SECURITIES PURCHASE AGREEMENT

                                     BETWEEN

                                 EUREKA I, L.P.

                                       AND

                        MEDICAL TECHNOLOGY SYSTEMS, INC.


                               Dated June 26, 2002


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                                       i

                                TABLE OF CONTENTS


1.       DEFINITIONS...........................................................1

2.       SALE AND PURCHASE OF SECURITIES.......................................9

         2.1      Sale and Purchase............................................9

         2.2      Original Issue Discount......................................9

3.       Closing Date and Location.............................................9

4.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................9

         4.1      Organization.................................................9

         4.2      Equity Investments..........................................10

         4.3      Authorized Capital Stock....................................10

         4.4      Financial Information.......................................10

         4.5      Absence of Undisclosed Liabilities..........................11

         4.6      Absence of Changes..........................................11

         4.7      Tax Matters.................................................12

         4.8      Assets......................................................13

         4.9      Intellectual Property Rights................................13

         4.10     Litigation..................................................13

         4.11     No Defaults.................................................14

         4.12     Employees...................................................14

         4.13     Compliance..................................................15

         4.14     Insurance...................................................15

         4.15     Authorization of Transaction Documents......................15

         4.16     Validity of Transaction Documents, etc......................15

         4.17     Warrant Shares..............................................16

         4.18     Preferred Shares and Conversion Shares......................16

         4.19     Related Transactions........................................16

         4.20     Securities Law Compliance...................................16

         4.21     No Governmental Consent or Approval Required................16

         4.22     Material Agreements.........................................17

         4.23     Registration Rights.........................................17

         4.24     Compliance with ERISA.......................................17

         4.25     Environmental Protection. ..................................17


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                                       ii

                                TABLE OF CONTENTS
                                  (continued)

         4.26     Brokers, etc................................................18

         4.27     Disclosure..................................................18

5.       REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................18

6.       CONDITIONS TO CLOSING................................................20

         6.1       Closing....................................................20

7.       COVENANTS OF THE COMPANY.............................................23

         7.1       Access to Records..........................................23

         7.2       Financial Reports and Other Information....................23

         7.3       Use of Proceeds............................................25

         7.4       Affirmative Covenants......................................25

         7.5       Negative Covenants.........................................26

         7.6       Insurance..................................................29

         7.7       Certain Financial Covenants................................29

         7.8       Board Observer.............................................31

         7.9       Key Person Life Insurance..................................32

8.       THE NOTES............................................................32

         8.1       Exchange or Transfer of Notes..............................32

         8.2       Register of Noteholders....................................33

         8.3       Transfer Taxes.............................................33

         8.4       Payment....................................................33

         8.5       Event of Default...........................................34

9.       COLLATERAL AGENT.....................................................35

         9.1       Appointment of Collateral Agent............................35

         9.2       Collateral Agent Authorized to Enter into Transaction
                        Documents.............................................36

         9.3       Amendment to Transaction Documents.........................36

         9.4       Duties of Collateral Agent.................................36

         9.5       Indemnification of Collateral Agent........................39

10.      FEES.................................................................39

11.      SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS, ETC..........40


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                                       iii

                                TABLE OF CONTENTS
                                  (continued)


12.      INDEMNIFICATION......................................................40

13.      REMEDIES.............................................................40

14.      PARTIES IN INTEREST..................................................41

15.      ENTIRE AGREEMENT.....................................................41

16.      NOTICES..............................................................41

17.      CHANGES..............................................................42

18.      COUNTERPARTS.........................................................42

19.      HEADINGS.............................................................42

20.      GOVERNING LAW........................................................42

21.      SEVERABILITY.........................................................42

22.      JURISDICTION.........................................................42

23.      WAIVER OF JURY TRIAL.................................................43


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                                     - iv -

                                  SCHEDULE LIST

SCHEDULE 4.2                        EQUITY INVESTMENTS
SCHEDULE 4.3                        CAPITALIZATION
SCHEDULE 4.4                        FIVE-YEAR COMPANY PROJECTIONS
SCHEDULE 4.5                        LIABILITIES
SCHEDULE 4.6                        ABSENCE OF CHANGES
SCHEDULE 4.7                        TAX MATTERS
SCHEDULE 4.8                        EXCEPTIONS TO ASSET OWNERSHIP
SCHEDULE 4.9                        INTELLECTUAL PROPERTY RIGHTS
SCHEDULE 4.10                       LITIGATION
SCHEDULE 4.11                       DEFAULTS
SCHEDULE 4.12                       DESIGNATED PERSONS
SCHEDULE 4.13                       EXCEPTIONS TO COMPLIANCE
SCHEDULE 4.14                       INSURANCE
SCHEDULE 4.19                       RELATED TRANSACTIONS
SCHEDULE 4.22                       MATERIAL AGREEMENTS
SCHEDULE 4.23                       REGISTRATION RIGHTS
SCHEDULE 4.24                       ERISA PLANS
SCHEDULE 4.25                       ENVIRONMENTAL PROTECTION
SCHEDULE 7.2(a)                     CAPITAL BUDGET

                                  EXHIBIT LIST

EXHIBIT A                           FORM OF NOTE
EXHIBIT B                           FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT C                           FORM OF TAG-ALONG AGREEMENT
EXHIBIT 6.1(c)                      MATTERS TO BE COVERED BY OPINION OF COUNSEL
EXHIBIT D                           PREFERRED STOCK TERMS
EXHIBIT E                           FORM OF JOINDER


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                                       1


                          SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES  PURCHASE  AGREEMENT  (this  "Agreement") is dated June 26,
2002, between Medical Technology  Systems,  Inc., a Delaware  corporation having
offices at 12920  Automobile  Boulevard,  Clearwater,  Florida (the  "Company"),
Eureka I, L.P., a Delaware  limited  partnership  having offices at 770 Township
Line, Suite 150, Yardley,  Pennsylvania 19067 (the  "Purchaser"),  and Eureka I,
L.P. as collateral agent (in such capacity, the "Collateral Agent").

                             PRELIMINARY STATEMENTS

     A.  The  Company  is  engaged  in the  business  of  manufacturing  medical
packaging and dispensing systems and supplies.

     B. The Company desires to raise funds from senior and subordinated  lenders
to repay certain senior debt, fund capital  expenditures and for working capital
and other purposes permitted by this Agreement.

     C.  The   Purchaser   desires  to  purchase  up  to  $4,000,000  of  senior
subordinated  debt with  warrants  and 2,000 shares of the  authorized  Series A
Convertible  Participating Preferred Stock of the Company,  subject to the terms
and conditions contained herein.

     NOW, THEREFORE,  in consideration of the mutual covenants and agreements of
the parties contained in this Agreement, the parties hereto agree as follows:

1.  DEFINITIONS.  All  capitalized  terms used in this Agreement  shall have the
meanings assigned to them elsewhere in this Agreement or as specified below:

     "Action" has the meaning set forth in Section 4.10 hereof.

     "Affiliate"  of any  Person  means  any  other  Person  that  controls,  is
controlled by or is under common control with such Person.  The term "Affiliate"
as it relates to the Company and its Subsidiaries  shall not include the Company
or any of its Subsidiaries.

     "Capital  Expenditures" means for any Person, with respect to any period of
determination,  the  aggregate  of all  expenditures  (whether  paid  in cash or
accrued  as  liabilities  and  including   expenditures  for  capitalized  lease
obligations)  by such  Person  during  such  period  that are  required by GAAP,
consistently applied, to be included in or reflected by the property,  plant and
equipment or similar fixed asset  accounts (or  intangible  accounts  subject to
amortization) on the balance sheet of such Person,  including, to the extent not
already accounted for, capitalized development costs for such period.

     A  "Change  of  Control"  occurs  when (a) the  Company  fails to cause its
business to be managed by its present senior  management  team, or, in the event
any member shall cease to serve for any reason,  a replacement who is reasonable
acceptable to the Required Noteholders;  or (b) as the result of the issuance of
securities by the Company or the  disposition of  outstanding  securities of the
Company by the holders  thereof,  by merger,  or by any other  transaction,  (1)

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                                       2

members of the Siegel  Family  collectively  own less than 22.5% of the combined
voting power of all classes of Voting  Securities,  or (2) any "person" or group
of persons  (within the meaning of section 13(d) of the Securities  Exchange Act
of 1934 or Rule 13d-5 thereunder)  (other than one or more members of the Siegel
Family or holders of the Series A Preferred Stock,  Warrants or shares of Common
Stock  issued as a result  of  conversion  of the  Series A  Preferred  Stock or
exercise of the Warrants) becomes the "beneficial  owner" (within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, except that a person shall
be deemed to be the beneficial  owner of all securities that such person has the
right to acquire  before or after the expiration of any period of time specified
in such  rule) of Voting  Securities  with  combined  voting  power  equal to or
greater than the combined voting power of all Voting Securities held at the time
in the  aggregate  by the  members  of the Siegel  Family.  In  determining  the
percentage  of voting  power of all  Voting  Securities  held by any  Person (or
"person"),  all Voting  Securities  issuable  upon the  exercise,  conversion or
exchange of  outstanding  options,  warrants,  convertible  securities  or other
rights to  purchase or  subscribe  for Voting  Securities  shall be deemed to be
outstanding.

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

     "Commission"  means the  Securities and Exchange  Commission,  or any other
federal agency at the time administering the Securities Act.

     "Common  Stock" means the Common Stock,  $0.01 par value per share,  of the
Company.

     "Conversion Shares" has the meaning set forth in Section 4.1 hereof.

     "Convertible   Securities"   means   securities  or  obligations  that  are
exercisable  for,  convertible  into or exchangeable for shares of Common Stock.
The term includes options, warrants or other rights to subscribe for or purchase
Common Stock or to subscribe for or purchase other Convertible Securities.

     "Debt Service  Coverage Ratio" means,  for any Person,  with respect to any
period of  determination,  the ratio of (i) such Person's net income after taxes
for such period  (excluding any after-tax  gains or losses on the sale of assets
(other  than the sale of  inventory  in the  ordinary  course of  business)  and
excluding other after-tax  extraordinary gains or losses), plus depreciation and
amortization  deducted  in  determining  net  income for such  period,  plus tax
benefits which offset any income tax expense provisions  deducted in determining
net income for such  period,  minus  Unfinanced  Capital  Expenditures  for such
period  plus the  after-tax  increase in LIFO  reserves,  or minus the after tax
decrease in LIFO reserves, to (ii) such Person's current principal maturities of
long-term debt and  capitalized  leases paid or scheduled to be paid during such
period, plus any prepayments on indebtedness owed to any other Person (exclusive
of payments of Excess Cash Flow made in  accordance  with Section  2(e)(v)(B) of
the Senior Loan  Agreement,  trade payables and revolving loans under the Senior
Loan Agreement) and paid during such period plus, if the period of determination
ends on and is for such Person's  Fiscal Year,  any  dividends  paid during such
Fiscal  Year on the Series A  Preferred  Stock and  permitted  to be paid by the
Intercreditor Agreement.

<PAGE>
                                       3

     "Designated  Persons"  means the  present  directors  and  officers  of the
Company or any of its Subsidiaries.

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

     "Exchange Act" means the Securities  Exchange Act of 1934, as amended,  and
the rules and regulations of the Commission promulgated  thereunder,  all as the
same shall be in effect from time to time.

     "Existing  Credit  Facility" means the extensions of credit provided to the
Company  under that  certain  Second  Amended  and  Restated  Loan and  Security
Agreement dated as of September 5, 1996, among the Company,  South Trust Bank of
Alabama, National Association, and various other parties, as amended.

     "Excess Cash Flow" has the meaning  specified in Section  2(e)(v)(B) of the
Senior Loan Agreement.

     "Financial Statements" has the meaning set forth in Section 4.4(a) hereof.

     "Fiscal  Quarter" means each fiscal quarter of the Company ending March 31,
June 30, September 30 and December 31 in each calendar year.

     "Fiscal Year" means the fiscal year of the Company  ending March 31 in each
calendar year.  Changes of the fiscal year of the Company subsequent to the date
of this  Agreement  will not change the definition of "Fiscal Year" for purposes
of this Agreement.

     "GAAP" means accounting  principles generally accepted in the United States
of  America  as from time to time in effect  as set  forth in the  opinions  and
pronouncements of the Accounting  Principles Board and the American Institute of
Certified  Public  Accountants  and the  statements  and  pronouncements  of the
Financial  Accounting  Standards  Board,  or in  such  other  statements  by any
successor  entity  as  may be in  general  use by  significant  segments  of the
accounting profession that are applicable to the circumstances as of the date of
determination.

     "Guarantor" or "Guarantors"  shall mean any Person who executes,  enters or
joins in the Guaranty.

     "Guaranty"  means the Guaranty  Agreement of even date  herewith  among the
Purchaser  and the  Subsidiaries  of the  Company  as the same  may be  amended,
supplemented,  modified  or  restated  from time to time  pursuant  to the terms
thereof.

     "Intellectual  Property  Rights" means all  intellectual  property  rights,
including  without  limitation,   Proprietary   Information,   patents,   patent
applications,  patent rights, trademarks,  trademark applications,  trade names,
service marks, service mark applications,  copyrights,  copyright  applications,
know-how,  franchises,   licenses,  trade  secrets,  proprietary  processes  and
formulae.

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                                       4

     "Intercreditor  Agreement" means the  Subordination  Agreement of even date
herewith among the Purchaser, LaSalle Business Credit, Inc., the Company and MTS
Packaging Systems, Inc., as the same may be amended,  supplemented,  modified or
restated from time to time.

     "Interest Coverage Ratio" means, for any Person, with respect to any period
of determination, the ratio of (i) such Person's net income after taxes for such
period  (excluding  any  after-tax  gains or losses on the sale of assets (other
than the sale of  inventory in the ordinary  course of business)  and  excluding
other  after-tax   extraordinary   gains  or  losses),   plus  depreciation  and
amortization  deducted in determining net income for such period,  plus interest
expense  deducted in determining  net income for such period,  plus tax benefits
which offset income tax expense  provisions  deducted in determining  net income
for such period minus Unfinanced Capital  Expenditures for such period, and plus
the after-tax increase in LIFO reserves, or minus the after tax decrease in LIFO
reserves,  to (ii) interest  expense deducted in determining net income for such
period.

     The Company has  "knowledge"  of a matter if a Responsible  Officer (1) has
actual  knowledge of the matter or (2) would have actual knowledge of the matter
upon such inquiry or investigation by such Responsible  Officer as is reasonable
under the  circumstances.  "Know,"  "known" and similar  terms have  correlative
meanings.

     "Lien" means any lien, mortgage,  pledge, security interest or other charge
or encumbrance of any kind, including,  without limitation, the lien or retained
security title of a conditional  vendor and any easement,  right of way or other
encumbrance on title to real property.

     "Liquidity Event" means (A) the sale, lease, abandonment, transfer or other
disposition  of all or  substantially  all the stock or  assets  of the  Company
(other than to a direct or indirect  Wholly-Owned  Subsidiary  of the  Company),
including by merger, consolidation or otherwise (B) the liquidation, dissolution
or winding up of the Company,  (C) the occurrence of a Change of Control, or (D)
a Qualified Public Offering.

     "Material  Adverse Effect" means a material adverse effect on the financial
condition, results of operation, assets, operations or business prospects of the
Company and its Subsidiaries  taken as a whole, or on the ability of the Company
and  its  Subsidiaries  to  perform  their  obligations  under  the  Transaction
Documents.

     "Material  Agreement"  means with  respect to any  Person,  each  contract,
whether  written or oral,  to which such Person is a party  involving  aggregate
consideration  payable to or by such  Person of  $100,000 or more in one year or
involving  extensions  of credit by or to such Person of  $100,000 or more,  but
excluding the agreements  documenting  the Existing  Credit  Facility,  which is
being repaid on the Closing Date.

     "Noteholder" means any of the holders from time to time of the Notes.

     "Notes"  means the 14%  Senior  Subordinated  Notes,  in the form  attached
hereto as Exhibit A, issued by the Company  pursuant  to this  Agreement  in the
aggregate principal amount of up to $4,000,000,  including all Notes issued upon
transfer or exchange of other Notes as provided herein.

<PAGE>
                                       5

     "Officer's  Certificate"  means a  certificate  signed  by any  Responsible
Officer,  stating that (a) the officer signing such  certificate has made or has
caused to be made such investigations as he or she has deemed necessary in order
to permit him or her to reasonably  verify the accuracy in all material respects
of the  information  set forth in such  certificate  and (b) to the best of such
officer's  knowledge,  such  certificate does not misstate any material fact and
does  not  omit to  state  any  fact  necessary  to  make  the  certificate  not
misleading.

     "Packaging" means MTS Packaging Systems, Inc., a Florida corporation wholly
owned by the Company.

     "Patent Security Agreement" means each of the patent and trademark security
agreements of even date herewith among the Collateral Agent and (1) the Company,
(2) the Company's Subsidiaries, and (3) the Siegel Family Trust, as the same may
be amended, supplemented, modified or restated from time to time pursuant to the
terms thereof.

     "Permitted  Liens" means (i) liens for taxes,  assessments,  fees and other
governmental  charges, and for claims the payment of which is not yet overdue or
is being  contested  in good faith (and for which  adequate  reserves  have been
established by the Company on its books in conformity with GAAP), (ii) statutory
liens of landlords, carriers, warehousemen,  processors,  mechanics, materialmen
or suppliers  incurred in the ordinary  course of business and securing  amounts
not yet due or declared  to be due by the  claimant  thereunder;  (iii) liens or
security  interests in favor of Collateral Agent;  (iv) zoning  restrictions and
easements,  licenses, covenants and other restrictions affecting the use of real
property that do not  individually  or in the aggregate have a material  adverse
effect on the  ability  of the  Company  and its  Subsidiaries  to use such real
property for its intended purpose in connection with its business;  (v) liens in
connection with purchase money  indebtedness  and capitalized  leases  otherwise
permitted pursuant to this Agreement;  provided,  that such liens attach only to
the  assets  the  purchase  of  which  was  financed  by  such  purchase   money
indebtedness or which is the subject of such capitalized  leases;  (vi) liens in
favor of customs and revenue  authorities which secure payment of customs duties
in  connection  with the  importation  of goods;  provided that all such customs
duties are promptly paid; (vii) liens securing Senior Indebtedness; (viii) liens
described  on Schedule  4.8 hereto;  (ix) liens  (other than any lien created by
ERISA)  incurred  or  deposits  made  in the  ordinary  course  of  business  in
connection with worker's compensation, unemployment insurance and other types of
social security; and (x) judgment liens not constituting an Event of Default.

     "Person" means and includes an  individual,  a company,  a  partnership,  a
trust, an  unincorporated  organization,  a limited liability  company,  a joint
stock  company,  a joint venture and a government or any  department,  agency or
political subdivision thereof.

     "Pledge  Agreement"  means the Pledge Agreement of even date herewith among
the Company,  its  Subsidiaries  and the  Collateral  Agent,  as the same may be
amended,  supplemented,  modified or restated  from time to time pursuant to the
terms thereof.

     "Preferred Shares" means the 2,000 shares of Series A Preferred Stock to be
purchased at the Closing and, as the context may require,  any additional shares
of Series A  Preferred  Stock  issued in  payment of  dividends  on the Series A
Preferred Stock.

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                                       6

     "Preferred  Stock"  means,  as applied to any  corporation,  shares of such
corporation  which are entitled to  preference or priority over any other shares
of such  corporation  in  respect  of either the  payment  of  dividends  or the
distribution of assets upon liquidation.

     "Proprietary  Information"  means all  customer  lists,  source  and object
codes,  algorithms,   architecture,   structures,   display  screens,   layouts,
processes,  inventions,  trade secrets,  know-how,  development  tools and other
proprietary rights owned by the Company or any of its Subsidiaries pertaining to
any  product  or service  manufactured,  marketed  or sold,  or  proposed  to be
manufactured,  marketed  or sold (as the case may be),  by the Company or any of
its  Subsidiaries or used,  employed or exploited in the  development,  license,
sale,  marketing or distribution or maintenance  thereof,  and all documentation
and media constituting,  describing or relating to the above,  including without
limitation, manuals, memoranda, know-how, notebooks, records and disclosures.

     "Qualified  Public  Offering" means any issuance and sale after the date of
this Agreement by the Company, pursuant to a registration statement that becomes
effective  under the  Securities  Act,  of  securities  (other  than senior debt
securities  that are  neither  Convertible  Securities  nor issued as part of an
offering that includes  equity  securities or  Convertible  Securities)  for net
proceeds to the Company of $15,000,000 or more.

     "Related Transaction" has the meaning set forth in Section 4.19 hereof.

     "Registration  Rights  Agreement" means the  registration  rights agreement
between Purchaser and the Company in the form attached hereto as Exhibit B.

     "Required  Noteholders" means the holders of a majority in principal amount
of the Notes.

     "Responsible  Officer"  means  each of the  Chief  Executive  Officer,  the
President,  the Chief Operating Officer (or principal  operating  officer),  the
Chief Financial Officer (or principal financial  officer),  and the Treasurer of
the Company.

     "Restricted Payment" means (i) the declaration or payment by the Company or
any of its Subsidiaries  (other than Wholly-Owned  Subsidiaries) of any dividend
on, or the  distribution  to the holders of, or other  payment by the Company or
any of its Subsidiaries (other than Wholly-Owned  Subsidiaries) relating to, any
shares of capital  stock of the Company or any of its  Subsidiaries  (other than
Wholly-Owned Subsidiaries) of any class, now or hereafter outstanding (except in
shares of capital stock or options,  warrants or other rights to acquire capital
stock);   (ii)  the  purchase,   redemption,   or  other   acquisition  for  any
consideration by the Company or any of its Subsidiaries of any shares of capital
stock of any class of the Company, or any option,  warrant  (including,  without
limitation,  any warrants  under this  Agreement)  or other right to acquire any
such  capital  stock;  (iii)  the  prepayment  by  the  Company  or  any  of its
Subsidiaries  of  any  principal  or  interest  on  any  indebtedness   that  is
subordinated  to the  Notes;  (iv)  any  payment  by the  Company  or any of its
Subsidiaries  of  any  amount  to  any  Affiliate  as  management,   consulting,
investment  banking or other fees (except as disclosed on Schedule 4.19); or (v)
the payment by the Company or any of its Subsidiaries of any principal due under
any loan made to the Company or any of its Subsidiaries by any Affiliate.

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                                       7

     "Securities  Act" means the  Securities  Act of 1933,  as amended,  and the
rules and regulations of the Commission promulgated thereunder,  all as the same
shall be in effect from time to time.

     "Security  Agreement"  means each of the security  agreements  of even date
herewith among the Collateral  Agent and (1) the Company,  and (2) the Company's
Subsidiaries,  as the same may be  amended,  supplemented,  modified or restated
from time to time pursuant to the terms thereof.

     "Security   Documents"   means  the  Security   Agreement,   UCC  Financing
Statements,  the Pledge Agreement,  the Patent Security Agreement, the Trademark
Security  Agreement any real estate security  document,  and any other agreement
that creates,  perfects, or purports to create or perfect a Lien in favor of the
Collateral Agent for the benefit of the holders of the Notes.

     "Senior Lender" means LaSalle Business Credit,  Inc., Standard Federal Bank
National  Association,  their respective  successors and assigns,  and any other
holder of Senior Indebtedness.

     "Senior Loan Agreement"  means the Loan and Security  Agreement dated as of
the date hereof among LaSalle Business Credit, Inc., as agent,  Standard Federal
Bank National  Association,  as lender,  the Company and MTS Packaging  Systems,
Inc.,  as  borrowers,  and the  guarantors  listed  therein,  and any  agreement
evidencing Senior Indebtedness that replaces such agreement.

     "Senior  Indebtedness"  has  the  meaning  specified  in the  Intercreditor
Agreement, and any refinancing thereof in an amount not greater than the maximum
amount  specified in the  Intercreditor  Agreement  (whether the  refinancing is
provided by the same or a different Senior Lender).

     "Series  A  Preferred  Stock"  means  the  Company's  Series A  Convertible
Participating Preferred Stock, par value $0.0001 per share.

     "Siegel Family" means (1) Todd E. Siegel, his siblings,  the descendants of
Todd  E.  Siegel  and his  siblings,  and the  spouses  of any of the  foregoing
persons;  and (2) any general or limited partnership  (including Jade Partners),
trust (including the Siegel Family Trust) or other entity all of whose partners,
beneficiaries or other owners are Persons described in clause (1).

     "Subsidiary"  means  (1)  any  partnership  in  which  the  Company  or any
Subsidiary  of the  Company  is a general  partner,  (2) any Person in which the
Company  and  its  Subsidiaries  collectively  own  a  majority  of  the  equity
interests,  and (3) any  Person of which  securities  having a  majority  of the
ordinary voting power in electing the Board of Directors or comparable body are,
at the time as of which any  determination  is being made,  owned by the Company
either directly or through one or more Subsidiaries.

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                                       8

     "Tag-along  Agreement"  means each of the  tag-along  agreements  among the
Company, the Purchaser,  and (1) Todd E. Siegel, and (2) Jade Partners,  each in
the form attached hereto as Exhibit C.

     "Tangible  Net  Worth"  means,  with  respect  to a Person,  such  Person's
shareholders'  equity defined in accordance  with GAAP,  less the book value (to
the extent  included in such  shareholders'  equity) of all assets  reflected as
goodwill  (which  shall  in  no  event  include  trademarks,  patents  or  other
intellectual property or capitalized  development costs), plus the amount of any
LIFO reserve, all as determined under GAAP, consistently applied.

     "Trademark  Security  Agreement"  means  each  of  the  trademark  security
agreements among the Collateral Agent and (1) the Company and, (2) the Company's
Subsidiaries.

     "2004 Tangible Net Worth  Requirement" has the meaning specified in Section
7.7(a) hereof.

     "2005 Tangible Net Worth  Requirement" has the meaning specified in Section
7.7(a) hereof.

     "Transaction  Documents"  means  this  Agreement,  the Notes,  the  Warrant
Agreement,  the Warrant Certificates,  the Security Documents, the Guaranty, the
Registration  Rights  Agreement,  the Tag-along  Agreements,  the  Intercreditor
Agreement,  and all other agreements and instruments executed in connection with
the transactions contemplated by this Agreement.

     "Voting Securities" means securities entitled in ordinary  circumstances to
vote generally in the election of directors of the Company.

     "Unfinanced Capital  Expenditures"  means those Capital  Expenditures which
have not been  financed,  funded or paid for with the  proceeds of loans  (other
than  revolving   loans)  under  the  Senior  Loan  Agreement,   purchase  money
indebtedness, capital leases or any other form of indebtedness.

     "Warrant  Agreement"  means the  Warrant  Agreement  of even date  herewith
between the Company and the Purchaser, as the same may be amended, supplemented,
modified or restated from time to time pursuant to the terms thereof.

     "Warrant Certificate" means each Warrant Certificate issued pursuant to the
Warrant Agreement.

     "Warrants"  means the Warrants issued and issuable  pursuant to the Warrant
Agreement.

     "Warrant Shares" means the shares of Common Stock issuable upon exercise of
the Warrants.

     "Wholly-Owned   Subsidiary"  means  any  Subsidiary,   all  of  the  equity
securities of which are owned by the Company or another Wholly-Owned Subsidiary.

<PAGE>
                                       9

2. SALE AND PURCHASE OF SECURITIES.

     2.1 Sale and  Purchase.  Subject to the terms and  conditions  hereof,  the
Company will issue and sell to the  Purchaser,  and the Purchaser  will purchase
from the Company on the  Closing  Date  (hereinafter  defined),  (a)  $4,000,000
aggregate  principal amount of the Notes and Warrants to purchase 566,517 shares
of Common Stock,  for a purchase  price of $4,000,000,  and (b) 2,000  Preferred
Shares at a purchase price of $1,000 per share.

     2.2  Original  Issue  Discount.   The  Notes  together  with  the  Warrants
constitute  "investment units" for the purposes of Section  1273(c)(2)(A) of the
Code. In accordance with Sections  1273(c)(2)(A) and 1273(b)(2) of the Code, the
issue price of the investment  unit of the Purchaser is the principal  amount of
the Notes.  Allocating  that issue price  between the Notes and the  Warrants in
proportion to their fair market value, as required by Section  1273(c)(2)(B)  of
the Code and Treasury Regulation 1.1273-2(h)(1),  results in the Warrants having
an aggregate  issue price of $935,000  and the Notes  having an aggregate  issue
price of $3,065,000.  Accordingly,  the original issue discount that will accrue
on the Notes is $935,000.  None of the parties will take any position in its tax
returns that is  inconsistent  with the foregoing.  The Company will provide the
Noteholders with any information  necessary for them to report their income from
this transaction properly.

     3.  Closing  Date and  Location.  The  closing  of the  issuance,  sale and
purchase of the Notes and Warrants and of the Preferred  Shares shall take place
at the offices of Wolf,  Block,  Schorr & Solis-Cohen LLP, counsel to the Senior
Lender,  250 Park Avenue,  New York,  New York, at 10:00 a.m.,  Eastern time, on
June 26, 2002,  or at such other  location,  date and time as may be agreed upon
between the  Purchaser  and the Company (such closing being called the "Closing"
and such date and time being called the "Closing Date").

     At the Closing,  the Company shall issue and deliver to the Purchaser (i) a
stock certificate or certificates in definitive form,  registered in the name of
the  Purchaser,  representing  the  Preferred  Shares,  (ii)  the  Notes  in the
principal  amount of $4,000,000,  (iii) the Warrant  Agreement,  and (iv) one or
more Warrant  Certificates  evidencing  Warrants to purchase  566,517  shares of
Common  Stock,  and the  Purchaser  will pay to the Company by wire  transfer of
immediately  available  funds (to such  account as the Company may  designate in
writing to the  Purchaser  at least one (1)  business  day prior to the Closing)
$6,000,000  less the amount of the closing fees and expenses owed by the Company
pursuant to Article 6 hereof.

