to which their assets are subject (or result in the imposition of any Security
Interest upon any of their assets). None of the Company and the Subsidiaries
needs to give any notice to, make any filing with, (except for filings with the
SEC or AMEX) or obtain any authorization, consent, or approval of any government
or governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.

         (d) BROKERS' FEES. None of the Company and Subsidiaries has any
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.

         (e) TITLE TO ASSETS. The Company and its Subsidiaries have valid and
legal title to, or a valid leasehold interest in, the properties and assets used
by them, located on their premises, or shown on the Most Recent Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests,
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet.

         (f) SUBSIDIARIES. ss.4(f) of the Disclosure Schedule sets forth for
each Subsidiary of the Company (i) its name and jurisdiction of formation, (ii)
the number of shares of authorized capital stock of each class of its capital
stock, (iii) the number of issued and outstanding shares of each class of its
capital stock, the names of the holders thereof, and the number of shares held
by each such holder, and (iv) the number of shares of its capital stock held in
treasury. All of the issued and outstanding shares of capital stock of each
Subsidiary of the Company have been duly authorized and are validly issued,
fully paid, and nonassessable. One of the Company and its Subsidiaries holds of
record and owns beneficially all of the outstanding shares of each Subsidiary of
the Company, free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. There are no outstanding or authorized options,
warrants, purchase rights, conversion rights, exchange rights, or other
contracts or commitments that could require any of the Company and its
Subsidiaries to sell, transfer, or otherwise dispose of any capital stock of any
of its Subsidiaries or that could require any Subsidiary of the Company to
issue, sell, or otherwise cause to become outstanding any of its own capital
stock. There are no outstanding


                                       -9-

<PAGE>



stock appreciation, phantom stock, profit participation, or similar rights with
respect to any Subsidiary of the Company. There are no voting trusts, proxies,
or other agreements or understandings with respect to the voting of any capital
stock of any Subsidiary of the Company. None of the Company and its Subsidiaries
controls directly or indirectly or has any direct or indirect equity
participation in any corporation, partnership, trust, or other business
association which is not a Subsidiary of the Company.

         (g) FINANCIAL STATEMENTS. Attached hereto as Exhibit C are the
following financial statements (collectively the "Financial Statements"): (i)
audited consolidated and unaudited consolidating balance sheets and statements
of income, changes in stockholders' equity, and cash flow as of and for the
fiscal years ended December 31, 1996 and 1997(the "Most Recent Fiscal Year End")
for the Company and its Subsidiaries; and (ii) unaudited consolidated and
consolidating balance sheets and statements of income, changes in stockholders'
equity, and cash flow (the "Most Recent Financial Statements") as of and for the
9 months ended September 30, 1998 (the "Most Recent Fiscal Month End") for the
Company and its Subsidiaries. The Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, present fairly the financial
condition of the Company and its Subsidiaries as of such dates and the results
of operations of the Company and its Subsidiaries for such periods, are correct
and complete, and are consistent with the books and records of the Company and
its Subsidiaries (which books and records are correct and complete), PROVIDED,
HOWEVER, that the Most Recent Financial Statements are subject to normal
year-end adjustments (which will not be material individually or in the
aggregate) and lack footnotes and other presentation items.

         (h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the Most
Recent Fiscal Year End, there has not been any adverse change in the business,
financial condition, operations, results of operations, or future prospects of
any of the Company and its Subsidiaries. Without limiting the generality of the
foregoing, since that date:

                  (i) None of the Company and its Subsidiaries has sold, leased,
         transferred, or assigned any of its assets, tangible or intangible,
         other than for a fair consideration in the Ordinary Course of Business.

                  (ii) None of the Company and its Subsidiaries has entered into
         any agreement, contract, lease, or license (or series of related
         agreements, contracts, leases, and licenses) either involving more than
         $50,000 or outside the Ordinary Course of Business.

                  (iii) No party (including any of the Company and its
         Subsidiaries) has accelerated, terminated, modified, or cancelled any
         agreement, contract, lease, or license (or series of related
         agreements, contracts, leases, and licenses) involving more than
         $50,000 to which any of the Company and its Subsidiaries is a party or
         by which any of them is bound.

                  (iv) None of the Company and its Subsidiaries has imposed any
         Security Interest upon any of its assets, tangible or intangible.



                                      -10-

<PAGE>



                  (v) None of the Company and its Subsidiaries has made any
         capital expenditure (or series of related capital expenditures) either
         involving more than $50,000 or outside the Ordinary Course of Business.

                  (vi) None of the Company and its Subsidiaries has made any
         capital investment in, any loan to, or any acquisition of the
         securities or assets of, any other Person (or series of related capital
         investments, loans, and acquisitions) either involving more than
         $50,000 or outside the Ordinary Course of Business.

                  (vii) None of the Company and its Subsidiaries has issued any
         note, bond, or other debt security or created, incurred, assumed, or
         guaranteed any indebtedness for borrowed money or capitalized lease
         obligation either involving more than $10,000 singly or $50,000 in the
         aggregate.

                  (viii) None of the Company and its Subsidiaries has delayed or
         postponed the payment of accounts payable and other Liabilities outside
         the Ordinary Course of Business.

                  (ix) None of the Company and its Subsidiaries has cancelled,
         compromised, waived, or released any right or claim (or series of
         related rights and claims) either involving more than $50,000 or
         outside the Ordinary Course of Business.

                  (x) None of the Company and its Subsidiaries has granted any
         license or sublicense of any rights under or with respect to any
         material Intellectual Property.

                  (xi) There has been no change made or authorized in the
         charter or bylaws of any of the Company and its Subsidiaries.

                  (xii) None of the Company and its Subsidiaries has issued,
         sold, or otherwise disposed of any of its capital stock, or granted any
         options, warrants, or other rights to purchase or obtain (including
         upon conversion, exchange, or exercise) any of its capital stock.

                  (xiii) None of the Company and its Subsidiaries has declared,
         set aside, or paid any dividend or made any distribution with respect
         to its capital stock (whether in cash or in kind) or redeemed,
         purchased, or otherwise acquired any of its capital stock.

                  (xiv) None of the Company and its Subsidiaries has experienced
         any material damage, destruction, or loss (whether or not covered by
         insurance) to its material property.

                  (xv) None of the Company and its Subsidiaries has made any
         loan to, or entered into any other transaction with, any of its
         directors, officers, and employees outside the Ordinary Course of
         Business.

                  (xvi) None of the Company and its Subsidiaries has entered
         into any employment contract or collective bargaining agreement,
         written or oral, or modified the terms of any existing such contract or
         agreement.


                                      -11-

<PAGE>




                  (xvii) None of the Company and its Subsidiaries has granted
         any increase in the base compensation of any of its directors,
         officers, and employees outside the Ordinary Course of Business.

                  (xviii) None of the Company and its Subsidiaries has adopted,
         amended, modified, or terminated any bonus, profit-sharing, incentive,
         severance, or other plan, contract, or commitment for the benefit of
         any of its directors, officers, and employees (or taken any such action
         with respect to any other Employee Benefit Plan).

                  (xix) None of the Company and its Subsidiaries has made any
         other change in employment terms for any of its directors, officers,
         and employees outside the Ordinary Course of Business.

                  (xx) None of the Company and its Subsidiaries has made or
         pledged to make any charitable or other capital contribution outside
         the Ordinary Course of Business.

