Exhibit 10.18


                                                                [EXECUTION COPY]

THE  WARRANTS  REPRESENTED  BY THIS  CERTIFICATE  AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE  HEREOF HAVE NOT BEEN  REGISTERED OR QUALIFIED  UNDER THE
SECURITIES  ACT OF 1933,  AS  AMENDED  (THE  "1933  ACT"),  OR UNDER  ANY  STATE
SECURITIES  LAWS AND SUCH  WARRANTS  HAVE BEEN  ISSUED TO THE HOLDER IN RELIANCE
UPON CERTAIN EXEMPTIONS FROM REGISTRATION PROVIDED IN THE 1933 ACT AND THE RULES
AND  REGULATIONS   THEREUNDER  AND  THE  APPLICABLE   STATE   SECURITIES   LAWS.
ACCORDINGLY,  NEITHER SUCH  SECURITIES NOR ANY INTEREST  THEREIN MAY BE OFFERED,
SOLD,  PLEDGED,  ASSIGNED OR  OTHERWISE  TRANSFERRED  UNLESS (1) A  REGISTRATION
STATEMENT  WITH  RESPECT  THERETO  IS  EFFECTIVE  UNDER  THE  1933  ACT  AND ANY
APPLICABLE  STATE  SECURITIES  LAWS OR (2) THE  COMPANY  RECEIVES  AN OPINION OF
COUNSEL  TO THE  HOLDER  OF SUCH  SECURITIES,  WHICH  COUNSEL  AND  OPINION  ARE
REASONABLY  SATISFACTORY  TO THE COMPANY,  THAT SUCH  SECURITIES MAY BE OFFERED,
SOLD, PLEDGED,  ASSIGNED,  OR TRANSFERRED IN THE MANNER CONTEMPLATED  WITHOUT AN
EFFECTIVE  REGISTRATION  STATEMENT  UNDER  THE  1933  ACT AND  APPLICABLE  STATE
SECURITIES LAWS.

Warrant No.: W-1                                            December 31, 2001

                   WARRANT TO PURCHASE SHARES OF COMMON STOCK

                                       OF

                                SCAN-OPTICS, INC.

         THIS CERTIFIES THAT, for value received,  ARK CLO 2000-1,  LIMITED,  or
any assignee or transferee  permitted under the terms hereof (the "Holder"),  is
entitled, in accordance with the terms and conditions  hereinafter set forth, to
subscribe for and purchase from Scan-Optics,  Inc., a Delaware  corporation (the
"Company"),  at any time  after  the date on which a Trigger  Event (as  defined
below) shall occur (such date being the "Commencement  Date") and on or prior to
5:00 p.m.  New York City time on  December  31,  2011 (the  "Expiration  Date"),
33.20% of the Company's Common Stock (as defined in Section 11 below) on a Fully
Diluted Basis (as defined below) as of the date hereof (such number of shares as
from time to time adjusted as hereinafter  provided,  the "Warrant Shares"),  at
the price of $0.02 per share (as such price may be adjusted from time to time as
hereafter  provided,  the  "Exercise  Price")  and to receive a  certificate  or
certificates  for  the  Warrant  Shares  so  purchased,  upon  presentation  and
surrender  of this  Warrant at the  location  set forth in Section  1(a)  below,
together with the Exercise Price of the shares so purchased.



<PAGE>


         "Credit  Agreement" means that certain Second Amended and Restated Loan
Agreement,  dated  as of May 10,  1999,  as  amended  pursuant  to that  certain
Amendment  and  Waiver  Agreement,  dated as of  January  29,  2001,  the Second
Amendment and Waiver  Agreement,  dated as of July 1, 2001, the Third  Amendment
and Waiver  Agreement,  dated as of September  1, 2001 and the Fourth  Amendment
Agreement, of even date herewith.

         "Fully  Diluted  Basis" shall mean,  for the Company,  all  outstanding
shares of Common  Stock  plus all shares  which  would be  outstanding  upon the
exercise  in full of all  Convertible  Securities  (as  defined in Section  2(j)
below), Options (as defined in Section 2(j) below) and Stock Purchase Rights (as
defined below).

         "Stock  Purchase  Rights"  shall  mean any  warrants,  options or other
rights of any kind to subscribe for, purchase or otherwise acquire any shares of
Common Stock, Options or any Convertible Securities.

         "Trigger  Event" means the earlier to occur of (a) January 1, 2005, and
(b) an Event of Default (as defined in the Credit  Agreement)  listed in Section
11(a) (so long as such an Event of Default under  Section  11(a) shall  continue
for a period of 5  business  days),  11(b) (so long as such an Event of  Default
under Section 11(b) shall continue for a period of 120 consecutive  days), 11(e)
(so long as an Event of Default under Section 11(e) shall  continue for a period
of 5 business days), 11(g), 11(h) or 11(i) of the Credit Agreement.

         Section 1.  Exercise.

         (a) Method of  Exercise.  Subject  to  compliance  with all  applicable
securities  laws, this Warrant may be exercised from time to time in whole or in
part  from and  after the  Commencement  Date and on or prior to the  Expiration
Date,  by  delivering  to  the  Company  at  169  Progress  Drive,   Manchester,
Connecticut 06040 (i) this Warrant,  (ii) a subscription form,  substantially in
the form of Exhibit A attached hereto (the "Subscription  Form"), duly completed
and executed by the Holder and (iii) payment of the Exercise  Price as set forth
below in Section 1(b).

         (b) Payment of Exercise  Price.  Payment of the  Exercise  Price may be
made,  at the option of the  Holder,  either (i) by payment to the  Company,  by
check or wire transfer of an amount in immediately  available funds equal to the
product of (A) the then applicable Exercise Price,  multiplied by (B) the number
of Warrant  Shares then being  purchased,  or (ii) by  surrender of the right to
receive upon  exercise of this Warrant a number of shares of Common Stock having
a value (as  determined  below) equal to the product of (A) the then  applicable
Exercise  Price,  multiplied  by (B) the  number of  Warrant  Shares  then being
purchased,  in which  case,  the  number of  Warrant  Shares to be issued to the
Holder upon such exercise shall be calculated using the following formula:


                                            Y * (A - B)
                                            -----------
                                     X  =         A

         with

          X    = the number of shares of Common Stock to be issued to the Holder


                                      -2-
<PAGE>

          Y    = the number of Warrant Shares with respect to which the Warrant
               is being exercised

          A    = the Fair Market Value (as determined below) of one share of
               Common Stock

          B    = the then applicable Exercise Price of the Warrant.

         For purposes of this Warrant, the following  capitalized terms have the
following meanings:

         "Fair Market Value" shall mean the average of the daily Closing  Prices
(as  hereinafter  defined) for the 10 consecutive  Trading Days (as  hereinafter
defined) immediately prior to the date in question.

         "Closing Price" on any day means the last sales price, regular way, per
share of such stock on such day, or if no such sale takes place on such day, the
average of the closing  bid and asked  prices,  regular  way, as reported in the
principal  consolidated  transaction reporting system with respect to securities
listed  or  admitted  to  trading  on  the  principal  consolidated  transaction
reporting  system with respect to securities  listed on the  principal  national
securities  exchange on which the shares of such stock are listed or admitted to
trading,  or, if the shares of such stock are not listed or  admitted to trading
on any national securities  exchange,  the average of the high bid and low asked
prices as reported on the NASDAQ stock market or in the over-the-counter  market
as reported on the OTC Bulletin Board maintained by the National  Association of
Securities Dealers Inc. or another over-the-counter market reporting system.

         "Trading  Day" means a day on which the principal  national  securities
exchange on which such shares of such stock are listed or admitted to trading is
open for the  transaction  of  business  or, if the shares of such stock are not
listed or admitted to trading on any  national  securities  exchange,  a Monday,
Tuesday,  Wednesday,  Thursday or Friday on which  banking  institutions  in the
Borough  of  Manhattan,  City  and  State of New  York,  are not  authorized  or
obligated by law or executive order to close.

         (c) Date of  Exercise.  This  Warrant  shall  be  deemed  to have  been
exercised  immediately  prior  to the  close  of  business  on the  date  of its
surrender  for  exercise  as  provided  in Section  1(a)  above,  and the person
entitled to receive the Warrant  Shares  issuable  upon such  exercise  shall be
treated for all  purposes as the holder of record of such  Warrant  Shares as of
the close of business on such date.

         (d) Issuance of Certificates for Warrant Shares; No Fractional  Shares.
As soon as practicable after the Company's receipt of the Warrant surrendered in
connection  with an exercise  provided  for in Section  1(a) above,  the Company
shall issue and deliver to the person or persons entitled to receive the Warrant
Shares issuable upon such exercise of the Warrant, a certificate or certificates
for the number of whole shares of Warrant  Shares  issuable upon such  exercise,
together  with cash in lieu of any fraction of a share equal to such fraction of
the current  Fair Market Value of one whole share of Common Stock as of the date





                                      -3-
<PAGE>

of  exercise.  No  fractional  shares  shall be issued upon the exercise of this
Warrant,  and any fractions shall be rounded down to the nearest whole number of
shares.

         (e) Partial  Exercise.  Upon a partial  exercise of this Warrant,  this
Warrant  shall be  surrendered  by the Holder and replaced with a new Warrant of
like tenor in the name of the Holder  providing  for the right to  purchase  the
number  of shares of Common  Stock as to which  this  Warrant  has not then been
exercised.

         (f) Taxes. The issuance of certificates for shares of Common Stock upon
the exercise of this  Warrant will be made without  charge by the Company to the
Holder for any issue tax (other than applicable income tax).

         Section 2.  Adjustment of Exercise Price and Number of Warrant  Shares.
The  Exercise  Price and the number of Warrant  Shares  shall each be subject to
adjustment from time to time as set forth below.

         (a) Dividends and Distributions. In the event the Company shall, at any
time or from time to time,  distribute to the holders of any of its Common Stock
any  dividend or other  distribution  of any Assets (as defined in Section  2(j)
below),  other than  dividends  payable in Common Stock,  Options or Convertible
Securities,  and any cash dividend that,  when added to all other cash dividends
paid  in the 12  months  immediately  preceding  the  declaration  date  of such
dividend (excluding any such other dividend included in a previous adjustment of
the Exercise Price pursuant to this  paragraph  (a)),  does not exceed 2% (on an
annualized basis) of the Current Market Price (as defined in Section 2(j) below)
per share of Common Stock on such declaration date, then:

         (i) the Exercise  Price shall be reduced to equal the product  obtained
by multiplying (A) the Exercise Price then in effect by (B) a fraction,  (x) the
numerator  of which  shall be (I) the Current  Market  Price per share of Common
Stock on the record date for such distribution less (II) the sum of (a) the cash
portion,  if any, of such  distribution  per share of Common  Stock  outstanding
(exclusive of any treasury shares) on the record date for such distribution plus
(b) the then fair  market  value (as  determined  in good  faith by the Board of
Directors of the Company) per share of Common Stock  outstanding  (exclusive  of
any treasury  shares) on the record date for such  distribution of that portion,
if any, of such  distribution  consisting of Assets other than cash, and (y) the
denominator  of which  shall be such  Current  Market  Price per share of Common
Stock on the record date for such distribution, and

         (ii) the  number of  Warrant  Shares  shall be  increased  to equal the
product  obtained by multiplying  (A) the Warrant  Shares in effect  immediately
prior to the  record  date  for such  distribution  by (B) a  fraction,  (x) the
numerator of which shall be the Exercise  Price in effect  immediately  prior to
the adjustment  required by clause (i) of this paragraph and (y) the denominator
of  which  shall  be  the  Exercise  Price  in  effect  immediately  after  such
adjustment.