4.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to the Purchaser as follows:

     4.1 Organization.  The Company (a) is a corporation duly organized, validly
existing and in good standing  under the laws of the state of Delaware,  (b) has
all  requisite  corporate  power and  authority  to own,  lease and  operate its
properties,  to carry on its business as now conducted  and to execute,  deliver
and perform this Agreement and the other Transaction  Documents to which it is a
party, to issue and deliver the Notes and the Warrants, to issue and deliver the
Warrant  Shares upon  exercise of the Warrants,  to issue,  sell and deliver the
Preferred  Shares,  and to issue and deliver the shares of Common Stock issuable

<PAGE>
                                       10

upon conversion of the Preferred Shares (the "Conversion  Shares"),  (c) is duly
qualified as a foreign  corporation  and in good  standing to do business in all
such  jurisdictions,  if any,  in  which  the  conduct  of its  business  or its
ownership, leasing or operation of property requires such qualification,  except
for those  jurisdictions  in which failure to so qualify would not reasonably be
expected  to have a Material  Adverse  Effect,  and (d) has not in the last five
years  conducted  business  under  any name  other  than  that set forth in this
Agreement or the schedules  hereto.  Each  Subsidiary (a) is a corporation  duly
organized,  validly existing and in good standing under the laws of the state of
Florida,  (b) has all requisite  corporate power and authority to own, lease and
operate  its  properties,  to  carry on its  business  as now  conducted  and to
execute,  deliver and perform  this the  Transaction  Documents to which it is a
party, (c) is duly qualified as a foreign corporation and in good standing to do
business in all such jurisdictions, if any, in which the conduct of its business
or its ownership,  leasing or operation of property requires such qualification,
except  for  those  jurisdictions  in which  failure  to so  qualify  would  not
reasonably be expected to have a Material Adverse Effect, and (d) has not in the
last five  years  conducted  business  under any name other than as set forth in
this Agreement or on Schedule 4.1 hereto.

     4.2  Equity  Investments.  Except as set  forth on  Schedule  4.2  attached
hereto,  neither the Company nor any of its  Subsidiaries,  nor does any of them
now own any capital stock or other proprietary interest, directly or indirectly,
in any  corporation,  association,  trust,  partnership,  joint venture or other
entity.

     4.3 Authorized Capital Stock. The authorized and outstanding  capital stock
of the Company and each of its Subsidiaries, both before and after giving effect
to the Closing,  is as disclosed on Schedule 4.3. All outstanding  capital stock
so shown will be validly issued and outstanding,  fully paid and  nonassessable.
No shares of Series A Convertible  Preferred  Stock will have been issued before
the Closing. Except as disclosed in Schedule 4.3, (i) no subscription,  warrant,
option,  convertible  security,  or other right  (contingent  or  otherwise)  to
purchase or otherwise  acquire  equity  securities  of the Company or any of its
Subsidiaries is authorized or outstanding and (ii) there is no commitment by the
Company or any of its  Subsidiaries  to issue shares,  subscriptions,  warrants,
options,  convertible  securities,  or other  such  rights or to  distribute  to
holders of any of its equity  securities any evidence of  indebtedness or asset.
Except  as  disclosed  in  Schedule  4.3,  neither  the  Company  nor any of its
Subsidiaries has any obligation (contingent or otherwise) to purchase, redeem or
otherwise  acquire  any of the equity  securities  of the  Company or any of its
Subsidiaries  or any  interest  therein or to pay any dividend or make any other
distribution in respect thereof.  Except as disclosed in Schedule 4.3 and except
for Permitted Liens, to the Company's  knowledge,  there are no voting trusts or
agreements,   stockholders'  agreements,   stock  pledge  agreements,   buy-sell
agreements,  rights of first refusal,  preemptive  rights or proxies relating to
any  securities  of the Company or any of its  Subsidiaries  (whether or not the
Company or any of its  Subsidiaries is a party thereto).  All of the outstanding
securities of the Company were issued in compliance with all applicable  federal
and state securities laws.

4.4 Financial Information.

          (a) The Company has  previously  delivered to the Purchaser its annual
     audited financial  statements for its Fiscal Year ended March 31, 2001, its
     annual unaudited  financial  statements for its Fiscal Year ended March 31,
     2002 and its monthly  financial  statements  as at and for the period ended
     April  30,  2002  (the   "Interim   Date")(collectively,   the   "Financial
     Statements").

<PAGE>
                                       11

          (b) The Financial Statements (together with any notes thereto) (i) are
     in  accordance  with the books and  records  of the  Company,  (ii)  fairly
     present in all material  respects the consolidated  financial  condition of
     the  Company  and  its  Subsidiaries  as of the  dates  indicated  and  the
     consolidated  results of  operations  and cash flows of the Company and its
     Subsidiaries  for the  periods  indicated  and (iii) have been  prepared in
     accordance  with  GAAP  (except,  in  the  case  of the  interim  financial
     statements,  for the absence of footnotes, and subject to changes resulting
     from audits and normal year-end adjustments, none of which would reasonably
     be expected to have a Material Adverse Effect).

          (c) The Company's  five-year  projections  attached hereto as Schedule
     4.4 have been  prepared  on the  basis of  assumptions  that the  Company's
     management   believes  to  be  reasonable.   This  does  not  constitute  a
     representation  or warranty  that the  projected  results will  actually be
     achieved.

     4.5  Absence  of  Undisclosed  Liabilities.  Except  as  disclosed  in  the
Financial  Statements  or listed on Schedule 4.5 hereof,  as of the date of this
Agreement,  to the Company's  knowledge,  (a) neither the Company nor any of its
Subsidiaries  had any material  liability of any nature  (matured or  unmatured,
fixed or  contingent)  which was not provided for or disclosed on the  Financial
Statements  except  current  liabilities  incurred  in the  ordinary  course  of
business since the Interim Date, and (b) all liability  reserves  established by
the Company and its  Subsidiaries are adequate in all material  respects.  There
are no  material  loss  contingencies  (as  such  term is used in  Statement  of
Financial  Accounting  Standards  No.  5) known  to the  Company  which  are not
adequately provided for on the Financial Statements.

     4.6 Absence of Changes.  Except as listed on Schedule 4.6 attached  hereto,
since March 31, 2002, there has not been:

          (a) the  occurrence of any event that would  reasonably be expected to
     result in a Material Adverse Effect;

          (b) any  borrowing  or  agreement  to borrow any funds or any material
     liability or material  obligation of any nature  whatsoever  (contingent or
     otherwise)  incurred by the Company or any of its Subsidiaries,  other than
     current  liabilities  or  obligations  incurred in the  ordinary  course of
     business (and other than borrowings under the Existing Credit Facility);

          (c) any asset or property  of the  Company or any of its  Subsidiaries
     made subject to a Lien of any kind,  other than Permitted  Liens (and Liens
     securing the Existing Credit  Facility,  all of which will be discharged at
     the Closing);

          (d) any  waiver of any  material  right of the  Company  or any of its
     Subsidiaries or the  cancellation of any material debt or claim held by the
     Company or any of its Subsidiaries;

<PAGE>
                                       12

          (e) any declaration or payment of dividends on, or other distributions
     with respect to, or any direct or indirect  redemption or  acquisition  of,
     any shares of the capital stock of the Company or any of its  Subsidiaries,
     or any agreement or commitment therefor;

          (f) any mortgage, pledge, sale, assignment or transfer of any tangible
     or  intangible  assets of the  Company or any of its  Subsidiaries,  except
     sales of  inventory in the  ordinary  course of business  and  disposals of
     assets not  material  in value and no longer  useful in the  conduct of the
     Company's business;

          (g) any loan or advance to or guarantee of  indebtedness of any Person
     (other than the Company or any of its  Subsidiaries)  by the Company or any
     of its  Subsidiaries in excess of $100,000,  or any agreement or commitment
     therefor;

          (h)  any  damage,  destruction  or loss  (whether  or not  covered  by
     insurance),  other than  ordinary wear and tear,  that would  reasonably be
     expected to result in a Material Adverse Effect;

          (i) any  increase,  direct or indirect,  in the  compensation  paid or
     payable to a Designated  Person other than salary  adjustments  made in the
     ordinary course of business;

          (j)  any  material  change  in the  accounting  methods  or  practices
     followed by the Company or any of its Subsidiaries; or

          (k) any change in any  Material  Agreement by which the Company or any
     of its  Subsidiaries  or any of their  respective  assets is  bound,  which
     change would reasonably be expected to result in a Material Adverse Effect.

     4.7 Tax Matters.  Except as provided on Schedule 4.7 attached  hereto,  all
federal, state and local tax returns and tax reports required to be filed by the
Company or any of its  Subsidiaries  have been filed (except for extensions duly
obtained) with the appropriate  governmental  agencies in all  jurisdictions  in
which such  returns and reports  are  required to be filed,  and as to which its
failure to file would  reasonably  be expected  to result in a Material  Adverse
Effect,  and all of the foregoing are true, correct and complete in all material
respects.  All federal,  state,  local and foreign income,  profits,  franchise,
sales, use, occupation,  property, excise, payroll,  withholding and other taxes
(including  interest and penalties) required to have been paid or accrued by the
Company or any of its  Subsidiaries,  as calculated  on such returns,  have been
fully paid or are  adequately  provided for on the books of the  Company,  other
than those being  contested  in good faith by  appropriate  proceedings  and for
which reserves,  if any, required by generally accepted  accounting  principles,
have been established on the books of the Company.  To the Company's  knowledge,
the Company has not received any written inquiries (which are currently pending)
by the Internal Revenue Service or any other taxing authority in connection with
any of the returns and reports  referred to above, and no waivers of statutes of
limitations  have been given or requested  with respect to the Company or any of
its Subsidiaries.  All deficiencies asserted or assessments  (including interest
and  penalties)  made as a result of any  examination  by the  Internal  Revenue
Service or by appropriate  state or departmental tax authorities of the federal,
state or local income tax, sales tax or franchise tax returns of or with respect

<PAGE>
                                       13

to the Company or any of its Subsidiaries have been fully paid or are adequately
provided for on the books of the Company  and, to the  Company's  knowledge,  no
proposed (but  unassessed)  additional  taxes,  interest or penalties  have been
asserted.  Except as set forth on  Schedule  4.7  attached  hereto,  neither the
Company nor any of its Subsidiaries has made any elections  pursuant to the Code
(other than elections which relate solely to matters of accounting, depreciation
or  amortization)  which  would  reasonably  be expected to result in a Material
Adverse Effect.

     4.8  Assets.  Except as set forth on  Schedule  4.8  attached  hereto,  the
Company and its  Subsidiaries  own outright all of their  material  property and
assets, real, personal or fixed, tangible or intangible,  reflected as assets on
the  Financial  Statements  or not  so  reflected  because  not  required  to be
reflected,  but which are used or useful in the  business of the Company and its
Subsidiaries,  or  acquired by the  Company  since the Interim  Date (other than
assets  disposed of in the  ordinary  course of  business  since the date of the
relevant  Financial  Statements),  subject  to  no  mortgages,  liens,  security
interests,  pledges,  charges  or other  encumbrances  of any kind,  except  for
Permitted  Liens.  Neither the Company nor any of its  Subsidiaries is obligated
under any  contract or  agreement  remaining in effect after the Closing Date or
subject to any charter or other corporate  restriction which would reasonably be
expected to result in a Material Adverse Effect. Except as described on Schedule
4.8 and except for ordinary wear and tear,  the leased  premises,  equipment and
other tangible assets of the Company and its  Subsidiaries are in good operating
condition in all material respects and are fit for use in the ordinary course of
business.

     4.9 Intellectual  Property  Rights. A complete list of the patents,  patent
applications,  trademarks  and  trademark  registrations  of the Company and its
Subsidiaries  is set forth on Schedule 4.9.  Except as set forth on Schedule 4.9
attached hereto: there are no Intellectual Property Rights necessary or required
to  enable  the  Company  and its  Subsidiaries  to carry  on  their  respective
businesses as now conducted that the Company or its Subsidiaries do not possess;
to the  Company's  knowledge,  no third party has any  ownership  right,  title,
interest,  claim in or lien on any of the  Intellectual  Property  Rights of the
Company  and its  Subsidiaries;  and to the  Company's  knowledge,  neither  the
Company nor its  Subsidiaries  has violated or  infringed,  and is not currently
violating or infringing, and neither the Company nor any of its Subsidiaries has
received any communications alleging that the Company or any of its Subsidiaries
(or any of their  employees or  consultants)  has  violated or infringed  or, by
conducting its business as presently proposed to be conducted,  would violate or
infringe, the Intellectual Property Rights of any other person or entity, except
in each case for such matters that would not reasonably be expected to result in
a Material Adverse Effect.

     4.10  Litigation.  Except as set forth on Schedule  4.10  attached  hereto,
there is no  action,  suit,  proceeding,  claim,  arbitration  or  investigation
("Action")  pending  and  served  (or,  to the  Company's  knowledge,  currently
threatened  or  pending  and  unserved)  against  the  Company  or  any  of  its
Subsidiaries,  or their respective  activities,  properties or assets or, to the
Company's  knowledge,  against any  Designated  Person in  connection  with such
Designated  Person's  relationship  with,  or  actions  taken on behalf  of, the
Company  or  any  of its  Subsidiaries,  which  if  adversely  determined  would
reasonably be expected to have a Material  Adverse  Effect.  Neither the Company
nor any of its  Subsidiaries  is a party to or subject to the  provisions of any
order, writ, injunction, judgment or decree of any court or government agency or

<PAGE>
                                       14

instrumentality  that has been served on the Company or any of its  Subsidiaries
or that is known to the Company, and there is no Action by the Company or any of
its  Subsidiaries  currently  pending  or  which  the  Company  or  any  of  its
Subsidiaries intends to initiate,  which in either such case would reasonably be
expected to have a Material Adverse Effect.

     4.11 No Defaults.  Except as set forth on Schedule  4.11  attached  hereto,
neither the Company nor any of its  Subsidiaries  is in default in any  material
respect  (a) under its  certificate  of  incorporation  or bylaws,  or under any
material  provision of any Material Agreement to which the Company or any of its
Subsidiaries  is a party or by which  any of them or any of  their  property  is
bound or affected or (b) with respect to any order, writ,  injunction,  judgment
or decree of any court or any federal,  state,  municipal  or other  domestic or
foreign  governmental   department,   commission,   board,  bureau,   agency  or
instrumentality  that has been served on the Company or any of its  Subsidiaries
or that is known to the Company.  To the  Company's  knowledge,  there exists no
condition, event or act which constitutes,  or which after notice, lapse of time
or both,  would  constitute,  a default in any material respect under any of the
foregoing.

     4.12 Employees. (a) Schedule 4.12 attached hereto contains a list of all of
the officers  and  directors  of the Company and each of its  Subsidiaries,  and
other  Designated  Persons.  Schedule  4.12 also  contains a list of all written
employment agreements and noncompetition  agreements to which the Company or any
of its Subsidiaries is a party, and all  noncompetition  agreements of which the
Company has knowledge to which any director,  officer or employee of the Company
in a party.

          (b) Neither the  Company  nor any of its  Subsidiaries  is bound by or
     subject to any contract,  commitment or  arrangement  with any labor union,
     and to the Company's  knowledge,  no labor union has  requested,  sought or
     attempted  to represent  any  employees,  representatives  or agents of the
     Company  or any of its  Subsidiaries.  There is no  strike  or other  labor
     dispute involving the Company or any of its Subsidiaries pending or, to the
     Company's  knowledge,  threatened,  nor is the  Company  aware of any labor
     organization  activity  involving  its  employees  or  those  of any of its
     Subsidiaries.  The Company is not aware that any Designated  Person intends
     to terminate his or her employment or engagement with the Company, nor does
     the Company  have any present  intention  to terminate  the  employment  or
     engagement of any Designated Person.

          (c) No Designated  Person is obligated under any agreement  (including
     licenses,  covenants  or  commitments  of any  nature)  or  subject  to any
     judgment,  decree or order of any court or  administrative  agency,  or any
     other  restriction  that  would  interfere  with the use of his or her best
     efforts  to  carry  out his or her  duties  for the  Company  or any of its
     Subsidiaries  or to  promote  the  interests  of the  Company or any of its
     Subsidiaries  or that  would  conflict  in any  material  respect  with the
     business  or any of its  Subsidiaries  as now  conducted  or proposed to be
     conducted.  The  carrying  on of the  business of the Company or any of its
     Subsidiaries  by the  Designated  Persons and the conduct of the  Company's
     business as presently  conducted or  proposed,  will not, to the  Company's
     knowledge,  conflict  with or  result  in a breach  of any of the  material
     terms,  conditions or provisions  of, or  constitute a default  under,  any
     material  contract,  covenant or instrument under which any such Designated
     Person is now obligated.

<PAGE>
                                       15

     4.13 Compliance.  Except as set forth on Schedule 4.13 attached hereto, (a)
the Company and each of its Subsidiaries  have complied in all material respects
with all federal,  state,  local and foreign laws,  ordinances,  regulations and
orders  applicable  to their  respective  businesses  or the  ownership of their
respective  assets and have received no notice of  non-compliance  therewith and
(b) the  Company  and  each of its  Subsidiaries  have or have  applied  for all
federal, state, local and foreign governmental licenses and permits necessary or
required to enable them to carry on their respective businesses as now conducted
and as now proposed to be conducted.  Such licenses and permits,  if issued, are
in full force and effect,  no material  violations have been recorded in respect
of any such licenses or permits, and no proceeding is pending or, to the best of
the Company's  knowledge,  threatened  to revoke or limit any thereof,  which if
adversely  determined  would  reasonably be expected to have a Material  Adverse
Effect.  None of the  aforesaid  licenses  and permits  shall be affected in any
material adverse respect by this Agreement.

     4.14  Insurance.  Schedule  4.14  attached  hereto sets forth all insurance
policies of the Company and its Subsidiaries currently in effect with respect to
its properties,  assets and businesses.  Each insurance policy maintained by the
Company  and its  Subsidiaries  with  respect  to their  properties,  assets and
businesses  is valid and  enforceable  and duly in force and all  premiums  with
respect  thereto  are paid to date.  The  Company  believes  that the amounts of
coverage  under such policies of insurance are  commercially  reasonable for the
nature of the businesses of the Company and its  Subsidiaries as conducted as of
the date hereof.

     4.15 Authorization of Transaction  Documents.  The execution,  delivery and
performance by the Company and its Subsidiaries of the Transaction  Documents to
which  each is a party  have been duly  authorized  by all  requisite  corporate
action by the Company and its  Subsidiaries.  The  execution and delivery of the
Transaction  Documents by the Company and its Subsidiaries,  the consummation of
the transactions contemplated thereby and compliance with the provisions thereof
by the Company and its  Subsidiaries  will not (a) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to the Company or any of its Subsidiaries, in each case as in effect on the date
hereof and on each Closing Date, or (b) conflict with or result in any breach of
any of the terms, conditions or provisions of, or constitute (with due notice or
lapse of time,  or both) a default  (or give  rise to any right of  termination,
cancellation or acceleration)  under, the certificate of incorporation or bylaws
of the Company or any of its  Subsidiaries,  or under any Material  Agreement to
which the Company or any of its  Subsidiaries is a party or by which any of them
or any of their property is bound or affected,  or (c) result in the creation of
any lien, security interest, charge or encumbrance upon any of the properties or
assets of the  Company,  except  for those  contemplated  under the  Transaction
Documents.

     4.16 Validity of Transaction Documents,  etc. Each Transaction Document has
been duly  executed  and  delivered  by the  Company  and its  Subsidiaries,  as
applicable,  and  constitutes  the valid and legally  binding  obligation of the
Company  and  its  Subsidiaries,  as  applicable,   enforceable  against  it  in
accordance with its terms, except to the extent enforceability may be limited by
applicable  bankruptcy,  insolvency,  reorganization,  fraudulent  conveyance or
transfer,  moratorium or similar laws generally affecting  creditors' rights and
by equitable principles.

<PAGE>
                                       16

     4.17 Warrant Shares.  The reservation,  issuance,  sale and delivery of the
Warrant Shares have been duly  authorized by all requisite  corporate  action of
the Company.  When issued,  sold and  delivered as  contemplated  by the Warrant
Agreement, the Warrant Shares will be validly issued and outstanding, fully paid
and  nonassessable,   and  will  be  free  and  clear  of  all  liens,  charges,
restrictions,  claims and encumbrances imposed by or through the Company, except
as set  forth in this  Agreement,  the  Registration  Rights  Agreement  and the
Tag-along Agreements or under applicable securities laws.

     4.18 Preferred Shares and Conversion Shares. The Preferred Shares have been
duly  authorized  and, when issued in accordance  with this  Agreement,  will be
validly issued, fully paid and nonassessable,  and will be free and clear of all
liens, charges, restrictions,  claims and encumbrances imposed by or through the
Company except as set forth in this Agreement, the Registration Rights Agreement
and the Tag-along Agreements or under applicable securities laws. The Conversion
Shares have been duly  reserved for issuance  upon  conversion  of the Preferred
Shares and, when so issued, will be duly authorized,  validly issued, fully paid
and  nonassessable,   and  will  be  free  and  clear  of  all  liens,  charges,
restrictions,  claims and encumbrances  imposed by or through the Company except
as set  forth in this  Agreement,  the  Registration  Rights  Agreement  and the
Tag-along Agreements or under applicable  securities laws. Neither the issuance,
sale or delivery  of the  Preferred  Shares nor the  issuance or delivery of the
Conversion  Shares is subject to any  preemptive  right of  stockholders  of the
Company or to any right of first refusal or other right in favor of any person.

     4.19 Related  Transactions.  Except as set forth on Schedule  4.19 attached
hereto,  no Designated Person and no "affiliate" or "associate" (each as defined
in the rules and  regulations  promulgated  under the Exchange  Act) of any such
Person is presently,  directly or indirectly through his or its affiliation with
any other person or entity,  a party to any transaction  with the Company or any
of its  Subsidiaries  providing  for the  furnishing  of  services  (other  than
employment of such individuals by the Company or any of its  Subsidiaries) by or
to, or the sale of  products  by or to, or rental of real or  personal  property
from or to, or otherwise  requiring cash payments to or by, any such Person. For
purposes of this Agreement,  a transaction of the type described in this Section
4.19 is sometimes herein referred to as a "Related Transaction."

     4.20  Securities  Law  Compliance.  Neither  the  Company  nor  any  of its
Subsidiaries  has violated any applicable  federal or state  securities  laws in
connection with the offer,  sale or issuance of any of its capital stock or debt
securities.  Based in part upon the  Purchaser's  representations  contained  in
Section 5, the offering and sale of the Preferred  Shares,  the Warrants and the
Notes are each exempt from registration  under the Securities Act. The aforesaid
offering  and sale are also  exempt from  registration  under  applicable  state
securities  laws or will be exempt  upon the timely  filing of notices  with the
appropriate states.

     4.21 No Governmental Consent or Approval Required. Except for the filing of
any notice  subsequent  to the  Closing  that may be required  under  applicable
federal and/or state  securities laws (which,  if required,  shall be filed on a
timely  basis as may be so  required),  and except for Uniform  Commercial  Code
filings  and other  filings  or  recordings  necessary  to  perfect  any and all
security interests granted by the Company or any of its Subsidiaries in favor of
the  Collateral  Agent or the  Senior  Indebtedness,  no  consent,  approval  or
authorization of, or declaration to, or filing with, any Person (governmental or
private)  is  required  for the valid  authorization,  execution,  delivery  and
performance  by  the  Company  or any of  its  Subsidiaries  of the  Transaction
Documents or for the valid authorization, issuance and delivery of the Preferred
Shares,  the Warrants,  the Notes, the Conversion  Shares or the Warrant Shares,
other than such consents, approvals, authorizations,  declarations or filings as
have been obtained or made, as applicable.

<PAGE>
                                       17

     4.22 Material  Agreements.  Schedule 4.22 attached  hereto is a list of all
Material  Agreements to which the Company or any of its Subsidiaries is a party.
Except as listed on Schedule 4.22 or as otherwise  contemplated hereby,  neither
the  Company nor any of its  Subsidiaries  is a party to any written or oral (a)
material  contract  for the future  purchase  of fixed  assets or for the future
purchase of  materials,  supplies  or  equipment  in excess of normal  operating
requirements,   (b)  material  contract  for  the  employment  of  any  officer,
individual  employee or other person on a full-time  basis or any contract  with
any  person  on  a  consulting  basis,  (c)  bonus,   pension,   profit-sharing,
retirement, stock purchase, stock option, hospitalization,  medical insurance or
similar plan,  contract or  understanding in effect with respect to employees or
any of them or the employees of others,  (d) agreement or indenture  relating to
the borrowing of money or to the mortgaging,  pledging or otherwise placing of a
lien  on any  assets  of the  Company  or any of its  Subsidiaries,  other  than
agreements  documenting the Existing Credit  Facility,  which is being repaid on
the Closing Date,  (e) loan or guaranty of any  obligation for borrowed money or
otherwise  (other  than among the Company  and its  Subsidiaries  and other than
agreements  documenting the Existing Credit  Facility,  which is being repaid on
the Closing Date),  (f) material  lease or agreement  under which the Company or
any of its Subsidiaries is lessee of or holds or operates any property,  real or
personal,  owned by any other party, (g) material lease or agreement under which
the Company or any of its  Subsidiaries  is lessor of or permits any third party
to hold or operate any  property,  real or personal,  owned or controlled by the
Company or any of its Subsidiaries,  (h) contract, agreement or commitment under
which the Company or any of its  Subsidiaries  is  obligated to pay any broker's
fees,  finder's  fees or any such  similar  fees,  to any  third  party,  or (i)
contract or  agreement  prohibiting  it from freely  engaging in any business or
competing  anywhere in the world. Upon request,  the Company will make available
to the  Purchaser  true and correct  copies of all such written  agreements  and
other  documents.  To the  knowledge  of the Company,  none of the  contracts or
agreements listed on Schedule 4.22 is in default in any material respect.

     4.23 Registration  Rights.  Except as contemplated by this Agreement and as
set forth on  Schedule  4.23,  no Person  has any right to cause the  Company to
effect the  registration  under the Securities Act of any shares of Common Stock
or any other securities  (including without limitation,  debt securities) of the
Company.

     4.24 Compliance with ERISA.  Except as disclosed in Schedule 4.24,  neither
the Company nor any of its Subsidiaries  (a) maintains,  or has ever maintained,
any employee  benefit plan subject to ERISA or (b)  contributes  to, or has ever
contributed to, any such employee benefit plan maintained by any other person or
entity.

<PAGE>
                                       18

     4.25  Environmental  Protection.  Except as set forth on  Schedule  4.25 or
except as used solely in routine  office  operations  and for heating  purposes,
neither the Company nor any of its  Subsidiaries  has (except in compliance with
all Environmental Laws) (as defined below) caused or allowed, or contracted with
any party  for,  the  generation,  use,  transportation,  treatment,  storage or
disposal of any Hazardous  Substances (as defined below) in connection  with the
operation   of  its   business   or   otherwise,   except  to  the  extent  that
non-compliance,  individually  or in the  aggregate,  would  not  reasonably  be
expected to result in a Material Adverse Effect. To the Company's knowledge, the
Company, each of its Subsidiaries, the operation of their respective businesses,
and any real  property  that any of them owns,  leases or otherwise  occupies or
uses (the  "Premises") are in compliance,  during the period of their operation,
ownership  or  lease,  with all  applicable  Environmental  Laws and  orders  or
directives  of any  governmental  authorities  having  jurisdiction  under  such
Environmental Laws,  including,  without  limitation,  any Environmental Laws or
orders or directives  with respect to any cleanup or  remediation of any release
or threat  of  release  of  Hazardous  Substances,  except  to the  extent  that
non-compliance,  individually  or in the  aggregate,  would  not  reasonably  be
expected to result in a Material Adverse Effect.  Neither the Company nor any of
its Subsidiaries has caused or allowed a release, or a threat of release, of any
Hazardous  Substance  unto, at or near the Premises,  except for instances that,
individually or in the aggregate would not reasonably be expected to result in a
Material Adverse Effect.  To the Company's  knowledge,  neither the Premises nor
any  property at or adjacent to the Premises has ever been subject to a release,
or a threat of release,  of any Hazardous  Substance,  except to the extent that
non-compliance,  individually  or in the  aggregate,  would  not  reasonably  be
expected  to result in a  Material  Adverse  Effect.  For the  purposes  of this
Agreement,  the term "Environmental Laws" shall mean any Federal, state or local
law or ordinance or regulation  pertaining to the  protection of human health or
the environment. For purposes of this Agreement, the term "Hazardous Substances"
shall include oil and petroleum products,  asbestos,  polychlorinated biphenyls,
urea formaldehyde and any other materials classified as hazardous or toxic under
any Environmental Laws.

     4.26 Brokers, etc.. The Company has not dealt or negotiated with any person
who has or will  have,  as a  result  of the  transaction  contemplated  by this
Agreement,  any right,  interest or claim  against the  Purchaser  or any of its
Affiliates for any commission,  fee or other compensation as a finder or broker.
All compensation payable to Westminster  Securities  Corporation will be payable
solely by the Company, and neither the Purchaser nor any of its Affiliates shall
have any liability therefor.

     4.27  Disclosure.  Neither this  Agreement nor any other written  document,
certificate,  instrument  or  statement  furnished  or  made  available  to  the
Purchaser by or on behalf of the Company or any of its Subsidiaries  pursuant to
the terms of the  Transaction  Documents  contains  any  untrue  statement  of a
material fact or omits to state a material  fact  necessary in order to make the
statements  contained  herein and therein  not  misleading.  Other than  general
business and economic  conditions,  there is no fact known to the Company  which
materially  adversely affects the business,  properties,  prospects or financial
condition  of the Company  which has not been set forth in this  Agreement or in
the other documents,  certificates,  instruments or statements  furnished to the
Purchaser by or on behalf of the Company.

     5.   REPRESENTATIONS  AND  WARRANTIES  OF  THE  PURCHASER.   The  Purchaser
represents and warrants to the Company that:

<PAGE>
                                       19

          (a) It is a limited partnership duly formed and in good standing under
     the laws of the State of Delaware. It has, and as of the Closing will have,
     all  requisite  power and  authority  to  execute,  deliver and perform the
     Transaction  Documents  to  which  it is a  party  and  to  consummate  the
     transactions contemplated thereby. The execution,  delivery and performance
     of the Transaction  Documents to which it is a party,  and the consummation
     of the  transactions  contemplated  thereby,  have  been  duly and  validly
     authorized by all necessary action on the part of the Purchaser.

          (b) Each Transaction  Document has been duly executed and delivered by
     the Purchaser and constitutes  the valid and legally binding  obligation of
     the Purchaser,  enforceable against it in accordance with its terms, except
     to the  extent  enforceability  may be limited  by  applicable  bankruptcy,
     insolvency, reorganization,  moratorium or similar laws generally affecting
     creditors' rights and by equitable principles.