                  (xxi) There has not been any other material occurrence, event,
         incident, action, failure to act, or transaction outside the Ordinary
         Course of Business involving any of the Company and its Subsidiaries.

                  (xxii) None of the Company and its Subsidiaries has committed
         to any of the foregoing.

         (i) UNDISCLOSED LIABILITIES. None of the Company and its Subsidiaries
has any Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability), except for (i) Liabilities set forth
on the face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (ii) Liabilities (limited to the Knowledge of the Company with respect to
the Subsidiaries) which have arisen after the Most Recent Fiscal Month End in
the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract, breach
of warranty, tort, infringement, or violation of law).

         (j) LEGAL COMPLIANCE. Each of the Company, its Subsidiaries, and their
respective predecessors and Affiliates has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) if any, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.

         (k) TAX MATTERS.

                  (i) Each of the Company and its Subsidiaries has filed all Tax
         Returns that it was required to file. All such Tax Returns were correct
         and complete in all respects. All Taxes owed by any of the Company and
         its Subsidiaries (whether or not shown on any Tax Return) have been
         paid (except as described in ss.4(k)(vii) below). None of the Company
         and its


                                      -12-

<PAGE>



         Subsidiaries currently is the beneficiary of any extension of time
         within which to file any Tax Return. No claim has ever been made by an
         authority in a jurisdiction where any of the Company and its
         Subsidiaries does not file Tax Returns that any of it or its
         Subsidiaries is or may be subject to taxation by that jurisdiction.
         There are no Security Interests on any of the assets of any of the
         Company and its Subsidiaries that arose in connection with any failure
         (or alleged failure) to pay any Tax.

                  (ii) Each of the Company and its Subsidiaries has withheld and
         paid all Taxes required to have been withheld and paid in connection
         with amounts paid or owing to any employee, independent contractor,
         creditor, stockholder, or other third party.

                  (iii) Neither the Company or its Subsidiaries expects any
         authority to assess any additional Taxes for any period for which Tax
         Returns have been filed. There is no dispute or claim concerning any
         Taxes of any of the Company and its Subsidiaries either (A) claimed or
         raised by any authority in writing or (B) as to which any of the
         Company and its Subsidiaries has Knowledge based upon personal contact
         with any agent of such authority. ss.4(k) of the Disclosure Schedule
         lists all British Virgin Islands or other federal, state, local, and
         foreign income Tax Returns filed with respect to any of the Company and
         its Subsidiaries for taxable periods ended on or after December 31,
         1991, indicates those Tax Returns that have been audited, and indicates
         those Tax Returns that currently are the subject of audit. The Company
         has delivered to the Buyer correct and complete copies of all British
         Virgin Islands or other federal income Tax Returns, examination
         reports, and statements of deficiencies assessed against or agreed to
         by any of the Company and its Subsidiaries since December 31, 1996.

                  (iv) None of the Company and its Subsidiaries has waived any
         statute of limitations in respect of Taxes or agreed to any extension
         of time with respect to a Tax assessment or deficiency.

                  (v) None of the Company and its Subsidiaries has filed a
         consent under Code ss.341(f) concerning collapsible corporations (or
         any similar provision of British Virgin Islands or other federal,
         state, local, or foreign law). None of the Company and its Subsidiaries
         has made any payments, is obligated to make any payments, or is a party
         to any agreement that under certain circumstances could obligate it to
         make any payments that will not be deductible under Code ss.280G (or
         any similar provision of state, local, or foreign law). None of the
         Company and its Subsidiaries has been a United States real property
         holding corporation within the meaning of Code ss.897(c)(2) during the
         applicable period specified in Code ss.897(c)(1)(A)(ii). Each of the
         Company and its Subsidiaries has disclosed on its British Virgin
         Islands or other federal (or similar) income Tax Returns all positions
         taken therein that could give rise to a substantial understatement of
         federal income Tax within the meaning of Code ss.6662 (or any similar
         provision of British Virgin Islands or other federal, state, local, or
         foreign law). None of the Company and its Subsidiaries is a party to
         any Tax allocation or sharing agreement. None of the Company and its
         Subsidiaries (A) has been a


                                      -13-

<PAGE>



         member of an Affiliated Group filing a consolidated federal income Tax
         Return (other than a group the common parent of which was the Company)
         or (B) has any Liability for the Taxes of any Person (other than any of
         the Company and its Subsidiaries) under Treas. Reg. ss.1.1502-6 (or any
         similar provision of British Virgin Islands or other federal, state,
         local, or foreign law), as a transferee or successor, by contract, or
         otherwise.

                  (vi) ss.4(k) of the Disclosure Schedule sets forth the
         following information with respect to each of the Company and its
         Subsidiaries (or, in the case of clause (B) below, with respect to each
         of the Subsidiaries) as of the most recent practicable date (as well as
         on an estimated pro forma basis as of the Closing giving effect to the
         consummation of the transactions contemplated hereby): (A) the basis of
         the Company or Subsidiary in its assets; (B) the basis of the
         stockholder(s) of the Subsidiary in its stock (or the amount of any
         Excess Loss Account); (C) the amount of any net operating loss, net
         capital loss, unused investment or other credit, unused foreign tax,
         excess charitable contribution, excess loss account, or earnings and
         profits allocable to the Company or Subsidiary, as well as the methods
         of accounting of each of the Company and its Subsidiaries; (D) the
         amount of any deferred gain or loss allocable to the Company or
         Subsidiary arising out of any Deferred Intercompany Transaction and the
         amount of overall foreign losses of the Affiliated Group filing a
         consolidated return of which the Company is the common parent allocable
         to the Company and its Subsidiaries under Treas. Reg. ss. 1.1502-9 (or
         any similar provision of British Virgin Islands or other federal,
         state, local, or foreign law) and subject to recapture; and (E) the
         amount of investment tax credit of the Company and its Subsidiaries
         subject to recapture and the aggregate amount of ordinary losses on
         "section 1231(b) property" (in each case under the Code or similar
         British Virgin Islands or other federal, state, local, or foreign law)
         that has been deducted by the Company and the Subsidiaries.

                  (vii) The unpaid Taxes of the Company and its Subsidiaries (A)
         did not, as of the Most Recent Fiscal Month End, exceed the reserve for
         Taxes owed (rather than any reserve for deferred Taxes established to
         reflect timing differences between book and Tax income) set forth on
         the face of the Most Recent Balance Sheet (rather than in any notes
         thereto, and prepared in accordance with the generally accepted
         accounting principles of the jurisdiction imposing the tax) and (B) do
         not exceed that reserve as adjusted for the passage of time through the
         Closing Date in accordance with the past custom and practice of the
         Company and its Subsidiaries in filing their Tax Returns.

                  (viii) All elections with respect to Taxes affecting the
         Company and its Subsidiaries as of the date hereof are set forth on
         ss.4(k) of the Disclosure Schedule. Except as set forth on ss.4(k) of
         the Disclosure Schedule, neither the Company nor its Subsidiaries has
         made an election, and none are required, to treat any asset of the
         Company or its Subsidiaries as owned by another person or as
         "tax-exempt bond financed property" or "tax-exempt use property" within
         the meaning of section 168 of the Code (or any similar provision of
         British Virgin Islands or other federal, state, local, or foreign law).



