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                          SECURITIES PURCHASE AGREEMENT

                                       BY

                                       AND

                                      AMONG

                                   KROLL INC.

                                       AND

                           THE INVESTORS PARTY HERETO

                            DATED: NOVEMBER 14, 2001

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                                TABLE OF CONTENTS

                                                                            Page

ARTICLE I  Defined Terms.....................................................2

      Section 1.1  Definitions...............................................2

ARTICLE II  Purchase and Sale................................................5

      Section 2.1  Purchase and Sale of the Notes............................5
      Section 2.2  Closing...................................................5

ARTICLE III  Company Representations and Warranties..........................6

      Section 3.1  Organization, Good Standing and Qualification.............6
      Section 3.2  Authorization.............................................6
      Section 3.3  Capitalization............................................6
      Section 3.4  Valid Issuance............................................7
      Section 3.5  Consents..................................................7
      Section 3.6  Delivery of SEC Filings; Business.........................8
      Section 3.7  Use of Proceeds...........................................8
      Section 3.8  No Material Adverse Change................................8
      Section 3.9  SEC Filings...............................................9
      Section 3.10  No Conflict, Breach, Violation or Default................9
      Section 3.11  Tax Matters.............................................10
      Section 3.12  Title to Properties.....................................10
      Section 3.13  Certificates, Authorities and Permits...................10
      Section 3.14  No Labor Disputes.......................................10
      Section 3.15  Intellectual Property...................................11
      Section 3.16  Environmental Matters...................................12
      Section 3.17  Litigation..............................................12
      Section 3.18  Financial Statements....................................13
      Section 3.19  Insurance Coverage......................................13
      Section 3.20  Compliance with Nasdaq Continued Listing Requirements...14
      Section 3.21  Brokers and Finders.....................................14
      Section 3.22  No Directed Selling Efforts or General Solicitation.....14
      Section 3.23  Private Offering........................................14
      Section 3.24  Investment Company......................................14
      Section 3.25  Questionable Payments...................................14
      Section 3.26  Internal Accounting Controls............................15
      Section 3.27  Transactions With Affiliates............................15
      Section 3.28  Application to Takeover Protection......................15
      Section 3.29  Acknowledgment of Dilution..............................15
      Section 3.30  Acknowledgment Regarding Investors' Purchase of Notes...15
      Section 3.31  Seniority; Exclusivity..................................16
      Section 3.32  Disclosures.............................................16

                                      (i)
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ARTICLE IV  INVESTOR'S REPRESENTATIONS AND WARRANTIES.......................16

      Section 4.1  Organization and Existence...............................16
      Section 4.2  Authorization............................................16
      Section 4.3  Purchase Entirely for Own Account........................16
      Section 4.4  Investment Experience....................................17
      Section 4.5  Disclosure of Information................................17
      Section 4.6  Restricted Securities....................................17
      Section 4.7  Legends..................................................17
      Section 4.8  Accredited Investor......................................18
      Section 4.9  No General Solicitation..................................18
      Section 4.10  Brokers and Finders.....................................18
      Section 4.11  State of Residence......................................18

ARTICLE V  CONDITIONS TO THE CLOSING........................................18

      Section 5.1  Conditions to the Investors' Obligations.................18
      Section 5.2  Conditions to Obligations of the Company.................19

ARTICLE VI  COVENANTS AND AGREEMENTS OF THE COMPANY.........................20

      Section 6.1  Observer.................................................20
      Section 6.2  No Conflicting Agreements................................20
      Section 6.3  Insurance................................................20
      Section 6.4  Compliance with Laws.....................................20
      Section 6.5  Stop Transfer Instruction................................21
      Section 6.6  Furnishing of Information................................21
      Section 6.7  Integration..............................................21
      Section 6.8  Listing and Reservation of Shares........................22
      Section 6.9  Additional Collateral....................................22
      Section 6.10  Use of Proceeds.........................................23
      Section 6.11  Transactions with Affiliates............................23
      Section 6.12  Transfer Agent Instructions.............................23
      Section 6.13  Press Release; Filing of Form 8-K.......................24
      Section 6.14  Ordinary Course Brokerage and Trading...................24
      Section 6.15  Additional Affirmative Covenants........................24
      Section 6.16  Additional Negative Covenants...........................25
      Section 6.17  Line of Credit..........................................26

ARTICLE VII  Survival and Indemnification...................................26

      Section 7.1  Survival.................................................26
      Section 7.2  Indemnification..........................................26
      Section 7.3  Conduct of Indemnification Proceedings...................26

                                      (ii)
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ARTICLE VIII  Miscellaneous.................................................27

      Section 8.1  Successors and Assigns...................................27
      Section 8.2  Counterparts; Faxes......................................27
      Section 8.3  Titles and Subtitles.....................................28
      Section 8.4  Notices..................................................28
      Section 8.5  Expenses.................................................28
      Section 8.6  Amendments and Waivers...................................29
      Section 8.7  Publicity................................................29
      Section 8.8  Severability.............................................29
      Section 8.9  Entire Agreement.........................................29
      Section 8.10  Further Assurances......................................29
      Section 8.11  Governing Law; Consent to Jurisdiction..................29

                                     (iii)
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                          SECURITIES PURCHASE AGREEMENT

            THIS SECURITIES  PURCHASE AGREEMENT (the "Agreement") is made, as of
the 14th day of November,  2001,  by and among Kroll Inc.,  an Ohio  corporation
(the "Company"),  formerly known as The Kroll O'Gara Company,  and the Investors
set  forth  on the  signature  pages  affixed  hereto  (each an  "Investor"  and
collectively the "Investors").

                              W I T N E S S E T H:

            WHEREAS,  the Company and the Investors are executing and delivering
this  Agreement in reliance  upon the  exemption  from  securities  registration
afforded by the provisions of Regulation D  ("Regulation  D"), as promulgated by
the U.S.  Securities and Exchange  Commission (the "SEC") under the 1933 Act (as
defined below); and

            WHEREAS,  subject  to the  terms  and  conditions  set forth in this
Agreement,  the  Company  desires  to issue and sell to the  Investors,  and the
Investors  desire to acquire  from the  Company,  an  aggregate  of  $30,000,000
principal  amount of the Company's 6% Senior  Secured  Subordinated  Convertible
Notes due 2006  (collectively,  the "Notes",  each of which is a "Note"), in the
form of  Exhibit A annexed  hereto,  convertible  into  shares of the  Company's
common stock, par value $.01 per share (the "Common Stock"); and

            WHEREAS,  contemporaneous  with the sale of the Notes,  the  parties
hereto will execute and deliver a  Registration  Rights  Agreement,  in the form
attached hereto as Exhibit B (the "Registration Rights Agreement"),  pursuant to
which  the  Company  will  agree,   among  other  things,   to  provide  certain
registration  rights under the 1933 Act, and applicable  state  securities laws;
and

            WHEREAS,  contemporaneous  with  the  sale  of the  Notes,  and as a
material  inducement  to the  Investors  to purchase  the Notes,  the Company is
granting to the Investors a security  interest in all of the Company's  personal
properties, as better set forth in the Security Agreement in the form of Exhibit
C attached  hereto (the  "Security  Agreement")  and pledging  certain shares of
stock in several of the Company's Subsidiaries,  as better set forth in a Pledge
Agreement in the form of Exhibit D attached hereto (the "Pledge Agreement"); and

            WHEREAS,  an additional  inducement to the Investors to purchase the
Notes,  the Company has agreed to cause all of its  Subsidiaries to grant to the
Investors  following the Closing in accordance with the terms contained herein a
security  interest in their respective  assets,  to guarantee the obligations of
the Company  under the Notes and to pledge to the  Investors the shares of stock
of the Subsidiaries not pledged pursuant to the Pledge Agreement.

            NOW, THEREFORE,  in consideration of the mutual promises made herein
and for other good and valuable  consideration,  the receipt and  sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

<PAGE>

                                   ARTICLE I

                                  Defined Terms

      Section 1.1 Definitions. For the purposes of this Agreement, the following
terms shall have the meanings herein set forth:

            "Affiliate"  means,  with  respect to any Person,  any other  Person
which  directly or indirectly  Controls,  is  controlled  by, or is under common
control with, such Person.

            "Agreement" has the meaning ascribed thereto in the preamble hereof.

            "Agreements"   means  this  Agreement,   the   Registration   Rights
Agreement, the Security Agreement, the Pledge Agreement and the Notes.

            "Business  Day" means a day,  other than a  Saturday  or Sunday,  or
other day on which  banks in the State of New York are closed or  authorized  by
law to close.

            "By-Laws" has the meaning ascribed thereto in Section 3.1 hereof.

            "Certificate of  Incorporation"  has the meaning ascribed thereto in
Section 3.1 hereof.

            "Change in control" means any of:

            (a)  any  Person  or  group   (within  the  meaning  of  Rule  13d-5
promulgated under the 1934 Act) becoming, directly or indirectly, the beneficial
owner of shares of voting stock of the Company representing more than 50% of the
total voting power of all outstanding classes of voting stock of the Company, or
having the power,  directly or  indirectly,  to elect a majority of the board of
directors of the Company;

            (b) the sale, lease, assignment, transfer or other conveyance of all
or  substantially  all  of the  assets  of the  Company  or any of its  Material
Subsidiaries  where the  stockholders  of the Company  before such sale,  lease,
assignment, transfer or other conveyance do not control, directly or indirectly,
at least a majority of the voting interests of the surviving entity after giving
effect to such transaction;

            (c) the  liquidation  or  dissolution of the Company or any Material
Subsidiary;

            (d)  any   reclassification   or  other   change  of  any  stock  or
recapitalization of the Company which materially  adversely changes the terms or
conditions of the Notes or the Shares;

            (e) the  consummation of a merger or consolidation by the Company or
any Material  Subsidiary  (other than the merger or  consolidation of a Material
Subsidiary  with or into any other  subsidiary)  with or into any  other  entity
where the stockholders of the Company before such merger or consolidation do not
control,  directly or indirectly, at least a majority of the voting interests of
the surviving entity after giving effect to such merger or consolidation; or

                                      -2-
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            (f) the sale, transfer or other disposition by Jules Kroll of 40% or
more of his holdings of the capital  stock of the  Company,  other than upon his
death.

            "Closing" has the meaning ascribed thereto in Section 2.2 hereof.

            "Closing  Date" has the  meaning  ascribed  thereto in  Section  2.2
hereof.

            "Common  Stock" has the  meaning  ascribed  thereto in the  recitals
hereof.

            "Company" has the meaning ascribed thereto in the preamble hereof.

            "Company's  Knowledge"  means the actual  knowledge of the executive
officers of the Company, after due inquiry.

            "Control" means the possession, directly or indirectly, of the power
to direct or cause the  direction  of the  management  and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.

            "Environmental  Laws" has the  meaning  ascribed  thereto in Section
3.16 hereof.

            "Indemnified Person" has the meaning ascribed thereto in Section 7.3
hereof.

            "Infringe"  has the  meaning  ascribed  thereto in  Section  3.15(e)
hereof.

            "Intellectual  Property"  means all of the  following:  (a) patents,
patent   applications,   patent  disclosures  and  inventions  (whether  or  not
patentable  and whether or not reduced to  practice);  (b)  trademarks,  service
marks, trade dress, trade names,  corporate names,  logos,  slogans and Internet
domain names,  together with all goodwill associated with each of the foregoing;
(c) copyrights and  copyrightable  works;  (d)  registrations,  applications and
renewals for any of the  foregoing;  (e) trade secrets and know-how  (including,
but not limited to, ideas, formulae, compositions,  manufacturing and production
processes  and  techniques,  research  and  development  information,  drawings,
specifications and designs);  and (f) proprietary  computer software (including,
but not limited to, data, data bases and documentation).

            "Investor(s)"  has the  meaning  ascribed  thereto  in the  preamble
hereof.

            "Investor  Observer" has the meaning ascribed thereto in Section 6.1
hereof.

            "License  Agreement"  has the  meaning  ascribed  thereto in Section
3.15(b) hereof.

            "Line of Credit" has the meaning ascribed thereto in Section 6.17.

            "Losses" has the meaning ascribed thereto in Section 7.2 hereof.

            "Material  Adverse  Effect" means a material  adverse  effect on the
assets, liabilities,  results of operations,  condition (financial or otherwise)
or business of the Company and its Subsidiaries taken as a whole.

                                      -3-
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            "Material  Subsidiary"  means any of the Subsidiaries  identified on
Schedule 3.1 hereto as a material subsidiary.

            "Nasdaq"  means the NASDAQ  Stock  Market,  Inc.  National  Market
System.

            "Notes" has the meaning ascribed thereto in the recitals hereof.

            "PCEP" has the meaning ascribed thereto in Section 8.7 hereof.

            "Person"  means an  individual,  corporation,  partnership,  limited
liability  company,  trust,  business trust,  association,  joint stock company,
joint venture, sole proprietorship,  unincorporated  organization,  governmental
authority or any other form of entity not specifically listed herein.

            "Pledge  Agreement" has the meaning ascribed thereto in the recitals
hereof.

            "PP" has the meaning ascribed thereto in Section 8.7 hereof.

            "Purchase Price" means Thirty Million Dollars ($30,000,000).

            "Registration  Rights Agreement" has the meaning ascribed thereto in
the recitals hereof.
            "Regulation  D" has the  meaning  ascribed  thereto in the  recitals
hereof.

            "Required   Investors"  means  Investors  who  hold  a  majority  in
principal amount of the Notes and/or a majority of the Shares.

            "SEC" has the meaning ascribed thereto in the recitals hereof.

            "SEC  Filings"  has the  meaning  ascribed  thereto in  Section  3.6
hereof.

            "Security  Agreement"  has  the  meaning  ascribed  thereto  in  the
recitals hereof.

            "Shares" means the shares of Common Stock  issuable upon  conversion
of the Notes.

            "Subsidiary" has the meaning ascribed thereto in Section 3.1 hereof.

            "1933 Act" means the  Securities  Act of 1933,  as amended,  and the
rules and regulations of the SEC promulgated thereunder.

            "1934 Act" means the  Securities  Exchange Act of 1934,  as amended,
and the rules and regulations of the SEC promulgated thereunder.

            "2000 10-K" has the meaning ascribed thereto in Section 3.6 hereof.

                                      -4-
<PAGE>

                                   ARTICLE II

                                Purchase and Sale
                                -----------------

      Section  2.1  Purchase  and Sale of the  Notes.  Subject  to the terms and
conditions of this  Agreement,  on the Closing Date (except as  contemplated  by
Section 2.2(c) hereof), each of the Investors shall severally,  and not jointly,
purchase,  and the Company shall sell and issue to the  Investors,  the Notes in
the respective  principal  amounts set forth next to the Investor's  name on the
signature  pages  attached  hereto in exchange  for the portion of the  Purchase
Price to be paid by such  Investor.  The  aggregate  principal  amount  of Notes
purchased by the Investors is $30,000,000.

      Section 2.2 Closing.

            (a)  The  closing  of  the  purchase  and  sale  of the  Notes  (the
"Closing")  shall  take  place at the  offices  of  Lowenstein  Sandler  PC,  65
Livingston Avenue,  Roseland,  New Jersey 07068, or by transmission by facsimile
and overnight  courier,  immediately  following the execution  hereof or on such
later date or at such different  location as the parties shall  mutually  agree,
but not prior to the date that the conditions set forth in Article V hereof have
been satisfied or waived by the appropriate  party (the "Closing Date").  At the
Closing (except as contemplated by Section 2.2(c) hereof):

                  (i) Each Investor shall  deliver,  as directed by the Company,
its portion of the Purchase Price as set forth next to its name on the signature
pages  hereto in United  States  dollars in  immediately  available  funds to an
account  or  accounts  designated  in  writing  by  the  Company  or  paid  to a
third-party at the direction of the Company;

                  (ii) The Company shall deliver to each Investor a Note, in the
form of Exhibit A hereto,  representing  the principal  amount purchased by such
Investor as set forth on the signature pages hereto; and

                  (iii)  The  parties  shall  execute  (except  for the  opinion
referred to in Section 5.1(g) hereof) and deliver each of the documents and take
such  other  actions  referred  to in Article V hereof to be  delivered  by such
party.

            (b)  Registration.   The  Notes  and  the  Shares  shall  be  deemed
Registrable Securities (as defined in the Registration Rights Agreement) and the
Registration Rights Agreement shall apply to such Registrable Securities.

            (c) PP Funding. Notwithstanding any other provision contained herein
to  the  contrary,  the  Company  and  PP  have  agreed  that  PP is  purchasing
$10,000,000  in principal  amount of the Notes and that PP shall be obligated to
purchase only  $5,000,000 in principal  amount of the Notes on the Closing Date,
with the remaining $5,000,000 in principal amount being due by PP to the Company
not later than  November  21,  2001.  The  Company  shall  delivery to PP on the
Closing  Date only Notes in  respect  of the amount  paid by PP as of such date,
with the Company  delivering  an  additional  Note to PP upon its payment of the
amounts due on or before November 21, 2001.

                                      -5-
<PAGE>

                                  ARTICLE III

                     Company Representations and Warranties
                     --------------------------------------

            Representations  and  Warranties of the Company.  The Company hereby
makes the following  representations  and warranties to the Investors,  it being
understood  by the  Company  that these  representations  and  warranties  are a
material  inducement  to the  Investors  to enter  into  this  Agreement  and to
consummate the transactions hereunder:

      Section 3.1  Organization,  Good Standing and  Qualification.  Each of the
Company and its Subsidiaries is a corporation  duly organized,  validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all requisite  corporate power and authority to carry on its business as now
conducted and to own its properties. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign  corporation  and is in good standing
in each  jurisdiction  in which the conduct of its business or its  ownership or
leasing of property makes such  qualification  or leasing  necessary  unless the
failure to so qualify has not and is not reasonably  expected to have a Material
Adverse Effect. The Company's  subsidiaries are reflected on Schedule 3.1 hereto
(each  a  "Subsidiary"  and  collectively  the  "Subsidiaries")  as  well as the
Material  Subsidiaries  identified thereon as such (each a "Material Subsidiary"
and collectively the "Material Subsidiaries"). The Company has furnished to each
of the  Investors,  true  and  correct  copies  of  the  Company's  Articles  of
Incorporation,  as amended and as in effect on the date hereof (the "Certificate
of Incorporation"),  and the Company's Code of Regulations,  as in effect on the
date hereof (the  "By-Laws").  Neither the Company nor any  Subsidiary is in any
material  violation of any of the  provisions of its  respective  certificate of
incorporation,  by-laws  or other  charter  documents  such  that any right of a
holder of the Notes would be materially adversely affected thereby.

      Section 3.2 Authorization.  The Company has the requisite  corporate power
and authority and has taken all requisite  corporate  action  necessary for the:
(a) authorization,  execution and delivery of the Agreements;  (b) authorization
of the  performance of all  obligations of the Company  hereunder or thereunder,
and (c)  authorization,  issuance and delivery of the Notes and the Shares.  The
Agreements  constitute the legal, valid and binding  obligations of the Company,
enforceable  against  the Company in  accordance  with their  respective  terms,
subject  to  bankruptcy,   insolvency,   fraudulent  transfer,   reorganization,
moratorium  and similar laws of general  applicability  relating to or affecting
creditors'  rights generally,  and to the exercise of judicial  discretion as to
the availability of equitable remedies such as specific performance and subject,
as to enforcement of indemnification provisions, to limitations under applicable
securities laws.

      Section 3.3 Capitalization.  As of the date hereof, the authorized capital
stock  of the  Company  is as set  forth on  Schedule  3.3  hereto.  All of such
outstanding shares of capital stock have been, or upon issuance will be, validly
authorized and issued,  fully paid and non-assessable,  and issued in accordance
with  the  registration  provisions  of the  1933  Act,  or  pursuant  to  valid
exemptions therefrom.  Except as disclosed in Schedule 3.3 hereto: (a) no shares
of the Company's  capital  stock are subject to  preemptive  rights or any other
similar  rights  or any  liens or  encumbrances  suffered  or  permitted  by the
Company,  nor is any Person entitled to preemptive or similar rights arising out
of any  agreement  or  understanding  with the  Company  by virtue of

                                      -6-
<PAGE>

any of the Agreements;  (b) there are no outstanding  options,  warrants,  scrip
rights  to  subscribe  to,  calls or  commitments  of any  character  whatsoever
relating to, or securities or rights  convertible  into or exchangeable  for, or
giving any Person any right to subscribe  for or acquire,  any shares of capital
stock of the  Company or any of its  Subsidiaries,  or  contracts,  commitments,
understandings  or arrangements by which the Company or any of its  Subsidiaries
is or may  become  bound to issue  additional  shares  of  capital  stock of the
Company  or any of its  Subsidiaries  or  options,  warrants,  scrip  rights  to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities  or rights  convertible  into,  any  shares of  capital  stock of the
Company or any of its Subsidiaries; (c) there are no outstanding debt securities
of the  Company  or any of its  Subsidiaries;  (d)  there are no  agreements  or
arrangements  under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except pursuant
to the  Registration  Rights  Agreement);  (e) there are no  outstanding  equity
securities  of  the  Company  or  any  of its  Subsidiaries  which  contain  any
redemption  or  similar  provisions,  and there are no  contracts,  commitments,
understandings  or arrangements by which the Company or any of its  Subsidiaries
is or may become bound to redeem an equity security of the Company or any of its
Subsidiaries;   (f)  there  are  no   securities   or   instruments   containing
anti-dilution  or similar  provisions  that will be triggered by the issuance of
the  Notes  and/or  the  Shares;  (g)  the  Company  does  not  have  any  stock
appreciation  rights or "phantom  stock" plans or agreements or any similar plan
or agreement;  and (h) except as specifically  disclosed in the SEC Filings,  no
Person or group of related  Persons,  to the Company's  Knowledge,  beneficially
owns (as determined  pursuant to Rule 13d-3  promulgated  under the 1934 Act) or
has the right to acquire by  agreement  with or by  obligation  binding upon the
Company beneficial ownership of in excess of 5% of the Common Stock.

            Schedule 3.3 contains a true and complete  table setting forth as of
November  14,  2001,  the pro forma  capitalization  of the  Company  on a fully
diluted  basis  giving  effect  to:  (a) the  issuance  of the  Shares;  (b) any
adjustments  in other  securities  resulting  from  such  issuance;  and (c) the
exercise or conversion of all outstanding securities.

      Section  3.4  Valid  Issuance.  The  Shares  are,  and  will at all  times
hereafter  continue to be, duly  authorized  and  reserved for issuance and upon
issuance upon  conversion of the Notes in accordance with the terms thereof will
be validly issued,  fully paid and non-assessable,  free and clear of all liens,
encumbrances  and  Company  rights  of  first  refusal,  other  than  liens  and
encumbrances  created by the Investors and will not be subject to any preemptive
or similar  rights.  The  issuance by the Company of the Notes and the Shares is
exempt  from  registration  under the 1933 Act,  assuming  the  accuracy  of the
Investors' representations and warranties contained herein.

      Section 3.5  Consents.  The  execution,  delivery and  performance  by the
Company of the Agreements and the offer,  issuance and sale of the Notes and the
Shares  require no consent of,  action by or in respect of, or filing with,  any
Person or governmental  official other than filings that have been made pursuant
to applicable state securities laws and post-sale filings pursuant to applicable
state and federal  securities  laws which the Company  undertakes to file within
the applicable  time periods  (including,  without  limitation,  the filing of a
registration  statement with the SEC as contemplated by the Registration  Rights
Agreement,  and the filing of an  application  to list the Shares with Nasdaq as
contemplated  by  Section  6.8  hereof),  and  the  filing  of  UCC-1  financing
statements in accordance with the Security Agreement.  The Company

                                      -7-
<PAGE>

has taken all action necessary to exempt: the sale of the Notes and the issuance
of the Shares pursuant to the Notes from the provisions of any  anti-takeover or
business  combination  law or  statute  binding  on the  Company or to which the
Company or any of its assets and properties may be subject.

      Section 3.6  Delivery of SEC Filings;  Business.  The Company has provided
the  Investors  with copies of the  Company's  most recent Annual Report on Form
10-K for the fiscal  year ended  December  31, 2000 (the "2000  10-K"),  and all
other reports filed by the Company  pursuant to the 1934 Act since the filing of
the 2000 10-K and prior to the date hereof  (collectively,  the "SEC  Filings").
The SEC Filings  are the only  filings  required of the Company  pursuant to the
1934 Act for such period.  The Company and its  Subsidiaries are engaged only in
the business described in the SEC Filings.

      Section  3.7 Use of  Proceeds.  The  proceeds  of the  sale  of the  Notes
hereunder  shall be used by the  Company  (a) to repay  Key Bank,  N.A.  and the
holders of the Company's senior notes due 2003 under that certain Second Amended
and  Restated  Loan  Agreement,  dated as of March 30,  2001,  and that  certain
Amended and Restated Note Purchase  Agreement,  dated as of March 30, 2001,  and
(b) for working capital and other general corporate purposes.

      Section 3.8 No Material  Adverse  Change.  Except as set forth on Schedule
3.8 hereto,  since December 31, 2000,  except as identified and described in the
SEC Filings, there has not been:

            (a) any change in the consolidated  assets,  liabilities,  financial
condition  or  operating  results  of the  Company  from that  reflected  in the
financial  statements  included  in the 2000  10-K,  except  for  changes in the
ordinary  course of business  which have not or are not  reasonably  expected to
have a Material Adverse Effect, individually or in the aggregate;

            (b) any declaration or payment of any dividend, or any authorization
or payment of any distribution,  on any of the capital stock of the Company,  or
any redemption or repurchase of any securities of the Company;

            (c) any material damage, destruction or loss, whether or not covered
by insurance to any material assets or properties of the Company or its Material
Subsidiaries;

            (d) any  waiver,  not in the  ordinary  course of  business,  by the
Company or any Material  Subsidiary  of a material  right or of a material  debt
owed to it;

            (e) any  satisfaction or discharge of any lien, claim or encumbrance
or payment of any  obligation  by the  Company  or a  Subsidiary,  except in the
ordinary course of business and which is not material to the assets, properties,
financial  condition,  operating  results or  business  of the  Company  and its
Subsidiaries taken as a whole (as such business is presently conducted);

            (f)  any  change  or  amendment  to  the  Company's  Certificate  of
Incorporation  or  Bylaws,  or  material  change  to any  material  contract  or
arrangement  by which the Company or any  Subsidiary is bound or to which any of
their respective assets or properties is subject;

                                      -8-
<PAGE>

            (g) any  material  labor  difficulties  or  labor  union  organizing
activities with respect to employees of the Company or any Subsidiary;

            (h) the loss of the services of any key employee, or material change
in the  composition  or duties of the senior  management  of the  Company or any
Subsidiary;

            (i) the loss or, to the Company's Knowledge,  threatened loss of any
customer  which has had or is  reasonably  expected  to have a Material  Adverse
Effect; or

            (j) any other event,  transaction or condition of any character that
has had or is reasonably expected to have a Material Adverse Effect.

      Section 3.9  SEC Filings.

            (a) At the time of filing  thereof,  the SEC Filings  complied as to
form in all material  respects with the requirements of the 1934 Act and did not
contain any untrue  statement  of a material  fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.

            (b) During the preceding two (2) years, each registration  statement
and any amendment  thereto filed by the Company pursuant to the 1933 Act and the
rules and  regulations  thereunder,  as of the date such  statement or amendment
became effective, complied as to form in all material respects with the 1933 Act
and did not contain any untrue statement of a material fact or omit to state any
material  fact  required to be stated  therein or necessary in order to make the
statements  made therein,  in light of the  circumstances  under which they were
made, not misleading;  and each  prospectus  filed pursuant to Rule 424(b) under
the  1933  Act,  as of its  issue  date  and as of the  closing  of any  sale of
securities pursuant thereto,  did not contain any untrue statement of a material
fact or omit to state  any  material  fact  required  to be  stated  therein  or
necessary  in order to make the  statements  made  therein,  in the light of the
circumstances under which they were made, not misleading.

      Section 3.10  No Conflict, Breach, Violation or Default.

            (a) The execution, delivery and performance of the Agreements by the
Company and the  issuance  and sale of the Notes and the Shares do not  conflict
with or result in a breach or violation of any of the terms and  provisions  of,
or constitute a default under: (i) the Company's Certificate of Incorporation or
the Company's Bylaws, both as in effect on the date hereof (copies of which have
been provided to the Investors before the date hereof);  or (ii) except where it
would not have a Material Adverse Effect: (A) any statute,  rule,  regulation or
order of any  governmental  agency or body or any court,  domestic  or  foreign,
having jurisdiction over the Company,  any Subsidiary or any of their respective
assets or properties; or (B) any agreement or instrument to which the Company or
any Subsidiary is a party or by which the Company or a Subsidiary is bound or to
which any of their respective assets or properties is subject.

            (b) Neither the Company nor any Subsidiary:  (i) is in default under
or in violation of any  indenture,  loan or other credit  agreement or any other
agreement  or  instrument  to  which  it is a party or by which it or any of its
properties or assets is bound and which is required to be included as an exhibit
to any SEC  Filing or will be  required  to be  included  as an

                                      -9-
<PAGE>

exhibit to the Company's next filing under either the 1933 Act or 1934 Act; (ii)
is in  violation of any order of any court,  arbitration  or  governmental  body
applicable to it; or (iii) is in violation of any statute, rule or regulation of
any governmental authority to which it is subject,  except in each case referred
to in the  preceding  clauses (i) through (iii) where such  violations  have not
resulted  or are not  reasonably  expected  to  result,  individually  or in the
aggregate,  in a Material  Adverse  Effect.  The business of the Company and its
Subsidiaries is not being conducted in violation of any law, ordinance,  rule or
regulation of any governmental authority,  except where such violations have not
resulted or would not reasonably be expected to result,  individually  or in the
aggregate,  in a Material  Adverse  Effect.  Neither  the Company nor any of its
Subsidiaries is in breach of any agreement where such breach, individually or in
the aggregate, is reasonably expected to have a Material Adverse Effect.

      Section  3.11 Tax  Matters.  Each of the Company and each  Subsidiary  has
timely  prepared  and filed all tax  returns  required to have been filed by the
Company or such Subsidiary with all appropriate governmental agencies and timely
paid all taxes shown thereon or otherwise owed by it. The charges,  accruals and
reserves on the books of the Company in respect of taxes for all fiscal  periods
are adequate in all material respects, and, except as set forth on Schedule 3.11
hereof,  there are no  material  unpaid  assessments  against the Company or any
Subsidiary nor, to the Company's Knowledge,  any basis for the assessment of any
additional  taxes,  penalties or interest for any fiscal period or audits by any
federal,  state or local taxing authority except for any assessment which is not
material to the Company and its  Subsidiaries,  taken as a whole.  All taxes and
other  assessments  and levies that the Company or any Subsidiary is required to
withhold or to collect for payment  have been duly  withheld and  collected  and
paid to the proper governmental  authority or third party when due. There are no
tax liens or claims pending or, to the Company's  Knowledge,  threatened against
the Company or any  Subsidiary  or any of their  respective  assets or property.
Except as  described  on Schedule  3.11,  there are no  outstanding  tax sharing
agreements or other such arrangements  between the Company and any Subsidiary or
other corporation or entity.

      Section 3.12 Title to  Properties.  Except as  disclosed on Schedule  3.12
hereof,  the Company and each  Subsidiary has good and  marketable  title to all
real  properties  and all other  properties and assets owned by it, in each case
free from liens,  encumbrances  and  defects of any kind  (other than  Permitted
Liens as defined in the  Security  Agreement).  Except as  disclosed  in the SEC
Filings,  the  Company  and each  Subsidiary  holds any leased  real or personal
property  under  valid and  enforceable  leases  with no  exceptions  that would
materially interfere with the use currently made thereof by them.

      Section 3.13 Certificates,  Authorities and Permits.  The Company and each
Subsidiary  possess  adequate  certificates,  authorities  or permits  issued by
appropriate  governmental  agencies or bodies  necessary to conduct the business
now operated by it, and neither the Company nor any  Subsidiary has received any
notice of  proceedings  relating to the revocation or  modification  of any such
certificate, authority or permit that, if determined adversely to the Company or
such Subsidiary,  would have a Material  Adverse Effect,  individually or in the
aggregate.

      Section  3.14 No  Labor  Disputes.  No  material  labor  dispute  with the
employees  of the  Company  or  any  Subsidiary  exists  or,  to  the  Company's
Knowledge, is threatened.

                                      -10-
<PAGE>

      Section 3.15 Intellectual Property.

            (a) Each patent,  trademark,  service  mark,  copyright,  registered
trade name and Internet  domain name, and all  applications  therefor,  included
within  the  Intellectual  Property  of the  Company  and  its  Subsidiaries  is
currently valid and  enforceable  and in compliance with all legal  requirements
(including  timely  filings,  proofs and  payments  of fees),  except  where the
failure to be in such  compliance is not reasonably  expected to have a Material
Adverse Effect.  No material patent of the Company or its  Subsidiaries has been
or is now involved in any  interference,  reissue,  re-examination or opposition
proceeding.

            (b) All of the licenses  and  sublicenses  and  consent,  royalty or
other agreements  concerning  Intellectual  Property which are necessary for the
conduct of the Company's and each of its Subsidiaries'  respective businesses as
currently  conducted  or as  currently  proposed  to be  conducted  to which the
Company or any  Subsidiary  is a party or by which any of their assets are bound
(other than generally commercially available, non-custom, off-the-shelf software
application  programs having a retail acquisition price of less than $10,000 per
license) (collectively,  "License Agreements") are valid and binding obligations
of the  Company  or its  Subsidiaries  that  are  parties  thereto  and,  to the
Company's Knowledge,  the other parties thereto,  enforceable in accordance with
their  terms,  except to the extent that  enforcement  thereof may be limited by
bankruptcy,  insolvency,  reorganization,  moratorium,  fraudulent conveyance or
other similar laws affecting the enforcement of creditors'  rights generally and
to the exercise of judicial discretion as to the enforceability of remedies such
as specific performance.

            (c) The Company and its  Subsidiaries own or have the valid right to
use all of the Intellectual  Property necessary for the conduct of the Company's
and each of its Subsidiaries'  businesses  substantially as currently  conducted
and for the  ownership,  maintenance  and  operation  of the  Company's  and its
Subsidiaries' properties and assets.

            (d)  The   Intellectual   Property  owned  by  the  Company  or  its
Subsidiaries  and that is necessary for the conduct of the Company's and each of
its Subsidiaries'  respective  businesses as currently conducted,  is owned free
and clear of all liens,  encumbrances,  adverse claims or obligations to license
all such owned  Intellectual  Property,  other than licenses entered into in the
ordinary course of the Company's and its  Subsidiaries'  businesses,  except for
liens,  encumbrances,  adverse  claims and  obligations  that are not reasonably
expected to have a Material Adverse Effect.

            (e) The Company and each of its  Subsidiaries  have taken reasonable
steps to maintain,  police and protect the  Intellectual  Property which it owns
and  which  is  necessary  for the  conduct  of the  Company's  and  each of its
Subsidiaries'  respective  businesses  as  currently  conducted  or as currently
proposed to be conducted and the business and  marketing  plans and customer and
supplier lists and related  information of the Company,  including the execution
of  confidentiality  agreements  and  intellectual  property  and  work  product
assignments  and  releases.  To the  Company's  Knowledge,  the  conduct  of the
Company's  and its  Subsidiaries'  businesses  as currently  conducted  does not
infringe or otherwise  impair or conflict with  (collectively,  "Infringe")  any
Intellectual  Property  rights  of  any  third  party,  and,  to  the  Company's
Knowledge,  the Intellectual Property rights of the Company and its Subsidiaries
which  are

                                      -11-
<PAGE>

necessary  for the  conduct  of the  Company's  and  each  of its  Subsidiaries'
respective  businesses  as currently  conducted  are not being  Infringed by any
third party.  There is no litigation or order pending or outstanding  or, to the
Company's  Knowledge,  threatened  against the  Company,  that seeks to limit or
challenge or that concerns the ownership, use, validity or enforceability of any
Intellectual  Property of the Company and its Subsidiaries and the Company's and
its Subsidiaries' use of any Intellectual Property owned by a third party.

            (f) The consummation of the transactions  contemplated hereby do not
result in the alteration, loss, impairment of or restriction on the Company's or
any of its  Subsidiaries'  ownership  or  right  to use any of the  Intellectual
Property  which is necessary  for the conduct of the  Company's  and each of its
Subsidiaries' respective businesses as currently conducted.

            (g) All  software  that has been  developed by the Company or any of
its Subsidiaries,  and, to the Company's  Knowledge,  all software that has been
developed by third-parties, that the Company or any of its Subsidiaries sells or
licenses to third  parties is free from any  material  defect,  bug,  virus,  or
programming,  design or  documentation  error  (other  than media  defects)  and
conforms in all material respects to the specifications and purposes thereof.

            (h) The Company and its Subsidiaries  have taken reasonable steps to
protect  the  Company's  and its  Subsidiaries'  rights  in  their  confidential
information and trade secrets. Each employee,  consultant and contractor who has
had access to  proprietary  Intellectual  Property  which is  necessary  for the
conduct of the Company's and each of its Subsidiaries'  respective businesses as
currently  conducted  or the  business  and  marketing  plans and  customer  and
supplier lists and related  information of the Company has executed an agreement
to maintain the  confidentiality  of such  Intellectual  Property and such other
materials  and  has  executed  appropriate  agreements  that  are  substantially
consistent   with  the   Company's   standard   forms   thereof.   Except  under
confidentiality obligations, there has been no material disclosure of any of the
Company's or its Subsidiaries'  confidential information or trade secrets to any
third party.

      Section 3.16 Environmental Matters. Neither the Company nor any Subsidiary
is in  violation  of any  statute,  rule,  regulation,  decision or order of any
governmental  authority or body or any court,  domestic or foreign,  relating to
the use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration  of the  environment or human exposure to hazardous or
toxic substances (collectively, "Environmental Laws"), owns or operates any real
property  contaminated  with any substance that is subject to any  Environmental
Laws,  is liable for any  off-site  disposal  or  contamination  pursuant to any
Environmental  Laws,  or is subject to any claim  relating to any  Environmental
Laws,  which  violation,  contamination,  liability  or  claim  has  had  or  is
reasonably  expected to have a Material  Adverse Effect,  individually or in the
aggregate;  and there is no pending or, to the Company's  Knowledge,  threatened
investigation of any claim relating to any Environmental Laws.

      Section 3.17  Litigation.  Except as described on Schedule 3.17, there are
no pending actions,  suits or proceedings against the Company,  its Subsidiaries
or any of its or  their  properties  that  are  reasonably  expected  to  have a
Material Adverse Effect; and to the Company's Knowledge,  no such actions, suits
or  proceedings  are  threatened.   There  are  no  pending  actions,   charges,
indictments,  information  or, to the  Company's  Knowledge,  investigations  or
threatened  investigations  of the  Company,  any  Subsidiary  or  any of  their
respective  directors,  officers,

                                      -12-
<PAGE>

employees or agents as such, which involve allegations of criminal violations of
any Federal,  state or local law by the Company,  any Subsidiary or any of their
respective  directors,  officers,  employees  or agents  acting on behalf of the
Company or any Subsidiary.

      Section 3.18 Financial Statements.

            (a) The  financial  statements  included in each SEC Filing  present
fairly (as required by United States generally accepted accounting  principles),
in all material respects,  the consolidated financial position of the Company as
of the dates shown and its consolidated results of operations and cash flows for
the  periods  shown,  and  such  financial  statements  have  been  prepared  in
conformity with United States generally accepted  accounting  principles applied
on a  consistent  basis  (except  as may be  disclosed  therein  or in the notes
thereto,  and, in the case of quarterly  financial  statements,  as permitted by
Form 10-Q under the 1934 Act and subject to year-end adjustments). Except as set
forth in the  financial  statements  of the Company  included in the SEC Filings
filed prior to the date hereof or as  described  on Schedule  3.18,  neither the
Company nor any of its Subsidiaries has incurred any liabilities,  contingent or
otherwise, except those incurred in the ordinary course of business,  consistent
(as to amount and nature) with past  practices  since the date of such financial
statements,  none of which,  individually  or in the  aggregate,  have had or is
reasonably expected to have a Material Adverse Effect.

            (b) The financial  information  attached  hereto as part of Schedule
3.18  relating to the Company and its  Subsidiaries  was  prepared in good faith
based upon  assumptions the Company  reasonably  believes are reasonable and the
historical  results of the Company and its  Subsidiaries.  As of the date hereof
and immediately prior to the Closing, no facts have come to the attention of the
Company  that would  require the Company to revise in any  material  respect the
assumptions  (taken  as a  whole)  underlying  such  projections  or  pro  forma
financial statements.

            (c)  Attached  hereto  as  part of  Schedule  3.18 is a list of each
Subsidiary  together  with its  approximate  revenues  for the nine month period
ended  September 30, 2001 and its  approximate  gross assets as at September 30,
2001,  which list was prepared by the Company in good faith based upon the books
and records of the Company and each  Subsidiary  and which list  reflects in all
material  respects the revenues of each Subsidiary for the period then ended and
its assets as of the end of such period.

      Section 3.19 Insurance Coverage.  The Company and each Subsidiary maintain
in full force and effect insurance  coverage,  including  directors and officers
insurance,  that is customary for comparably situated companies for the business
being  conducted  and  properties  owned  or  leased  by the  Company  and  each
Subsidiary,  and the Company  reasonably  believes such insurance coverage to be
adequate against all liabilities, claims and risks against which it is customary
for comparably  situated companies to insure.  Schedule 3.19 hereto sets forth a
complete  list of all  insurance  policies  and fidelity  bonds  relating to the
assets, business,  operations,  employees,  officers or directors of the Company
and its Subsidiaries, as of the date

                                      -13-
<PAGE>

hereof  and  immediately  prior to the  Closing  and  setting  forth the type of
coverage, insurance limits, deductibles and insurance carriers.

      Section 3.20 Compliance with Nasdaq Continued Listing Requirements. Except
as described on Schedule  3.20,  the Company is in  compliance  with  applicable
Nasdaq continued listing requirements as currently enforced by Nasdaq. Except as
described  on  Schedule  3.20,  there  are no  proceedings  pending  or,  to the
Company's  Knowledge,  threatened  against the Company relating to the continued
listing of the Company's Common Stock on Nasdaq and the Company has not received
any notice  of,  nor to the  Company's  Knowledge  is there any basis  for,  the
delisting of the Common Stock from Nasdaq.

      Section  3.21  Brokers  and  Finders.  No Person  has,  as a result of the
transactions  contemplated by this Agreement, any valid right, interest or claim
against or upon the Company,  any Subsidiary or an Investor for any  commission,
fee  or  other   compensation   pursuant  to  any   agreement,   arrangement  or
understanding entered into by or on behalf of the Company.

      Section 3.22 No Directed Selling Efforts or General Solicitation.  Neither
the  Company  nor any  Person  acting on its behalf has  conducted  any  general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Notes.

      Section 3.23 Private Offering. Subject to the accuracy and completeness of
the  representations  and  warranties of the respective  Investors  contained in
Article IV hereof,  the Company  and all  Persons  acting on its behalf have not
made,  directly  or  indirectly,  and  will  not  make,  offers  or sales of any
securities or solicited any offers to buy any security under  circumstances that
would  require  registration  of the Notes or the Shares or the issuance of such
securities under the 1933 Act. The offer, sale and issuance of the Notes and the
Shares to the Investors  will not be integrated  with any other offer,  sale and
issuance of the Company's  securities  (past,  current or future) under the 1933
Act or any  regulations of any exchange or automated  quotation  system on which
any of the securities of the Company are listed or designated or for purposes of
any stockholder  approval provision applicable to the Company or its securities.
Subject to the accuracy and completeness of the  representations  and warranties
of the respective  Investors contained in Article IV hereof, the offer, sale and
issuance by the Company to the  Investors of the Notes and the Shares are exempt
from the registration requirements of the 1933 Act.

      Section 3.24 Investment Company. The Company is not, and is not controlled
by or under common control with an Affiliate of an "investment  company"  within
the meaning of the Investment Company Act of 1940, as amended.

      Section 3.25 Questionable Payments.  Except as set forth on Schedule 3.25,
neither the Company nor any of its Subsidiaries nor, to the Company's Knowledge,
any of their respective  current or former  stockholders,  directors,  officers,
employees,  agents or other  Persons  acting on  behalf  of the  Company  or any
Subsidiary, has on behalf of the Company or any Subsidiary or in connection with
their  respective  businesses:   (a)  used  any  corporate  funds  for  unlawful
contributions,  gifts,  entertainment  or other  unlawful  expenses  relating to
political  activity;  (b) made any direct or indirect  unlawful  payments to any
governmental  officials or employees from corporate  funds;  (c)  established or
maintained any unlawful or unrecorded fund of corporate

                                      -14-
<PAGE>

monies or other assets;  (d) made any intentionally  false or fictitious entries
on the books and  records  of the  Company  or any  Subsidiary;  or (e) made any
unlawful bribe, rebate,  payoff,  influence payment,  kickback or other unlawful
payment of any nature.

      Section 3.26  Internal  Accounting  Controls.  The Company and each of the
Subsidiaries  maintain a system of internal  accounting  controls  sufficient to
provide  reasonable  assurance that: (a) transactions are executed in accordance
with management's general or specific  authorizations;  and (b) transactions are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
conformity with United States generally  accepted  accounting  principles and to
maintain asset accountability.

      Section 3.27  Transactions With Affiliates.  The Company has reported,  in
accordance with law, any transactions  with officers,  directors or employees of
the Company who are  parties to any  transaction  with the Company or any of its
Subsidiaries  (other than for services as  employees,  officers and  directors),
including  any  contract,  agreement  or  other  arrangement  providing  for the
furnishing  of  services  to or by,  providing  for  rental of real or  personal
property to or from or  otherwise  requiring  payments  to or from any  officer,
director or such  employee  or, to the  Company's  Knowledge,  any  corporation,
partnership, trust or entity in which any officer, director or any such employee
has a substantial interest or is an officer, director, trustee or partner.

      Section 3.28 Application to Takeover Protection. The Company and its Board
of  Directors  have  taken  all  necessary  action,  if any,  in order to render
inapplicable  any  control  share  acquisition,  business  combination  or other
similar anti-takeover provision under the Certificate of Incorporation,  By-Laws
or the laws of the  Company's  state of  incorporation  which is or could become
applicable  to the Investors or the  Agreements as a result of the  transactions
contemplated  by the Agreement.  None of the  transactions  contemplated  by the
Agreements,  including the conversion of the Notes into Shares, will trigger any
poison pill provisions of any of the Company's  stockholders'  rights or similar
agreements.

      Section 3.29  Acknowledgment  of  Dilution.  The Company  understands  and
acknowledges  the  potentially  dilutive  effect to the  Common  Stock  upon the
issuance  of the Shares  upon  conversion  of the  Notes.  The  Company  further
acknowledges that its obligation to issue Shares upon conversion of the Notes in
accordance with this Agreement and the Notes is absolute and unconditional  (but
subject to the terms and conditions of the Notes and this Agreement)  regardless
of the dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.

      Section 3.30  Acknowledgment  Regarding  Investors' Purchase of Notes. The
Company  acknowledges and agrees the Investors are acting solely in the capacity
of arm's length  purchasers with respect to this Agreement and the  transactions
contemplated hereby. The Company further acknowledges that no Investor is acting
as a financial  advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions  contemplated hereby and any
statement  made by any Investor or any of their  respective  representatives  or
agents in  connection  with this  Agreement  and the  transactions  contemplated
hereby  is not  advice or a  recommendation  and is  merely  incidental  to each
Investors'  purchase of the securities.  The Company further  represents to each
Investor that the Company's decision to

                                      -15-
<PAGE>

enter into this Agreement has been based solely on the independent evaluation of
the Company and its representatives.

      Section 3.31 Seniority;  Exclusivity. No class of equity securities of the
Company  will  be  senior  to the  Notes  in  right  of  payment,  whether  upon
liquidation, dissolution or otherwise.

      Section 3.32 Disclosures.  No representation or warranty  contained in the
Agreement  contains any untrue  statement of a material fact or omits to state a
material fact necessary in order to make the statements  contained  therein,  in
light of the circumstances under which they were made, not misleading.  There is
no fact known to the Company that the Company has not disclosed to the Investors
which has had or which could be expected  to have a Material  Adverse  Effect on
the  Company  other than with  regard to general  economic  conditions  or world
events outside the control of the Company.

                                   ARTICLE IV

                    INVESTOR'S REPRESENTATIONS AND WARRANTIES
                    -----------------------------------------

            Representations  and  Warranties  of  the  Investors.  Each  of  the
Investors hereby severally, and not jointly, makes the following representations
and  warranties  to the Company,  it being  understood by each Investor that the
representations and warranties are material  inducements to the Company to enter
into this Agreement and to consummate the transactions hereunder:

      Section 4.1 Organization and Existence. The Investor is a validly existing
corporation,  limited  partnership  or  limited  liability  company  and has all
requisite  corporate,   partnership  or  limited  liability  company  power  and
authority to execute and deliver the Agreements to which it is a party to and to
invest in the Notes pursuant to this Agreement.

      Section 4.2 Authorization.  The execution, delivery and performance by the
Investor of the Agreements  have been duly  authorized  and the Agreements  each
constitute the valid and legally binding obligation of the Investor, enforceable
against the  Investor in  accordance  with their  respective  terms,  subject to
bankruptcy,  insolvency,  fraudulent  transfer,  reorganization,  moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally,  and to the exercise of judicial discretion as to the availability of
equitable remedies such as specific  performance and subject,  as to enforcement
of indemnification provisions, to limitations under applicable securities laws.

      Section 4.3 Purchase Entirely for Own Account.  The Note to be received by
the Investor  hereunder will be acquired for the Investor's own account,  not as
nominee  or  agent,  and not  with a view to the  resale  or other  transfer  or
distribution of the Note or any portion thereof or interest therein in violation
of the 1933 Act, and the Investor will not sell, grant any  participation in, or
otherwise  transfer or  distribute  the Note or any portion  thereof or interest
therein in violation  of the 1933 Act.  The Investor is not a registered  broker
dealer or an entity engaged in the business of being a broker dealer. The Shares
to be  received  by the  Investor  upon a  conversion  of  Notes  in  accordance
therewith  will be acquired for the  Investor's  own account,  not as nominee or
agent,  and not with a view to the resale or other transfer or  distribution  of
the

                                      -16-
<PAGE>

Shares or any portion thereof or interest  therein in violation of the 1933 Act,
and the  Investor  will not sell,  grant  any  participation  in,  or  otherwise
transfer or distribute the Shares or any portion thereof or interest  therein in
violation of the 1933 Act.

      Section 4.4 Investment  Experience.  The Investor acknowledges that it can
bear the economic risk and complete loss of its investment in the Notes, and has
such  knowledge  and  experience  in  financial  or business  matters that it is
capable  of  evaluating  the  merits  and risks of the  investment  contemplated
hereby.

      Section 4.5 Disclosure of Information. The Investor has had an opportunity
to receive all additional information related to the Company requested by it and
to ask questions of and receive answers from the Company  regarding the Company,
its business  and the terms and  conditions  of the  offering of the Notes.  The
Investor  acknowledges  receipt  of  copies  of the SEC  Filings.  Neither  such
inquiries  nor any other due diligence  investigation  conducted by the Investor
shall  modify,  amend or affect the  Investor's  right to rely on the  Company's
representations  and warranties  contained in this Agreement.  The Investor,  in
making  its  investment  decision,  has  relied  for  advice  on its own  legal,
accounting and tax advisors.  Except for the  representations  and warranties of
the Company contained in this Agreement,  the Company has made no representation
or warranty to the Investor on which the  Investor  has relied in executing  and
delivering this Agreement.

      Section 4.6 Restricted Securities. The Investor understands that the Notes
and the Shares  are  characterized  as  "restricted  securities"  under the U.S.
federal  securities laws inasmuch as they are being acquired from the Company in
a  transaction  not  involving  a public  offering  and that under such laws and
applicable  regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.

      Section 4.7 Legends.

            (a) It is understood  that,  until the earlier of: (a)  registration
for resale pursuant to the  Registration  Rights  Agreement or (b) the time when
the  Notes  and/or  Shares,  as the case may be,  may be sold  pursuant  to Rule
144(k),  certificates  evidencing such Notes and/or Shares,  as the case may be,
may bear the following or any substantially similar legend:

            "THE SECURITIES  REPRESENTED  HEREBY HAVE NOT BEEN REGISTERED  UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND
MAY NOT BE SOLD,  TRANSFERRED  OR  OTHERWISE  DISPOSED OF EXCEPT  PURSUANT TO AN
EFFECTIVE  REGISTRATION  STATEMENT  OR  EXEMPTION  FROM  REGISTRATION  UNDER THE
FOREGOING LAWS".

            (b) Upon the earlier of: (i) registration for resale pursuant to the
Registration  Rights  Agreement  and  receipt by the  Company of the  Investor's
written  confirmation  that such  securities  will not be  disposed of except in
compliance with the prospectus  delivery  requirements of the 1933 Act; and (ii)
Rule 144(k) becoming  available,  the Company shall, upon an Investor's  written
request,  promptly cause certificates  evidencing the Notes and/or the Shares to
be replaced with certificates which do not bear such restrictive legends.

                                      -17-
<PAGE>

      Section 4.8 Accredited Investor. The Investor is an accredited investor as
defined in Rule 501(a) of Regulation D.

      Section 4.9 No General  Solicitation.  The  Investor  did not learn of the
investment  in the  Notes as a  result  of any  public  advertising  or  general
solicitation.

      Section  4.10  Brokers  and  Finders.  No Person  has,  as a result of the
transactions  contemplated by this Agreement, any valid right, interest or claim
against or upon the Company,  any Subsidiary or an Investor for any  commission,
fee  or  other   compensation   pursuant  to  any   agreement,   arrangement  or
understanding entered into by or on behalf of the Investor.

      Section  4.11  State of  Residence.  The  state in  which  the  Investor's
principal office is located is the state set forth in the Investor's  address as
set forth on the signature pages hereto.

                                   ARTICLE V

                            CONDITIONS TO THE CLOSING
                            -------------------------

      Section 5.1  Conditions to the Investors'  Obligations.  The obligation of
the Investors to purchase the Notes at the Closing is subject to the fulfillment
to the  Investors'  satisfaction,  on or  prior  to  the  Closing  Date,  of the
following  conditions,  any of which  may be waived  by the  Investors  agreeing
hereunder to purchase a majority in principal amount of the Notes:

            (a)  The  representations  and  warranties  made by the  Company  in
Article  III hereof  shall be true and correct in all  material  respects on the
Closing  Date.  The Company  shall have  performed in all material  respects all
obligations and conditions  herein required to be performed or observed by it on
or prior to the Closing Date.

            (b) The Company shall have obtained in a timely  fashion any and all
consents,   permits,   approvals,   registrations   and  waivers  necessary  for
consummation  of the  purchase  and sale of the  Notes and the  issuance  of the
Shares.

            (c) The Company  shall have  executed and delivered to the Investors
the Registration Rights Agreement.

            (d) The Company  shall have  executed and delivered to the Investors
the Security Agreement. (e) The Company shall have executed and delivered to the
Investors the Pledge Agreement.

            (f) No judgment, writ, order,  injunction,  award or decree of or by
any court, or judge,  justice or magistrate,  including any bankruptcy  court or
judge, or any order of or by any governmental authority, shall have been issued,
and no action or  proceeding  shall  have been  instituted  by any  governmental
authority,   enjoining  or  preventing  the  consummation  of  the  transactions
contemplated hereby or in the other Agreements.

                                      -18-
<PAGE>

            (g) The  Company  shall have  delivered a  Certificate,  executed on
behalf of the  Company by its Chief  Executive  Officer  or its Chief  Financial
Officer,  dated as of the Closing  Date,  certifying to the  fulfillment  of the
conditions specified in subsections (a), (b) and (f) of this Section 5.1.

            (h) The  Company  shall have  delivered a  Certificate,  executed on
behalf of the Company by its Secretary, dated as of the Closing Date, certifying
the resolutions  adopted by the Board of Directors of the Company  approving the
transactions  contemplated  by this  Agreement and the other  Agreements and the
issuance of the Notes and the reservation of the Shares,  certifying the current
versions  of the  Certificate  of  Incorporation  and Bylaws of the  Company and
certifying as to the signatures and authority of persons  signing the Agreements
and related documents on behalf of the Company.

            (i) The  Investors  shall have received an opinion from Kramer Levin
Naftalis & Frankel LLP, the Company's counsel,  dated as of the Closing Date, in
form and substance  reasonably  acceptable to the Investors and addressing  such
legal matters as the Investors may reasonably request.

            (j) The  Company  shall  have  executed  and  delivered  such  other
documents as the Investors may reasonably request.

      Section 5.2  Conditions  to  Obligations  of the  Company.  The  Company's
obligation  to sell  and  issue  the  Notes at the  Closing  is  subject  to the
fulfillment to the  satisfaction  of the Company on or prior to the Closing Date
of the following conditions, any of which may be waived by the Company:

            (a) The  representations  and  warranties  made by the  Investors in
Article IV hereof,  shall be true and correct in all material respects as of the
Closing Date. All of the Investors shall have performed in all material respects
all  obligations  and conditions  herein required to be performed or observed by
them on or prior to the Closing Date.

            (b) The  Investors  shall have executed and delivered to the Company
the Registration Rights Agreement.

            (c) The Investors shall have executed and delivered to the Investors
the Security Agreement.

            (d) The Investors shall have executed and delivered to the Investors
the Pledge Agreement.

            (e) The Company shall have obtained in a timely  fashion any and all
consents,   permits,   approvals,   registrations   and  waivers  necessary  for
consummation  of the  purchase  and sale of the  Notes and the  issuance  of the
Shares.

            (f) No judgment, writ, order,  injunction,  award or decree of or by
any court, or judge,  justice or magistrate,  including any bankruptcy  court or
judge, or any order of or by any governmental authority, shall have been issued,
and no action or  proceeding  shall  have been

                                      -19-
<PAGE>

instituted  by  any   governmental   authority,   enjoining  or  preventing  the
consummation of the transactions contemplated hereby or in the other Agreements.

            (g) The  Investors  shall have  executed  and  delivered  such other
documents as the Company may reasonably request.

                                   ARTICLE VI

                     COVENANTS AND AGREEMENTS OF THE COMPANY
                     ---------------------------------------

      Section 6.1 Observer.

            (a) Effective upon the Closing Date and for so long as the Investors
continue  to hold at least 20% in  principal  amount of the Notes or Shares into
which Notes were converted, the Required Investors shall have the right, but not
the  obligation,  to  designate,  upon written  notice to the  Company,  one (1)
individual  (such  designee,  the "Investor  Observer") who shall be entitled to
notice of, to attend,  and to any materials  distributed to the directors of the
Company before,  during or after, all meetings (including any action to be taken
by written  consent) of the  Company's  Board of  Directors  and all  committees
thereof; provided,  however, that the Company reserves the right to withhold any
materials  and to exclude  such  Investor  Observer  from any meeting or portion
thereof if access to such materials or attendance at such meeting could,  in the
good faith  judgment of the  Company's  outside  counsel,  adversely  affect the
attorney-client  privilege  between  the  Company  and its  counsel or cause the
Company's Board of Directors to breach its fiduciary  duties.  As a condition of
the Company providing confidential  information to the Investor Observer, at the
request of the  Company,  the  Investor  Observer  shall sign and deliver to the
Company a confidentiality  agreement in form and substance reasonably acceptable
to the Company and the Investor Observer.

            (b) The  Investor  Observer  shall not be  permitted  to vote at any
meeting of the  Company's  Board of  Directors  or be counted  for  purposes  of
determining  whether  there is  sufficient  quorum  for the  Company's  Board of
Directors to conduct its business.  The parties  hereto hereby  acknowledge  and
agree that the Initial  Observer  shall not owe any fiduciary or other duties to
the  stockholders  of the Company or  otherwise  have any  directorial  or other
duties or liabilities to the Company or its stockholders. The Required Investors
shall designate, and may replace, the Investor Observer with or without cause in
its sole discretion by providing written notice to the Company at least five (5)
Business Days prior to the taking of any such action.

      Section 6.2 No Conflicting Agreements. The Company will not enter into any
agreement  or make any  commitment  that  would  conflict  or  interfere  in any
material respect with the obligations to the Investors under the Agreements.

      Section  6.3  Insurance.  During  such  time as any of the  Notes  remains
outstanding,  the Company shall not  materially  reduce the insurance  coverages
described in Section 3.19 hereof.

      Section  6.4  Compliance  with Laws.  During such time as any of the Notes
remains  outstanding,  the Company will comply in all material respects with all
applicable  laws,  rules,

                                      -20-
<PAGE>

regulations,  orders and decrees of all governmental  authorities,  except where
the  failure  to comply is not  reasonably  likely  to have a  Material  Adverse
Effect.

      Section  6.5  Stop  Transfer  Instruction.  The  Company  may not make any
notation  on its  records  or give  instructions  to any  transfer  agent of the
Company which enlarge the restrictions on transfer set forth in Section 4.7.

      Section 6.6  Furnishing of  Information.  As long as any Investor owns the
Notes or the Shares,  the Company will (i) cause the Common Stock to continue at
all times to be registered under Section 12 of the 1934 Act, (ii) use reasonable
commercial  efforts to timely file (or obtain  extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company  after the date  hereof  pursuant to Section 13, 14 or 15(d) of the 1934
Act and, (iii) unless filed by EDGAR,  promptly  furnish,  but in no event later
than five (5) days after the filing  thereof with the SEC,  such  Investor  with
true and complete  copies of all such  filings,  and will not take any action or
file any  document  (whether or not  permitted  by the 1934 Act) to terminate or
suspend such  reporting  and filing  obligations.  As long as any Investor  owns
Notes or Shares:  (a) if the Company is not required to file reports pursuant to
Section  13(a) or 15(d) of the 1934 Act other than  because the Company has been
acquired by a Person that does file such reports, it will prepare and furnish to
the  Investors  and make  publicly  available  in  accordance  with Rule  144(c)
promulgated  under  the 1933 Act  annual  and  quarterly  financial  statements,
together with a discussion and analysis of such financial statements in form and
substance  substantially similar to those that would otherwise be required to be
included in reports  required by Section 13(a) or 15(d) of the 1934 Act, as well
as any other information  required thereby, in the time period that such filings
would  have been  required  to have been  made  under the 1934 Act;  and (b) the
Company will send the  following to each  Investor:  (i) promptly  following the
release thereof, facsimile copies of all press releases issued by the Company or
any of its  Subsidiaries;  and (ii) copies of any notices and other  information
sent to the stockholders of the Company  generally,  contemporaneously  with the
making  available or giving  thereof to the  stockholders.  The Company  further
covenants  that it will use reasonable  commercial  efforts to take such further
action as any holder of the Notes or the Shares may reasonably  request,  all to
the extent required from time to time to enable such Person to sell the Notes or
the Shares without  registration under the 1933 Act within the limitation of the
exemptions provided by Rule 144 promulgated under the 1933 Act. Upon the request
of any  such  Person,  the  Company  shall  deliver  to such  Person  a  written
certification  of a duly  authorized  officer as to whether it has complied with
such requirements.  In addition to the foregoing, the Company shall supply to an
Investor such other  information  relating to the Company,  as from time to time
may reasonably be requested by such Investor, provided the Company produces such
information  in its ordinary  course of business.  As a condition of the Company
providing  confidential  information  to an  Investor  as  provided in the prior
sentence, at the request of the Company, such Investor shall sign and deliver to
the  Company  a  confidentiality  agreement  in form  and  substance  reasonably
acceptable to the Company and such Investor.

      Section 6.7  Integration.  The Company  shall not sell,  offer for sale or
solicit  offers to buy or  otherwise  negotiate  in respect of any  security (as
defined in Section 2 of the 1933 Act) that would be integrated with the offer or
sale of the Notes or the Shares in a manner that would require the  registration
under the 1933 Act of the sale of the Notes or the  Shares  to any  Investor

                                      -21-
<PAGE>

or cause  the  offering  of such  securities  to be  integrated  with any  other
offering of securities by the Company.

      Section 6.8 Listing and Reservation of Shares.

            (a) The Company shall: (i) promptly  following the Closing,  but not
later than five (5) Business Days  thereafter,  prepare and file with Nasdaq (as
well as any other  national  securities  exchange  or market on which the Common
Stock  is  then  listed)  additional  shares  listing  applications  or  letters
acceptable  to Nasdaq  covering  and listing a number of shares of Common  Stock
which is at least equal to the maximum number of Shares then issuable; (ii) take
all steps necessary to cause the Shares to be approved for listing on Nasdaq (as
well as on any other national  securities exchange or market on which the Common
Stock is then listed) as soon as possible thereafter; (iii) maintain, so long as
any other  shares of Common  Stock shall be so listed,  such listing of all such
Shares; and (iv) provide to the Investors evidence of such listing.  Neither the
Company nor any of its  Subsidiaries  shall take any action that would result in
the  delisting or  suspension of the Common Stock on Nasdaq except in connection
with a merger or  consolidation  of the  Company  where the  Company  is not the
survivor thereof.  The Company shall promptly provide to each Investor copies of
any notices it receives from Nasdaq  regarding the continued  eligibility of the
Common Stock for listing on such  automated  quotation  system,  so long as such
notice does not include material,  nonpublic information.  The Company shall pay
all fees and expenses in connection with  satisfying its obligations  under this
Section 6.8.

            (b) The Company at all times shall  reserve a  sufficient  number of
shares of its  authorized  but  unissued  Common  Stock to provide  for the full
conversion  of the  outstanding  Notes.  Shares of  Common  Stock  reserved  for
issuance upon conversion of the Notes shall be allocated pro rata to each of the
Investors in accordance with the principal  amount of Notes issued and delivered
to such Investors at the Closing.  If at any time the number of shares of Common
Stock  authorized and reserved for issuance is  insufficient to cover the number
of Shares  issued  and  issuable  upon  conversion  of the  Notes  (based on the
Conversion  Price (as defined in the Notes)) in effect from time to time without
regard to any limitation on conversions or exercises,  the Company will promptly
take all  corporate  action  necessary to  authorize  and reserve such number of
shares of Common Stock, including, without limitation, calling a special meeting
of stockholders to authorize additional shares to meet the Company's obligations
under this  Section  6.8, in the case of an  insufficient  number of  authorized
shares, and use its best efforts to obtain  stockholder  approval of an increase
in such authorized  number of shares.  In addition,  if on the actual date of an
adjustment  of the  Conversion  Price  pursuant to the Notes,  the  registration
statements are  insufficient  to register such number of shares of Common Stock,
the Company  shall file a  registration  statement  sufficient  to register such
additional  shares of Common Stock in accordance  with the  Registration  Rights
Agreement. All calculations of the above amounts shall be made without regard to
any limitation on conversions of Notes.

      Section 6.9  Additional  Collateral.  As an  additional  inducement to the
Investors  to  purchase  the  Notes,  the  Company  shall (a) cause its  lenders
associated  with the Line of Credit to permit the  Investors  to have a security
interest  in the assets of the  Company  and the  Subsidiaries,  a pledge of the
shares of stock in the Subsidiaries and a guarantee from the Subsidiaries on the
same terms and  conditions  as the lenders  associated  with the Line of Credit,
provided that the Investors shall be  subordinated to the security  interest and
other rights therein  provided to such

                                      -22-
<PAGE>

lenders pursuant to a subordination  and  inter-creditor  agreement on terms and
conditions reasonably satisfactory to the Investors and such lenders, and (b) in
the event that a written commitment letter has not been received and accepted in
writing by the Company with regard to the Line of Credit by December 14, 2001 or
the Line of Credit has not been closed and  consummated by January 31, 2002, the
Company shall cause all of its Material Subsidiaries to grant to the Investors a
security  interest  in  all  of  their  respective   assets,  to  guarantee  the
obligations  of the Company  under the Notes and to pledge to the  Investors the
shares of stock of the Material  Subsidiaries not pledged pursuant to the Pledge
Agreement,  all on terms and conditions reasonably acceptable to the Company and
the Investors and their respective counsel,  which security  interests,  pledges
and guarantees to be provided  pursuant to this Section 6.9(b) shall be executed
and  delivered  within  thirty  (30) days from the date on which the  Investors'
rights  under this  Section  6.9(b)  arise with regard to the  foreign  Material
Subsidiaries and fifteen (15) days from the date on which the Investors'  rights
under  this  Section   6.9(b)  arise  with  regard  to  the  domestic   Material
Subsidiaries.  It is  understand  that no more  than  2/3 of the  shares  of the
foreign Material Subsidiaries will be pledged.

      Section 6.10 Use of Proceeds.  The Company shall use the proceeds from the
sale of the Notes to the Investor (a) to repay Key Bank, N.A. and the holders of
the  Company's  senior  notes due 2003 under that  certain  Second  Amended  and
Restated Loan  Agreement,  dated as of March 30, 2001, and that certain  Amended
and Restated Note Purchase  Agreement,  dated as of March 30, 2001,  and (b) for
working capital and other general corporate purposes.

      Section 6.11 Transactions with Affiliates. Except as set forth on Schedule
6.11 hereto,  so long as any Notes are  outstanding,  the Company shall not, and
shall  cause each of its  Subsidiaries  not to,  enter  into,  amend,  modify or
supplement, or permit any Subsidiary to enter into, amend, modify or supplement,
any agreement,  transaction,  commitment or  arrangement  with any of its or any
Subsidiary's  officers,  directors or persons who were  officers or directors at
any time during the previous two (2) years, or any individual  related by blood,
marriage or adoption to any such individual or with any entity in which any such
entity or  individual  owns a 5% or more  beneficial  interest  (each a "Related
Party"),  except for: (a) customary employment arrangements and benefit programs
on reasonable terms; (b) any agreement,  transaction,  commitment or arrangement
on an  arms-length  basis on terms no less  favorable  to the Company than terms
which the Company  would have  obtained  from a Person  other than such  Related
Party;  or (c) any agreement,  transaction,  commitment or arrangement  which is
approved  by a majority  of the  disinterested  directors  of the  Company.  For
purposes  hereof,  any  director  who is also an officer  of the  Company or any
Subsidiary of the Company shall not be a disinterested  director with respect to
any such agreement, transaction, commitment or arrangement.

      Section 6.12 Transfer Agent Instructions. At the Closing the Company shall
issue  irrevocable  instructions  to its transfer  agent (and shall issue to any
subsequent transfer agent as required), to issue certificates, registered in the
name of each such Investor or its respective nominee(s),  for the Shares in such
amounts,  in  accordance  with the  terms of the Notes  and this  Agreement,  as
specified from time to time by each Investor to the Company in a form acceptable
to such Investor (the "Irrevocable  Transfer Agent  Instructions").  The Company
warrants  that  no  instruction  other  than  the  Irrevocable   Transfer  Agent
Instructions referred to in this Section 6.12, and stop transfer instructions to
give  effect  to  Section  4.7  hereof  (in the  case of the  Shares,  prior  to
registration  of the Shares  under the 1933 Act) will be given by the Company to
its

                                      -23-
<PAGE>

transfer  agent and that the  Notes and the  Shares  shall  otherwise  be freely
transferable  on the books  and  records  of the  Company  as and to the  extent
provided in the Agreements.  The Company acknowledges that a breach by it of its
obligations  hereunder will cause irreparable harm to the Investors by violating
the intent and purpose of the transaction contemplated hereby. Accordingly,  the
Company  acknowledges  that the  remedy at law for a breach  of its  obligations
under this Section 6.12 will be inadequate and agrees,  in the event of a breach
or threatened breach by the Company of the provisions of this Section 6.12, that
the Investors,  shall be entitled,  in addition to all other available remedies,
to an order and/or  injunction  restraining  any breach and requiring  immediate
issuance  and  transfer,  without the  necessity  of showing  economic  loss and
without any bond or other security being required.

      Section 6.13 Press Release;  Filing of Form 8-K. Subject to the provisions
of Section 8.7 hereof,  on or before the fifth (5th)  Business Day following the
Closing Date, the Company shall: (a) issue a press release in form and substance
reasonably  acceptable to the Investors  (except as otherwise  required by law);
and (b) file a Current  Report on Form 8-K with the SEC  describing the terms of
the transaction  contemplated by the Agreements in the form required by the 1934
Act.

      Section 6.14 Ordinary Course Brokerage and Trading.  Subject to compliance
with  applicable  securities laws and Nasdaq  regulations,  no Investor shall be
prohibited from engaging in its ordinary course brokerage and trading activities
in respect of the Company's Common Stock; provided that the personnel engaged in
such activities have not been involved with the transactions contemplated hereby
and have not been provided  with  confidential  information  with respect to the
Company.

      Section 6.15 Additional Affirmative Covenants.  During such time as any of
the Notes remains outstanding, the Company shall:

            (a) promptly pay and discharge,  or cause to be paid and discharged,
when due and payable, all lawful taxes,  assessments and governmental charges or
levies imposed upon the income, profits,  property or business of the Company or
any Subsidiary; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity  thereof  shall  currently be contested in good
faith by appropriate  proceedings  and if the Company or such  Subsidiary  shall
have set aside on its books adequate reserves with respect thereto;

            (b)  preserve  and   maintain,   and  cause  each  of  its  Material
Subsidiaries  to maintain,  its  corporate  existence,  rights,  franchises  and
privileges  in the  jurisdiction  of its  incorporation,  and qualify and remain
qualified,  as  a  foreign  corporation  in  each  jurisdiction  in  which  such
qualification  is necessary or desirable in view of its business and  operations
or the ownership of its properties; and

            (c) keep, and shall cause each of its  Subsidiaries to keep,  proper
books of record and account in which  entries  that are  complete and correct in
all material  respects shall be made with respect to all financial  transactions
and the  assets  and  business  of the  Company  and  each  such  Subsidiary  in
accordance  with U.S.  generally  accepted  accounting  principles to the extent
applicable.

                                      -24-
<PAGE>

      Section 6.16 Additional Negative Covenants. During such time as any of the
Notes  remains  outstanding,  the Company  shall not  without the prior  written
consent of the Required Investors:

            (a) exchange,  redeem or convert any of the Company's  capital stock
for  indebtedness,  including  convertible  debt,  of  the  Company.  Except  as
expressly permitted in this Agreement,  the Company shall not issue and sell any
Notes, other than to the Investors pursuant to this Agreement, without the prior
written consent of each of the Investors;

            (b) declare or pay any dividend,  in cash or in kind, to the holders
of the Common Stock, except in shares of Common Stock;

            (c) amend the Certificate of  Incorporation or Bylaws of the Company
or any of its  Subsidiaries,  if such amendment  would change any of the rights,
preferences or privileges provided for in the Notes;

            (d) redeem,  purchase or otherwise acquire (or pay into or set aside
for a sinking fund for such  purpose)  any of the capital  stock of the Company,
except for  repurchases  of capital  stock of the Company from  employees of the
Company in connection with the termination of such employees employment;

            (e) create or authorize the creation of any additional  indebtedness
that is senior to or pari passu with the Notes, other than the Line of Credit;

            (f) consent to or permit any dissolution,  winding up,  commencement
of bankruptcy,  insolvency,  liquidation or similar  proceedings with respect to
the Company or any Material Subsidiary;

            (g)  create,  incur,  assume or suffer  to exist any  liability  for
borrowed  money for itself or any  subsidiary,  directly or  indirectly,  of the
Company other than those borrowings by Subsidiaries  identified on Schedule 6.16
hereto,  except:  (A)  indebtedness  represented by the Notes;  (B) indebtedness
under  the  Line  of  Credit;  or  (C)  additional   indebtedness   incurred  by
Subsidiaries  after the date hereof of not more than $1,000,000 in the aggregate
outstanding at any time;

            (h) create, incur, assume or suffer to exist, any mortgage,  pledge,
lien, or encumbrance  of or upon or security  interest in, any of its properties
or assets now owned or hereafter acquired,  or permit any Material Subsidiary to
do any of the foregoing  with regard to its own assets,  except:  (A) mortgages,
pledges,  liens and security  interests  securing the Line of Credit; (B) liens,
charges  and  encumbrances  incidental  to the  conduct of its  business  or the
ownership of its properties and assets which are not incurred in connection with
the  borrowing of money or the  obtaining of advances or credit and which do not
materially  impair  the  use  thereof  in the  operation  of its  business;  (C)
Permitted Liens (as defined in the Security  Agreement);  and (D) liens pursuant
to the Security Agreement and the Pledge Agreement;

            (i)  assume,  endorse,  be or become  liable  for or  guarantee  the
obligations of any other Person for borrowed  money, or permit any subsidiary of
the  Company  to  do  any  of  the

                                      -25-
<PAGE>

foregoing, except for such assumptions,  endorsements, or guarantees that do not
exceed $1,000,000 in the aggregate at any time;

            (j) enter into any significant new line of business;

            (k) enter into any agreement for the  consummation of, or consummate
any transaction, involving a Change in control, provided, that the provisions of
this Section  6.16(k) shall continue only for a period of two (2) years from the
Closing Date.

      Section  6.17 Line of Credit.  The Company and the  Investors  have agreed
that the  Company  may obtain from a  commercial  bank or a group of  commercial
banks a  revolving  line of credit in an amount  not to exceed  $15,000,000,  to
provide the Company with  additional  working  capital (the "Line of Credit") on
terms  generally  provided by commercial  banks located in the City of New York,
provided  that the  Required  Investors  have  approved the terms of the Line of
Credit in writing prior to the Company  entering into or agreeing to be bound by
any terms of the Line of Credit (such approval not to be unreasonably withheld).

                                  ARTICLE VII

                          Survival and Indemnification
                          ----------------------------

      Section 7.1  Survival.  All  representations,  warranties,  covenants  and
agreements  contained in this Agreement  shall be deemed to be  representations,
warranties, covenants and agreements as of the date hereof and shall survive the
execution  and delivery of this  Agreement for the longer of (a) the period that
any of the Notes are outstanding,  and (b) three (3) years from the date of this
Agreement; provided, however, that the provisions contained in Article VI hereof
shall survive in accordance therewith.

      Section 7.2  Indemnification.  Except as otherwise  expressly  provided in
Section  1(c)  of the  Notes  or in  Section  2(c)  of the  Registration  Rights
Agreement,  the Company  agrees to indemnify and hold harmless each Investor and
its Affiliates and their respective  directors,  officers,  employees and agents
from and against any and all losses, claims, damages, liabilities and reasonable
expenses   (including   without   limitation   reasonable   attorney   fees  and
disbursements  and other  expenses  incurred in connection  with  investigating,
preparing or defending any action,  claim or  proceeding,  pending or threatened
and the costs of  enforcement  hereof)  (collectively,  "Losses")  to which such
Person may become subject as a result of any breach of representation, warranty,
covenant  or  agreement  made by or to be  performed  on the part of the Company
under the Agreements, and will reimburse any such Person for all such amounts as
they are incurred by such Person.

      Section 7.3 Conduct of Indemnification Proceedings. Promptly after receipt
by any Person  (the  "Indemnified  Person")  of notice of any  demand,  claim or
circumstances  which would or might give rise to a claim or the  commencement of
any action,  proceeding or  investigation  in respect of which  indemnity may be
sought pursuant to Section 7.2 hereof,  such  Indemnified  Person shall promptly
notify the Company in writing and the Company shall assume the defense  thereof,
including the employment of counsel reasonably  satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses to the extent such

                                      -26-
<PAGE>

fees and expenses constitute Losses; provided,  however, that the failure of any
Indemnified Person so to notify the Company shall not relieve the Company of its
obligations  hereunder  except to the  extent  that the  Company  is  materially
prejudiced by such failure to notify.  In any such  proceeding,  any Indemnified
Person shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified  Person unless:  (a)
the  Company  and the  Indemnified  Person  shall  have  mutually  agreed to the
retention of such counsel;  or (b) in the reasonable judgment of counsel to such
Indemnified  Person  representation of both parties by the same counsel would be
inappropriate due to actual or potential  material  differing  interests between
them.  The  Company  shall  not be  liable  for any  settlement  of any  action,
proceeding or investigation effected without its written consent, but if settled
with  such  consent,  or if there be a final  judgment  for the  plaintiff,  the
Company  shall  indemnify and hold  harmless  such  Indemnified  Person from and
against any loss or  liability  (to the extent  stated  above) by reason of such
settlement  or judgment.  Without the prior written  consent of the  Indemnified
Person, which consent shall not be unreasonably  withheld, the Company shall not
effect  any  settlement  of any  pending or  threatened  action,  proceeding  or
investigation in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified  Party,
unless such settlement  includes an  unconditional  release of such  Indemnified
Person  from  all   liability   arising  out  of  such  action,   proceeding  or
investigation.

                                  ARTICLE VIII

                                  Miscellaneous
                                  -------------

      Section 8.1 Successors and Assigns.  This Agreement may not be assigned by
a party hereto without the prior written  consent of the Company or the Required
Investors,  as  applicable,  provided,  however:  (a) an Investor may assign its
rights and delegate its duties  hereunder in whole or in part to an Affiliate or
to a third party that is an  accredited  investor (as defined in  Regulation  D)
acquiring some portion or all of its Notes and/or Shares, as the case may be, in
a private  transaction  without the prior written  consent of the Company or the
other Investors, after notice duly given by such Investor to the Company and the
other  Investors,  provided,  that no such assignment or obligation shall affect
the obligations of such Investor  hereunder and provided  further that the right
to participate  in the selection of the Investor  Observer and the rights of the
Investors under Section 6.16(k) may not be assigned,  but may only be determined
by the  Investors  in  accordance  herewith.  The terms and  conditions  of this
Agreement  shall  inure to the  benefit  of and be binding  upon the  respective
permitted  successors  and assigns of the  parties.  Nothing in this  Agreement,
express or implied,  is intended to confer upon any party other than the parties
hereto  or  their  respective  successors  and  assigns  any  rights,  remedies,
obligations,  or  liabilities  under or by reason of this  Agreement,  except as
expressly provided in this Agreement.

      Section 8.2 Counterparts;  Faxes. This Agreement may be executed in two or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same  instrument.  This Agreement may also
be executed via facsimile, which shall be deemed an original.

                                      -27-
<PAGE>

      Section 8.3 Titles and  Subtitles.  The titles and subtitles  used in this
Agreement  are  used  for  convenience  only  and  are not to be  considered  in
construing or interpreting this Agreement.

      Section 8.4 Notices.  Unless  otherwise  provided,  any notice required or
permitted  under this  Agreement  shall be given in writing  and shall be deemed
effectively given as hereinafter  described:  (a) if given by personal delivery,
then such notice shall be deemed given upon such delivery; (b) if given by telex
or  telecopier,  then  such  notice  shall  be  deemed  given  upon  receipt  of
confirmation  of complete  transmittal;  (c) if given by mail,  then such notice
shall be deemed  given upon the  earlier  of: (i)  receipt of such notice by the
recipient;  or (ii) three (3)  Business  Days after such notice is  deposited in
certified mail, return receipt requested,  postage prepaid, and; (d) if given by
an internationally  recognized overnight air courier,  then such notice shall be
deemed given one (1) Business Day after  delivery to such  carrier.  All notices
shall be addressed to the party to be notified at the address as follows,  or at
such other  address as such party may  designate  by ten days'  advance  written
notice to the other party:

                  If to the Company:

                        Kroll Inc.
                        900 Third Avenue
                        Seventh Floor
                        New York, New York 10022
                        Attention:  Michael G. Cherkasky,  President and Chief
                        Executive Officer
                        Fax: 212-750-5628

                  With a copy to:

                       Kramer Levin Naftalis & Frankel LLP
                        919 Third Avenue
                        New York, New York 10022
                        Attention:  Peter S. Kolevzon, Esq.
                        Fax: 212-715-8000

                  If to  the  Investors,  to  the  addresses  set  forth  on the
                  signature pages hereto.

      Section 8.5  Expenses.  The parties  hereto  shall pay their own costs and
expenses in  connection  herewith,  except that at the Closing the Company shall
pay the reasonable fees and expenses of Lowenstein  Sandler PC, and Akin,  Gump,
Strauss,  Hauer & Feld, L.L.P., the attorneys for the Investors,  as well as the
accountants  for the  Investors  and the  reasonable  costs of the  Investors in
conducting due diligence on the Company up to a maximum of $200,000. The Company
shall  reimburse  the  Investors  upon demand for all  reasonable  out-of-pocket
expenses incurred by the Investors,  including without limitation  reimbursement
of  reasonable  attorneys'  fees  and  disbursements,  in  connection  with  any
amendment,  modification or waiver of this Agreement or the other Agreements and
the completion of the matters contemplated by Section 6.9 hereof.

                                      -28-
<PAGE>

      Section 8.6  Amendments  and Waivers.  Any term of this  Agreement  may be
amended and the  observance of any term of this  Agreement may be waived (either
generally   or  in  a   particular   instance   and  either   retroactively   or
prospectively),  only with the written  consent of the Company and the  Required
Investors.  Any  amendment or waiver  effected in  accordance  with this section
shall be binding upon each holder of any Notes and/or  Shares  issued under this
Agreement at the time  outstanding,  each future holder of all such  securities,
and the Company.

      Section 8.7 Publicity.  No public release or  announcement  concerning the
transactions contemplated hereby shall be issued by the Company or the Investors
without  the  prior  consent  of the  Company  (in  the  case  of a  release  or
announcement by the Investors) or Palisade Concentrated Equity Partnership, L.P.
("PCEP")  and  Pegasus  Partners  II,  L.P.  ("PP") (in the case of a release or
announcement   by  the  Company)  (which  consents  shall  not  be  unreasonably
withheld),  except as such release or announcement may be required by law or the
applicable rules or regulations of any securities exchange or securities market,
in which case the  Company or the  Investors,  as the case may be,  shall  allow
PCEP, PP or the Company, as applicable,  to the extent reasonably practicable in
the circumstances, reasonable time to comment on such release or announcement in
advance of such issuance.

      Section  8.8  Severability.  Any  provision  of  this  Agreement  that  is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be ineffective to the extent of such  prohibition  or  unenforceability  without
invalidating the remaining  provisions  hereof but shall be interpreted as if it
were  written  so as to be  enforceable  to  the  maximum  extent  permitted  by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall  not  invalidate  or  render  unenforceable  such  provision  in any other
jurisdiction.  To the extent  permitted by  applicable  law, the parties  hereby
waive any  provision of law which  renders any  provision  hereof  prohibited or
unenforceable in any respect.

      Section 8.9 Entire Agreement.  This Agreement,  including the Exhibits and
the Schedules, and the other Agreements, and amendments thereto,  constitute the
entire  agreement  among the parties  hereof with respect to the subject  matter
hereof and thereof and supersede all prior agreements and  understandings,  both
oral and written,  between the parties with respect to the subject matter hereof
and thereof.

      Section 8.10 Further Assurances. The parties shall execute and deliver all
such further  instruments  and  documents and take all such other actions as may
reasonably be required to carry out the transactions  contemplated hereby and to
evidence the fulfillment of the agreements herein contained.

      Section 8.11 Governing Law; Consent to Jurisdiction.  This Agreement shall
be governed by, and construed in accordance with, the internal laws of the State
of New York without regard to the choice of law principles thereof.  Each of the
parties  hereto  irrevocably  submits to the  co-exclusive  jurisdiction  of the
courts of the State of New York located in New York County and the United States
District  Court for the  Southern  District  of New York for the  purpose of any
suit,  action,  proceeding  or  judgment  relating  to or  arising  out  of  the
Agreements  and the  transactions  contemplated  thereby.  Service of process in
connection with any such suit,  action or proceeding may be served on each party
hereto anywhere in the world by the same methods as are specified for the giving
of notices under this Agreement. Each of the parties

                                      -29-
<PAGE>

hereto  irrevocably  consents to the  jurisdiction of any such court in any such
suit,  action or proceeding and to the laying of venue in such court. Each party
hereto irrevocably waives any objection to the laying of venue of any such suit,
action or  proceeding  brought in such courts and  irrevocably  waives any claim
that any such  suit,  action or  proceeding  brought  in any such court has been
brought in an inconvenient forum.

                         [SIGNATURES BEGIN ON NEXT PAGE]

                                      -30-
<PAGE>

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

The Company:                              KROLL INC.

                                          By: /s/
                                             ---------------------------------
                                             Name:
                                             Title:

<PAGE>

The Investors:                   PALISADE CONCENTRATED EQUITY PARTNERSHIP, L.P.
                                 By: Palisade Concentrated  Holdings, L.L.C.
                                     as General Partner

                                 By: /s/
                                    ---------------------------------
                                    Name:   Mark Hoffman
                                    Title:  Member

Aggregate Principal Amount:  $20,000,000

Address for Notice:            Palisade  Concentrated Equity Partnership, L.P.
                               One Bridge Plaza
                               Fort Lee, New Jersey 07024
                               Attn:  Mark Hoffman
                               Telephone:  201.585-7733
                               Facsimile:  201.585-7552
                               with a copy to:

                               Lowenstein Sandler PC
                               65 Livingston Avenue
                               Roseland, New Jersey  07068
                               Attn:  George J. Mazin, Esq.
                               Telephone:  973.597.2500
                               Facsimile:  973.597.2400

<PAGE>

The Investors:                         PEGASUS PARTNERS II, L.P.
                                       By: Pegasus Investors II, L.P.,
                                           as General Partner

                                       By: Pegasus Investors II GP, LLC, as
                                           General Partner

                                       By: /s/
                                          ---------------------------------
                                          Name:
                                          Title:

Aggregate Principal Amount:  $10,000,000

Address for Notice:                 Pegasus Partners II, L.P.
                                    99 River Road
                                    Cos Cob, Connecticut 06807
                                    Attn: Jonathan Berger
                                    Telephone:  203.869.4400
                                    Facsimile:  203.869.6940
                                    with a copy to:

                                    Akin, Gump, Strauss, Hauer & Feld, L.L.P.
                                    1333 New Hampshire Avenue
                                    Washington, D.C. 20036
                                    Attn:  Bruce S. Mendelsohn, Esq.
                                    Telephone:  202.887.4000
                                    Facsimile:  202.887.4588REGISTRATION RIGHTS AGREEMENT

      This  Registration  Rights Agreement (the  "Agreement") is made as of this
14th day of November,  2001 by and among Kroll Inc.,  an Ohio  corporation  (the
"Company"),  and the  "Investors"  named  in that  certain  Securities  Purchase
Agreement by and among the Company and the Investors, dated the date hereof (the
"Purchase Agreement").

      This Agreement is made pursuant to the Purchase Agreement.

      The parties hereby agree as follows:

      Section 1. Certain  Definitions.  Capitalized terms used and not otherwise
defined  herein  shall  have the  meanings  given  such  terms  in the  Purchase
Agreement.  As used in this  Agreement,  the  following  terms  shall  have  the
following meanings:

      "Affiliate"  means,  with  respect to any  Person,  any other  Person that
directly or indirectly  controls or is controlled by or is under common  control
with such Person. For the purposes of this definition,  "Control" when used with
respect to any Person,  means the  possession,  directly or  indirectly,  of the
power to direct or cause the  direction of the  management  and policies of such
Person,  whether  through the  ownership  of voting  securities,  by contract or
otherwise;  and the  terms  "Affiliated"  "Controlling"  and  "Controlled"  have
meanings correlative to the foregoing.

      "Business Day" means a day, other than a Saturday or Sunday,  or other day
on which  banks in the  State of New York are  closed  or  authorized  by law to
close.

      "Common Stock" shall mean the Company's  common stock,  par value $.01 per
share.

      "Investors" shall mean the Investors  identified in the Purchase Agreement
and any  Affiliate or permitted  transferee  of any Investor who is a subsequent
holder of any Registrable Securities.

      "Notes" shall mean the 6% Senior Secured  Subordinated  Convertible  Notes
due 2006 issued pursuant to the Purchase Agreement.

      "Prospectus"  shall  mean  the  prospectus  included  in any  Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the  terms of the  offering  of any  portion  of the  Registrable  Securities
covered  by  such  Registration  Statement  and  by  all  other  amendments  and
supplements  to the  prospectus,  including  post-effective  amendments  and all
material incorporated by reference in such prospectus.

      "Register,"  "registered" and "registration"  refer to a registration made
by  preparing  and  filing a  Registration  Statement  or  similar  document  in
compliance with the 1933 Act (as defined below), and the declaration or ordering
of effectiveness of such Registration Statement or document.

<PAGE>

      "Registrable  Securities"  shall  mean:  (a) the Notes;  (b) the shares of
Common  Stock  issuable  upon  conversion  of the  Notes;  and  (iii)  any other
securities  issued or issuable  with respect to or in exchange  for  Registrable
Securities.

      "Registration  Statement"  shall mean any  registration  statement  of the
Company  filed  under  the  1933  Act  that  covers  the  resale  of  any of the
Registrable Securities pursuant to the provisions of this Agreement,  amendments
and  supplements  to  such  Registration  Statement,   including  post-effective
amendments,  all  exhibits and all  material  incorporated  by reference in such
Registration Statement.

      "Shares" shall mean the shares of Common Stock issuable upon conversion of
the Notes.

      "SEC" means the U.S. Securities and Exchange Commission.

      "1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.

      "1934 Act" means the Securities Exchange Act of 1934, as amended,  and the
rules and regulations of the SEC promulgated thereunder.

      2. Registration.

            (a)   Registration Statements.

                  (i)  Promptly  following  the  Closing  (but  not  later  than
forty-five  (45) days  thereafter),  the Company shall prepare and file with the
SEC a Registration  Statement on Form S-1 (or, if Form S-1 is not then available
to the Company,  on such form of registration  statement as is then available to
effect a registration for resale of the Registrable  Securities,  subject to the
Investors'  prior  written  consent),  covering  the  resale of the  Registrable
Securities and with regard to the Shares shall register an amount at least equal
to the number of shares of Common Stock issuable to the Investors on the Closing
Date pursuant to the Notes based upon the initial  Conversion  Price (as defined
in the Notes).  Such  Registration  Statement  also shall  cover,  to the extent
allowable  under the 1933 Act and the rules  promulgated  thereunder  (including
Rule  416),  such  indeterminate  number of  additional  shares of Common  Stock
resulting  from stock  splits,  stock  dividends  or similar  transactions  with
respect  to the  Registrable  Securities.  The  Company  shall  not  permit  any
securities  other  than  the  Registrable  Securities  to be  included  in  such
Registration  Statement.  The  Registration  Statement  (and each  amendment  or
supplement thereto, and each request for acceleration of effectiveness  thereof)
shall be provided in  accordance  with Section 3(c) hereof to the  Investors and
their counsel prior to its filing or other submission. The Company shall use its
reasonable  commercial  efforts to cause the Registration  Statement to be filed
pursuant to this Section  2(a)(i) to be declared  effective by the SEC not later
than the earlier of: (A) the date that is 135 days after the Closing  Date;  and
(B) ninety (90) days after the Registration Statement is filed with the SEC. The
Company shall keep the  Registration  Statement  filed  pursuant to this Section
2(a)(i)  effective and current under the 1933 Act until the date that is two (2)
years after the Closing Date, unless a replacement  Registration Statement filed
pursuant to Section  2(a)(iii) hereof shall have been declared  effective by the
SEC prior to the expiration of such two (2) year period,  in which case the time
provisions  set  forth in  Section  2(a)(iii)  hereof  shall  control,  provided
however, that such two (2)

                                      -2-
<PAGE>

year  period  shall be extended  until the date on which all of the  Registrable
Securities are eligible for resale pursuant to Rule 144(k) under the 1933 Act.

                  (ii)  Additional  Registrable  Securities.  Upon  the  written
demand of any Investor  and upon the issuance or deemed  issuance by the Company
of  shares of Common  Stock  such as to  trigger  the  anti-dilution  provisions
contained in the Notes regarding issuances or deemed issuances by the Company of
shares  of  Common  Stock at a price  per  share  less  than the then  effective
Conversion  Price,  or any  other  change  in the  Conversion  Price  such  that
additional  shares of Common  Stock become  issuable  pursuant to the Notes (the
"Additional  Note Shares"),  the Company shall prepare and file with the SEC one
or more  Registration  Statements on Form S-1 or Form S-3 if the Company is then
eligible  to use Form S-3 (or,  if Form S-1 or Form S-3,  as the case may be, is
not then available to the Company, on such form of registration  statement as is
then available to effect a registration for resale of such additional  shares of
Common Stock,  subject to the  Investors'  prior written  consent)  covering the
resale of the Additional Note Shares, but only to the extent the Additional Note
Shares are not at the time covered by an effective Registration Statement.  Such
Registration  Statement also shall cover, to the extent allowable under the 1933
Act  and  the  rules   promulgated   thereunder   (including   Rule  416),  such
indeterminate  number of additional  shares of Common Stock resulting from stock
splits,  stock dividends or similar  transactions with respect to the Additional
Note  Shares.  The  Company  may permit  securities  other than the  Registrable
Securities to be included in such  Registration  Statement;  provided,  that the
inclusion of such securities in such Registration  Statement shall not affect or
limit  the  number  of  Registrable  Securities  included  in such  Registration
Statement. The Registration Statement (and each amendment or supplement thereto,
and each request for acceleration of effectiveness thereof) shall be provided in
accordance  with Section 3(c) hereof to the Investors and their counsel prior to
its filing or other submission. A Registration Statement covering the Additional
Note Shares shall be filed by the Company  with the SEC within  thirty (30) days
of the request of any Investor.  The Company shall use its reasonable commercial
efforts to cause the Registration Statement to be filed pursuant to this Section
2(a)(ii) to be declared  effective by the SEC not later than the earlier of: (A)
the date that is one  hundred  and twenty  (120) days after the date on which an
Investor shall have requested such  registration of Additional Note Shares;  and
(B) ninety (90) days after the Registration Statement is filed with the SEC. The
Company shall keep the  Registration  Statement  filed  pursuant to this Section
2(a)(ii) effective and current under the 1933 Act until the date on which all of
the Registrable Securities are eligible for resale pursuant to Rule 144(k) under
the 1933 Act,  unless a replacement  Registration  Statement  filed  pursuant to
Section 2(a)(iii) hereof shall have been declared  effective by the SEC prior to
the  expiration of such period,  in which case the time  provisions set forth in
Section 2(a)(iii) hereof shall control.

                  (iii)  Registration  on Form S-3.  Promptly after such time as
the Company is eligible  to use Form S-3 (but not later than  fifteen  (15) days
after becoming  eligible),  irrespective of any prior filing of any Registration
Statement in respect of any  Registrable  Securities,  the Company shall prepare
and file with the SEC a replacement  Registration  Statement on Form S-3 (or, if
Form S-3 is not then  available  to the  Company,  on such form of  registration
statement  as is then  available  to  effect a  registration  for  resale of the
Registrable  Securities,  subject  to the  Investors'  prior  written  consent),
covering the resale of the Registrable  Securities and with regard to the Shares
shall  register an amount at least equal to the number of shares of Common Stock
issuable to the Investors on the date of filing such

                                      -3-
<PAGE>

Registration  Statement  on Form S-3  pursuant  to the Notes based upon the then
effective Conversion Price. Such Registration Statement also shall cover, to the
extent  allowable  under  the  1933  Act and the  rules  promulgated  thereunder
(including Rule 416), such  indeterminate  number of additional shares of Common
Stock resulting from stock splits,  stock dividends or similar transactions with
respect to the Registrable  Securities.  The Company may permit securities other
than the Registrable  Securities to be included in such Registration  Statement;
provided,  that the inclusion of such securities in such Registration  Statement
shall not affect or limit the number of Registrable  Securities included in such
Registration  Statement.  The  Registration  Statement  (and each  amendment  or
supplement thereto, and each request for acceleration of effectiveness  thereof)
shall be provided in  accordance  with Section 3(c) hereof to the  Investors and
their counsel prior to its filing or other submission. The Company shall use its
reasonable  commercial  efforts to cause the Registration  Statement to be filed
pursuant to this Section 2(a)(iii) to be declared effective by the SEC not later
than the earlier of: (A) the date that is seventy  five (75) days after the date
on which the Company  became  eligible to use Form S-3;  and (B) sixty (60) days
after the  Registration  Statement is filed with the SEC. The Company shall keep
the Registration  Statement filed pursuant to this Section  2(a)(iii)  effective
and  current  under the 1933 Act until the date on which all of the  Registrable
Securities are eligible for resale pursuant to Rule 144(k) of the 1933 Act.

                  (iv) (A) If the Company at any time  proposes to register  any
of its  securities  under  the 1933 Act for sale to the  public  pursuant  to an
underwritten  offering,  whether for its own account or for the account of other
stockholders  of the  Company  or both,  each  such time it will  promptly  give
written notice to all holders of the Registrable Securities (whether or not such
Registrable  Securities  are  currently  registered  under  the 1933 Act) of its
intention  so to do.  Upon the  written  request  of any such  holder,  which is
received by the Company  within  fifteen  (15) days after the giving of any such
notice by the  Company,  to register  and include any or all of its  Registrable
Securities  (whether  or not  currently  registered  under the 1933 Act) in such
underwritten offering, the Company will use its reasonable commercial efforts to
cause such Registrable  Securities as to which  registration and inclusion shall
have been so requested to be included in such registration statement.  The right
of any holder of such Registrable  Securities to include Registrable  Securities
in such  registration  shall be conditioned upon such holder's  participation in
such  underwriting  to the extent  provided  herein.  The Company may abandon or
withdraw any such  registration  at any time without any liability or obligation
to any holder of Registrable Securities.

                  (B)  Notwithstanding  any  other  provision  of  this  Section
2(a)(iv), if the managing underwriter or underwriters  determine that the number
of shares to be included in such registration (including any securities that the
Company,  the holders of Registrable  Securities and any other stockholders with
registration  rights  (other than  Registrable  Securities)  exceeds the largest
number of shares  that can be sold  without  having  an  adverse  effect on such
offering  (the  "Maximum  Offering  Size"),  the  Company  will  include in such
registration, in the following priority, up to the Maximum Offering Size:

                        (w) first,  that number of the securities held
         by any stockholders exercising a demand registration pursuant
         to a written  agreement  between  such  stockholders  and the
         Company,  if any,  as would not cause the  offering to exceed
         the Maximum  Offering Size  (allocated,  if

                                 -4-
<PAGE>

         necessary for the offering not to exceed the Maximum Offering
         Size,  pro rata among such holders on the basis of the number
         of  shares  of  registrable  securities  so  requested  to be
         included in such registration); and

                        (x) second,  if the Maximum  Offering Size has
         not been exceeded,  that number of securities  proposed to be
         registered for the account of the Company; and

                        (y) third,  if the Maximum  Offering  Size has
         not been exceeded, all Registrable Securities requested to be
         included in such  registration  by the holders of Registrable
         Securities and any other securities proposed to be registered
         for the  account of any person  with  piggyback  registration
         rights pursuant to a written agreement  executed prior to the
         delivery  of the  notice  set forth in  Section  4(a)  hereof
         (allocated,  if necessary  for the offering not to exceed the
         Maximum  Offering  Size,  pro rata among such  holders on the
         basis of the number of shares of  Registrable  Securities and
         other   securities  so  requested  to  be  included  in  such
         registration); and

                        (z) fourth,  if the Maximum  Offering Size has
         not been exceeded,  any securities  proposed to be registered
         for the  account of any other  persons  with such  priorities
         among them as the Company shall determine.

            (b) Expenses. The Company will pay all expenses associated with each
registration under this Agreement,  including,  without  limitation,  filing and
printing fees,  counsel and accounting fees and expenses,  costs associated with
clearing the Registrable  Securities for sale under  applicable state securities
laws, listing fees and the Investors' reasonable expenses in connection with the
registration including,  without limitation, the reasonable attorney fees of one
counsel  to  the  Investors,  but  excluding  discounts,  commissions,  fees  of
underwriters,  selling brokers,  dealer managers or similar securities  industry
professionals with respect to the Registrable Securities being sold.

            (c) Failure to Comply. If a Registration Statement: (i) is not filed
within the time  periods  set forth in any of Section  2(a)(i)  through  Section
2(a)(iii)  hereof,  as the case may be;  (ii) is not  effective  by the time set
forth in any of Section 2(a)(i) through Section  2(a)(iii)  hereof,  as the case
may be; or (iii) is suspended  or otherwise is not  effective or current for any
reason  for at  least  thirty  (30)  days  during  any  period  that it is to be
effective  or current as  provided  in any of Section  2(a)(i)  through  Section
2(a)(iii)  and Section 3(j) hereof,  as the case may be, the per annum  interest
rate pursuant to the Notes shall increase by one-half of one percent (0.50%) for
each thirty (30) day period (or pro rata for any  portion  thereof):  (x) during
which the obligation to file a  Registration  Statement is not met; (y) during a
period when a  Registration  Statement was to be declared  effective and has not
been declared  effective;  or (z) during a period when a Registration  Statement
was  suspended,  otherwise not effective or current;  provided that the interest
rate  pursuant to the Notes shall return to the  interest  rate in effect on the
Closing Date upon the  satisfaction by the Company of its applicable  obligation
under Section 2(a) or Section 3(j) hereof.  Such adjustment in the interest rate
under the Notes,  if any, is

                                      -5-
<PAGE>

liquidated  damages  and not a  penalty  and shall be the sole  monetary  remedy
available  to the holder for the failure of the Company to comply with  Sections
2(a) and 3(j)  hereof,  provided,  however  that if an  Acceleration  Notice (as
defined in the Notes) has been delivered the interest rate under the Notes shall
be as provided in Section 1(b) of the Notes.

            (d) Underwritten  Offering. If any of the Registrable Securities are
to be sold in an  underwritten  offering  at the request of the  Investors,  the
investment  banker that will  administer  the  offering  will be selected by the
Company  with the  consent  of the  holders  of a  majority  of the  Registrable
Securities  included in such offering,  which consent shall not be  unreasonably
withheld.   No  holder  of  Registrable   Securities  may   participate  in  any
underwritten  offering  hereunder  unless  such  holder:  (i) agrees to sell its
Registrable  Securities  on the basis  provided in any  underwriting  agreements
approved by the Persons  entitled  hereunder to approve such  arrangements;  and
(ii) completes and executes all questionnaires, powers of attorney, indemnities,
underwriting  agreements  and other  documents  required under the terms of such
arrangements.

      3.  Company  Obligations.  The Company  will use  commercially  reasonable
efforts to effect the  registration of the Registrable  Securities in accordance
with the terms hereof,  and pursuant  thereto the Company will, as expeditiously
as possible:

            (a) use commercially  reasonable  efforts to cause such Registration
Statement  to become  effective  and to remain  continuously  effective  for the
periods provided in Section 2(a) hereof;

            (b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration  Statement and the Prospectus as may be necessary
to keep the Registration Statement effective for the period specified in Section
2(a) hereof and to comply with the  provisions  of the 1933 Act and the 1934 Act
with respect to the  distribution of all of the Registrable  Securities  covered
thereby;

            (c) provide copies to and permit counsel designated by the Investors
to review each Registration Statement and all amendments and supplements thereto
no fewer than seven (7) days prior to their filing with the SEC and not file any
document to which such counsel reasonably objects;

            (d) furnish to the Investors and their legal  counsel:  (i) promptly
after the same is  prepared  and  publicly  distributed,  filed with the SEC, or
received  by the  Company  (but not later than two (2)  Business  Days after the
filing date,  receipt date or sending  date, as the case may be) one (1) copy of
any  Registration   Statement  and  any  amendment  thereto,   each  preliminary
prospectus and Prospectus  and each  amendment or supplement  thereto,  and each
letter  written  by or on behalf of the  Company  to the SEC or the staff of the
SEC,  and each item of  correspondence  from the SEC or the staff of the SEC, in
each case relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment);  and (ii)  such  number  of  copies  of a  Prospectus,  including  a
preliminary  prospectus,  and all  amendments and  supplements  thereto and such
other  documents as each Investor may reasonably  request in order to facilitate
the

                                      -6-
<PAGE>

      disposition of the Registrable  Securities owned by such Investor that are
covered by the related Registration Statement;

            (e) in the event of an  underwritten  offering,  the  Company  shall
enter  into  and  perform  its  reasonable  obligations  under  an  underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification  and  contribution  obligations,  with the  underwriter  of such
offering;

            (f) if required by the underwriter,  or if any Investor is described
in the Registration  Statement as an underwriter,  the Company shall furnish, on
the effective date of the Registration  Statement (except with respect to clause
3(f)(i) below) and on the date that  Registrable  Securities are delivered to an
underwriter,  if any, for sale in  connection  with the  Registration  Statement
(including  any  Investor  deemed to be an  underwriter):  (i) in the case of an
underwritten  offering, an opinion,  dated as of the closing date of the sale of
Registrable  Securities  to the  underwriters,  from  independent  legal counsel
representing the Company for purposes of such Registration  Statement,  in form,
scope and substance as is customarily given in an underwritten  public offering,
addressed  to  the  underwriters   and  the  Investors   participating  in  such
underwritten  offering and (ii) a letter, dated as of the effective date of such
Registration Statement and confirmed as of the applicable dates described above,
from  the  Company's  independent  certified  public  accountants  in  form  and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten  public offering,  addressed to the underwriters
(including any Investor deemed to be an underwriter);

            (g) use commercially reasonable efforts to: (i) prevent the issuance
of any stop order or other suspension of  effectiveness  and; (ii) if such order
is issued,  obtain the  withdrawal  of any such order at the  earliest  possible
moment;

            (h) prior to any public  offering  of  Registrable  Securities,  use
commercially  reasonable  efforts to register or qualify or  cooperate  with the
Investors and their counsel in connection with the registration or qualification
of such  Registrable  Securities for offer and sale under the securities or blue
sky laws of such  jurisdictions  requested by the  Investors  and do any and all
other  commercially  reasonable acts or things  necessary or advisable to enable
the distribution in such jurisdictions of the Registrable  Securities covered by
the Registration Statement;  and provide evidence of any such action so taken to
such Investor promptly upon such filing;  and continue such qualification at all
times through the resale of all Registrable Securities;  provided, however, that
the  Company  will  not  be  required  to  (x)  qualify  to do  business  in any
jurisdiction  where it would not  otherwise  be required to qualify but for this
paragraph (h), (y) subject itself to general  taxation in any such  jurisdiction
or (z) file a general consent to service of process in any such jurisdiction.

            (i) use  commercially  reasonable  efforts to cause all  Registrable
Securities  covered by a Registration  Statement to be listed on each securities
exchange,  interdealer  quotation  system  or  other  market  on  which  similar
securities issued by the Company are then listed;

            (j) immediately notify the Investors,  at any time when a Prospectus
relating to  Registrable  Securities is required to be delivered  under the 1933
Act,  upon  discovery

                                      -7-
<PAGE>

      that,  or upon  the  happening  of any  event as a result  of  which,  the
Prospectus included in a Registration  Statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements  therein not misleading
in light of the circumstances then existing or is no longer current,  and at the
request of any such holder,  as promptly as reasonably  practicable  prepare and
furnish to such holder a reasonable  number of copies of a  supplement  to or an
amendment  of such  Prospectus  as may be  necessary  such that,  as  thereafter
delivered to the  purchasers of such  Registrable  Securities,  such  Prospectus
shall (i) 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 in light of the  circumstances  then existing and (ii) be
current; and

            (k) otherwise use commercially  reasonable  efforts to comply in all
material respects with all applicable rules and regulations of the SEC under the
1933  Act and the  1934  Act,  take  such  other  actions  as may be  reasonably
necessary  to  facilitate  the   registration  of  the  Registrable   Securities
hereunder;  and make  available to its security  holders,  as soon as reasonably
practicable, but not later than the date on which such filings are made with the
SEC,  copies of the Company's  filings under the 1933 Act and 1934 Act made with
the SEC.

            (l) with respect to any Registration  Statement filed or to be filed
pursuant  to  Section  2(a)  above,  if the Board of  Directors  of the  Company
determines that, in its reasonable good faith judgment, it would (because of the
existence of, or in reasonable  anticipation  of, any  acquisition  or corporate
reorganization or other transaction,  financing  activity,  or other development
involving the Company or any Subsidiary (as defined in the Purchase  Agreement),
or the  unavailability  for reasons beyond the Company's control of any required
financial statements related to such acquisition or corporate  reorganization or
any other  event or  condition  of similar  significance  to the  Company or any
Subsidiary) be materially  disadvantageous (a "Material Development  Condition")
to the Company or any  Subsidiary to file such  Registration  Statement with the
SEC, or to amend or supplement a Registration Statement that has been filed with
the SEC, then the Company shall,  notwithstanding  any other  provisions of this
Agreement, be entitled, upon the giving to the Investors of a certificate signed
by an executive officer of the Company stating that in the reasonable good faith
judgment of the Board of Directors  that a Material  Development  Condition  has
occurred (a "Delay Notice"), (i) to cause sales of Registrable Securities by the
Investors pursuant to such Registration  Statement to cease or (ii) in the event
no such  Registration  Statement  has yet been filed or declared  effective,  to
delay the filing of any such  Registration  Statement  until,  in the reasonable
good  faith  judgment  of the  Board of  Directors,  such  Material  Development
Condition no longer exists (notice of which the Company shall  promptly  deliver
to the holder of the  Registrable  Securities).  Notwithstanding  the  foregoing
provisions of this Section 3(l): (1) in no event may such cessation or delay be,
for each such  Registration  Statement,  for a period of more than  ninety  (90)
consecutive days in any twelve-month  period from the giving of its Delay Notice
to the Investors with respect to such Material Development  Condition,  as above
provided;   and  (2)  in  the  event  a  Registration  Statement  is  filed  and
subsequently  withdrawn  or if the  Investors  are  required  to cease  using an
effective  Registration  Statement,  by reason of any  existing  or  anticipated
Material Development  Condition as provided above, the Company shall cause a new
Registration   Statement  or  an  amendment  or   supplement   to  an  effective
Registration  Statement covering the Registrable Securities to be filed with the
SEC as soon as  practicable,  but in no event more than thirty (30) days,  after
such Material  Development  Condition ceases to exist or, if sooner,  as soon

                                      -8-
<PAGE>

      as  practicable  after the  expiration  of such  ninety  (90) day  period.
Nothing  contained in this Section 3(l) shall modify the  Company's  obligations
under Section 1(c) of the Notes.

      4. Due Diligence  Review;  Information.  The Company shall make available,
during normal business hours and on reasonable notice, for inspection and review
by the Investors,  advisors to and  representatives of the Investors (who may or
may not be affiliated  with the Investors and who are  reasonably  acceptable to
the Company),  any underwriter  participating  in any disposition of Registrable
Securities on behalf of the Investors  pursuant to a  Registration  Statement or
amendments or  supplements  thereto or any blue sky,  NASD or other filing,  all
financial  and other  records,  all SEC  Filings  (as  defined  in the  Purchase
Agreement) and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review,  and cause the Company's  officers,  directors and  employees,  within a
reasonable time period, to supply all such information  reasonably  requested by
the Investors or any such  representative,  advisor or underwriter in connection
with such Registration Statement (including,  without limitation, in response to
all questions and other inquiries  reasonably made or submitted by any of them),
prior to and  from  time to time  after  the  filing  and  effectiveness  of the
Registration  Statement  for the sole purpose of enabling the Investors and such
representatives,  advisors and underwriters and their respective accountants and
attorneys  to conduct  initial  and ongoing due  diligence  with  respect to the
Company and the accuracy of such Registration Statement.

The Company shall not disclose material nonpublic  information to the Investors,
or to  advisors  to  or  representatives  of  the  Investors,  unless  prior  to
disclosure of such information the Company  identifies such information as being
material  nonpublic  information  and provides the Investors,  such advisors and
representatives with the opportunity to accept or refuse to accept such material
nonpublic  information  for  review.  If the  Investors  decide to  accept  such
material  nonpublic  information,  they shall not receive such information until
they shall have entered into a  confidentiality  agreement with the Company,  in
form and substance satisfactory to the Company.

      5.    Obligations of the Investors.

            (a) Each  Investor  shall  furnish in writing  to the  Company  such
information  regarding  itself,  the  Registrable  Securities  held  by it,  the
intended method of disposition of the Registrable Securities held by it and such
other  information  as may be required to be disclosed by it under the 1933 Act,
as shall be reasonably  required to effect the  registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably  request. At least ten (10) Business Days prior to
the first  anticipated  filing date of any Registration  Statement,  the Company
shall notify each  Investor of the  information  the Company  requires from such
Investor  if such  Investor  elects  to have any of the  Registrable  Securities
included  in  the  Registration   Statement.  An  Investor  shall  provide  such
information  to the Company at least five (5)  Business  Days prior to the first
anticipated  filing date of such Registration  Statement if such Investor elects
to  have  any  of the  Registrable  Securities  included  in  such  Registration
Statement.

            (b) Each Investor,  by its acceptance of the Registrable  Securities
agrees to cooperate  with the Company as reasonably  requested by the Company in
connection  with  the  preparation  and  filing  of  a  Registration   Statement
hereunder,  unless  such  Investor  has  notified

                                      -9-
<PAGE>

the  Company in  writing  of its  election  to  exclude  all of its  Registrable
Securities from such Registration Statement.

            (c)  In  the  event  of  an  underwritten  offering  which  includes
Registrable Securities of the Investors, each such Investor agrees to enter into
and  perform  its  obligations  under an  underwriting  agreement,  in usual and
customary form,  including,  without limitation,  customary  indemnification and
contribution  obligations,  with the managing  underwriter  of such offering and
take such other  actions as are  reasonably  required  in order to  expedite  or
facilitate the disposition of the Registrable Securities.

            (d) Each Investor  agrees that,  upon receipt of any Delay Notice or
any notice from the  Company of the  happening  of an event  pursuant to Section
3(j)  hereof,  such  Investor  will  immediately   discontinue   disposition  of
Registrable  Securities  pursuant to the  Registration  Statement  covering such
Registrable  Securities,  until  the  Investor's  receipt  of the  copies of the
supplemented  or amended  Prospectus  filed with the SEC and declared  effective
and, if so directed by the Company,  the Investor  shall  deliver to the Company
(at the  expense of the  Company)  or  destroy  (and  deliver  to the  Company a
certificate  of  destruction)  all copies in the  Investor's  possession  of the
Prospectus covering the Registrable Securities current at the time of receipt of
such notice.

            (e) No Investor  may  participate  in any third  party  underwritten
registration  hereunder unless it: (i) agrees to sell the Registrable Securities
on the basis provided in any  underwriting  arrangements  in usual and customary
form   entered   into  by  the  Company;   (ii)   completes   and  executes  all
questionnaires,   powers   of   attorney,   custody   agreements,   indemnities,
underwriting  agreements and other documents reasonably required under the terms
of such underwriting arrangements; and (iii) agrees to pay its pro rata share of
all underwriting  discounts and commissions.  Notwithstanding the foregoing,  no
Investor  shall be required  to make any  representations  to such  underwriter,
other than those with respect to itself and the Registrable  Securities owned by
it,   including  its  right  to  sell  the  Registrable   Securities,   and  any
indemnification  in favor of the  underwriter by the Investors  shall be several
and not joint and limited in the case of any Investor,  to the proceeds received
by such Investor from the sale of its Registrable  Securities.  The scope of any
such  indemnification  in favor of an  underwriter  shall be limited to the same
extent as the indemnity provided in Section 6(b) hereof.

      6.    Indemnification.

            (a) Indemnification by the Company. The Company will, to the fullest
extent  permitted by law,  indemnify  and hold  harmless  each  Investor and its
officers,  directors, members, employees and agents, successors and assigns, and
each other person, if any, who controls such Investor (within the meaning of the
1933 Act),  against  any  losses,  claims,  damages,  liabilities  and  expenses
(including  reasonable attorney fees), joint or several, to which such Investor,
officer,  director,  member, or controlling  person may become subject under the
1933 Act or otherwise,  insofar as such losses,  claims,  damages or liabilities
(or actions in respect  thereof)  arise out of or are based upon: (i) any untrue
statement or alleged  untrue  statement of any  material  fact  contained in any
Registration Statement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement  thereof;  (ii) any blue sky

                                      -10-
<PAGE>

application  or other  document  executed by the Company  specifically  for that
purpose or based upon written information  furnished by the Company filed in any
state or other  jurisdiction  in order to qualify any or all of the  Registrable
Securities under the securities laws thereof (any such application,  document or
information  herein  called a "Blue Sky  Application");  (iii) the  omission  or
alleged  omission to state therein a material fact required to be stated therein
or necessary to make the statements  therein (in the case of the Prospectus,  in
light of the circumstances under which they were made) not misleading;  (iv) any
violation  by the  Company or its agents of any rule or  regulation  promulgated
under the 1933 Act  applicable  to the  Company or its agents  and  relating  to
action or inaction required of the Company in connection with such registration;
or (v) any failure to register or qualify the Registrable Securities included in
any  such  Registration  in any  state  where  the  Company  or its  agents  has
affirmatively  undertaken  or agreed in writing that the Company will  undertake
such  registration or qualification on an Investor's  behalf (the undertaking of
any underwriter  chosen by the Company being attributed to the Company) and will
reimburse such Investor, and each such officer, director or member and each such
controlling person for any legal or other expenses  reasonably  incurred by them
in connection  with  investigating  or defending any such loss,  claim,  damage,
liability or action;  provided,  however, that the Company will not be liable in
any such  case if and to the  extent  that  any  such  loss,  claim,  damage  or
liability  or  expense  arises out of or is based  upon an untrue  statement  or
alleged untrue  statement or omission or alleged  omission so made in conformity
with information  furnished by such Investor or any such  controlling  person in
writing specifically for use in such Registration Statement or Prospectus.  This
Section 6(a) shall not inure to the benefit of any Investor from whom the person
asserting any such losses,  claims, damages or liabilities purchased Registrable
Securities  if a copy of the  Prospectus  (as then amended or  supplemented  and
furnished by the Company to the  Investor) was not sent or given by or on behalf
of such  Investor to such  person,  if such is required by law,  within the time
required by the 1933 Act and if such Prospectus (as so amended or  supplemented)
would  have  cured  the  defect  giving  rise to such  loss,  claim,  damage  or
liability.

            (b)  Indemnification  by  the  Investors.  In  connection  with  any
registration pursuant to the terms of this Agreement, each Investor will furnish
to the Company in writing such  information as the Company  reasonably  requests
concerning  the holders of  Registrable  Securities  or the  proposed  manner of
distribution for use in connection with any Registration Statement or Prospectus
and agrees,  severally but not jointly,  to indemnify and hold harmless,  to the
fullest  extent  permitted  by  law,  the  Company,  its  directors,   officers,
employees,  stockholders  and each person who controls  the Company  (within the
meaning of the 1933 Act) against any losses,  claims,  damages,  liabilities and
expenses  (including   reasonable  attorney  fees)  resulting  from  any  untrue
statement  or alleged  untrue  statement  of a material  fact or any omission or
alleged  omission of a material fact  required to be stated in the  Registration
Statement or  Prospectus  or  preliminary  prospectus or amendment or supplement
thereto or  necessary  to make the  statements  therein not  misleading,  to the
extent,  but only to the  extent  that such  untrue  statement  or  omission  is
contained  in any  information  furnished  in  writing by such  Investor  to the
Company specifically for inclusion in such Registration  Statement or Prospectus
or  amendment  or  supplement  thereto.  In no event shall the  liability  of an
Investor be greater in amount than the dollar amount of the proceeds (net of all
expenses  paid by such  Investor  and the amount of any damages  such holder has
otherwise  been  required  to pay by reason of such  untrue  or  alleged  untrue
statement or omission or alleged  omission)  received by such  Investor upon the

                                      -11-
<PAGE>

sale of the Registrable Securities included in the Registration Statement giving
rise to such indemnification obligation.

            (c) