Document:

AMENDATORY AGREEMENT

           WHEREAS, Sundial International Fund Limited ("Sundial") and
 Ultra Pacific Holdings S.A. ("Ultra"), on the one hand, and Metalclad
 Corporation ("MTLC"), on the other hand, heretofore entered into a
 Purchase Agreement dated as of the 31st day of December, 1997 as amended
 by Section 2.7.3 of that certain Purchase Agreement by and between Ultra
 and MTLC dated as of the 18th day of June, 1998, and as further amended by
 that certain Offer from Metalclad to Ultra, Sundial and others dated
 February 23, 1999 as subsequently amended by the substitution of various
 schedules thereto as accepted by Ultra, sundial and such others (said
 Offer from Metalclad as so amended and accepted being sometimes referred
 to as the "Offer", and said Purchase Agreement dated as of the 31st day of
 December, 1997 as so amended by the Purchase Agreement dated as of June
 18, 1998 and by the Offer being hereinafter sometimes referred to as the
 "Original Purchase Agreement".

           WHEREAS, capitalized terms used herein and not defined herein
 are used herein as defined in the Original Purchase Agreement, the Pledge
 Agreement or the Registration Rights Agreement, as the same may be
 modified by this Agreement;

           WHEREAS, the original Purchase Price of the Notes was $1,500,00
 ("Original Purchase Price"), $1,000,000 being attributable to the Sundial
 Note and $500,000 being attributable to the Ultra Note;

           WHEREAS, the parties hereto wish to increase the Purchase Price
 of the Notes (i) by capitalizing interest accrued through and including
 July 30, 1999; and (ii) by the making by Sundial and Ultra of an
 additional loan to MTLC in the amount of $250,000.

           WHEREAS, the original Principal Amount of the Notes, being the
 amount due at maturity of the Notes on December 31, 2002, the Notes being
 Zero Coupon Notes, was $2,200,000 ("Former Principal Amount"), of which
 $1,466,666.67 was attributable to the Sundial Note ("Sundial Former
 Principal"), and $783,333.33 was attributable to the Ultra note ("Ultra
 Former Principal Amount");

           WHEREAS, the parties have agreed effective July 30 to increase
 the imputed interest rate on the Notes to 12% and as a consequence thereof
 and of the transactions contemplated by the second preceding recital
 hereof, the Former Principal Amounts of the Notes will be increased to
 the "New Principal Amounts" (defined Below) and the definition of
 Discounted Present Value will be modified accordingly;

           WHEREAS, it has been previously agreed that the Conversion Rate
 would be changed to the lesser of (i) 70% of the Market Price of the MTLC
 Common Stock or (ii) 25 cents per share of the Common Stock of MTLC, said
 Common Stock upon conversion to be paid for by cancellation of such
 portion of the Original Purchase Price of the Notes being converted equal
 to the number of shares being acquired multiplied by the lesser of (i) or
 (ii), and the concurrent cancellation of all interest accrued attributable
 to such portion of the Original Purchase Price being converted;

           WHEREAS, MTLC effected a 10 for 1 reverse stock split following
 the execution and delivery of the Original Purchase Agreement and has
 agreed that the right to convert the "New Purchase Price" (as defined
 below) of each of the Notes, in one or more tranches, into shares of MTLC
 Common Stock, shall be at the lesser of 70% of the Market Price of the
 MTLC Common Stock or $2.50 per share, said Common Stock upon conversion to
 be paid for by cancellation of such portion of the New Purchase Price
 equal to the number of shares of Common Stock being acquired multiplied by
 the lesser of (i) or (ii) and the concurrent cancellation of all interest
 accrued from and after July 30, 199 attributable to the tranche being
 converted;

           WHEREAS, after giving effect to the reverse stock split referred
 to above, pursuant to the Offer, the accepting parties thereto, market
 conditions permitting, had agreed to exercise warrants to acquire 400,000
 shares (of which 300,00 shares were acquired by such exercise) and MTLC
 has requested that such parties either exercise warrants to acquire an
 additional 100,000 shares in whole or in part or resell to third parties
 the unexercised warrants at 30 cents per share, any such warrants to be
 warrants of Sundial and Ultra's choosing, held by Sundial, Ultra or the
 other accepting parties to the Offer, and Sundial and Ultra have
 determined to resell to such parties or their nominees concurrently with
 or following the execution and delivery hereof warrants to acquire 70,000
 shares for a purchase price of $21,00, and to exercise warrants to acquire
 30,000 shares by payment to MTLC of $75,000, to the Agent by wire transfer
 for the account of Sundial and Ultra, the Agent's account being account
 No. 042 78931 maintained with Citibank N.A., ABA No. 021000089;

           WHEREAS, Sundial, Ultra and MTLC have agreed to modify, among
 other provisions, the provisions of the Original Purchase Agreement and
 the Notes to extend the time within which the Notes may be converted and
 to modify the terms of the Notes respecting the ability of MTLC, Sundial
 and Ultra to require redemption of the Notes in whole or in part; and

           WHEREAS, MTLC has agreed to provide certain additional
 collateral for the loans evidenced by the Notes.

           NOW, THEREFORE, in consideration of the premises and other good
 and valuable consideration, receipt whereof is hereby acknowledged by each
 party hereto, the parties hereto hereby agree as of the 30th day of July,
 1999 as follows:

 Section 1.  Capitalization of Interest; Increase in Amount of Loans
 Evidenced by the Notes; Prospective Change in Interest Rate.

             (a)    As of July 30, 1999 the accrued and unpaid interest on
 the Notes was $221,200.00, of which $147,467.00 was attributable to the
 Sundial Note and $73,733.00 was attributable to the Ultra Note which
 interest the parties hereby agree to capitalize by increasing the Former
 Purchase Price of the Notes.  On or as of July 30, 1999, Sundial and
 Ultra, at the request of MTLC, hereby agree to loan an additional $250,000
 to MTLC to be secured as provided in the Original Purchase Agreement as
 herein modified, of which $166,666.67 will be loaned by Sundial and
 $83,333.33 will be loaned by Ultra, which loans will also increase the
 Former Purchase Price of the Notes.  Accordingly, the parties agree that
 the "New Purchase Price" of the Notes aggregates $1,971,200.00, of which
 $1,314,134.00 is attributable to the Sundial Note, and $657,066.00 is
 attributable to the Ultra Note.

             (b)  Effective July 30, 1999, the imputed interest rate on the
 Notes is hereby changed from 9 1/3% simple interest without compounding to
 12% simple interest without compounding so that the "New Principal Amount"
 of the Notes on the maturity date of December 31, 2002 will be
 $2,780,771.00, of which $1,863,117.00 will be the New Principal Amount of
 the Sundial Note, and $917,654.00 will be the New Principal Amount of the
 Ultra Note.  It is agreed that the interest accrual on both Notes from and
 including July 30, 1999 for the 1,249 days remaining to maturity of the
 Notes is $648.17 per day, of which $432.11 per day is attributable to the
 Sundial Note and $216.06 per day is attributable to the Ultra Note.  All
 such interest accruing on or after July 30, 1999 shall be paid at maturity
 or upon redemption or by cancellation in whole or in part in the event of
 the conversion of the Notes in whole or in part, or upon the occurrence
 and declaration of an Event of Default (which shall include any default
 under this Agreement).

 Section 2.  Reverse Stock Split.

             Prior to the date hereof, MTLC effected a 10 to 1 reverse
 stock split.  The Original Purchase Agreement is hereby revised to take
 account of such reverse stock split and all provisions thereof shall be
 deemed amended accordingly.

 Section 3.  Occurrence of Trigger Event.

             It is acknowledged and agreed that the Trigger Event referred
 to in the Original Purchase Agreement has occurred and that all warrants
 issuable to Sundial and Ultra as a consequence thereof have been issued
 and that MTLC's obligation in that regard has been fully discharged.

 Section 4.  Conversion Rate; Conversion; and Redemption.

            Any provision of the Original Purchase Agreement to the
 contrary notwithstanding, it is understood and agreed as follows:

            (a)  The Conversion Rate shall be equal to the lesser of (i)
 70% of the average Market Price of MTLC Common Stock for the 5 trading
 days preceding the receipt by MTLC of any notice of conversion, or (ii)
 $2.50 per share.  As used herein "Market Price" shall mean the average
 closing bid price as shown on the NASDAQ screen for parties bidding for
 100 or more shares as at 4:00 p.m. New York time on each such date.

            (b)  Conversion of the New Purchase Price of each Note into
 shares of MTLC Common Stock may be made in one or more tranches of not
 less than $25,000 per tranche at the option of Sundial and/or Ultra,
 provided, however, that no conversion may occur without MTLC's prior
 consent before the earlier to occur of (i) March 31, 2000, or (ii) the
 final conclusion of MTLC and affiliated companies' arbitration dispute
 with the United Mexican States.  As used herein "final conclusion" shall
 mean the first to occur of any of the following:  (a) final settlement of
 the litigation, (b) final decision from the arbitral tribunal after the
 time for appeals and motions for rehearing have expired or been decided,
 or (c) in the event of an award in favor of MTLC and/or affiliated
 companies, the payment in full in United States dollars in the United
 States of such award.  The Notes, once they shall have become convertible,
 shall remain so until paid at maturity or until redeemed by Sundial or
 Ultra and until the redemption price has been paid in full.

            (c)  All shares of MTLC Common stock required to be issued by
 MTLC upon any conversion shall be fully registered and tradeable;
 provided, however, that it is understood and agreed that, in accordance
 with NASDAQ listing requirements, the total number of shares of Common
 Stock issuable upon conversion of the Notes may not exceed 19.99% in the
 aggregate (including any conversion of the Notes prior thereto) of the ten
 issued and outstanding shares of MTLC Common Stock.  MTLC had 3,601,702
 issued and outstanding shares of Common Stock as of June 30, 1999.
 Accordingly, by way of example, were the Notes to have been converted as
 at such date, no more than 720,000 shares could have been converted, any
 balance of debt outstanding to remain fully payable in accordance with its
 terms.  By way of further example, if on the date of conversion there were
 5,000,000 shares of Common Stock outstanding, the Notes can be converted
 into 999,999 shares without regard to the conversion of other issues of
 debt into Common Stock.

            (d)  The Noteholders shall have the right, but not the
 obligation, to require the redemption of the Notes for their Discounted
 Present Value at the time of redemption at any time after but not prior to
 March 31, 2000 provided, however, that nothing contained herein shall
 affect the rights of the Noteholders upon the occurrence of any Event of
 Default.

            (e)  MTLC shall have no right to redeem the Notes.

 Section 5.  Warrant Offer Program.

             Sundial and Ultra hereby tender the following warrants to MTLC
 in exchange for the payment by MTLC to Ultra of $21,000:

             1.  Warrants owned by The Jan Chr. G. Sundt Family Trust
 entitling the Trust to acquire 39,960 shares of MTLC Common Stock.
             2.  Warrants owned by Harald Ingebrigtsen entitling Mr.
 Ingebrigtsen to acquire 30,040 shares of MTLC Common Stock.

             Sundial and Ultra hereby agree to cause the Jan Chr. G. Sundt
 Family Trust to exercise warrants entitling the Trust to acquire 30,00
 shares of Common Stock and to pay MTLC $75,000 therefor.

             Said warrants shall all be of the series expiring in October
 20002, except that 40 of the warrants held by Mr. Ingebrigtsen expire in
 February 2001, and shall automatically be deemed canceled or exercised, as
 the case may be, without presentation of certificates, upon receipt by
 MTLC of payment therefore.  Upon cancellation and exercise of said
 warrants and payment therefore, all obligations in respect of the warrant
 exercise program set forth in the Offer shall be deemed fulfilled, the
 terms of the Offer otherwise to remain in full force and effect,
 including, without limitation, the provisions of the third sentence of
 Section 4 of the Offer.

             MTLC shall cause its transfer agent to issue not later than
 August 10, 1999 30,000 unrestricted, fully registered and tradeable shares
 in the name of The Jan Chr. G. Sundt Family Trust and to deliver the same
 to the Agent, if the same be in certificated form, or by sending the
 shares by DTC electronic transfer directly to the account of the Trust
 maintained with Axiom Capital Management, Inc., Account No. 896-27266 R
 20, through Axiom's clearing agent, Bear Stearns Securities Corp., One
 Metrotech North, Brooklyn, New York 11201-3859.