         The  adjustments  required by this paragraph (a) shall be made whenever
any such  distribution  is made and shall be  retroactive to the record date for
the determination of stockholders entitled to receive such distribution.



                                      -4-
<PAGE>

         (b) Dividends  Payable in Common Stock and Changes in Common Stock.  In
the event the  Company  shall,  at any time or from time to time,  (x) issue any
shares of Common Stock as a stock dividend to the holders of Common Stock or (y)
subdivide  or combine any  outstanding  shares of Common Stock into a greater or
lesser number of shares (each such event being a "Change of Shares"), then:

         (i) the number of Warrant Shares immediately prior to such action shall
be adjusted so that the Holder, upon exercising the Warrant shall be entitled to
the number of shares of Common  Stock  that the Holder  would have owned or have
been  entitled to receive after the happening of such event had the Warrant been
exercised  immediately prior to the record date (or, if there is no record date,
the effective date) for such event, and

         (ii)  the  Exercise  Price  shall be  adjusted  to  equal  the  product
determined by multiplying (A) the Exercise Price in effect  immediately prior to
such event by (B) a fraction,  (x) the numerator of which shall be the number of
Warrant Shares  immediately prior to such event and (y) the denominator of which
shall be the number of Warrant Shares after the adjustment referred to above.

         An adjustment  made pursuant to this clause (b) shall become  effective
retroactively  immediately  after the record date in the case of a dividend  and
shall become effective  immediately after the effective date in other cases, but
any shares of Common Stock issuable solely as a result of such adjustment  shall
not be issued prior to the effective date of such event.

         (c) Common Stock Issuances. In the event the Company shall, at any time
or from time to time, issue, sell or otherwise  distribute  (including by way of
deemed  distributions  pursuant to  paragraphs  (e) and (f) below) any shares of
Common Stock  (other than  pursuant to a Change of Shares or the exercise of any
Option  or  Convertible   Security)  (any  such  event,   including  any  deemed
distributions  described in paragraphs (e) and (f) below,  being herein called a
"Common  Stock  Distribution"),  for a  consideration  per  share  less than the
Exercise Price in effect at the time of such distribution,  then, effective upon
such Common Stock Distribution:

         (i) the Exercise  Price shall be reduced to equal the product  obtained
by multiplying (A) the Exercise Price in effect immediately prior to such Common
Stock  Distribution  by (B) a fraction,  (x) the numerator of which shall be the
sum of the  number  of  shares of Common  Stock  outstanding  (exclusive  of any
treasury shares)  immediately  prior to such Common Stock  Distribution plus the
number of shares of Common Stock which the aggregate  consideration  received by
the Company would purchase at the Exercise Price in effect  immediately prior to
such Common Stock  Distribution,  and (y) the  denominator of which shall be the
total number of shares of Common Stock  outstanding  (exclusive  of any treasury
shares) immediately after such Common Stock Distribution, and

         (ii) the  number of  Warrant  Shares  shall be  increased  to equal the
product  obtained  by  multiplying  (A) the number of  Warrant  Shares in effect
immediately prior to such Common Stock  Distribution by (B) a fraction,  (x) the
numerator of which shall be the Exercise  Price in effect  immediately  prior to
such  adjustment and (y) the denominator of which shall be the Exercise Price in
effect immediately after such adjustment.



                                      -5-
<PAGE>

         The  provisions  of this  paragraph  (c)  (including  by  operation  of
paragraph (e) or (f) below) shall not operate to increase the Exercise  Price or
reduce the number of Warrant Shares, except by operation of paragraph (g) below.

         (d) Other  Securities.  In the event that (i) the Company shall, at any
time or  from  time  to  time,  issue  any  shares  of its  capital  stock  in a
reclassification  or reorganization of the Common Stock, or (ii) at any time, as
a result of an  adjustment  made  pursuant to this  Section 2, the Holder  shall
become  entitled to receive any  securities  of the Company other than shares of
Common Stock, thereafter, in each such case, the number of such other securities
so receivable upon exercise of the Warrant and the Exercise Price  applicable to
such exercise  shall be subject to adjustment  from time to time in a manner and
on terms as nearly  equivalent as practicable to the provisions  with respect to
the shares of Common Stock contained in this Section.

         (e) Issuance of Options.  Except as provided in Section 2(l) below,  in
the event the  Company  shall,  at any time or from time to time,  issue,  sell,
distribute  or  otherwise  grant in any manner  (including  by  assumption)  any
Options,  whether  or not such  Options  (or in the case of  Options  to acquire
Convertible  Securities,  the right to  convert  or  exchange  such  Convertible
Securities) are immediately  exercisable,  and the exercise price per share with
respect to such Options  shall be less than either (i) the Current  Market Price
per share of Common Stock on the date of the  issuance,  sale,  distribution  or
granting of such Options or (ii) the Exercise  Price then in effect,  then,  for
purposes of paragraph (c) above,  the total  maximum  number of shares of Common
Stock  issuable upon the exercise of all such Options or upon the  conversion or
exchange of the total maximum amount of the Convertible Securities issuable upon
the exercise of all such  Options  shall be deemed to have been issued as of the
date of the  issuance,  sale,  distribution  or  granting  of such  Options  and
thereafter  shall be deemed to be outstanding and the Company shall be deemed to
have  received as  consideration  such exercise  price per share,  determined as
provided above, therefor.

