Exhibit 4.43





                          SECURITIES PURCHASE AGREEMENT

                                   dated as of

                                 April 24, 2001

                                 by and between

                  American International Petroleum Corporation

                                 as the Issuer,

                                       and

                      GCA Strategic Investment Fund Limited


<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<S>                                                                                              <C>
ARTICLE I.  DEFINITIONS...........................................................................1
         Section 1.1  Definitions.................................................................1
         Section 1.2  Accounting Terms and Determinations.........................................7

ARTICLE II.  PURCHASE AND SALE OF SECURITIES......................................................7
         Section 2.1  Purchase and Sale of Convertible Debentures.................................7
         Section 2.2  Purchase Price..............................................................8
         Section 2.3  Closing and Mechanics of Payment............................................8

ARTICLE III.  PAYMENT TERMS OF CONVERTIBLE DEBENTURES.............................................8
         Section 3.1  Payment of Principal and Interest; Payment Mechanics........................8
         Section 3.2  Payment of Interest.........................................................8
         Section 3.3  Voluntary Prepayment........................................................8
         Section 3.4  Mandatory Prepayments.......................................................9
         Section 3.5  Prepayment Procedures.......................................................9
         Section 3.6  Payment of Additional Amounts..............................................10

ARTICLE IV.  REPRESENTATIONS AND WARRANTIES......................................................11
         Section 4.1  Organization and Qualification.............................................11
         Section 4.2  Authorization and Execution................................................11
         Section 4.3  Capitalization ............................................................12
         Section 4.4  Governmental Authorization.................................................12
         Section 4.5  Issuance of Shares.........................................................12
         Section 4.6  No Conflicts...............................................................13
         Section 4.7  Financial Information......................................................13
         Section 4.8  Litigation.................................................................13
         Section 4.9  Compliance with ERISA and other Benefit Plans..............................13
         Section 4.10  Environmental Matters.....................................................14
         Section 4.11  Taxes.....................................................................14
         Section 4.12  Investments, Joint Ventures...............................................14
         Section 4.13  Not an Investment Company.................................................14
         Section 4.14  Full Disclosure...........................................................14
         Section 4.15  No Solicitation; No Integration with Other Offerings......................14
         Section 4.16  Permits...................................................................15
         Section 4.17  Leases....................................................................15
         Section 4.18  Absence of Any Undisclosed Liabilities or Capital Calls...................15
         Section 4.19  Public Utility Holding Company............................................15
         Section 4.20  Intellectual Property Rights..............................................15
         Section 4.21  Insurance.................................................................15
         Section 4.22  Title to Properties.......................................................15
         Section 4.23  Internal Accounting Controls..............................................15
         Section 4.24 Reserved...................................................................16
         Section 4.25  Foreign Practices.........................................................16
         Section 4.26  Title to Certain Assets...................................................16
         Section 4.27  Subsidiaries..............................................................16
</TABLE>


                                       i

<PAGE>

<TABLE>
<S>                                                                                              <C>
ARTICLE V.  REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................16
         Section 5.1  Purchaser..................................................................16

ARTICLE VI.  CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES......................................17
         Section 6.1  Conditions Precedent to Purchaser's Obligations to Purchase................17
         Section 6.2  Conditions to the Company's Obligations....................................19

ARTICLE VII.  AFFIRMATIVE COVENANTS..............................................................19
         Section 7.1 Information.................................................................19
         Section 7.2  Payment of Obligations.....................................................20
         Section 7.3 Maintenance of Property; Insurance..........................................20
         Section 7.4 Maintenance of Existence....................................................20
         Section 7.5 Compliance with Laws........................................................20
         Section 7.6  Inspection of Property, Books and Records..................................20
         Section 7.7  Investment Company Act.....................................................20
         Section 7.8 Use of Proceeds.............................................................20
         Section 7.9  Compliance with Terms and Conditions of Material Contracts.................21
         Section 7.10  Reserved Shares and Listings..............................................21
         Section 7.11  Transfer Agent Instructions...............................................21
         Section 7.12  Maintenance of Reporting Status; Supplemental Information.................22
         Section 7.13  Form D; Blue Sky Laws.....................................................22
         Section 7.14 Certain Payments...........................................................22
         Section 7.15 Amendment to Existing Warrants.............................................22
         Section 7.16 Amendment to Existing Bridge Notes Issued to Purchaser.....................22

ARTICLE VIII.  NEGATIVE COVENANTS................................................................22
         Section 8.1  Limitations on Debt or Other Liabilities...................................22
         Section 8.2  Transactions with Affiliates...............................................23
         Section 8.3  Merger or Consolidation....................................................23
         Section 8.4  Limitation on Asset Sales..................................................23
         Section 8.5  Restrictions on Certain Amendments.........................................23
         Section 8.6  Prohibition on Discounted Equity Offerings.................................24
         Section 8.7  Limitation on Stock Repurchases............................................24

ARTICLE IX.  RESTRICTIVE LEGENDS.................................................................24
         Section 9.1  Restrictions on Transfer...................................................24
         Section 9.2  Notice of Proposed Transfers...............................................24

ARTICLE X.  ADDITIONAL AGREEMENTS AMONG THE PARTIES..............................................25
         Section 10.1  Liquidated Damages........................................................25
         Section 10.2  Conversion Notice.........................................................25
         Section 10.3  Conversion Limit..........................................................25
         Section 10.4  Registration Rights.......................................................26
         Section 10.5  Restriction on Issuance of Securities.....................................26

ARTICLE XI.  ADJUSTMENT OF FIXED PRICE...........................................................27
         Section 11.1  Reorganization............................................................27
         Section 11.2  Share Reorganization......................................................27
         Section 11.3  Rights Offering...........................................................28
         Section 11.4  Special Distribution......................................................29
         Section 11.5 Capital Reorganization.....................................................30
         Section 11.6  Purchase Price Adjustments................................................30
         Section 11.7  Adjustment Rules..........................................................30
</TABLE>


                                       ii
<PAGE>

<TABLE>
<S>                                                                                              <C>
         Section 11.8  Certificate as to Adjustment..............................................30
         Section 11.9  Notice to Holders.........................................................30

ARTICLE XII.  EVENTS OF DEFAULT..................................................................31
         Section 12.1  Events of Default.........................................................31
         Section 12.2  Powers and Remedies Cumulative............................................32

ARTICLE XIII.  MISCELLANEOUS.....................................................................33
         Section 13.1  Notices...................................................................33
         Section 13.2  No Waivers; Amendments....................................................33
         Section 13.3  Indemnification...........................................................35
         Section 13.4  Expenses:  Documentary Taxes..............................................35
         Section 13.5  Payment...................................................................35
         Section 13.6  Successors and Assigns....................................................35
         Section 13.7  Brokers...................................................................35
         Section 13.8  New York Law; Submission to Jurisdiction; Waiver of Jury Trial;
                       Appointment of Agent......................................................35
         Section 13.9  Entire Agreement..........................................................36
         Section 13.10 Survival; Severability....................................................36
         Section 13.12 Reporting Entity for the Common Stock.  ..................................36
         Section 13.13 Publicity.................................................................36
</TABLE>


                                       iii
<PAGE>

LIST OF SCHEDULES

Schedule 4.3               Capitalization
Schedule 4.7               Financial Information
Schedule 4.8               Litigation
Schedule 4.12              Investments, Joint Ventures
Schedule 4.27              Subsidiaries
Schedule 7.8               Use of Proceeds
Schedule 7.16              Bridge Notes Issued to Purchaser
Schedule 8.2               Transactions with Affiliates


                                       iv

<PAGE>


                                LIST OF EXHIBITS

Exhibit A          Form of Convertible Debentures
Exhibit B          Form of Registration Rights Agreement
Exhibit C          Form of Solvency Certificate
Exhibit D          Form of Officer's Certificate
Exhibit E          Form of Escrow Agreement
Exhibit F          Form of Common Stock Purchase Warrant
Exhibit G          Pledge and Security Agreement
Exhibit H          Mortgage and Security Agreement



                                       v
<PAGE>

                          SECURITIES PURCHASE AGREEMENT

     AGREEMENT,  dated as of April  24,  2001,  between  American  International
Petroleum Corporation (the "Company"),  a Nevada corporation,  and GCA Strategic
Investment Fund Limited ("Purchaser"), a Bermuda Corporation.

                                R E C I T A L S:

     WHEREAS, the Company desires to sell and issue to Purchaser,  and Purchaser
desires to purchase from the Company,  $3,340,000  aggregate principal amount of
the Company's 3%  Convertible  Debentures  due April 24, 2002 (the  "Convertible
Debentures"),  with terms and conditions as set forth in the form of Convertible
Debenture attached hereto as Exhibit A;

     WHEREAS, the Convertible  Debentures will be convertible into shares of the
Company's common stock, $0.08 par value per share (the "Common Stock");

     WHEREAS,  in order to induce the  Purchaser to enter into the  transactions
described in this  Agreement,  the Company  desires to issue to the  Purchaser a
warrant  to  purchase  1,500,000  shares of Common  Stock upon the  Closing  (as
defined herein) on the terms and conditions  described in the form of the common
stock purchase warrant attached hereto as Exhibit F (the "Warrants"); and

     WHEREAS,  Purchaser will have certain  registration  rights with respect to
such shares of Common Stock issuable as interest under,  and upon conversion of,
the Convertible  Debentures  (the  "Debenture  Shares") and upon exercise of the
Warrants (the  "Warrant  Shares," the  Debenture  Shares and the Warrant  Shares
being collectively  referred to herein as the "Conversion  Shares") as set forth
in the Registration Rights Agreement in the form attached hereto as Exhibit B;

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

                             ARTICLE 1. DEFINITIONS

     Section 1.1  Definitions.  The following  terms,  as used herein,  have the
following meanings:

     "Additional  Shares of Common  Stock" has the  meaning set forth in Section
11.6.

     "Affiliate" means, with respect to any Person (the "Subject  Person"),  (i)
any other Person (a "Controlling  Person") that directly,  or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other  than the  Subject  Person or a  Consolidated  Subsidiary  of the Subject
Person)  which is  Controlled  by or is under common  Control with a Controlling
Person.

     "Agreement"  means  this  Securities   Purchase   Agreement,   as  amended,
supplemented  or otherwise  modified  from time to time in  accordance  with its
terms.

     "Asset Sale" has the meaning set forth in Section 8.4.

     "Balance Sheet Date" has the meaning set forth in Section 4.7.

     "Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by the Company.

     "Benefit Plans" has the meaning set forth in Section 4.9(b).


                                       1
<PAGE>


     "Business  Day"  means any day  except a  Saturday,  Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.

     "Capital Reorganization" has the meaning set forth in Section 11.5.

     "Change in Control" means (i) after the date of this Agreement,  any person
or group of persons  (within the  meaning of Sections 13 and 14 of the  Exchange
Act and the rules and  regulations of the Commission  relating to such sections)
other than  Purchaser  shall have  acquired  beneficial  ownership  (within  the
meaning of Rules 13d-3 and 13d-5  promulgated by the Commission  pursuant to the
Exchange Act) of 331/3% or more of the outstanding shares of Common Stock of the
Company;  (ii) any sale or other  disposition  (other than by reason of death or
disability) to any Person by any executive officers and/or employee directors of
the  Company   within  ten  Trading  Days  following  the  dates  on  which  the
Registration  Statement Amendment and the Registration  Statement (as such terms
are defined in Section 10.4 of this  Agreement)  are  declared  effective by the
Commission. (iii) individuals constituting the Board of Directors of the Company
on the date hereof (together with any new Directors whose election by such Board
of Directors or whose nomination for election by the shareholders of the Company
was  approved by a vote of at least 50.1% of the  Directors  still in office who
are either  Directors as of the date hereof or whose  election or nomination for
election was  previously  so  approved),  cease for any reason to  constitute at
least two-thirds of the Board of Directors of the Company then in office.

     "Closing Bid Price" shall mean for any security as of any date,  the lowest
closing bid price as reported by Bloomberg,  L.P. ("Bloomberg") on the principal
securities  exchange or trading  market where such  security is listed or traded
or, if the  foregoing  does not  apply,  the  lowest  closing  bid price of such
security in the  over-the-counter  market on the  electronic  bulletin board for
such  security as  reported  by  Bloomberg,  or, if no lowest  trading  price is
reported for such security by  Bloomberg,  then the average of the bid prices of
any market  makers for such  securities  as reported in the "Pink Sheets" by the
National  Quotation  Bureau,  Inc.  If the lowest  closing  bid price  cannot be
calculated  for such  security on such date on any of the foregoing  bases,  the
lowest  closing bid price of such security on such date shall be the fair market
value as  mutually  determined  by  Purchaser  and the  Company  for  which  the
calculation of the closing bid price requires, and in the absence of such mutual
determination,  as  determined  by the Board of Directors of the Company in good
faith.

     "Closing Date" means the date hereof.

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

     "Commission"  means the  Securities  and Exchange  Commission or any entity
succeeding to all of its material functions.

     "Common  Stock" means the common stock,  $0.08 par value per share,  of the
Company.

     "Company"  means American  International  Petroleum  Corporation,  a Nevada
corporation, and its successors.

     "Company  Corporate  Documents" means the certificate of incorporation  and
bylaws of the Company.

     "Consolidated Net Worth" means at any date the total  shareholder's  equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.

     "Consolidated  Subsidiary"  means at any date with respect to any Person or
Subsidiary or other  entity,  the accounts of which would be  consolidated  with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.


                                       2
<PAGE>


     "Control" (including,  with correlative meanings,  the terms "Controlling,"
"Controlled by" and under "common  Control  with"),  as used with respect to any
Person, means the possession,  directly or indirectly, of the power to direct or
cause the  direction of the  management  and  policies of that  Person,  whether
through the ownership of voting securities, by contract or otherwise.

     "Conversion Date" shall mean the date of delivery  (including  delivery via
telecopy)  of a Notice  of  Conversion  for all or a  portion  of a  Convertible
Debenture by the holder thereof to the Company as specified in each  Convertible
Debenture.

     "Conversion Price" has the meaning set forth in the Convertible Debentures.

     "Conversion Shares" has the meaning set forth in the Recitals.

     "Convertible  Debentures" means the Company's 3% Convertible Debentures due
April 24, 2002 substantially in the form set forth as Exhibit A hereto.

     "Deadline" has the meaning set forth in Section 10.1.

     "Debt"  of any  Person  means at any  date,  without  duplication,  (i) all
obligations  of such Person for borrowed  money,  (ii) all  obligations  of such
Person  evidenced by bonds,  debentures,  notes,  or other  similar  instruments
issued by such Person,  (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to  sale-leaseback
transactions,  (iv) all  reimbursement  obligations of such Person in respect of
letters of credit or other similar  instruments,  (v) all Debt of others secured
by a Lien on any asset of such Person,  whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.

     "Default"  means  any  event or  condition  which  constitutes  an Event of
Default  or which  with the  giving of  notice  or lapse of time or both  would,
unless cured or waived, become an Event of Default.

     "Derivative Securities" has the meaning set forth in Section 8.6.

     "Discounted Equity Offerings" has the meaning set forth in Section 8.6.

     "Directors" means the individuals then serving on the Board of Directors or
similar such management council of the Company.

     "Environmental  Laws" means any and all federal,  state,  local and foreign
statutes,  laws, regulations,  ordinances,  rules,  judgments,  orders, decrees,
permits,  concessions,   grants,  franchises,   licenses,  agreements  or  other
governmental   restrictions   relating  to  the  environment  or  to  emissions,
discharges  or releases of  pollutants,  contaminants,  petroleum  or  petroleum
products,  chemicals or industrial, toxic or hazardous substances or wastes into
the  environment,  including,  without  limitation,  ambient air, surface water,
ground water,  or land, or otherwise  relating to the  manufacture,  processing,
distribution,  use,  treatment,  storage,  disposal,  transport  or  handling of
pollutants,   contaminants,   petroleum  or  petroleum  products,  chemicals  or
industrial,  toxic or  hazardous  substances  or wastes or the  cleanup or other
remediation thereof.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended, or any successor statute.

     "ERISA  Group" means the Company and each  Subsidiary  and all members of a
controlled  group of corporations  and all trades or businesses  (whether or not
incorporated)  under  common  control  which,  together  with the Company or any
Subsidiary, are treated as a single employer under the Code.



                                       3
<PAGE>

     "Event of Default" has the meaning set forth in Article XII hereof.

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

     "Expense Reimbursement Fee" has the meaning set forth in Section 13.4.

     "Financing"  means a  public  or  private  financing  consummated  (meaning
closing and  funding)  through the  issuance  of debt or equity  securities  (or
securities  convertible into or exchangeable  for debt or equity  securities) of
the Company, other than Permitted Financings.

     "Fixed Price(s)" has the meaning set forth in Section 11.1.

     "Formula Price" has the meaning set forth in Section 3.4 (a).

     "GAAP" has the meaning set forth in Section 1.2.