 Section 6.  Definitions.

             The following terms defined in the Original Purchase Agreement
 are hereby modified to read as follows:

             "Common Stock" shall mean the authorized Common stock of MTLC
 as at July 30, 1999.

             "Conversion Rate" shall mean the whole or any portion of the
 New Purchase Price of any Note being converted divided by the lesser of
 U.S. $2.50 or 70% of the Market Price of the Common Stock prior to the
 date of receipt by MTLC of the notice of conversion.

             "Conversion Shares" shall mean the shares of Common Stock of
 the Company issuable upon conversion, in whole or in part as the context
 may require, of the Notes.

             "Discounted Present Value" with respect to any Note shall be
 based on a simple interest rate of 12% per annum without compounding and
 shall mean with respect to any Note an amount calculated in accordance
 with the following formula:
                                          n
                                         ----
                      PP+(.41069957 PP x 1249)

 wherein PP equals the New Purchase Price of a Note, n equals the number of
 days elapsed from and including July 30, 1999 to and including (A) the
 date of payment pursuant to the exercise by any Noteholder of its right of
 redemption, or (B) the date of occurrence of an Event of Default, as the
 case may be, and 1249 equals the total number of days from and including
 July 30, 1999 to and including the date of maturity of the Note (December
 31, 2002).

             "Mandatory Redemption" shall mean the exercise by any
 Noteholder, at any time after March 31, 2000, of the right to require the
 Company to redeem such Note at a price equal to the Discounted Present
 Value at the date of payment of the redemption price, which right may be
 exercised in whole or in part.

             "Principal Amount" shall mean the "New Principal Amount", being
 with respect to all of the Notes, U.S. $2,780,771.00, with respect to the
 Sundial Note, $1,863,117.00 and with respect to the Ultra Note,
 $917,654.00.

             "Purchase Price" of the Notes shall mean the "New Purchase
 Price" of $1,971,200.00, with respect to the Sundial Note, $1,314,134.00
 and with respect to the Ultra Note, $657,066.00.

             "Total Interest" in respect of the Notes shall mean the total
 interest thereon from and including July 30, 1999 to the date of maturity
 and shall be equal to $648.17 per day, or $809,571.00.

             "Warrant Exercise Price" shall mean the lesser of 70% of
 Market Price or U.S. $2.50 per share of Common Stock.

 Section 7.  Existing and Additional Security for Notes.

             (a)  It is agreed that all of the stock of MIC held by the
 Agent as security for the Notes and the other obligations under the
 Original Purchase Agreement, Pledge Agreement, Registration Rights
 Agreement and related documents, shall be held by the Agent as security
 for all such obligations as hereby amended, including, without limitation,
 the obligations to repay the New Purchase Price, interest accruing
 thereon, and the New Principal Amount.

             (b)  It is understood that MTLC and its subsidiary Eco-Metalclad,
 Inc. ("ECOM") as Sellers, propose to enter into a Stock
 Purchase Agreement providing for the sale to Geologic, S.A. de C.V.
 ("Buyers"), substantially in the form of Exhibit A annexed hereto and made
 a part hereof, of all of the issued and outstanding capital stock of the
 "Companies" (as defined in the Stock Purchase Agreement).  Concurrently
 with the execution and delivery of the Stock Purchase Agreement, which
 MTLC warrants will occur not later than August 5, 1999, MTLC or ECOM will
 jointly and severally assign to the Agent for the benefit of Sundial and
 Ultra as additional security for MTLC's obligations to Sundial and Ultra
 all of their right, title and interest in and to said Stock Purchase
 Agreement, in form and substance satisfactory to sundial, Ultra and its
 counsel; provided, however, that the U.S. $125,000 payment referred to in
 Section 1.4(e) and the U.S. $332,000 payment referred to in Section 1.4(c)
 of the Stock Purchase Agreement shall be excluded from the assignment.  In
 view of the fact that the Stock Purchase Agreement is governed by the laws
 of Mexico, MTLC will instruct its Mexican counsel to prepare and submit to
 the Agent (who shall cooperate with Mexican counsel to minimize Mexican
 legal fees) all necessary documentation (with an English language
 translation thereof if it is in Spanish) to effect the aforementioned
 assignment, which assignment must include a notification to and acceptance
 by the Buyers of such assignment.  The cooperation of the Agent shall
 enable the preparation of a Security Agreement of rights to payment of the
 purchase price under the Stock Purchase Agreement for review by Mexican
 counsel.  In the event of the failure to conclude the Stock Purchase
 Agreement by August 5, 1999, MTLC will forthwith instruct and cause its
 Mexican counsel to effect a pledge of all the shares in the Companies to
 the Agent for the benefit of Sundial and Ultra.  The assignment or pledge
 shall be in all respects acceptable to the Agent and shall constitute
 first, prior, perfected security interests in and to the collateral
 referred to therein.  There shall also be filed UCC-1 Financing Statements
 in appropriate U.S. jurisdictions in respect of such assignment.  In the
 event a definitive Stock Purchase Agreement for the sale of such stock is
 entered into after August 5, 1999, the Agent will release the shares of
 the Companies pledged to it upon compliance with the assignment and
 notification provisions referred to above.

 Section 8.  Sale of MIC Stock or Assets; Substitute Security.

             MTLC agrees that it will not proceed with the sale of any
 stock or assets of MIC without the prior written approval of Sundial and
 Ultra unless such sale will provide substitute cash or equivalent fully
 perfected security in an amount not less than the New Principal Amount of
 the Notes.  No such sale shall effect a redemption of the Notes.

 Section 9.  Proceeds From Settlement or Judgment in NAFTA Case.

             MTLC has heretofore agreed to pay from the settlement or
 judgment proceeds of the NAFTA case, if any, the following amounts and no
 others: 7% of such proceeds net of all expenses to counsel representing
 MTLC and bonus to those officers of MTLC not exceeding in the aggregate 5%
 of any such gross proceeds.

             MTLC agrees that it shall not directly or indirectly grant any
 further interests in such proceeds or agree to pay any bonus or other
 compensation or payment of any kind or type based on contingent upon or
 measured by the receipt or amount of such proceeds to any party without
 the Noteholders prior written consent.  Such consent will be granted if in
 the Noteholders opinion full compensation is made to them for any dilution
 of their interests that may occur by reason of any such further grant.

             MTLC's undertakings in this Section 9 shall not prevent the
 granting to officers, directors or employees of options to purchase shares
 of MTLC at not less than the fair market value thereof at the time of the
 grant of said options.

 Section 10. Legal Fees and Disbursements.

             Concurrently with the execution and delivery of this Agreement
 MTLC will reimburse Sundial's and Ultra's attorneys $10,000 in legal fees
 plus estimated disbursements ($1,000.00) incurred in connection with the
 preparation o this Agreement.  It is agreed that such reimbursement may be
 offset against the $250,000 in additional loan proceeds to be received by
 MTLC hereunder or from the net payment due MTLC in respect of the warrant
 exchange program as Sundial and Ultra shall direct.

  
<PAGE>
Section 11. Authorization.

             Concurrently with the execution and delivery hereof, MTLC
 shall furnish the Agent with a certified copy of resolutions of the Board
 of Directors of MTLC authorizing the execution, delivery and performance
 of this Agreement.

 Section 12. Original Purchase Agreement.

             Except as herein expressly modified by the context of this
 Agreement, the Original Purchase Agreement shall remain in full force and
 effect.

  
<PAGE>
            IN WITNESS WHEREOF, the parties hereto have executed and
 delivered this Agreement as of the 30th day of July, 1999.

                                SUNDIAL INTERNATIONAL FUND LIMITED

                                By:   /s/Donald B. Shafto
                                    ------------------------------------
                                   Donald B. Shafto, Assistant Secretary

                                ULTRA PACIFIC HOLDINGS S.A.

                                By:   /s/Donald B. Shafto
                                    ------------------------------------
                                   Donald B. Shafto, Assistant Secretary

                                METALCLAD CORPORATION

                                By:   /s/Grant S. Kesler
                                    ------------------------------------
                                   Grant S. Kesler, PresidentNo.---------                                                    $---------

                     METALCLAD CORPORATION

        10% Convertible Subordinated Debenture Due 2002

      Metalclad Corporation, a corporation duly organized and existing
 under the laws of the State of Delaware (the "Company"), for value
 received, hereby promises to pay to______________________________________,
 ________________________________________________or registered assigns, the
 principal sum of ___________________________________ ($________) at the
 executive office of the Company in the City of Newport Beach, California
 on ______________, 2002, in such coin or currency of the United States of
 America as at the time of payment shall be legal tender for the payment of
 public and private debts, and to pay interest, semi-annually on June 30
 and December 31 of each year, beginning on December 31, 1999, until this
 debenture (the "Debenture" or "Debentures") is paid in full, on said
 principal sum at said office in like coin or currency, at the rate of 10%
 per annum, all as more specifically provided in this Debenture.  This
 Debenture is one of a duly authorized issue of Debentures of the Company
 designated as its 10% Convertible Subordinated Debentures Due 2002 and
 limited in aggregate principal amount to $5,000,000.  The Debentures are
 convertible into shares of common stock of the Company (the "Conversion
 Shares") at the option of the holder at any time 15 days prior to
 maturity, unless previously redeemed, at the rate of $2.50 per share.  Six
 months after issuance, the Debentures are convertible at 75% of the
 current market price, or $2.50, whichever is lower.

                         ARTICLE ONE.

                         Definitions.

      Section 1.01. Definitions.  The terms defined in this Section 1.01
 (except as herein otherwise expressly provided or unless the context
 otherwise requires) for all purposes of this Debenture shall have the
 respective meanings specified in this Section 1.01.

      Board of Directors:  The term "Board of Directors" shall mean the
 Board of Directors of the Company or the Executive Committee of such
 Board.

       Business Day:  The term "business day" shall mean a day which in the
 City of Newport Beach, California is neither a legal holiday nor a day on
 which banking institutions are authorized by law to close.

      Common Stock:  The term "Common Stock" shall mean all shares now or
 hereafter authorized of the class of Common Stock, par value $.10 per
 share, of the Company presently authorized and stock of any other class
 into which such shares may hereafter have been changed.

       Company:  The term "Company" shall mean Metalclad Corporation, a
 Delaware corporation, and, unless the context otherwise requires, shall be
 deemed to mean and include Metalclad Insulation Corporation, a California
 corporation, ("MIC"), Metalclad Environmental Contractors, a California
 corporation, ("MEC"), and ECO-Metalclad, Inc., a Utah corporation ("EMI"),
 all of which are wholly owned by Metalclad Corporation.  Unless
 specifically stated to the contrary herein, all references to the Company
 and all representations, warranties and covenants of the Company shall be
 deemed to include and apply with equal force and effect to MIC, MEC, and
 EMI and, subject to the provisions of Article Eleven, shall include any
 successors and assigns of either the Company, MIC, MEC, and EMI.

      Debenture or Debentures; Outstanding:  The terms "Debenture" or
 "Debentures" shall mean any Debenture or Debentures, as the case may be,
 limited in aggregate principal amount to a maximum of $5,000,000. The term
 "Outstanding", when used with reference to Debentures, shall mean, as of
 any particular time, all Debentures except:

           (a)  Debentures theretofore canceled or delivered to the Company
 for cancellation;

           (b)   Debentures, or portions thereof, for the payment or
 redemption of which moneys in the necessary amount shall have been set
 aside and segregated in trust by the Company, provided that if such
 Debentures are to be redeemed prior to the maturity thereof, notice of
 such redemption shall have been given as in Article Three provided;

           (c)   Debentures in lieu of or in substitution for which other
 Debentures shall have been authenticated and delivered or which shall have
 been paid pursuant to the terms of Section 2.04, unless proof satisfactory
 to the Company is presented that any of such Debentures are held by
 persons in whose hands any of such Debentures are valid, binding, and
 legal obligations of the Company; and

            (d)   Debentures converted into Common Stock pursuant to
 Article Eleven.

       Debentureholder:  The terms "Debentureholder", "holder of
 Debentures", or other similar terms, shall mean any person in whose name
 at the time a particular Debenture is registered on the Debenture register
 kept for that purpose in accordance with the terms hereof.

       Event of Default:  The term "Event of Default" shall mean any event
 specified in Section 6.01, continued for the period of time, if any, and
 after the giving of the notice, if any, therein designated.

       Officers' Certificate:  The term "Officers' Certificate" shall mean
 a certificate signed by the Chairman of the Board, the President, or any
 Vice President and by the Treasurer, any Assistant Treasurer, the
 Controller, any Assistant Controller, the Secretary, or any Assistant
 Secretary of the Company.  Each such certificate shall include the
 statements provided for in Section 6.05 if and to the extent required by
 the provisions of such Section.

       Record Date:  The term "Record Date" as used in Section 2.02 with
 respect to any regular interest payment date shall mean the last day of
 the calendar month preceding such interest payment date.

       Redemption Date:  The term "Redemption Date", when used with respect
 to any Debenture to be redeemed, shall mean the date fixed for such
 redemption by or pursuant to this Debenture.

       Redemption Price:  The term "Redemption Price", when used with
 respect to any Debenture to be redeemed, shall mean the price at which it
 is to be redeemed pursuant to this Debenture.

       Senior Indebtedness:  The term "Senior Indebtedness" of the Company
 and its Subsidiaries shall mean (i) the principal of and accrued and
 unpaid interest (whether or not accruing on or after the filing of any
 petition in bankruptcy or for reorganization relating to the Company) on
 all indebtedness of the Company and its Subsidiaries, whether outstanding
 on the date of issuance of this Debenture or thereafter created, incurred,
 or assumed, for money borrowed from one or more banks, insurance
 companies, financial institutions, or other persons which regularly engage
 in lending money, unless such indebtedness shall, in the instrument
 creating the same, be specifically designated as not being senior in right
 of payment to the Debentures; and (ii) any modifications, renewals,
 extensions, deferrals, and refundings of any such indebtedness,
 liabilities, or obligations; provided, however, that Senior Indebtedness
 shall not be deemed to include any obligation of the Company or any
 Subsidiary in connection with extensions of credit by trade creditors and
 suppliers.

      Subsidiary:  The term "Subsidiary" shall mean MIC, MEC, EMI, and any
 corporation of which the Company, or the Company and one or more
 Subsidiaries, or any one or more Subsidiaries, directly or indirectly own
 voting securities sufficient to entitle the holders thereof to elect a
 majority of the directors, either at all times or so long as there is no
 default or contingency which permits the holders of any other class or
 classes of securities to vote for the election of one or more directors.

                         ARTICLE TWO.

          Issue, Description, Execution, Registration
                  and Exchange of Debentures.

      Section 2.01.  Designation, Amount, and Issue of Debentures.  The
 Debentures shall be designated as hereinabove set forth.  Debentures
 offered in the maximum aggregate principal amount of $5,000,000, may from
 time to time be executed and delivered by the Company in exchange for the
 payment to the Company of the aggregate principal amount thereof.  Nothing
 herein shall limit the amount of other debentures the Company may issue or
 debt the Company may incur.

      Section 2.02.  Date and Denomination of Debentures; Payment of
 Interest.  The Debentures shall be issuable Debentures registered with the
 Company without coupons in the minimum denomination of $25,000 and any
 integral multiple of $1,000 in excess of the minimum investment of
 $25,000, and shall be numbered, lettered, or otherwise distinguished in
 such manner or in accordance with such plan as the officers of the Company
 executing the same may determine.  The Company may, in its sole
 discretion, elect to accept less than $25,000 as the minimum denomination
 of Debentures issuable.

      Each Debenture shall be dated the date of its issuance and, except as
 otherwise provided in this Section 2.02, shall bear interest, payable
 semi-annually on June 30 and December 31 of each year, from the date of
 such Debenture until payment of the principal sum of such Debenture has
 been made or duly provided for. Interest shall be computed on the basis of
 a 360-day year of twelve 30-day months.  The first interest payment date
 shall be December 31, 1999.

      The person in whose name a Debenture (or any Debenture evidencing the
 same debt) was registered at the close of business on any Record Date with
 respect to any interest payment date shall be entitled to receive the
 interest payable, accrued through the Record Date, on such interest
 payment date notwithstanding the cancellation of such Debenture upon any
 registration of transfer or exchange subsequent to the Record Date and
 prior to such interest payment date; provided, however, that if and to the
 extent the Company shall default in the payment of the interest due on
 such interest payment date, such defaulted interest shall be paid to the
 persons in whose names outstanding Debentures are registered at the close
 of business on a subsequent Record Date established by notice given by
 mail by or on behalf of the Company to the holders of Debentures not less
 than 15 days preceding such subsequent Record Date, such Record Date to be
 not less than ten days preceding the date of payment of such defaulted
 interest.
      In the case of any Debenture which is converted after any Record Date
 and on or prior to the next succeeding interest payment date, interest
 whose stated maturity is on such interest payment date shall be payable on
 such interest payment date notwithstanding such conversion, and such
 interest (whether or not punctually paid or duly provided for) shall be
 paid to the person in whose name that Debenture is registered at the close
 of business on such Record Date.

      The Company may, in its sole discretion, elect to add accrued
 interest to the principal amount of the Debenture in lieu of payment of
 accrued interest in cash for interest due on any Record Date prior to
 maturity.  The Company may, in its sole discretion, elect to pay interest
 in shares of Common Stock of the Company at a rate equal to the 30-day
 average closing price of the Company's Common Stock as quoted on the
 Nasdaq Small Cap Market.

      Section 2.03.  Exchange and Registration of Transfer of Debentures.
 Debentures may be exchanged for a like aggregate principal amount of
 Debentures of other authorized denominations.  Debentures to be exchanged
 shall be surrendered at the executive office of the Company, and the
 Company shall execute, register, and deliver in exchange therefor the
 Debenture or Debentures which the Debentureholder making the exchange
 shall be entitled to receive.

      The Company shall keep a Debenture register in which, subject to such
 reasonable regulations as it may prescribe, the Company shall register
 Debentures and shall register the transfer of Debentures as in this
 Article Two.  Such register shall be in written form or in any other form
 capable of being converted into written form within a reasonable time.
 Upon due presentment for registration of transfer of any Debenture, the
 Company shall execute, register, and deliver in the name of the transferee
 or transferees a new Debenture or Debentures for an equal aggregate
 principal amount.

      All Debentures presented for registration of transfer shall be duly
 endorsed by, or be accompanied by a written instrument or instruments of
 transfer in form satisfactory to the Company duly executed by, the holder
 or his attorney duly authorized in writing.

      No service charge shall be made for any exchange or registration of
 transfer of Debentures, but the Company may require payment of a sum
 sufficient to cover any tax or other governmental charge that may be
 imposed in connection therewith.

      The Company shall not be required to exchange or register a transfer
 of (a) any Debentures for a period of 15 days next preceding any selection
 of Debentures to be redeemed, or (b) any Debentures selected, called or
 being called for redemption except, in the case of any Debentures to be
 redeemed in part, the portion thereof not so to be redeemed.

      Section 2.04.  Mutilated, Destroyed, Lost, or Stolen Debentures.  In
 case any temporary or definitive Debenture shall become mutilated or be
 destroyed, lost, or stolen, the Company in its discretion may execute,
 register, and deliver a new Debenture, bearing a number not
 contemporaneously outstanding, in exchange and substitution for the
 mutilated Debenture, or in lieu of and in substitution for the Debenture
 so destroyed, lost, or stolen. In every case the applicant for a
 substituted Debenture shall furnish to the Company such security or
 indemnity as may be required by the Company to save the Company harmless,
 and, in every case of destruction, loss, or theft, the applicant shall
 also furnish to the Company evidence to its satisfaction of the
 destruction, loss, or theft of such Debenture and of the ownership
 thereof.

      Upon the issuance of any substituted Debenture, the Company may
 require the payment of a sum sufficient to cover any tax or other
 governmental charge that may be imposed in relation thereto and any other
 expenses connected therewith.  In case any Debenture which has matured or
 is about to mature shall become mutilated or be destroyed, lost, or
 stolen, the Company may, but only with the consent of the holder thereof
 in the case of a Debenture as to which the right to convert provided in
 Section 11.01 shall not have terminated, instead of issuing a substitute
 Debenture, pay or authorize the payment of the same (without surrender
 thereof except in the case of a mutilated Debenture) if the applicant for
 such payment shall furnish to the Company such security or indemnity as
 may be required by them to save the Company harmless and, in case of
 destruction, loss, or theft, evidence satisfactory to the Company of the
 destruction, loss, or theft of such Debenture and of the ownership
 thereof.

      Every substituted Debenture issued pursuant to the provisions of this
 Section 2.04 by virtue of the fact that any Debenture is destroyed, lost,
 or stolen shall constitute an additional contractual obligation of the
 Company, whether or not the destroyed, lost, or stolen Debenture shall be
 found at any time, equally and proportionately with any and all other
 Debentures executed and delivered by the Company.  All Debentures shall be
 held and owned upon the express condition that the foregoing provisions
 are exclusive with respect to the replacement or payment of mutilated,
 destroyed, lost, or stolen Debentures and shall preclude any and all other
 rights or remedies notwithstanding any law or statute existing or
 hereafter enacted to the contrary with respect to the replacement or
 payment of negotiable instruments or other securities without their
 surrender.

      Section 2.05.  Cancellation of Debentures.  All Debentures
 surrendered for the purpose of payment, redemption, exchange, registration
 of transfer, or conversion, shall, if surrendered to the Company, be
 promptly canceled by the Company, and no Debentures shall be issued in
 lieu thereof except as expressly permitted by any of the provisions of
 this Debenture.

                        ARTICLE THREE.

                  Redemption of Debentures.

      Section 3.01.  Right of Redemption.  The Debentures may be redeemed
 prior to maturity without penalty at the option of the Company at any time
 after the average bid and ask price of the Company's Common Stock, as
 reported in the National Association of Securities Dealers Automated
 Quotations System, has exceeded $3.00 per share for 20 days within any
 30-day period, subject to the right of the Debentureholder to convert the
 Debenture into shares of Common Stock as provided in Article Eleven, at a
 price which shall be 100% of the principal amount thereof, plus in each
 case interest accrued to, and not paid on or before, the date fixed for
 redemption of such Debentures:

      Section 3.02.  Selection by Company of Debentures to Be Redeemed.  In
 case of any redemption at the election of the Company of less than all of
 the Debentures, the Company shall, at least 30 days prior to the
 Redemption Date fixed by the Company, select the particular Debentures to
 be redeemed from the Outstanding Debentures not previously called for
 redemption, by such method as the Company shall deem fair and appropriate
 and which may provide for the selection for redemption of portions (equal
 to $1,000 or any integral multiple thereof) of the principal amount of
 Debentures.

      If any Debenture selected for partial redemption is converted in part
 before termination of the conversion right with respect to the portion of
 the Debenture so selected, the converted portion of such Debenture shall
 be deemed (so far as may be) to be the portion selected for redemption.
 Debentures which have been converted during a selection of Debentures to
 be redeemed shall be treated as Outstanding for the purpose of such
 selection.

      Section 3.03.  Notice of Redemption.  Notice of redemption shall be
 given by first-class mail, postage prepaid, mailed not less than 30 nor
 more than 90 days prior to the Redemption Date, to each holder of
 Debentures to be redeemed, at his address appearing in the Debenture
 register.  All notices of redemption shall state:

           (a)  the Redemption Date;

           (b)  the Redemption Price;

           (c)  if less than all the Outstanding Debentures are to be
 redeemed, the identification (and, in the case of partial redemption, the
 principal amounts) of the particular Debentures to be redeemed;

           (d)  that on the Redemption Date the Redemption Price will
 become due and payable upon each such Debenture to be redeemed and that
 interest thereon will cease to accrue on and after said date;

           (e)  the Conversion Price, the date on which the right to
 convert the principal of the Debentures to be redeemed will terminate
 (which shall be on the 15th day prior to the Redemption Date) and the
 place or places where such Debentures may be surrendered for conversion;
 and
           (f)  the place or places where such Debentures are to be
 surrendered for payment of the Redemption Price.

      Notice of redemption of Debentures to be redeemed at the election of
 the Company shall be given by the Company at the expense of the Company.

      Section 3.04.  Deposit of Redemption Price.  Prior to any Redemption
 Date, the Company shall deposit into a segregated account an amount of
 money sufficient to pay the Redemption Price of, and (except if the
 Redemption Date shall be an interest payment date) accrued interest on,
 all the Debentures which are to be redeemed on that date other than any
 Debentures called for redemption on that date which have been converted
 prior to the date of such deposit.

      If any Debenture called for redemption is converted, any money
 deposited for the redemption of such Debenture shall (subject to any right
 of the holder of such Debenture to receive interest as provided in the
 last paragraph of Section 2.02) be discharged from such account.

      Section 3.05.  Debentures Payable on Redemption Date.  Notice of
 redemption having been given as aforesaid, the Debentures so to be
 redeemed shall, on the Redemption Date, become due and payable at the
 Redemption Price therein specified, and from and after such date (unless
 the Company shall default in the payment of the Redemption Price and
 accrued interest) such Debentures shall cease to bear interest. Upon
 surrender of any such Debenture for redemption in accordance with said
 notice, such Debenture shall be paid by the Company at the Redemption
 Price, together with accrued interest to the Redemption Date; provided,
 however, that installments of interest whose stated maturity is on or
 prior to the Redemption Date shall be payable to the holders of such
 Debentures, registered as such at the close of business on the relevant
 record dates according to their terms and the provisions of Section 2.02.

      If any Debenture called for redemption shall not be so paid upon
 surrender thereof for redemption, the principal shall, until paid, bear
 interest from the Redemption Date at the rate borne by the Debenture.

      Section 3.06.  Debentures Redeemed in Part.  Any Debenture which is
 to be redeemed only in part shall be surrendered at the executive office
 of the Company (with, if the Company so requires, due endorsement by, or a
 written instrument of transfer in form satisfactory to the Company duly
 executed by, the holder thereof or his attorney duly authorized in
 writing), and the Company shall execute, register, and deliver to the
 holder of such Debenture without service charge, a new Debenture or
 Debentures, of any authorized denomination as requested by such holder, in
 aggregate principal amount equal to and in exchange for the unredeemed
 portion of the principal of the Debenture so surrendered.

                         ARTICLE FOUR.

             Particular Covenants of the Company.

           Section 4.01.  Payment of Principal and Interest.  The Company
 covenants and agrees that it will duly and punctually pay or cause to be
 paid the principal of and interest on each of the Debentures at the place,
 at the respective times and in the manner provided in the Debentures.  The
 principal of and interest on the Debentures shall be payable at the
 executive office of the Company; provided, however, that interest may be
 payable, at the option of the Company, by check mailed to the address of
 the person entitled thereto as such address shall appear on the Debenture
 register.

      Section 4.02.  Office for Transfer, Exchange, Conversion, Notices and
 Payments, Etc.  Presentation and demand may be made and notice may be
 served in respect of the Debentures at the principal office of the
 Company.

     Section 4.03.  No Interest Extension.  In order to prevent any
 accumulation of claims for interest after maturity thereof, the Company
 will not directly or indirectly extend or consent to the extension of the
 time for the payment of any claim for interest on any of the Debentures
 and will not directly or indirectly be a party to or approve any such
 arrangement by the purchase or funding of said claims for interest or in
 any other matter. No claim for interest, the time of payment of which
 shall have been so extended or which shall have been so purchased or
 funded, shall be entitled in case of an Event of Default to the rights and
 remedies provided hereunder except after the prior payment in full of the
 principal of all the Debentures and claims for interest not so extended,
 purchased or funded; provided, however, that this Section 4.03 shall not
 apply in any case where an extension shall be made pursuant to a plan
 proposed by the Company to the holders of all the Debentures then
 outstanding.

      Section 4.04.  Company as Paying Agent.  The Company shall act as its
 own paying agent, and will, on or before each due date of the principal if
 any, or interest on the Debentures, set aside, segregate and hold in trust
 for the benefit of the holders of the Debentures a sum sufficient to pay
 such principal or interest so becoming due and will notify each holder of
 any of the Debentures of any failure to take such action and of any
 failure by the Company (or by any other obligor under the Debentures) to
 make any payment of the principal of or interest on the Debentures when
 the same shall become due and payable.  Anything in this Section 4.04 to
 the contrary notwithstanding, the agreement to hold sums in trust as
 provided in this Section 4.04 is subject to the provisions of Article
 Twelve.

      Section 4.05.  Corporate Existence.  Subject to Article Nine, the
 Company will do or cause to be done all things necessary to preserve and
 keep in full force and effect its corporate existence.

      Section 4.06.  Dividends and Repurchase of Shares.  Without the prior
 written consent of the holders of record of not less than 60% in principal
 amount of the Debentures then outstanding, the Company will not directly
 or indirectly, through any of its Subsidiaries or otherwise, pay or
 declare any dividends (other than dividends payable in capital stock of
 the Company) or apply any of its property or assets to the purchase,
 redemption or other retirement of, or set apart any sum for the payment of
 any dividends on, or for the purchase, redemption or retirement of, or
 make any distribution by reduction of capital or otherwise in respect of,
 or permit any Subsidiary or the Company to purchase any shares of, any
 class of the capital stock of the Company.  However, the Company shall not
 be precluded from repurchasing any of its shares of Common Stock pursuant
 to an obligation to repurchase such shares from the proceeds of any life
 insurance policy on the life of an employee, officer or director of the
 Company.

      Section 4.07.  Maintenance of Registration of the Common Stock under
 Section 12(g) of the Exchange Act.  The Company covenants and agrees that
 it will take all necessary steps and use its best efforts to cause the
 Common Stock to continue to be registered under Section 12(g) of the
 Securities Exchange Act of 1934, as amended, and to be approved for
 quotation on the Nasdaq SmallCap Market ("Nasdaq") until such time as it
 may be approved for listing on a national stock exchange.

                         ARTICLE FIVE.

      Debentureholders Lists and Reports by the Company.

      Section 5.01.  Debentureholders Lists.  The Company covenants and
 agrees that it will at all times maintain, or cause its transfer agent to
 maintain, a list of the names and addresses of the holders of Debentures,
 in as current a form as is reasonably practicable.

      Section 5.02.  Reports by the Company.  The Company covenants and
 agrees to mail to each registered holder of a Debenture, copies of the
 annual reports and other information as are furnished to shareholders of
 the Company from time to time.

                         ARTICLE SIX.

     Remedies of the Debentureholders on Event of Default.

      Section 6.01.  Events of Default.  In case one or more of the
 following Events of Default shall have occurred and be continuing:

           (a)  default in the payment of any installment of interest upon
 any of the Debentures as and when the same shall become due and payable,
 and continuance of such default for a period of 30 days; or

           (b)  default in the payment of the principal of any of the
 Debentures as and when the same shall become due and payable either at
 maturity, upon redemption, by declaration or otherwise; or

           (c)  failure on the part of the Company to duly observe or
 perform any other of the covenants or agreements on the part of the
 Company contained in this Debenture for a period of 90 days after the date
 on which written notice of such failure, stating that such failure is a
 "Notice of Default" hereunder and requiring the same to be remedied, shall
 have been given to the Company, by registered mail, by the holders of at
 least 40% in aggregate principal amount of the Debentures at the time
 outstanding; or
           (d)  default in the payment of principal or interest on any
 Senior Indebtedness, or on any other indebtedness for borrowed money in
 the aggregate principal amount $500,000 or more, in either
  case if such default shall continue for a period of 30 days; or

           (e)  the entry of a decree or order for relief by a court having
 jurisdiction in the premises with respect to the Company in an involuntary
 case under any applicable bankruptcy, insolvency or other similar law now
 or hereafter in effect or the appointing of a receiver, liquidator,
 assignee, custodian, trustee, sequestrator (or other similar official) of
 the Company or of all or substantially all of its property, or ordering
 the winding up or liquidation of its affairs, and the continuance of any
 such decree or order unstayed and in effect for a period of 120
 consecutive days; or

           (f)  the institution by the Company of proceedings under Title
 11 of the United States Code or to be adjudged insolvent, or the consent
 by it to the institution of bankruptcy or insolvency or other similar
 proceedings against it or the consent by it to the entry of an order for
 relief in an involuntary case or to the appointment of or taking
 possession by a receiver, liquidator, assignee, trustee, custodian,
 sequestrator (or other similar official) of the Company or of all or
 substantially all of its property, or the making by it of an arrangement
 for the benefit of creditors, or the admission by it in writing of the
 failure generally by it to pay its debts as they become due or the taking
 of corporate action by the Company in furtherance of any such action; then
 and in each and every such case, unless the principal of all of the
 Debentures shall have already become due and payable, the holders of not
 less than 25% in aggregate principal amount of the Debentures then
 outstanding hereunder, by notice in writing to the Company, may declare
 the principal of this Debenture and the interest accrued thereon to be due
 and payable immediately, and upon any such declaration the same shall
 become and shall be immediately due and payable, anything contained in
 this Debenture to the contrary notwithstanding.  This provision, however,
 is subject to the condition that if, at any time after the principal of
 the Debentures shall have been so declared due and payable, and before any
 judgment or decree for the payment of the moneys due shall have been
 obtained or entered as hereinafter provided, the Company shall have paid
 all matured installments of interest upon all of the Debentures and the
 principal of any and all Debentures which shall have become due otherwise
 than by acceleration (with interest on overdue installments of interest to
 the extent that payment of such interest is enforceable under applicable
 law and on such principal at the rate borne by the Debentures, to the date
 of such payment or deposit), and any and all defaults under this Debenture
 other than the nonpayment of principal of and accrued interest on
 Debentures which shall have become due by acceleration, shall have been
 cured or shall have been waived in accordance with Section 6.04; then, and
 in every such case, the holders of at least 60% in aggregate principal
 amount of the Debentures then outstanding, by written notice to the
 Company, may rescind and annul such declaration and its consequences; but
 no such rescission and annulment shall extend to or shall affect any
 subsequent default, or shall impair any right consequent thereon.

      Section 6.02.  Proceedings by Debentureholder.  In case of an Event
 of Default hereunder, the holder of this Debenture shall be entitled to
 institute any actions or proceedings at law or in equity for the
 collection of all sums due and payable on this Debenture for principal or
 interest, or both, as the case may be, with interest upon the overdue
 principal, and (to the extent that payment of such interest is enforceable
 under applicable law) upon the overdue installments of interest at the
 rate borne by the Debentures, and such further reasonable amount as shall
 be sufficient to cover the costs and expenses of collection, including
 attorneys' fees, and may prosecute any such action or proceeding to
 judgment or final decree, and may enforce any such judgment or final
 decree against the Company and collect in the manner provided by law out
 of the property of the Company wherever situated the moneys adjudged or
 decreed to be payable, it being understood and intended, and being
 expressly covenanted by the taker and holder of every Debenture with every
 other taker and holder that no one or more holders of Debentures shall
 have any right in any manner whatsoever by virtue of or by availing of any
 provision of the Debentures to affect, disturb or prejudice the rights of
 any other holder of such Debentures, or to obtain or seek to obtain
 priority over or preference to any other such holder, or to enforce any
 right under this Debenture, except in the manner herein provided and for
 the equal, ratable and common benefit of all holders of Debentures.
 Notwithstanding any other provisions in this  Debenture, the right of any
 holder of any Debenture to receive payment of the principal of and
 interest on such Debenture, on or after the respective due dates expressed
 in such Debenture, and to convert such Debenture in accordance with the
 provisions hereof or to institute suit for the enforcement of any such
 payment on or after such respective dates or to compel conversion shall
 not be impaired or affected without the consent of such holder.

      Section 6.03.  Remedies Cumulative and Continuing.  Except as
 provided in Section 6.02, all powers and remedies given by this Article
 Six to the Debentureholders shall, to the extent permitted by law, be
 deemed cumulative and not exclusive of any thereof or of any other powers
 and remedies available to the holders of the Debentures, by judicial
 proceedings or otherwise, to enforce the performance or observance of the
 covenants and agreements contained in this Debenture, and no delay or
 omission of any holder of any of the Debentures to exercise any right or
 power accruing upon any default occurring and continuing as aforesaid
 shall impair any such right or power, or shall be construed to be a waiver
 of any such default or an acquiescence therein; and, subject to the
 provisions of Section 6.02, every power and remedy given by this Article
 Six or by law to the Debentureholders may be exercised from time to time,
 and as often as shall be deemed expedient, by any of the Debentureholders.

      Section 6.04.  Waiver of Defaults by Debentureholders.  The holders
 of 60% in aggregate principal amount of the Debentures at the time
 outstanding may on behalf of the holders of all of the Debentures waive
 any past default or Event of Default hereunder and its consequences except
 a default in the payment of interest on, or the principal of, the
 Debentures or a default in respect of a covenant or provision hereof which
 cannot be modified or amended without the consent of the holder of each
 Debenture affected.  Upon any such waiver the Company and the holders of
 the Debentures shall be restored to their former positions and rights
 hereunder, respectively; but no such waiver shall extend to any subsequent
 or other default or Event of Default or impair any right consequent
 thereon.  Whenever any default or Event of Default hereunder shall have
 been waived as permitted by this Section 6.04, said Event of Default shall
 for all purposes of the Debentures be deemed to have been cured and to be
 not continuing.

     Section 6.05.  Undertaking to Pay Costs.  Each holder of any Debenture
 by his acceptance thereof shall be deemed to have agreed that any court
 may in its discretion require, in any suit for the enforcement of any
 right or remedy under the Debentures, the filing by any party litigant in
 such suit of an undertaking to pay the costs of such suit, and that such
 court may in its discretion assess reasonable costs, including reasonable
 attorneys' fees, against any party litigant in such suit, having due
 regard to the merits and good faith of the claims or defenses made by such
 party litigant; but the provisions of this Section 6.05 shall not apply to
 any suit instituted by any Debentureholder, or group of Debentureholders,
 holding in the aggregate more than 20% in principal amount of the
 Debentures outstanding, or to any suit instituted by any Debentureholder
 for the enforcement of the payment of the principal or interest on any
 Debenture against the Company on or after the due date expressed in such
 Debenture.

                        ARTICLE SEVEN.

               Concerning the Debentureholders.

      Section 7.01.  Action by Debentureholders.  Whenever in this
 Debenture it is provided that the holders of a specified percentage in
 aggregate principal amount of the Debentures may take any action
 (including the making of any demand or request, the giving of any notice,
 consent or waiver or the taking of any other action) the fact that at the
 time of taking any such action the holders of such specified percentage
 have joined therein may be evidenced (a) by any instrument or any number
 of instruments of similar tenor executed by Debentureholders in person or
 by agent or proxy appointed in writing, or (b) by the record of the
 holders of Debentures voting in favor thereof at any meeting of
 Debentureholders duly called and held in accordance with the provisions of
 Article Eight, or (c) by a combination of such instrument or instruments
 and any such record of such a meeting of Debentureholders.

      Section 7.02.  Proof of Execution by Debentureholders.  Subject to
 the provisions of Section 8.04, proof of the execution of any instrument
 by a Debentureholder or his agent or proxy shall be sufficient if made in
 accordance with such reasonable rules and regulations as may be prescribed
 by the Company or in such manner as shall be satisfactory to the Company.
 The ownership of Debentures shall be proved by the Debenture register. The
 record of any Debentureholders' meeting shall be proved in the manner
 provided in Section 8.05.

      Section 7.03.  Who Are Deemed Absolute Owners.  The Company deems the
 person in whose name such Debenture shall be registered upon the Debenture
 register to be, and may treat him as, the absolute owner of such Debenture
 (whether or not such Debenture shall be overdue and notwithstanding any
 notation of ownership or other writing thereon made by anyone other than
 the Company) for the purpose of receiving payment of or on account of the
 principal and (subject to Section 2.02) interest on such Debenture and for
 all other purposes; and the Company shall not be affected by any notice to
 the contrary.  All such payments so made to any holder for the time being
 or upon his order shall be valid and to the extent of the sum or sums so
 paid, effectual to satisfy and discharge the liability for moneys payable
 upon any such Debenture.

      Section 7.04.  Company-Owned Debentures Disregarded.  In determining
 whether the holders of the requisite aggregate principal amount of
 Debentures have concurred in any direction or consent under the
 Debentures, Debentures which are owned by the Company or any other obligor
 on the Debentures or by any person directly or indirectly controlling or
 controlled by or under direct or indirect common control with the Company
 or any other obligor on the Debentures shall be disregarded and deemed not
 to be outstanding for the purpose of any such determination.  Debentures
 so owned which have been pledged in good faith may be regarded as
 outstanding for the purposes of this Section 7.04 if the pledgee shall
 establish to the satisfaction of the Company the pledgee's right to vote
 such Debentures and that the pledgee is not a person directly or
 indirectly controlling or controlled by or under direct or indirect common
 control with the Company or any such other obligor. In the case of a
 dispute as to such right, any decision by the Company based upon the
 advice of counsel shall be full protection to the Company.

      Section 7.05.  Revocation of Consents; Future Holders Bound.  At any
 time prior to (but not after) the taking of any action by the holders of
 the percentage in aggregate principal amount of the Debentures specified
 herein in connection with such action, any holder of a Debenture which is
 shown by the evidence to be included in the Debentures the holders of
 which have consented to or are bound by consents to such action may, by
 filing written notice with the Company at its principal office and upon
 proof of holding as provided in Section 7.02, revoke such action so far as
 concerns such Debenture.  Except as aforesaid, any such action taken by
 the holder of any Debenture shall be conclusive and binding upon such
 holder and upon all future holders and owners of such Debenture and of any
 Debenture issued in exchange or substitution therefor, irrespective of
 whether or not any notation in regard thereto is made upon any such
 Debenture.

      Section 7.06.  Waiver of Provisions of Debentures.  Any and all
 provisions, covenants, conditions, or restrictions relating to the
 Debentures may be waived by the affirmative vote, at a meeting duly held
 in accordance with Article Eight hereof, or by written consent obtained by
 the Company, of the holders of 60% of the aggregate principal amount of
 the Debentures registered and outstanding as of the date of such meeting
 or the date on which such consent is requested in writing.

                        ARTICLE EIGHT.

                  Debentureholders' Meetings.

      Section 8.01.  Purposes of Meetings.  A meeting of Debentureholders
 may be called at any time and from time to time pursuant to the provisions
 of this Article Eight to give any notice to the Company, or to give any
 directions to the Company, or to consent to the waiving of any default
 hereunder and its consequences, or to take any other action authorized to
 be taken by Debentureholders pursuant to any of the provisions of Article
 Six, and to take any other action authorized to be taken by or on behalf
 of the holders of any specified aggregate principal amount of the
 Debentures under any other provision of this Debenture or under applicable
 law.

      Section 8.02.  Call of Meetings by the Company or Debentureholders.
 The Company, pursuant to a resolution of its Board of Directors, or the
 holders of at least 10% in aggregate principal amount of the Debentures
 then outstanding, shall be entitled to call a meeting of Debentureholders,
 by the giving of notice thereof in writing, setting forth the time and the
 place of such meeting and in general terms the action proposed to be taken
 at such meeting, which shall be mailed to holders of Debentures at their
 addresses as they shall appear on the Debenture register. Such notice
 shall be mailed not less than 20 nor more than 90 days prior to the date
 fixed for the meeting.

      Section 8.03.  Qualifications for Voting.  To be entitled to vote at
 any meeting of Debentureholders a person shall (i) be a holder of one or
 more Debentures, or (ii) be a person appointed by an instrument in writing
 as proxy by a holder of one or more Debentures.  The only persons who
 shall be entitled to be present or to speak at any meeting of
 Debentureholders shall be the persons entitled to vote at such meeting and
 their counsel and any representatives of the Company and its counsel.

      Section 8.04.  Regulations.  Notwithstanding any other provisions of
 this Debenture, the Company may make such reasonable regulations as it may
 deem advisable for any meeting of Debentureholders, in regard to proof of
 the holding of Debentures and of the appointment of proxies, and in regard
 to the appointment and duties of inspectors of votes, the submission and
 examination of proxies, certificates and other evidence of the right to
 vote, and such other matters concerning the conduct of the meeting as it
 shall think fit.

      The Company or the Debentureholders calling the meeting, as the case
 may be, shall appoint a temporary chairman for the meeting.  A permanent
 chairman and a secretary of the meeting shall be elected by majority vote
 of the meeting.

      At any meeting each Debentureholder or proxy shall be entitled to one
 vote for each $1,000 principal amount of Debentures held or represented by
 him; provided, however, that no vote shall be cast or counted at any
 meeting in respect of any Debenture challenged as not outstanding and
 ruled by the chairman of the meeting to be not outstanding.  The chairman
 of the meeting shall have no right to vote other than by virtue of
 Debentures held by him or instruments in writing as aforesaid duly
 designating him as the person to vote on behalf of other Debentureholders.
 Any meeting of Debentureholders duly called pursuant to the provisions of
 Section 8.02 may be adjourned from time to time by a majority vote of the
 meeting, whether or not constituting a quorum, and the meeting may be held
 as so adjourned without further notice.

      Section 8.05.  Voting.  The vote upon any resolution submitted to any
 meeting of Debentureholders shall be by written ballots on which shall be
 subscribed the signatures of the holders of Debentures or of their
 representatives by proxy and the principal amount of the Debentures voted.
 The permanent chairman of the meeting shall appoint two inspectors of
 votes who shall count all votes cast at the meeting for or against any
 resolution and who shall make and file with the secretary of the meeting
 their verified written reports in duplicate of all votes cast at the
 meeting.  A record in duplicate of the proceedings of each meeting of
 Debentureholders shall be prepared by the secretary of the meeting and
 there shall be attached to said record the original reports of the
 inspectors of votes on any vote by ballot taken thereat and affidavits by
 one or more persons having knowledge of the facts setting forth a copy of
 the notice of the meeting and showing that said notice was mailed as
 provided in Section 8.02.

      The record shall be signed and verified by the affidavits of the
 permanent chairman and secretary of the meeting and one of the duplicates
 shall be delivered to the Company to be preserved by the Company.  Any
 record so signed and verified shall be conclusive evidence of the matters
 therein stated.

      Section 8.06.  No Delay of Rights by Meeting.  Nothing in this
 Article Eight contained shall be deemed or construed to authorize or
 permit, by reason of any call of a meeting of Debentureholders or any
 rights expressly or impliedly conferred hereunder to make such call, any
 hindrance or delay in the exercise of any right or rights conferred upon
 or reserved to the Debentureholders under any of the provisions of the
 Debentures.

                         ARTICLE NINE.

      Consolidation, Merger, Sale, Conveyance and Lease.

      Section 9.01.  Company May Consolidate, etc., on Certain Terms.
 Nothing contained in any of the Debentures shall prevent (i) any
 consolidation or merger of the Company with or into any other corporation
 or corporations (whether or not affiliated with the Company), or
 successive consolidations or mergers in which the Company or its successor
 or successors shall be a party or parties, provided that the corporation
 or successive acquiring corporations shall have a class of equity
 securities registered under Section 12(g) of the Securities Exchange Act
 of 1934, as amended, and that the Debentures shall thereafter be
 convertible into such class of equity securities, or (ii) any sale, or
 conveyance of assets not exceeding 10% of the consolidated net tangible
 assets of the Company, the assumption of otherwise prohibited liens or
 sale and leaseback of assets owned by the Company as of the date of this
 Debenture, or, provided that the aggregate amount of the otherwise
 prohibited liens and the present value of the sale and leaseback
 transactions does not exceed 25% of the consolidated net tangible assets
 of the Company, to any other corporation (whether or not affiliated with
 the Company) authorized to acquire and operate the same; provided,
 however, that in the event of a sale or conveyance of assets the Company
 hereby covenants and agrees that upon any such sale or conveyance, and
 upon any such merger or consolidation in which the Company is not the
 surviving corporation, the due and punctual payment of the principal and
 interest on all of the Debentures, according to their tenor, and the due
 and punctual performance and observance of all of the covenants and
 conditions of the Debentures to be performed by the Company, shall be
 expressly assumed by the corporation (if other than the Company) formed by
 such consolidation, or into which the Company shall have been merged, or
 by the corporation which shall have acquired such property, and
 immediately after such consolidation, merger, or acquisition, the Company,
 its Subsidiaries, or such successor corporation, as the case may be, shall
 not be or become in violation of any of the terms, covenants or conditions
 of the Debentures.  In case of any such consolidation, merger, sale, or
 conveyance, changes in phraseology and form (but not in substance) may be
 made in the Debentures thereafter to be issued as may be appropriate.

                         ARTICLE TEN.

 Immunity of Incorporators, Shareholders, Officers and Directors.

      Section 10.01.  Debentures Solely Corporate Obligations.  No recourse
 for the payment of the principal of or interest on any Debenture, or for
 any claim based thereon or otherwise in respect thereof, and no recourse
 under or upon any obligation, covenant or agreement of the Company in any
 Debenture, or because of the creation of any indebtedness represented
 thereby, shall be had against any incorporator, shareholder, officer or
 director, as such, past, present or future, of the Company or of any
 successor corporation, either directly or through the Company or any
 successor corporation, whether by virtue of any constitution, statute or
 rule of law, or by the enforcement of any assessment or penalty or
 otherwise; it being expressly understood that all such liability is hereby
 expressly waived and released as a condition of, and as a consideration
 for, the issue of the Debentures.

 ARTICLE ELEVEN.

 Conversion of Debentures.

      Section 11.01.  Conversion Privilege.  Subject to and upon compliance
 with the provisions of this Article Eleven, at the option of the holder
 thereof, any Debenture or any portion of the principal amount thereof
 which is $1,000 or an integral multiple of $1,000 may, at any time on or
 prior to the close of business on the 15th day preceding the maturity
 date, or in case such Debenture or portion thereof shall have been called
 for redemption prior to such date, then in respect of such Debenture or
 portion thereof until and including, but (unless the Company shall default
 in payment due upon the redemption thereof) not after, the close of
 business on the 15th day prior to such Redemption Date, be converted into
 duly authorized, validly issued, fully paid and non-assessable shares of
 Common Stock of the Company. The number of shares of Common Stock issuable
 upon conversion shall be equal to the principal amount of such Debenture,
 or such portion thereof, divided by the Conversion Price (determined as
 hereinafter provided) in effect at the time of conversion and rounded to
 the nearest one-hundredth of a share.  The price at which shares of Common
 Stock shall be delivered upon conversion (herein called the "Conversion
 Price") shall be $2.50 per share of Common Stock.  After March 1, 2000,
 the Debentures are convertible at 75% of the current market or $2.50,
 whichever is lower.  The Company may at any time reduce the Conversion
 Price by any amount.

      Section 11.02.  Manner of Exercise of Conversion Privilege.  In order
 to exercise the conversion privilege, the holder of any Debenture to be
 converted shall surrender such Debenture during regular business hours to
 the executive office of the Company in accordance with Section 4.02,
 accompanied by written notice to the Company at said office that the
 holder elects to convert such Debenture or, if less than the entire
 principal amount of the Debenture is to be converted, the portion thereof
 to be converted.  Such notice shall also state the name or names (with
 address and tax identification number) in which the certificate or
 certificates for shares of Common Stock issuable upon such conversion
 shall be issued. Debentures surrendered for conversion shall be
 accompanied by proper assignments thereof to the Company or in blank for
 transfer. As promptly as practicable after the receipt of such notice and
 the surrender of such Debenture as aforesaid, but subject to Section
 11.03, the Company shall deliver or cause to be delivered at said office
 or agency to such holder, or on his written order, a certificate or
 certificates for the number of full shares of Common Stock  issuable upon
 the conversion of such Debenture (or specified portion thereof) and
 provision shall be made in respect of any fractional interest as provided
 in Section 11.03. Such conversion shall be deemed to have been effected
 immediately prior to the close of business on the date on which such
 notice shall have been received by the Company and such Debenture shall
 have been surrendered as aforesaid, and at such time the rights of the
 holder of such Debenture as such holder 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.

      Subject to the requirement for a payment provided in Section 2.02 in
 the event of conversion after the close of business on the record date
 preceding an interest payment date, no payment or adjustment shall be made
 upon any conversion on account of any interest accrued on the Debentures
 delivered for conversion or on account of any dividends on the shares of
 Common Stock issued upon such conversion.

      In case any Debenture is converted in part only, upon such conversion
 the Company shall execute, register and deliver to the holder thereof, at
 the expense of the Company, a new Debenture or Debentures of authorized
 denominations in principal amount equal to the unconverted portion of such
 Debenture.

      Section 11.03.  Cash Adjustment Upon Conversion.  No fractional
 shares of Common Stock shall be issued upon conversions of Debentures. If
 more than one Debenture shall be surrendered for conversion at one time by
 the same holder, the number of full shares which shall be issuable upon
 conversion thereof shall be computed on the basis of the aggregate
 principal amount of the Debentures (or specified portions thereof to the
 extent permitted hereby) so surrendered.  Instead of any fractional share
 of Common Stock which would otherwise be issuable upon conversion of any
 Debenture or Debentures or specified portions thereof, the Company shall
 pay a cash adjustment in respect of such fraction in an amount equal to
 the same fraction of the closing bid price of the Common Stock as reported
 by Nasdaq, or the last sale price if the Common Stock is then traded on a
 national securities exchange, at the close of business on the business day
 which next precedes the day of conversion.

      Section 11.04.  Adjustment of Conversion Price.  The Conversion Price
 in effect at any time shall be subject to adjustment as follows:

           (a)  In case the Company shall (i) declare a dividend on its
 Common Stock in shares of its capital stock, (ii) subdivide its
 outstanding shares of Common  Stock, (iii) combine its outstanding shares
 of Common Stock into a smaller number of shares, or (iv) issue by
 reclassification of its Common Stock (including any such reclassification
 in connection with a consolidation or merger in which the Company is the
 continuing corporation) any shares of its capital stock, the Conversion
 Price in effect at the time of the record date for such dividend or of the
 effective date of such subdivision, combination or reclassification shall
 be proportionately adjusted so that the holder of any Debenture
 surrendered for conversion after such time shall be entitled to receive
 the kind and number of shares which he would have owned or have been
 entitled to receive had such Debenture been converted immediately prior to
 such time. Such adjustment shall be made successively whenever any event
 listed above shall occur.

           (b)  In case the Company shall distribute to all holders of its
 Common Stock (including any such distribution made in connection with a
 consolidation or merger in which the Company is the continuing
 corporation) evidences of its indebtedness or assets (excluding dividends
 or other distributions paid out of earned surplus) or subscription rights
 or warrants, the Conversion Price shall be adjusted so that the same shall
 equal the price determined by multiplying the Conversion Price in effect
 immediately prior to the close of business on the date fixed for the
 determination of stockholders entitled to receive such distribution by a
 fraction of which the numerator shall be the current Conversion Price on
 the date fixed for such determination less the then fair market value (as
 determined by the Board of Directors, whose determination shall be
 conclusive) of the portion of the assets or evidences of indebtedness so
 distributed applicable to one share of Common Stock and the denominator
 shall be such current Conversion Price, such adjustment to become
 effective immediately prior to the opening of business on the day
 following the date fixed for the determination of stockholders entitled to
 receive such distribution.

           (c)  For the purpose of any computation under subsection (b)
 immediately, the current Conversion Price on any date shall be deemed to
 be the Conversion Price as in effect immediately prior to the transaction
 giving rise to such computation, after taking into account all previous
 adjustments of the Conversion Price in accordance with the provisions of
 this Article Eleven.

           (d)  All calculations under this Article Eleven shall be made to
 the nearest cent or to the nearest one-hundredth of a share, as the case
 may be.

           (e)  In case of any consolidation or merger of the Company with
 or into any other corporation (other than a consolidation or merger in
 which the Company is the continuing corporation), or in case of any sale
 or transfer of all or substantially all the assets of the Company, the
 holder of each Debenture shall after such consolidation, merger, sale or
 transfer have the right to convert such Debenture into the kind and number
 of shares of stock and other securities and property which such holder
 would have been entitled to receive upon such consolidation, merger, sale
 or transfer if he had held the Common Stock issuable upon the conversion
 of such Debenture immediately prior to such consolidation, merger, sale or
 transfer.

           (f)  In the event that at any time, as a result of an adjustment
 made pursuant to subsection (a) above, the holder of any Debenture
 thereafter surrendered for conversion shall become entitled to receive any
 securities other than shares of Common Stock, thereafter the amount of
 such other securities so receivable upon conversion of any Debenture shall
 be subject to adjustment from time to time in a manner and on terms as
 nearly equivalent as   practicable to the provisions with respect to the
 Common Stock contained in subsection (a) through (e), inclusive, above,
 and the provisions of this Article Eleven with respect to the Common Stock
 shall apply on like terms to any such other securities.

           (g)  No adjustment in the Conversion Price shall be required
 unless such adjustment would require a change of at least 1% in such
 price; provided, however, that any adjustments which by reason of this
 subsection (g) are not required to be made shall be carried forward and
 taken into account in any subsequent adjustment.

      Section 11.05.  Company to Give Notice of Adjustment.  Whenever the
 Conversion Price is adjusted as herein provided:

           (a)  the Company shall obtain a certificate of a firm of
 independent public accountants selected by the Board of Directors (who may
 be the regular accountants employed by the Company) setting forth the
 adjusted Conversion Price and showing in reasonable detail the facts upon
 which such adjustment is based, and such certificate shall forthwith be
 filed at the office or agency maintained for the purpose of conversion of
 Debentures pursuant to Section 4.02, and

           (b)  a notice stating that the Conversion Price has been
 adjusted and setting forth the adjusted Conversion Price shall forthwith
 be required, and as soon as practicable after it is required, such notice
 shall be mailed by the Company to the holders of the Debentures at their
 last address as they shall appear upon the Debenture register provided for
 in Section 5.01, provided, however, that if within ten days after the
 mailing of such a notice, an additional notice is required, such
 additional notice shall be deemed to be required pursuant to this clause
 (b) as of the opening of business on the tenth day after such mailing and
 shall set forth the Conversion Price as adjusted at such opening of
 business, and upon the mailing of such additional notice no other notice
 need be given of any adjustment in the Conversion Price occurring at or
 prior to such opening of business and after the time that the next
 preceding notice given by mailing became required.

      Section 11.06.  Company to Give Notice of Certain Events.   In case:

           (a)  the Company shall authorize the distribution to all holders
 of its Common Stock of evidence of its indebtedness or assets (other than
 dividends or other distributions paid out of earned surplus); or

           (b)  the Company shall authorize the granting to the holders of
 its Common Stock of rights to subscribe for or purchase any shares of
 capital stock of any class or of any other rights; or

           (c)  of any reclassification of the Common Stock of the Company
 (other than a subdivision or combination of its outstanding shares of
 Common Stock), or of any consolidation or merger to which the Company is a
 party and for which approval of any stockholders of the Company is
 required, or of the sale or transfer of all or substantially all the
 assets of the Company; or

           (d)  of the voluntary or involuntary dissolution, liquidation or
 winding up of the Company;  then the Company shall cause to be filed at
 the office or agency maintained for the purpose of conversion of
 Debentures pursuant to Section 4.02, and shall cause to be mailed, first
 class postage prepaid, to the holders of Debentures at their last
 addresses as they shall appear upon the Debenture register provided for in
 Section 5.01, at least 20 days (or 10 days in any case specified in clause
 (a) or (b) above) prior to the applicable record date hereinafter
 specified, a notice stating (i) the date on which a record is to be taken
 for the purpose of such distribution or rights, or, if a record is not to
 be taken, the date as of which the holders of Common Stock of record to be
 entitled to such distribution or rights are to be determined, or (ii) the
 date on which such reclassification, consolidation, merger, sale,
 transfer, dissolution, liquidation or winding up is expected to become
 effective, and the date as of which it is expected that holders of Common
 Stock of record shall be entitled to exchange their Common Stock for
 securities or other property deliverable upon such reclassification,
 consolidation, merger, sale, transfer, dissolution, liquidation or winding
 up.