          (c) It has been advised and understands  that the Notes, the Warrants,
     the Warrant Shares, the Preferred Shares and the Conversion Shares have not
     been registered under the Securities Act, and that in this connection,  the
     Company is  relying in part on the  representations  of the  Purchaser  set
     forth in this Section 5.

          (d)  It  understands  that  each  certificate  representing  Preferred
     Shares,   each  Note,  each  Warrant   Certificate  and  each   certificate
     representing  Warrant  Shares or  Conversion  Shares  will bear a legend in
     substantially the following form:

     THE  SECURITIES  REPRESENTED  HEREBY  HAVE NOT BEEN  REGISTERED  UNDER  THE
SECURITIES  ACT OF 1933, AS AMENDED (THE "1933 ACT"),  OR THE  SECURITIES LAW OF
ANY STATE AND MAY NOT BE OFFERED,  SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS
SUCH  OFFER,  SALE,  PLEDGE  OR  TRANSFER  IS  REGISTERED  UNDER THE 1933 ACT OR
APPLICABLE STATE SECURITIES LAWS OR IS EXEMPT FROM SUCH  REGISTRATION.  TRANSFER
OF THESE SECURITIES IS ALSO SUBJECT TO CERTAIN RESTRICTIONS UNDER THE SECURITIES
PURCHASE AGREEMENT DATED JUNE 26, 2002, BETWEEN THE COMPANY AND EUREKA I, L.P.

     At such time that a Note,  Warrant,  Preferred  Shares,  Warrant  Shares or
Conversion  Shares may be sold pursuant to Rule 144(k) under the  Securities Act
(or any successor rule), the Company agrees to provide the holder thereof with a
replacement  non-legended Note, Warrant Certificate and certificates  evidencing
such Warrant  Shares,  Preferred  Shares and  Conversion  Shares within five (5)
business days of a written request by such holder.

          (e) It has been  further  advised  and  understands  that  there is no
     public  market for the Notes,  the Warrants or the  Preferred  Shares.  The
     Purchaser  recognizes  that the  investment in the Notes,  Warrants and the
     Preferred Shares involves a number of significant risks.

          (f) It has not dealt or  negotiated  with any  person  who has or will
     have, as a result of the transaction  contemplated  by this Agreement,  any
     right,  interest  or  claim  against  or  upon  the  Company  or any of its
     Subsidiaries for any commission,  fee or other  compensation as a finder or
     broker.

<PAGE>
                                       20

          (g) It (i) is an accredited investor within the meaning of Rule 501(a)
     promulgated under the Securities Act, (ii) is aware of the limits on resale
     imposed by virtue of the nature of the  transactions  contemplated  by this
     Agreement  and  (iii) is  acquiring  the  Preferred  Shares,  the Notes and
     Warrants  hereunder,  and in the event that it should  acquire  the Warrant
     Shares  upon  exercise  of the  Warrants  or  the  Conversion  Shares  upon
     conversion of the Preferred  Shares,  the Warrant  Shares or the Conversion
     Shares  without  registration  under the  Securities Act in reliance on the
     exemption  from  registration  contained in Section 4(2) of the  Securities
     Act, for investment for its own account, and not with a view toward, or for
     sale in connection  with, any  distribution  thereof,  nor with any present
     intention  of   distributing   or  selling  such  shares  except  for  such
     distribution or sale as is registered or exempt from registration under the
     Securities Act.

          (h) It  has  sufficient  knowledge  and  experience  in  investing  in
     companies  similar  to the  Company  in  terms  of the  Company's  stage of
     development  so as to be able to  evaluate  the  risks  and  merits  of its
     investment  in the  Company  and it is able  financially  to bear the risks
     thereof, including a total loss of its investment.

          (i) It has had an  opportunity  to  discuss  the  Company's  business,
     management  and  financial  affairs with the Company's  management  and has
     obtained all requested documents pertaining to the Company or otherwise.

6. CONDITIONS TO CLOSING.

     6.1 Closing.  The  obligation  of the Purchaser to purchase and pay for the
Preferred  Shares,  Warrants and Notes being purchased by it on the Closing Date
is, at its option,  subject to the satisfaction,  on or before the Closing Date,
of the following conditions:

          (a) Opinion of Company's  Counsel.  The Purchaser  shall have received
     from  Kilpatrick  Stockton  LLP and Holland & Knight  LLP,  counsel for the
     Company,  and Gray  Harris  Robinson  Shackleford  Farrior,  counsel to the
     Siegel Family Trust and Jade  Partners,  opinions dated the Closing Date in
     form  satisfactory to the Purchaser and  collectively  covering the matters
     set forth in Exhibit 6.1(c).

          (b) Filing of Preferred  Stock Terms.  A Certificate of Designation in
     the form of Exhibit D hereto,  shall have been filed with the  Secretary of
     the State of Delaware.

          (c)  Representations  and  Warranties  to be  True  and  Correct.  The
     representations and warranties contained in Section 4 hereof shall be true,
     complete and correct in all material respects on and as of the Closing Date
     with the same effect as though such representations and warranties had been
     made on and as of such date, and a Responsible Officer of the Company shall
     have certified to such effect to the Purchaser in writing.

          (d) Performance.  The Company shall have performed and complied in all
     material  respects  with all  agreements  contained  herein  required to be
     performed  or complied  with by it prior to or at the Closing  Date,  and a

<PAGE>
                                       21

     Responsible Officer of the Company shall have certified to the Purchaser in
     writing to such effect and to the further effect that all of the conditions
     set forth in this Section have been satisfied.

          (e) All  Proceedings  to be  Satisfactory.  All  corporate  and  other
     proceedings to be taken by the Company in connection with the  transactions
     contemplated   hereby  and  all   documents   incident   thereto  shall  be
     satisfactory  in form and substance to the  Purchaser and its counsel,  and
     the  Purchaser  and its counsel  shall have  received all such  counterpart
     originals or certified or other copies of such documents as they reasonably
     may request.

          (f)  Supporting  Documents.  The  Purchaser and its counsel shall have
     received copies of the following documents:

               (i) (A) the Company's certificate of incorporation,  certified as
          of a recent date by the  Secretary  of the State of Delaware and (B) a
          certificate  of said  Secretary  dated as of a  recent  date as to the
          valid  subsistence  of the Company and  listing all  documents  of the
          Company on file with said Secretary;

               (ii) a certificate of the Secretary or an Assistant  Secretary of
          the Company dated the Closing Date and  certifying:  (A) that attached
          thereto is a true and  complete  copy of the by-laws of the Company as
          in effect on the date of such certification; (B) that attached thereto
          is a true and complete copy of all resolutions adopted by the Board of
          Directors  or  the   stockholders  of  the  Company   authorizing  the
          execution,  delivery and performance of the Transaction Documents, the
          issuance,  sale  and  delivery  of the  Notes,  the  Warrants  and the
          Preferred  Shares and the  reservation,  issuance  and delivery of the
          Warrant  Shares  and  the  Conversion   Shares,   and  that  all  such
          resolutions  are in full force and effect and are all the  resolutions
          adopted  in  connection  with  the  transactions  contemplated  by the
          Transaction   Documents;   (C)  that  the  Company's   certificate  of
          incorporation  has  not  been  amended  since  the  date  of the  last
          amendment referred to in the certificate  delivered pursuant to clause
          (i)(B) above (other than as required by  subsection  (b));  and (D) to
          the incumbency  and specimen  signature of each officer of the Company
          executing any of the  Transaction  Documents,  the stock  certificates
          representing  the Preferred  Shares and any  certificate or instrument
          furnished  pursuant hereto,  and a certification by another officer of
          the Company as to the incumbency and signature of the officer  signing
          the certificate referred to in this paragraph; and

               (iii) such additional  supporting documents and other information
          with  respect to the  operations  and  affairs  of the  Company as the
          Purchaser or its counsel reasonably may request.

     (g) Other Transaction Documents.

               (i) the Security Agreement,  together with the documents required
          by  the  Security  Agreement,   including  financing   statements  and
          confirmation of insurance and real estate security documents;

               (ii) the Patent Security Agreement;

<PAGE>
                                       22

               (iii) the Trademark Security Agreement;

               (iv) the Registration Rights Agreement;

               (v) the Tag-Along Agreements;

               (vi) the Pledge Agreement;

               (vii) the Intercreditor Agreement;

               (viii) the Guaranty; and

               (ix) an  Officer's  Certificate,  dated the date of the  Closing,
          stating  that the  conditions  specified  in Sections  6.1(a)  through
          6.1(k), inclusive, have been fully satisfied.

          (h)  Preemptive  Rights.  All  stockholders  of the Company having any
     preemptive,  first  refusal or other rights with respect to the issuance of
     the Preferred  Shares,  the Conversion  Shares and the Warrant Shares shall
     have irrevocably waived the same in writing.

          (i) Sources and Uses  Statement.  The Company  shall have  delivered a
     statement,  reasonably  satisfactory  to the Purchaser,  of the sources and
     uses of the funds being  provided on the Closing Date by the Senior  Lender
     and by the Purchaser.

          (j) Evidence of  Insurance.  The Company  shall have  furnished to the
     Purchaser evidence of the insurance required by this Agreement.

          (k) Counsel Fees and Other  Expenses.  The Company  shall have paid in
     accordance with Section 6.1 the fees and  disbursements of Drinker Biddle &
     Reath LLP, special counsel to the Purchaser,  invoiced at the Closing,  and
     shall  have  reimbursed  the  Purchaser  for  its  out-of-pocket  expenses,
     invoiced at the Closing.

          (l)  Closing  Fee.  The  Company  shall have paid to the  Purchaser  a
     closing fee of $80,000 on account of its purchase of the Notes and Warrants
     and  $40,000  on account  of its  purchase  of the  Preferred  Shares.  The
     Purchaser agrees to refund to the Company,  promptly after the closing, the
     deposit previously paid to the Purchaser upon issuance of its term sheet or
     commitment letter, less the Purchaser's out-of-pocket expenses for which it
     is  entitled  to  reimbursement  pursuant  to its term sheet or  commitment
     letter.

          (m) Senior  Indebtedness;  Discharge of Existing Credit Facility.  The
     Company  shall have  simultaneously  completed  the  closing  with  LaSalle
     Business  Credit,  Inc.  under  senior  term  loans  and  revolving  credit
     commitments  of not less  than  $6,000,000,  and  shall  have not less than
     $500,000 in unused revolving  credit  commitments  thereunder;  the Company
     shall have  terminated the Existing  Credit Facility and repaid all amounts
     owing thereunder; and all Liens securing the Existing Credit Facility shall
     have been discharged.

          (n) Board  Committees.  The  Company's  Board of Directors  shall have
     appointed (1) an audit committee,  whose composition shall be in conformity
     with  the  requirements  of law  and the  Nasdaq  Stock  Market,  and (2) a
     compensation  committee,  a majority  of the  members of which shall not be
     officers  or  employees  of the  Company  or any  of its  Subsidiaries,  or
     relatives of any such officers or employees.

<PAGE>
                                       23

          (o) Transaction  Costs. Fees and expenses paid or owing to brokers and
     investment  bankers  on account of the  transactions  contemplated  by this
     Agreement  and the closing under the Senior  Indebtedness  shall not exceed
     $548,000.

All such documents  shall be satisfactory in form and substance to the Purchaser
and its counsel.

7. COVENANTS OF THE COMPANY

     7.1 Access to Records. For so long as the Notes have not been paid in full,
the  Company  will  permit  any  representatives   designated  by  the  Required
Noteholders,  during normal  business  hours and upon  reasonable  notice to (a)
visit and inspect any of the properties of the Company and its Subsidiaries, (b)
examine the corporate and financial  records of the Company and its Subsidiaries
and make copies  thereof or  extracts  therefrom  and (c)  discuss the  affairs,
finances and accounts of any such companies with the  directors,  officers,  key
employees  and  independent  accountants  of the Company  and its  Subsidiaries;
provided,  that in no event shall such inspection impede or interrupt the normal
business  operations of the Company.  The Company will reimburse the Noteholders
for their reasonable  expenses  (including  travel) incurred under the preceding
sentence,  except  that if no  Event  of  Default  shall  have  occurred  and be
continuing, the Company shall be required to reimburse such expenses relating to
only one  examination  per year.  The  presentation  of an executed copy of this
Agreement by the Required Noteholders to the Company's  independent  accountants
will  constitute  the Company's  permission to its  independent  accountants  to
participate in discussions with such persons. The Required Noteholders and their
designated representative shall maintain the confidentiality of any confidential
or Proprietary  Information so obtained by them which is not otherwise available
from other sources that are free from similar restrictions;  provided,  however,
that the  foregoing  shall in no way limit or otherwise  restrict the ability of
the Required Noteholders or such authorized representatives to disclose any such
information concerning the Company which they may be required to disclose (i) to
the  Required  Noteholders'  partners to the extent  required  to satisfy  their
fiduciary obligations to such persons (so long as such partners agree in writing
to be bound by those confidentiality  provisions), or (ii) otherwise as required
by law.

7.2 Financial Reports and Other Information.

          (a) For so long as the Notes have not been paid in full,  the  Company
     will furnish each Noteholder with the following:

               (i) As soon as  practicable,  and in any case within  thirty (30)
          days after the end of each calendar month, monthly unaudited financial
          statements  (all  prepared  in  accordance   with  GAAP,   except  for
          footnotes,  and  subject to changes  resulting  from audits and normal
          year-end  adjustments none of which will be materially  adverse to the
          financial condition or result of operation of the Company),  including
          (A) an unaudited  balance sheet as of the last day of such month,  (B)
          an  unaudited  statement  of income for such  month,  together  with a

<PAGE>
                                       24

          cumulative  statement of income from the first day of the then current
          fiscal year to the last day of such month,  (C) an aging  schedule (or
          summary thereof) of all accounts receivable and accounts payable,  (D)
          a  statement  of cash flows for such month and (E) a report  comparing
          capital  expenditures  for  such  month  against  the  capital  budget
          schedule  attached hereto as Schedule 7.2(a) or delivered  pursuant to
          Section  7.2(a)(iii),  and  identifying  all  expected  changes in the
          timing or amount of capital expenditures, and a comparison between the
          actual figures for such month, the comparable figures (with respect to
          clauses (A) and (B) only) for the prior year period and the comparable
          figures  in  the  current   year's  budget,   along  with   management
          commentary. The foregoing financial statements shall be accompanied by
          an Officer's  Certificate  to the effect that such  statements  fairly
          present in all material respects the financial  position and financial
          results of the Company for the fiscal period covered, qualified by the
          fact that the Company may need to make  adjustments  to the  foregoing
          figures as  determined by the  Company's  auditors in accordance  with
          generally accepted accounting procedures.

               (ii) As soon as practicable and in any event within 90 days after
          the end of each  Fiscal  Year  commencing  with the Fiscal Year ending
          March 31, 2002,  an annual  independent  certified  audit  prepared by
          nationally recognized certified public accountants.

               (iii) Not later than the beginning of each Fiscal Year, an annual
          operating  plan with budget for the Company,  including  the Company's
          capital budget, for the coming Fiscal Year.

               (iv)  Promptly  upon receipt  thereof,  any  additional  reports,
          management   letters   or  other   detailed   information   concerning
          significant aspects of the Company's  operations and financial affairs
          given to the Company by its independent accountants (and not otherwise
          contained in other materials provided pursuant to this Section 7.2).

               (v) Promptly (but in any event within five  business  days) after
          the  discovery or receipt of notice of any material  default under any
          Material  Agreement to which it or any of its  Subsidiaries is a party
          or any other event or circumstance  materially and adversely affecting
          the  Company  and its  Subsidiaries  taken as a whole  (including  the
          filing  of  any  material   litigation  against  the  Company  or  any
          Subsidiary  or the  existence  of any  dispute  with any Person  which
          involves a reasonable  likelihood  of such material  litigation  being
          commenced),  an Officer's Certificate specifying the nature and period
          of existence thereof and what actions the Company and its Subsidiaries
          have taken and propose to take with respect thereto.

               (vi) Within fifteen days after  transmission  thereof,  copies of
          all  financial  statements,  proxy  statements,  reports and any other
          general  written   communications  which  the  Company  sends  to  its
          shareholders and/or lenders and copies of all registration  statements
          and all regular,  special or periodic reports which it files, with the
          Commission  or  with  any  securities  exchange  on  which  any of its
          securities are then listed, and copies of all press releases and other
          statements  made  available  generally  by the  Company  to the public
          concerning material developments in the Company's business.

               (vii) From time to time such  other  information  concerning  the
          Company's businesses as any Noteholder shall reasonably request.

<PAGE>
                                       25

          (b) If for any  period  the  Company  shall  have  any  Subsidiary  or
     Subsidiaries,  then in respect  of such  period  the  financial  statements
     delivered  pursuant to  subsections  (i) and (ii) of Section  7.2(a)  shall
     include consolidating  (unaudited) and consolidated financial statements of
     the Company and its Subsidiaries.

          (c) With the financial  statements  referred to in subsections (i) and
     (ii) of Section  7.2(a),  the Company shall  deliver to each  Noteholder an
     Officer's  Certificate  to the effect that such officer has no knowledge of
     any material  violation or default by the Company in the performance of its
     agreements or covenants contained herein or in any other Material Agreement
     to which the  Company  is a party or of the  occurrence  of any  condition,
     event or act which, with or without notice or lapse of time, or both, would
     constitute  such a material  violation  or a default,  or, if such  officer
     shall have obtained  knowledge of any such violation,  condition,  event or
     act, he or she (as the case may be) shall specify in such  certificate  all
     such  violations,  conditions,  events  and acts and the  nature and status
     thereof.

     7.3 Use of Proceeds.  The net proceeds received by the Company from LaSalle
Business  Credit,  Inc.  and the  Purchaser  shall  be used  by the  Company  as
described in the statement of sources and uses of funds furnished by the Company
pursuant to Section 6.1(i).

     7.4 Affirmative  Covenants.  For so long as the Notes have not been paid in
full, the Company will, and will cause each Subsidiary to:

          (a) at all times cause to be done all things  necessary  to  maintain,
     preserve  and renew its  corporate  existence  and all  material  licenses,
     authorizations  and permits  necessary  to the  conduct of its  businesses,
     provided  that  nothing in this Section  7.4(a) shall  prohibit the Company
     from  discontinuing the existence of any Subsidiary if such  discontinuance
     is  determined  by the Board of  Directors of the Company to be in the best
     interest of the Company or such Subsidiary;

          (b)  maintain and keep its  material  assets in good  repair,  working
     order and  condition,  ordinary  wear and tear and obsolete  equipment  and
     damage by  casualty  excepted,  and from  time to time  make all  necessary
     repairs, renewals and replacements,  so that its businesses may be properly
     and advantageously conducted at all times in all material respects;

          (c)  pay  and  discharge  when  payable  all  taxes,  assessments  and
     governmental  charges  imposed  upon its  properties  or upon the income or
     profits  therefrom  (in each case before the same  becomes  delinquent  and
     before  penalties  accrue  thereon) and all claims for labor,  materials or
     supplies  which  if  unpaid  might  by law  become  a lien  upon any of its
     property  (other than as  permitted  in this  Agreement),  to the extent to
     which the failure to pay or discharge such obligations  would reasonably be
     expected to result in a Material  Adverse Effect,  unless and to the extent
     that  the  same  are  being  contested  in good  faith  and by  appropriate
     proceedings  and adequate  reserves (as determined in accordance with GAAP)
     have been  established on its books (when required under GAAP) with respect
     thereto;

<PAGE>
                                       26

          (d)  comply  with all  other  material  obligations  which  it  incurs
     pursuant to any Material  Agreement,  whether  oral or written,  express or
     implied,  as such obligations become due to the extent to which the failure
     to so comply would  reasonably be expected to result in a Material  Adverse
     Effect,  unless and to the extent that the same are being contested in good
     faith and by appropriate  proceedings and adequate  reserves (as determined
     in accordance with GAAP) have been  established on its books (when required
     by GAAP) with respect thereto;

          (e)  comply in all  material  respects  with the  requirements  of all
     applicable  laws,  rules,   regulations,   orders  and  ordinances  of  any
     governmental authority having jurisdiction (including  Environmental Laws),
     the violation of which would reasonably be expected to result in a Material
     Adverse Effect;

          (f)  maintain,  in all material  respects,  proper books of record and
     account,  in which full and correct  entries shall be made of all financial
     transactions and the assets and business of the Company as the case may be,
     in accordance  with GAAP,  and in each case in sufficient  detail to enable
     the  separate  financial  statements  of each  such  entity  to be  readily
     prepared;

          (g) file all  reports  (if any)  required  to be filed by it under the
     Securities Act and the Exchange Act and the rules and  regulations  adopted
     by the Commission thereunder;

          (h) possess and  maintain all material  Intellectual  Property  Rights
     necessary to the conduct of their respective  businesses and own all right,
     title and  interest in and to, or have a valid  license  for,  all material
     Intellectual Property Rights used by the Company and each Subsidiary in the
     conduct  of  their  respective  businesses.  Neither  the  Company  nor any
     Subsidiary will take any action, or fail to take any action, which would to
     its knowledge result in the invalidity,  abuse,  misuse or unenforceability
     of such  Intellectual  Property  Rights  or which  would  to its  knowledge
     infringe in any material respect upon any rights of other Persons;

          (i) when and if applicable,  take all steps  necessary for the Company
     to maintain its  eligibility  to use Form S-3 for the  registration  of its
     securities once the Company has attained such eligibility;

          (j) if the  Company  or  any  Subsidiary  acquires  or  organizes  any
     additional  Subsidiary,  cause such  additional  Subsidiary  to execute and
     deliver a joinder  in the form  attached  hereto as  Exhibit  E,  cause all
     filings to be made that are necessary to perfect in favor of the Collateral
     Agent a security  interest in all property of such  additional  Subsidiary,
     which are junior and subordinate to those in favor of the Senior Lender and
     cause  all the  capital  stock  of such  subsidiary  to be  pledged  to the
     Collateral Agent; provided, however, that no Subsidiary organized under the
     laws of a  jurisdiction  outside  the United  States  shall be  required to
     execute a joinder if it would  result in adverse  tax  consequences  to the
     Company or its Subsidiaries; and

          (k) cause to be elected to the Company's Board of Directors, not later
     than the Company's  2002 annual  meeting of  stockholders,  one  additional
     director who is an "independent director" within the meaning of the listing
     rules of the Nasdaq Stock Market.

     7.5  Negative  Covenants.  For so long as the  Notes  have not been paid in
full, the Company will not, and will not permit any Subsidiary to, do any of the
following without the written consent of the Required Noteholders:

<PAGE>
                                       27

          (a)  subject  to the terms of the  Intercreditor  Agreement,  make any
     Restricted  Payment except that the Company may pay dividends on the Series
     A Preferred  Stock if, at the time of such payment and after giving  effect
     thereto, no Event of Default shall have occurred and be continuing;

          (b) voluntarily  liquidate,  dissolve or effect a recapitalization  or
     reorganization  in any form of  transaction  (except  with  respect  to any
     Subsidiary as permitted by Section 7.4(a));

          (c) become  subject to any  agreement  or  instrument  (other than the
     Intercreditor   Agreement),   which  by  its   terms   would   (under   any
     circumstances)   restrict  the  Company's  right  to  perform  any  of  its
     obligations pursuant to the terms of any of the Transaction Documents;

          (d) without limiting the generality of subsection (h), incur,  create,
     issue,  assume,  guarantee or otherwise  become liable for any indebtedness
     that  is   subordinate  or  junior  in  right  of  payment  to  any  Senior
     Indebtedness  unless such debt is junior and subordinate in all respects in
     right of payment to the Notes;

          (e)  enter  into  any  Related   Transaction  except  for  (i)  normal
     employment  arrangements and benefit programs on reasonable terms, and (ii)
     any  transaction  on terms no less  favorable  to the Company than could be
     obtained in a transaction with a Person not related to the Company;

          (f)  permit  any  material  asset or  property  of the  Company or any
     Subsidiary  to become  subject to a Lien of any kind,  except for Permitted
     Liens;

          (g)  assume,  guarantee  or endorse,  or  otherwise  become  liable in
     connection  with, the  obligations of any Person,  except by endorsement of
     instruments  for  deposit  or  collection  or similar  transactions  in the
     ordinary course of business, and except in favor of the Senior Lender;

          (h)  create,   incur,   assume  or  become   obligated   (directly  or
     indirectly),  for any loans or other  indebtedness  of borrowed money other
     than  the  Senior  Indebtedness,  except  that  the  Company  or any of its
     Subsidiaries may (i) borrow money from a Person other than the Purchaser on
     an unsecured and  subordinated  basis if the rate of interest  thereon does
     not exceed 12% per year,  no  principal is payable  thereon  until at least
     three months after the scheduled maturity of the Notes, and a subordination
     agreement  in  favor of the  Collateral  Agent  and in form  and  substance
     satisfactory  to the  Collateral  Agent is executed and  delivered to Agent
     relative thereto; (ii) maintain its present indebtedness listed on Schedule
     4.5 hereto;  (iii) incur  unsecured  indebtedness to trade creditors in the
     ordinary course of its business;  (iv) incur purchase money indebtedness or
     capitalized  lease  obligations  not in excess of $100,000 in the aggregate
     each Fiscal Year in connection with Capital Expenditures permitted pursuant
     to Section  7.7(d)  hereof;  and (v) incur  indebtedness  under  agreements
     pursuant to which any  Borrower is hedging  against  increases  in interest
     rates on such Borrower's  outstanding floating rate indebtedness;  provided
     that the aggregate amount so hedged at any time shall not exceed the amount
     of such Borrower's floating rate indebtedness outstanding at such time;

<PAGE>
                                       28

          (i) create,  incur,  assume or suffer to exist any  mortgage,  pledge,
     lien,  security  interest or other  encumbrance  of any kind on any real or
     personal property except for Permitted Liens;

          (j) enter into a material line of business  other than the business of
     manufacturing medical packaging and dispensing systems and supplies;

          (k) (i) merge or consolidate with, or sell, assign, lease or otherwise
     dispose of all or  substantially  all or any substantial part of its assets
     to,  any other  Person  except to the  Company  or one of its  Wholly-Owned
     Subsidiaries;  (ii) purchase or otherwise acquire any operating business or
     division  (whether by stock or asset purchase) from any other Person or all
     or any  substantial  part of the  assets of any  other  Person  except  for
     investment  permitted by Section 7.5(l), (iii) directly or indirectly sell,
     assign,  pledge  or  otherwise  dispose  of any  Indebtedness  of, or claim
     against, or any shares of stock or similar interests or other securities of
     (or warrants,  rights or options to acquire  stock or similar  interests or
     other  securities of), any Subsidiary,  except pledges to Collateral  Agent
     pursuant to any of the Security Documents, which pledge shall be junior and
     subordinate  to that made in favor of the Senior  Lender and to the holders
     of Senior  Indebtedness;  (iv) permit any Subsidiary directly or indirectly
     to sell,  assign,  pledge or otherwise  dispose of any  Indebtedness of, or
     claim  against,  or any  shares  of stock  or  similar  interests  or other
     securities of (or  warrants,  rights or options to acquire stock or similar
     interests or other securities of), any other Subsidiary, which pledge shall
     be  junior  and  subordinate  to that made in favor of the  Senior  Lender,
     except  pledges  thereof to the  Collateral  Agent  pursuant  to any of the
     Security  Documents and to the holders of Senior  Indebtedness;  (v) permit
     any Subsidiary to have outstanding any shares of Preferred Stock; (vi) form
     or acquire any  Subsidiary  organized  under any law other than that of the
     United  States,  a state  thereof,  or the District of  Columbia;  or (vii)
     permit any Subsidiary directly or indirectly to issue or sell any shares of
     its stock or similar interests or other securities (or warrants,  rights or
     options to acquire stock or similar interests or other  securities)  except
     to the Company or a  Wholly-Owned  Subsidiary of the Company and pledged to
     the Collateral Agent (provided, however, that no more than 65% of the stock
     of any Subsidiary  organized under the laws of any jurisdiction  outside of
     the United States will be pledged and none of the capital stock of any such
     Person's direct or indirect  Subsidiaries  will be pledged) pursuant to the
     Pledge  Agreement  and  pledged  and  delivered  to the  holders  of Senior
     Indebtedness;

          (l) make or  suffer  to exist  any loan or  advance  to any  Person or
     purchase or otherwise  acquire any stock,  obligation or securities  of, or
     any other  interest  in, or make any capital  contribution  to, any Person,
     except that (1) the Company may make Investments in Packaging,  and (2) the
     Company and Packaging may make investments in any Subsidiary of the Company
     that shall have  delivered or joined in a Guaranty at such time, so long as
     (i) no Event of Default,  or event or condition  that, with notice or lapse
     of time,  or both,  would,  if  unremedied,  be an  Event of  Default,  has
     occurred,  or would  occur as a result  of such  investment  and,  (ii) the
     Company  shall  deliver  written  notice to the  Collateral  Agent at least
     thirty (30) days prior to the making of any such investment;

<PAGE>
                                       29

          (m) sell, lease or otherwise dispose of any material asset or property
     of the  Company,  other than sales,  leases and  disposals  of inventory or
     equipment in the ordinary course of business;

          (n) (i)  fail to make  contributions  to  pension  plans  required  by
     Section 412 of the Code, (ii) fail to make payments required by Title IV of
     ERISA as the result of the termination of a single employer pension plan or
     withdrawal  or partial  withdrawal  from a  multiemployer  pension plan, or
     (iii) fail to correct a  prohibited  transaction  with an employee  benefit
     plan with respect to which it is liable for the tax imposed by Section 4975
     of the Code; and

          (o) amend or modify this  license  agreement  dated  October 14, 1986,
     between the Company  (successor  to DRG  Consultants,  Inc.) and the Siegel
     Family  Revocable  Trust,  as modified by agreement dated September 2, 1990
     (the "License  Agreement"),  in any way unfavorable to the Company, fail to
     comply in any material  respect with the  Company's  obligations  under the
     License  Agreement,  or waive any right of the  Company  under the  License
     Agreement,  unless the Company  acquires from the Siegel  Family  Revocable
     Trust all its  rights in the  subjects  of the  license,  in a  transaction
     complying with Section 7.5(e),  in which case the Company may terminate the
     License Agreement.