         Except as otherwise  provided in  paragraph  (g) below,  no  additional
adjustment of the Exercise Price shall be made upon the actual  exercise of such
Options or upon  conversion or exchange of the Convertible  Securities  issuable
upon the exercise of such Options.

         (f) Issuance of Convertible Securities. In the event the Company shall,
at any time or from time to time, issue, sell or otherwise distribute (including
by assumption) any Convertible  Securities  (other than upon the exercise of any
Option),  whether  or not the right to  convert  or  exchange  such  Convertible
Securities are immediately  exercisable,  and the exercise price per share shall
be less than (i) the Current  Market Price per share of Common Stock on the date
of such  issuance,  sale or  distribution  or (ii) the  Exercise  Price  then in
effect,  then, for purposes of paragraph (c) above,  the total maximum number of
shares of Common  Stock,  issuable  upon the  conversion or exchange of all such
Convertible Securities shall be deemed to have been issued as of the date of the
issuance,  sale or  distribution of such  Convertible  Securities and thereafter
shall be  deemed  to be  outstanding  and the  Company  shall be  deemed to have
received as consideration such exercise price per share,  determined as provided
above, therefor.

         Except as otherwise  provided in  paragraph  (g) below,  no  additional
adjustment  of the Exercise  Price shall be made upon the actual  conversion  or
exchange of such Convertible Securities.




                                      -6-
<PAGE>

         (g) Changes in Options and Convertible Securities.  If (i) the exercise
price provided for in any Options  referred to in paragraph (e) above,  (ii) the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible  Securities  referred to in paragraph (e) or (f) above, or (iii) the
rate at which any  Convertible  Securities  referred to in paragraph  (e) or (f)
above are convertible into or exchangeable for Common Stock, shall change at any
time (other than under or by reason of  provisions  designed to protect  against
dilution  upon an event which results in a related  adjustment  pursuant to this
Section),  the  Exercise  Price then in effect and the number of Warrant  Shares
shall  forthwith be readjusted  to the Exercise  Price and the number of Warrant
Shares that would then be in effect had the  adjustment  made upon the issuance,
sale,  distribution  or granting of such Options or Convertible  Securities been
made  based  upon such  changed  purchase  price,  additional  consideration  or
conversion  rate,  as the case may be, but only with respect to such Options and
Convertible Securities as then remain outstanding.

         (h) Certain Distributions.  If the Company shall pay a dividend or make
any other distribution payable in Options or Convertible  Securities,  then, for
purposes of paragraph (c) above (by operation of paragraph (e) or (f) above,  as
the case may be), such Options or Convertible Securities shall be deemed to have
been  issued  or  sold  without   consideration   except  for  such  amounts  of
consideration  as shall have been  deemed to have been  received  by the Company
pursuant to paragraphs (e) or (f) above, as appropriate.

         (i)  Equitable  Adjustments.  In case  any  other  corporate  event  or
transaction of the Company,  outside the ordinary course of business  consistent
with past  practice,  not  specified  in this  Section  occurs  which  equitably
requires an  anti-dilutive  adjustment to the Warrant,  the  Company's  Board of
Directors  and the  Holder  shall  consult  with  each  other in good  faith and
mutually agree upon appropriate adjustments to the Exercise Price and the number
of Warrant Shares, so that the property (including securities) to be received by
the Holder  hereunder  upon exercise of the Warrant after the effective  date of
such event, shall be substantially  similar, as nearly as practicable,  to those
which the Holder would have been  entitled  immediately  prior to such event had
the Holder exercised the Warrant prior to such event.

         (j) Definitions. For purposes of this Section 2, the following
capitalized terms have the following meanings:

         "Assets" means cash,  evidences of  indebtedness,  other  securities or
other  properties  or  assets,  or any  options,  warrants  or other  rights  to
subscribe for or purchase any of the foregoing.

         "Convertible Securities" means any stock or securities convertible into
or exchangeable for Common Stock.

         "Current  Market  Price" per share of Common Stock at any date shall be
the Closing Price.

         "Options"  means any rights to  subscribe  for or to  purchase,  or any
warrants  or  options  for the  purchase  of,  Common  Stock or any  Convertible
Security.



                                      -7-
<PAGE>

         (k)  Miscellaneous.

         (i)  Deferral of Certain  Adjustments.  No  adjustment  to the Exercise
Price  (including the related  adjustment to the number of Warrant Shares) shall
be required  hereunder unless such adjustment,  together with other  adjustments
carried forward as provided below, would result in an increase or decrease of at
least 3% of the Exercise Price; provided,  however, that any adjustment which by
reason of this paragraph is not required to be made shall be carried forward and
taken into account in any subsequent adjustment.  No adjustment need be made for
a change in the par value of the Common Stock.