     "Guarantee" by any Person means any obligation, contingent or otherwise, of
such  Person  directly  or  indirectly   guaranteeing   (whether  by  virtue  of
partnership arrangements,  by agreement to keep well, to purchase assets, goods,
securities  or  services,  to  take-or-pay,  or to maintain a minimum net worth,
financial  ratio or similar  requirements,  or otherwise)  any Debt of any other
Person and,  without  limiting the generality of the foregoing,  any obligation,
direct or indirect,  contingent or otherwise,  of such Person (i) to purchase or
pay (or  advance or supply  funds for the  purchase  or payment of) such Debt or
(ii)  entered into for the purpose of assuring in any other manner the holder of
such Debt of the  payment  thereof or to protect  such  holder  against  loss in
respect  thereof (in whole or in part);  provided that the term Guarantee  shall
not include  endorsements  for  collection or deposit in the ordinary  course of
business. The term Guarantee used as a verb has a corresponding meaning.

     "Hazardous  Materials"  means any hazardous  materials,  hazardous  wastes,
hazardous  constituents,  hazardous or toxic  substances  or petroleum  products
(including  crude  oil  or any  derivative  or  fraction  thereof),  defined  or
regulated as such in or under any Environmental Laws.

     "Intellectual Property" has the meaning set forth in Section 4.20.

     "Investment" means any investment in any Person,  whether by means of share
purchase,  partnership  interest,  capital  contribution,  loan, time deposit or
otherwise.

     "Lien"  means  any  lien,  mechanic's  lien,   materialmen's  lien,  lease,
easement,  charge,  encumbrance,  mortgage,  conditional  sale agreement,  title
retention  agreement,   agreement  to  sell  or  convey,  option,  claim,  title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other  adverse  claim,  whether  arising by contract or under law or
otherwise   (including,   without   limitation,   any  financing   lease  having
substantially  the same economic effect as any of the foregoing,  and the filing
of any financing  statement under the Uniform  Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).

     "Listing Applications" has the meaning set forth in Section 4.4.

     "Majority Holders" means (i) as of the Closing Date,  Purchaser and (ii) at
any time thereafter,  the holders of more than 50% in aggregate principal amount
of the 3% Convertible Debentures due April 24, 2002 outstanding at such time.

     "Market  Price"  shall  mean the  Closing  Bid  Price of the  Common  Stock
preceding the date of determination.

     "Maturity  Date"  shall  mean  the  date  of  maturity  of the  Convertible
Debentures.



                                       4
<PAGE>


     "Maximum  Number of Shares" shall mean that percentage that the Company may
issue without  shareholder  approval under the applicable  rules of the National
Market or the applicable OTC Bulletin  Board or equivalent  entity,  of the then
issued  and  outstanding  shares  of  Common  Stock  of  the  Company  as of the
applicable  date of  determination,  or such  greater  number  of  shares as the
shareholders of the Company may have previously approved.

     "Mortgage"  means the  agreement  between St.  Marks  Refinery,  Inc.,  the
Company and Purchaser dated the date hereof substantially in the form of Exhibit
H attached hereto.

     "NASD" has the meaning set forth in Section 7.10.

     "Nasdaq Market" means the Nasdaq Stock Market's National Market System.

     "National Market" means the Nasdaq Market, the Nasdaq Small Cap Market, the
New York Stock Exchange, Inc. or the American Stock Exchange, Inc.

     "Net Cash  Proceeds"  means,  with  respect to any  transaction,  the total
amount of cash  proceeds  received  by the  Company or any  Subsidiary  less (i)
reasonable  underwriters' fees, brokerage commissions,  reasonable  professional
fees and other customary  out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions,  and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and  required to be, and  actually  repaid by the Company or any  Subsidiary  in
connection therewith, and any trade payables specifically relating to such asset
or assets  sold by the  Company or any  Subsidiary  that are not  assumed by the
purchaser of such asset or assets.

     "Notice  of  Conversion"  means the form to be  delivered  by a holder of a
Convertible Debenture upon conversion of all or a portion thereof to the Company
substantially in the form of Exhibit A to the form of Convertible Debenture.

     "Notice  of  Exercise"  means  the form to be  delivered  by a holder  of a
Warrant upon exercise of all or a portion  thereof to the Company  substantially
in the form of Exhibit A to the Warrant.

     "Officer's Certificate" shall mean a certificate executed by the president,
chief executive officer or chief financial officer of the Company in the form of
Exhibit D attached hereto.

     "OTC Bulletin Board" means the over-the-counter  bulletin board operated by
the NASD.

     "Other Taxes" has the meaning set forth in Section 3.6(b).

     "PBGC"  means  the  Pension  Benefit  Guaranty  Corporation  or any  entity
succeeding to any or all of its functions under ERISA.

     "Permits"  means all domestic  and foreign  licenses,  franchises,  grants,
authorizations,    permits,   easements,   variances,    exemptions,   consents,
certificates,  orders and  approvals  necessary  to own,  lease and  operate the
properties of, and to carry on the business of the Company and the Subsidiaries.

     "Permitted Financings" has the meaning set forth in Section 10.5.

     "Person" means an individual, corporation, partnership, trust, incorporated
or unincorporated  association,  joint venture, joint stock Company,  government
(or any agency or political subdivision thereof) or other entity of any kind.



                                       5
<PAGE>

     "Plan" means at any time an employee  pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding  standards under the Code
and  either (i) is  maintained,  or  contributed  to, by any member of the ERISA
Group for  employees  of any  member of the ERISA  Group or (ii) has at any time
within the  preceding  five years been  maintained,  or  contributed  to, by any
Person  which was at such time a member of the ERISA Group for  employees of the
Person which was at such time a member of the ERISA Group.

     "Purchase  Price" means the purchase  price for the Securities set forth in
Section 2.2 hereof.

     "Purchaser" means GCA Strategic  Investment Fund Limited and its successors
and assigns, including holders from time to time of the Convertible Debentures.

     "Recourse  Financing" means Debt of the Company or any Subsidiary which, by
its terms,  does not bar the lender  thereof from action  against the Company or
any Subsidiary,  as borrower or guarantor,  if the security value of the project
or asset  pledged in respect  thereof  falls below the amount  required to repay
such Debt.

     "Redemption Event" has the meaning set forth in Section 3.4.

     "Registrable Securities" has the meaning set forth in Section 10.4(a).

     "Registration  Default"  has the  meaning  set  forth in  Section  10.4(e).
"Registration Maintenance Period" has the meaning set forth in Section 10.4(e).

     "Registration Statement" has the meaning set forth in Section 10.4(b).

     "Registration Rights Agreement" means the agreement between the Company and
Purchaser dated the date hereof substantially in the form set forth in Exhibit B
attached hereto.

     "Required Effectiveness Date" has the meaning set forth in Section 10.4(b).

     "Reserved Amount" has the meaning set forth in Section 7.10(a).

     "Restricted Payment" means, with respect to any Person, (i) any dividend or
other  distribution  on any  shares  of  capital  stock of such  Person  (except
dividends  payable solely in shares of capital stock of the same or junior class
of such Person and dividends from a wholly-owned  direct or indirect  Subsidiary
of the  Company to its parent  corporation),  (ii) any payment on account of the
purchase,  redemption,  retirement  or  acquisition  of (a) any  shares  of such
Person's  capital  stock or (b) any  option,  warrant or other  right to acquire
shares of such  Person's  capital stock or (iii) any loan, or advance or capital
contribution  to any Person (a  "Stockholder")  owning any capital stock of such
Person other than relocation,  travel or like advances to officers and employees
in the ordinary course of business,  and other than  reasonable  compensation as
determined by the Board of Directors.

     "Rights Offering" has the meaning set forth in Section 11.3.

     "Sale Event" has the meaning set forth in Section 3.4.

     "SEC Reports" shall have the meaning set forth in Section 7.1(a).

     "Security  Agreement" means the Pledge and Security  Agreement  between the
Company and Purchaser dated the date hereof substantially in the form of Exhibit
G attached hereto.

     "Securities"  means  the  Convertible  Debentures,  the  Warrants  and,  as
applicable, the Conversion Shares.



                                       6
<PAGE>

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

     "Share Reorganization" has the meaning set forth in Section 11.2.

     "Solvency  Certificate"  shall  mean a  certificate  executed  by the chief
financial officer of the Company as to the solvency of the Company, the adequacy
of its capital and its ability to pay its debts,  all after giving effect to the
issuance  and  sale of the  Convertible  Debentures  and the  completion  of the
offering  (including  without  limitation the payment of any fees or expenses in
connection  therewith),  which such Solvency Certificate shall be in the form of
Exhibit C attached hereto.

     "Special Distribution" has the meaning set forth in Section 11.4.

     "Subsidiary" has the meaning set forth in Section 4.27.

     "Subsidiary  Corporate  Documents"  means the certificates of incorporation
and bylaws of each Subsidiary.

     "Taxes" has the meaning set forth in Section 3.6.

     "Trading  Day" shall mean any  Business  Day in which the Nasdaq  Market or
other automated  quotation  system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.

     "Transaction  Agreements" means this Agreement, the Convertible Debentures,
the Warrant,  the Registration  Rights Agreement,  the Security  Agreement,  the
Mortgage and the other agreements contemplated by this Agreement.

     "Transfer" means any disposition of Securities that would constitute a sale
thereof under the Securities Act.

     "Unfunded  Liabilities"  means,  with respect to any Plan at any time,  the
amount  (if any) by which  (i) the  present  value of all  benefits  under  Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions),  all determined as of the then
most  recent  valuation  date for such Plan,  but only to the  extent  that such
excess  represents  a potential  liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.

     "Warrant" means the Common Stock Purchase Warrant substantially in the form
set forth in Exhibit F hereto.

     Section 1.2 Accounting Terms and Determinations. Unless otherwise specified
herein,  all accounting  terms used herein shall be interpreted,  all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared,  in accordance with generally accepted
accounting  principles  as in effect from time to time,  applied on a consistent
basis  (except for changes  concurred  in by the  Company's  independent  public
accountants)  ("GAAP").  All  references to  "dollars,"  "Dollars" or "$" are to
United States dollars unless otherwise indicated.

                   ARTICLE II. PURCHASE AND SALE OF SECURITIES

     Section 2.1 Purchase and Sale of Convertible Debentures.

     (a)  Subject to the terms and  conditions  set forth  herein,  the  Company
agrees to issue and sell to Purchaser, and Purchaser agrees to purchase from the
Company,  Convertible  Debentures  in the  aggregate  principal  amount of Three
Million Three Hundred Forty Thousand Dollars ($3,340,000.00).



                                       7
<PAGE>

     (b)  In  connection  with  the   Purchaser's   agreement  to  purchase  the
Convertible Debentures specified in this Article II, the Company shall issue and
deliver to the  Purchaser on the Closing Date a Warrant to purchase an aggregate
of 1,500,000 shares of Common Stock.

     Section  2.2  Purchase  Price.  The  purchase  price  for  the  Convertible
Debentures on the Closing Date (as defined herein) shall be 95% of the principal
amount  thereof.  No part of the purchase  price of the  Convertible  Debentures
shall be  allocated  to the  Warrant.  Therefore,  the  aggregate  consideration
payable by Purchaser to the Company for the Convertible  Debentures and Warrants
on the Closing Date shall be Three Million One Hundred  Seventy  Three  Thousand
Dollars ($3,173,000.00) (the "Purchase Price").

     Section 2.3 Closing and Mechanics of Payment.

     (a) The Purchase Price,  less any transaction  fees set forth herein and in
the Transaction  Agreements,  shall be paid on the Closing Date by wire transfer
of immediately available funds.

     (b) The  Convertible  Debentures  and  Warrants  issued on the Closing Date
shall be dated  the date  hereof  and  interest  shall  begin to  accrue  on the
Convertible Debentures as of the date hereof.

              ARTICLE III. PAYMENT TERMS OF CONVERTIBLE DEBENTURES

     Section 3.1 Payment of  Principal  and  Interest;  Payment  Mechanics.  The
Company will pay all amounts due on each Convertible Debenture by the method and
at the address  specified for such purpose by Purchaser in writing,  without the
presentation  or  surrender  of any  Convertible  Debenture or the making of any
notation  thereon,  except  that  upon  written  request  of  the  Company  made
concurrently with or reasonably  promptly after payment or prepayment in full of
this Convertible Debenture, the holder shall surrender the Convertible Debenture
for cancellation,  reasonably promptly after any such request, to the Company at
its principal  executive  office.  Prior to any sale or other disposition of any
Convertible Debenture, the holder thereof will, at its election,  either endorse
thereon the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender the  Convertible  Debenture to the Company in
exchange for a new Convertible Debenture or Convertible Debentures.  The Company
will  afford  the  benefits  of  this  Section  3.1 to any  direct  or  indirect
transferee of the Convertible  Debenture purchased under this Agreement and that
has made the same agreement relating to this Convertible  Debenture as Purchaser
has in this  Section  3.1;  provided  that  such  transferee  is an  "accredited
investor" under Rule 501 of the Securities Act.

     Section 3.2 Payment of Interest.  Interest shall accrue on the  outstanding
principal amount of each Convertible Debenture and shall be payable as specified
therein.

     Section 3.3 Voluntary Prepayment.  For so long as no Event of Default shall
have occurred and is continuing, the Company may, at its option, repay, in whole
or in part, the Convertible Debentures, in accordance with Sections 3 and 5.1 of
Exhibit A hereto, following at least five (5) Business Days prior written notice
to  Purchaser  (the  expiration  date of such five (5) Business Day period being
referred to as the "prepayment date");  provided,  however, that if such date is
not a  Business  Day,  the  prepayment  date  shall  be the  next  Business  Day
thereafter.



                                       8
<PAGE>

     Section 3.4 Mandatory Prepayments.

     (a) Upon (i) the  occurrence of a Change in Control of the Company,  (ii) a
transfer of all or substantially  all of the assets of the Company to any Person
in  a  single   transaction   or  series  of  related   transactions,   (iii)  a
consolidation, merger or amalgamation of the Company with or into another Person
in which the Company is not the  surviving  entity (other than a merger which is
effected solely to change the  jurisdiction of  incorporation of the Company and
results in a  reclassification,  conversion or exchange of outstanding shares of
Common  Stock solely into shares of Common  Stock) (each of items (i),  (ii) and
(iii)  being  referred  to as a "Sale  Event"),  or  (iv)  the  occurrence  of a
Registration  Default which continues  uncured for a period of twenty (20) days,
then, in each case,  the Company  shall,  upon request of the Majority  Holders,
redeem the  Convertible  Debentures  and Warrants,  subject to the provisions of
Section  5 of  the  Convertible  Debentures  and  Section  13 of  the  Warrants,
respectively. The redemption price payable upon any such redemption shall be the
Redemption  Price in Section 5 of the  Convertible  Debentures and Section 13 of
the Warrants, respectively (referred to herein as the "Formula Price").

     (b) At the  option  of  Purchaser,  upon  the  consummation  of one or more
Financings  except a Permitted  Financing,  the Company shall use 25% of the Net
Cash Proceeds  therefrom (unless such Net Cash Proceeds from each such Financing
is less than $250,000) to redeem the Convertible Debentures.

     (c) Upon the  issuance  of the  Maximum  Number of Shares  and the  failure
within  40 days  of such  issuance  to  obtain  shareholder  approval  to  issue
additional  shares of Common Stock (the "Redemption  Event"),  the Company shall
redeem the outstanding balance of each Convertible Debenture and Warrant for the
Formula Price.

     (d) In the  event  that  there is an  insufficient  number  of  authorized,
issuable,  unlegended  and freely  tradeable  shares of Common Stock  registered
under the  Registration  Statement  filed by the  Company to fully  convert  the
Convertible Debentures and exercise all Warrants held by Purchaser and sell such
shares issued thereon,  then the Company shall  immediately file an amendment to
the then current registration  statement to register a sufficient number of such
shares to convert said  Convertible  Debentures  and Warrants.  Upon the failure
within twenty (20) Trading Days to register a sufficient  number of such shares,
the Company shall redeem the outstanding  balance of each Convertible  Debenture
and  Warrant  for the  Formula  Price.  In  addition,  failure of the Company to
register a sufficient  number of such shares to fully  convert said  Convertible
Debentures  and exercise such  Warrants  shall be a  Registration  Default under
Section  10.4(e)  from the date of the Notice of  Conversion  to the date of the
earlier of (i) the  redemption  of the  outstanding  balance of the  Convertible
Debentures  and  exercise of all such  Warrants or (ii) full  conversion  of the
Convertible Debentures and exercise of all such Warrants.