                                      -14-

<PAGE>



                  (ix) Except as set forth on ss.4(k) of the Disclosure
         Schedule, none of the Company and its Subsidiaries has made or will
         make a deemed dividend election under Treas. Reg. ss.1.1502-32(f)(2)
         (or any similar provision of British Virgin Islands or other federal,
         state, local, or foreign law), or a consent dividend election under
         section 565 of the Code (or any similar provision of British Virgin
         Islands or other federal, state, local, or foreign law).

                  (x) None of the Company and its Subsidiaries has agreed, or is
         required, to make any adjustment under section 481(a) of the Code (or
         any similar provision of British Virgin Islands or other federal,
         state, local, or foreign law), by reason of a change in accounting
         method or otherwise.

                  (xi) None of the Company and its Subsidiaries is a party to
         any joint venture, partnership, or other arrangement or contract which
         has been treated as a partnership for United States federal income tax
         purposes (or any similar provision of British Virgin Islands or other
         federal, state, local or foreign laws).

                  (xii) None of the Company and its Subsidiaries is subject to
         any Tax imposed on net income in any jurisdiction or by any taxing
         authority other than as set forth on ss.4(k) of the Disclosure
         Schedule.

                  (xiii) None of the Company and its Subsidiaries has engaged
         in, participated in or otherwise cooperated with any boycott
         transactions or received boycott requests, as described in section 999
         of the Code (or any similar provision of British Virgin Islands or
         other federal, state, local, or foreign law).

                  (xiv) None of the Company and its Subsidiaries has ever had
         any "subpart F income" within the meaning of section 952 of the Code,
         or income that would be "subpart F income" if any of the Company or it
         Subsidiaries were "controlled foreign corporations" within the meaning
         of section 957 of the Code, other than as set forth on ss.4(k) of the
         Disclosure Schedule.

         (l)      REAL PROPERTY.

                  (i) ss.4(l)(i) of the Disclosure Schedule lists and describes
         briefly all real property for which any of the Company and its
         Subsidiaries owns land use rights. With respect to each such parcel of
         real property:

                           (A) the identified owner has valid and legal title to
                  the land use rights, free and clear of any Security Interest,
                  and other restrictions which do not impair the current use,
                  occupancy or value of the property subject thereto;

                           (B) there are no pending or, to the Knowledge of the
                  Company and its Subsidiaries threatened condemnation
                  proceedings, lawsuits, or administrative actions relating to
                  the property or other matters affecting materially and
                  adversely the current use, occupancy, or value thereof;


                                      -15-

<PAGE>




                           (C) all facilities have received all approvals of
                  governmental authorities (including licenses and permits)
                  required in connection with the operation thereof and have
                  been operated and maintained in accordance with applicable
                  laws, rules, and regulations;

                           (D) there are no leases, subleases, licenses,
                  concessions, or other agreements, written or oral, granting to
                  any party or parties the right of use or occupancy of any
                  portion of such property; and

                           (E) all facilities located on the parcel of real
                  property are supplied with utilities and other services
                  necessary for the operation of such facilities, including gas,
                  electricity, water, telephone, sanitary sewer, and storm
                  sewer, all of which services are adequate in accordance with
                  all applicable laws, ordinances, rules, and regulations and
                  are provided via public roads or via permanent, irrevocable,
                  appurtenant easements benefitting the parcel of real property.

                  (ii) ss.4(l)(ii) of the Disclosure Schedule lists and
         describes briefly all real property for which the land use rights have
         been leased or subleased to any of the Company and its Subsidiaries.
         The Company has delivered to the Buyer correct and complete copies of
         the leases and subleases listed in ss.4(l)(ii) of the Disclosure
         Schedule (as amended to date). With respect to each lease and sublease
         listed in ss.4(l)(ii) of the Disclosure Schedule:

                           (A) the lease or sublease is legal, valid, binding,
                  enforceable, and in full force and effect;

                           (B) the lease or sublease will continue to be legal,
                  valid, binding, enforceable, and in full force and effect on
                  identical terms following the consummation of the transactions
                  contemplated hereby;

                           (C) no party to the lease or sublease is in breach or
                  default, and no event has occurred which, with notice or lapse
                  of time, would constitute a breach or default or permit
                  termination, modification, or acceleration thereunder;

                           (D) no party to the lease or sublease has repudiated
                  any provision thereof;

                           (E) there are no disputes, oral agreements, or
                  forbearance programs in effect as to the lease or sublease;

                           (F) with respect to each sublease, the
                  representations and warranties set forth in subsections (A)
                  through (E) above are true and correct with respect to the
                  underlying lease;



                                      -16-

<PAGE>



                           (G) none of the Company and its Subsidiaries has
                  assigned, transferred, conveyed, mortgaged, deeded in trust,
                  or, to the Knowledge of the Company and its Subsidiaries,
                  encumbered any interest in the leasehold or subleasehold;

                           (H) all facilities leased or subleased thereunder
                  have received all approvals of governmental authorities
                  (including licenses and permits) required in connection with
                  the operation thereof and have been operated and maintained in
                  accordance with applicable laws, rules, and regulations;

                           (I) all facilities leased or subleased thereunder are
                  supplied with utilities and other services necessary for the
                  operation of said facilities; and

                           (J) the owner of the facility leased or subleased has
                  valid and legal title to the parcel of real property, free and
                  clear of any Security Interest, and other restrictions which
                  do not impair the current use, occupancy, or value of the
                  property subject thereto.

         (m)      INTELLECTUAL PROPERTY.

                  (i) The Company and to its Knowledge, its Subsidiaries own or
         have the right to use pursuant to license, sublicense, agreement, or
         permission all Intellectual Property necessary or desirable for the
         operation of the businesses of the Company and its Subsidiaries as
         presently conducted. To the Knowledge of the Company, each item of
         Intellectual Property owned or used by any of the Company and its
         Subsidiaries immediately prior to the Closing hereunder will be owned
         or available for use by the Company or the Subsidiary on identical
         terms and conditions immediately subsequent to the Closing hereunder.
         Each of the Company and its Subsidiaries has taken all necessary and
         desirable action to maintain and protect each item of Intellectual
         Property that it owns or uses.

                  (ii) None of the Company and to its Knowledge, its
         Subsidiaries has interfered with, infringed upon, misappropriated, or
         otherwise come into conflict with any Intellectual Property rights of
         third parties, and none of the Company and the directors and officers
         (and employees with responsibility for Intellectual Property matters)
         of the Company and its Subsidiaries has ever received any charge,
         complaint, claim, demand, or notice alleging any such interference,
         infringement, misappropriation, or violation (including any claim that
         any of the Company and its Subsidiaries must license or refrain from
         using any Intellectual Property rights of any third party). To the
         Knowledge of any of the Company and its Subsidiaries, no third party
         has interfered with, infringed upon, misappropriated, or otherwise come
         into conflict with any Intellectual Property rights of any of the
         Company and its Subsidiaries.