         (ii)  Notice of Certain Transactions.  In the event that:

         (A) the Company  takes any action that would  require an  adjustment in
the Exercise Price or the number of Warrant Shares,

         (B) the Company  declares or  distributes  any dividend,  distribution,
security,  instrument or other rights to its stockholders  that would require an
adjustment pursuant to this Section,

         (C) the  Company  consolidates  or merges  with,  or  transfers  all or
substantially  all  of its  assets  to,  or  makes  any  statutory  exchange  of
securities  with,  another   corporation  or  engages  in  any   reorganization,
restructuring,  recapitalization,  reclassification of capital stock or spin-off
or other similar transaction, or

         (D) there is a dissolution or liquidation or other winding up of the
Company,

the Company shall,  not later than 10 days prior to the earliest of the proposed
record or effective date, as the case may be, or any other  applicable date with
respect to any of the foregoing actions or transactions  (including the date, if
any is to be fixed,  as of which  holders of Common  Stock  shall be entitled to
exchange  their  shares  of  Common  Stock  for  securities  or  other  property
deliverable upon any such merger, consolidation, reorganization,  restructuring,
recapitalization,   reclassification,   transfer,  dissolution,  liquidation  or
winding up), give the Holder a written  notice  stating such proposed  record or
effective date, as the case may be, or such other applicable date.

         (iii) Consideration Received. If any shares of Common Stock, Options or
Convertible  Securities shall be issued, sold or distributed for a consideration
other than cash, the amount of the consideration other than cash received by the
Company in respect  thereof  shall be deemed to be the fair market value of such
consideration (as mutually agreed in good faith by the Board of Directors of the
Company and the Holder).  If any Options shall be issued in connection  with the
issuance and sale of other  securities of the Company,  together  comprising one
integral  transaction  in which no specific  consideration  is allocated to such
Options  by the  parties  thereto,  such  Options  shall be  deemed to have been
issued,  sold or  distributed  for  such  amount  of  consideration  as shall be
allocated  to such  Options  as  mutually  agreed in good  faith by the Board of
Directors of the Company and the Holder.

         (iv)  Computation  of  Adjustments.  Anything  herein  to the  contrary
notwithstanding, upon each computation of an adjustment in the Exercise Price or
the number of Warrant  Shares,  the  Exercise  Price  shall be  computed  to the
nearest cent (i.e.,  fractions of less than half of a cent shall be  disregarded
and  fractions of half of a cent,  or more,  shall be treated as being one cent)
and the number of Warrant  Shares,  shall be  calculated  to the  nearest  share
(i.e., fractions of less than half of a share shall be disregarded and fractions
of half of a share, or more, shall be treated as being one share).



                                      -8-
<PAGE>

         (v) Certificate as to Adjustments.  Upon any adjustment to the Exercise
Price or the number of Warrant  Shares,  the Company  shall give written  notice
thereof,  by first class mail,  postage prepaid,  addressed to the Holder at the
address of the Holder as shown on the books of the  Company,  which notice shall
state the Exercise  Price  resulting  from such  adjustment  and the increase or
decrease,  if  any,  in  the  number  of  Warrant  Shares  resulting  from  such
adjustment,  setting forth in reasonable  detail the  calculations and the facts
upon which such calculation is based.

         (l)  Management  Incentives.  Notwithstanding  anything to the contrary
contained in the foregoing  paragraphs,  no adjustment to the Exercise  Price or
the number of Warrant  Shares  shall be made for the  issuance  of Common  Stock
and/or  Options to purchase  Common  Stock to senior  executives  of the Company
pursuant to an incentive plan to be adopted by the Company;  provided,  however,
that the aggregate number of shares of Common Stock issued or issuable  pursuant
to such plan  (including  shares  issuable  upon  exercise  of  Options  granted
pursuant  to such  plan)  shall not  exceed  1,100,000  (as such  number  may be
adjusted for stock splits,  stock  dividends,  combinations,  recapitalizations,
reorganizations and other similar transactions) shares.

         Section 3.  Redemption Right; Closing Mechanics.

         (a)  Redemption Right.

         (i) Grant of  Redemption  Right.  At any time  following the payment in
full of the Loans (as defined in the Credit  Agreement)  and the  redemption  in
full of all of the shares of the Company's Series A Redeemable  Preferred Stock,
the Company may repurchase (the  "Redemption")  the Warrant for a purchase price
(the  "Repurchase  Amount") equal to the sum of (a) $2,700,000 plus (b) interest
on such  amount at an annual  rate equal to the prime rate of interest in effect
from time to time during  such  period as  reported by the Wall Street  Journal,
plus  2%,  compounded  annually  from  December  31,  2001through  the  date the
Repurchase  Amount  is  actually  paid,  plus (c) if the  Repurchase  Amount  is
actually paid (i) prior to December 31, 2002,  10%of the Common Stock on a Fully
Diluted Basis immediately prior to the Redemption, (ii) after December 31, 2002,
but before  December 31, 2003,  15% of the Common Stock on a Fully Diluted Basis
immediately  prior to the Redemption and (iii) any time after December 31, 2003,
30% of the  Common  Stock  on a Fully  Diluted  Basis  immediately  prior to the
Redemption.

         (ii)  Exercise  of the  Redemption  Right.  In  order to  exercise  the
Redemption, the Company must deliver to the Holder an irrevocable written notice
stating the  Company's  intention to cause the Holder to sell the Warrant to the
Company (the "Redemption Notice").

         (b)  Closing Mechanics.


                                      -9-
<PAGE>


         (i) Time and Place of the Closing. In connection with a Redemption, the
closing  of the sale of the  Warrant  (the  "Closing")  will  take  place at the
offices of Richards  Spears Kibbe & Orbe, One Chase Manhattan  Plaza,  New York,
New York 10005,  at 10:00 a.m.  (New York City  time),  on the date which is ten
business  days  following  the date on which the Holder  receives  a  Redemption
Notice (such date of the Closing being  hereinafter  referred to as the "Closing
Date").