     7.6  Insurance.  For so long as the Notes shall not have been paid in full,
the Company will apply for and continue in force insurance with  responsible and
reputable  companies  in such amounts and against such risks as are set forth in
the  Company's  insurance  policies  in effect on the  Closing  Date.  After the
Closing Date, the Company shall obtain additional or different  insurance if the
insurance  risk  profile  of the  Company  materially  changes,  to  the  extent
reasonably  requested by the Collateral Agent or the Required  Noteholders (with
such  deductibles  and levels of  self-insurance  as are usually  maintained  by
owners of similar businesses and properties), but in any event, the Company will
(1) increase the coverage of its business  interruption  insurance to $3,000,000
(provided  the  incremental  premium  is not more than  $7,500),  and (2) obtain
separate coverage limits for its directors and officers liability and employment
practices liability insurance of $2,000,000 each (provided the total premium for
such coverage is not more than  $55,000),  effective in both cases at the end of
the current  policy  year(s).  The insurers under all such policies shall have a
rating of "A" or better as  established by Best's Rating Guide (or an equivalent
rating with such other  publication  of a similar  nature as shall be in current
use). All such  insurance  policies shall provide that they may not be cancelled
unless the  insurance  carrier  gives at least  thirty  (30) days prior  written
notice of such cancellation to the Collateral Agent.

     7.7 Certain Financial Covenants.

          (a)  Tangible  Net  Worth.  The  Company  and  its  Subsidiaries  on a
     consolidated  basis shall maintain at all times during each time period set
     forth  below a  Tangible  Net Worth of not less than the  amount  set forth
     below opposite each such time period:

<PAGE>
                                       30

              Period                                 Tangible Net Worth
              ------                                 ------------------

   As of March 31, 2002 and at all              $350,000
   times until June 29, 2002

   As of June 30, 2002 and at all               $3,500,000
   times until December 30, 2002

   As of December 31, 2002 and at all           $3,600,000
   times until March 30, 2003

   As of March 31, 2003                         $3,750,000

   As of April 1, 2003 and at all               The greater of (i)$3,750,000
   times until March 30, 2004                   and (ii) 90% of Tangible Net
                                                Worth at March 31, 2003

   As of March 31, 2004                         $800,000 plus the greater of
                                                (i) $3,750,000 and (ii) 90% of
                                                Tangible Net Worth at
                                                March 31, 2003 (the "2004
                                                Tangible Net Worth Requirement")

   As of April 1, 2004 and at all               The greater of (i) the 2004
   Net times until March 30, 2005               Tangible Worth Requirement and
                                                (ii) 90% of Tangible Net Worth
                                                at March 31, 2004

   As of March 31, 2005                         $800,000 plus the greater of
                                                (i) the 2004 Tangible Net Worth
                                                Requirement and (ii) 90% of
                                                Tangible Net Worth at
                                                March 31, 2004 the "2005
                                                Tangible Net Worth Requirement")

  As of April 1, 2005 and at all                The greater of (i) the 2005
  time thereafter                               Tangible Net Worth Requirement
                                                and (ii) 90% of Tangible Net
                                                Worth at March 31, 2005

<PAGE>
                                       31

          (b) Debt Service Coverage Ratio. The Company and its Subsidiaries on a
     consolidated  basis will  maintain a Debt Service  Coverage  Ratio for each
     time  period  set forth  below of not less  than the ratio set forth  below
     opposite each such time period:

         Measuring Period                           Debt Service Coverage Ratio
         ----------------                           ---------------------------

Fiscal quarter ending September 30, 2002                      1.00:1.00

Two fiscal quarters ending December 31, 2002                  1.00:1.00

Twelve months ending March 31, 2003,                          1.20:1.00
March 31, 2004 and March 31, 2005

Fiscal quarter ending June 30, 2003,                          1.00:1.00
September 30 and December 31 of each
year, in each case together with the
three preceding fiscal quarters

          (c) Interest  Coverage  Ratio.  The Company and its  Subsidiaries on a
     consolidated  basis will maintain an Interest  Coverage Ratio for each time
     period set forth below of not less than the ratio set forth below  opposite
     each such time period:

         Measuring Period Interest Coverage Ratio

Fiscal quarter ending September 30, 2003           2.00:1.00
Two fiscal quarters ending December 31, 2002       2.00:1.00
Fiscal quarter ending March 31, 2003, and          2.00:1.00
each fiscal quarter thereafter, in each
case with the preceding three fiscal quarters

          (d) Capital Expenditure Limitations.  The Company and its Subsidiaries
     on a consolidated  basis shall not make Capital  Expenditures  in excess of
     One Million Eight Hundred Thousand Dollars  ($1,800,000.00)  during any one
     Fiscal Year, commencing with the Fiscal Year ending March 31, 2003.

     7.8 Board  Observer.  For so long as the Notes  have not been paid in full,
the  Company's  Board of Directors  will consist of two  management  members and
three outside members, for a total of five members, and such board shall meet at
least four times  annually.  The Purchaser shall have the right (until the Notes
have been paid in full) to  appoint  one  observer  who shall  have the right to
attend all meetings of the Board of Directors of the Company and all  committees
thereof;  provided,  however,  that so long as the holders of Series A Preferred
Stock or of the Warrants or Warrant  Shares shall have the right to appoint such
an observer,  all shall appoint the same observer, the identity of which will be
determined  by  the   Purchaser   until  the  Notes  have  been  paid  in  full.
Notwithstanding  anything  to the  contrary  in any  Transaction  Document,  the
Company  shall  be  entitled  to  exclude  any  such  observer  from  any  board

<PAGE>
                                       32

discussions  (and  withhold  any related  materials)  materially  affecting  the
relationship  of the Company or any  Subsidiary  to the  Collateral  Agent,  any
Noteholder,  or any holder of any Warrant,  Warrant Shares or Series A Preferred
Stock.  The  Company  shall  reimburse  Purchaser  for all  reasonable  expenses
associated with the observer's attendance at board and committee meetings.

     7.9 Key Person Life  Insurance.  The Company  will  obtain,  within 60 days
after the date of the Closing,  and thereafter  continuously  maintain in effect
until the Notes have been paid in full,  key person life  insurance on the lives
of Todd E. Siegel,  Michael P. Conroy,  Michael Stevenson and such other persons
as may be selected by the Purchaser, in the amount of $4,000,000, $1,500,000 and
$1,500,000, respectively.

8. THE NOTES

     8.1 Exchange or Transfer of Notes.

          (a) Exchange.  At any time upon the request of any Noteholder and upon
     surrender  of such Note for such  purpose at the  principal  offices of the
     Company,  the Company will execute and register in the Noteholder's name in
     exchange  therefor new notes,  in such  denomination or  denominations  (in
     minimum  amounts  of  $100,000  and  in  multiples  of  $10,000)  as may be
     requested,  an aggregate  principal  amount  equal to the unpaid  principal
     amount of the Note so surrendered  and  substantially  in the form thereof,
     with appropriate insertions and variations, and dated, and bearing interest
     from,  the date to which  interest has been paid on the Note so surrendered
     unless no interest has been paid on the Note so surrendered,  in which case
     the new notes shall be dated the date of the Note so surrendered.

          (b)  Replacement.  Upon receipt by the Company of evidence  reasonably
     satisfactory  to it that the Note has been  mutilated,  destroyed,  lost or
     stolen, and, in the case of any destroyed, lost or stolen Note, a letter of
     indemnity  reasonably  satisfactory  to the  Company,  or in the  case of a
     mutilated Note, upon surrender and cancellation  thereof, the Company shall
     execute  and  register  in the  holder's  name a new Note in  exchange  and
     substitution  for the Note so  mutilated,  destroyed,  lost or stolen in an
     aggregate principal amount equal to the unpaid principal amount of the Note
     so  mutilated,  destroyed,  lost or stolen  and  substantially  in the form
     thereof, with appropriate insertions and variations,  and dated and bearing
     interest  from  the  date to which  interest  has been  paid on the Note so
     mutilated,  destroyed,  lost or stolen  unless no interest has been paid on
     the Note so  mutilated,  destroyed,  lost or stolen,  in which case the new
     Note shall be dated the date of the Note so mutilated,  destroyed,  lost or
     stolen.

          (c) Transfer.  Subject to the provisions of this  Agreement,  any Note
     may be  transferred  at the  principal  office of the Company by  surrender
     thereof for cancellation,  endorsed or accompanied by a written  instrument
     of transfer, duly executed by the registered holder thereof or its attorney
     duly  authorized  in writing,  and  thereupon  the Company  shall issue and
     deliver,  in the name of the transferee or  transferees,  a new Note, for a
     like aggregate principal amount, dated as of the date to which interest has
     been paid on the Note so transferred.

<PAGE>
                                       33

          (d) Instrument of Transfer.  All Notes  presented or  surrendered  for
     exchange as provided in this Section 8.1 shall, if required by the Company,
     be  accompanied by a written  instrument or  instruments of transfer,  duly
     executed by the registered  holder thereof or its attorney duly  authorized
     in  writing.  No charge  shall be made by the  Company  in  respect  of any
     transfer  or exchange of Notes,  but the holder  shall bear any  applicable
     transfer tax.

          (e)  Legends.  All Notes  issued  pursuant  to this  Section 8.1 shall
     contain the  restrictive  legends on the Note  surrendered  for transfer or
     exchange or which has been mutilated,  lost, destroyed or stolen, and shall
     contain any legend  required by the  Intercreditor  Agreement  as in effect
     from time to time.  All  certificates  representing  Warrants  and Series A
     Preferred  Stock,  whether  originally  issued  or issued  on  transfer  or
     exchange,  shall also  contain  any legend  required  by the  Intercreditor
     Agreement as in effect from time to time.

          (f) Approval of Transfers. Notwithstanding anything to the contrary in
     any Transaction Document, no Noteholder may transfer all or any part of any
     Note  without the written  consent of the Company  (such  consent not to be
     unreasonably  withheld,  it being  understood that the Company may withhold
     consent if the proposed transferee is a competitor of the Company),  except
     that no such  consent  shall be required  (1) if an Event of Default  shall
     have occurred and be continuing,  or (2) for a transfer to (A) an Affiliate
     of the  transferor  Noteholder  or (B) a partner or other equity  holder of
     such  Noteholder  in  connection  with a  distribution  of  assets  by such
     Noteholder.  If a  Noteholder  makes a written  request  to the  Company to
     consent  to a  transfer  of all or a  portion  of any Note to a  transferee
     identified in the request, the Company shall be deemed to have consented to
     such transfer unless it gives written notice of objection to the transferor
     Noteholder within five business days after the request is made.

     8.2 Register of Noteholders. The Company will at all times keep or cause to
be kept, at the  principal  office of the Company,  appropriate  records for the
registration and transfer of the Notes,  identifying the Noteholders,  and shall
cause to be recorded therein the names and addresses of the holders of record of
the  Notes  from  time to time,  and any and all  transfers  thereof;  provided,
however,  that the Company  shall be  required to record the  transfer of a Note
only if and when a subsequent  holder shall have (a) presented  such Note to the
Company for inspection, properly endorsed or assigned and in order for transfer,
(b) delivered to the Company a written  notice of its  acquisition of such Note,
and (c)  designated  in writing an address to which  payments  on and notices in
respect of such Notes shall be transmitted.

     8.3 Transfer Taxes.  The Company will pay, and hold the Purchaser  harmless
against,  liability  for the payment of any transfer or similar taxes payable in
connection with the initial issuance and sale of the Notes pursuant hereto.

     8.4 Payment.

          (a) Required Payment.  The Notes will be paid in accordance with their
     terms and as set forth in this Agreement.

<PAGE>
                                       34

          (b)  Mandatory  Prepayment.  In the event of a  Liquidity  Event,  all
     amounts due hereunder  shall be prepaid in full with accrued  interest and,
     if applicable, the prepayment fee provided for in Section 8.4(c).

          (c) Optional Prepayment.  The Company has the right, at its option, at
     any time to  prepay  the  principal  amount in full or in part from time to
     time,  together with accrued  interest on the amount prepaid,  and together
     with a prepayment fee calculated as follows:


         Date of prepayment                         Prepayment fee (as a percent
         (dates inclusive)                          of principal amount prepaid)
         -----------------                          ----------------------------
On or before June 26, 2003                                       5%
June 27, 2003, through June 26, 2004                             4%
June 27, 2004, through June 26, 2005                             3%
June 27, 2005, through the day before the final maturity         2%

          (d) Intercreditor  Agreement. All payments made under this Section 8.4
     shall be made in a  manner  which is in  accordance  with the  terms of the
     Intercreditor Agreement.

          8.5 Event of Default.

          (a) The occurrence of any of the following  events shall constitute an
     Event of Default hereunder and under the Notes: (i) the failure to make any
     payment of  principal,  interest or  prepayment  fee hereunder or under the
     Notes when the same shall be due and such failure  continues  for three (3)
     business days after due date; (ii) the Company's  failure to make any other
     payment hereunder within ten (10) days after the Company receives a written
     notice  specifying  the amount of such  payment;  (iii) the  failure by the
     Company or any  Guarantor to observe and perform in all  material  respects
     any of the  covenants or agreements on its part to be observed or performed
     under this Agreement,  the Notes or any of the Security  Documents and such
     failure continues for thirty (30) business days after notice thereof by the
     Collateral Agent or any Noteholder to the Company;  (iv) any representation
     or warranty  made by the Company or any  Guarantor  herein or in any of the
     other  Transaction  Documents shall not be true in all material respects on
     and as of the date so made; (v) the dissolution or permanent termination of
     business  for any reason by the  Company  and its  Subsidiaries  taken as a
     whole; (vi) acceleration of the maturity of any indebtedness of the Company
     or any of its  Subsidiaries  for borrowed  money in excess of $250,000 as a
     result  of  a  default  thereunder;   (vii)  the  bankruptcy,   insolvency,
     reorganization,  receivership,  arrangement  or  commencement  or filing of
     other  similar  proceedings  by the Company or any Guarantor or against the
     Company or any Guarantor  which, if such proceeding  shall be filed against
     the Company or any  Guarantor,  shall not be discharged  within ninety (90)
     days after the  filing  thereof  under any state or  federal  law or if the
     Company  shall not be paying,  or shall admit in writing its  inability  to
     pay, its debts as they shall become due, make an assignment for the benefit
     of  creditors  or apply  for,  consent to or suffer  the  appointment  of a

<PAGE>
                                       35

     custodian,  receiver  or  trustee  for any part of its  property  or assets
     provided,  that with respect to any Guarantor which has assets the value of
     which is less than  $50,000,  as  measured  by the higher of book value and
     market  value  thereof,  at such  time,  and to which no  assets  have been
     transferred by the Company or other Guarantor at any time subsequent to the
     Closing  Date,  the remedies  provided the  Collateral  Agent in Section 13
     hereof shall be solely with respect to such Guarantor and such  Guarantor's
     assets,  so long as the  liability or  obligation  owing by such  Guarantor
     which caused such  proceeding  to be  commenced  arose prior to the Closing
     Date and neither the  Company  nor any  Guarantor  at any time prior to the
     Closing Date had any knowledge  thereof or is also in any manner and to any
     extent  responsible  for such  liability  or  obligation;  (viii) the sale,
     lease, transfer or other disposition,  whether voluntary or involuntary, of
     all or  substantially  all of the property or assets of the Company and its
     Subsidiaries taken as a whole without adequate provision for the payment of
     all sums due hereunder;  (ix) final  judgments  against the Company and its
     Subsidiaries  in  excess of  $250,000  not  covered  by  insurance,  if not
     discharged,  annulled or stayed for thirty (30) days;  or (ix) the issuance
     of a writ, warrant, distraint or order of attachment or garnishment against
     a  material  portion  of the  property  or  assets of the  Company  and its
     Subsidiaries  taken as a whole,  if either (A) there is an imminent risk of
     forfeiture or (B) it remains undischarged or unstayed for thirty (30) days.

          (b) Subject to the provisions of the Intercreditor Agreement, upon the
     happening  of an Event of  Default,  a  Noteholder  may  declare the entire
     unpaid  principal  balance under all Notes held by it  immediately  due and
     payable,  without  any  further  notice,  demand  or  presentment,  and may
     exercise,  without any further notice,  demand or  presentment,  any of its
     rights  hereunder.  In the event  that any  Noteholder  shall  exercise  or
     endeavor to exercise any of its remedies  hereunder,  the Company shall pay
     on  demand  all  reasonable  costs  and  expenses  incurred  in  connection
     therewith,  including,  without  limitation,   reasonable  attorney's  fees
     actually  incurred,  and the  Noteholder  may  take  judgment  for all such
     amounts in  addition  to all other sums due  hereunder.  In addition to the
     foregoing  and any other rights and remedies  provided at law or in equity,
     in the event of an occurrence of an Event of Default,  the Collateral Agent
     and  each  Noteholder  may,  subject  to the  terms  of  the  Intercreditor
     Agreement,   forthwith  exercise  singly,  concurrently,   successively  or
     otherwise any and all rights and remedies available to them by law, equity,
     hereunder or otherwise.

          (c) The Company shall  promptly give notice to the  Collateral  Agent,
     each Noteholder,  and the Senior Lender of the occurrence of any default or
     any event  which  would be or become a default if any  requirement  for the
     giving of notice,  the lapse of time, or both,  or any other  condition has
     been satisfied, accompanied by a statement of a senior financial officer of
     the Company setting forth the details of the occurrence referred to therein
     and stating what action the Company proposes to take with respect thereto.

9. COLLATERAL AGENT.

     9.1 Appointment of Collateral  Agent.  The Purchaser hereby appoints Eureka
I,  L.P.  to act as  Collateral  Agent  and  Eureka  I,  L.P.  agrees  to act as
Collateral  Agent for the  Purchaser  and  Noteholders,  from  time to time,  as
contemplated herein and in the Transaction Documents.  Acceptance of any Note by
a Person shall  constitute  such  appointment  and  acceptance of the Collateral
Agent by such Person.

<PAGE>
                                       36

     9.2 Collateral Agent Authorized to Enter into  Transaction  Documents.  The
Purchaser  authorizes  the  Collateral  Agent  to  enter  into  the  Transaction
Documents on its behalf.

     9.3 Amendment to Transaction Documents. The Required Noteholders shall have
the right to direct the Collateral  Agent,  from time to time, to consent to any
amendment,  modification  or  supplement  to or waiver of any  provision  of any
Transaction  Document  and to release any  Collateral  from any lien or security
interest  held by the  Collateral  Agent;  provided,  however,  that (i) no such
direction shall require the Collateral  Agent to consent to the  modification of
any provision or portion  thereof which (in the sole judgment of the  Collateral
Agent) is intended to benefit the Collateral  Agent,  (ii) the Collateral  Agent
shall have the right to decline to follow any such  direction if the  Collateral
Agent shall determine in good faith that the directed action is not permitted by
the terms of any Transaction  Document or may not lawfully be taken and (iii) no
such direction shall waive or modify any provision of any  Transaction  Document
the waiver or modification  of which requires the consent of the Purchaser.  The
Collateral  Agent  may rely on any such  direction  given to it by the  Required
Noteholders and shall be fully protected in relying thereon,  and shall under no
circumstances  be liable to any  holder  of the Notes or  Warrants  or any other
Person  for taking or  refraining  from  taking  action in  accordance  with any
direction or otherwise in accordance with any of the Transaction Documents.

     9.4 Duties of Collateral Agent.

          (a) The Collateral Agent shall have and may exercise such powers under
     the Transaction  Documents as are specifically  delegated to the Collateral
     Agent by the terms  hereof and  thereof,  together  with such powers as are
     reasonably  incidental  thereto.  The  Collateral  Agent shall not have any
     implied duties or any  obligations to take any action under the Transaction
     Documents  except  any  action  specifically  provided  by the  Transaction
     Documents to be taken by the Collateral Agent.

          (b) Reliance on Instructions of Required  Noteholders.  The Collateral
     Agent  shall be  required  to act or to refrain  from  acting (and shall be
     fully  protected in so acting or  refraining  from acting) upon the written
     instructions  of the Required  Noteholders and such  instructions  shall be
     binding upon all Noteholders;  provided that the Collateral Agent shall not
     be required  to take any action  which the  Collateral  Agent in good faith
     believes  (i)  could  reasonably  be  expected  to  expose  it to  personal
     liability,  (ii) is contrary to applicable  law or (iii) is contrary to the
     terms of the Transaction Documents.

          (c) Action Without Instructions After Event of Default. Absent written
     instructions  from  the  Required  Noteholders  at a time  when an Event of
     Default shall have occurred and be continuing,  the  Collateral  Agent may,
     subject to the terms of the Intercreditor  Agreement,  take, but shall have
     no obligation to take, any and all actions under the Transaction  Documents
     or any of them or otherwise as it shall deem to be in the best interests of
     the  Noteholders;  provided,  however,  that  in  the  absence  of  written

<PAGE>
                                       37

     instructions from the Required Noteholders,  the Collateral Agent shall not
     exercise  remedies  available  to it under any  Transaction  Document  with
     respect to the  Collateral  or any part  thereof  (other  than  preserving,
     collecting and protecting the Collateral and the proceeds thereof).

          (d) Independent Right of Noteholders to Instruct Collateral Agent. The
     right of each  Noteholder to instruct the Collateral  Agent is the separate
     and  individual  property of such  Noteholder  and may be exercised as such
     Noteholder  sees fit in its sole  discretion  and with no  liability to any
     other Noteholder for the exercise or non-exercise thereof. Without limiting
     the foregoing,  neither the Collateral  Agent nor the Required  Noteholders
     shall be liable under any  circumstances  to any other  Noteholder  for any
     action taken or omitted to be taken hereunder by the Collateral  Agent upon
     written instructions from the Required Noteholders.

          (e)  Relationship  Between  Collateral  Agent  and  Noteholders.   The
     relationship  between the Collateral Agent and the Noteholders is and shall
     be only to the extent  explicitly  provided  for  herein  that of agent and
     principal and nothing herein contained shall be construed to constitute the
     Collateral  Agent  a  trustee  for  any  Noteholder  or to  impose  on  the
     Collateral Agent duties and obligations other than those expressly provided
     for herein.  Without limiting the generality of the foregoing,  neither the
     Collateral  Agent,  any of its direct or  indirect  owners,  nor any of the
     directors, officers, employees or agents of any of them shall:

               (i)  be   responsible   to  any   Noteholder  for  any  recitals,
          representations  or  warranties  contained  in, or for the  execution,
          validity, genuineness, perfection, effectiveness or enforceability of,
          the  Transaction  Documents (it being  expressly  understood  that any
          determination  of  the  foregoing  is  the   responsibility   of  each
          Noteholder),

               (ii)  be   responsible   to  any  Noteholder  for  the  validity,
          genuineness,  perfection,  effectiveness,  enforceability,  existence,
          value or enforcement of any security interest in the Collateral,

               (iii) be under any duty to  inquire  into or pass upon any of the
          foregoing  matters,  or to make any inquiry concerning the performance
          by any  Person  of its or  their  obligations  under  any  Transaction
          Document,

               (iv) be deemed to have  knowledge of the  occurrence of a default
          or an Event of Default,  unless it shall have received  written notice
          thereof from either a Noteholder or the Company,

               (v) be  responsible  or  liable  for any  shortage,  discrepancy,
          damage, loss or destruction of any part of the Collateral wherever the
          same may be located  regardless of the cause  thereof  unless the same
          shall happen solely through the gross negligence or willful misconduct
          of the  Collateral  Agent as shall  have  been  determined  in a final
          nonappealable judgment of a court of competent jurisdiction,

               (vi) have any  liability  for any error or  omission or action or
          failure  to act of any  kind  made in the  settlement,  collection  or
          payment in connection with any of the Transaction  Documents or any of
          the Collateral or any instrument  received in payment  therefor or for
          any damage resulting  therefrom other than as a sole result of its own
          gross  negligence or willful  misconduct as shall have been determined
          in  a  final   nonappealable   judgment   of  a  court  of   competent
          jurisdiction,

<PAGE>
                                       38

               (vii) in any  event,  be liable as such for any  action  taken or
          omitted by it, absent,  in each case described in this paragraph,  its
          gross  negligence or willful  misconduct as shall have been determined
          in  a  final   nonappealable   judgment   of  a  court  of   competent
          jurisdiction.

          (f) Standard of Care. The Purchaser  agrees,  and each Noteholder,  by
     acceptance  of any Note,  agrees,  with the  Collateral  Agent that nothing
     contained in any of the  Transaction  Documents  shall be construed to give
     rise to, nor shall any Noteholder have, any claims  whatsoever  against the
     Collateral  Agent on account of any act or  omission  to act in  connection
     with the  exercise  of any  right or remedy of the  Collateral  Agent  with
     respect to the  Transaction  Documents or the  Collateral in the absence of
     gross  negligence or willful  misconduct of the  Collateral  Agent as shall
     have  been  determined  in a final  nonappealable  judgment  of a court  of
     competent jurisdiction.

          (g) Collateral In Possession of Collateral Agent.  Except as otherwise
     provided in the  Intercreditor  Agreement,  the Collateral is to be held by
     the  Collateral  Agent  at  such  office  as  the  Collateral  Agent  shall
     determine. The Collateral Agent's books and records shall at all times show
     that  the  Collateral  is  held  by the  Collateral  Agent  subject  to the
     Intercreditor Agreement and other Transaction Documents.

          (h) Agents, Officers and Employees of Collateral Agent. The Collateral
     Agent may execute any of its duties under the  Transaction  Documents by or
     through its agents, officers or employees. Neither the Collateral Agent nor
     any of its  agents,  officers or  employees  shall be liable for any action
     taken or omitted to be taken by it or them in good  faith,  be  responsible
     for the consequence of any oversight or error of judgment or answerable for
     any loss  unless any of the  foregoing  shall  happen  through its or their
     gross  negligence or willful  misconduct as shall have been determined in a
     final nonappealable judgment of a court of competent jurisdiction.

          (i) Appointment of Co-Agent.  Whenever the Collateral Agent shall deem
     it  necessary  or  prudent  in order  either to  conform  to any law of any
     jurisdiction  in which all or any part of the Collateral  shall be situated
     or to make any claim or bring any suit with  respect to the  Collateral  or
     the Transaction Documents,  or in the event that the Collateral Agent shall
     have been  requested to do so by the Required  Noteholders,  the Collateral
     Agent  shall  execute and deliver a  supplemental  agreement  and all other
     instruments  and  agreements  necessary or proper to constitute one or more
     Persons  approved  by the  Collateral  Agent,  either to act as co-agent or
     co-agents with respect to all or any part of the Collateral or with respect
     to the  Transaction  Documents,  jointly with the  Collateral  Agent or any
     successor or successors,  or to act as separate agent or agents of any such
     property,  in any such  case with such  powers as may be  provided  in such
     supplemental  agreement,  and to vest in such  Persons as such  co-agent or
     separate agent, as the case may be, any property,  title, fight or power of
     the  Collateral  Agent  deemed  necessary  or  advisable  by  the  Required
     Noteholders or the Collateral Agent.

<PAGE>
                                       39

          (j)  Reliance  on Certain  Documents.  The  Collateral  Agent shall be
     entitled to rely on any  communication,  instrument or document believed by
     it to be genuine  and correct and to have been signed or sent by the proper
     Person or Persons,  and with respect to all legal matters shall be entitled
     to rely on the  advice of legal  advisors  selected  by it  concerning  all
     matters relating to the Transaction  Documents and its duties hereunder and
     thereunder and otherwise  shall rely on such experts as it deems  necessary
     or desirable,  and shall not be liable to the Purchaser, the Noteholders or
     any other Person for the consequences of such reliance.

          (k) Collateral Agent May Have Separate  Relationship with the Company.
     The  Collateral  Agent (or any  Affiliate  of the  Collateral  Agent)  may,
     notwithstanding  the fact that it is the Collateral  Agent, act as a lender
     to the  Company  and accept  deposits  from,  lend money to, and  generally
     engage in any kind of  business  with any such party in the same manner and
     to the same  effect as though it were not the  Collateral  Agent;  and such
     business  shall not constitute a breach of any obligation of the Collateral
     Agent to the Noteholders.

     9.5  Indemnification  of Collateral  Agent. The Company (and, to the extent
that the Company fails to do so, each of the Noteholders ratably on the basis of
the  respective  principal  amounts of the Notes  outstanding at the time of the
occurrence  giving  rise to the  below  liabilities,  losses,  etc.),  agrees to
indemnify the Collateral  Agent for any and all  liabilities,  losses,  damages,
penalties,  actions,  judgments,  suits, costs, expenses or disbursements of any
kind and nature  whatsoever  that may be imposed  on,  incurred  by or  asserted
against the Collateral Agent in its capacity as the Collateral Agent, in any way
relating  to or arising out of the  Transaction  Documents  or the  transactions
contemplated  hereby or thereby or the enforcement of any of the terms hereof or
thereof or of any such other  documents,  provided  that neither the Company nor
any Noteholder shall be liable for any of the foregoing to the extent they arise
from gross negligence or willful  misconduct on the part of the Collateral Agent
as shall have been  determined in a final  nonappealable  judgment of a court of
competent  jurisdiction.  This Section 9.5 shall survive the termination of this
Agreement.

     9.6 Release of Collateral. Without further approval of the Noteholders, the
Collateral  Agent shall release its Liens (i) on any Collateral  that is sold or
otherwise  transferred  or  disposed of by the  Company or any  Subsidiary  in a
transaction that is not prohibited by this Agreement, and (ii) on all Collateral
if at any time Senior Indebtedness is outstanding and wholly unsecured.

10. FEES. The Company will pay, and hold the Purchaser,  the Noteholders and the
Collateral  Agent  harmless  against all  liability  for the payment of, (a) all
reasonable out-of-pocket costs and expenses (including reasonable legal fees and
expenses)  actually incurred in connection with the enforcement of the rights of
the Purchaser, the Noteholders or the Collateral Agent under this Agreement, the
Notes, the Warrants and the other Transaction Documents;  (b) the reasonable and
actual fees and  disbursements of Drinker Biddle & Reath LLP, special counsel to
the  Purchaser,  for its services in  connection  with the  preparation  of this
Agreement and the other Transaction Documents, which fees and disbursements will
be paid by the  Company at the  Closing;  and (c) all  reasonable  out-of-pocket
costs and  expenses  (including  reasonable  legal fees and  expenses)  actually
incurred in connection  with any  amendment or waiver of any of the  Transaction
Documents, or any provision of any thereof.

<PAGE>
                                       40

11.  SURVIVAL  OF   REPRESENTATIONS,   WARRANTIES  AND   AGREEMENTS,   ETC.  All
representations  and  warranties   hereunder  shall  survive  the  Closing.  All
statements  contained in any  certificate or other  instrument  delivered by the
Company  or by an  officer  on behalf of the  Company  through  the date  hereof
pursuant to this Agreement or in connection with the  transactions  contemplated
by this Agreement shall constitute representations and warranties by the Company
under this  Agreement.  All  agreements  and  covenants  contained  herein shall
survive the Closing.