     Section 3.5 Prepayment Procedures

     (a) Any permitted  prepayment or redemption of the  Convertible  Debentures
and  Warrants,  as  applicable  pursuant to  Sections  3.3 or 3.4 above shall be
deemed to be effective and consummated  (for purposes of determining the Formula
Price  and the time at which  Purchaser  shall  thereafter  not be  entitled  to
deliver a Notice of Conversion for the Convertible Debentures) as follows:

          (i) A  prepayment  pursuant  to Section  3.3,  the  "prepayment  date"
     specified therein;

          (ii) A redemption pursuant to Section 3.4(a), the date of consummation
     of the applicable Sale Event or the Registration Default;

          (iii) A redemption pursuant to Section 3.4(b), three (3) Business Days
     following the date of  consummation  of the applicable  Financing  (meaning
     closing and funding); and

          (iv) A redemption  pursuant to Section  3.4(c),  the date specified in
     each Convertible Debenture.


                                       9
<PAGE>

     (b) On the  Maturity  Date and on the  effective  date of a  prepayment  or
redemption of the  Convertible  Debentures  and Warrants as specified in Section
3.5(a)  above,  the  Company  shall  deliver  by  wire  transfer  of  funds  the
prepayment/redemption  price to  Purchaser  of the  Convertible  Debentures  and
Warrants  subject to  prepayment  or  redemption.  Should  Purchaser not receive
payment of any  amounts  due on  prepayment  or  redemption  of its  Convertible
Debentures  and Warrants by reason of the  Company's  failure to make payment at
the  times  prescribed  above  for any  reason,  the  Company  shall  pay to the
applicable  holder on demand  (x)  interest  on the sums not paid when due at an
annual rate equal to the greater of (I) the maximum lawful rate and (II) 18% per
annum,  compounded  at the end of each  thirty (30) days,  until the  applicable
holder  is paid in full and (y) all  costs  of  collection,  including,  but not
limited to, reasonable  attorneys' fees and costs,  whether or not suit or other
formal proceedings are instituted.

     (c) The Company shall select the Convertible  Debentures and Warrants to be
redeemed in any  redemption in which not all of the  Convertible  Debentures and
Warrants are to be redeemed so that the ratio of the Convertible  Debentures and
Warrants  of each  holder  selected  for  redemption  to the  total  Convertible
Debentures  and Warrants  owned by that holder shall be the same as the ratio of
all such  Convertible  Debentures and Warrants  selected for redemption bears to
the total of all then outstanding  Convertible  Debentures and Warrants.  Should
any Convertible  Debentures and Warrants required to be redeemed under the terms
hereof not be  redeemed  solely by reason of  limitations  imposed  by law,  the
applicable Convertible Debentures and Warrants shall be redeemed on the earliest
possible dates thereafter to the maximum extent permitted by law.

     (d) Any Notice of Conversion delivered by Purchaser (including delivery via
telecopy) to the Company prior to the (x) Maturity Date or (y) effective date of
a  voluntary  prepayment  pursuant  to  Section  3.3 or a  mandatory  prepayment
pursuant to Section 3.4 as specified in Section 3.5(a) above),  shall be honored
by the Company and the conversion of the Convertible  Debentures shall be deemed
effected on the  Conversion  Date. In addition,  between the effective date of a
voluntary  prepayment pursuant to Section 3.3 or a mandatory prepayment pursuant
to Section 3.4 as specified in Section  3.5(a) above and the date the Company is
required to deliver the redemption proceeds in full to Purchaser,  Purchaser may
deliver a Notice of  Conversion  to the  Company.  Such notice will be (x) of no
force or effect if the Company timely pays the prepayment or redemption proceeds
to  Purchaser  when due or (y)  honored  on or as of the date of the  Notice  of
Conversion  if the  Company  fails to timely pay the  prepayment  or  redemption
proceeds to Purchaser when due.

     Section 3.6 Payment of Additional Amounts.

     (a) Any and all payments by the Company  hereunder or under the Convertible
Debentures to Purchaser and each "qualified assignee" thereof shall be made free
and clear of and without  deduction  or  withholding  for any and all present or
future taxes,  levies,  imposts,  deductions,  charges or withholdings,  and all
liabilities with respect thereto (all such taxes, levies,  imposts,  deductions,
charges,  withholdings and liabilities being hereinafter referred to as "Taxes")
unless  such  Taxes are  required  by law or the  administration  thereof  to be
deducted  or  withheld.  If  the  Company  shall  be  required  by  law  or  the
administration thereof to deduct or withhold any Taxes from or in respect of any
sum payable under the Convertible  Debentures (i) the holders of the Convertible
Debentures  subject to such Taxes shall have the right,  but not the obligation,
for a period of thirty (30) days  commencing upon the day it shall have received
written  notice  from the  Company  that it is  required  to  withhold  Taxes to
transfer  all or  any  portion  of the  Convertible  Debentures  to a  qualified
assignee to the extent such  transfer  can be  effected in  accordance  with the
other  provisions of this Agreement and  applicable  law; (ii) the Company shall
make such deductions or  withholdings;  (iii) the sum payable shall be increased
as may be necessary so that after making all required deductions or withholdings
(including  deductions or  withholdings  applicable  to additional  amounts paid
under this Section 3.6)  Purchaser  receives an amount equal to the sum it would
have received if no such  deduction or  withholding  had been made; and (iv) the
Company shall forthwith pay the full amount deducted or withheld to the relevant
taxation  or  other  authority  in  accordance  with


                                       10
<PAGE>

applicable.  A "qualified assignee" of a Purchaser is a Person that is organized
under the laws of (i) the United States or (II) any jurisdiction  other than the
United States or any political  subdivision  thereof and that (y) represents and
warrants to the Company that payments of the Company to such assignee  under the
laws in  existence  on the date of this  Agreement  would not be  subject to any
Taxes and (z) from time to time, as and when requested by the Company,  executes
and delivers to the Company and the Internal Revenue Service forms, and provides
the  Company  with  any  information  necessary  to  establish  such  assignee's
continued exemption from Taxes under applicable law.

     (b) The  Company  shall  forthwith  pay any  present  or  future  stamp  or
documentary  taxes or any other  excise or  property  taxes,  charges or similar
levies (all such taxes,  charges  and levies  hereinafter  referred to as "Other
Taxes")  which  arise  from  any  payment  made  under  any of  the  Transaction
Agreements or from the execution, delivery or registration of, or otherwise with
respect to, this  Agreement  other than Taxes payable  solely as a result of the
transfer from Purchaser to a Person of any Security.

     (c) The Company shall indemnify Purchaser,  or qualified assignee,  for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any  jurisdiction  on amounts  payable under this Section
3.6) paid by Purchaser,  or qualified  assignee,  and any  liability  (including
penalties,  interest and expenses)  arising  therefrom or with respect  thereto,
whether or not such Taxes or Other  Taxes were  correctly  or legally  asserted.
Payment  under this  indemnification  shall be made within 30 days from the date
Purchaser or assignee  makes written  demand  therefor.  A certificate as to the
amount of such Taxes or Other Taxes  submitted  to the Company by  Purchaser  or
qualified  assignee  shall be  conclusive  evidence  of the  amount due from the
Company to such party.

     (d) Within 30 days after the date of any payment of Taxes, the Company will
furnish to Purchaser  the original or a certified  copy of a receipt  evidencing
payment thereof.

     (e) Purchaser shall provide to the Company a form W-8, stating that it is a
non-U.S.  person,  together with any  additional tax forms which may be required
under the Code, as amended after the date hereof,  to allow interest payments to
be made to it without deduction.

                   ARTICLE IV. REPRESENTATIONS AND WARRANTIES

     The Company represents and warrants to Purchaser as of the Closing Date the
following:

     Section 4.1 Organization and Qualification. The Company and each Subsidiary
is a corporation (or other legal entity) duly organized, validly existing and in
good standing under the laws of its  jurisdiction  of  incorporation,  with full
power and authority to own,  lease,  use and operate its properties and to carry
on its business as and where now owned,  leased,  used,  operated and conducted.
The Company and each  subsidiary  is qualified to conduct  business as a foreign
corporation and is in good standing in every jurisdiction in which the nature of
the business  conducted by it makes such qualification  necessary,  except where
such  failure  would not have a Material  Adverse  Effect.  A "Material  Adverse
Effect"  means  any  material  adverse  effect  on the  operations,  results  of
operations,  properties,  assets or condition  (financial  or  otherwise) of the
Company  or the  Company  and its  Subsidiaries,  taken  as a  whole,  or on the
transactions  contemplated  hereby or by the  agreements  or  instruments  to be
entered into in connection herewith.

     Section 4.2 Authorization and Execution.

     (a) The Company  and each  Subsidiary,  as  applicable,  has all  requisite
corporate  power  and  authority  to enter  into and  perform  each  Transaction
Agreement and to consummate the transactions contemplated hereby and thereby and
to issue the Securities in accordance with the terms hereof and thereof.


                                       11
<PAGE>

     (b) The  execution,  delivery  and  performance  by the  Company  and  each
Subsidiary, as applicable, of each Transaction Agreement and the issuance by the
Company of the Securities, have been duly and validly authorized by the Board of
Directors  of the Company and each  Subsidiary,  as  applicable,  and no further
consent or  authorization  of the  Company or its  Subsidiaries,  their Board of
Directors or the Company's shareholders is required.

     (c) This Agreement has been duly executed and delivered by the Company.

     (d) This Agreement constitutes,  and upon execution and delivery thereof by
the Company,  each of the Transaction  Agreements will  constitute,  a valid and
binding  agreement of the Company and each  Subsidiary,  as applicable,  in each
case  enforceable  against the Company and each  Subsidiary,  as applicable,  in
accordance with its respective terms.

     Section 4.3 Capitalization . As of the date hereof, the authorized,  issued
and  outstanding  capital  stock of the Company is as set forth on Schedule  4.3
hereto and except as set forth on Schedule 4.3 no other shares of capital  stock
of  the  Company  will  be  outstanding  as of the  Closing  Date.  All of  such
outstanding  shares  of  capital  stock  are,  or upon  issuance  will be,  duly
authorized,  validly issued, fully paid and nonassessable.  No shares of capital
stock of the Company are subject to preemptive  rights or similar  rights of the
shareholders  of the Company or any liens or  encumbrances  imposed  through the
actions or failure to act of the  Company.  Other than as set forth on  Schedule
4.3  hereto,  as of the date  hereof,  (i)  there  are no  outstanding  options,
warrants,  scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements,  understandings,  claims  or  other  commitments  or  rights  of any
character  whatsoever  relating to, or securities or rights  convertible into or
exchangeable  for any  shares  of  capital  stock of the  Company  or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue  additional  shares of capital stock of the Company
or any of its  Subsidiaries,  and (ii) there are no agreements  or  arrangements
under which the Company or any of its Subsidiaries are obligated to register the
sale of any of its or their securities under the Securities Act (except pursuant
to the  Registration  Rights  Agreement) and (iii) there are no anti-dilution or
price adjustment  provisions contained in any security issued by the Company (or
in any agreement providing rights to security holders) that will be triggered by
the issuance of the Convertible Debentures or Conversion Shares. The Company has
furnished  to  Purchaser  true and  correct  copies of the  Company's  Corporate
Documents,  and the terms of all securities  convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.

     Section 4.4 Governmental  Authorization.  The execution and delivery by the
Company of the  Transaction  Agreements  does not and will not, the issuance and
sale  by  the  Company  of the  Securities  does  not  and  will  not,  and  the
consummation  of  the  transactions   contemplated   hereby  and  by  the  other
Transaction  Agreements  will not,  require  any action by or in respect  of, or
filing with, any governmental  body, agency or governmental  official except (a)
such  actions or  filings  that have been  undertaken  or made prior to the date
hereof and that will be in full force and effect (or as to which all  applicable
waiting  periods  have  expired)  on and as of the date  hereof or which are not
required  to be filed  on or prior to the  Closing  Date,  (b) such  actions  or
filings that, if not obtained,  would not result in a Material  Adverse  Effect,
(c)  listing  applications  ("Listing  Applications")  to be filed  with the OTC
Bulletin Board or the National Market relating to the Conversion Shares issuable
upon conversion of the Convertible  Debentures and the Warrants,  if applicable,
and (d) the filing of a "Form D" as described in Section 7.13 below.

     Section 4.5 Issuance of Shares.  Upon  conversion  in  accordance  with the
terms of the Convertible Debentures and exercise of the Warrants, the Conversion
Shares  shall  be duly  and  validly  issued  and  outstanding,  fully  paid and
nonassessable,  free and clear of any Taxes,  Liens and charges  with respect to
issuance  other than  those  created  by  Purchaser  and shall not be subject to
preemptive  rights or similar rights of any other  shareholders  of the Company.
Assuming the  representations  and  warranties of Purchaser  herein are true and
correct in all material  respects,  each of the Securities will have been issued
in material  compliance  with all applicable U.S.  federal and state  securities
laws. The Company  understands and acknowledges that, in certain  circumstances,
the issuance of Conversion Shares could dilute the ownership  interests of other
shareholders  of  the  Company.   The  Company  further



                                       12
<PAGE>

acknowledges  that its obligation to issue Conversion  Shares upon conversion of
the  Convertible  Debentures  and  exercise  of the  Warrants  is  absolute  and
unconditional  regardless of the dilutive  effect that such issuance may have on
the ownership interests of other shareholders of the Company.

     Section 4.6 No Conflicts.  The execution and delivery by the Company of the
Transaction Agreements to which it is a party did not and will not, the issuance
and  sale  by the  Company  of the  Securities  did  not  and  will  not and the
consummation  of  the  transactions   contemplated   hereby  and  by  the  other
Transaction  Agreements  will not,  contravene  or constitute a default under or
violation of (i) any  provision of  applicable  law or  regulation  known by the
Company to be applicable to it, (ii) the Company Corporate Documents,  (iii) any
agreement,  judgment, injunction, order, decree or other instrument binding upon
the Company or any Subsidiary or any of their  respective  assets,  or result in
the  creation  or  imposition  of any Lien on any  asset of the  Company  or any
Subsidiary except those created by the Transaction  Agreements.  The Company and
each  Subsidiary  is in  compliance  with and  conforms to all  statutes,  laws,
ordinances,  rules,  regulations,  orders,  restrictions  and  all  other  legal
requirements  of any  domestic  or  foreign  government  or any  instrumentality
thereof having  jurisdiction over the conduct of its businesses or the ownership
of its properties,  except where such failure would not have a Material  Adverse
Effect.

     Section 4.7 Financial  Information.  Since  December 31, 2000 (the "Balance
Sheet  Date"),  except  as  disclosed  in  Schedule  4.7,  there has been (x) no
material  adverse  change in the assets or  liabilities,  or in the  business or
condition, financial or otherwise, or in the results of operations or prospects,
of the Company and its  Subsidiaries,  whether as a result of any legislative or
regulatory  change,  revocation  of any license or rights to do business,  fire,
explosion,  accident,  casualty,  labor trouble,  flood,  drought,  riot, storm,
condemnation,  act of God, public force or otherwise and (y) no material adverse
change in the assets or liabilities, or in the business or condition,  financial
or otherwise,  or in the results of operations or prospects,  of the Company and
its subsidiaries except in the ordinary course of business; and to the knowledge
of the Company no fact or  condition  exists or is  contemplated  or  threatened
which might cause such a change in the future. The audited  consolidated balance
sheets of the Company and its  Subsidiaries  for the period ending  December 31,
2000,   and  the  related   consolidated   statements  of  income,   changes  in
shareholders'  equity  and  changes in cash flows for the  periods  then  ended,
including the footnotes thereto,  except as indicated  therein,  (i) complied in
all material respects with applicable accounting requirements and (ii) have been
prepared in accordance  with GAAP  consistently  applied  throughout the periods
indicated,  except that the unaudited financial  statements do not contain notes
and may be subject to normal audit  adjustments  and normal annual  adjustments.
Such financial  statements fairly present the financial condition of the Company
and its  Subsidiaries  at the dates  indicated and the  consolidated  results of
their  operations  and cash flows for the  periods  then  ended  and,  except as
indicated  therein,  reflect all claims against and all Debts and liabilities of
the Company and its Subsidiaries,  fixed or continency  required to be reflected
therein.

     Section 4.8  Litigation.  Except as set forth on Schedule 4.8,  there is no
action,  suit  or  proceeding  pending  or,  to the  knowledge  of the  Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any  governmental  body,  agency or official  in which there is a  reasonable
possibility of an adverse decision which could be reasonably  expected to have a
Material  Adverse  Effect or which  challenges  the validity of any  Transaction
Agreements.

     Section 4.9 Compliance with ERISA and other Benefit Plans.

     (a) Each member of the ERISA Group has fulfilled its obligations  under the
minimum funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable  provisions
of ERISA and the Code with  respect to each Plan.  No member of the ERISA  Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Code in respect of any Plan,  (ii) failed to make any required  contribution  or
payment  to any  Plan  or  Multiemployer  Plan  or in  respect  of  any  Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement,  which as
resulted or could result in the imposition of a Lien or the posting of a bond or
other  security  under ERISA or the Code or (iii)  incurred any liability  under
Title IV of ERISA other than a liability to the PBGC for premiums  under Section
4007 of ERISA.


                                       13
<PAGE>

     (b) The benefit plans not covered under clause (a) above (including  profit
sharing,  deferred compensation,  stock option, employee stock purchase,  bonus,
retirement,  health  or  insurance  plans,  collectively  the  "Benefit  Plans")
relating to the employees of the Company are duly registered  where required by,
and are in good standing in all material  respects under,  all applicable  laws.
All required employer and employee  contributions and premiums under the Benefit
Plans  to the  date  hereof  have  been  made,  the  respective  fund  or  funds
established  under the Benefit  Plans are funded in accordance  with  applicable
laws, and no past service funding liabilities exist thereunder.

     (c) No Benefit  Plans  have any  unfunded  liabilities,  either on a "going
concern" or "winding up" basis and determined in accordance  with all applicable
laws and actuarial  practices and using  actuarial  assumptions and methods that
are  reasonable  in the  circumstances.  No event has  occurred and no condition
exists with respect to any Benefit  Plans that has resulted or could  reasonably
be  expected to result in any pension  plan having its  registration  revoked or
wound up (in whole or in part) or refused  for the  purposes  of any  applicable
laws or being placed under the  administration  of any relevant pension benefits
regulatory  authority or being  required to pay any taxes or  penalties  (in any
material amounts) under any applicable laws.

     Section 4.10 Environmental  Matters.  The costs and liabilities  associated
with  Environmental  Laws  (including  the  cost of  compliance  therewith)  are
unlikely to have a material adverse effect on the business, condition (financial
or otherwise), operations,  performance,  properties or prospects of the Company
or any  Subsidiary.  Each of the  Company  and  the  Subsidiaries  conducts  its
businesses  in  compliance  in  all  material   respects  with  all   applicable
Environmental Laws.

     Section 4.11 Taxes. All United States federal, state, county, municipality,
local  or  foreign  income  tax  returns  and all  other  material  tax  returns
(including  foreign tax returns)  which are required to be filed by or on behalf
of the Company and each  Subsidiary  have been filed and all material  taxes due
pursuant to such returns or pursuant to any  assessment  received by the Company
and each Subsidiary have been paid except those being disputed in good faith and
for which adequate  reserves have been  established.  The charges,  accruals and
reserves on the books of the Company and each Subsidiary in respect of taxes and
other governmental charges have been established in accordance with GAAP.

     Section  4.12  Investments,  Joint  Ventures.  Other  than as set  forth in
Schedule  4.12,  the Company has no other direct or indirect  Investment  in any
Person,  and  the  Company  is  not a  party  to  any  partnership,  management,
shareholders' or joint venture or similar agreement.

     Section  4.13  Not an  Investment  Company.  Neither  the  Company  nor any
Subsidiary is an "Investment  Company" within the meaning of Investment  Company
Act of 1940, as amended.

     Section 4.14 Full Disclosure.  The information  heretofore furnished by the
Company to Purchaser for purposes of or in connection with this Agreement or any
transaction  contemplated  hereby does not, and all such  information  hereafter
furnished by the Company or any  Subsidiary to Purchaser  will not (in each case
taken  together  and on the date as of which  such  information  is  furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.

     Section 4.15 No Solicitation;  No Integration with Other Offerings. No form
of general  solicitation  or general  advertising was used by the Company or, to
the best of its  actual  knowledge,  any  other  Person  acting on behalf of the
Company,  in connection with the offer and sale of the  Securities.  Neither the
Company, nor, to its knowledge, any Person acting on behalf of the Company, has,
either  directly or  indirectly,  sold or offered for sale to any Person  (other
than  Purchaser)  any of the  Securities  or, within the six months prior to the
date hereof, any other similar security of the Company except as contemplated by
this  Agreement,  and the Company  represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no representation
as to

                                       14
<PAGE>

Purchaser  and their  Affiliates)  will sell or offer for sale any such security
to, or solicit any offers to buy any such security  from, or otherwise  approach
or negotiate  in respect  thereof  with,  any Person or Persons so as thereby to
cause the issuance or sale of any of the Securities to be in violation of any of
the  provisions  of  Section  5 of  the  Securities  Act.  The  issuance  of the
Securities to Purchaser  will not be integrated  with any other  issuance of the
Company's  securities  (past,  current or  future)  which  requires  stockholder
approval under the rules of the any National Market.

     Section 4.16 Permits.  (a) Each of the Company and its Subsidiaries has all
material Permits; (b) all such Permits are in full force and effect, and each of
the Company and its  Subsidiaries  has  fulfilled  and  performed  all  material
obligations  with  respect  to such  Permits;  (c) no event has  occurred  which
allows, or after notice of lapse of time would allow,  revocation or termination
by the issuer thereof or which results in any other  material  impairment of the
rights of the holder of any such  Permit;  and (d) the  Company has no reason to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit,  except in each case or in the aggregate that could
not be reasonably expected to have a Material Adverse Effect.

     Section 4.17 Leases.  Neither the Company nor any  Subsidiary is a party to
any  capital  lease  obligation  with a value  greater  than  $250,000 or to any
operating lease with an aggregate annual rental greater than $250,000 during the
life of such lease.

     Section 4.18 Absence of Any Undisclosed Liabilities or Capital Calls. There
are no  liabilities  of the Company or any  Subsidiary  of any kind  whatsoever,
whether accrued, contingent,  absolute,  determined,  determinable or otherwise,
and there is no existing  condition,  situation  or set of  circumstances  which
would reasonably be expected to result in such a liability, other than (i) those
liabilities  provided  for in the  financial  statements  delivered  pursuant to
Section 4.7 and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect.

     Section 4.19 Public Utility  Holding  Company.  Neither the Company nor any
Subsidiary  is, or will be upon issuance and sale of the  Securities and the use
of the proceeds described herein, subject to regulation under the Public Utility
Holding  Company Act of 1935, as amended,  the Federal Power Act, the Interstate
Commerce  Act or to any  federal or state  statute or  regulation  limiting  its
ability to issue and perform its obligations under any Transaction Agreement.

     Section  4.20  Intellectual  Property  Rights.  Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
to the knowledge of the Company, patents,  trademarks,  trade names, copyrights,
technology, know-how and processes (collectively,  "Intellectual Property") used
in, or necessary for the conduct of its  business;  no claims have been asserted
by any Person to the use of any such  Intellectual  Property or  challenging  or
questioning the validity or  effectiveness  of any license or agreement  related
thereto. To the best of Company's and its Subsidiaries'  knowledge,  there is no
valid basis for any such claim and the use of such Intellectual  Property by the
Company and its Subsidiaries will not infringe upon the rights of any Person.

     Section 4.21 Insurance.  The Company and its  Subsidiaries  maintain,  with
financially sound and reputable insurance companies,  insurance in at least such
amounts and  against  such risks such that any  uninsured  loss would not have a
Material  Adverse  Effect.  All  insurance  coverages  of the  Company  and  its
Subsidiaries  are in full force and effect and there are no past due premiums in
respect of any such insurance.

     Section 4.22 Title to  Properties.  The Company and its  Subsidiaries  have
good and marketable  title to all their respective  properties  reflected on the
financial  statements  referred to in Section 4.7,  free and clear of all Liens.
The property designated as collateral in the Mortgage is owned by the Company or
its Subsidiaries free and clear of all Liens except as set forth therein.

     Section  4.23  Internal  Accounting  Controls.  The Company and each of its
Subsidiaries  maintain a system of internal accounting controls  sufficient,  in
the  judgment  of the  Company's  Board  of  Directors,  to  provide  reasonable
assurance that (i)  transactions  are executed in accordance  with  managements'
general or specific


                                       15
<PAGE>

authorizations,   (ii)   transactions   are  recorded  as  necessary  to  permit
preparation  of financial  statements  in  conformity  with GAAP and to maintain
asset  accountability,  (iii) access to assets is permitted  only in  accordance
with  management's  general or  specific  authorization,  and (iv) the  recorded
accountability  for assets is compared  with the existing  assets at  reasonable
intervals and appropriate action is taken with respect to any differences.

     Section 4.24 Reserved.

     Section  4.25  Foreign  Practices.  Neither  the  Company  nor  any  of its
Subsidiaries  nor,  to the  Company's  knowledge,  any  employee or agent of the
Company  or any  Subsidiary  has made any  payments  of funds of the  Company or
Subsidiary,  or received or retained any funds, in each case in violation of any
law, rule or regulation.

     Section  4.26  Title  to  Certain  Assets.  The  Company  owns  the  assets
designated  as collateral  and  described on Exhibit A to that certain  Security
Agreement, free and clear of any lien.

     Section 4.27  Subsidiaries.  Except for the directly and  indirectly  owned
subsidiaries of the Company as set forth on Schedule 4.27 (the  "Subsidiaries"),
the  Company  does not own or hold any shares of stock or any other  security or
interest  in any other  equity,  or any rights to acquire  any such  security or
interest.  Except for the  Subsidiaries  disclosed on Schedule 4.27, the Company
has never  had any  subsidiary  corporation  of which  the  securities  having a
majority of voting power in electing the board of  directors or  representing  a
majority  of  the  economic  interests  were,  at  the  time  as  of  which  any
determination was made, owned by the Company either directly or indirectly.  The
number of  authorized,  issued and  outstanding  shares of capital  stock of the
Subsidiaries  is as set forth on Schedule  4.27. All  outstanding  shares of the
Subsidiaries capital stock are validly issued, fully paid and nonassessable, are
free from,  and were not issued in violation of any preemptive  rights,  and are
owned of record and beneficially by the Company.

             ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER

     Section 5.1  Purchaser.  Purchaser  hereby  represents  and warrants to the
Company that:

     (a) Purchaser is an "accredited investor" within the meaning of Rule 501(a)
under the  Securities  Act and the  Securities  to be acquired by it pursuant to
this  Agreement  are being  acquired  for its own  account  and,  as of the date
hereof, not with a view toward, or for sale in connection with, any distribution
thereof  except in compliance  with  applicable  United States federal and state
securities law;  provided that the disposition of Purchaser's  property shall at
all times be and remain within its control;

     (b) the  execution,  delivery and  performance  of this  Agreement  and the
purchase of the Securities pursuant thereto are within Purchaser's  corporate or
partnership powers, as applicable,  and have been duly and validly authorized by
all requisite corporate or partnership action;

     (c) this Agreement has been duly executed and delivered by Purchaser;

     (d) the execution and delivery by Purchaser of the  Transaction  Agreements
to  which it is a party  does  not,  and the  consummation  of the  transactions
contemplated  hereby and thereby will not,  contravene  or  constitute a default
under or violation of (i) any provision of applicable law or regulation, or (ii)
any agreement,  judgment,  injunction, order, decree or other instrument binding
upon Purchaser;

     (e) Purchaser  understands  that the  Securities  have not been  registered
under the  Securities Act and may not be transferred or sold except as specified
in this Agreement or the remaining Transaction Agreements;

     (f) this Agreement  constitutes a valid and binding  agreement of Purchaser
enforceable in accordance with its terms, subject to (i) applicable  bankruptcy,
insolvency or similar laws  affecting  the  enforceability  of creditors  rights
generally and (ii) equitable principles of general applicability;

     (g) Purchaser has such  knowledge and  experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Securities and Purchaser is capable of bearing the economic risks of such
investment;



                                       16
<PAGE>

     (h) Purchaser is  knowledgeable,  sophisticated and experienced in business
and financial matters;  Purchaser has previously  invested in securities similar
to the Securities and fully  understands the  limitations on transfer  described
herein;  Purchaser has been afforded access to information about the Company and
the  financial  condition,  results  of  operations,  property,  management  and
prospects of the Company  sufficient to enable it to evaluate its  investment in
the  Securities;  Purchaser  has  been  afforded  the  opportunity  to ask  such
questions  as  it  has  deemed  necessary  of,  and  to  receive  answers  from,
representatives  of the  Company  concerning  the  terms and  conditions  of the
offering  of the  Securities  and the merits and the risks of  investing  in the
Securities;  and  Purchaser  has been  afforded the  opportunity  to obtain such
additional  information  which the  Company  possesses  or can  acquire  that is
necessary to verify the accuracy and  completeness of the  information  given to
Purchaser  concerning the Company. The foregoing does not in any way relieve the
Company of its representations and other undertakings  hereunder,  and shall not
limit Purchaser's ability to rely thereon;

     (i) no part of the  source  of  funds  used by  Purchaser  to  acquire  the
Securities  constitutes  assets allocated to any separate account  maintained by
Purchaser  in which any  employee  benefit  plan (or its related  trust) has any
interest; and

     (j) Purchaser is a corporation organized under the laws of Bermuda.

           ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES

     Section 6.1 Conditions  Precedent to  Purchaser's  Obligations to Purchase.
The obligation of Purchaser hereunder to purchase the Convertible  Debentures at
the Closing is subject to the  satisfaction,  on or before the Closing  Date, of
each  of the  following  conditions,  provided  that  these  conditions  are for
Purchaser's  sole benefit and may be waived by Purchaser at any time in its sole
discretion:

          (a) The  Company and each  Subsidiary,  as  required,  shall have duly
     executed this Agreement,  the Warrant,  the Registration  Rights Agreement,
     and  the  Security  Agreement,  the  Mortgage  and  all  other  appropriate
     financing statements, and delivered the same to Purchaser;

          (b) The Company  shall have  delivered  to  Purchaser a duly  executed
     certificate  representing  the  Convertible  Debenture in  accordance  with
     Section 2.3 hereof;

          (c) The Company shall have delivered the Solvency Certificate;

          (d)  The  representations  and  warranties  of  the  Company  and  its
     Subsidiaries  contained  in each  Transaction  Agreement  shall be true and
     correct  in all  material  respects  as of the date when made and as of the
     Closing  Date as though made at such time (except for  representations  and
     warranties  that  speak as of a  specified  date) and the  Company  and its
     Subsidiaries  shall  have  performed,   satisfied  and  complied  with  all
     covenants,   agreements  and  conditions   required  by  such   Transaction
     Agreements to be performed,  satisfied or complied with by them at or prior
     to the Closing Date. Purchaser shall have received an Officer's Certificate
     executed by the chief  executive  officer of the  Company,  dated as of the
     Closing Date,  to the foregoing  effect and as to such other matters as may
     be  reasonably  requested  by  Purchaser,  including  but  not  limited  to
     certificates   with  respect  to  the  Company  and  Subsidiary   Corporate
     Documents, resolutions relating to the transactions contemplated hereby and
     the incumbencies of certain officers and Directors of the Company. The form
     of such certificate is attached hereto as Exhibit -------- D;

          (e) The  Company  shall  have  received  all  governmental,  Board  of
     Directors, shareholders and third party consents and approvals necessary or
     desirable in connection  with the issuance and sale of the  Securities  and
     the  consummation  of the  transactions  contemplated  by  the  Transaction
     Agreements;


                                       17
<PAGE>

          (f) All applicable waiting periods in respect to the issuance and sale
     of the Securities  shall have expired  without any action having been taken
     by any  competent  authority  that  could  restrain,  prevent or impose any
     materially adverse conditions thereon or that could seek or threaten any of
     the foregoing;

          (g) No law or  regulation  shall have been imposed or enacted that, in
     the judgment of Purchaser,  could  adversely  affect the  transactions  set
     forth  herein  or in  the  other  Transaction  Agreements,  and  no  law or
     regulation  shall have been  proposed  that in the  reasonable  judgment of
     Purchaser could reasonably have any such effect;

          (h) Purchaser shall have received an opinion,  dated the Closing Date,
     of counsel to the Company, in form and substance satisfactory to Purchaser;

          (i) All fees and  expenses  due and payable by the Company on or prior
     to the Closing Date shall have been paid;

          (j) The  Company  Corporate  Documents  and the  Subsidiary  Corporate
     Documents,  if  any,  shall  be in full  force  and  effect  and no term or
     condition  thereof  shall have been amended,  waived or otherwise  modified
     without the prior written consent of Purchaser;

          (k) There  shall  have  occurred  no  material  adverse  change in the
     business,  condition  (financial or  otherwise),  operations,  performance,
     properties or prospects of the Company or any Subsidiary since December 31,
     2000;

          (l) There shall exist no action,  suit,  investigation,  litigation or
     proceeding  pending or threatened in any court or before any  arbitrator or
     governmental instrumentality that challenges the validity of or purports to
     affect  this  Agreement  or  any  other  Transaction  Agreement,  or  other
     transaction  contemplated  hereby or thereby or that  could  reasonably  be
     expected to have a Material Adverse Effect,  or any material adverse effect
     on the  enforceability  of the Transaction  Agreements or the Securities or
     the rights of the holders of the Securities or Purchaser hereunder;

          (m)  Purchaser  shall have  confirmed  the receipt of the  Convertible
     Debentures  and the Warrants to be issued,  duly executed by the Company in
     the denominations and registered in the name of Purchaser;

          (n) There shall not have occurred any  disruption or adverse change in
     the financial or capital markets generally, or in the market for the Common
     Stock  (including but not limited to any  suspension or  delisting),  which
     Purchaser  reasonably deems material in connection with the purchase of the
     Securities;

          (o) As of the Closing  Date, no Default or Event of Default shall have
     occurred and be continuing;

          (p) Company shall have executed and delivered the Agreement  described
     in Section 7.15 of this Agreement; and

          (q) An Escrow  Agreement,  substantially  in the form of Exhibit E, by
     and between the Company and  Purchaser,  and accepted by the Law Offices of
     Kim T. Stephens as escrow agent (the "Escrow Agent"),  shall have been duly
     executed by the said parties.