         (c) Transactions to be Effected at the Closing. Upon the terms and
subject to the conditions of this Agreement, at the Closing:

         (i) the Holder will deliver to the Company the original agreement
representing the Warrant; and

         (ii) the Company  will deliver to the Holder the  Repurchase  Amount by
wire transfer of immediately  available  funds in accordance  with wire transfer
instructions  delivered  by the Holder to the  Company  in writing  prior to the
Closing  Date,  plus,  if  applicable,   stock  certificates   representing  the
appropriate  percentage of the Company's Common Stock registered in the Holder's
name.

         Section 4.  Representations  and Covenants of the Company.  The Company
hereby represents, warrants and covenants to and with the Holder as follows:

         (a) Power.  The Company is a  corporation  duly  incorporated,  validly
existing  and in  good  standing  under  the  laws  of the  jurisdiction  of its
incorporation.  The Company has the necessary corporate power and authority,  to
execute and deliver this Warrant,  to perform its  obligations  hereunder and to
consummate the transactions contemplated hereby.

         (b) Binding Effect. This Warrant has been duly executed and delivered
by the Company and is the legal, valid and binding obligations of the Company
enforceable against it in accordance with its terms.

         (c) Contravention.  Neither the execution,  delivery and performance of
this Warrant nor the consummation of the transactions  contemplated  hereby will
(with or without  notice or lapse of time or both) (i)  conflict  with or breach
any provision of the Company's  certificate  of  incorporation  or bylaws,  (ii)
violate  any  law,  rule  or  regulation  by  which  the  Company  or any of its
properties  may be bound or  affected,  or (iii)  conflict  with or  result in a
default  under any material  contract or other  material  agreement to which the
Company  is a party  or by  which  it or any of its  properties  may be bound or
affected.

         (d) Approvals. No authorization,  consent, order or approval of, notice
to or  registration  or filing  with,  or any other  action by any  governmental
authority or other person is required or  advisable in  connection  with (i) the
due  execution  and  delivery  by the  Company  of this  Warrant,  or  (ii)  the
performance by the Company of its obligations under this Warrant.

         (e) Reservation of Shares. The Company shall reserve and keep available
out of its authorized  but unissued  Common Stock for issuance upon the exercise
of this Warrant,  free from preemptive rights, a sufficient number of authorized
but unissued shares of Common Stock so that the Company will at all times have a
sufficient  number of authorized  shares of Common Stock available to issue upon




                                      -10-
<PAGE>

the exercise in full of this Warrant.  Notwithstanding  anything to the contrary
contained  herein,  the  Company  shall not take any action  that would cause an
adjustment  to be made to the  Exercise  Price or the number of  Warrant  Shares
pursuant to Section 2 hereof  unless,  prior to such  action,  the Company has a
sufficient number of authorized but unissued shares of Common Stock available to
issue upon the exercise in full of this Warrant after such adjustment.

         (f) Warrant  Shares Duly  Authorized,  etc.  All shares of Common Stock
which may be issued upon the exercise of this Warrant will,  upon  issuance,  be
fully paid and nonassessable and be free from all taxes, liens (except for liens
created by the Holder) and charges in respect of the issuance thereof.

         (g) No  Impairment.  The Company  will not, by amendment of its charter
documents, or through reorganization,  consolidation, merger, dissolution, issue
or sale of securities,  sale of assets or any other voluntary action,  willfully
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant,  and will at all times in good faith  assist in the carrying out of all
such  terms  and in the  taking  of  all  such  action  as may be  necessary  or
appropriate in order to protect the rights of the Holder under this Warrant. The
Company  covenants and agrees not to enter into any  contractual  arrangement or
take any other  action  that would  require  any  third-party  consents  for the
exercise of this Warrant.

         (h) Regulatory Approval of Issuance.  The Company further covenants and
agrees that if any shares of Common  Stock to be reserved for the purpose of the
issuance of shares upon the exercise of this Warrant require  registration  with
or approval of any governmental  authority under any Federal or State law before
such shares may be validly  issued or delivered  upon  exercise of this Warrant,
then the Company will in good faith and as expeditiously as possible endeavor to
secure  such  registration  or  approval,  as the case may be,  and the right to
exercise  this Warrant shall be extended  until 15 days after the  completion of
any such registration or approval.

         (i) Listing  Requirements.  If and so long as any Common Stock issuable
upon the exercise of this Warrant is listed on any national securities exchange,
the Company  will,  if  permitted by the rules of such  exchange,  list and keep
listed on such exchange,  upon official notice of issuance, all shares of Common
Stock issuable upon exercise of this Warrant.

         Section 5.  Representations  and  Warranties of the Holder.  The Holder
hereby represents and warrants to the Company as follows:

         (a) Power. The Holder is an entity duly organized, validly existing and
in good standing under the laws of the  jurisdiction  of its  organization.  The
Holder has the  necessary  power and  authority,  to execute  and  deliver  this
Warrant, to perform its obligations hereunder and to consummate the transactions
contemplated hereby.

         (b) Binding Effect. This Warrant has been duly executed and delivered
by the Holder and is the legal, valid and binding obligation of the Holder
enforceable against it in accordance with its terms.



                                      -11-
<PAGE>

         (c) Contravention.  Neither the execution,  delivery and performance of
this Warrant nor the consummation of the transactions  contemplated  hereby will
(with or without  notice or lapse of time or both) (i)  conflict  with or breach
any provision of the Holder's  organizational  documents,  (ii) violate any law,
rule or regulation by which the Holder or any of its  properties may be bound or
affected,  or (iii)  conflict  with or result in a  default  under any  material
contract or other material  agreement to which the Holder is a party or by which
it or any of its properties may be bound or affected.

         (d) Approvals. No authorization,  consent, order or approval of, notice
to or  registration  or filing  with,  or any other  action by any  governmental
authority or other person is required or  advisable in  connection  with (i) the
due  execution  and  delivery  by the  Holder  of  this  Warrant,  or  (ii)  the
performance by the Holder of its obligations under this Warrant.