                  (iii) ss.4(m)(iii) of the Disclosure Schedule identifies each
         patent or registration which has been issued to any of the Company and
         its Subsidiaries with respect to any of its Intellectual Property,
         identifies each pending patent application or application for
         registration


                                      -17-

<PAGE>



         which any of the Company and its Subsidiaries has made with respect to
         any of its Intellectual Property, and identifies each license,
         agreement, or other permission which any of the Company and its
         Subsidiaries has granted to any third party with respect to any of its
         Intellectual Property (together with any exceptions). The Company have
         delivered to the Buyer correct and complete copies of all such patents,
         registrations, applications, licenses, agreements, and permissions (as
         amended to date) and have made available to the Buyer correct and
         complete copies of all other written documentation evidencing ownership
         and prosecution (if applicable) of each such item. ss.4(m)(iii) of the
         Disclosure Schedule also identifies each trade name or unregistered
         trademark used by any of the Company and its Subsidiaries in connection
         with any of its businesses. With respect to each item of Intellectual
         Property required to be identified in ss.4(l)(iii) of the Disclosure
         Schedule:

                           (A) the Company and its Subsidiaries possess all
                  right, title, and interest in and to the item, free and clear
                  of any Security Interest, license, or other restriction;

                           (B) the item is not subject to any outstanding
                  injunction, judgment, order, decree, ruling, or charge;

                           (C) no action, suit, proceeding, hearing,
                  investigation, charge, complaint, claim, or demand is pending
                  or, to the Knowledge of any of the Company and the directors
                  and officers (and employees with responsibility for
                  Intellectual Property matters) of the Company and its
                  Subsidiaries, is threatened which challenges the legality,
                  validity, enforceability, use, or ownership of the item; and

                           (D) none of the Company and its Subsidiaries has ever
                  agreed to indemnify any Person for or against any
                  interference, infringement, misappropriation, or other
                  conflict with respect to the item.

                  (iv) ss.4(m)(iv) of the Disclosure Schedule identifies, with
         the exception of computer software, each item that any third party owns
         and that any of the Company and its Subsidiaries uses pursuant to
         license, sublicense, agreement, or permission. The Company have
         delivered to the Buyer correct and complete copies of all such
         licenses, sublicenses, agreements, and permissions (as amended to
         date). With respect to each item of Intellectual Property required to
         be identified in ss.4(m)(iv) of the Disclosure Schedule:

                           (A) the license, sublicense, agreement, or permission
                  covering the item is legal, valid, binding, enforceable, and
                  in full force and effect;

                           (B) the license, sublicense, agreement, or permission
                  will continue to be legal, valid, binding, enforceable, and in
                  full force and effect on identical terms following the
                  Closing;

                           (C) no party to the license, sublicense, agreement,
                  or permission is in breach or default, and no event has
                  occurred which with notice or lapse of time


                                      -18-

<PAGE>



                  would constitute a breach or default or permit termination,
                  modification, or acceleration thereunder;

                           (D) no party to the license, sublicense, agreement,
                  or permission has repudiated any provision thereof;

                           (E) with respect to each sublicense, the
                  representations and warranties set forth in subsections (A)
                  through (D) above are true and correct with respect to the
                  underlying license;

                           (F) the underlying item of Intellectual Property is
                  not subject to any outstanding injunction, judgment, order,
                  decree, ruling, or charge;

                           (G) no action, suit, proceeding, hearing,
                  investigation, charge, complaint, claim, or demand is pending
                  or, to the Knowledge of the Company and the directors and
                  officers (and employees with responsibility for Intellectual
                  Property matters) of the Company and its subsidiaries, is
                  threatened which challenges the legality, validity, or
                  enforceability of the underlying item of Intellectual
                  Property; and

                           (H) none of the Company and its Subsidiaries has
                  granted any sublicense or similar right with respect to the
                  license, sublicense, agreement, or permission.

                  (v) To the Knowledge of the Company, the Company and its
         Subsidiaries will not interfere with, infringe upon, misappropriate, or
         otherwise come into conflict with, any Intellectual Property rights of
         third parties as a result of the continued operation of its business as
         presently conducted and as presently proposed to be conducted.

                  (vi) None of the Company and its Subsidiaries has any
         Knowledge of any new products, inventions, procedures, or methods of
         manufacturing or processing that any competitors or other third parties
         have developed which reasonably could be expected to supersede or make
         obsolete any product or process of any of the Company and its
         Subsidiaries.

         (n) TANGIBLE ASSETS. The Company and its Subsidiaries own or lease all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of their businesses as presently conducted and as presently proposed to
be conducted). Each such tangible asset is free from defects (patent and
latent), has been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used and presently is
proposed to be used. The fair market value of all tangible assets owned by the
Company located in the United States, which consists solely of certain computer
equipment and software, does not exceed $20,000.

         (o) INVENTORY. The inventory of the Company and its Subsidiaries
consists of raw materials and supplies, manufactured and purchased parts, goods
in process, and finished goods, all of which is merchantable and fit for the
purpose for which it was procured or manufactured, and


                                      -19-

<PAGE>



none of which is slow-moving, obsolete, damaged, or defective, subject only to
the reserve for inventory writedown set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
the Company and its Subsidiaries.

         (p) CONTRACTS. ss.4(p) of the Disclosure Schedule lists the contracts
and other agreements (i) executed by the Company and (ii) executed by the
Subsidiaries and in the possession of the Company.

         The Company will deliver to the Buyer by December 4, 1998, a correct
and complete copy of each written agreement either (i) executed by the Company
or (ii) in the possession of the Company, which is listed in ss.4(p) of the
Disclosure Schedule and a written summary setting forth the terms and conditions
of each oral agreement of the Company. The Company will use its best efforts to
deliver to the Buyer a correct and complete copy of each written agreement
executed by its Subsidiaries but not in the Company's possession and a written
summary setting forth the terms and conditions of each oral agreement of its
Subsidiaries. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the agreement
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) no party is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the
agreement; (D) no party has repudiated any provision of the agreement and (E)
none of such agreements individually or in the aggregate provides for
compensation or other payments that are non-deductible under ss.280G of the
Code.

         (q) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
the Company and its Subsidiaries are reflected properly on their books and
records, are valid receivables subject to no setoffs or counterclaims, are
current and collectible, and will be collected in accordance with their terms at
their recorded amounts, subject only to the reserve for bad debts set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company and its Subsidiaries.

         (r) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of any of the Company and its Subsidiaries.

         (s) INSURANCE. ss.4(s) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which any of the Company and its Subsidiaries
has been a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past 10 years:

                  (i) The name, address, and telephone number of the agent.

                  (ii) The name of the insurer, the name of the policyholder,
         and the name of each covered insured.


                                      -20-

<PAGE>



                  (iii) The policy number and the period of coverage.

                  (iv) The scope (including an indication of whether the
         coverage was on a claims made, occurrence, or other basis) and amount
         (including a description of how deductibles and ceilings are calculated
         and operate) of coverage.

                  (v) A description of any retroactive premium adjustments or
         other loss-sharing arrangements.

With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither any of the Company and its Subsidiaries nor any other party
to the policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (D) no party
to the policy has repudiated any provision thereof. Each of the Company and its
Subsidiaries has been covered during the past 2 years by insurance in scope and
amount customary and reasonable for the businesses in which it has engaged
during the aforementioned period. ss.4(s) of the Disclosure Schedule describes
any self-insurance arrangements affecting any of the Company and its
Subsidiaries.

         (t) LITIGATION. ss.4(t) of the Disclosure Schedule sets forth each
instance in which any of the Company and its Subsidiaries (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a
party or, to the Knowledge of the Company and its Subsidiaries is threatened to
be made a party to any action, suit, proceeding, hearing, or investigation of,
in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. None of
the actions, suits, proceedings, hearings, and investigations set forth in
ss.4(t) of the Disclosure Schedule could result in any adverse change in the
business, financial condition, operations, results of operations, or future
prospects of any of the Company and its Subsidiaries. None of the Company and
its Subsidiaries has any reason to believe that any such action, suit,
proceeding, hearing, or investigation may be brought or threatened against any
of the Company and its Subsidiaries.