                                       18
<PAGE>

     Section 6.2 Conditions to the Company's Obligations. The obligations of the
Company to issue and sell the Securities to Purchaser pursuant to this Agreement
are  subject  to the  satisfaction,  at or prior  to any  Closing  Date,  of the
following conditions:

          (a) The  representations  and warranties of Purchaser contained herein
     shall be true and correct in all material  respects on the Closing Date and
     Purchaser  shall have performed and complied in all material  respects with
     all agreements  required by this Agreement to be performed or complied with
     by Purchaser at or prior to the Closing Date;

          (b) The issue and sale of the  Securities  by the Company shall not be
     prohibited by any applicable law, court order or governmental regulation;

          (c)  Receipt by the  Company  of duly  executed  counterparts  of this
     Agreement and the Registration Rights Agreement signed by Purchaser;

          (d) The Company shall have received  payment of Purchase  Price,  less
     the Expense Reimbursement Fee and any escrow agent fee.

                       ARTICLE VII. AFFIRMATIVE COVENANTS

     The Company hereby agrees that,  from and after the date hereof for so long
as any  Convertible  Debentures  remain  outstanding  and  for  the  benefit  of
Purchaser:

     Section 7.1  Information.  The Company  will  deliver to each holder of the
Convertible Debentures:

          (a) promptly upon the filing thereof,  copies of (i) all  registration
     statements (other than the exhibits thereto and any registration statements
     on Form S-8 or its  equivalent),  and (ii) all reports of Forms 10-K,  10-Q
     and 8-K (or other  equivalents)  which the  Company or any  Subsidiary  has
     filed with the Commission (collectively, "SEC Reports");

          (b)  simultaneously  with the  delivery  of each item  referred  to in
     clause (a) above,  a certificate  from the chief  financial  officer of the
     Company  stating  that no Default or Event of Default has  occurred  and is
     continuing,  or, if as of the date of such  delivery  a Default  shall have
     occurred and be continuing,  a certificate  from the Company  setting forth
     the details of such  Default or Event of Default  and the action  which the
     Company is taking or proposes to take with respect thereto;

          (c)  within  two (2) days after any  officer  of the  Company  obtains
     knowledge  of a Default or Event of  Default,  or that any Person has given
     any notice or taken any action with respect to a claimed Default hereunder,
     a certificate of the chief  financial  officer of the Company setting forth
     the details  thereof and the action which the Company is taking or proposed
     to take with respect thereto;

          (d)  promptly  upon the  mailing  thereof to the  shareholders  of the
     Company generally,  copies of all financial  statements,  reports and proxy
     statements  so  mailed  and any other  document  generally  distributed  to
     shareholders;

          (e) at least two (2) Business  Days prior to the  consummation  of any
     Financing  or  other  event   requiring  a  repayment  of  the  Convertible
     Debentures under Section 3.4, notice thereof together with a summary of all
     material  terms  thereof  and  copies  of  all  documents  and  instruments
     associated therewith;



                                       19
<PAGE>

          (f)  notice  promptly  upon the  occurrence  of any event by which the
     Reserved  Amount  becomes  less than the sum of (i) 1.5  times the  maximum
     number  of  Conversion   Shares   issuable   pursuant  to  the  Transaction
     Agreements; and

          (g)  promptly  following  the  commencement  thereof,   notice  and  a
     description  in reasonable  detail of any litigation or proceeding to which
     the Company or any  Subsidiary  is a party in which the amount  involved is
     $250,000 or more and not covered by  insurance  or in which  injunctive  or
     similar relief is sought.

     Section 7.2 Payment of  Obligations.  The Company will, and will cause each
Subsidiary to, pay and discharge,  at or before  maturity,  all their respective
material obligations,  including,  without limitation,  tax liabilities,  except
where the same may be contested  in good faith by  appropriate  proceedings  and
will maintain, in accordance with GAAP,  appropriate reserves for the accrual of
any of the same.

     Section 7.3 Maintenance of Property;  Insurance. The Company will, and will
cause each Subsidiary to, keep all property useful and necessary in its business
in good  working  order  and  condition,  ordinary  wear and tear  excepted.  In
addition,  the Company and each Subsidiary  will maintain  insurance in at least
such amounts and against such risks as it has insured  against as of the Closing
Date.

     Section 7.4 Maintenance of Existence. The Company will, and will cause each
Subsidiary  to,  continue to engage in business of the same  general type as now
conducted by the Company and such  Subsidiaries,  and will  preserve,  renew and
keep in full force and  effect  its  respective  corporate  existence  and their
respective material rights,  privileges and franchises necessary or desirable in
the normal conduct of business.

     Section 7.5  Compliance  with Laws.  The Company will,  and will cause each
Subsidiary  to,  comply,  in all material  respects,  with all  federal,  state,
municipal,  local or foreign applicable laws,  ordinances,  rules,  regulations,
municipal   by-laws,   codes  and   requirements  of  governmental   authorities
(including,  without limitation,  Environmental Laws and ERISA and the rules and
regulations  thereunder)  except (i) where compliance  therewith is contested in
good faith by  appropriate  proceedings or (ii) where  non-compliance  therewith
could not reasonably be expected,  in the aggregate,  to have a material adverse
effect  on  the  business,  condition  (financial  or  otherwise),   operations,
performance, properties or prospects of the Company or such Subsidiary.

     Section 7.6  Inspection of Property,  Books and Records.  The Company will,
and will cause each  Subsidiary  to, keep proper  books of record and account in
which  full,  true  and  correct  entries  shall  be  made of all  dealings  and
transactions in relation to their respective businesses and activities; and will
permit, during normal business hours, Purchaser'  Representative or an affiliate
thereof,  as  representatives  of  Purchaser,  to visit and inspect any of their
respective  properties,  upon  reasonable  prior  notice,  to  examine  and make
abstracts  from any of their  respective  books and records and to discuss their
respective  affairs,  finances  and  accounts  with their  respective  executive
officers and independent  public  accountants (and by this provision the Company
authorizes  its  independent  public  accountants  to disclose  and discuss with
Purchaser the affairs, finances and accounts of the Company and its Subsidiaries
in the presence of a representative of the Company; provided, however, that such
discussions will not result in any unreasonable expense to the Company,  without
Company consent), all at such reasonable times.

     Section 7.7  Investment  Company  Act. The Company will not be or become an
open-end  investment  trust,  unit investment  trust or face-amount  certificate
company  that  is or is  required  to  be  registered  under  Section  8 of  the
Investment Company Act of 1940, as amended.

     Section 7.8 Use of Proceeds. The proceeds from the issuance and sale of the
Convertible  Debentures by the Company shall be used in accordance with Schedule
7.8  attached  hereto.  None of the  proceeds  from the issuance and sale of the
Convertible  Debentures by the Company  pursuant to this  Agreement will be used
directly  or


                                       20
<PAGE>

indirectly  for the purpose,  whether  immediate,  incidental  or  ultimate,  of
purchasing or carrying any "margin  stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System.

     Section 7.9 Compliance with Terms and Conditions of Material Contracts. The
Company will, and will cause each Subsidiary to, comply,  in all respects,  with
all terms and conditions of all material contracts to which it is subject.

     Section 7.10 Reserved Shares and Listings.

     (a) The Company  shall at all times have  authorized,  and reserved for the
purpose of issuance,  a  sufficient  number of shares of Common Stock to provide
for the full conversion of the outstanding  Convertible  Debentures and exercise
of the Warrants and issuance of the  Conversion  Shares (based on the conversion
price of the Convertible Debentures in effect from time to time and the exercise
price of the Warrants,  respectively) (the "Reserved Amount"). The Company shall
not reduce the Reserved  Amount without the prior written  consent of Purchaser.
With respect to all Securities which contain an  indeterminate  number of shares
of Common  Stock  issuable  in  connection  therewith  (such as the  Convertible
Debentures),  the Company shall include in the Reserve Amount,  no less than two
(2) times the number of shares that is then actually issuable upon conversion or
exercise of such Securities. If at any time the number of shares of Common Stock
authorized  and reserved for issuance is below the number of  Conversion  Shares
issued or issuable upon conversion of the Convertible Debentures and exercise of
the Warrants,  the Company will promptly take all corporate  action necessary to
authorize  and  reserve  a  sufficient  number  of  shares,  including,  without
limitation,  either (x) calling a special  meeting of  shareholders to authorize
additional shares, in the case of an insufficient number of authorized shares or
(y) in lieu thereof,  consummating  the immediate  repurchase of the Convertible
Debentures  and the Warrants  contemplated  in Sections  3.4(c) and 10.3 hereof,
respectively.  In addition to the  foregoing,  the Company  shall  undertake  to
authorize  an  additional  50,000,000  shares of its Common  Stock at its Annual
Meeting of Shareholders not later than July 15, 2001, in the event the number of
shares  included in the Company's  Registration  Statement No.  333-55484 is not
sufficient to cover the resale of all of the Conversion  Shares pursuant to this
Agreement.

     (b) The Company shall promptly file the Listing Applications and secure the
listing of the  Conversion  Shares  upon each  national  securities  exchange or
automated  quotation  system, if any, upon which shares of Common Stock are then
listed (subject to official  notice of issuance) and shall maintain,  so long as
any  other  shares of Common  Stock  shall be so  listed,  such  listing  of all
Conversion  Shares from time to time issuable upon conversion or exercise of the
Convertible Debentures and Warrants, respectively. The Company will maintain the
listing and trading of its Common Stock on the OTC Bulletin  Board.  The Company
will  comply in all  respects  with the  Company's  reporting,  filing and other
obligations under the bylaws or rules of the National  Association of Securities
Dealers, Inc. (the "NASD") and such exchanges, as applicable.  The Company shall
promptly  provide to  Purchaser  copies of any notices it  receives  from Nasdaq
regarding the continued  eligibility  of the Common Stock for listing on the OTC
Bulletin Board or any National Market, as applicable.

     Section  7.11  Transfer  Agent  Instructions.  Upon  receipt of a Notice of
Conversion or Notice of Exercise,  as applicable,  the Company shall immediately
direct the Company's  transfer  agent to issue  certificates,  registered in the
name of Purchaser or its nominee,  for the Conversion Shares, in such amounts as
specified  from time to time by Purchaser to the Company upon proper  conversion
of the  Convertible  Debentures or exercise of the Warrants.  Upon conversion of
any Convertible Debentures in accordance with their terms and/or exercise of any
Warrants in accordance with their terms, the Company will, and will use its best
lawful  efforts to cause its transfer  agent to, issue one or more  certificates
representing  shares  of  Common  Stock  in  such  name  or  names  and in  such
denominations  specified by a Purchaser in a Notice of  Conversion  or Notice of
Exercise, as the case may be. As long as the Registration Statement contemplated
by the  Registration  Rights  Agreement  shall remain  effective,  the shares of
Common Stock issuable upon conversion of any Convertible  Debentures or exercise
of the Warrants  shall be issued to any transferee of such shares from Purchaser
without  any  restrictive  legend  upon  appropriate  evidence  of  transfer  in
compliance  with  the  Securities  Act  and the  rules  and  regulations  of the
Commission;  provided  that  for  so  long  as  the  Registration  Statement  is
effective,  no opinion of counsel will be required to effect any such  transfer.
The Company further  warrants and agrees that no  instructions  other than these
instructions  have been or will be


                                       21
<PAGE>

given to its  transfer  agent.  Nothing in this Section 7.11 shall affect in any
way a Purchaser's  obligation to comply with all securities  laws  applicable to
Purchaser  upon resale of such shares of Common Stock,  including any prospectus
delivery requirements.

     Section 7.12 Maintenance of Reporting Status;  Supplemental Information. So
long as any of the Securities are outstanding, the Company shall timely file all
reports  required to be filed with the Commission  pursuant to the Exchange Act.
The Company shall not terminate its status as an issuer required to file reports
under the Exchange  Act,  even if the Exchange Act or the rules and  regulations
thereunder  would  permit  such  termination.  If at anytime  the Company is not
subject to the  requirements  of Section 13 or 15(d) of the  Exchange  Act,  the
Company will promptly furnish at its expense,  upon request,  for the benefit of
the holders  from time to time of  Securities,  and  prospective  purchasers  of
Securities,  information  satisfying the  information  requirements  of Rule 144
under the Securities Act.

     Section 7.13 Form D; Blue Sky Laws.  The Company  agrees to file a "Form D"
with respect to the Securities as required under  Regulation D of the Securities
Act and to provide a copy thereof to Purchaser  promptly after such filing.  The
Company  shall,  on or before the Closing Date,  take such action as the Company
shall  reasonably  determine is necessary to qualify the  Securities for sale to
Purchaser at the Closing pursuant to this Agreement under applicable  securities
or "blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to Purchaser on or prior to the Closing Date.

     Section  7.14  Certain  Payments.  The  Company  agrees  to pay  all  title
insurance,  filing,  recordation or other fees, including any taxes, relating to
the execution and perfection of the security interest evidenced by the Mortgage,
and to  cooperate  with  Purchaser  in  connection  with filing the  appropriate
documents for the perfection of such security interest.

     Section 7.15 Amendment to Existing  Warrants.  The Company hereby agrees to
execute and deliver at Closing an agreement  between the Company,  Purchaser and
LKB  Financial,  LLC,  ("LKB")  pursuant  to which all  outstanding  warrants to
purchase Common Stock of the Company owned by Purchaser and LKB shall be amended
to have an exercise price of $0.19.

     Section 7.16  Amendment to Existing  Bridge Notes Issued to Purchaser.  The
Company hereby covenants and agrees that in the event the Bridge Notes set forth
on  Schedule  7.16  hereto  (the  "Bridge  Notes") are not repaid in full by the
Company on or before April 28, 2001,  each Bridge Note shall be canceled and the
Company shall issue a convertible  debenture to replace each Bridge Note,  which
convertible debenture shall have the same terms as set forth in Exhibit A hereto
and shall be for a principal amount equal to the aggregate outstanding principal
amount plus all accrued and unpaid interest on such Bridge Note.

                        ARTICLE VIII. NEGATIVE COVENANTS

     The Company  hereby  agrees that from and after the date hereof for so long
as any  Convertible  Debentures  remain  outstanding  and  for  the  benefit  of
Purchaser:

     Section 8.1 Limitations on Debt or Other  Liabilities.  Neither the Company
nor any Subsidiary  will create,  incur,  assume or suffer to exist (at any time
after the Closing Date,  after giving effect to the  application of the proceeds
of the issuance of the  Securities)  (i) any Debt except (x) Debt  incurred in a
Permitted  Financing,  (y) Debt incurred in connection with equipment  leases to
which the  Company or its  Subsidiaries  are a party  incurred  in the  ordinary
course of business;  and (z) Debt  incurred in  connection  with trade  accounts
payable,  imbalances and refunds  arising in the ordinary course of business and
(ii) any equity securities (including  Derivative  Securities) (other than those
securities  that are  issuable  (x) under or  pursuant  to stock  option  plans,
warrants  or other  rights  programs  that exist as of the date  hereof,  (z) in
connection with the acquisition (including by merger) of a business or of assets
otherwise permitted under this Agreement),  unless the Company complies with the
mandatory prepayment terms of Section 3.4(b) hereof.



                                       22
<PAGE>

     Section 8.2 Transactions  with Affiliates.  The Company and each Subsidiary
will not,  directly or indirectly,  pay any funds to or for the account of, make
any  investment  (whether  by  acquisition  or stock or  indebtedness,  by loan,
advance, transfer of property,  guarantee or other agreement to pay, purchase or
service,  directly or  indirectly,  and Debt,  or otherwise)  in,  lease,  sell,
transfer or  otherwise  dispose of any assets,  tangible or  intangible,  to, or
participate  in,  or  effect  any  transaction  in  connection  with  any  joint
enterprise or other joint arrangement with, any Affiliate,  except, (1) pursuant
to those  agreements  specifically  identified  on Schedule 8.2 attached  hereto
(with a copy of such  agreements  annexed to such Schedule 8.2) and (2) on terms
to the Company or such  Subsidiary  no less  favorable  than terms that could be
obtained  by the  Company  or  such  Subsidiary  from a  Person  that  is not an
Affiliate of the Company upon negotiation at arms' length, as determined in good
faith by the Board of Directors of the Company;  provided that no  determination
of  the  Board  of  Directors  shall  be  required  with  respect  to  any  such
transactions entered into in the ordinary course of business.

     Section  8.3 Merger or  Consolidation.  The  Company  will not, in a single
transaction or a series of related  transactions  (i) consolidate  with or merge
with or into any other  Person,  or (ii) permit any other Person to  consolidate
with or merge into it,  unless the Company  shall be the survivor of such merger
or consolidation  and (x) immediately  before and immediately after given effect
to such transaction  (including any  indebtedness  incurred or anticipated to be
incurred in  connection  with the  transaction),  no Default or Event of Default
shall have  occurred  and be  continuing;  and (y) the Company has  delivered to
Purchaser an Officer's  Certificate stating that such  consolidation,  merger or
transfer complies with this Agreement, and that all conditions precedent in this
Agreement relating to such transaction have been satisfied.

     Section  8.4  Limitation  on  Asset  Sales.  Neither  the  Company  nor any
Subsidiary  will  consummate an Asset Sale of material  assets of the Company or
any  Subsidiary  without the prior written  consent of Purchaser,  which consent
shall not be unreasonably withheld. As used herein, "Asset Sale" means any sale,
lease,  transfer  or other  disposition  (or  series of related  sales,  leases,
transfers or dispositions) or sales of capital stock of a Subsidiary (other than
directors'  qualifying  shares),  property or other assets (each referred to for
the purpose of this definition as a "disposition"), including any disposition by
means of a merger, consolidation or similar transaction other than a disposition
of property or assets at fair market value in the  ordinary  course of business;
provided,  however,  Asset Sale shall not  include  the sale of a portion of the
Company's  ownership  interest in License  1551 or License  953  relating to the
development  of certain oil and gas fields in Kazakhstan and the sale of any oil
or gas resulting  from the  development  of such property  under License 1551 or
License 953 owned by the Company  provided that such Asset Sale does not require
the release of any collateral pledged pursuant to the Security Agreement.

     Section 8.5 Restrictions on Certain Amendments. Neither the Company nor any
Subsidiary  will waive any  provision of,  amend,  or suffer to be amended,  any
provision of such entity's  existing  Debt,  except for the Company's 5% Secured
Convertible Debentures due February 18, 2004, any material contract or agreement
previously or hereafter  filed by the Company with the Commission as part of its
SEC Reports,  any Company Corporate Document or Subsidiary Corporate Document if
such amendment, in the Company's reasonable judgment, would materially adversely
affect  Purchaser  or the holders of the  Securities  without the prior  written
consent of Purchaser.


                                       23
<PAGE>

     Section 8.6 Prohibition on Discounted Equity Offerings.

          (a) In  addition  to and  not in  lieu of the  covenant  specified  in
     Section 8.1 above,  beginning on the Closing Date and continuing  until 180
     days  following  the date on which the  Registration  Statement is declared
     effective by the Commission  (the  "Effective  Date") or until such time as
     all of the  Convertible  Debentures  have been either redeemed or converted
     into Conversion  Shares in full,  whichever is later to occur,  the Company
     agrees that it will not issue any of its equity  securities  (or securities
     convertible into or exchangeable or exercisable for equity  securities (the
     "Derivative  Securities"))  on terms that allow a holder thereof to acquire
     such equity  securities  (or  Derivative  Securities)  at a discount to the
     Market Price of the Common Stock at the time of issuance or, in the case of
     Derivative  Securities  at a conversion  price based on any formula  (other
     than standard anti-dilution provisions) based on the Market Price on a date
     later than the date of issuance so long as such conversion is not below the
     Market Price on the date of issuance (each such event, a "Discounted Equity
     Offering").  As used herein,  "discount" shall include,  but not be limited
     to,  (i) any  warrant,  right or  other  security  granted  or  offered  in
     connection  with such issuance  which,  on the applicable date of grant, is
     offered with an exercise or conversion  price,  as the case may be, at less
     than the then current Market Price of the Common Stock or, if such security
     has an  exercise  or  conversion  price  based on any  formula  (other than
     standard  anti-dilution  provisions)  based on the  Market  Price on a date
     later than the date of issuance,  then at a price below the Market Price on
     such  date of  exercise  or  conversion,  as the case  may be,  or (ii) any
     commissions,  fees  or  other  allowances  paid  in  connection  with  such
     issuances (other than customary underwriter or placement agent commissions,
     fees or  allowances).  For the purposes of determining  the Market Price at
     which  Common Stock is acquired  under this  Section,  normal  underwriting
     commissions and placement fees (including  underwriters' warrants) shall be
     excluded.

          (b)  Beginning  on the  Closing  Date and  continuing  until  180 days
     following the Effective  Date or until such time as all of the  Convertible
     Debentures have been either redeemed or converted into Conversion Shares in
     full, whichever is later to occur, the Company agrees it will not issue any
     of its equity securities (or Derivative  Securities),  unless any shares of
     Common Stock issued or issuable in  connection  therewith  are  "restricted
     securities." As used herein  "restricted  securities" shall mean securities
     which may not be sold by virtue of contractual  restrictions imposed by the
     Company or  otherwise,  in each case prior to twelve (12) months  following
     the date of issuance of such securities.

          (c) The restrictions  contained in this Section 8.6 shall not apply to
     the issuance by the Company of (or the  agreement to issue) Common Stock or
     Derivative Securities in connection with (i) the acquisition  (including by
     merger)  of  a  business  or  of  assets  otherwise  permitted  under  this
     Agreement, or (ii) stock option or other compensatory plans.

     Section 8.7 Limitation on Stock Repurchases.  Except as otherwise set forth
in the Convertible  Debentures and the Warrants,  the Company shall not, without
the written  consent of the Majority  Holders,  redeem,  repurchase or otherwise
acquire  (whether for cash or in exchange for  property or other  securities  or
otherwise) any shares of capital stock of the Company or any warrants, rights or
options to purchase or acquire any such shares.

                        ARTICLE IX. RESTRICTIVE LEGENDS

     Section 9.1 Restrictions on Transfer. From and after their respective dates
of  issuance,  none of the  Securities  shall be  transferable  except  upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance  with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest  therein.  Each Purchaser will use its
best efforts to cause any proposed  transferee of any  Securities  held by it to
agree to take and hold such  Securities  subject to the  provisions and upon the
conditions specified in this Article IX.

     Section 9.2 Notice of Proposed Transfers. Prior to any proposed Transfer of
the Securities (other than a Transfer (i) registered or exempt from registration
under the  Securities  Act,  (ii) to an  affiliate  of a  Purchaser  which

                                       24
<PAGE>

is an  "accredited  investor"  within  the  meaning  of Rule  501(a)  under  the
Securities Act, provided that any such transferee shall agree to be bound by the
terms of this Agreement and the Registration  Rights  Agreement,  or (iii) to be
made in reliance on Rule 144 under the Securities Act), the holder thereof shall
give  written  notice to the Company of such  holder's  intention to effect such
Transfer,  setting forth the manner and circumstances of the proposed  Transfer,
which shall be accompanied by (A) an opinion of counsel reasonably acceptable to
the Company,  confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation  letters in form and substance reasonably
satisfactory  to the Company to ensure  compliance  with the  provisions  of the
Securities Act and (C) letters in form and substance reasonably  satisfactory to
the Company from each such transferee stating such transferee's  agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed  Transfer may be effected  only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence,  whereupon the holder of such
Securities  shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.

               ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES

     Section 10.1 Liquidated Damages.

     (a) The Company shall, and shall use its best efforts to cause its transfer
agent to, issue and deliver shares of Common Stock  consistent with Section 7.11
hereof  within three (3) New York Stock  Exchange  Trading Days of delivery of a
Notice of Conversion or Notice of Exercise,  as applicable  (the  "Deadline") to
Purchaser (or any party receiving  Securities by transfer from Purchaser) at the
address  of  Purchaser  set  forth in the  Notice  of  Conversion  or  Notice of
Exercise,  as the  case  may be.  The  Company  understands  that a delay in the
issuance of such  certificates  after the Deadline could result in economic loss
to Purchaser.

     (b) Without in any way limiting Purchaser's right to pursue other remedies,
including  actual damages and/or  equitable  relief,  the Company agrees that if
delivery of the  Conversion  Shares is more than one (1)  Business Day after the
Deadline (other than a failure due to the circumstances described in Section 4.3
of the Convertible Debentures,  which failure shall be governed by such Section)
the Company shall pay to Purchaser,  as liquidated damages and not as a penalty,
$500  for  each  $100,000  principal  amount  of  Convertible   Debentures  then
outstanding  per day in cash,  for each of the  first  ten  days  following  the
Deadline  that the Company  fails to deliver such Common  Stock,  and $1,000 for
each $100,000  principal  amount of Convertible  Debentures then outstanding per
day in cash,  for each day  thereafter  the Company fails to deliver such Common
Stock. Such cash amount shall be paid to Purchaser upon demand.

     Section 10.2 Conversion Notice. The Company agrees that, in addition to any
other remedies which may be available to Purchaser,  including,  but not limited
to, the remedies  available  under  Section 10.1, in the event the Company fails
for any reason (other than as a result of actions taken by a Purchaser in breach
of this  Agreement) to effect  delivery to a Purchaser of  certificates  with or
without  restrictive  legends as  contemplated  by Article IX  representing  the
shares of  Common  Stock on or prior to the  Deadline  after  conversion  of any
Convertible Debentures or exercise of the Warrants,  Purchaser will be entitled,
if  prior  to the  delivery  of such  certificates,  to  revoke  the  Notice  of
Conversion or Notice of Exercise, as applicable,  by delivering a notice to such
effect to the Company whereupon the Company and Purchaser shall each be restored
to their respective  positions  immediately  prior to delivery of such Notice of
Conversion or Notice of Exercise, as the case may be.

     Section 10.3 Conversion Limit.  Notwithstanding the conversion rights under
the Convertible  Debentures,  unless  Purchaser  delivers a waiver in accordance
with the immediately following sentence, in no event shall Purchaser be entitled
to convert any portion of the Convertible Debentures,  in excess of that portion
of the Convertible Debentures, as applicable, of which the sum of (i) the number
of shares of Common Stock  beneficially  owned by Purchaser  and its  Affiliates
(other  than  shares of Common  Stock  which  may be deemed  beneficially  owned
through the ownership of the unconverted portion of the Convertible Debenture or
other  Derivative  Securities  convertible  into or  exchangeable  for shares of
Common  Stock  which  contain  a  limitation  similar  to that set forth in


                                       25
<PAGE>

this Section 10.3),  and (ii) the number of shares of Common Stock issuable upon
the conversion of the portion of the Convertible Debenture with respect to which
this  determination  is being made,  would  result in  beneficial  ownership  by
Purchaser  and its  Affiliates of more than 4.99% of the  outstanding  shares of
Common Stock.  For purposes of Section  10.3(i)  beneficial  ownership  shall be
determined in accordance  with Rule 13d-3 of the Exchange Act and Regulations 13
D-G thereunder, except as otherwise provided in this Section 10.3. The foregoing
limitation  shall  not  apply and  shall be of no  further  force or effect  (i)
immediately  preceding  and upon the  occurrence  of any  voluntary or mandatory
redemption  or  repayment  transaction  described  herein or in the  Convertible
Debentures,  (ii)  immediately  preceding and upon any Sale Event,  (iii) on the
Maturity Date or (iv)  following the occurrence of any Event of Default which is
not cured for a period of ten (10) calendar days.

     Section 10.4 Registration Rights.

          (a) The Company shall grant Purchaser registration rights covering the
     Conversion Shares (the "Registrable  Securities") on the terms set forth in
     the Registration Rights Agreement and herein.

          (b) The  Company  shall file  within ten (10) days of the date  hereof
     (the "Amendment  Filing Date") an amendment to its currently  effective S-1
     Registration   Statement  No.   333-55484  (the   "Registration   Statement
     Amendment") to register the resale of the Debenture  Conversion  Shares and
     Warrant  Shares.  In event  the  Company  fails  to file  the  Registration
     Statement  Amendment by the  Amendment  Filing  Date,  the Company will pay
     liquidated  damages to the Fund in the amount of 1% of the principal amount
     of the then outstanding Debentures per day until the Registration Statement
     Amendment has been filed.

          If the Registration  Statement  Amendment does not include a number of
     shares to register the resale of all of the Debenture Conversion Shares and
     Warrant  Shares,  the Company  shall prepare and file within seven (7) days
     following the Company's  Annual Meeting of  Shareholders'  for 2001,  which
     meeting shall not take place later than July 15, 2001 (the "Filing  Date"),
     a  registration  statement (the  "Registration  Statement") to register not
     less than 30,000,000 of Common Stock to cover the resale of the Registrable
     Securities and the shares of Common Stock  issuable upon  conversion of the
     restructured   Bridge  Notes  in  accordance  with  Section  7.16  of  this
     Agreement.  In the  event  the  Company  fails  to  file  the  Registration
     statement by the Filing Date, the Company shall pay Purchaser as liquidated
     damages,  and not as a penalty,  an amount of cash equal to one  percent of
     the aggregate  principal amount of Convertible  Debentures then outstanding
     per day until the Registration Statement is filed with the Commission.  The
     Company shall use its best efforts to cause the  Registration  Statement to
     be  declared  effective  by the  Commission  or the  earlier of (i) 60 days
     following  the Filing Date or (ii) ten days  following the receipt of a "no
     review" or similar letter from the Commission (the "Required  Effectiveness
     Date").  The Company  shall pay all  expenses of  registration  (other than
     underwriting  fees  and  discounts,  if  any,  in  respect  of  Registrable
     Securities   offered  and  sold  under  such   registration   statement  by
     Purchaser).

          (c) If the  Registration  Statement is not  declared  effective by the
     Commission  by the Required  Effectiveness  Date,  the Company shall pay to
     Purchaser,  as liquidated damages and not as a penalty,  an amount equal to
     2% of the  outstanding  principal  amount  of the  Convertible  Debentures,
     prorated, for each 30 day period the Registration Statement is not declared
     effective  by the  Commission,  which amount will be increased to 3% of the
     outstanding  principal  amount of the  Convertible  Debentures in the event
     that the Registration Statement is not declared effective by the Commission
     within 90 days of the Filing Date. In the event the Company fails to obtain
     an effective  registration  statement by the 120th day following the Filing
     Date, the Company will redeem the  Convertible  Debentures and the Warrants
     as set forth in Section 5 of the  Convertible  Debentures and Section 13 of
     the  Warrants,  respectively.  Additionally,  the  Company  will  grant  to
     Purchaser  certain piggyback  registration  rights in the event the Company
     proposes to effect a  registered  offering  of Common  Stock or warrants or
     both prior to the filing of the Registration Statement referenced above.


                                       26
<PAGE>

          (d) Any such  liquidated  damages shall be paid in cash by the Company
     to Purchaser by wire transfer in  immediately  available  funds on the last
     day of each calendar week following the event requiring its payment.

          (e) If, following the declaration of effectiveness of the Registration
     Statement,  such registration  statement (or any prospectus or supplemental
     prospectus  contained  therein)  shall cease to be effective for any reason
     (including  but not limited to the  occurrence of any event that results in
     any prospectus or supplemental prospectus containing an untrue statement of
     a material fact or omitting a material  fact required to be stated  therein
     or  necessary  in  order to make the  statements  therein,  in light of the
     circumstances  under which they were made, not  misleading)  for the period
     required  in  the   Registration   Rights   Agreement  (the   "Registration
     Maintenance Period"),  the Company fails to file required amendments to the
     Registration  Statement  in order to allow the  Purchaser  to exercise  its
     rights to receive  unrestricted,  unlegended,  freely  tradeable  shares of
     Common Stock,  or if for any reason there are  insufficient  shares of such
     shares of Common  Stock  registered  under  the then  current  Registration
     Statement  to effect  full  conversion  of the  Convertible  Debentures  or
     exercise of the  Warrants (a  "Registration  Default"),  the Company  shall
     immediately take all necessary steps to cause the Registration Statement to
     be amended or supplemented so as to cure such Registration Default. Failure
     to cure a  Registration  Default within ten (10) business days shall result
     in the Company paying to Purchaser liquidated damages at the rate of $1,000
     per day from the date of such  Registration  Default until the Registration
     Default is cured.