12. INDEMNIFICATION. The Company shall indemnify, defend and hold the Purchaser,
the Noteholders and the Collateral Agent harmless against all liability, loss or
damage,  together with all reasonable,  out-of-pocket costs and expenses related
thereto  actually  incurred  (including legal and accounting fees and expenses),
arising out of, or in any way related to or by reason of, this  Agreement or any
other  Transaction  Document,  or any  transaction  actually  or  proposed to be
financed in whole or in part or directly or indirectly  with the proceeds of the
Notes and Warrants.

     Without  limiting  the  generality  of the  foregoing,  the Company  hereby
indemnifies  and agrees to defend and hold harmless each of the  Purchaser,  the
Noteholders  and the  Collateral  Agent,  from and  against  any and all claims,
actions, causes of action,  liabilities,  penalties,  fines, damages, judgments,
losses, suits, expenses,  legal or administrative  proceedings,  interest, costs
and expenses (including court costs and reasonable attorneys',  consultants' and
experts' fees) arising out of or in any way relating to: (i) the use,  handling,
management,    production,    treatment,    processing,    storage,    transfer,
transportation,  disposal,  release  or  threat  of  release  of  any  Hazardous
Substance by or on behalf of, the Company or any of its  Subsidiaries;  (ii) the
presence  of  Hazardous  Substances  on,  about,  beneath  or  arising  from the
Premises;  (iii) the failure of the Company or its  Subsidiaries or any occupant
of any Premises to comply with the Environmental Laws; (iv) the Company's breach
of any of the  representations,  warranties and covenants contained herein or in
any Transaction  Document;  (v) actions,  proceedings or  investigations  by any
governmental authority or other Person; or (vi) the imposition or recording of a
lien  against  any  Premises in  connection  with any release at, on or from any
Premises or any  activities  undertaken  on or  occurring  at any  Premises,  or
arising from such Premises or pursuant to any Environmental Law.

     Notwithstanding  anything to the contrary in any Transaction Document,  the
indemnities made by the Company or any Subsidiary of the Company shall not apply
to matters arising resulting from the gross negligence of willful  misconduct of
an indemnified party.

13.  REMEDIES.  In case any Event of Default shall occur and be continuing,  the
Required Noteholders  (directly or through the Collateral Agent) may, subject to
the provisions of the Intercreditor Agreement, protect and enforce the rights of
the Noteholders either by suit in equity and/or by action at law, including, but
not limited  to, an action for damages as a result of any such breach  and/or an
action for specific  performance of any such covenant or agreement  contained in
this Agreement.  The Collateral Agent and any Noteholder acting pursuant to this
Section shall be  indemnified  against all liability,  loss or damage,  together
with all  reasonable  costs  and  expenses  related  thereto  actually  incurred
(including without limitation, legal and accounting fees and expenses).

<PAGE>
                                       41

14.  PARTIES IN INTEREST.  This  Agreement may not be transferred or assigned by
the Company without the consent of the Required  Noteholders,  and it shall bind
and inure to the benefit of the Company,  the Noteholders  and their  respective
successors  and  permitted  assigns,  provided  that such assignee or transferee
shall  execute  a  counterpart  of  the  Intercreditor  Agreement  or a  joinder
agreement thereto, thereby agreeing to be bound thereby.

15. ENTIRE AGREEMENT. This Agreement and the other Transaction Documents contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous  arrangements or understandings with
respect thereto.

16. NOTICES. All notices, requests,  consents and other communications hereunder
to any  party  shall be  deemed  to be  sufficient  if  contained  in a  written
instrument  delivered  in person or duly sent by  overnight  courier,  facsimile
transmission or registered or certified mail, return receipt requested,  postage
prepaid,  addressed  to such party at the  address set forth below or such other
address as may  hereafter be designated in writing by the addressee to the other
parties:

        (a)               If to the Company, to:

                           Medical Technology Systems, Inc.
                           12920 Automobile Boulevard
                           Clearwater, FL  33729
                           Attention:  Todd E. Siegel, President
                                       and Chief Executive Officer
                           Facsimile:   727-540-0547

                           With a copy to:

                           Kilpatrick Stockton LLP
                           301 College Street, Suite 3500
                           Charlotte, NC  28202-6001
                           Attention:  Francis C. Pray, Jr., Esq.
                           Facsimile:  704-371-8306

        (b)                If to the Purchaser or the Collateral Agent:

                           Eureka I, L.P.
                           770 Township Line, Suite 150
                           Yardley, Pennsylvania 19067
                           Attention:  Christine C. Jones
                           Facsimile:  215-564-5402

        (c)                If to any Noteholder, at its address shown in the
                           register maintained by the Company pursuant to
                           Section 8.4.

<PAGE>
                                       42

All such notices and communications shall be deemed to have been received in the
case of (a) facsimile transmission, on the date sent, (b) personal delivery, on
the date of such delivery, (c) overnight courier, on the first business day
following delivery to such courier and (d) mailing, on the fifth day after the
posting thereof.

17. CHANGES.  Subject to the terms of the Intercreditor Agreement, the terms and
provisions  of  this  Agreement  may  be  modified  or  amended,  or  any of the
provisions  hereof  waived,  temporarily or  permanently,  only with the written
consent of the  Company  and the  Required  Noteholders;  provided  that no such
amendment or waiver shall,  unless signed by each Noteholder  affected  thereby,
(i)  reduce  the  principal  of or rate of  interest  on any  Note  held by such
Noteholder  or (ii)  postpone the maturity  date fixed for the  principal on any
Note held by such  Noteholder;  provided  further  no  change  in any  provision
relating to the  Collateral  Agent  shall be  effective  without the  Collateral
Agent's  written  consent.  No failure or delay on the part of any Noteholder to
insist  on strict  performance  of the  Company's  obligations  hereunder  or to
exercise any remedy shall constitute a waiver of the Company's rights in that or
any other instance.  Any waiver of any default or any instance of non-compliance
shall be limited to its express  terms and shall not extend to any other default
or instance of non-compliance.

18. COUNTERPARTS.  This Agreement may be executed in any number of counterparts,
and each such counterpart  hereof shall be deemed to be an original  instrument,
but all such counterparts  together shall constitute but one agreement.  A faxed
signature page shall be the functional  equivalent of an original signed copy of
this Agreement for all purposes.

19. HEADINGS.  The headings of the sections of this Agreement have been inserted
for  convenience  of reference only and shall not be deemed to be a part of this
Agreement.

20.  GOVERNING  LAW.  This  Agreement  shall be  governed  by and  construed  in
accordance with the laws of the Commonwealth of Pennsylvania,  without regard to
conflict of laws.

21.  SEVERABILITY.  Any  provision  of  this  Agreement  that is  prohibited  or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render  unenforceable such provision in any
other jurisdiction.

22.  JURISDICTION.  The parties hereto agree that any suit, action or proceeding
instituted against one or more of them with respect to this Agreement (including
any exhibits hereto) may be brought in any federal or state court located in the
Commonwealth of Pennsylvania.  The parties hereto, by the execution and delivery
of this Agreement,  irrevocably  waive any objection or any right of immunity on
the ground of venue,  the  convenience of the forum or the  jurisdiction of such
courts, or from the execution of judgments resulting therefrom,  and the parties
hereto irrevocably accept and submit to the jurisdiction of the aforesaid courts
in any suit,  action or  proceeding  and  consent  to the  service of process by
certified mail at the address set forth in Section 16 hereof.

<PAGE>
                                       43


23. WAIVER OF JURY TRIAL.  Each of the parties  hereto hereby waives any and all
right to trial by jury in any legal proceeding arising out of or relating to the
Transaction Documents or the Transaction Documents contemplated thereby.

<PAGE>
                                     -S-1-

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed on their behalf.

                         MEDICAL TECHNOLOGY SYSTEMS, INC.

                         By: Todd E. Siegel
                             ____________________________
                             Name: Todd E. Siegel
                             Title:  President, CEO


                         EUREKA I, L.P., individually and as Collateral Agent

                         By: EUREKA MANAGEMENT, L.P.,
                             its sole general partner

                         By: BERWIND CAPITAL PARTNERS, LLC,
                             its sole general partner

                         By: /s/ Christine C. Jones
                             _______________________
                             Christine C. Jones,
                             President



<PAGE>

                                                                    EXHIBIT A

                                  FORM OF NOTE

THIS NOTE IS SUBJECT TO THE TERMS OF A SUBORDINATION  AGREEMENT DATED AS OF JUNE
26,  2002 IN  FAVOR  OF  LASALLE  BUSINESS  CREDIT,  INC.,  WHICH  SUBORDINATION
AGREEMENT IS  INCORPORATED  HEREIN BY  REFERENCE.  NOTWITHSTANDING  ANY CONTRARY
STATEMENT CONTAINED HEREIN, NO PAYMENT ON ACCOUNT OF THE PRINCIPAL,  INTEREST OR
OTHER OBLIGATIONS ARISING HEREUNDER,  AND NO RIGHTS GRANTED HEREIN, SHALL BECOME
DUE OR BE  PAID OR  EXERCISED  EXCEPT  IN  ACCORDANCE  WITH  THE  TERMS  OF SUCH
SUBORDINATION AGREEMENT.

THE SECURITIES  REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"),  OR THE  SECURITIES  LAWS OF ANY STATE
AND MAY NOT BE  OFFERED,  SOLD,  PLEDGED OR  OTHERWISE  TRANSFERRED  UNLESS SUCH
OFFER,  SALE,  PLEDGE OR TRANSFER IS REGISTERED UNDER THE 1933 ACT OR APPLICABLE
STATE  SECURITIES  LAWS OR IS EXEMPT FROM SUCH  REGISTRATION.  TRANSFER OF THESE
SECURITIES IS ALSO SUBJECT TO CERTAIN RESTRICTIONS UNDER THE SECURITIES PURCHASE
AGREEMENT DATED JUNE 26, 2002 BETWEEN THE COMPANY AND EUREKA I, L.P.

                        Medical Technology Systems, Inc.

                          14% SENIOR SUBORDINATED NOTE

Note No. _____                                                      $__________


     FOR  VALUE  RECEIVED,   Medical  Technology   Systems,   Inc.,  a  Delaware
corporation  (herein called the "Company"),  hereby promises to pay to Eureka I,
L.P.,  or  its  registered   assigns  (the  "Holder"),   the  principal  sum  of
____________  ($__________),  and to pay interest on the unpaid principal amount
hereof at the rate of fourteen percent (14%) per annum,  calculated on the basis
of a 360-day year and the actual  number of days  elapsed,  until the  principal
hereof is paid. The principal of and interest on this Note shall be paid at such
times as are specified herein.  Upon surrender hereof,  payment of the principal
of and interest on this Note,  including any prepayment fee if applicable,  will
be made by wire  transfer of  immediately  available  funds to the bank  account
specified by the Holder.

     This Note is issued pursuant to a Securities  Purchase Agreement dated June
26,  2002 (the  "Purchase  Agreement")  among the  Company,  Eureka I,  L.P.,  a
Delaware limited  partnership,  and Eureka I, L.P., as Collateral  Agent, and is
secured by the Security  Documents,  encumbering  property identified therein as
more  particularly  described  in the  Security  Documents.  The term  "Security
Documents"  has the meaning  specified  in the  Purchase  Agreement.  All of the
terms,  conditions  and  provisions  of the Purchase  Agreement and the Security

<PAGE>
                                       2


Documents  (including the definitions set forth therein) are incorporated herein
by  reference  and are hereby made a part  hereof,  and any breach or  violation
thereof  shall  constitute  a breach or  violation  of this  Note.  This Note is
subject to the terms of a Subordination  Agreement referred to herein. This Note
is subject to the following additional provisions:

     1. Repayment. The principal of this Note shall be paid on June 26, 2007.

     2.  Mandatory and Optional  Prepayment.  The rights and  obligations of the
Company to prepay this Note are set forth in the Purchase Agreement.

     3. Interest. Interest at the rate stated above shall be payable on the last
day of each calendar  month,  beginning  with the first such date to occur after
the date of this Note.

     4.  Indemnification.  The Company and its subsidiaries shall indemnify,  to
the fullest  extent  permitted  by law, the Holder  against all losses,  claims,
damages,  liabilities and expenses (including reasonable attorneys' fees) caused
by, resulting from, arising out of or related to (a) any amendments,  waivers or
consents pursuant to the provisions hereof, (b) the enforcement of this Note, or
the  collection  of amounts due  hereunder or the proof or  allowability  of any
claim arising under this Note, whether in bankruptcy or receivership proceedings
or otherwise,  and (c) in any workout,  restructuring  or in connection with the
protection,  preservation, exercise or enforcement of any of the terms hereof or
of any rights  hereunder or in connection  with any  foreclosure,  collection or
bankruptcy proceedings.

     5.  Subordination.  The  indebtedness  evidenced  by this Note is expressly
subordinated  and junior in right of payment to the prior payment in full of all
Senior Debt (as defined  below),  to the extent and in the manner  provided in a
Subordination   Agreement  dated  as  of  June  26,  2002  (the   "Subordination
Agreement"), among the Company, MTS Packaging Systems, Inc., Eureka I, L.P., and
LaSalle Business Credit,  Inc., and the Holder, by accepting the same, agrees to
and shall be bound by such subordination and by the Subordination Agreement. The
term "Senior Debt" has the meaning specified in the Subordination Agreement.

     6. Amendment and Waiver.  The rights and obligations of the Company and the
rights of the Holder of the Note may be amended or  modified  as provided in the
Purchase Agreement. Defaults and their consequences may be waived as provided in
the  Purchase  Agreement.  Any such consent or waiver  shall be  conclusive  and
binding  upon such  Holder and upon all  future  Holders of this Note and of any
Note issued upon the  registration of transfer hereof or in exchange  herefor or
in lieu  hereof,  whether or not notation of such consent or waiver is made upon
this Note.

     7.  Transfer.  Subject to  certain  limitations  set forth in the  Purchase
Agreement,  the transfer of this Note may be transferred at the principal office
of the Company by surrender thereof for cancellation, endorsed or accompanied by
a written instrument of transfer, duly executed by the registered holder thereof
or its attorney  duly  authorized  in writing,  and  thereupon the Company shall
issue and deliver, in the name of the transferee or transferees, a new note, for
a like aggregate  principal  amount,  dated as of the date to which interest has
been paid on the Note so transferred.


<PAGE>
                                       3

     8.  Exchange.  Subject to  certain  limitations  set forth in the  Purchase
Agreement,  this Note is exchangeable at any time upon the request of the Holder
and upon surrender of this Note for such purpose at the principal offices of the
Company,  the Company will execute and register in the Holder's name in exchange
therefor new notes, in such denomination or denominations (in minimum amounts of
$100,000  and  in  multiples  of  $10,000)  as may be  requested,  an  aggregate
principal  amount  equal  to the  unpaid  principal  amount  of  this  Note  and
substantially in the form thereof,  with appropriate  insertions and variations,
and dated,  and bearing  interest from, the date to which interest has been paid
on this Note  unless no interest  has been paid on this Note,  in which case the
new notes shall be dated the date of this Note.

     9. Default Rate. Upon the occurrence and during the continuance of an Event
of Default (as defined in Section 8.5 of the Purchase Agreement), including, but
not limited to, after maturity or after  judgment,  the Company hereby agrees to
pay to the Holder interest on the outstanding principal balance of the Note and,
to the extent  permitted by law, overdue interest thereon at the rate of 16% per
annum.

     10. Certain  Waivers.  The Company hereby waives  presentment  for payment,
protest and demand, and notice of protest, demand and/or dishonor and nonpayment
of this Note,  notice of any  default  under this Note,  except as  specifically
provided herein, and all other notices or demands otherwise required by law that
the undersigned may lawfully waive. The Company expressly agrees that this Note,
or any payment hereunder,  may be extended from time to time, without in any way
affecting the liability of the Company.

     11. Governing Law;  Jurisdiction;  Waiver of Jury Trial. This Note shall be
governed by and construed in  accordance  with the laws of the  Commonwealth  of
Pennsylvania,  without  regard to conflict  of laws.  The Company and the Holder
hereby  agree  that any  action or  proceeding  arising  out of this Note may be
commenced in state or federal court within the Commonwealth of Pennsylvania. The
Company  and the Holder  waive  personal  service  of  process  and agree that a
summons and complaint commencing an action or proceeding in any such court shall
be  properly  served  and  shall  confer  personal  jurisdiction  if  served  by
registered or certified mail in accordance with the notice  provisions set forth
herein.  The Company and the Holder  hereby  waive any and all right to trial by
jury in any legal proceeding arising out of or relating to this Note.

     12.  Severability.  In the  event  that for any  reason  one or more of the
provisions of this Note or their application to any person or circumstance shall
be held to be invalid, illegal or unenforceable in any respect or to any extent,
such provisions shall  nevertheless  remain valid,  legal and enforceable in all
such other respects and to such extent as may be permissible.  In addition,  any
such  invalidity,  illegality  or  unenforceability  shall not  affect any other
provisions  of this Note,  but this Note shall be construed as if such  invalid,
illegal or unenforceable provision had never been contained herein.

     13.  Notice.  All  notices,  requests,  consents  and other  communications
hereunder  to any party  shall be  deemed to be  sufficient  if  contained  in a
written  instrument  delivered  in  person or duly  sent by  overnight  courier,
facsimile   transmission  or  registered  or  certified  mail,   return  receipt
requested,  postage  prepaid,  addressed  to such party at the address set forth
below or such other  address as may  hereafter be  designated  in writing by the
addressee to the other parties:

<PAGE>
                                       4

     Company:              Medical Technology Systems, Inc.
                           12920 Automobile Boulevard
                           Clearwater, FL 33729
                           Attention:  Todd E. Siegal, President
                                       and Chief Executive Officer
                           Fax: 727-540-0547

<PAGE>
                                        5

     With copies to:       Kilpatrick Stockton LLP
                           301 S. College Street, Suite 3500
                           Charlotte, NC 28202-6001
                           Attention:  Francis C. Pray, Jr., Esq.
                           Fax: 704-371-8306

     Holder:               At the address specified in the Purchase Agreement,
                           or otherwise in writing by the Holder

All such notices and communications shall be deemed to have been received in the
case of (a) facsimile transmission,  on the date sent, (b) personal delivery, on
the date of such  delivery,  (c) overnight  courier,  on the first  business day
following  delivery to such courier and (d) mailing,  on the fifth day after the
posting thereof.

     Prior to due  presentment of this Note for  registration  of transfer,  the
Company  and any agent of the  Company  may treat the  Person in whose name this
Note is  registered  as the owner hereof for all  purposes,  whether or not this
Note be overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.


<PAGE>

                                      S-1



     IN WITNESS WHEREOF, the Company has caused this Note to be duly executed.

                                  MEDICAL TECHNOLOGY SYSTEMS, INC.

                                  By: __________________________________
                                      Name:
                                      Title:

Attest:_________________
         Secretary

Dated:


<PAGE>

                                                                     EXHIBIT B

                      FORM OF REGISTRATION RIGHTS AGREEMENT

     REGISTRATION  RIGHTS  AGREEMENT  dated June  ____,  2002,  between  MEDICAL
TECHNOLOGY SYSTEMS, INC., a Delaware corporation (the "Company"),  and EUREKA I,
L.P., a Delaware limited partnership ("Purchaser").

     Pursuant  to a  Securities  Purchase  Agreement  dated the date hereof (the
"Purchase  Agreement"),  Purchaser  has agreed to  purchase,  subject to certain
conditions,  the Notes,  the  Warrants  and  Preferred  Shares  (as  hereinafter
defined). It is a condition to the Purchaser's  obligation to complete the First
Closing  (as defined in the  Purchase  Agreement)  that the Company  execute and
deliver this Agreement.

     NOW,  THEREFORE,  in consideration of the mutual promises  contained herein
and in the Purchase  Agreement,  and intending to be legally bound,  the parties
agree as follows.

     1. Certain Definitions. As used in this Agreement, the following terms have
the following respective meanings:


     "Commission"  means the  Securities and Exchange  Commission,  or any other
federal agency at the time administering the Securities Act.

     "Common  Stock" means the Common Stock,  $0.01 par value per share,  of the
Company.

     "Conversion  Shares" mean shares of Common Stock issued upon  conversion of
the Preferred Shares.

     "Exchange Act" means the Securities  Exchange Act of 1934, as amended,  and
the rules and regulations of the Commission promulgated  thereunder,  all as the
same shall be in effect from time to time.

     "Intercreditor  Agreement" means the  Subordination  Agreement of even date
herewith among LaSalle Business Credit, Inc., the Purchaser, the Company and MTS
Packaging Systems, Inc., as in effect from time to time.

     "Permitted Liens" has the meaning set forth in the Purchase Agreement.

     "Preferred  Shares"  means the shares of Series A  Preferred  Stock  issued
under the Series A Stock Purchase Agreement at the First Closing.

     "Registration Expenses" means the expenses so described in Section 6.

<PAGE>
                                       2

     "Restricted  Stock" means the Warrant Shares,  Conversion  Shares,  and any
additional  shares of Common Stock  issued or delivered  pursuant to Section 11,
excluding  Warrant  Shares  and  Conversion  Shares  which  shall  have (a) been
registered  under the  Securities  Act  pursuant  to an  effective  registration
statement filed  thereunder and disposed of in accordance with the  registration
statement  covering  them,  or (b) been publicly sold pursuant to Rule 144 under
the Securities Act. When this Agreement  refers to a number or percentage of the
Restricted  Stock the number or  percentage  shall be  calculated as a number or
percentage of Warrant  Shares and Conversion  Shares on the assumption  that all
Warrants  and  Preferred  Shares  are  exercised  and  all  Warrant  Shares  and
Conversion Shares are issued.

     "Securities  Act" means the  Securities  Act of 1933,  as amended,  and the
rules and regulations of the Commission promulgated thereunder,  all as the same
shall be in effect from time to time.

     "Selling Expenses" means the expenses so described in Section 6.

     "Series A Preferred  Stock"  means the Series A  Convertible  Participating
Preferred Stock, par value $0.0001 per share, of the Company.

     "Warrant Agreement" means the Warrant Agreement dated the date hereof among
the Purchaser and the Company,  executed and delivered  pursuant to the Purchase
Agreement, as the same may be amended,  modified,  supplemented or restated from
time to time pursuant to the terms thereof.

     "Warrants"  means the warrants to purchase  566,517  shares of Common Stock
issued pursuant to the Warrant Agreement, as adjusted from time to time pursuant
to the Warrant Agreement.

     "Warrant  Shares"  means the shares of Common Stock issued upon exercise of
the Warrants.

     2. Required Registration.

     (a) At any time,  one or more holders of  Restricted  Stock may request the
Company to register under the Securities Act all or any portion of the shares of
Restricted  Stock  held by such  requesting  holder or  holders  for sale in the
manner specified in such notice,  but only if the request is made by the holders
of  Restricted  Stock  constituting  at least  50% of the  number  of  shares of
Restricted Stock outstanding at the time the request is made.

     Notwithstanding  anything to the contrary  contained herein, no request may
be made  under  this  Section  within  180 days  after the  effective  date of a
registration   statement  filed  by  the  Company  covering  a  firm  commitment
underwritten public offering in which the holders of Restricted Stock shall have
been  entitled  to join  pursuant  to  Section  3 and in  which  all  shares  of
Restricted Stock as to which  registration  shall have been requested shall have
been effectively registered and sold.

<PAGE>
                                       3

     (b) Following  receipt of any notice under this Section,  the Company shall
immediately notify all holders of Restricted Stock from whom notice has not been
received and shall use  commercially  reasonable  efforts to register  under the
Securities  Act, for public sale in  accordance  with the method of  disposition
specified  in such  notice  from  requesting  holders,  the  number of shares of
Restricted  Stock  specified in such notice (and in all notices  received by the
Company from other holders within 15 days after the giving of such notice by the
Company).  If  such  method  of  disposition  shall  be an  underwritten  public
offering, the holders of a majority of the shares of Restricted Stock to be sold
in such  offering may  designate  the  managing  underwriter  of such  offering,
subject to the approval of the Company, which approval shall not be unreasonably
withheld or delayed. The Company shall be obligated to register Restricted Stock
pursuant to this Section on two occasions  only,  but such  obligation  shall be
deemed  satisfied  only when a  registration  statement  covering  all shares of
Restricted  Stock  specified  in  notices  received  as  aforesaid,  for sale in
accordance with the method of disposition  specified by the requesting  holders,
shall  have  become  effective  and,  if such  method of  disposition  is a firm
commitment  underwritten  public offering,  all such shares shall have been sold
pursuant thereto.

     (c) No person other than the Company,  its  officers,  directors,  or other
stockholders  entitled to registration  rights under the circumstances  shall be
entitled to include any securities in any registration statement requested under
this Section  without the consent of the holders of a majority of the Restricted
Stock  included  in the  registration  statement,  which  consent  shall  not be
unreasonably   withheld.  The  Company,  its  officers,   directors,   or  other
stockholders  entitled to registration  rights under the circumstances  shall be
entitled to include in any registration  statement  referred to in this Section,
for  sale  in  accordance  with  the  method  of  disposition  specified  by the
requesting  holders,  shares of Common Stock to be sold by the Company or by its
officers, directors, or other stockholders entitled to registration rights under
the  circumstances  for its or their own account,  except to the extent that, in
the opinion of the managing  underwriter (if such method of disposition shall be
an underwritten  public  offering),  confirmed in writing to the Company and the
holders  requesting  inclusion of Restricted  Stock in the  registration and the
underwriting,  such  inclusion  would  adversely  affect  the  marketing  of the
Restricted Stock to be sold. In such event, the number of shares of Common Stock
to be registered on behalf of the Company or its officers,  directors, and other
holders entitled to registration  rights under the circumstances,  if any, shall
be computed as set forth in subsection (d). Except for  registration  statements
on Form S-4, S-8 or any  successor  thereto,  the Company will not file with the
Commission  any other  registration  statement with respect to its Common Stock,
whether  for its own  account  or that of other  stockholders,  from the date of
receipt of a notice from requesting holders pursuant to this Section 2 until the
completion  of the  period  of  distribution  of the  registration  contemplated
thereby.

     (d) Whenever a  registration  requested  pursuant to this Section is for an
underwritten  public  offering,  only  shares  of Common  Stock  which are to be
included   in  the   underwriting   may  be   included   in  the   registration.
Notwithstanding  the  provisions  of  subsections  (b) and (c), if the  managing
underwriter  determines that marketing factors require a limitation of the total
number of shares of Common Stock to be underwritten or a limitation of the total
number of shares of Common  Stock to be sold by the  Company or its  officers or
directors  or other  stockholders  entitled  to  registration  rights  under the
circumstances,  then the number of shares to be included in the registration and
the underwriting shall first be allocated among all holders who indicated to the

<PAGE>
                                       4

     Company their decision to distribute any of their  Restricted Stock through
such underwriting,  in proportion,  as nearly as practicable,  to the respective
number  of  shares  of  Restricted   Stock  requested  to  be  included  in  the
registration and the underwriting by such holders,  then the remainder,  if any,
to the Company or its officers or directors  or other  stockholders  entitled to
registration  rights  under  the  circumstances,  in  proportion,  as  nearly as
practicable,  to the respective number of shares of Common Stock requested to be
included in the registration and the underwriting by the Company or its officers
or directors or other  stockholders  entitled to  registration  rights under the
circumstances. No stock excluded from the underwriting by reason of the managing
underwriter's  marketing  limitation shall be included in such registration.  If
the  Company or its  officers or  directors  or other  stockholders  entitled to
registration rights under the circumstances,  as the case may be, determines not
to  participate  in any such  underwriting,  it, he or she may elect to withdraw
therefrom  by written  notice,  within five (5) days of notice to the Company of
the managing  underwriter's  marketing limitation,  to the holders of Restricted
Stock and the  underwriter.  The securities so withdrawn from such  underwriting
shall also be withdrawn from such registration.

     3. Incidental Registration.

     (a) If the  Company,  at any time  (other  than  pursuant  to  Section 2 or
Section 4) proposes to register any of its  securities  under the Securities Act
for sale to the public,  whether for its own account or for the account of other
security  holders or both  (except with respect to  registration  statements  on
Forms S-4, S-8 or their respective  successors or another form not available for
registering the Restricted Stock for sale to the public), each such time it will
give  written  notice to all  holders  of  outstanding  Restricted  Stock of its
intention so to do. Upon the written request of any such holder, received by the
Company  within 15 days after the giving of any such notice by the  Company,  to
register any of its  Restricted  Stock (which  request  shall state the intended
method of disposition  thereof),  the Company will cause the Restricted Stock as
to which  registration  shall  have  been so  requested  to be  included  in the
securities to be covered by the registration  statement  proposed to be filed by
the Company, all to the extent requisite to permit the sale or other disposition
by the holder (in accordance with its written  request) of such Restricted Stock
so registered.

     (b) In the event that any  registration  pursuant to this Section shall be,
in whole or in part,  an  underwritten  public  offering of Common Stock for the
account of the Company and the  managing  underwriter  shall be of the  opinion,
confirmed  in writing to the  Company and the holders  requesting  inclusion  of
Restricted Stock in the registration and the underwriting, that the inclusion in
such  offering  of all shares of Common  Stock  proposed  to be  included by the
Company,  the  holders of  Restricted  Stock and other  holders of Common  Stock
(whether or not pursuant to  registration  rights)  would  adversely  affect the
marketing of the securities to be sold by the Company  therein,  then the number
of shares of Common  Stock to be included in the  registration  and the offering
shall be reduced as follows:

     (1)  first,  the number of shares  proposed to be included by persons other
          than the Company and the holders of Restricted  Stock shall be reduced
          in  accordance  with the  agreements,  if any,  that  entitle  them to
          include shares in the registration, and otherwise as determined by the
          Company, and

<PAGE>
                                       5

     (2)  second,  the number of shares requested to be included and the holders
          of  Restricted  Stock shall be reduced pro rata among all such holders
          in  accordance  with the number of shares  requested to be included by
          each.

No  stock  so  excluded  from  the   underwriting   shall  be  included  in  the
registration.

     (c)  Notwithstanding the foregoing  provisions,  the Company shall have the
right to withdraw any registration  statement referred to in this Section at any
time without thereby incurring any liability to the holders of Restricted Stock.

     (d) The Company shall have the right to select the underwriters in the case
of any registration pursuant to this Section 3 in its sole discretion.