         (e) Review of Information. The Holder has carefully read and reviewed
the material furnished to it with respect to the Company and the Warrant.

         (f) No Registration  Under  Securities Act. The Holder  understands and
acknowledges  that the  Warrants and the shares of Common  Stock  issuable  upon
conversion  thereof  are not  being  registered  under the 1933 Act or any state
securities  laws,  on the  grounds  that the  issuance  thereof is exempt  under
Section 4(2) of the 1933 Act, and such state securities laws as a transaction by
an issuer not involving any public offering, and that reliance on such exemption
is predicated in part on the  representations  by the Holder herein.  The Holder
understands  that the  Warrants  cannot  be sold  unless  they are  subsequently
registered  under  the  1933  Act and  applicable  state  securities  laws or an
exemption from such registration is available.

         (g) Investment Intent. The Holder is acquiring the Warrant for
investment, solely for the Holder's own account and not with a view to, or for
resale in connection with, the distribution or other disposition thereof.

         (h) Accredited Investor. The Holder is an accredited investor, as
defined in Rule 501 of Regulation D promulgated under the 1933 Act.

         Section 6. Registration  Rights.  Upon the exercise of this Warrant, or
payment of a Repurchase  Amount that  includes any shares of Common  Stock,  the
Company and the Holder shall enter into a registration  rights  agreement  which
provides the Holder: (i) (A) if the Holder receives 15% or less of the Company's
Common Stock on a Fully-Diluted  Bases, 1 demand  registration right, (B) if the
Holder  receives 15% to 30% of the  Company's  Common  Stock on a  Fully-Diluted
Basis, 2 demand  registration  rights,  or (C) if the Holder receives 30% of the
Company's Common Stock on a Fully-Diluted  Basis, 3 demand registration  rights,
(ii) "piggy-back" registration rights, (iii) registration rights on Form S-3 and
(iv) other customary terms reasonably acceptable to the Holder and the Company.

         Section 7. Transferability. This Warrant shall be transferable in whole
or in  part  to (i) one or  more  transferees  to  which  the  Loans  are  being
transferred;  provided,  however, that a transfer of this Warrant to a person or
entity that either (A) is a direct  competitor of the Company,  or (B) is not in
the business of making,  buying,  selling or trading  loans,  shall  require the
prior written  consent of the Company,  (ii)  institutional  investors  with the
prior written consent of the Company,  or (iii) any Affiliate (as defined below)




                                      -12-
<PAGE>

of the Holder. Any such transfer,  assignment or conveyance shall be made on the
books of the Company  maintained for such purpose at the principal office of the
Company upon  surrender of this  Warrant and a properly  completed  and executed
assignment  substantially in the form of Exhibit B attached hereto.  "Affiliate"
means any person or entity that directly or indirectly  controls,  is controlled
by, or is under common control with, the Holder.

         Section 8.  Exchangeability.  This  Warrant is  exchangeable,  upon the
surrender  hereof by the Holder at said office of the Company,  for new Warrants
of like tenor and date  representing  in the aggregate the right to purchase the
number of shares of Common Stock which may be purchased hereunder,  each of such
new Warrants to represent  the right to purchase  such number of shares as shall
be designated by the Holder at the time of such surrender.

         Section 9. Lost, Stolen,  Mutilated or Destroyed Warrant.  Upon receipt
of  evidence  reasonably  satisfactory  to  the  Company  of  the  loss,  theft,
mutilation or destruction of this Warrant, receipt by the Company of an executed
affidavit  of lost  or  stolen  warrant  and,  if  reasonably  requested  by the
Company's  transfer agent or any federal or state laws, rules or regulations the
post of a bond by the Holders and, in case of loss,  theft or destruction,  upon
the agreement of the Holder to indemnify and hold harmless the Company,  and its
directors and officers  against any and all loss,  liability,  damage,  cost and
expenses  (including  reasonable  attorneys'  fees) which may be incurred by the
Company in connection with, or arising out of, the issuance of a new Warrant or,
in the case of mutilation,  upon surrender and cancellation of this Warrant, the
Company shall issue a new Warrant of like  denomination and tenor as the Warrant
so lost, stolen, mutilated or destroyed.

         Section 10. No Voting Rights. This Warrant shall not entitle the Holder
to any voting rights or other rights as a stockholder of the Company whatsoever,
except the rights expressed herein, and no dividend or interest shall be payable
or accrue in respect of this Warrant or the interest  represented  hereby or the
shares  purchasable  hereunder until and unless,  and except to the extent that,
this Warrant shall be exercised.

         Section 11. Definition of Common Stock. As used herein,  "Common Stock"
shall mean the  Common  Stock,  par value  $0.02 per  share,  of the  Company as
authorized  on the date hereof,  and also any capital  stock of any class of the
Company  hereafter  authorized  which  shall  not be  limited  to a fixed sum or
percentage  in respect of the rights of the holders  thereof to  participate  in
dividends or in the  distribution  of assets upon the  voluntary or  involuntary
liquidation,  dissolution or winding up of the Company; provided,  however, that
the shares  purchasable  pursuant  to this  Warrant  shall  include  only shares
designated  as Common  Stock,  par value $0.02 per share,  of the Company on the
date   hereof,   or  shares  of  any  class  or  classes   resulting   from  any
reclassification or reclassifications  thereof which are not limited to any such
fixed sum or percentage  and are not subject to redemption by the Company and in
case at any time there shall be more than one such resulting  class,  the shares
of each such class then so issuable  shall be  substantially  in the  proportion
which  the  total  number  of  shares  of such  class  resulting  from  all such
reclassifications  bears to the  total  number  of  shares  of all such  classes
resulting from all such reclassifications.