         (u) PRODUCT WARRANTY. Each product manufactured, sold, leased, or
delivered by any of the Company and its Subsidiaries has been in conformity with
all applicable contractual commitments and all express and implied warranties,
and none of the Company and its Subsidiaries has any Liability (and there is no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve for product warranty claims
set forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company and its
Subsidiaries. No product manufactured, sold, leased, or delivered by any of the
Company and its Subsidiaries is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale or lease.
ss.4(u) of the Disclosure Schedule includes copies of the standard terms and
conditions of sale or lease


                                      -21-

<PAGE>



for each of the Company and its Subsidiaries (containing applicable guaranty,
warranty, and indemnity provisions).

         (v) PRODUCT LIABILITY. None of the Company and its Subsidiaries has any
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product manufactured, sold, leased, or delivered by any of the Company and its
Subsidiaries.

         (w) EMPLOYEES. To the Knowledge of any of the Company and its
Subsidiaries, no executive, key employee, or group of employees has any plans to
terminate employment with any of the Company and its Subsidiaries. None of the
Company and its Subsidiaries is a party to or bound by any collective bargaining
agreement, nor has any of them experienced any strikes, grievances, claims of
unfair labor practices, or other collective bargaining disputes. None of the
Company and its Subsidiaries has committed any unfair labor practice. None of
the Company and its Subsidiaries has any Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of any of the Company and its Subsidiaries. The Company and
its Subsidiaries have only one employee in the United States and have never had
more than one employee working in the United States in the past.

         (x) EMPLOYEE BENEFITS. ss.4(x) of the Disclosure Schedule lists each
Employee Benefit Plan that any of the Company and its Subsidiaries maintains or
to which any of the Company and its Subsidiaries contributes. The Company and
its Subsidiaries do not have any Employee Benefit Plan for the benefit of the
Company's sole employee in the United States.

         None of the Company, its Subsidiaries, and the other members of the
Controlled Group of Corporations that includes the Company and its Subsidiaries
contributes to, ever has contributed to, or ever has been required to contribute
to any Multiemployer Plan or has any Liability (including withdrawal Liability)
under any Multiemployer Plan.

         (y) GUARANTIES. None of the Company and its Subsidiaries is a guarantor
or otherwise is liable for any Liability or obligation (including indebtedness)
of any other Person.

         (z) ENVIRONMENTAL, HEALTH AND SAFETY.

                  (i) Each of the Company, its Subsidiaries, and their
         respective predecessors and Affiliates has complied with all
         Environmental, Health and Safety Laws, and no action, suit, proceeding,
         hearing, investigation, charge, complaint, claim, demand, or notice has
         been filed or commenced against any of them alleging any failure so to
         comply. Without limiting the generality of the preceding sentence, each
         of the Company, its Subsidiaries, and their respective predecessors and
         Affiliates has obtained and been in compliance with all of the terms
         and conditions of all permits, licenses, and other authorizations which
         are required under, and has complied with all other limitations,
         restrictions, conditions, standards, prohibitions, requirements,
         obligations, schedules, and timetables which are contained in, all
         Environmental, Health and Safety Laws.



                                      -22-

<PAGE>



                  (ii) None of the Company and its Subsidiaries has any
         Liability (and none of the Company, its Subsidiaries, and their
         respective predecessors and Affiliates has handled or disposed of any
         substance, arranged for the disposal of any substance, exposed any
         employee or other individual to any substance or condition, or owned or
         operated any property or facility in any manner that could form the
         Basis for any present or future action, suit, proceeding, hearing,
         investigation, charge, complaint, claim, or demand against any of the
         Company and its Subsidiaries giving rise to any Liability) for damage
         to any site, location, or body of water (surface or subsurface), for
         any illness of or personal injury to any employee or other individual,
         or for any reason under any Environmental, Health and Safety Law.

                  (iii) All properties and equipment used in the business of the
         Company, its Subsidiaries, and their respective predecessors and
         Affiliates have been free of asbestos, PCB's, methylene chloride,
         trichloroethylene, 1,2-trans-dichloroethylene, dioxins, and
         dibenzofurans.

         (aa) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY OR ITS
SUBSIDIARIES. None of the stockholders of the Company or their Affiliates has
been involved in any business arrangement or relationship with any of the
Company and its Subsidiaries within the past 12 months, and none of the
stockholders of the Company or their Affiliates owns any asset, tangible or
intangible, which is used in the business of any of the Company or its
Subsidiaries.

         (bb) DISCLOSURE. The representations and warranties contained in this
ss.4 do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this ss.4 not misleading.

         5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.

         (a) GENERAL. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
ss.7 below).

         (b) NOTICES AND CONSENTS. The Company will and will use its best
efforts to cause its Subsidiaries to give any notices to third parties, and the
Company will cause each of the Company and its Subsidiaries to use its
reasonable best efforts to obtain any third party consents, that the Buyer
reasonably may request in connection with the matters referred to in ss.4(c)
above. Each of the Parties will give any notices to, make any filings with, and
use its reasonable best efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in connection with the
matters referred to in ss.3(a)(ii) and ss.4(c) above.

         (c) OPERATION OF BUSINESS. The Company will not, and will use its best
efforts to cause its Subsidiaries to not engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of Business.
Without limiting the generality of the foregoing, the Company and


                                      -23-

<PAGE>



the Subsidiaries will not (i) declare, set aside, or pay any dividend or make
any distribution with respect to its capital stock or redeem, purchase, or
otherwise acquire any of its capital stock, or (ii) otherwise engage in any
practice, take any action, or enter into any transaction of the sort described
in ss.4(h) above. The Company shall provide the Buyer a copy of all payments,
complete with documentation of the reason for such payments made by the Company
to third parties. The Company shall have received in writing approval from the
Buyer of all payments in excess of $2,000.

         (d) PRESERVATION OF BUSINESS. The Company and its Subsidiaries will
keep its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.

         (e) FULL ACCESS. The Company will permit, and the Company will use its
best efforts to cause each of its Subsidiaries to permit, representatives of the
Buyer to have full access to all premises, properties, personnel, books, records
(including Tax records), contracts, and documents of or pertaining to each of
the Company and its Subsidiaries.

         (f) NOTICE OF DEVELOPMENTS. The Company will give prompt written notice
to the Buyer of any material adverse development causing a breach of any of the
representations and warranties in ss.4 above. The Buyer will give prompt written
notice to the Company of any material adverse development causing a breach of
any of its own representations and warranties in ss.3 above. No disclosure by
any Party pursuant to this ss.5(f), however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.

         (g) EXCLUSIVITY. Until the later of the Closing Date or the Termination
Date, the Company will (and the Company will use its best efforts to cause or
permit any of its Subsidiaries not to, directly or indirectly, through any
representative or otherwise,) (i) solicit, initiate, or encourage the submission
of any proposal or offer from any Person relating to the acquisition of any
capital stock or other voting securities, or any portion of the assets of, any
of the Company and its Subsidiaries (including any acquisition structured as a
merger, consolidation, or share exchange) or (ii) participate in any discussions
or negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. The Company will notify the Buyer
immediately if any Person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.

         (h) INTENTIONALLY OMITTED.

         (i) LISTING OF SHARES AND APPROVAL BY THE COMPANY'S SHAREHOLDERS. The
Company will take or cause to be taken all action necessary to obtain the
listing of the Shares on the AMEX and the approval by the Company's Shareholders
to the issuance of the Securities.