     4.  Registration  on Form S-3.  If at any time (i) a holder or  holders  of
Restricted Stock request that the Company file a registration  statement on Form
S-3 or any successor  thereto for a public offering of all or any portion of the
shares of Restricted Stock held by such requesting  holder or holders,  and (ii)
the Company is a registrant entitled to use Form S-3 or any successor thereto to
register such shares, then the Company shall use commercially reasonable efforts
to register under the Securities Act on Form S-3 or any successor  thereto,  for
public  sale in  accordance  with the method of  disposition  specified  in such
notice,  the number of shares of  Restricted  Stock  specified  in such  notice.
Whenever the Company is required by this Section to use commercially  reasonable
efforts to effect the registration of Restricted  Stock,  each of the procedures
and requirements of Section 2 (including but not limited to the requirement that
the Company notify all holders of Restricted Stock from whom notice has not been
received and provide them with the  opportunity  to participate in the offering)
shall apply to such  registration,  except that there shall be no  limitation on
the number of  registrations  on Form S-3 which may be  requested  and  obtained
under  this  Section,  and the  percentage  requirement  contained  in the first
sentence of Section 2(a) shall not apply to any  registration  on Form S-3 which
may be requested and obtained  under this Section.  Notwithstanding  anything to
the  contrary  contained  herein,  no request may be made under this Section (a)
within 180 days after the effective  date of a registration  statement  filed by
the Company covering a firm commitment underwritten public offering in which the
holders of Restricted Stock shall have been entitled to join pursuant to Section
3 and in which all shares of  Restricted  Stock as to which  registration  shall
have  been  requested  shall  have  been  registered  and  sold,  or (b) for the
registration of less than all the then  outstanding  shares of Restricted  Stock
unless the request covers shares of Restricted  Stock having an aggregate market
value of $2,000,000  or more,  based on the closing price of the Common Stock on
the trading day before the request is made.

     5. Registration Procedures.

     (a) If and whenever the Company is required by the provisions of Section 2,
3 or 4 to use commercially  reasonable efforts to effect the registration of any
shares of  Restricted  Stock under the  Securities  Act,  the Company  will,  as
expeditiously as possible:

     (1)  prepare and file with the Commission a registration  statement (which,
          in the case of an underwritten  public offering pursuant to Section 2,
          shall  be  on  Form  S-1  or  other  form  of  general   applicability

<PAGE>
                                       6

          satisfactory to the managing underwriter selected as therein provided)
          with  respect  to  such  securities  and use  commercially  reasonable
          efforts  to cause  such  registration  statement  to become and remain
          effective  for the  period of the  distribution  contemplated  thereby
          (determined as hereinafter provided);

     (2)  prepare and file with the Commission  such  amendments and supplements
          to such  registration  statement and the prospectus used in connection
          therewith  as may be  necessary  to keep such  registration  statement
          effective  for the period  specified in paragraph  (1) and comply with
          the provisions of the  Securities Act with respect to the  disposition
          of all  Restricted  Stock  covered by such  registration  statement in
          accordance with the sellers'  intended method of disposition set forth
          in such registration statement for such period;

     (3)  furnish to each  seller of  Restricted  Stock and to each  underwriter
          such number of copies of the registration statement and the prospectus
          included  therein  (including  each  preliminary  prospectus)  as such
          persons  reasonably may request in order to facilitate the public sale
          or  other   disposition  of  the  Restricted  Stock  covered  by  such
          registration statement;

     (4)  use  commercially  reasonable  efforts  to  register  or  qualify  the
          Restricted  Stock  covered by such  registration  statement  under the
          securities or "blue sky" laws of such  jurisdictions as the sellers of
          Restricted  Stock or, in the case of an underwritten  public offering,
          the managing  underwriter  reasonably  shall request,  but the Company
          shall not for any such purpose be required (A) to qualify generally to
          transact business as a foreign  corporation in any jurisdiction  where
          it is not so qualified;  (B) to consent to general  service of process
          in any such jurisdiction; or (C) to subject itself to any material tax
          in any such jurisdiction where it is not then so subject.

     (5)  use  commercially  reasonable  efforts  to list the  Restricted  Stock
          covered by such registration  statement on any securities  exchange or
          inter-dealer quotation system on which the Common Stock of the Company
          is then listed;

     (6)  immediately   notify  each  seller  of   Restricted   Stock  and  each
          underwriter  under  such  registration  statement,  at any time when a
          prospectus  relating  thereto is  required to be  delivered  under the
          Securities Act, of the happening of any event of which the Company has
          knowledge  as a  result  of which  the  prospectus  contained  in such
          registration   statement,  as  then  in  effect,  includes  an  untrue
          statement  of a  material  fact or  omits  to  state a  material  fact
          required  to be stated  therein or  necessary  to make the  statements
          therein not misleading in light of the circumstances then existing;

     (7)  if the offering is underwritten  and any seller of Restricted Stock or
          any underwriter so requests,  use commercially  reasonable  efforts to
          furnish  on  the  date  that  Restricted  Stock  is  delivered  to the
          underwriters  for sale pursuant to such  registration:  (i) an opinion
          dated such date of counsel  representing  the Company for the purposes
          of  such  registration,  addressed  to the  underwriters  and to  such
          seller, in form reasonably satisfactory to them, covering such matters

<PAGE>
                                       7

          of the type  customarily  covered by opinions as the  underwriters  or
          such seller may reasonably request;  and (ii) a "comfort letter" dated
          such date from the  independent  public  accountants  retained  by the
          Company,  addressed  to  the  underwriters  and  to  such  seller,  in
          customary  form and  covering  such  matters  of the type  customarily
          covered  by  comfort  letters as the  underwriter  or such  seller may
          reasonably request; and

     (8)  make available for inspection by each seller of Restricted  Stock, any
          underwriter   participating  in  any  distribution  pursuant  to  such
          registration  statement,  and any attorney,  accountant or other agent
          retained  by such  seller  or  underwriter,  all  financial  and other
          records,  pertinent corporate documents and properties of the Company,
          and cause the  Company's  officers,  directors and employees to supply
          all information reasonably requested by any such seller,  underwriter,
          attorney,  accountant  or agent in connection  with such  registration
          statement.

As used in  Section 5, the term  "underwriter"  does not  include  any seller of
Restricted Stock.

     (b) For  purposes of  subsection  (a)(1) and (2) and of Section  2(c),  the
period of  distribution of Restricted  Stock in a firm  commitment  underwritten
public  offering shall be deemed to extend until each  underwriter has completed
the  distribution of all securities  purchased by it, but not to exceed 30 days,
and the period of  distribution  of Restricted  Stock in any other  registration
shall be deemed to extend until the earlier of the sale of all Restricted  Stock
covered thereby or 90 days after the effective date thereof.

     (c) Notwithstanding the foregoing provisions of subsection (a), the Company
shall not be obligated to effect the filing of a  registration  statement  under
subsection  (a), (1) during the period  starting  with the date 30 days prior to
the  Company's  good faith  estimate of the date of filing of, and ending on the
date  90  days  following  the  effective  date  of,  a  registration  statement
pertaining to an  underwritten  public offering of securities for the account of
the Company,  provided the Company is at all times during such period diligently
pursuing such registration, or (2) if the Company shall furnish to the Purchaser
requesting a  registration  statement  pursuant to subsection  (a) (or under any
other relevant section of this Agreement) a certificate  signed by the President
of the Company stating that in the good faith judgment of the Board of Directors
of the  Company,  it would not be in the best  interests  of the Company and its
shareholders generally for such registration statement to be filed. Under clause
(2),  the Company  shall have the right to defer such filing for a period of not
more  than 90  days  after  receipt  of the  request  for a  registration  under
subsection (a);  provided,  however,  that the Company may not utilize the right
set forth in clause  (2) until 90 days  after  the  termination  of any  earlier
period  during  which it shall have  deferred  filing a  registration  statement
pursuant to clause (2).

     (d)  In  connection  with  each  registration  hereunder,  the  sellers  of
Restricted  Stock will furnish to the Company in writing such  information  with
respect  to  themselves  and the  proposed  distribution  by them  as  shall  be
necessary  in order to assure  compliance  with  federal  and  applicable  state
securities laws. Each holder of Restricted Stock as to which any registration is
being  effected  agrees to notify the Company as promptly as  practicable of any
inaccuracy or change in information  previously  furnished by such holder to the
Company  or of the  happening  of any event as a result of which any  prospectus
relating to such  registration  contains an untrue  statement of a material fact

<PAGE>
                                       8

regarding such holder or the  distribution of such Restricted  Stock or omits to
state any  material  fact  regarding  such  holder or the  distribution  of such
Restricted  Stock  required  to be  stated  therein  or  necessary  to make  the
statements  therein,  in light of the circumstances  under which they were made,
not  misleading,   and  to  promptly  furnish  to  the  Company  any  additional
information required to correct and update any previously furnished  information
or required so that such  prospectus  shall not,  with respect to such holder or
the  distribution of such  Restricted  Stock,  contain an untrue  statement of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which they were made, not misleading.

     (e) In  connection  with each  registration  pursuant to Sections 2, 3 or 4
covering an underwritten  public offering,  the Company and each seller agree to
enter into a written  underwriting  agreement with the underwriters  selected in
the manner herein  provided,  in such form and containing such provisions as are
customary in the securities business for such an underwriting  agreement between
such underwriters and companies of the Company's size and investment stature.

     (f) If the Company  provides  notice  pursuant to subsection  (a)(6),  each
seller of  Restricted  Stock  agrees to stop all offers and sales of  Restricted
Stock until the  prospectus  contained in any  registration  statement  has been
supplemented  or  amended,  as the  case may be,  so as to  correct  any  untrue
statements or add information relating to any omissions. The Company will effect
such supplement or amendment as promptly as reasonably practicable.

     6.  Expenses.  All  expenses  incurred  by the  Company in  complying  with
Sections 2, 3 and 4, including,  without limitation, all registration and filing
fees,  printing  expenses,  fees and  disbursements  of counsel and  independent
public accountants for the Company,  fees and expenses  (including counsel fees)
incurred in connection with complying with state  securities or "blue sky" laws,
fees of the National  Association of Securities  Dealers,  Inc., transfer taxes,
fees of  transfer  agents  and  registrars,  costs  of  insurance  and  fees and
disbursements  of  one  counsel  (up  to  maximum  aggregate  counsel  fees  and
disbursements  per registration of $50,000) for the sellers of Restricted Stock,
but excluding any Selling Expenses, are called "Registration Expenses." All fees
and  disbursements  of counsel for the sellers of Restricted  Stock in excess of
$50,000 (as  adjusted  herein) for one counsel and all  underwriting  discounts,
brokerage  fees and selling  commissions  applicable  to the sale of  Restricted
Stock are called "Selling Expenses."

     The Company  will pay all  Registration  Expenses in  connection  with each
registration  statement  under  Sections  2, 3 or 4.  All  Selling  Expenses  in
connection  with each  registration  statement under Sections 2, 3 or 4 shall be
borne by the participating sellers in proportion to the number of shares sold by
each, or by such  participating  sellers  other than the Company  (except to the
extent the Company shall be a seller) as they may agree.

     7. Indemnification and Contribution.

     (a) In the event of a registration of any of the Restricted Stock under the
Securities  Act pursuant to Sections 2, 3 or 4, the Company will  indemnify  and
hold harmless each seller of such Restricted Stock thereunder,  each underwriter

<PAGE>
                                       9

of such Restricted Stock thereunder and each other person,  if any, who controls
such seller or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities,  joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect  thereof) arise out of or are based upon any untrue statement or alleged
untrue  statement of any material fact contained in any  registration  statement
under  which  such  Restricted  Stock is  registered  under the  Securities  Act
pursuant to Sections 2, 3 or 4, any preliminary  prospectus or final  prospectus
contained therein,  or any amendment or supplement  thereof,  or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated  therein or necessary to make the  statements  therein not
misleading,  and will reimburse each such seller, each such underwriter and each
such controlling person for any legal or other expenses  reasonably  incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action,  but the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue  statement or alleged  untrue  statement or omission or
alleged omission so made in conformity with information  furnished in writing by
any such seller,  any such underwriter or any such controlling person in writing
specifically for use in such registration  statement or prospectus,  or (ii) any
failure by an underwriter,  or a person controlling such underwriter,  to give a
final prospectus to the person claiming an untrue statement or omission, if such
statement or omission  appeared in or was omitted from a preliminary  prospectus
and was corrected in the final prospectus.

     (b) In the event of a registration of any of the Restricted Stock under the
Securities  Act  pursuant to Sections 2, 3 or 4, each seller of such  Restricted
Stock  thereunder,  severally and not jointly,  will indemnify and hold harmless
the Company, each person, if any, who controls the Company within the meaning of
the  Securities  Act,  each  officer of the Company  who signs the  registration
statement,  each director of the Company,  each  underwriter and each person who
controls any underwriter  within the meaning of the Securities Act,  against all
losses, claims,  damages or liabilities,  joint or several, to which the Company
or such officer, director,  underwriter or controlling person may become subject
under the Securities Act or otherwise,  insofar as such losses,  claims, damages
or  liabilities  (or actions in respect  thereof) arise out of or are based upon
any untrue  statement or alleged untrue statement of any material fact contained
in the  registration  statement under which such Restricted  Stock is registered
under  the  Securities  Act  pursuant  to  Sections  2, 3 or 4, any  preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof,  or arise out of or are based upon the omission or alleged  omission to
state therein a material fact required to be stated therein or necessary to make
the  statements  therein  not  misleading,  or arise out of the  failure of such
holder  of  Restricted  Stock  to  deliver  a  prospectus  to any  purchaser  of
Restricted Stock from such holder,  and will reimburse the Company and each such
officer,  director,  underwriter and  controlling  person for any legal or other
expenses  reasonably  incurred  by  them in  connection  with  investigating  or
defending any such loss,  claim,  damage,  liability or action,  but only if and
only to the extent that any such loss, claim,  damage or liability arises out of
or is based upon an untrue  statement or alleged untrue statement or omission or
alleged  omission  made in  reliance  upon and in  conformity  with  information
pertaining to such seller, as such,  furnished in writing to the Company by such
seller  specifically for use in such  registration  statement or prospectus,  or

<PAGE>
                                       10

from such holder's failure to deliver a prospectus. The liability of each seller
hereunder  shall be limited to the proportion of any such loss,  claim,  damage,
liability or expense which is equal to the proportion  that the public  offering
price of the shares sold by such seller under such registration  statement bears
to the total public offering price of all securities sold thereunder, but not in
any event to exceed the net  proceeds  received  by such seller from the sale of
Restricted Stock covered by such registration statement.

     (c) Promptly after receipt by an indemnified  party  hereunder of notice of
the  commencement  of any action,  such  indemnified  party shall, if a claim in
respect thereof is to be made against the indemnifying  party hereunder,  notify
the  indemnifying  party in writing  thereof,  but the omission so to notify the
indemnifying  party shall not relieve it from any liability which it may have to
such  indemnified  party other than under this Section and shall relieve it from
any  liability  which it may have to such  indemnified  party under this Section
only if and to the extent the indemnifying party is prejudiced by such omission.
In case any such action shall be brought  against any  indemnified  party and it
shall  notify  the  indemnifying   party  of  the  commencement   thereof,   the
indemnifying  party shall be entitled  to  participate  in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel  reasonably
satisfactory to such indemnified  party, and, after notice from the indemnifying
party to such  indemnified  party of its election so to assume and undertake the
defense thereof,  the indemnifying party shall not be liable to such indemnified
party under this Section for any legal  expenses  subsequently  incurred by such
indemnified  party in connection  with the defense thereof other than reasonable
costs of  investigation  and of liaison  with  counsel so  selected,  but if the
interests of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying  party, the indemnified party shall have the right
to select a separate  counsel and to assume such legal defenses and otherwise to
participate  in the defense of such  action,  with the expenses and fees of such
separate  counsel  and  other  expenses  related  to  such  participation  to be
reimbursed  by the  indemnifying  party.  The  indemnifying  party shall not, in
connection with any proceeding or related proceeding, be liable for the fees and
expenses of more than one separate  firm (plus one firm of local counsel in each
jurisdiction  in which an  action  is  brought).  The  indemnified  party  shall
cooperate fully with the  indemnifying  party in connection with any negotiation
or  defense  of any such  action  or claim by the  indemnifying  party and shall
furnish to the indemnifying  party all information  reasonably  available to the
indemnified  party that relates to such action or claim. The indemnifying  party
shall keep the indemnified party fully apprised at all times as to the status of
the  defense  or  any  settlement  negotiations  with  respect  thereto.  If the
indemnifying  party  elects  to  defend  any  such  action  or  claim,  then the
indemnified  party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense.  If the indemnifying  party does not
assume such defense,  the indemnified  party shall keep the  indemnifying  party
apprised  at all  times as is  reasonably  practicable  as to the  status of the
defense;  provided,  however, that the failure to keep the indemnifying party so
informed shall not affect the obligations of the  indemnifying  party hereunder.
No indemnifying party shall be liable for any settlement of any action, claim or
proceeding  effected without its written consent;  provided,  however,  that the
indemnifying  party shall not  unreasonably  withhold,  delay or  condition  its
consent.  No  indemnifying  party shall,  without the consent of the indemnified
party (not to be  unreasonably  withheld),  consent to entry of any  judgment or
enter into any settlement that does not include as an unconditional term thereof

<PAGE>
                                       11

the giving by the claimant or plaintiff to such  indemnified  party of a release
from all  liability in respect to such claim or  litigation or that requires the
indemnified  party to take any future  action  (other  than the payment of money
that the indemnifying  party pays under this section) or refrain from taking any
future action.

     (d) In  order to  provide  for just  and  equitable  contribution  to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted  Stock  exercising  rights under this  Agreement,  or any controlling
person of any such holder,  makes a claim for  indemnification  pursuant to this
Section but it is  judicially  determined  (by the entry of a final  judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such  indemnification may not be
enforced in such case  notwithstanding  the fact that this Section  provides for
indemnification  in such case, or (ii) contribution under the Securities Act may
be  required  on the part of any such  selling  holder  or any such  controlling
person in  circumstances  for  which  indemnification  is  provided  under  this
Section;  then,  and in each  such  case,  the  Company  and  such  holder  will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after  contribution from others) in such proportion so that such
holder is responsible  for the portion  represented  by the percentage  that the
public  offering  price of its  Restricted  Stock  offered  by the  registration
statement bears to the public  offering price of all securities  offered by such
registration  statement,  and the  Company  is  responsible  for  the  remaining
portion; but in any such case, (A) no such holder will be required to contribute
any amount in excess of the public offering price of all such  Restricted  Stock
offered by it  pursuant  to such  registration  statement;  and (B) no person or
entity  guilty of  fraudulent  misrepresentation  (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.

     8. Changes in Common Stock or Preferred  Stock.  If, and as often as, there
is any change in the Common  Stock or the Series A  Preferred  Stock by way of a
stock split,  stock  dividend,  combination  or  reclassification,  or through a
merger,  consolidation,  reorganization  or  recapitalization,  or by any  other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and  privileges  granted hereby shall continue with respect to the Common
Stock as so changed.

     9. Rule 144  Reporting.  With a view to making  available  the  benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted  Stock to the public without  registration,  at all times
when the Company is subject to the reporting  requirements  of the Exchange Act,
the Company agrees to furnish to each holder of Restricted  Stock forthwith upon
request  a  written  statement  by the  Company  as to its  compliance  with the
reporting  requirements of Rule 144 under the Securities Act and of the Exchange
Act, a copy of the most recent  annual or quarterly  report of the Company,  and
such other  reports  and  documents  so filed by the  Company as such holder may
reasonably  request  in  availing  itself  of  any  rule  or  regulation  of the
Commission   allowing  such  holder  to  sell  any   Restricted   Stock  without
registration.

     10.  Representations and Warranties of the Company.  The Company represents
and warrants to the Purchaser as follows:

<PAGE>
                                       12

     (a) The  execution,  delivery  and  performance  of this  Agreement  by the
Company have been duly authorized by all requisite corporate action and will not
violate  any  provision  of law,  any  order of any  court or  other  agency  of
government,  the certificate of  incorporation  or by-laws of the Company or any
provision of any material  indenture,  agreement or other instrument to which it
or any or its properties or assets is bound,  conflict with,  result in a breach
of or constitute  (with due notice or lapse of time or both) a default under any
such  indenture,  agreement  or other  instrument  or result in the  creation or
imposition of any lien,  charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company.

     (b) This  Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company,  enforceable
in accordance with its terms (subject to equitable  principles and to applicable
bankruptcy,  reorganization,  insolvency,  fraudulent  conveyance  and transfer,
moratorium  and other similar laws  affecting the  enforceability  of creditors'
rights  generally  and  to  applicable  restrictions  on the  enforceability  of
indemnification and contribution).

     11. Make-Whole Provision.

     (a)  Subject to the terms of the  Intercreditor  Agreement,  if a holder of
Preferred  Shares  converts  them to Common  Stock at any  time,  or a holder of
Warrants  exercises  them after the earlier of the  prepayment  in full or final
maturity of the Notes,  and, in either case,  such holder  sells the  Conversion
Shares or the Warrant Shares under a registration statement filed by the Company
pursuant to this  Agreement  at an average  price per share (the  "Average  Sale
Price")  less than the average of the closing  price per share of the  Company's
Common  Stock for five  trading  days  prior to the date of  conversion  of such
Preferred  Shares or the exercise of such  Warrants (the  "Exercise  Date Market
Price"),  the Company  will pay to such holder in cash an amount  determined  by
multiplying  the  number of shares of Common  Stock so sold by the excess of the
Exercise  Date Market Price over the Average Sale Price.  In lieu of making such
payment in cash,  the Company shall have the option of delivering to such holder
a number of shares of Common  Stock  determined  by dividing  the amount of cash
otherwise payable by the Average Sale Price.

     (b)  Subsection  (a) will not apply to the  Warrant  Shares  or  Conversion
Shares if, following the sale of all of the Warrant Shares and Conversion Shares
at the actual sale prices therefor and the receipt of the proceeds thereof,  the
Purchaser  shall  have  achieved  an  Investment  Multiple  of 4.5.  "Investment
Multiple"  has the  meaning  given to that  term in  Section  11 of the  Warrant
Agreement,  except that  proceeds not actually  received  shall not be deemed to
have been received.

     (c) The number of shares of Common Stock that the Company shall be required
to issue pursuant to this Section shall not exceed 12,500,000 less the number of
Warrant Shares  issuable on the exercise of Warrants  issued pursuant to Section
11 of the Warrant Agreement.

<PAGE>
                                       13

     (d) The Company  will  reserve  sufficient  shares of its Common  Stock for
issuance pursuant to this Section. If for any reason the authorized but unissued
shares of Common Stock, together with shares of Common Stock held by the Company
in treasury or held by any subsidiary of the Company,  are  insufficient for the
Company to issue  shares as  required  by this  Section,  the  Company  will use
commercially  reasonable  efforts to amend its certificate of  incorporation  to
increase its  authorized  Common Stock to an amount that is sufficient (it being
understood  that failure to effect such  amendment  despite the Company's use of
commercially  reasonable  efforts  will  not  constitute  a  violation  of  this
Agreement).

     12. Miscellaneous.

     (a) The rights of the Purchaser hereunder,  including the right to have the
Company  register for resale the shares of Restricted  Stock in accordance  with
the terms of this Agreement,  shall be automatically assignable by the Purchaser
to any  transferee  of such  Purchaser  of all or a portion of the shares of the
Restricted  Stock if: (i) the Purchaser agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company  within a reasonable  time after such  assignment,  (ii) the Company is,
within a  reasonable  time after such  transfer or  assignment,  furnished  with
written notice of (A) the name and address of such  transferee or assignee,  and
(B) the  securities  with  respect to which such  registration  rights are being
transferred or assigned, (iii) following such transfer or assignment the further
disposition  of such  securities  by the  transferee  or assignees is restricted
under  the  Securities  Act and  applicable  state  securities  laws,  (iv)  the
transferee or assignee  agrees in writing with the Company to be bound by all of
the provisions of this  Agreement,  (v) the transferee or assignee  agrees to be
bound by all of the  provisions  of the  Intercreditor  Agreement and executes a
counterpart thereof or a joinder thereto, and (vi) such transfer shall have been
made in accordance  with the applicable  requirements  of this Agreement and the
Purchase Agreement. The rights to assignment shall apply to the Purchaser and to
subsequent  successors  and permitted  assigns.  All  covenants  and  agreements
contained in this  Agreement by or on behalf of any of the parties  hereto shall
bind and inure to the benefit of the respective successors and permitted assigns
of the parties hereto (but excluding any transferees of any Warrants,  Preferred
Shares or Restricted  Stock other than in compliance  with the first sentence of
this subsection (a)), whether so expressed or not.

(b) All notices, requests, consents and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument
delivered in person or duly sent by overnight courier, facsimile transmission or
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below or such other address as
may hereafter be designated in writing by the addressee to the other parties:

          if   to the Company or the Purchaser, at the address of such party set
               forth in the Purchase Agreement;

          if   to  any  subsequent  holder  of  Warrants,  Preferred  Shares  or
               Restricted  Stock,  to  it at  such  address  as  may  have  been
               furnished to the Company in writing by such holder.

<PAGE>
                                       14

All such notices and communications shall be deemed to have been received in the
case of (a) facsimile transmission, on the date sent, (b) personal delivery, on
the date of such delivery, (c) overnight courier, on the first business day
following delivery to such courier and (d) mailing, on the fifth day after the
posting thereof.

     (c) This  Agreement  shall be governed by and construed in accordance  with
the laws of the State of Delaware.

     (d) This  Agreement,  the  Purchase  Agreement  and the  other  Transaction
Documents (as defined  therein)  constitute the entire  agreement of the parties
with respect to the subject  matter  hereof and  supersede and replace all prior
agreements and understanding  concerning such subject matter. This Agreement may
be amended or modified,  or any provision hereof may be waived, with the written
consent of the Company and the holders of a majority of the  outstanding  shares
of Restricted Stock, and not otherwise.

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

     (f) The obligations of the Company to register  shares of Restricted  Stock
under Sections 2, 3 or 4 shall terminate on the tenth anniversary of the date of
this Agreement.

     (g) If requested in writing by the underwriters for an underwritten  public
offering of securities of the Company,  each holder of Restricted Stock who is a
party  to  this  Agreement  shall  agree  not to sell  publicly  any  shares  of
Restricted  Stock or any other  shares of Common  Stock  (other  than  shares of
Restricted  Stock or other  shares  of Common  Stock  being  registered  in such
offering),  without the consent of such  underwriters,  for a period of not more
than  180  days  following  the  effective  date of the  registration  statement
relating  to such  offering,  but only if all persons  entitled to  registration
rights  with  respect  to  shares of Common  Stock who are not  parties  to this
Agreement,  all other persons  selling  shares of Common Stock in such offering,
and all  executive  officers and directors of the Company shall also have agreed
not to sell publicly their Common Stock under the  circumstances and pursuant to
the terms set forth in this subsection.

     (h) The Company shall not grant to any third party any registration  rights
more favorable than or inconsistent  with any of those contained herein, so long
as any of the  registration  rights  under  this  Agreement  remains  in effect,
without the consent required by subsection (d).

     (i) If any provision of this Agreement shall be held to be illegal, invalid
or unenforceable,  such illegality,  invalidity or unenforceability shall attach
only to such  provision  and shall not in any manner  affect or render  illegal,
invalid  or  unenforceable  any  other  provision  of this  Agreement,  and this
Agreement shall be carried out as if any such illegal,  invalid or unenforceable
provision were not contained herein.

<PAGE>
                                     - S-1-

     IN WITNESS WHEREOF, the parties have executed this Agreement the date first
written above.

                                      MEDICAL TECHNOLOGY SYSTEMS, INC.


                                      By ___________________________________
                                         Name:
                                         Title:

                                      EUREKA I, L.P.

                                      By: EUREKA MANAGEMENT, L.P.,
                                               its sole general partner

                                      By: BERWIND CAPITAL PARTNERS, LLC,
                                               its sole general partner

                                      By:________________________________



<PAGE>

                                                                      EXHIBIT C

                        TERMS OF SERIES A PREFERRED STOCK

     [to be included in amendment to certificate of incorporation or certificate
     of designation]

     1. Number of Shares.  The series of Preferred Stock designated and known as
Series A  Convertible  Participating  Preferred  Stock (the  "Series A Preferred
Stock") shall consist of 10,000 shares,  plus any additional  shares that may be
issued in payment of  dividends  on the Series A Preferred  Stock in  accordance
with Section 3.

     2. Voting. Except as may be otherwise provided in these terms of the Series
A Preferred  Stock or by law, the Series A Preferred  Stock shall vote  together
with all other classes and series of stock of the  Corporation as a single class
on all actions to be taken by the  stockholders of the  Corporation,  including,
but not limited to, actions  amending the  certificate of  incorporation  of the
Corporation  to increase or decrease the number of  authorized  shares of Common
Stock.  Each share of Series A Preferred  Stock shall entitle the holder thereof
to such  number of votes per share on each such action as shall equal the number
of shares of Common Stock (including fractions of a share) into which each share
of Preferred Stock is then convertible.

     3.  Dividends.  Subject to the terms of the  Intercreditor  Agreement,  the
holders of each  outstanding  share of the  Series A  Preferred  Stock  shall be
entitled  to  receive,  out of funds  legally  available  therefor,  when and if
declared by the Board of Directors, quarterly dividends, payable on the last day
of each March, June,  September and December,  beginning  September 30, 2002, at
the rate per annum of $110.00 per share.  Dividends shall accrue from day to day
from the date of issuance of each share of Series A Preferred Stock,  whether or
not earned or declared,  and shall be cumulative.  Dividends shall be calculated
on the basis of a year of 360 days and the actual number of days  elapsed.  Each
dividend  on the  Series A  Preferred  Stock  shall  be paid in cash or,  if the
Corporation  shall so elect,  in additional  shares of Series A Preferred  Stock
(including  fractional  shares to the third decimal  place),  with each share of
Series A Preferred  Stock in which a dividend is being paid valued at $1,000 per
share.