     Section  10.5  Restriction  on Issuance  of  Securities.  Beginning  on the
Closing Date and  continuing  for a period of 180 days  following  the Effective
Date or until the  Convertible  Debentures have been fully converted into shares
of Common  Stock,  whichever is later to occur,  the Company  will not sell,  or
offer to sell, any securities (including credit facilities which are convertible
into  securities  which may be issued at a discount to the then  current  Market
Price) other than  borrowings  that  provide for the payment of the  Convertible
Debentures, the Bridge Notes set forth on Schedule 7.16 hereto, or the Company's
5% Convertible  Secured  Debenture issued to the Halifax Fund, L.P.,  borrowings
under  conventional  credit  facilities  existing as of the date  hereof,  stock
issued or credit  facilities to be established in connection with  acquisitions,
employee and director stock options of the Company, existing rights and warrants
of the  Company  and  securities  issued  under the  Convertible  Debentures  or
Warrants. In addition,  the Company shall not issue any securities in connection
with a strategic alliance entered into by the Company unless such securities are
the  subject  of a one year  statutory  or  contractual  hold  period or, if not
subject to such a hold period,  unless the  Purchaser  has fully  converted  all
outstanding  Convertible Debentures and exercised all Warrants.  Notwithstanding
the foregoing,  the Company may enter into the following  types of  transactions
(collectively referred to as "Permitted Financings"):  (1) "permanent financing"
transactions,  which would include any form of debt or equity  financing  (other
than an  underwritten  offering),  which is followed by a reduction  of the said
financing  commitment to zero and payment of all related fees and expenses;  (2)
"project  financing" which provide for the issuance of recourse debt instruments
in  connection  with  the  operation  of the  Company's  business  as  presently
conducted or as proposed to be conducted; (3) an underwritten offering of Common
Stock,  provided that such offering  provides for the registration of the Common
Stock  to be  received  by  Purchaser  as a  result  of  the  conversion  of the
Convertible Debentures and the exercise of the Warrants held by the Purchaser to
the extent there is not an effective  Registration Statement for the sale of the
Conversion Shares in place at the time of such offering; and (4) other financing
transactions specifically consented to in writing by the Purchaser.

                     ARTICLE XI. ADJUSTMENT OF FIXED PRICE

     Section 11.1 Reorganization. The Conversion Price and the exercise price of
the  Warrants   (collectively,   the  "Fixed  Prices")  shall  be  adjusted,  as
applicable, as hereafter provided.

     Section 11.2 Share Reorganization. If and whenever the Company shall:

               (i)  subdivide  the  outstanding  shares of Common  Stock  into a
          greater number of shares;


                                       27
<PAGE>

               (ii)  consolidate the  outstanding  shares of Common Stock into a
          smaller number of shares;

               (iii)  issue  Common  Stock  or  securities  convertible  into or
          exchangeable  for shares of Common Stock as a stock dividend to all or
          substantially all the holders of Common Stock; or

               (iv) make a distribution on the  outstanding  Common Stock to all
          or  substantially  all the holders of Common  Stock  payable in Common
          Stock or securities convertible into or exchangeable for Common Stock;

any of such events being herein  called a "Share  Reorganization,"  then in each
such case the applicable  Fixed Price shall be adjusted,  effective  immediately
after the record date at which the holders of Common  Stock are  determined  for
the  purposes of the Share  Reorganization  or, if no record date is fixed,  the
effective date of the Share Reorganization,  by multiplying the applicable Fixed
Price in  effect  on such  record or  effective  date,  as the case may be, by a
fraction of which:

               (i) the  numerator  shall be the number of shares of Common Stock
          outstanding on such record or effective date (without giving effect to
          the transaction); and

               (II) the  denominator  shall be the  number  of  shares of Common
          Stock  outstanding  after giving effect to such Share  Reorganization,
          including,  in the case of a  distribution  of securities  convertible
          into or exchangeable  for shares of Common Stock, the number of shares
          of Common Stock that would have been  outstanding  if such  securities
          had been  converted  into or exchanged for Common Stock on such record
          or effective date.

     Section 11.3 Rights  Offering.  If and whenever the Company  shall issue to
all or  substantially  all the  holders  of Common  Stock,  rights,  options  or
warrants  under which such holders are  entitled,  during a period  expiring not
more than 45 days after the  record  date of such  issue,  to  subscribe  for or
purchase Common Stock (or Derivative  Securities),  at a price per share (or, in
the case of securities  convertible into or exchangeable for Common Stock, at an
exchange or conversion  price per share at the date of issue of such securities)
of less than 95% of the Market  Price of the Common  Stock on such  record  date
(any such event being herein called a "Rights Offering"), then in each such case
the applicable Fixed Price shall be adjusted,  effective  immediately  after the
record date at which holders of Common Stock are  determined for the purposes of
the Rights Offering, by multiplying the applicable Fixed Price in effect on such
record date by a fraction of which:

          (i) the numerator shall be the sum of:

               (i) the  number of shares of  Common  Stock  outstanding  on such
          record date; and

                    (II) a number obtained by dividing:

                    (A) either,

                         (x) the product of the total number of shares of Common
                    Stock so offered for  subscription or purchase and the price
                    at which such shares are so offered, or

                         (y) the  product  of the  maximum  number  of shares of
                    Common   Stock  into  or  for  which  the   convertible   or
                    exchangeable  securities  so  offered  for  subscription  or
                    purchase may be converted or exchanged and the conversion or
                    exchange price of such  securities,  or, as the case may be,
                    by

                    (B) the  Market  Price of the  Common  Stock on such  record
               date; and

                         (v) the denominator shall be the sum of:


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<PAGE>

               (i) the  number of shares of  Common  Stock  outstanding  on such
          record date; and

                    (II) the  number of shares of Common  Stock so  offered  for
               subscription   or  purchase   (or,  in  the  case  of  Derivative
               Securities,  the maximum  number of shares of Common Stock for or
               into which the securities so offered for subscription or purchase
               may be converted or exchanged).

To the extent that such rights,  options or warrants are not exercised  prior to
the  expiry  time  thereof,  the  applicable  Fixed  Price  shall be  readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would  then have been in effect  upon the  number of shares of Common  Stock (or
Derivative  Securities)  actually  delivered  upon the  exercise of such rights,
options or warrants.

     Section 11.4 Special Distribution.  If and whenever the Company shall issue
or distribute to all or substantially all the holders of Common Stock:

          (i) shares of the Company of any class, other than Common Stock;

          (ii) rights, options or warrants; or

          (iii)  any other  assets  (excluding  cash  dividends  and  equivalent
     dividends in shares paid in lieu of cash dividends in the ordinary course);

     and  if  such  issuance  or  distribution   does  not  constitute  a  Share
     Reorganization  or a Rights  Offering (any such event being herein called a
     "Special Distribution"),  then in each such case the applicable Fixed Price
     shall be adjusted, effective immediately after the record date at which the
     holders  of  Common  Stock  are  determined  for  purposes  of the  Special
     Distribution,  by multiplying the applicable  Fixed Price in effect on such
     record date by a fraction of which:

          (i) the numerator shall be the difference between:

               (A)  the  product  of  the  number  of  shares  of  Common  Stock
          outstanding  on such  record  date and the Market  Price of the Common
          Stock on such date; and

               (B) the fair market value, as determined by the Directors  (whose
          determination shall be conclusive),  to the holders of Common Stock of
          the shares, rights,  options,  warrants,  evidences of indebtedness or
          other assets issued or distributed in the Special Distribution (net of
          any consideration paid therefor by the holders of Common Stock), and

          (ii) the  denominator  shall be the product of the number of shares of
     Common  Stock  outstanding  on such record date and the Market Price of the
     Common Stock on such date.

     Section 11.5 Capital Reorganization. If and whenever there shall occur:

          (i) a reclassification  or redesignation of the shares of Common Stock
     or any change of the shares of Common Stock into other  shares,  other than
     in a Share Reorganization;

          (ii) a  consolidation,  merger or amalgamation of the Company with, or
     into another body corporate; or

          (iii) the  transfer of all or  substantially  all of the assets of the
     Company to another body corporate;

(any such event being herein  called a "Capital  Reorganization"),  then in each
such case the holder who exercises the right to convert  Convertible  Debentures
after the  effective  date of such Capital  Reorganization  shall be entitled to


                                       29
<PAGE>

receive and shall accept, upon the exercise of such right, in lieu of the number
of shares of Common Stock to which such holder was theretofore entitled upon the
exercise of the conversion  privilege,  the aggregate  number of shares or other
securities or property of the Company or of the body  corporate  resulting  from
such Capital Reorganization that such holder would have been entitled to receive
as a result of such Capital  Reorganization  if, on the effective  date thereof,
such  holders  had been the  holder of the  number of shares of Common  Stock to
which such holder was theretofore entitled upon conversion;  provided,  however,
that no such Capital  Reorganization  shall be  consummated in effect unless all
necessary  steps shall have been taken so that such holders shall  thereafter be
entitled to receive such number of shares or other  securities of the Company or
of the body  corporate  resulting from such Capital  Reorganization,  subject to
adjustment  thereafter in accordance  with provisions the same, as nearly as may
be possible, as those contained above.

     Section 11.6 Purchase Price Adjustments.  In case at any time and from time
to time the  Company  shall  issue  any  shares of  Common  Stock or  Derivative
Securities  convertible or exercisable for shares of Common Stock (the number of
shares so issued,  or issuable upon  conversion  or exercise of such  Derivative
Securities,  as applicable,  being  referred to as "Additional  Shares of Common
Stock")  for  consideration  less  than  the  then  Market  Price at the date of
issuance of such shares of Common Stock or such Derivative  Securities,  in each
such case the  Conversion  Price  shall,  concurrently  with such  issuance,  be
adjusted by multiplying the Conversion Price  immediately prior to such event by
a fraction:  (i) the  numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Shares of
Common  Stock  plus the  number of shares of  Common  Stock  that the  aggregate
consideration  received by the Company for the total  number of such  Additional
Shares of Common Stock so issued would purchase at the Market Price and (ii) the
denominator  of which shall be the number of shares of Common Stock  outstanding
immediately  prior to the issuance of Additional Shares of Common Stock plus the
number of such Additional Shares of Common Stock so issued or sold.

     Section 11.7 Adjustment  Rules. The following rules and procedures shall be
applicable to adjustments made in this Article XI:

          (a) no  adjustment  in the  applicable  Fixed  Price shall be required
     unless  such  adjustment  would  result  in a change  of at least 1% in the
     applicable  Fixed  Price  then  in  effect,  provided,  however,  that  any
     adjustments  which,  but for the provisions of this clause would  otherwise
     have been  required  to be made,  shall be carried  forward  and taken into
     account in any subsequent adjustment;

          (b) adjustment in the Fixed Price so that the rights of the holders of
     the applicable Security shall not be diminished by such event; and

          (c)  if a  dispute  shall  at  any  time  arise  with  respect  to any
     adjustment  of  the   applicable   Fixed  Price,   such  dispute  shall  be
     conclusively  determined  by the  auditors  of the  Company or, if they are
     unable or unwilling to act, by a firm of independent  chartered accountants
     selected by the Directors and any such determination  shall be binding upon
     the Company and Purchaser.

     Section 11.8  Certificate as to Adjustment.  The Company shall from time to
time promptly  after the occurrence of any event which requires an adjustment in
the  applicable  Fixed Price deliver to Purchaser a certificate  specifying  the
nature of the event  requiring  the  adjustment,  the  amount of the  adjustment
necessitated  thereby,  the  applicable  Fixed Price after giving effect to such
adjustment and setting forth,  in reasonable  detail,  the method of calculation
and the facts upon which such calculation is based.

     Section 11.9 Notice to Holders. If the Company shall fix a record date for:

          (a)  any  Share   Reorganization   (other  than  the   subdivision  of
     outstanding   Common  Stock  into  a  greater   number  of  shares  or  the
     consolidation of outstanding Common Stock into a smaller number of shares),

          (b) any Rights Offering,


                                       30
<PAGE>

          (c) any Special Distribution,

          (d) any  Capital  Reorganization  (other  than a  reclassification  or
     redesignation of the Common Stock into other shares),

          (e) Sale Event; or

          (f) any cash dividend,

the  Company  shall,  not less than 10 days prior to such  record date or, if no
record  date is  fixed,  prior  to the  effective  date of such  event,  give to
Purchaser  notice of the  particulars  of the proposed  event or the extent that
such particulars have been determined at the time of giving the notice.

                         ARTICLE XII. EVENTS OF DEFAULT

     Section  12.1 Events of  Default.  If one or more of the  following  events
(each an "Event of Default") shall have occurred and be continuing:

          (a) failure by the  Company to pay or repay when due,  all or any part
     of the principal on any of the Convertible Debentures (whether by virtue of
     the agreements specified in this Agreement or the Convertible Debentures);

          (b) failure by the Company to pay (i) within five (5) Business Days of
     the due date thereof any  interest on any  Convertible  Debentures  or (ii)
     within  five (5)  Business  Days  following  the  delivery of notice to the
     Company of any fees or any other amount payable (not otherwise  referred to
     in (a) above or this clause (b)) by the Company under this Agreement or any
     other Transaction Agreement;

          (c) failure by the Company to timely comply with the  requirements  of
     Section  7.11 or 10.1  hereof,  which  failure is not cured within five (5)
     Business Days of such failure;

          (d)  failure on the part of the  Company  to  observe  or perform  any
     covenant contained in Section 7.10 or Article VIII of this Agreement, which
     failure is not cured within five business days of such failure;

          (e)  failure on the part of the  Company  to  observe  or perform  any
     covenant or agreement  contained in any Transaction  Agreement  (other than
     those  covered by clauses (a),  (b), (c) or (d) above) for 30 days from the
     date of such occurrence;

          (f) the trading in the Common  Stock shall have been  suspended by the
     Commission,  any National  Market or the OTC Bulletin Board (except for any
     suspension of trading of limited duration solely to permit dissemination of
     material information regarding the Company and except if, at the time there
     is any  suspension on any National  Market or the OTC Bulletin  Board,  the
     Common Stock is then listed and  approved  for trading on another  National
     Market within ten (10) Trading Days thereof);

          (g) failure of the Company to file the Listing  Applications  required
     to be filed within twenty (20)  Business  Days of the Closing  Date,  which
     failure is not cured within five (5) Business Days of such failure;

          (h) the Company  shall have its Common Stock  delisted from a National
     Market or the OTC Bulletin Board for at least ten (10) consecutive  Trading
     Days and is  unable to obtain a  listing  on a  National  Market or the OTC
     Bulletin Board within such ten (10) Trading Days;


                                       31
<PAGE>

          (i) the Registration  Statement shall not have been declared effective
     by the Commission by the Required Effectiveness Date, or such effectiveness
     shall not be maintained for the Registration  Maintenance  Period,  in each
     case which results in the Company incurring the Default Fee for a period in
     excess of 10 days;

          (j) the Company or any  Subsidiary  has commenced a voluntary  case or
     other proceeding seeking liquidation,  winding-up,  reorganization or other
     relief  with  respect  to  itself  or  its  debts  under  any   bankruptcy,
     insolvency,  moratorium  or other similar law now or hereafter in effect or
     seeking the appointment of a trustee,  receiver,  liquidator,  custodian or
     other similar  official of it or any substantial  part of its property,  or
     has  consented  to any  such  relief  or to the  appointment  of or  taking
     possession by any such official in an involuntary  case or other proceeding
     commenced  against it, or has made a general  assignment for the benefit of
     creditors,  or has failed generally to pay its debts as they become due, or
     has taken any corporate action to authorize any of the foregoing;

          (k) an involuntary case or other proceeding has been commenced against
     the   Company   or  any   Subsidiary   seeking   liquidation,   winding-up,
     reorganization  or other  relief with  respect to it or its debts under any
     bankruptcy, insolvency, moratorium or other similar law now or hereafter in
     effect or  seeking  the  appointment  of a trustee,  receiver,  liquidator,
     custodian or other similar  official of it or any  substantial  part of its
     property,  and such  involuntary  case or  other  proceeding  shall  remain
     undismissed  and unstayed  for a period of 60 days,  or an order for relief
     has been entered  against the Company or any  Subsidiary  under the federal
     bankruptcy laws as now or hereafter in effect;

          (l) default in any  provision  (including  payment)  or any  agreement
     governing the terms of any Debt of the Company or any  Subsidiary in excess
     of $500,000, which has not been cured within any applicable period of grace
     associated therewith;

          (m)  judgments  or  orders  for the  payment  of  money  which  in the
     aggregate  at any  one  time  exceed  $1,000,000  and are  not  covered  by
     insurance  have been  rendered  against the Company or any  Subsidiary by a
     court of competent jurisdiction and such judgments or orders shall continue
     unsatisfied and unstayed for a period of 60 days; or

          (n) any representation,  warranty,  certification or statement made by
     the  Company in any  Transaction  Agreement  or which is  contained  in any
     certificate, document or financial or other statement furnished at any time
     under or in connection with any  Transaction  Agreement shall prove to have
     been untrue in any material respect when made.

then, and in every such  occurrence,  Purchaser may, with respect to an Event of
Default  specified in paragraphs (a) or (b), and the Majority  Holders may, with
respect to any other Event of  Default,  by notice to the  Company,  declare the
Convertible  Debentures  to be, and the  Convertible  Debentures  shall  thereon
become  immediately  due and  payable;  provided  that in the case of any of the
Events of Default  specified in  paragraph  (j) or (k) above with respect to the
Company or any Subsidiary,  then, without any notice to the Company or any other
act by Purchaser,  the entire amount of the Convertible  Debentures shall become
immediately  due and  payable,  provided,  further,  if any Event of Default has
occurred  and  is  continuing,  and  irrespective  of  whether  any  Convertible
Debenture has been declared immediately due and payable hereunder, any Purchaser
of  Convertible  Debentures  may  proceed to protect  and  enforce the rights of
Purchaser by an action at law, suit in equity or other  appropriate  proceeding,
whether for the specific performance of any agreement contained herein or in any
Convertible  Debenture,  or for an injunction  against a violation of any of the
terms hereof or thereof,  or in aid of the exercise of any power granted  hereby
or thereby or by law or  otherwise,  and  provided  further,  in the case of any
Event of  Default,  the  amount  declared  due and  payable  on the  Convertible
Debentures shall be the Formula Price thereof.