      Section 11.07.  Reservation of Common Stock.  The Company shall at
 all times reserve and keep available, free from preemptive rights, out of
 its authorized but unissued Common Stock, for the purpose of effecting the
 conversion of Debentures, the full number of shares of Common Stock then
 issuable upon the conversion of all Outstanding Debentures. For the
 purpose of this Section 11.07, the full number of shares of Common Stock
 issuable upon the conversion of all Outstanding Debentures shall be
 computed as if at the time of computation of such number of shares of
 Common Stock all Outstanding Debentures were held by a single holder. The
 Company covenants and agrees that, if any shares of Common Stock required
 to be reserved for issuance upon conversion of Debentures hereunder
 require registration with or approval of any governmental authority under
 any Federal or State law, before such shares may be issued upon such
 conversions, the Company will in good faith and as expeditiously as
 possible endeavor to cause such shares to be so registered or approved.

      Section 11.08.  Taxes on Conversions.  The Company will pay any and
 all documentary or transfer taxes that may be payable in respect of the
 issue or delivery of shares of Common Stock on conversion of Debentures
 pursuant hereto. The Company shall not, however, be required to pay any
 such tax which may be payable in respect of any transfer involved in the
 issue or transfer and delivery of shares of Common Stock in a name other
 than that of the holder of the Debenture or Debentures to be converted,
 and no such issue or delivery shall be made unless and until the person
 requesting such issue has paid to the Company the amount of any such tax
 or has established to the satisfaction of the Company that such tax has
 been paid.

      Section 11.09.  Absence of Preemptive Rights.  The Company covenants
 that all authorized but unissued shares of Common Stock which may at any
 time be reserved pursuant to Section 11.07 for issuance upon conversions
 of Debentures will be free from preemptive rights and duly and validly
 authorized for issuance upon such conversions; and that all shares of
 Common Stock which may at any time be issued upon conversions of
 Debentures in accordance with the terms of this Debenture will upon such
 issuance be free from preemptive rights, duly and validly authorized and
 issued, fully paid and non-assessable.

      Section 11.10.  Debentures Converted.  All Debentures delivered for
 conversion shall be delivered to the Company to be canceled by or at the
 direction of the Company, who shall dispose of the same as provided in
 Section 2.05.

      Section 11.11.  Effect of Consolidation, Merger or Sale.  In case of
 any consolidation or merger of the Company with or into any other
 corporation (other than a consolidation or merger in which the Company is
 the continuing corporation), or in case of any sale or transfer of all or
 substantially all the assets of the Company, the corporation formed by
 such consolidation or the corporation into which the Company shall have
 been merged or the corporation which shall have acquired such assets, as
 the case may be, shall execute and deliver to each Debentureholder a
 written undertaking providing that the holder of each Debenture then
 outstanding shall have the right thereafter to convert such Debenture as
 provided in Paragraph (f) of Section 11.04, and that such corporation
 shall assume all of the other rights and obligations of the Debenture.
 The provisions of this Section 11.11 shall similarly apply to successive
 consolidations, mergers, sales or transfers.

                        ARTICLE TWELVE.

                 Subordination of Debentures.

      Section 12.01.  Agreement to Subordinate.  The Company covenants and
 agrees, and each holder of Debentures, by his acceptance thereof, likewise
 covenants and agrees, that the indebtedness evidenced by the Debentures
 and the payment of the principal thereof and interest thereon shall be
 subordinate and subject in right of payment, to the extent and in the
 manner hereinafter set forth, to the prior payment in full of all Senior
 Indebtedness.

      Section 12.02.  No Payment on Debentures in Event of Default on
 Senior Indebtedness.  The Company shall not make any payment on account of
 the principal of or interest on the Debentures if, at the time thereof or
 immediately after giving effect thereto, there exists (and has not been
 waived) any default in the payment of principal of or interest on any
 Senior Indebtedness or any event of default with respect to any Senior
 Indebtedness as defined therein (after giving effect to any grace period
 provided for therein) or in any agreement pursuant to which any Senior
 Indebtedness is issued and the default is the subject of a judicial
 proceeding or the Company receives notice of the default as provided in
 this Debenture or from any holder of Senior Indebtedness or any trustee
 therefor; provided, however, that, in the event the Debentures have been
 declared due and payable pursuant to Section 6.01, the provisions of the
 next succeeding paragraph of this Section 12.02 shall be applicable.

      In the event that any Event of Default as defined in Section 6.01
 shall occur (under such circumstances that the provisions of Section 12.03
 are not applicable) and as a result the Debentures then Outstanding are
 declared due  and payable pursuant to Section 6.01, and such declaration
 shall not have been rescinded or annulled, the Company shall not make any
 payment on account of the principal of or interest on any Debentures,
 unless at least 90 days shall have elapsed after said declaration and
 unless all principal of and interest on Senior Indebtedness due at the
 time of such payment (whether by acceleration of the maturity thereof or
 otherwise) shall first be paid in full.

      Section 12.03.  Distribution on Dissolution, Liquidation and
 Reorganization.  In the event of any payment or distribution of assets or
 securities of the Company of any kind or character, whether in cash,
 property or securities, to creditors upon any dissolution or winding up or
 total or partial liquidation or reorganization of the Company, whether
 voluntary or involuntary and whether in bankruptcy, insolvency or
 receivership proceedings, or upon an assignment for the benefit of
 creditors or any other marshaling of the assets and liabilities of the
 Company, or upon other proceedings:

           (a)  all principal, and interest due on all Senior Indebtedness
 shall first be paid in full, or due provision made for such payment, in
 accordance with the terms of such Senior Indebtedness, before any payment
 is made on account of the principal of or interest on the indebtedness
 evidenced by the Debentures, or before the holders of the Debentures shall
 be entitled to retain any assets so paid or distributed in respect
 thereof; and

           (b)  any payment or distribution of assets or securities of the
 Company of any kind or character, whether in cash, property or securities
 (other than securities of the Company as reorganized or readjusted or
 securities of the Company or any other corporation provided for by a plan
 of reorganization or readjustment, which are in any such case subordinated
 to Senior Indebtedness to the same extent as the Debentures), to which the
 holders of the Debentures would be entitled except for the provisions of
 this Section 12.03, shall be paid or delivered by the Company or any
 receiver, trustee in bankruptcy, liquidating trustee, agent or other
 person making such payment or distribution directly to the holders of
 Senior Indebtedness (pro rata to each such holder on the basis of the
 respective amount of Senior Indebtedness held by such holder) or their
 representative or representatives or the trustee or trustees under any
 indenture pursuant to which any instruments evidencing any Senior
 Indebtedness may have been issued, as their respective interests may
 appear, for application to the payment of all Senior Indebtedness
 remaining unpaid to the extent necessary to pay all Senior Indebtedness in
 full in accordance with the terms of such Senior Indebtedness, after
 giving effect to any concurrent payment or distribution to or for the
 holders of Senior Indebtedness, before any payment or distribution is made
 to the holders of the Debentures.

      The Company shall give prompt written notice to the Debentureholders
 of any dissolution, winding up, liquidation or reorganization of the
 Company within the meaning of Section 12.03.

      Section 12.04.  Payment to Holders of Senior Indebtedness.  Subject
 to the provisions of Section 12.06, in the event that, notwithstanding the
 provisions of Section 12.02 or Section 12.03, any payment or distribution
 of assets or securities of the Company of any kind or character, whether
 in cash, property or securities shall be received by the holders of the
 Debentures (i) from the Company in violation of such provisions, or (ii)
 from any other person under such circumstances that such payment would, if
 made directly by the Company, be in violation of such provisions, such
 payment or distribution shall immediately be paid over by such holders to
 the holders of Senior Indebtedness or their representative or
 representatives, or to the trustee or trustees under any indenture under
 which any instrument evidencing any of such Senior Indebtedness may have
 been issued, ratably according to the aggregate amounts then due on
 account of the principal of and interest on such Senior Indebtedness
 (after giving effect to any concurrent payment or distribution to the
 holders of such Senior Indebtedness), to the extent necessary to pay in
 full all such amounts then due.

      Upon any payment or distribution of assets or securities of the
 Company referred to in Sections 12.02 and 12.03, the holders of the
 Debentures shall be entitled to rely upon any order or decree of a court
 of competent jurisdiction, or upon any certificate of any liquidating
 trustee or agent or other person making any payment or distribution to the
 holders of the Debentures, for the purpose of ascertaining the persons
 entitled to participate in such payment or distribution, the holders of
 the Senior Indebtedness, the amount thereof or payment thereon, the amount
 or amounts paid or distributed thereon and all other facts pertinent
 thereto or to this Article Twelve.

      Section 12.05.  Subrogation.  Subject to the payment in full of all
 amounts then due (whether by acceleration of the maturity thereof or
 otherwise) on account of the principal of and interest on all Senior
 Indebtedness at the time outstanding, the holders of the Debentures shall
 be subrogated to the rights of each holder of Senior Indebtedness (to the
 extent of the payments or distributions made to such holder pursuant to
 the provisions of Sections 12.02, 12.03, and 12.04) to receive payments or
 distributions of assets or securities of the Company applicable to the
 Senior Indebtedness until the Debentures shall be paid in full, and each
 holder of Senior Indebtedness by the act of accepting such payments or
 distributions pursuant to the provisions of Sections 12.02, 12.03 and
 12.04 shall be deemed to have agreed to the subrogation aforesaid. No
 payments or distributions of assets or securities of the Company
 applicable to Senior Indebtedness which the holders of the Debentures
 receive by reason of their being subrogated to the rights of the holders
 of such Senior Indebtedness pursuant to the provisions of Sections 12.02,
 12.03 and 12.04 shall, as between the Company, its creditors other than
 the holders of Senior Indebtedness, and the holders of the Debentures, be
 deemed to be a payment by the Company on account of the Debentures, it
 being understood that the provisions of this Article Twelve are intended
 solely for the purpose of defining the relative rights of the holders of
 the Debentures, on the one hand, and the holders of the Senior
 Indebtedness on the other hand, and nothing contained in this Article
 Twelve or elsewhere in the Debentures, is intended to or shall impair, as
 between the Company, its creditors other than the holders of Senior
 Indebtedness, and the holders of the Debentures, the obligation of the
 Company, which is absolute and unconditional, to pay to the holders of the
 Debentures the principal of and interest on the Debentures, as and when
 the same shall become due and payable in accordance with their terms, or
 is intended to or shall affect the relative rights of the holders of the
 Debentures and creditors of the Company other than the holders of Senior
 Indebtedness, nor shall anything herein or therein prevent the holder of
 any Debentures from exercising all remedies otherwise permitted by
 applicable law upon default under this Debenture, subject to the rights,
 if any, under this Article Twelve of the holders of Senior Indebtedness in
 respect of cash, property or securities of the Company received upon the
 exercise of any such remedy.

      Section 12.06.  Payments on Debentures Permitted. Nothing contained
 in this Article Twelve or elsewhere in any of the Debentures, shall
 prevent the Company from making payment of the principal of or interest on
 the Debentures at any time, except under the conditions described in
 Section 12.02 and except during the pendency of any dissolution, winding
 up, liquidation or reorganization of the Company within the meaning of
 Section 12.03. Nothing contained in this Article Twelve or elsewhere in
 any of the Debentures, shall prevent the application by the Company of any
 moneys held hereunder for the purpose of payment of or on account of the
 principal of or interest on the Debentures, unless, prior to the business
 day next preceding the date upon which such principal shall have become
 payable, or, in the case of any payment on account of interest unless,
 prior to two business days before the date upon which such interest shall
 have become payable, the Company shall have received written notice,
 directed to it at its principal office, from any holder of Senior
 Indebtedness or any trustee therefor of the existence of any of the
 conditions described in Section 12.02 or of any dissolution, winding up,
 liquidation or reorganization of the Company within the meaning of Section
 12.03.