     4. Liquidation.

          (a)  Liquidation  Preference.  Upon any  liquidation,  dissolution  or
     winding  up of the  Corporation,  whether  voluntary  or  involuntary,  the
     holders of shares of Series A Preferred Stock shall first be entitled to be
     paid,  before any  distribution or payment is made upon the Common Stock or
     any other class or series of capital stock  ranking  junior to the Series A
     Preferred  Stock  as to  participation  in  distributions  on  liquidation,
     distribution or winding up ("Liquidation Junior Stock"), the greater of -

               (1) $1,000 per share,  plus all  dividends  accrued and unpaid at
          the date of payment, whether or not declared, or



<PAGE>
                                       2

               (2) the amount the holder of shares of Series A  Preferred  Stock
          would have  received had such holder  converted  such shares to Common
          Stock immediately  prior to such liquidation,  distribution or winding
          up of the Corporation.

          If  upon  such   liquidation,   dissolution   or  winding  up  of  the
     Corporation, whether voluntary or involuntary, the assets to be distributed
     among the holders of Series A  Preferred  Stock  shall be  insufficient  to
     permit  payment in full to the holders of the Series A  Preferred  Stock of
     the full amounts to which they are entitled,  then the entire assets of the
     Corporation  to be so distributed  shall be  distributed  ratably among the
     holders of Series A Preferred  Stock in  proportion  to the full amounts to
     which they are entitled. Upon any such liquidation,  dissolution or winding
     up of the Corporation,  after the holders of Series A Preferred Stock shall
     have  been  paid in full the  amounts  to  which  they  are  entitled,  the
     remaining net assets of the Corporation available for distribution shall be
     distributed  among the holders of Liquidation  Junior Stock  (including the
     Common Stock)  according to the  preferences  and priorities  applicable to
     each.

          (b) Notice. Written notice of such liquidation, dissolution or winding
     up,  stating a payment  date,  the amount of the  payments  to be made with
     respect to each share of Series A Preferred  Stock and the place where such
     payments  shall be  payable,  shall  be  delivered  in  person,  mailed  by
     certified  or  registered  mail,  return  receipt  requested,  or  sent  by
     telecopier, not less than 20 days prior to the payment date stated therein,
     to the  holders of record of Series A  Preferred  Stock,  such notice to be
     addressed to each such holder at its address as shown by the records of the
     Corporation.

          (c)  Certain  Transactions  to  Constitute  Liquidation,  etc.  Unless
     otherwise  agreed to by the holders of a majority  of the then  outstanding
     shares of Series A Preferred  Stock,  the following shall be deemed to be a
     liquidation,  dissolution  or  winding  up of the  Corporation  within  the
     meaning of the provisions of this Section:  (1) any consolidation or merger
     of the Corporation  into or with any other entity or entities (other than a
     merger solely to reincorporate the Corporation in a different  jurisdiction
     or a merger with a Wholly-Owned Subsidiary of the Corporation);  or (2) the
     sale, lease, abandonment,  transfer or other disposition by the Corporation
     of all or  substantially  all of the  assets  of the  Corporation  and  its
     Subsidiaries (on a consolidated basis).

     5. Restrictions. Except where the vote or written consent of the holders of
a  greater  number of shares of the  Corporation  is  required  by law or by the
Corporation's  certificate of  incorporation,  and in addition to any other vote
required by law or the Corporation's  certificate of incorporation,  without the
approval of the holders of a majority of the then outstanding shares of Series A
Preferred Stock, given in writing or by vote at a meeting,  consenting or voting
(as the case may be) separately as a class, the Corporation will not --

          (a) Create or authorize the creation of any additional class or series
     of shares of stock (other than stock that is  Liquidation  Junior Stock and
     ranks junior to the Series A Preferred Stock as to the payment of dividends
     ("Dividend  Junior Stock")) or increase the authorized amount of the Series
     A Preferred Stock or increase the authorized amount of any additional class
     or series of shares of stock (other than stock that is  Liquidation  Junior
     Stock and Dividend  Junior Stock,  or create or authorize any obligation or
     security convertible into shares of Series A Preferred Stock or into shares
     of any other class or series of stock (other than stock that is Liquidation
     Junior  Stock  and  Dividend  Junior  Stock),  whether  any such  creation,
     authorization or increase shall be by means of amendment to the certificate
     of incorporation or by merger, consolidation or otherwise.

<PAGE>
                                       3

          (b)  Create,  incur or suffer to exist  any  indebtedness  that (1) is
     subordinated  by  its  express  terms  to  any  other  indebtedness  of the
     Corporation and (2) either (A) is a Convertible  Security, or (B) is issued
     with Options (whether or not detachable), or (C) has an equity feature. For
     this purpose,  indebtedness is not "subordinated" solely by reason of being
     unsecured.  This  subsection  (b) does not apply to the  Corporation's  14%
     Senior  Subordinated Notes issued pursuant to the same Securities  Purchase
     Agreement pursuant to which the Series A Preferred Stock is issued.

          (c)  Consent  to any  liquidation,  dissolution  or  winding up of the
     Corporation,  or  consolidate  or merge  into or with any  other  entity or
     entities or sell, lease,  abandon,  transfer or otherwise dispose of all or
     substantially   all  its   assets,   or  initiate   any   recapitalization,
     reorganization  or proceeding  under any federal or state bankruptcy law or
     similar law.

          (d) Amend its  certificate of  incorporation  or by-laws in any manner
     that  adversely  affects  the rights of the  holders of Series A  Preferred
     Stock.

          (e)  Purchase  or set aside any sums for the  purchase  of, or pay any
     dividend or make any  distribution  on, any shares of stock (other than the
     Series A Preferred  Stock),  except for  dividends  or other  distributions
     payable  on the Common  Stock  solely in the form of  additional  shares of
     Common Stock, or permit any Subsidiary of the Corporation to do so.

          (f)  Redeem or  otherwise  acquire  any  shares of Series A  Preferred
     Stock,  or  permit  any  subsidiary  of the  Corporation  to do so,  except
     pursuant  to a  purchase  offer  made pro rata to all  holders  of Series A
     Preferred Stock on the basis of the aggregate number of outstanding  shares
     of Series A Preferred Stock then held by each such holder.

          (g) Permit the Corporation's  board of directors to have more or fewer
     than five members;  permit more than two of the Corporation's  directors to
     be officers or employees of the  Corporation or any of its  affiliates;  or
     permit  the  Corporation's  board  of  directors  not to have  (1) an audit
     committee,  the  composition of which complies with the rules of the Nasdaq
     Stock Market, and (2) a compensation  committee,  a majority of the members
     of which are not  officers or employees  of the  Corporation  or any of its
     affiliates.

     6. Reporting and Information Requirements.

          (a) For so long as any of the Series A Preferred Stock is outstanding,
     the Corporation will permit any  representatives  designated by the holders
     of a majority of the outstanding shares of Series A Preferred Stock, during
     normal business hours and upon  reasonable  notice to (1) visit and inspect
     any of the properties of the Corporation and its Subsidiaries,  (2) examine
     the corporate and financial records of the Corporation and its Subsidiaries
     and make copies thereof or extracts  therefrom and (3) discuss the affairs,

<PAGE>
                                       4

     finances and accounts of any such companies  with the directors,  officers,
     key  employees  and  independent  accountants  of the  Corporation  and its
     Subsidiaries;  provided,  that in no event shall such inspection  impede or
     interrupt  the  normal  business   operations  of  the   Corporation.   The
     Corporation  will reimburse the holders of the Series A Preferred Stock for
     their reasonable  expenses  (including travel) incurred under the preceding
     sentence for not more than one such  examination per year. The presentation
     of an  executed  copy of these  terms by the  holders of a majority  of the
     outstanding  shares  of  Series  A  Preferred  Stock  to the  Corporation's
     independent accountants will constitute the Corporation's permission to its
     independent  accountants to  participate in discussions  with such persons.
     The holders of Series A Preferred Stock and their designated representative
     shall maintain the  confidentiality  of any  confidential  and  Proprietary
     Information  so obtained by them or obtained by any board observer which is
     not  otherwise  available  from other  sources  that are free from  similar
     restrictions;  provided,  however, that the foregoing shall in no way limit
     or  otherwise  restrict  the  ability of the  holders of Series A Preferred
     Stock or such authorized  representatives  to disclose any such information
     concerning  the  Corporation  which they may be required to disclose (i) to
     their  partners  to  the  extent   required  to  satisfy  their   fiduciary
     obligations  to such persons (so long as the partners  agree to be bound by
     the  confidentiality  provisions  hereof), or (ii) otherwise as required by
     law. The holders of the Series A Preferred Stock (i) acknowledge  that they
     may, from time to time, be in  possession  of non-public  information  as a
     result  of the  information  regarding  the  Corporation  granted  to  them
     hereunder, and (ii) agree not to trade in the securities of the Corporation
     while in possession of any material, non-public information in violation of
     applicable law.

          (b) For so long as any of the Series A Preferred Stock is outstanding,
     the Corporation will furnish each Holder with the following:

               (i) As soon as  practicable,  and in any case within  thirty (30)
          days after the end of each  calendar  month,  the  monthly  management
          reporting package in the form customarily  prepared by the Corporation
          from time to time,  but minimally  including (A) an unaudited  balance
          sheet as of the last day of such month, (B) an unaudited  statement of
          income for such month,  together with a cumulative statement of income
          from the first day of the then current  fiscal year to the last day of
          such month,  and (C) a statement  of cash flows for such month,  and a
          comparison   between  the  actual  figures  for  such  month  and  the
          comparable  figures (with respect to clauses (A) and (B) only) for the
          prior year period  along with  management  commentary.  The  foregoing
          financial statements shall be accompanied by an Officers'  Certificate
          to the effect  that such  statements  fairly  present in all  material
          respects  the  financial   position  and  financial   results  of  the
          Corporation for the fiscal period covered,  qualified by the fact that
          the Corporation may need to make adjustments to the foregoing  figures
          as  determined  by  the  Corporation's  auditors  in  accordance  with
          generally accepted accounting procedures.

               (ii) As soon as practicable and in any event within 90 days after
          the end of each  fiscal  year  commencing  with the fiscal year ending
          March 31, 2002,  an annual  independent  certified  audit  prepared by
          nationally recognized certified public accountants.

<PAGE>
                                       5

               (iii) Not later than the beginning of each fiscal year, an annual
          operating  plan  with  budget  for  the  Corporation,   including  the
          Corporation's capital budget, for the coming fiscal year.

               (iv)  Promptly  upon receipt  thereof,  any  additional  reports,
          management   letters   or  other   detailed   information   concerning
          significant  aspects of the  Corporation's  operations  and  financial
          affairs given to the Corporation by its independent  accountants  (and
          not otherwise  contained in other materials  provided pursuant to this
          Section 7.2).

               (v) Within fifteen days after transmission thereof, copies of all
          financial statements, proxy statements,  reports and any other general
          written communications which the Corporation sends to its shareholders
          and/or  lenders  and  copies of all  registration  statements  and all
          regular,  special  or  periodic  reports  which  it  files,  with  the
          Securities and Exchange  Commission or with any securities exchange on
          which any of its securities  are then listed,  and copies of all press
          releases  and  other  statements  made  available   generally  by  the
          Corporation  to the public  concerning  material  developments  in the
          Corporation's business.

               (vi) From time to time upon  request  of any  Holder,  such other
          information  as the  Corporation  is required by law to furnish to any
          stockholder on request.

          (c) The  holders of a majority of the  outstanding  Series A Preferred
     Stock have the right (so long as the  outstanding  Series A Preferred Stock
     represents  at least  one-half  of the shares of Series A  Preferred  Stock
     initially issued under the Purchase  Agreement) to appoint one observer who
     shall have the right to attend all  meetings of the board of  directors  of
     the  Corporation  and  all  committee  meetings  of such  board;  provided,
     however,  that, so long as the holders of the Series A Preferred Stock, the
     Notes or the Warrants shall have the right to appoint such an observer, all
     shall appoint the same  observer,  the identity of which will be determined
     (i) by the requisite  holders of the Notes until the principal and interest
     of the Notes are  repaid in full,  (ii)  thereafter,  by the  holders  of a
     majority of the outstanding Warrants, and (iii) thereafter,  by the holders
     of the  majority of the issued and  outstanding  Series A Preferred  Stock.
     Notwithstanding anything to the contrary, the Corporation shall be entitled
     to exclude  such  observer  from any board  discussions  (and  withhold any
     related materials) materially affecting the relationship of the Corporation
     or any of its  Subsidiaries to any holder of Series A Preferred  Stock, the
     Warrants or the Notes.

          (d) If for any period the  Corporation  shall have any  Subsidiary  or
     Subsidiaries,  then in respect  of such  period  the  financial  statements
     delivered  pursuant  to  subsections  (i) and (ii) of  Section  6(b)  shall
     include consolidating  (unaudited) and consolidated financial statements of
     the Corporation and its Subsidiaries.

     7. Conversion. The holders of shares of Series A Preferred Stock shall have
the following conversion rights:

<PAGE>
                                       6

          (a) Right to  Convert.  Subject  to the terms and  conditions  of this
     Section,  the  holder of any share or  shares of Series A  Preferred  Stock
     shall have the right, at its option at any time, to convert any such shares
     of  Series A  Preferred  Stock  (except  that upon any  liquidation  of the
     Corporation  the  right  of  conversion  shall  terminate  at the  close of
     business on the business day fixed for payment of the amount  distributable
     on the  Series A  Preferred  Stock)  into  the  number  of  fully  paid and
     nonassessable  shares of Common  Stock  equal to the  quotient  obtained by
     dividing (i) the product  obtained by  multiplying  the number of shares of
     Series A  Preferred  Stock to be  converted  by $1,000 by (ii) $2.36  (such
     amount, as adjusted from time to time pursuant to Section 8, being referred
     to as the "Conversion Price").  Such right of conversion shall be exercised
     by the holder  thereof by giving  written  notice that the holder elects to
     convert a stated  number of shares of Series A Preferred  Stock into Common
     Stock and by surrender of a certificate or  certificates  for the shares so
     to be converted to the  Corporation at its principal  office (or such other
     office or agency of the  Corporation  as the  Corporation  may designate by
     notice in writing to the  holders of the Series A  Preferred  Stock) at any
     time during its usual  business hours on the date set forth in such notice,
     together  with a statement of the name or names (with  addresses)  in which
     the certificate or certificates for shares of Common Stock shall be issued.

          (b) Issuance of Certificates; Time Conversion Effected. Promptly after
     the  receipt  of the  written  notice  referred  to in  subsection  (a) and
     surrender of the  certificate  or  certificates  for the share or shares of
     Series A Preferred Stock to be converted,  the Corporation  shall issue and
     deliver, or cause to be issued and delivered, to the holder,  registered in
     such name or names as such holder may direct, a certificate or certificates
     for the number of whole shares of Common Stock issuable upon the conversion
     of such  share  or  shares  of  Series A  Preferred  Stock.  To the  extent
     permitted by law, such conversion shall be deemed to have been effected and
     the Conversion Price shall be determined as of the close of business on the
     date  on  which  such  written  notice  shall  have  been  received  by the
     Corporation and the  certificate or  certificates  for such share or shares
     shall have been  surrendered  as aforesaid,  and at such time the rights of
     the holder of such share or shares of Series A Preferred Stock shall cease,
     and the  person  or  persons  in whose  name or names  any  certificate  or
     certificates  for  shares  of  Common  Stock  shall be  issuable  upon such
     conversion  shall be deemed to have  become the holder or holders of record
     of the shares represented thereby.

          (c) Fractional Shares; Dividends;  Partial Conversion. The Corporation
     shall  not be  required  to issue  fractional  shares  of  Common  Stock on
     conversion of the Series A Preferred  Stock, but it may elect to do so, and
     if  fractional  shares are so issued,  the  Corporation  need not carry the
     fraction to more than three decimal places.  In lieu of issuing  fractions,
     or smaller  fractions,  of a share,  the  Corporation  may  (subject to the
     Intercreditor  Agreement)  pay the holder  cash equal to the product of (1)
     any  fraction of a share of Common  Stock  otherwise  issuable  and (2) the
     Market Price of a share of Common Stock. No payment or adjustment  shall be
     made upon any  conversion  on account of any cash  dividends  on the Common
     Stock issued upon such conversion. In case the number of shares of Series A
     Preferred Stock represented by the certificate or certificates  surrendered
     pursuant to  subsection  (a) exceeds  the number of shares  converted,  the
     Corporation shall, upon such conversion, execute and deliver to the holder,
     at the expense of the  Corporation,  a new certificate or certificates  for
     the number of shares of such Series A Preferred  Stock  represented  by the
     certificate or certificates surrendered which are not to be converted.

<PAGE>
                                       7

          (d) Stock to be Reserved.  The  Corporation  will at all times reserve
     and keep  available  out of its  authorized  Common  Stock,  solely for the
     purpose of issuance  upon the  conversion  of Series A  Preferred  Stock as
     herein  provided,  such  number of shares of Common  Stock as shall then be
     issuable  upon  the  conversion  of all  outstanding  shares  of  Series  A
     Preferred Stock. The Corporation  covenants that all shares of Common Stock
     which shall be so issued  shall be duly and  validly  issued and fully paid
     and nonassessable  and free from all taxes,  liens and charges with respect
     to  the  issue  thereof,  and,  without  limiting  the  generality  of  the
     foregoing,  the  Corporation  covenants that it will from time to time take
     all such action as may be  requisite to assure that the par value per share
     of the  Common  Stock is at all times  equal to or less  than the  Series A
     Conversion  Price in effect at the time. The Corporation will take all such
     action as may be  necessary  to assure that all such shares of Common Stock
     may be so issued without violation of any applicable law or regulation,  or
     of any  requirement  of any  national  securities  exchange  upon which the
     Common Stock may be listed.  The Corporation will not take any action which
     results in any adjustment of the applicable  Conversion  Price if the total
     number of shares of Common Stock issued and issuable after such action upon
     conversion of the Series A Preferred Stock would exceed the total number of
     shares of Common Stock then authorized by the certificate of incorporation,
     as amended.

          (e) No  Reissuance  of Preferred  Stock.  Shares of Series A Preferred
     Stock which are  converted  into shares of Common Stock as provided  herein
     shall not be reissued.

          (f) Issue Tax. The issuance of certificates for shares of Common Stock
     upon conversion of Series A Preferred Stock shall be made without charge to
     the holders thereof for any issuance tax in respect thereof,  provided that
     the  Corporation  shall not be required to pay any tax which may be payable
     in respect of any  transfer  involved in the  issuance  and delivery of any
     certificate  in a name  other  than  that of the  holder  of the  Series  A
     Preferred Stock which is being converted.

          (g)  Closing  of  Books.  The  Corporation  will at no time  close its
     transfer  books against the transfer of any Series A Preferred  Stock or of
     any shares of Common Stock issued or issuable  upon the  conversion  of any
     shares of Preferred  Stock in any manner which  interferes  with the timely
     conversion  of such Series A Preferred  Stock,  except as may  otherwise be
     required to comply with applicable securities laws.

          (h) Mandatory Conversion.  If at any time the Corporation shall effect
     a firm  commitment  underwritten  public offering of shares of Common Stock
     for the account of the  Corporation  pursuant to an effective  registration
     statement under the Securities Act of 1933 in which (1) the proceeds to the
     Corporation  (net of  underwriting  discounts and  commissions and offering
     expenses) shall be at least $35,000,000 and (2) the price per share paid by
     the  public  for such  shares  shall  be at least  $8.00  per  share,  then
     effective  immediately before the closing of the sale of such shares by the
     Corporation  pursuant to such public  offering,  all outstanding  shares of
     Series A Preferred  Stock shall  automatically  convert to shares of Common
     Stock on the basis set forth in this Section. Holders of shares of Series A
     Preferred  Stock  so  converted  may  deliver  to  the  Corporation  at its
     principal  office (or such other office or agency of the Corporation as the
     Corporation  may designate by notice in writing to such holders) during its
     usual business hours,  the  certificate or  certificates  for the shares so
     converted.  As promptly as practicable  thereafter,  the Corporation  shall
     issue and  deliver to such holder a  certificate  or  certificates  for the
     number of whole  shares of Common  Stock to which such holder is  entitled,
     together with any cash  dividends and payment in lieu of fractional  shares
     to which such holder may be entitled pursuant to subsection (c). Until such
     time as a holder of shares of Series A Preferred  Stock shall surrender its
     certificates  therefor as provided above, such certificates shall be deemed
     to solely  represent  the shares of Common Stock to which such holder shall
     be entitled upon the surrender thereof.

<PAGE>
                                       8

     8. Dilution Adjustments to and Related Provisions.

     The number of shares of Common  Stock  into  which the  Series A  Preferred
Stock  shall  be  convertible  and the  Conversion  Price  shall be  subject  to
adjustment from time to time upon the occurrence of certain events,  as provided
in this Section.  For purposes of this Section,  "Common Stock" means the Common
Stock (as defined in Section 11) and any other stock of the Corporation, however
designated,  that has the right to participate in any distribution of the assets
or earnings of the Corporation without limit as to per share amount.

          (a) Adjustment  for Change in Capital Stock.  If at any time after the
     date hereof, the Corporation:

               (1) pays a dividend or makes a  distribution  on its Common Stock
          in shares of its Common Stock;

               (2)  subdivides  its  outstanding  shares of Common  Stock into a
          greater number of shares;

               (3)  combines  its  outstanding  shares  of Common  Stock  into a
          smaller number of shares;

               (4) makes a  distribution  on its  Common  Stock in shares of its
          capital stock other than Common Stock; or

               (5) issues by  reclassification of its Common Stock any shares of
          its capital stock;

then the number of shares of Common Stock issuable upon conversion of the Series
A Preferred Stock and the Conversion  Price, as in effect  immediately  prior to
such action,  shall be adjusted so that the holders may receive upon  conversion
of the Series A  Preferred  Stock the  number of shares of capital  stock of the
Corporation which the holders would have owned immediately following such action
if the holders had converted the Series A Preferred Stock  immediately  prior to
such action. The adjustment shall become effective  immediately after the record
date in the  case of a  dividend  or  distribution  and  immediately  after  the
effective date in the case of a subdivision, combination or reclassification. If
after an  adjustment a holder of Series A Preferred  Stock upon  conversion  may
receive  shares  of two or more  classes  or  series  of  capital  stock  of the
Corporation,  the  Corporation  shall  determine the  allocation of the adjusted
Conversion  Price  between  the classes or series of capital  stock.  After such
allocation,  the exercise  privilege and the  Conversion  Price of each class or
series of capital  stock  shall  thereafter  be subject to  adjustment  on terms
comparable to those applicable to Common Stock in this Section.  Such adjustment
shall be made successively whenever any event listed above shall occur.

<PAGE>
                                       9

          (b)  Adjustment for Common Stock  Issuances.  If at any time after the
     date of this  Agreement  the  Corporation  issues  (other than in an Exempt
     Issuance or in a transaction  described in subsection (a) or (e)) shares of
     Common  Stock for a  consideration  per share less than the  Market  Price,
     determined as of the date of issuance of such shares,  the Conversion Price
     shall be reduced in accordance with the following formula:

                                               P
                                     O  +   -------
                                              M
                   CP9 =  CP  x    ------------------------
                                              O9

where:     CP9  =  the adjusted Conversion Price;

           CP   =  the then current Conversion Price;

           O    =  the number of shares of Common Stock outstanding immediately
                   prior to the issuance of such additional shares;

           P    =  the aggregate consideration received for the issuance of
                   such additional shares;

           M    =  the Market Price, determined as of the date of issuance
                   of such shares; and

           O9   =  the number of shares of Common Stock outstanding
                   immediately after the issuance of such additional
                   shares.

     The  adjustment  shall be made  successively  whenever  any  such  issuance
     occurs, and shall become effective immediately after such issuance.

          (c) Adjustment for  Convertible  Securities  Issuance.  If at any time
     after the date  hereof  the  Corporation  issues  (other  than in an Exempt
     Issuance or in a transaction  described in subsection  (a)) any Convertible
     Securities  for  an  aggregate  consideration  which,  when  added  to  the
     aggregate  consideration  payable for the number of shares of Common  Stock
     initially  deliverable  upon  conversion,  exchange  or  exercise  of  such
     Convertible  Securities,  is less than the product of such number of shares
     of Common Stock and the Market Price, determined as of the date of issuance
     of such  Convertible  Securities,  the Conversion Price shall be reduced in
     accordance with the following formula:


<PAGE>
                                       10


                                          P
                                O  +   -------
                                          M
            CP9 =  CP  x      ------------------------
                                       O  +  C

where:       CP  =    the adjusted Conversion Price.

             CP  =    the then current Conversion Price;

             O   =    the number of shares of Common Stock outstanding
                      immediately prior to the issuance of such
                      Convertible Securities;

             P   =    the sum of the aggregate consideration received for
                      the issuance of such Convertible Securities plus the
                      additional consideration, if any, payable upon
                      conversion, exchange or exercise of such Convertible
                      Securities at the initial conversion, exchange or
                      exercise rate;

             M  =     the Market Price, determined as of the date of issuance
                      of such Convertible Securities; and

             C  =     the maximum number of shares deliverable upon
                      conversion, exchange or exercise of such Convertible
                      Securities at the initial conversion, exchange or
                      exercise rate.

     The  adjustment  shall be made  successively  whenever  any  such  issuance
     occurs, and shall become effective  immediately after such issuance. If all
     of the Common Stock  deliverable upon  conversion,  exchange or exercise of
     such  Convertible  Securities  has not been  issued  when such  Convertible
     Securities  are no longer  outstanding,  then the  Conversion  Price  shall
     promptly  be  readjusted  to the  Conversion  Price  which would then be in
     effect had the adjustment upon the issuance of such securities been made on
     the basis of the  actual  number of shares  of  Common  Stock  issued  upon
     conversion, exchange or exercise of such Convertible Securities.

          (d) Adjustment for Rights Issue.  If at any time after the date hereof
     the Corporation  distributes any rights, options or warrants to all holders
     of its Common Stock  entitling  them for a period  expiring  within 60 days
     after the record date mentioned below to purchase shares of Common Stock or
     Convertible Securities at a price per share (or with an initial conversion,
     exchange or exercise  price per share) less than the Market Price per share
     on that record date,  the  Conversion  Price shall be reduced in accordance
     with the following formula:

                                       N x P
                                 O + ---------
                                         M
                   CP9 =  CP x  ------------------
                                     O  +  N

<PAGE>
                                       11


 where:     CP9  =  the adjusted Conversion Price;

            CP   =  the then current Conversion Price;

            O    =  the number of shares of Common Stock outstanding on the
                    record date;

            N    =  the number of additional shares of Common Stock covered
                    by the rights, options, warrants or Convertible Securities;

            P    =  the offering price per share (including the initial
                    conversion, exchange or exercise price, in the case of
                    Convertible Securities) of the additional shares; and

            M    =  the Market Price determined as of the record date.

     The  adjustment  pursuant  to this  subsection  shall be made  successively
     whenever any such  rights,  options or warrants are issued and shall become
     effective  immediately  after  the  record  date for the  determination  of
     stockholders entitled to receive the rights, options or warrants. If at the
     end of the  period  during  which such  rights,  options  or  warrants  are
     exercisable, not all rights, options or warrants shall have been exercised,
     the Conversion Price shall be immediately  readjusted to what it would have
     been if "N" in the above  formula  had been the  number of shares  actually
     issued.

          (e) Adjustment for Distribution on or Purchase or Redemption of Common
     Stock.  If at any  time  after  the  date  hereof  the  Corporation  or any
     Subsidiary  of the  Corporation  (1)  distributes  to the holders of Common
     Stock any of the assets (including cash), debt securities, preferred stock,
     or rights to purchase debt  securities,  preferred stock or common stock of
     the Corporation or any of its  Subsidiaries,  or (2) redeems,  purchases or
     otherwise  acquires for value any shares of Common  Stock,  the  Conversion
     Price shall be reduced in accordance with the following formula:

                               (M x O) - F
               CP9 = CP x  --------------------
                                M x (O - N)

where:        CP9  =  the adjusted Conversion Price;

              CP   =  the then current Conversion Price;

              M    =  the Market Price determined as of the date on which
                      the distribution, redemption, purchase or acquisition
                      occurs;

              O    =  the number of shares of Common Stock outstanding
                      immediately before the distribution, redemption,
                      purchase or acquisition;


<PAGE>
                                       12


              F    =  the aggregate amount of cash plus the Fair Market
                      Value of the aggregate non-cash consideration or
                      securities distributed to holders of Common Stock or
                      paid for all shares of Common Stock so redeemed,
                      purchased or acquired; and

              N    =  the number of shares of Common Stock so redeemed,
                      purchased or acquired.

     No  adjustment  shall be required  under this  subsection on account of the
     first $50,000 paid by the Corporation  after the date hereof to acquire odd
     lots (less than 100 shares) of Common Stock.

          (f) No Increase in Conversion  Price. In no event shall any adjustment
     made  pursuant to subsection  (b), (c), (d) or (e) increase the  Conversion
     Price.

          (g) Adjustment in Number of Conversion Shares. Upon each adjustment in
     the Conversion Price pursuant to any provision of this Section,  the number
     of shares of Common  Stock  into  which  the  Series A  Preferred  Stock is
     convertible  shall be  adjusted,  to the nearest one  hundredth  of a whole
     share,  to the product  obtained by  multiplying  the number of shares into
     which the Series A Preferred Stock is convertible immediately prior to such
     adjustment in the  Conversion  Price by a fraction,  the numerator of which
     shall be the Conversion Price  immediately prior to such adjustment and the
     denominator  of which shall be the Conversion  Price in effect  immediately
     thereafter,   determined   without   reference  to   subsection   (k).  All
     calculations under this Section shall be made to the nearest ten-thousandth
     of a cent and to the nearest hundredth of a share.

          (h)  Deferral  of  De  Minimis  Adjustments.   No  adjustment  in  the
     Conversion  Price  need be made  unless  the  adjustment  would  require an
     increase or decrease of at least one percent in the Conversion  Price.  Any
     adjustments  that are not made  shall be  carried  forward  and taken  into
     account in any later adjustment.

          (i)  Consideration  Received.  In  any  calculation  of  consideration
     received for purposes of this Section, the following shall apply:

               (1) in the case of the  issuance  of shares  of  Common  Stock or
          Convertible Securities for cash, the consideration shall be the amount
          of such cash,  before deduction for  commissions,  discounts and other
          expenses of the issuance; and

               (2) in the case of the  issuance  of shares  of  Common  Stock or
          Convertible  Securities for a consideration  in whole or in part other
          than cash, the consideration other than cash shall be deemed to be the
          Fair Market Value thereof.

               (j) When No Adjustment Required. No adjustment need be made for a
          change in the par value, or from par value to no par value, or from no
          par value to par value, of the Common Stock. To the extent the holders
          become  entitled to receive  cash upon  exercise of the  Warrants,  no
          adjustment need be made  thereafter as to the cash.  Interest will not
          accrue on the cash.