                                      -13-
<PAGE>

         Section 12.  Miscellaneous.

         (a) Amendment of Warrant. This Warrant may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.

         (b) Successors and Assigns. This Warrant will be binding upon and inure
to the benefit of and is enforceable by the respective  successors and permitted
assigns of the parties hereto.

         (c) No Waiver; Remedies. No failure or delay by any party in exercising
any right,  power or privilege  under this Agreement will operate as a waiver of
the right, power or privilege.  A single or partial exercise of any right, power
or privilege will not preclude any other or further exercise of the right, power
or privilege or the exercise of any other right, power or privilege.  The rights
and remedies  provided in this Agreement will be cumulative and not exclusive of
any rights or remedies provided by law.

         (d)  Severability.  If any term or other  provision  of this Warrant is
invalid,  illegal or incapable  of being  enforced by any rule of law, or public
policy,  all other  conditions and provisions of this Warrant will  nevertheless
remain in full force and effect so long as the  economic or legal  substance  of
the  transactions  contemplated  hereby is not affected in any manner adverse to
any party. Upon such  determination that any term or other provision is invalid,
illegal or incapable of being  enforced,  the parties  hereto will  negotiate in
good faith to modify  this  Warrant so as to effect the  original  intent of the
parties as  closely  as  possible  in an  acceptable  manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.

         (e)  Governing  Law. This Warrant will be governed by, and construed in
accordance  with,  the  internal  laws of the State of New York  without  giving
effect to any choice of law or conflict of law,  provision  or rule of the State
of New York.

         (f) Counterparts. This Warrant may be executed simultaneously in one or
more  counterparts,  and by different  parties hereto in separate  counterparts,
each of which when executed  will be deemed an original,  but all of which taken
together will constitute one and the same instrument.

         (g) Descriptive Headings. The headings in this Warrant and in the
schedules and exhibits hereto are included for convenience of reference only and
will not affect in any way the meaning or interpretation of this Agreement.

         (h) Submission to Jurisdiction.  Any lawsuit, action or proceeding with
respect to this Warrant may be brought in the courts of the State of New York or
of the United States of America for the Southern  District of New York, and each
of the Company and the Holder hereby accept for themselves and in respect of its
property, generally and unconditionally,  the jurisdiction of these courts. Each
of  the  Company  and  the  Holder  hereby  irrevocably  waives  any  objection,
including,  without limitation, any objection to the laying of venue or based on
the grounds of forum non  conveniens,  which it may now or hereafter have to the
bringing of any lawsuit, action or proceeding in those jurisdictions.



                                      -14-
<PAGE>


         IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant
to be executed as of the date first written above.

                             SCAN-OPTICS, INC.



                             By: /s/Michael J. Villano
                                ----------------------
                                  Name:  Michael J. Villano
                                  Title:  Chief Financial Officer


                             ARK CLO 2000-1, LIMITED

                             By: Patriarch Partners, LLC
                                   its collateral manager



                             By: /s/ Dennis Dolan
                                ----------------------
                               Name: Dennis Dolan
                                 Title: Manager




                                      -15-
<PAGE>



                                                                       EXHIBIT A
                                                                              to
                                                               WARRANT AGREEMENT

                                Subscription Form

To:      Scan-Optics, Inc.
         169 Progress Drive
         Manchester, Connecticut 06040

         (a) The undersigned hereby elects to purchase [insert number of shares]
of Common  Stock of  Scan-Optics,  Inc.,  pursuant to the terms of the  attached
Warrant, and tenders payment of the purchase price for such shares in full.

         (b) In exercising  this Warrant,  the  undersigned  hereby confirms and
acknowledges that all of the  representations  and warranties of the undersigned
set forth in Section 6 of the Warrant are true and correct as of this date.

         (c) Please issue a certificate or certificates representing said shares
of Common Stock in the name or names specified below:

          [insert name, address and number of shares to be issued]

         (d)  Please  issue a new  Warrant  for the  unexercised  portion of the
attached  Warrant  in the name of the  undersigned  or in such  other name as is
specified below:

         [insert name of Holder if applicable]


Dated: ____________________             HOLDER:

                                        ARK CLO 2000-1, LIMITED

                                        By: Patriarch Partners, LLC
                                              its collateral manager



                                        By:____________________________________
                                             Name:
                                             Title:




                                      -16-
<PAGE>

                                                                       EXHIBIT B
                                                                              to
                                                               WARRANT AGREEMENT

                               Form of Assignment

To:      Scan-Optics, Inc.
         169 Progress Drive
         Manchester, Connecticut 06040

         FOR VALUE  RECEIVED,  the  undersigned  Holder of the attached  Warrant
hereby sells, assigns and transfers unto each of the Assignee(s) named below all
of the rights of the undersigned under such Warrant,  with respect to the number
of Warrant Shares set forth below:

                                                   Number of Shares
                                                     of Warrant
Name of Assignee       Address                     Stock Assigned
----------------       -------                    -----------------

------------------     ------------------------- ----------------

and does hereby irrevocably constitute and appoint the Secretary of Scan-Optics,
Inc.  (the  "Company")  as  attorney  to make such  transfer on the books of the
Company maintained for such purpose, with full power of substitution.


Dated: ___________________   HOLDER:

                             ARK CLO 2000-1, LIMITED

                             By: Patriarch Partners, LLC
                                   its collateral manager



                             By:____________________________________
                                  Name:
                                  Title:







                                      -17-