     Section  12.2 Powers and  Remedies  Cumulative.  No right or remedy  herein
conferred upon or reserved to Purchaser is intended to be exclusive of any other
right or remedy,  and every right and remedy shall,  to the extent


                                       32
<PAGE>

permitted by law, be cumulative  and in addition to every other right and remedy
given hereunder or now hereafter existing at law or in equity or otherwise.  The
assertion or employment of any right or remedy  hereunder,  or otherwise,  shall
not prevent the  concurrent  assertion or  employment  of any other  appropriate
right or remedy.  Every power and remedy given by the Convertible  Debentures or
by law may be  exercised  from  time to time,  and as  often as shall be  deemed
expedient, by Purchaser.

                          ARTICLE XIII. MISCELLANEOUS

     Section 13.2 Notices. All notices,  demands and other communications to any
party hereunder shall be in writing  (including  telecopier or similar  writing)
and shall be given to such party at its address set forth on the signature pages
hereof,  or such  other  address  as such party may  hereafter  specify  for the
purpose to the other parties.  Each such notice,  demand or other  communication
shall be effective (i) if given by telecopy,  when such telecopy is  transmitted
to the telecopy number specified on the signature page hereof,  (ii) if given by
mail,  four days after such  communication  is  deposited in the mail with first
class  postage  prepaid,  addressed  as aforesaid or (iii) if given by any other
means, when delivered at the address specified in or pursuant to this Section.

     Section 13.3 No Waivers; Amendments.

          (a) No  failure  or delay on the part of any party in  exercising  any
     right,  power or remedy  hereunder shall operate as a waiver  thereof,  nor
     shall any single or partial  exercise  of any such  right,  power or remedy
     preclude any other or further exercise thereof or the exercise of any other
     right, power or remedy.

          (b) Any provision of this  Agreement may be amended,  supplemented  or
     waived if, but only if, such amendment,  supplement or waiver is in writing
     and is signed by the  Company  and the  Majority  Holders;  provided,  that
     without the consent of each holder of any  Convertible  Debenture  affected
     thereby,  an amendment or waiver may not (a) reduce the aggregate principal
     amount of Convertible Debentures whose holders must consent to an amendment
     or waiver,  (b) reduce the rate or extend the time for  payment of interest
     on any Convertible Debenture,  (c) reduce the principal amount of or extend
     the  stated  maturity  of  any  Convertible   Debenture  or  (d)  make  any
     Convertible  Debenture payable in money or property other than as stated in
     such  Convertible  Debenture.  In  determining  whether  the holders of the
     requisite principal amount of Convertible  Debentures have concurred in any
     direction,  consent,  or waiver as provided in any  Transaction  Agreement,
     Convertible  Debentures which are owned by the Company or any other obligor
     on  or  guarantor  of  the  convertible   Debentures,   or  by  any  Person
     Controlling,  Controlled  by,  or  under  common  Control  with  any of the
     foregoing,  shall be disregarded  and deemed not to be outstanding  for the
     purpose  of any  such  determination;  and  provided  further  that no such
     amendment,  supplement  or waiver which affects the rights of Purchaser and
     their  affiliates  otherwise than solely in their  capacities as holders of
     Convertible  Debentures  shall be  effective  with  respect to them without
     their prior written consent.

     Section 13.3 Indemnification.

          (a) The Company agrees to indemnify and hold harmless  Purchaser,  its
     Affiliates,  and each Person, if any, who controls Purchaser, or any of its
     Affiliates,  within the meaning of the  Securities  Act or the Exchange Act
     (each,  a  "Controlling  Person"),  and the  respective  partners,  agents,
     employees,  officers and Directors of Purchaser,  their  Affiliates and any
     such Controlling Person (each an "Indemnified Party") and collectively, the
     "Indemnified  Parties"),  from  and  against  any and all  losses,  claims,
     damages,  liabilities and expenses  (including,  without  limitation and as
     incurred,  reasonable  costs of  investigating,  preparing or defending any
     such claim or  action,  whether  or not such  Indemnified  Party is a party
     thereto,  provided  that the Company shall not be obligated to advance such
     costs to any Indemnified  Party other than Purchaser unless it has received
     from such  Indemnified  Party an  undertaking  to repay to the  Company the
     costs so advanced if it should be determined  by final  judgment of a court
     of competent  jurisdiction  that such Indemnified Party was not entitled to
     indemnification hereunder with respect to such costs) which may be incurred
     by  such   Indemnified   Party  in  connection   with  any   investigative,
     administrative or judicial


                                       33
<PAGE>

     proceeding brought or threatened that relates to or arises out of, or is in
     connection with any activities contemplated by any Transaction Agreement or
     any other  services  rendered in  connection  herewith;  provided  that the
     Company  will  not be  responsible  for any  claims,  liabilities,  losses,
     damages or expenses  that are  determined  by final  judgment of a court of
     competent  jurisdiction  to result  from  such  Indemnified  Party's  gross
     negligence, willful misconduct or bad faith.

          (b) If any action shall be brought  against an Indemnified  Party with
     respect to which  indemnity  may be sought  against the Company  under this
     Agreement,  such  Indemnified  Party shall  promptly  notify the Company in
     writing and the Company,  at its option,  may, assume the defense  thereof,
     including  the  employment  of  counsel  reasonably  satisfactory  to  such
     Indemnified  Party and payment of all  reasonable  fees and  expenses.  The
     failure to so notify the  Company  shall not  affect  any  obligations  the
     Company  may  have  to such  Indemnified  Party  under  this  Agreement  or
     otherwise  unless the  Company is  materially  adversely  affected  by such
     failure.  Such  Indemnified  Party shall have the right to employ  separate
     counsel in such action and participate in the defense thereof, but the fees
     and  expenses of such counsel  shall be at the expense of such  Indemnified
     Party,  unless (i) the  Company has failed to assume the defense and employ
     counsel  or (ii) the  named  parties  to any  such  action  (including  any
     impleaded parties) include such Indemnified Party and the Company, and such
     Indemnified  Party shall have been advised by counsel that there may be one
     or  more  legal  defenses  available  to it  which  are  different  from or
     additional  to those  available  to the  Company,  in which  case,  if such
     Indemnified  Party notifies the Company in writing that it elects to employ
     separate counsel at the expense of the Company,  the Company shall not have
     the right to assume the defense of such action or  proceeding  on behalf of
     such Indemnified Party,  provided,  however, that the Company shall not, in
     connection  with  any  one  such  action  or  proceeding  or  separate  but
     substantially  similar  or  related  actions  or  proceedings  in the  same
     jurisdiction  arising out of the same general allegations or circumstances,
     be responsible  hereunder for the reasonable fees and expenses of more than
     one such firm of separate counsel, in addition to any local counsel,  which
     counsel shall be  designated by Purchaser.  The Company shall not be liable
     for any settlement of any such action effected  without the written consent
     of the Company (which shall not be  unreasonably  withheld) and the Company
     agrees to  indemnify  and hold  harmless  each  Indemnified  Party from and
     against  any loss or  liability  by  reason  of  settlement  of any  action
     effected  with the consent of the Company.  In  addition,  the Company will
     not,  without the prior written consent of Purchaser,  settle or compromise
     or consent to the entry of any judgment in or  otherwise  seek to terminate
     any pending or threatened  action,  claim, suit or proceeding in respect to
     which  indemnification  or contribution may be sought hereunder (whether or
     not any  Indemnified  Party is a party  thereto)  unless  such  settlement,
     compromise,  consent  or  termination  includes  an  express  unconditional
     release of Purchaser and the other  Indemnified  Parties,  satisfactory  in
     form and  substance to Purchaser,  from all  liability  arising out of such
     action, claim, suit or proceeding.

          (c)  If  for  any  reason  the  foregoing   indemnity  is  unavailable
     (otherwise  than  pursuant to the express  terms of such  indemnity)  to an
     Indemnified  Party or insufficient  to hold an Indemnified  Party harmless,
     then in lieu of  indemnifying  such  Indemnified  Party,  the Company shall
     contribute  to the amount  paid or payable by such  Indemnified  Party as a
     result of such claims,  liabilities,  losses,  damages,  or expenses (i) in
     such proportion as is appropriate to reflect the relative benefits received
     by the  Company  on the one hand and by  Purchaser  on the  other  from the
     transactions  contemplated  by this  Agreement  or  (ii) if the  allocation
     provided  by clause (i) is not  permitted  under  applicable  law,  in such
     proportion  as is  appropriate  to reflect not only the  relative  benefits
     received by the  Company on the one hand and  Purchaser  on the other,  but
     also the relative  fault of the Company and  Purchaser as well as any other
     relevant equitable  considerations.  Notwithstanding the provisions of this
     Section 13.3, the aggregate  contribution of all Indemnified  Parties shall
     not exceed the amount of interest and fees  actually  received by Purchaser
     pursuant to this  Agreement.  It is hereby further agreed that the relative
     benefits  to the  Company on the one hand and  Purchaser  on the other with
     respect to the  transactions  contemplated  hereby shall be  determined  by
     reference  to,  among other  things,  whether any untrue or alleged  untrue
     statement of material  fact or the omission or alleged  omission to state a
     material  fact  related  to  information  supplied  by  the  Company  or by
     Purchaser  and  the  parties'   relative  intent,   knowledge,   access  to
     information  and  opportunity  to  correct  or


                                       34
<PAGE>

     prevent  such  statement  or  omission.  No  Person  guilty  of  fraudulent
     misrepresentation  (within the meaning of Section  11(f) of the  Securities
     Act) shall be entitled to  contribution  from any Person who was not guilty
     of such fraudulent misrepresentation.

          (d)  The  indemnification,   contribution  and  expense  reimbursement
     obligations  set forth in this Section 13.3 (i) shall be in addition to any
     liability  the Company may have to any  Indemnified  Party at common law or
     otherwise;  (ii) shall survive the  termination  of this  Agreement and the
     other  Transaction  Agreements  and the payment in full of the  Convertible
     Debentures  and (iii) shall remain  operative  and in full force and effect
     regardless  of any  investigation  made by or on behalf of Purchaser or any
     other Indemnified Party.

     Section 13.4  Expenses:  Documentary  Taxes.  The Company  agrees to pay to
Purchaser's  investment advisor a fee of $15,000.00 (the "Expense  Reimbursement
Fee") in full  satisfaction  of all  obligations of the Company to Purchaser and
its agents in connection with the negotiation and preparation of the Transaction
Agreements, relevant due diligence, and fees and disbursements of legal counsel.
In  addition,  the Company  agrees to pay any and all stamp,  transfer and other
similar taxes,  assessments or charges  payable in connection with the execution
and delivery of any  Transaction  Agreement or the issuance of the Securities to
Purchaser, excluding their assigns.

     Section 13.5 Payment.  The Company agrees that, so long as Purchaser  shall
own any Convertible  Debentures purchased by it from the Company hereunder,  the
Company  will make  payments  to  Purchaser  of all  amounts due thereon by wire
transfer by 4:00 P.M. (E.S.T.).

     Section 13.6  Successors and Assigns.  This Agreement shall be binding upon
the  Company and upon  Purchaser  and its  respective  successors  and  assigns;
provided that the Company  shall not assign or otherwise  transfer its rights or
obligations  under this  Agreement to any other Person without the prior written
consent of the Majority  Holders.  All provisions  hereunder  purporting to give
rights to Purchaser and its  affiliates or to holders of Securities  are for the
express benefit of such Persons and their successors and assigns.

     Section 13.7  Brokers.  Except for a cash fee payable to LKB in the form of
(i) 5% of the principal  amount of the Convertible  Debentures  purchased on the
Closing Date by  Purchaser  and (ii) a warrant to purchase  1,000,000  shares of
Common Stock on the same terms as those set forth in Exhibit F attached  hereto,
the Company represents and warrants that it has not employed any broker, finder,
financial  advisor or investment  banker who would be entitled to any brokerage,
finder's  or other fee or  commission  payable by the  Company or  Purchaser  in
connection with the sale of the Securities.

     Section  13.8 New York  Law;  Submission  to  Jurisdiction;  Waiver of Jury
Trial;  Appointment of Agent.  THIS  AGREEMENT  SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY
SUBMITS TO THE EXCLUSIVE  JURISDICTION  OF THE UNITED STATES  DISTRICT COURT FOR
THE SOUTHERN  DISTRICT OF NEW YORK AND OF ANY FEDERAL  DISTRICT COURT SITTING IN
NEW YORK FOR  PURPOSES  OF ALL LEGAL  PROCEEDINGS  ARISING OUT OF OR RELATING TO
THIS  AGREEMENT  OR THE  TRANSACTIONS  CONTEMPLATED  HEREBY.  EACH PARTY  HERETO
IRREVOCABLY  WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER  HAVE TO THE LAYING OF THE VENUE OF ANY SUCH  PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN  INCONVENIENT  FORUM.  EACH PARTY TO THIS AGREEMENT
IRREVOCABLY  CONSENTS  TO THE SERVICE OF PROCESS IN ANY SUCH  PROCEEDING  BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,  POSTAGE PREPAID,  TO
SUCH PARTY AT ITS ADDRESS SET FORTH  HEREIN.  NOTHING  HEREIN  SHALL  AFFECT THE
RIGHT OF ANY PARTY TO SERVE  PROCESS IN ANY OTHER MANNER  PERMITTED BY LAW. EACH
PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY.


                                       35
<PAGE>

     Section 13.9 Entire  Agreement.  This Agreement,  the Exhibits or Schedules
hereto,  which include,  but are not limited to the Convertible  Debenture,  the
Warrant,  the  Registration  Rights  Agreement,   Mortgage,   and  the  Security
Agreement,  set forth the entire  agreement  and  understanding  of the  parties
relating  to  the  subject   matter   hereof  and   supercedes   all  prior  and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and  written  relating  to the subject  matter  hereof.  The terms and
conditions  of all Exhibits and  Schedules to this  Agreement  are  incorporated
herein by this reference and shall constitute part of this Agreement as is fully
set forth herein.

     Section 13.10  Survival;  Severability.  The  representations,  warranties,
covenants  and  agreements  of the  parties  hereto  shall  survive  the Closing
hereunder.  In the event  that any  provision  of this  Agreement  becomes or is
declared by a court of competent  jurisdiction to be illegal,  unenforceable  or
void,  this  Agreement  shall  continue  in full force and effect  without  said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.

     Section 13.11 Title and  Subtitles.  The titles and subtitles  used in this
Agreement  are  used  for  convenience  only  and  are not to be  considered  in
construing or interpreting this Agreement.

     Section 13.12 Reporting  Entity for the Common Stock.  The reporting entity
relied upon for the  determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg,  L.P. or any successor thereto.  The written mutual
consent of the  Purchaser  and the Company shall be required to employ any other
reporting entity.

     Section 13.13  Publicity.  The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise  making public  statements
with respect to the  transactions  contemplated  hereby and no party shall issue
any such press release or otherwise make any such public  statement  without the
prior  written  consent  of  the  other  parties,  which  consent  shall  not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such  disclosure is required by law, in which such case the disclosing  party
shall  provide the other  parties  with prior  notice of such public  statement.
Notwithstanding the foregoing,  the Company shall not publicly disclose the name
of  Purchaser  without the prior  written  consent of  Purchaser,  except to the
extent  required by law, in which case the Company shall provide  Purchaser with
prior written notice of such public disclosure.


                                       36
<PAGE>


     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly  executed by their  respective  authorized  officers,  as of the date first
above written.

                                    AMERICAN INTERNATIONAL PETROLEUM CORPORATION


                                    By:_________________________________________
                                    Name:  _____________________________________
                                    Title: _____________________________________

                                    Address:  American International  Petroleum
                                              Corporation
                                              2950 North Loop West, Suite 1000
                                              Houston, TX 77092

                                              Fax:______________________________
                                              Tel.:_____________________________



                                    GCA STRATEGIC INVESTMENT FUND LIMITED


                                    By:_________________________________________
                                       Name:  Lewis N. Lester
                                       Title: Director

                                    Address:  c/o Prime Management Limited
                                              Mechanics Building
                                              12 Church Street
                                              Hamilton HM II, Bermuda

                                              Fax:     441-295-3926
                                              Tel.:    441-295-0329


Securities Purchase Agreement



                                       37
<PAGE>


Schedule 7.16
Bridge Notes

     1.   $1,850,000  Principal  Amount  Bridge  Note of the  Company,  original
          maturity date August 31, 2000.

     2.   $2,500,000  Principal  Amount  Bridge  Note of the  Company,  original
          maturity date May 23, 2000.

     3.   $3,000,000  Principal  Amount Secured Bridge Note,  original  maturity
          date November 28, 2000.



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