         (j) MANAGEMENT OF THE SUBSIDIARIES. The Company will take or cause to
be taken all corporate and joint venture actions necessary to enable the Buyer's
designees to assume management of the Company's Subsidiaries.


                                      -24-

<PAGE>



         6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the Closing.

         (a) GENERAL. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under ss.8 below). The
Company acknowledges and agrees that from and after the Closing the Buyer will
be entitled to possession of all documents, books, records (including Tax
records), agreements, and financial data of any sort relating to the Company and
its Subsidiaries.

         (b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving any of the Company and its Subsidiaries, the other
Party will cooperate with it and its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under ss.8
below).

         (c) DEBT IN DEFAULT. The Buyer will use its best efforts to restructure
the $1.8 million currently in default on loans made to the Subsidiaries.

         (d) CAPITAL EXPANSION. The Buyer will use its best efforts to increase
the Company's assets by at least (i) $5 million in 1999 and (ii) an additional
$10 million in 2000 through equity and/or debt financing, which will include the
Buyer exercising its rights pursuant to the Warrants to the extent necessary to
bolster the capital base of the Company.

         (e) OFFICE. As soon as practical after the Closing Date, the Company's
representative office will be relocated to the Buyer's primary office place at
971-B Russell Avenue, Gaithersburg, Maryland. The Company will compensate the
Buyer at market rates for office space and office support and supplies provided
by the Buyer.

         (f) CONFIDENTIALITY. Except as and to the extent required by law, the
Buyer will not disclose or use, and will direct its representatives not to
disclose or use to the detriment of the Company and its Subsidiaries, any
Confidential Information (as defined below) with respect to the Company and its
Subsidiaries furnished, or to be furnished, by the Company and its Subsidiaries
or their respective representatives to the Buyer or its representatives at any
time or in any manner other than in connection with its evaluation of the
transactions contemplated in this Agreement. For purposes of this paragraph,
"Confidential Information" means any information about the Company and its
Subsidiaries stamped "confidential" or identified in writing as such to the
Buyer by the Company promptly following its disclosure, unless (a) such
information is already known to the


                                      -25-

<PAGE>



Buyer or its representatives or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of the Buyer or
its representatives (b) the use of such information is necessary or appropriate
in making any filing or obtaining any consent or approval required for the
consummation of the transaction contemplated by the Agreement, or (c) the
furnishing or use of such information is required by or necessary or appropriate
n connection with legal proceedings. Upon the written request of the Company,
the Buyer will either promptly return to the Company such Confidential
Information or destroy any Confidential Information in its possession and
certify in writing to the Company that it has done so.

         7. CONDITIONS TO OBLIGATION TO CLOSE.

         (a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:

                  (i) The representations and warranties set forth in ss.3(a)
         and ss.4 above shall be true and correct in all material respects at
         and as of the Closing Date.

                  (ii) The Company shall have performed and complied with all of
         its covenants hereunder in all material respects through the Closing.

                  (iii) The Company and its Subsidiaries shall have procured all
         of the third party consents specified in ss.5(b) above.

                  (iv) No action, suit, or proceeding shall be pending or, to
         the Company's Knowledge, threatened before any court or quasi-judicial
         or administrative agency of any federal, state, local, or foreign
         jurisdiction or before any arbitrator wherein an unfavorable
         injunction, judgment, order, decree, ruling, or charge would (A)
         prevent consummation of any of the transactions contemplated by this
         Agreement, (B) cause any of the transactions contemplated by this
         Agreement to be rescinded following consummation, (C) affect adversely
         the right of the Buyer to own the Company Shares and to control the
         Company and its Subsidiaries, or (D) affect adversely the right of any
         of the Company and its Subsidiaries to own its assets and to operate
         its businesses (and no such injunction, judgment, order, decree,
         ruling, or charge shall be in effect).

                  (v) The Company shall have delivered to the Buyer a
         certificate to the effect that each of the conditions specified above
         in ss.7(a)(i)-(iv) is satisfied in all respects.

                  (vi) The Buyer shall have completed a satisfactory due
         diligence examination of the Company.

                  (vii) The Company shall have continued to operate in the
         normal and ordinary course of business until the Closing Date,
         including, maintaining its listing on the American Stock Exchange
         ("AMEX"); AMEX officials shall not have notified the Company of their
         determination to delist the Company from AMEX.


                                      -26-

<PAGE>



                  (viii) The holders of the Convertible Notes as set forth in
         Exhibit D (the "Convertible Notes") attached hereto shall have agreed
         to amend the terms of the Convertible Notes as set forth in Exhibit D.

                  (ix) The Company's cash position on the Closing Date shall be
         at least $1.00, free and clear of any fees, bills, invoices outstanding
         and unpaid, unless the Buyer waives this condition in writing on or
         before the Closing Date.

                  (x) The Company shall have provided to the Buyer a copy of all
         payments, complete with documentation of the reason for such payments,
         made by the Company to third parties. The Company shall have received
         in writing approval from the Buyer of all payments in excess of $2,000.

                  (xi) The Company and its Subsidiaries shall have received all
         other authorizations, consents, and approvals of governments and
         governmental agencies referred to in ss.3(a)(ii) and ss.4(c) above.

                  (xii) The relevant parties shall have entered into side
         agreements in form and substance as set forth in Exhibits E-1 through
         E-2 attached hereto and the same shall be in full force and effect.

                  (xiii) The Buyer shall have received the resignations,
         effective as of the Closing, of each director and officer of the
         Company and its Subsidiaries other than those whom the Buyer shall have
         specified in writing at least five business days prior to the Closing
         and the Buyer's 3 director nominees shall have been appointed to the
         board of directors of the Company.

                  (xiv) The Buyer shall have received a copy of a letter from
         Cornerstone Financial Corporation addressed to the Company that none of
         the Company or its Subsidiaries is obligated to pay a fee to
         Cornerstone Financial Corporation in connection with the transactions
         contemplated by this Agreement.

                  (xv) The Company shall have furnished to the Buyer a favorable
         opinion of Pavia & Harcourt dated the Closing Date substantially in the
         form attached as Exhibit F hereto, as well as opinions from BVI counsel
         to the Company and counsel in China for the Subsidiaries in form and
         scope satisfactory to the Buyer and from counsel acceptable to Buyer.

                  (xvi) All actions to be taken by the Company in connection
         with consummation of the transactions contemplated hereby and all
         certificates, opinions, instruments, and other documents required to
         effect the transactions contemplated hereby will be satisfactory in
         form and substance to the Buyer.

                  (xvii) The Company shall have listed the Shares and the shares
         of Common Stock to be issued upon exercise of the Warrant on the AMEX.



                                      -27-

<PAGE>



The Buyer may waive any condition specified in this ss.7(a) if it executes a
writing so stating at or prior to the Closing.

         (b) CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:

                  (i) The representations and warranties set forth in ss.4 above
         shall be true and correct in all material respects at and as of the
         Closing Date.

                  (ii) The Buyer shall have performed and complied with all of
         its covenants hereunder in all material respects through the Closing.