      Section 12.07.  Authorization of Holders to Company to Effect
 Subordination.  Each holder of Debentures by his acceptance thereof
 authorizes and directs the Company in his behalf to take such action as
 may be necessary or appropriate to effectuate, as between the holders of
 the Debentures and the holders of Senior Indebtedness, the subordination
 provided in this Article Twelve and appoints the Company his
attorney-in-fact for any and all such purposes.

                       ARTICLE THIRTEEN.

                     Registration Rights.

      Section 13.01.  Incidental Registration.

           (a)  If, at any time prior to the maturity of the Debentures,
 the Company shall determine to register under the Securities Act any
 shares of its Common Stock to be offered for cash by it or others,
 pursuant to a registration statement on Form S-1 (or its equivalent if
 such form is not in effect or on an alternative form if such alternative
 form is then authorized for the sale to the general public of the
 Company's securities), the Company will (i) promptly give written notice
 of its intention to file such registration statement to the holders of the
 Debentures and each holder of Common Stock, if any, which has been issued
 upon conversion of any of the Debentures (collectively, the "Holders"),
 and (ii) subject to the provisions of subsections (b) and (c), below,
 include among the shares covered by the registration statement such
 portion of the shares of Common Stock issued or issuable upon the
 conversion of any of the Debentures (the "Shares") as shall be specified
 in a written request given to the Company by the Holders within 30 days
 after the date on which the Company gave such written notice.

           (b)  Upon receipt of any written request described in Section
 13.01(a) above, but subject to the provisions hereof and of Section
 13.01(c) below, the Company shall:

                (i)  use its best efforts within reason to effect the
 registration, qualification or compliance under the Securities Act and
 under other applicable federal law and any applicable securities or "blue
 sky" laws of jurisdictions within the United States of the Shares
 specified in the request (the Holders and any other holders of the
 Company's Common Stock who are entitled hereunder or otherwise to request
 registration of any shares of the Company's Common Stock are in this
 Section 13.01 individually called a "Selling Shareholder" and
 collectively, the "Selling Shareholders"); provided, however, that in no
 event shall the Company be obligated to qualify to do business in any
 jurisdiction where it is not so qualified or to take any action that would
 subject it to tax or the service of process (other than process in
 connection with such registration) in any jurisdiction where it is not
 subject thereto, nor shall the Company be required to include the Shares
 among the securities covered by the registration statement if (A) less
 than 50% of the Holders have joined in such request and the requests of
 the Holders cover shares of the Company's Common Stock issued or issuable
 upon conversion of the Debentures having an aggregate value of less than
 $1,000,000, based upon the average closing bid price of the Company's
 Common Stock as reported on Nasdaq, or the closing sale price of the
 Common Stock on any national stock exchange on which it may then be
 traded, for the ten consecutive days immediately preceding the date on
 which the notice specified by Section 13(a)(i) above is given; or (B) the
 Board of Directors of the Company determines in good faith that including
 shares of Common Stock held by any Selling Shareholder among the
 securities covered by the registration statement would have a materially
 detrimental effect on the proposed offering and would therefore not be in
 the best interests of the Company;

                (ii)  furnish each Selling Shareholder such number of
 copies of the prospectus contained in the registration statement filed
 under the Securities Act (including each preliminary prospectus) in
 conformity with the requirements of the Securities Act, and such other
 documents as the Selling Shareholders may reasonably request in order to
 facilitate the disposition of the Common Stock held by them which is
 covered by the registration statement; and

                (iii)  notify each Selling Shareholder, at any time when a
 prospectus relating to such Common Stock is required to be delivered under
 the Securities Act, of the happening of any event as a result of which the
 prospectus in the registration statement, as then in effect, includes an
 untrue statement of a material fact or omit to state any material fact
 required to be stated therein or necessary to make the statements therein
 not misleading, and at the request of the Selling Shareholders prepare and
 furnish to them any reasonable number of copies of any supplement to or
 amendment of such prospectus as may be necessary so that, as thereafter
 delivered, such prospectus shall not include 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 not misleading.

           (c)  The Company alone shall determine and control all decisions
 concerning any registration of the Company's securities which might give
 rise to the registration rights granted hereunder, including any
 registration in which Shares of any Selling Shareholder are to be
 included.  The Corporation's exclusive right to make decisions shall
 include, without limitation, the decision as to whether to use
 underwriters, the selection of underwriters and arrangements therewith,
 the size, timing and other terms of any offering, the provisions of the
 registration statements and prospectuses and all supplements and
 amendments thereto, the selection of accountants and attorneys for the
 Company, and the states in which the sale of shares shall occur and be
 registered or qualified for sale.

      If the offering registered by the Company is to be underwritten, each
 Selling Shareholder shall sell all shares of Common Stock included in the
 registration statement to or through the underwriter or underwriters
 selected by the Company on the same terms and conditions provided in any
 underwriting agreement entered into therewith by the Company, and shall
 complete and execute all questionnaires, powers of attorney, indemnities,
 underwriting agreements and other documents required under the terms of
 such underwriting arrangements.  Notwithstanding anything to the contrary
 hereunder, if the underwriter or underwriters selected by the Company
 reasonably determine that all or any portion of the shares of Common Stock
 held by the Selling Shareholders should not be included in the
 registration statement, the determination of the underwriter or
 underwriters shall be conclusive; provided, however,  that if such
 underwriter or underwriters determine that some but not all of the shares
 of Common Stock of the Selling Shareholders shall be included in the
 registration statement, the number of shares owned by each Selling
 Shareholder to be included in the registration statement will be
 proportionately reduced in accordance with their respective aggregate
 holdings of Common Stock.  In no event shall the Company be required to
 reduce or limit the number of newly to be issued shares of its Common
 Stock to be covered by any registration statement for the purpose of
 permitting the Shares of any Selling Shareholder to be included in the
 registration.

           (d)  The Company shall not be obligated to give notice of or
 include Shares held by any subscriber hereunder in more than two
 registration statements to be filed by the Company, exclusive of (i) any
 registration statement as to which a request for inclusion has been
 rejected in full under subsection 13.01(b) or as to Shares requested to be
 registered under subsection 13.01(c) hereof, (ii) registration statements
 filed on Form S-3 if such Form is then available to the Company for the
 registration of Common Stock to be offered to the public for cash, and
 (iii) a registration effected as provided in Section 13.02 below.

          (e)  Upon conversion by a Debenture holder of the aggregate
 principal amount of the Debentures, the Company will undertake to file a
 registration statement on Form S-3, if such form is then available to the
 Company within six (6) months of conversion of such amount of debentures,
 for the registration of Common Stock to be offered to the public for cash.

           Section 13.02.  Indemnification.

           (a)  In connection with any registration in which a Selling
 Shareholder is participating, each such Selling Shareholder shall furnish
 to the Company such information in writing regarding the Selling
 Shareholder as the Company reasonably requests for inclusion in the
 registration statement, prospectus, offering circular and other documents
 filed in connection therewith, and shall state that such information is
 provided specifically for use in the registration statement, prospectus,
 offering circular or other documents.  Each such Selling Shareholder shall
 also furnish to the Company an undertaking satisfactory to the Company and
 each underwriter of the offering, if any, agreeing to indemnify and hold
 harmless, to the extent permitted by law, the Company, and its directors
 and officers, and each such underwriter, and each person who controls the
 Company or each such underwriter (within the meaning of the Securities
 Act), against any actions, losses, claims, damages, liabilities, and
 expenses (including legal and other expenses reasonably incurred in the
 investigation and defense thereof) resulting from any untrue or alleged
 untrue statement of a material fact or any omission or alleged omission of
 a material fact required to be stated in any such documents or any
 supplement or amendment thereto, or necessary to make the statements
 therein not misleading, but only to the extent that such untrue statement
 or omission is made in reliance on and in conformity with the written
 information furnished to the Company by such Selling Shareholder
 specifically for use in such documents.

           (b)  The Company shall indemnify and hold harmless, to the
 extent permitted by law, each Selling Shareholder against any actions,
 losses, claims, damages, liabilities and expenses (including legal fees
 and other expenses reasonably incurred in the investigation and defense
 thereof) resulting from any untrue or alleged untrue statement of a
 material fact or any omission or alleged omission of a material fact in
 any registration statement, prospectus, offering circular or other
 document filed in connection with any registration or qualification,
 unless and to the extent that any such actions, claims, losses, damages,
 liabilities or expenses arise out of the written information specifically
 provided by the Selling Shareholder for use in such registration
 statement, prospectus, offering circular or other document pursuant to
 subsection (a) of this Section 13.03.

      Section 13.03.  Expenses of Registration.  The Company shall bear all
 costs and expenses relating to or incurred by it in connection with any
 registration in which any Selling Shareholder participates pursuant
 hereto, including without limitation all registration and filing fees,
 printing expense, fees and disbursements of counsel and independent
 accountants for the Company and fees and expenses incident to compliance
 with state securities or "blue sky" laws, but specifically excluding any
 fees and disbursements of counsel, accountants or other professionals
 engaged by any Selling Shareholder.  Each Selling Shareholder shall be
 responsible for and bear any underwriters' discounts and commissions
 properly allocable to shares of Common Stock included in a registration
 statement at the request of a Selling Shareholder hereunder.

                       ARTICLE FOURTEEN.

                   Miscellaneous Provisions.

      Section 14.01.  Provisions Binding on Company's Successors.  All the
 covenants, stipulations, promises and agreements in this Debenture
 contained by the Company shall bind its successors and assigns whether so
 expressed or not.

      Section 14.02.  Debentures for Sole Benefit of Company and
 Debentureholders.  Nothing in the Debentures, expressed or implied, shall
 give or be construed to give to any person, firm or corporation, other
 than the parties hereto and the holders of the Debentures, any legal or
 equitable right, remedy or claim under or in respect of this Debenture, or
 under any covenant, condition or provision herein contained; all such
 covenants, conditions and provisions being for the sole benefit of the
 parties hereto and the holders of the Debentures.

      Section 14.03.  Addresses for Notices, Etc.  Any notice or demand
 which by any provision of the Debentures is required or permitted to be
 given or served by the holders of Debentures on the Company may be given
 or served by being deposited postage prepaid by registered or certified
 mail in a post office letter box addressed (until notified of another
 address by the Company) to Metalclad Corporation, 2 Corporate Plaza, Suite
 125, Newport Beach, California  92660, Attention: Secretary.  Any notice,
 report or other instrument required by any of the provisions of the
 Debentures to be given by the Company to the Debentureholders shall be
 deemed to have been sufficiently given for all purposes if mailed by first
 class mail to the Debentureholder at the last address for such holder
 appearing in the Debenture register.

      Section 14.04.  California Contract.  This Debenture and each other
 Debenture executed and delivered by the Company shall be deemed to be a
 contract made under the laws of the State of California and for all
 purposes shall be construed in accordance with the laws of said State.

      Section 14.05.  Legal Holidays.  In any case where the date of
 maturity of interest on or principal of or interest on the Debentures or
 the date fixed for redemption of any Debenture will not be a business day,
 then payment of such interest on or principal of the Debentures need not
 be made on such date but may be made on the next succeeding business day
 with the same force and effect as if made on such date of maturity or the
 date fixed for redemption and no interest shall accrue for the period from
 and after such prior date.

       Section 14.06.  No Security Interest Created.  Nothing in the
 Debentures, expressed or implied, shall be construed to constitute a
 security interest under the Uniform Commercial Code or similar
 legislation, as now or hereafter enacted and in effect, in any
 jurisdiction where property of the Company or its Subsidiaries is located.

       Section 14.07.  Table of Contents, Headings, Etc.  The table of
 contents and the titles and headings of the articles and sections of the
 Debentures have been inserted for convenience of reference only, are not
 to be considered a part hereof, and shall in no way modify or restrict any
 of the terms or provisions hereof.

      IN WITNESS WHEREOF, Metalclad Corporation has caused this Debenture
 to be signed and acknowledged by its President, or a Vice President, and
 its corporate seal to be affixed hereunto, and the same to be attested by
 its Secretary or an Assistant Secretary, as of the day and year first
 written above.

                                    METALCLAD CORPORATION
                                    a Delaware corporation

                                    By:
                                        ----------------------------------
                                        Grant S. Kesler, President

 Attest:
        ----------------------------
        Bruce H. Haglund, Secretary

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