<PAGE>
                                       13


          (k) Par Value. Notwithstanding any other provision of this Section, no
     adjustment to the Conversion  Price shall reduce the Conversion Price below
     the then par value per share of the Common  Stock,  and any such  purported
     adjustment  shall instead  reduce the  Conversion  Price to such par value.
     However,  in  applying  subsection  (g),  the  "Conversion  Price in effect
     immediately   thereafter"  shall  be  determined  without  regard  to  this
     subsection.

          (l) Notice of Certain Transactions. If:

               (1) the  Corporation  takes any  action  that  would  require  an
          adjustment in the Conversion Price pursuant to this Section,

               (2) there is a liquidation or dissolution of the Corporation, or

               (3) a Liquidity Event occurs,

     the Corporation  shall mail to holders of Series A Preferred Stock a notice
     describing the event and stating  applicable record date or, if there is no
     record date, the effective date. The  Corporation  shall mail the notice at
     least 30 days  before such date if  practicable,  but in any event not less
     than ten days before the time the holders of Series A Preferred Stock would
     be  required  to  convert  their  Series  A  Preferred  Stock  in  order to
     participate  in the  transaction  on the same  basis as  holders  of Common
     Stock.  Failure to mail the notice or any defect in it shall not affect the
     validity of the transaction.

          Whenever the Conversion  Price or the number of shares of Common Stock
     issuable upon  conversion of the Series A Preferred Stock shall be adjusted
     pursuant to this  Section,  the  Corporation  shall as soon as  practicable
     prepare a certificate  signed by its President or a Vice President  setting
     forth in reasonable  detail the event requiring the adjustment,  the amount
     of the adjustment,  the method by which the adjustment was calculated,  the
     Market  Price (if  applicable),  and the  number of shares of Common  Stock
     issuable  upon  conversion  of the Series A Preferred  Stock  after  giving
     effect to such adjustment, and shall as soon as practicable cause copies of
     such  certificate  to be mailed (by first  class,  postage  prepaid) to the
     registered holders of the Series A Preferred Stock.

          (m) Reorganization of the Corporation.

          If the  Corporation  consolidates or merges with or into, or transfers
     or leases all or  substantially  all its assets to, any person  (other than
     one  of  its  Wholly-Owned   Subsidiaries),   upon   consummation  of  such
     transaction  the  Series  A  Preferred  Stock  shall  automatically  become
     convertible  into the kind and amount of  securities,  cash or other assets
     which the holder of Series A Preferred  Stock would have owned  immediately
     after  the  consolidation,  merger,  transfer  or lease if the  holder  had
     converted the Series A Preferred Stock  immediately  before the record date
     (or, if none, the effective date) of the transaction.



<PAGE>
                                       14

          Notwithstanding  the preceding  paragraph,  in the case of any merger,
     reverse stock split,  or other  transaction in which the Common Stock shall
     be converted into the right to receive a consideration consisting solely of
     cash, then each holder of Series A Preferred Stock,  without having to take
     any action other than the  surrendering of such Series A Preferred Stock to
     the  Corporation,  shall  receive  the  amount  by  such  holder  if it had
     converted its Series A Preferred Stock immediately  before the record date,
     or, if none, the effective date of such transaction.

          If this subsection applies,  subsections (a), (b), (c), (d) and (e) do
     not apply.

          (n)  Violation of Other  Provisions.  Nothing in this Section shall be
     deemed to waive any  restriction  on the  Corporation  set forth  elsewhere
     herein.

     9. No Impairment. The Corporation will not, by amendment of its certificate
of incorporation or through any consolidation, merger, reorganization,  transfer
of  assets,  dissolution,  issue or sale of  securities  or any other  voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of the Series A Preferred  Stock,  but 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 holders of the
Series A Preferred Stock against dilution or other impairment.  Without limiting
the generality of the foregoing,  the  Corporation (1) will take all such action
as may be necessary or appropriate in order that the Corporation may validly and
legally  issue  fully  paid and  nonassessable  shares  of  Common  Stock on the
conversion of the Series A Preferred Stock from time to time outstanding and (2)
will not take any action which results in any adjustment of the Conversion Price
if the total number of Series A Preferred  Stock shares of Common Stock issuable
after the action  upon the  conversion  of all of the Series A  Preferred  Stock
would exceed the total number of shares of Common Stock then  authorized  by the
Corporation's  certificate  of  incorporation  and available for the purposes of
issue upon such exercise.

     10. Pre-emptive Rights.

          (a) Except as  provided in  subsection  (b),  the  Holders  shall have
     pre-emptive  rights with respect to the issuance by the  Corporation of any
     of its  securities,  and  the  Corporation  shall,  prior  to any  proposed
     issuance by the Corporation of any of its securities,  offer to each Holder
     by written notice the right, for a period of 15 Business Days, to purchase,
     for cash at an amount equal to the price or other  consideration  for which
     such  securities  are proposed to be issued,  the portion of the securities
     proposed to be issued determined by dividing the number of shares of Common
     Stock into which the Series A Preferred  Stock is then  convertible  by the
     number of shares of Common Stock then outstanding  (treating as outstanding
     for  this  purpose  all  shares  of  Common  Stock  issuable  on  exercise,
     conversion or exchange of outstanding Convertible Securities).

          (b)  Subsection  (a) shall not apply (1) to debt  securities  that are
     neither  Convertible  Securities  nor issued as part of a transaction  that
     includes equity securities or Convertible Securities;  or (2) to securities
     issued (A) pursuant to an Exempt  Issuance,  (B) as  consideration  for the
     acquisition  from an  unaffiliated  third  party of all or part of  another
     business (whether by purchase of stock or assets or otherwise), or (C) in a
     transaction described in Section 8(a).

<PAGE>
                                       15


          (c) The Corporation's written notice to the Holders shall describe the
     securities proposed to be issued by the Corporation and specify the number,
     price and payment terms. Each Holder may accept the Corporation's  offer as
     to the full number of securities  covered by  subsection  (a) or any lesser
     number, by written notice thereof given by it to the Corporation and to the
     other  Holders  prior to the  expiration  of the  aforesaid 15 Business Day
     period,  in which event the Corporation shall promptly sell and each Holder
     shall buy, upon the terms specified,  the number of securities agreed to be
     purchased by such Holder.  The Corporation  shall be free at any time prior
     to 120 days after the date of its notice of offer to the Holders,  to offer
     and sell to any third  party or parties  the  securities  not agreed by the
     Holders to be  purchased by them,  at a price and on payment  terms no less
     favorable to the  Corporation  than those specified in such notice of offer
     to the  Holders.  However,  if  such  third  party  sale or  sales  are not
     consummated  within such 90-day period, the Corporation shall not sell such
     securities  as shall not have been  purchased  within such  period  without
     again complying with this Section.

          (d) If the Holders in the aggregate  elect to purchase more securities
     than they are entitled to purchase under  subsection (a), each Holder shall
     purchase such  securities (1) in the proportion  that all electing  Holders
     shall agree among themselves in writing,  notice of which shall be given in
     writing  to the  Corporation  not later  than one  business  day before the
     issuance,  sale and purchase is scheduled to be  completed,  or (2) failing
     such  agreement in the proportion  that the amount of securities  that such
     Holder elects to purchase  bears to the amount of securities  elected to be
     purchased by all Holders.

     11.  Definitions.  As used  herein,  the  following  terms  shall  have the
following meanings.

     "Affiliate"  of any  Person  means  any  other  Person  that  controls,  is
controlled by or is under common control with such Person.

     "Business  Day" means any day on which the New York Stock  Exchange is open
for trading.

     "Common  Stock" means the Common Stock,  par value $0.01 per share,  of the
Corporation as constituted on the date hereof,  except as otherwise  provided in
Section 8 and in the definition of "Convertible Securities."

     "Conversion  Shares" means shares of Common Stock received on conversion of
the Series A Preferred Stock.

     "Conversion Price" is defined in Section 7(a).

     "Convertible   Securities"   means   securities  or  obligations  that  are
exercisable for, convertible into or exchangeable for shares of Common Stock (as
defined in Section 8). The term  includes  options,  warrants or other rights to
subscribe  for or purchase  Common Stock or to subscribe  for or purchase  other
Convertible Securities.

     "Dividend Junior Stock" is defined in Section 5(a).

<PAGE>
                                       16

     "Exempt Issuance" means (a) the issuance of Common Stock upon the exercise,
conversion  or exchange of  Convertible  Securities,  (b) the issuance of Common
Stock or Convertible  Securities in a bona fide  underwritten  public  offering,
registered  under the Securities  Act, (c) the issuance of Common Stock pursuant
to any plan of the  Corporation  for the  reinvestment  of dividends on the same
class of capital stock,  (d) the issuance after the date hereof for compensation
purposes  of  options  to  purchase  up to  155,000  shares of  Common  Stock to
officers,   employees  or  directors  of,  or  bona  fide  consultants  to,  the
Corporation,  (e) the  issuance of Common  Stock  pursuant to Section 2.C of the
Executive Stock  Appreciation  Rights and Non Qualified Stock Option  Agreement,
dated as of February 6, 1995,  between the  Corporation  and Todd E. Siegel,  as
amended  October 28,  2000,  and (f) the  issuance of Common  Stock  pursuant to
Section  3.c of, and Exhibit A to, the  Employment  Agreement,  effective  as of
March 2, 2001, between the Corporation and Michael P. Conroy.

     "Fair  Market  Value" of property  other than cash means (1) in the case of
any security traded in the Nasdaq Stock Market,  listed on a securities exchange
or reported on the NASD OTC bulletin  board,  its Market  Price,  and (2) in all
other cases,  the fair market value of the property as  determined in good faith
by the Board of Directors of the Corporation, subject to the appraisal procedure
described  below.  In  connection  with any  transaction  described  herein that
requires the determination of the Fair Market Value of property, the Corporation
will notify the holders of the Series A Preferred  Stock in writing of the terms
of the transaction and of the amount  determined by the Board of Directors to be
the Fair Market Value of the property,  including a description of the valuation
method.  If the holders of a majority of the Series A  Preferred  Stock  believe
that the Corporation's  notice  incorrectly  states the Fair Market Value of the
property,  the holders of a majority of the Series A Preferred  Stock may engage
an  independent  appraisal  firm  selected  by them (the "First  Appraiser")  to
determine  the Fair  Market  Value of the  property.  The  report  of the  First
Appraiser  shall be  conclusive  on the question of the Fair Market Value of the
property unless,  within 15 Business Days after its receipt of the report of the
First  Appraiser,  the Corporation  appoints an independent  appraisal firm (the
"Second  Appraiser") and notifies the holders of Series A Preferred Stock of the
identity of the Second Appraiser.  If the reports of the First Appraiser and the
Second  Appraiser  are within 10 percent of the lower of the two,  report of the
First  Appraiser  shall  conclusively  establish  the Fair  Market  Value of the
property.  Otherwise,  the First Appraiser and the Second Appraiser will jointly
appoint a third  appraiser  reasonably  satisfactory  to the Corporation and the
holders of a majority of the Series A Preferred  Stock (the "Third  Appraiser").
The report of the Third Appraiser shall be averaged with the report of the First
Appraiser  or the  Second  Appraiser,  whichever  shall be closer to that of the
Third Appraiser,  and the average shall  conclusively  establish the Fair Market
Value of the  property.  Each  appraiser  will be  instructed  to  complete  its
appraisal within 30 days after its appointment.  The Corporation will permit all
appraisers  appointed  hereunder  to have  reasonable  access  to its  books and
records, to its officers and employees, and to its accountants.  The Corporation
will pay the cost of the First  Appraiser.  If the adjustment  based on the Fair
Market  Value as finally  determined  exceeds the  adjustment  based on the Fair
Market Value  stated in the  Corporation's  notice by more than 10 percent,  the
Corporation will pay the cost of the Second Appraiser; otherwise, the holders of
Series  A  Preferred  Stock  will  pay the  cost  of the  Second  Appraiser  (in
proportion  to the  number  of  shares  held by  each).  The  cost of the  Third
Appraiser will be paid half by the Corporation and half by the holders of Series
A Preferred Stock (in proportion to the number of Warrants held by each).

<PAGE>
                                       17


     "Holder" or "holder" means a registered holder of Series A Preferred Stock.

     "Intercreditor  Agreement" means the Subordination Agreement dated the date
of the Purchase  Agreement among LaSalle Business Credit,  Inc., Eureka I, L.P.,
the  Corporation,  and MTS  Packaging  Systems,  Inc., as in effect from time to
time.

     "Liquidation Junior Stock" is defined in Section 4(a).

     "Liquidity Event" means (A) the sale, lease, abandonment, transfer or other
disposition of all or substantially  all the stock or assets of the Corporation,
including  by  merger,   consolidation   or  otherwise,   (B)  the  dissolution,
liquidation or winding up of the Corporation,  (C) the occurrence of a Change of
Control, or (D) a Qualified Public Offering.

     "Market  Price" of a security  on (or  determined  as of) any day means the
average of the last  reported  sale  prices of such  security as reported by the
Nasdaq Stock Market or, if such security is listed on a securities exchange, the
average of the last  reported  sale prices of such  security  on such  exchange,
which shall be for consolidated  trading if applicable to such exchange,  or, if
not so reported,  or if no sale shall have occurred on a particular trading day,
the last reported bid price of such security,  in each case for the five trading
days immediately  before such day. If a security is publicly traded,  but not in
the Nasdaq  Stock Market or on a  securities  exchange,  its Market Price is the
average  of the  last  reported  bid  prices  of such  security  on the NASD OTC
bulletin  board for the five  trading  days  immediately  before  such day. If a
security is not reported on the NASD OTC bulletin board, its Market Price is its
Fair Market Value.

     "Notes"  means the  Corporation's  14%  Senior  Subordinated  Notes  issued
pursuant to the Purchase Agreement.

     "Person" means an individual,  corporation,  partnership, limited liability
company, trust or any other entity.

     "Purchase  Agreement" means the Securities  Purchase  Agreement,  dated the
date of the first issuance of Series A Preferred  Stock,  between Eureka I, L.P.
and the Corporation.

     "Qualified  Public  Offering"  means the first  issuance and sale after the
date  hereof by the  Corporation,  pursuant  to a  registration  statement  that
becomes  effective  under the Securities  Act, of securities  (other than senior
debt securities that are neither Convertible Securities nor issued as part of an
offering that includes  equity  securities or  Convertible  Securities)  for net
proceeds to the Corporation of $15,000,000 or more.

     "Securities  Act" means the  Securities  Act of 1933,  as amended,  and the
rules and regulations of the Commission promulgated thereunder,  all as the same
shall be in effect from time to time.



<PAGE>
                                       18

     "Series A Preferred Stock" is defined in Section 1.

     "Siegel Family" means (1) Todd E. Siegel, his siblings,  the descendants of
Todd  E.  Siegel  and his  siblings,  and the  spouses  of any of the  foregoing
persons;  and (2) any general or limited partnership  (including Jade Partners),
trust  (including  the  Siegel  Family  Trust)  or  other  entity,  all of whose
partners, beneficiaries or other owners are Persons described in clause (1).

     "Subsidiary"  means (1) any  partnership  in which the  Corporation  or any
Subsidiary is a general partner, (2) any Person in which the Corporation and its
Subsidiaries  collectively own a majority of the equity  interests,  and (3) any
Person of which  securities  having a majority of the  ordinary  voting power in
electing the board of directors or comparable  body are, at the time as of which
any  determination  is being made,  owned by the Corporation  either directly or
through one or more Subsidiaries.

     "Voting Securities" means securities entitled in ordinary  circumstances to
vote generally in the election of directors of the Corporation.


     "Warrants"  means the warrants to purchase  common stock of the Corporation
issued pursuant to the Purchase Agreement.

     "Wholly-Owned   Subsidiary"  means  any  Subsidiary,   all  of  the  equity
securities  of  which  are  owned by the  Corporation  or  another  Wholly-Owned
Subsidiary.




<PAGE>

                                                                     EXHIBIT D

                                     FORM OF
                                JOINDER AGREEMENT

     THIS JOINDER AGREEMENT (this "Agreement") is dated as of __________ , among
the  undersigned  new  parties  (each a "New  Party" and  collectively  the "New
Parties") and EUREKA I, L.P., as collateral agent (the "Collateral Agent").

                                    RECITALS

     WHEREAS,  certain subsidiaries of Medical Technology Systems,  Inc. ("MTS")
(the  "Subsidiaries")  have entered into a Guaranty Agreement,  dated as of June
___,  2002,  with  Collateral  Agent (the  "Guaranty  Agreement"),  whereby  the
Subsidiaries have agreed to become guarantors of the Guaranteed  Obligations (as
such term is defined in the Guaranty Agreement);

     WHEREAS,  the Subsidiaries have entered into a Guarantor Security Agreement
dated as of June ___, 2002, with Collateral Agent ("the Security Agreement");

     WHEREAS,  MTS has agreed to cause any newly formed subsidiaries to join the
Guaranty Agreement and Guarantor Security Agreement;

     NOW  THEREFORE,  for good  and  valuable  consideration,  the  receipt  and
sufficiency of which is hereby  acknowledged by each of the parties hereto,  the
parties agree as follows:

     1.  Joinder.  Each  New  Party  hereby  agrees  to be  bound  by all of the
liabilities and obligations  which bind the Subsidiaries  under (i) the Guaranty
Agreement,  including without limitation the Guaranteed  Obligations (as defined
in  the  Guaranty  Agreement),   and  (ii)  the  Guarantor  Security  Agreement.
Therefore,  each New Party  hereby  joins in the  execution  of and agrees to be
bound by, and is hereby deemed a party to, the Guaranty Agreement, as one of the
"Guarantors" thereunder, for all purposes thereof, and in furtherance of and not
in  limitation  of the foregoing  hereby  jointly and  severally  with the other
"Guarantors"  thereunder and unconditionally and irrevocably  guarantees the due
and  punctual  payment  and  performance  by MTS  of  all  of its  indebtedness,
liabilities   and   obligations  to  Collateral   Agent  under  the  agreements,
instruments and obligations  referenced in Section 1 of the Guaranty  Agreement,
all in accordance with the terms and conditions set forth therein.  In addition,
each New Party hereby  joins in the  execution of and agrees to be bound by, and
is hereby deemed a party to, the  Guarantor  Security  Agreement,  as one of the
"Debtors"  thereunder,  for all purposes thereof.  Each New Party hereby further
certifies  that all  warranties  and  representations  set forth in the Guaranty
Agreement and the Guarantor Security Agreement, as they pertain to Subsidiaries,
are true and correct in all material respects on the date hereof.

     2. Grant of Security  Interest.  In order to secure the  performance of the
Guaranteed  Obligations,  each New Party  hereby  grants to  Collateral  Agent a
continuing security interest in, and a collateral  assignment and pledge of, all
of such New  Parties'  now owned or hereafter  acquired  properties,  assets and
rights of every name and nature,  including without  limitation all now owned or
hereafter acquired Collateral (as defined in the Guarantor Security Agreement).

<PAGE>
                                        2

     3. No Further  Amendments.  Except for the  amendments  set forth herein or
otherwise set forth in any agreement signed by the Secured Parties and dated the
date hereof,  the  Intercreditor  Agreement  shall remain  unchanged and in full
force and effect.

     4. Miscellaneous.

     (a) This  Agreement  shall be governed by and construed in accordance  with
the laws of the  Commonwealth of  Pennsylvania  applicable to contracts made and
performed in said state. It is intended that this Agreement shall take effect as
a sealed instrument.

     (b) This  Agreement  may be  executed  by the  parties  hereto  in  several
counterparts hereof and by the different parties hereto on separate counterparts
hereof,  each of which  shall be an  original  and all of which  shall  together
constitute one and the same agreement. Delivery of an executed signature page of
this  Agreement  by  facsimile  transmission  shall be  effective  as an in hand
delivery of an original executed counterpart hereof.

<PAGE>

                                       3

     IN WITNESS  WHEREOF,  the parties  have caused  this  Agreement  to be duly
executed as a sealed instrument by their duly authorized representatives, all as
of the day and year first above written.

                                  NEW PARTIES:

                                  [NAME]
                                   By:______________________________________
                                      Name:
                                      Title:


                                   EUREKA I, L.P., as Collateral Agent

                                    By:_____________________________________
                                       Name:
                                       Title:




<PAGE>

                                                                      EXHIBIT E

                                     FORM OF
                               TAG-ALONG AGREEMENT

     This TAG-ALONG  AGREEMENT (this "Agreement") is entered into as of June __,
2002, by and among Medical Technology Systems, Inc., a Delaware corporation (the
"Company"),  Eureka I, L.P. (the "Purchaser") and  [_____________________]  (the
"Stockholder").

                                    RECITALS

     WHEREAS,  on this date the Company is issuing  2,000 shares of its Series A
Convertible  Participating  Preferred  Stock to the  Purchaser  and  Warrants to
purchase  566,517 Shares of Common Stock of the Company pursuant to a Securities
Purchase Agreement of even date herewith (the "Purchase Agreement");

     WHEREAS,  one of the  conditions to the  investment by the Purchaser is the
execution of this Agreement  providing for certain  restrictions and obligations
with respect to capital stock of the Company held by the Stockholder.

     NOW,  THEREFORE,  in consideration of the foregoing recitals and the mutual
promises set forth in this Agreement and in the Purchase Agreement,  the parties
hereto, intending to be legally bound, agree as follows:


SECTION 1. STOCK RESTRICTION PROVISIONS.

     1.1 Right of Participation in Sales.

          (a) Co-Sale Right. If at any time the  Stockholder  desires to sell or
     otherwise  dispose  of  all or any of  the  capital  stock  of the  Company
     beneficially   owned  by  it  to  any  person  or  entity  (the   "Proposed
     Transferee"),  the Purchaser  shall have the right to  participate  in such
     disposition,  to the  extent of its Pro Rata  Portion at the same price and
     upon the same terms and  conditions as involved in such  disposition by the
     Stockholder, and the Stockholder shall make effective arrangements for such
     participation  (which shall be a condition to any sale by the Stockholder).
     The  Stockholder  shall  provide at least  twenty  (20) days prior  written
     notice  of  such  sale  (the  "Co-Sale  Notice")  to the  Company  and  the
     Purchaser.

          (b) Pro Rata Portion.  For purposes of subsection (a), the Purchaser's
     "Pro Rata Portion" means the result  obtained by multiplying  the number of
     shares of Common  Stock held by the  Purchaser  by a fraction  of which the
     numerator  is the  number  of shares of  Common  Stock  disposed  of by the
     Stockholder to the Proposed Transferee, and of which the denominator is the
     number of shares of Common Stock held by the Stockholder immediately before
     such  disposition.  For this purpose,  (1) "Common Stock" means all capital
     stock  of  the  Company,  however  designated,  that  participates  in  any
     liquidation  or  dissolution  of the Company  without limit as to per-share
     amount;  (2) any sale of  securities  or other rights that are  convertible

<PAGE>
                                        2


     into,  exercisable  for or  exchangeable  for  Common  Stock  ("Convertible
     Securities") shall be treated as a sale of the underlying Common Stock; and
     (3) the Pro Rata Portion  shall be calculated  on the  assumption  that all
     Convertible  Securities held by the Stockholder or the Purchaser shall have
     been converted, exercised or exchanged.

          (c) Notice of Intent to  Participate.  If the  Purchaser  wishes to so
     participate  in any sale  under  this  Section  1.1,  it shall  notify  the
     Stockholder of such  intention  within fifteen (15) days after the date the
     Co-Sale Notice is received.

          (d) Exception.  This Section shall not apply to any disposition by the
     Stockholder  of shares of Common  Stock  which,  when  aggregated  with all
     shares  of  Common  Stock  disposed  of by the  Stockholder  and all  Other
     Stockholders during the calendar month in which the disposition in question
     occurs and the preceding  eleven  calendar  months,  does not exceed 70,000
     shares of Common Stock.  "Other  Stockholder" means each stockholder of the
     Company who is, at the time of the  disposition  in  question,  party to an
     agreement with the Purchaser similar to this Agreement.

          (e) Family Transfers.  This Section shall not apply to any disposition
     without consideration to any member of the Siegel Family (as defined in the
     Purchase Agreement), but the Stockholder will not make any such disposition
     unless the transferee and the Company execute and deliver an agreement with
     the Purchaser identical to this Agreement. Any disposition made pursuant to
     this subsection will be disregarded for purposes of subsection (d).

     1.2  Put  Right.  In  the  event  of  any  sale,  transfer,  assignment  or
disposition  of  any  capital  stock  by the  Stockholder  in  violation  of any
provision of Section 1.1 of this Agreement,  the Purchaser shall have the right,
in addition to all other rights for breach of this Agreement,  to elect to cause
such  Stockholder  to  purchase,  and such  Stockholder  shall be  obligated  to
purchase,  from the  Purchaser  and at the same  price per share and on the same
terms and conditions as involved in such  disposition by such  Stockholder,  the
number of shares of Common Stock that the  Purchaser  was entitled to sell under
Section 1.1.

SECTION 2. MISCELLANEOUS.

     2.1 Duration of Agreement.  Except as otherwise provided herein, the rights
and  obligations of the Company,  the Purchaser and the  Stockholder  under this
Agreement shall terminate June __, 2012.

     2.2  Legend.   Each  certificate   representing  shares  of  capital  stock
beneficially  owned by the Stockholder  shall bear a legend in substantially the
following  form,  until such time as the shares of  capital  stock,  represented
thereby are no longer subject to the provisions hereof:

               "The sale,  transfer or assignment of the securities  represented
               by this  certificate are subject to the terms and conditions of a
               certain Tag-along Agreement dated as of June __, 2002, as amended
               from time to time,  among the Company and certain  holders of its
               outstanding capital stock. Copies of such Tag-along Agreement may
               be obtained at no cost by written  request  made by the holder of
               record of this certificate to the Secretary of the Company."

<PAGE>
                                       3

     2.3 Governing Law. This Agreement  shall be governed in all respects by the
laws of Delaware.

     2.4 Injunctive  Relief.  It is  acknowledged  that it will be impossible to
measure the  damages  that would be suffered by a party if any other party fails
to comply with the  provisions  of this  Agreement  and that in the event of any
such failure,  the  non-defaulting  parties will not have an adequate  remedy at
law. The non-defaulting parties shall, therefore, be entitled to obtain specific
performance  of the  defaulting  party's  obligations  hereunder  and to  obtain
immediate  injunctive relief. The defaulting party shall not argue, as a defense
to any proceeding for such specific  performance or injunctive relief,  that the
non-defaulting parties have an adequate remedy at law.

     2.5 Successors and Assigns.  Except as otherwise expressly provided herein,
the  provisions  hereof shall inure to the benefit of, and be binding upon,  the
successors, assigns, heirs, executors and administrators of the parties hereto.

     2.6 Entire Agreement.  This Agreement, the Purchase Agreement and the other
documents   delivered   pursuant   thereto   constitute   the  full  and  entire
understanding  and  agreement  between the parties  with regard to the  subjects
hereof  and no party  shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein.

     2.7 Severability.  In case any provision of the Agreement shall be invalid,
illegal or  unenforceable,  the  validity,  legality and  enforceability  of the
remaining provisions shall not in any way be affected or impaired thereby.

     2.8  Amendment and Waiver.  Except as otherwise  expressly  provided,  this
Agreement may be amended or modified only upon the mutual written consent of all
the parties hereto.

     2.9 Delays or Omissions. It is agreed that no delay or omission to exercise
any right,  power or remedy  accruing to any party upon any  breach,  default or
noncompliance  of any other party  under this  Agreement  shall  impair any such
right,  power or remedy,  nor shall it be  construed to be a waiver of or in any
such breach, default or noncompliance,  or any acquiescence therein, or of or in
any similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver,  permit, consent or approval of any kind or character on
the  part of any  party of any  breach,  default  or  noncompliance  under  this
Agreement or any waiver on the part of any party of any provisions or conditions
of this  Agreement  must be in writing and shall be effective only to the extent
specifically set forth in such writing.

     2.10 Notices and Consents.  All notices and consents  required or permitted
hereunder shall be in writing and shall be deemed  effectively  given:  (a) upon
personal delivery to the party to be notified;  (b) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day; (c) five (5) days after having been sent by registered

<PAGE>
                                       4

or certified mail, return receipt requested, postage prepaid; or (d) one (1) day
after deposit with a nationally  recognized  overnight courier,  specifying next
day delivery,  with written verification of receipt. All communications shall be
sent to each party at the address set forth on the signature  pages hereof or at
such other address as any party may  designate by ten (10) days advance  written
notice to the other parties hereto.

     2.11  Attorneys'  Fees.  In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees,  costs and expenses
of enforcing  any right of such  prevailing  party under or with respect to this
Agreement,  including without  limitation,  such reasonable fees and expenses of
attorneys  and  accountants  actually  incurred,  which shall  include,  without
limitation, all fees, costs and expenses of appeals.

     2.12 Titles and  Subtitles.  The titles of the sections and  subsections of
this  Agreement  are  for  convenience  of  reference  only  and  are  not to be
considered in construing this Agreement.

     2.13  Counterparts.  This  Agreement  may  be  executed  in any  number  of
counterparts,  each of which  shall be an  original,  but all of which  together
shall constitute one instrument.

     2.14 Pronouns.  All pronouns contained herein, and any variations  thereof,
shall be deemed to refer to the  masculine,  feminine  or  neutral,  singular or
plural, as to the identity of the parties hereto may require.

     2.15 Further  Assurances.  From and after the date of this Agreement,  upon
the request of the Purchaser or the Company,  the Company,  the  Stockholder and
the Purchaser  shall execute and deliver such  instruments,  documents and other
writings as may be  reasonably  necessary  or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.

<PAGE>
                                       5


     IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.


Address:                           MEDICAL TECHNOLOGY SYSTEMS, INC.

12920 Automobile Boulevard
Clearwater, FL  33762
                                   By: ________________________________
                                       Name:
                                       Title:



Address:                           EUREKA I, L.P.

770 Township Line, Suite 150       By: EUREKA MANAGEMENT, L.P.,
Yardley, Pennsylvania 19067               its sole general partner

                                   By: BERWIND CAPITAL PARTNERS, LLC,
                                          its sole general partner

                                    By:________________________________
                                       Christine C. Jones,
                                       President

                       [SIGNATURES CONTINUED ON NEXT PAGE]


<PAGE>
                                       6



Address:                                    [Stockholder]