                  (iii) No action, suit, or proceeding shall be pending or
         threatened before any court or quasi-judicial or administrative agency
         of any federal, state, local, or foreign jurisdiction or before any
         arbitrator wherein an unfavorable injunction, judgment, order, decree,
         ruling, or charge would (A) prevent consummation of any of the
         transactions contemplated by this Agreement or (B) cause any of the
         transactions contemplated by this Agreement to be rescinded following
         consummation (and no such injunction, judgment, order, decree, ruling,
         or charge shall be in effect).

                  (iv) The Buyer shall have delivered to the Company a
         certificate to the effect that each of the conditions specified above
         in ss.7(b)(i)-(iii) is satisfied in all respects

                  (v) The Company and its Subsidiaries shall have received all
         other authorizations, consents, and approvals of governments and
         governmental agencies referred to in ss.3(a)(ii) and ss.4(c) above.

                  (vi) The relevant parties shall have entered into side
         agreements in form and substance as set forth in Exhibits E-1 and E-2
         and the same shall be in full force and effect.

                  (vii) All actions to be taken by the Buyer in connection with
         consummation of the transactions contemplated hereby and all
         certificates, opinions, instruments, and other documents required to
         effect the transactions contemplated hereby will be reasonably
         satisfactory in form and substance to the Company.

                  (viii) Approval of the transactions contemplated herein by the
         Company's board of directors and shareholders.

The Company may waive any condition specified in this ss.7(b), except
ss.7(b)(viii), if the Company executes a writing so stating at or prior to the
Closing.



                                      -28-

<PAGE>



         8.       REMEDIES FOR BREACHES OF THIS AGREEMENT.

         (a)      SURVIVAL OF REPRESENTATIONS AND WARRANTIES.

                  All of the representations and warranties of the Parties
         contained in this Agreement shall survive the Closing hereunder (even
         if the damaged Party knew or had reason to know of any
         misrepresentation or breach of warranty at the time of Closing) and
         continue in full force and effect forever thereafter (subject to any
         applicable statutes of limitations).

         (b)      INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.

                  (i) In the event the Company breaches (or in the event any
         third party alleges facts that, if true, would mean the Company has
         breached) any of its representations, warranties, and covenants
         contained herein (other than the covenants in ss.2(a) above and the
         representations and warranties in ss.3(a) above), and, if there is an
         applicable survival period pursuant to ss.8(a) above, provided that the
         Buyer makes a written claim for indemnification against the Company
         pursuant to ss.11(h) below within such survival period, then the
         Company agrees to indemnity the Buyer from and against the entirety of
         any Adverse Consequences the Buyer may suffer through and after the
         date of the claim for indemnification (including any Adverse
         Consequences the Buyer may suffer after the end of any applicable
         survival period) resulting from, arising out of, relating to, in the
         nature of, or caused by the breach (or the alleged breach).

                  (ii) The Company agrees to indemnify the Buyer from and
         against the entirety of any Adverse Consequences the Buyer may suffer
         resulting from, arising out of, relating to, in the nature of, or
         caused by any Liability of any of the Company and its Subsidiaries (x)
         for any Taxes of the Company and its Subsidiaries with respect to any
         Tax year or portion thereof ending on or before the Closing Date (or
         for any Tax year beginning before and ending after the Closing Date to
         the extent allocable (determined in a manner consistent with ss.9(c))
         to the portion of such period beginning before and ending on the
         Closing Date): to the extent such Taxes are not reflected in the
         reserve for Taxes owed (rather than any reserve for deferred Taxes
         established to reflect timing differences between book and Tax income)
         shown on the face of the Most Recent Balance Sheet (rather than in any
         notes thereto, and prepared in accordance with the generally accepted
         accounting principles of the jurisdiction imposing the tax), as such
         reserve is adjusted for the passage of time through the Closing Date in
         accordance with the past custom and practice of the Company and its
         Subsidiaries in filing their Tax Returns.

                  (iii) The Company agrees to indemnify the Buyer from and
         against the entirety of any Adverse Consequences the Buyer may suffer
         resulting from, arising out of, relating to, in the nature of, or
         caused by the purchase by the Buyer of the Securities.

         (c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE COMPANY. In the event
the Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has


                                      -29-

<PAGE>



breached) any of its representations, warranties, and covenants contained
herein, and, if there is an applicable survival period pursuant to ss.8(a)
above, provided that any of the Company makes a written claim for
indemnification against the Buyer within such survival period, then the Buyer
agrees to indemnify each of the Company from and against the entirety of any
Adverse Consequences the Company may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the Company may
suffer after the end of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach (or the alleged
breach).

         (d)      MATTERS INVOLVING THIRD PARTIES.

                  (i) If any third party shall notify any Party (the
         "Indemnified Party") with respect to any matter (a "Third Party Claim")
         which may give rise to a claim for indemnification against any other
         Party (the "Indemnifying Party") under this ss.8, then the Indemnified
         Party shall promptly notify each Indemnifying Party thereof in writing;
         PROVIDED, HOWEVER, that no delay on the part of the Indemnified Party
         in notifying any indemnifying Party shall relieve the Indemnifying
         Party from any obligation hereunder unless (and then solely to the
         extent) the Indemnifying Party thereby is prejudiced.

                  (ii) Any Indemnifying Party will have the right to defend the
         Indemnified Party against the Third Party Claim with counsel of its
         choice reasonably satisfactory to the Indemnified Party so long as (A)
         the Indemnifying Party notifies the Indemnified Party in writing within
         15 days after the Indemnified Party has given notice of the Third Party
         Claim that the Indemnifying Party will indemnify the Indemnified Party
         from and against the entirety of any Adverse Consequences the
         Indemnified Party may suffer resulting from, arising out of, relating
         to, in the nature of, or caused by the Third Party Claim, (B) the
         Indemnifying Party provides the Indemnified Party with evidence
         reasonably acceptable to the Indemnified Party that the indemnifying
         Party will have the financial resources to defend against the Third
         Party Claim and fulfill its indemnification obligations hereunder, (C)
         the Third Party Claim involves only money damages and does not seek an
         injunction or other equitable relief, (D) settlement of, or an adverse
         judgment with respect to, the Third Party Claim is not, in the good
         faith judgment of the Indemnified Party, likely to establish a
         precedential custom or practice materially adverse to the continuing
         business interests of the Indemnified Party, and (E) the Indemnifying
         Party conducts the defense of the Third Party Claim actively and
         diligently.

                  (iii) So long as the Indemnifying Party is conducting the
         defense of the Third Party Claim in accordance with ss.8(d)(ii) above,
         (A) the Indemnified Party may retain separate co-counsel at its sole
         cost and expense and participate in the defense of the Third Party
         Claim, (B) the Indemnified Party will not consent to the entry of any
         judgment or enter into any settlement with respect to the Third Party
         Claim without the prior written consent of the Indemnifying Party (not
         to be withheld unreasonably), and (C) the Indemnifying Party will not
         consent to the entry of any judgment or enter into any settlement with
         respect to the


                                      -30-

<PAGE>



         Third Party Claim without the prior written consent of the Indemnified
         Party (not to be withheld unreasonably).

                  (iv) In the event any of the conditions in ss.8(d)(ii) above
         is or becomes unsatisfied, however, (A) the Indemnified Party may
         defend against, and consent to the entry of any judgment or enter into
         any settlement with respect to, the Third Party Claim in any manner it
         reasonably may deem appropriate (and the Indemnified Party need not
         consult with, or obtain any consent from, any Indemnifying Party in
         connection therewith), (B) the Indemnifying Parties will reimburse the
         Indemnified Party promptly and periodically for the costs of defending
         against the Third Party Claim (including reasonable attorneys' fees and
         expenses), and (C) the Indemnifying Parties will remain responsible for
         any Adverse Consequences the Indemnified Party may suffer resulting
         from, arising out of, relating to, in the nature of, or caused by the
         Third Party Claim to the fullest extent provided in this ss.8.

         (e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall take into
account the true cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this Section 8. All
indemnification payments under this Section 8 shall be deemed adjustments to the
Purchase Price.

         (f) OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant; PROVIDED, HOWEVER, that Buyer shall not institute any
action against the Acting Chairman of the Company personally based upon any such
breach, so long as the Acting Chairman did not have any actual knowledge of the
facts or circumstances giving rise to the breach and did not commit any fraud.

         9. TAX MATTERS. The following provisions shall govern the allocation to
the Company for certain tax matters following the Closing Date:

         (a) TAX SHARING AGREEMENTS. All tax sharing agreements or similar
agreements with respect to or involving the Company and its Subsidiaries shall
be terminated as of the Closing Date and, after the Closing Date, the Company
and its Subsidiaries shall not be bound thereby or have any liability
thereunder.

         (b) CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by the
Company when due, and the Company will, at their own expense, file all necessary
Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Buyer will, and will cause its affiliates to, join
in the execution of any such Tax Returns and other documentation.



                                      -31-

<PAGE>



         10.      TERMINATION.

         (a) TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
as provided below:

                  (i) The Buyer and the Company may terminate this Agreement by
         mutual written consent at any time prior to the Closing.

                  (ii) The Buyer may terminate this Agreement by giving written
         notice to the Company on or before the close of the 61st day following
         the date of this Agreement if the Buyer is not satisfied with the
         results of its continuing business, legal, and accounting due diligence
         regarding the Company and its Subsidiaries; (A) in the event the
         Company has breached any material representation, warranty, or covenant
         contained in this Agreement in any material respect, the Buyer has
         notified the Company of the breach, and the breach has continued
         without cure for a period of 30 days after the notice of breach or (B)
         if the Closing shall not have occurred on or before June 1, 1999, by
         reason of the failure of any condition precedent under ss.7(a) hereof
         (unless the failure results primarily from the Buyer itself breaching
         any representation, warranty, or covenant contained in this Agreement).

                  (iii) The Company may terminate this Agreement by giving
         written notice to the Buyer on or before the close of the 61st day
         following the date of this Agreement (A) in the event the Buyer has
         breached any material representation, warranty, or covenant contained
         in this Agreement in any material respect, of the Company has notified
         the Buyer of the breach, and the breach has continued without cure for
         a period of 30 days after the notice of breach or (B) if the Closing
         shall not have occurred on or before June 1, 1999, by reason of the
         failure of any condition precedent under ss.7(b) hereof (unless the
         failure results primarily from the Company itself breaching any
         representation, warranty, or covenant contained in this Agreement).

         (b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to ss.10(a) above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in breach).

         (c) TERMINATION FEE. If (a) the Company breaches Section 2 of Part Two
of the Letter of Intent or the Company provides the Buyer with written notice
that negotiations toward the Definitive Agreements are terminated, and (b)
within six months after the date of such breach or the date of delivery of such
written notice, as the case may be, the Company or any of its Subsidiaries signs
a letter of intent or other agreement relating to the acquisition of a material
portion of the Common Stock or of the Company or its Subsidiaries, their assets,
or businesses, in whole or in part, whether directly or indirectly, through
purchase, merger, consolidation or otherwise (other than sales of inventory or
immaterial portion of the Company or its Subsidiaries; assets in the ordinary
course) and such transaction is ultimately consummated, then, immediately upon
the closing of such transaction, the Company will pay, or cause its Subsidiaries
to pay, to the Buyer the sum of $100,000. This fee will not serve as the
exclusive remedy to the Buyer under this Agreement in the event of a breach by
the Company of Section 5(g), and the Buyer will be entitled to all other rights
and remedies provided by law or in equity.


                                      -32-

<PAGE>



         11.      MISCELLANEOUS.

         (a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; PROVIDED, HOWEVER, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its best efforts to advise the other Party prior to
making the disclosure).

         (b) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.

         (c) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.

         (d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the other Party; PROVIDED, HOWEVER, that the Buyer may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).

         (e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.

         (f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

         (g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:

         If to the Company:                 Copy to:
         -----------------                  -------

         C.T. Yeh                           Nicolas J. Puro, Esq.
         c/o Nicolas J. Puro, Esq.          Pavia & Harcourt
         Pavia & Harcourt                   600 Madison Avenue
         600 Madison Avenue                 New York, New York 10022
         New York, New York 10022           Phone: (212) 980-3500
                                            Fax:     (212) 980-3185



                                      -33-

<PAGE>



                                                               and

                                                     Howard H. Jiang,Esq.
                                                     Morgan, Lewis & Bockius
                                                     101 Park Avenue
                                                     New York, New York 10148
                                                     Phone: (212) 309-7078
                                                     Fax:    (212) 309-6273

         If to the Buyer:                            Copy to:
         Bill Zhao                                   Kofi Appenteng, Esq.
         America Orient Group, Inc.                  Thacher Proffitt & Wood
         971-B Russell Avenue                        Two World Trade Center
         Russell Office Park                         New York, New York 10048
         Gaithersburg, Maryland 20879                Phone: (212) 912-7418
         Phone: (301) 670-8880                       Fax:   (212) 912-7751
         Fax:   (301) 670-4721

Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.

         (h) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.

         (i) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Company. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.

         (j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.

         (k) EXPENSES. The Company will bear its own costs and expenses
(including legal fees and expenses and broker's or finder's fees and the
expenses of its representatives) and the Buyer's costs and expenses (including
legal fees and expenses and broker's or finder's fees and the expenses


                                      -34-

<PAGE>



of its representatives) incurred at any time in connection with this Agreement
and the transactions contemplated hereby; PROVIDED, HOWEVER, prior to Closing,
if this Agreement is terminated pursuant to ss.10 above prior to Closing, each
Party shall bear all of their own costs and expenses.

         (l) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.

         (m) INCORPORATION OF EXHIBITS, ANNEXES AND SCHEDULES. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.

         (n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in ss.10(o) below),
in addition to any other remedy to which they may be entitled, at law or in
equity.

         (o) SUBMISSION TO JURISDICTION. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in New York, New York, in any
action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Any
Party may make service on any other Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in ss.10(h) above. Nothing in this ss.10(o), however,
shall affect the right of any Party to bring any action or proceeding arising
out of or relating to this Agreement in any other court or to serve legal
process in any other manner permitted by law or at equity. Each Party agrees
that a final judgment in any action or proceeding so brought shall be conclusive
and may be enforced by suit on the judgment or in any other manner provided by
law or at equity.




                                      -35-

<PAGE>



         IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
December 3, 1998.

                                      AMERICA ORIENT GROUP, INC.


                                      By: /s/ Guoliang Guan
                                         --------------------------------------
                                      Name:   Guoliang Guan
                                      Title:  Senior Vice President

                                      CHINA ENERGY RESOURCES
                                      CORPORATION


                                      By: /s/ C.T. Yeh
                                         --------------------------------------
                                      Name:   C.T. Yeh
                                      Title:  President, Chief Executive Officer
                                                and Acting Chairman



                                      -36-

<PAGE>

                        [EXHIBITS INTENTIONALLY OMITTED]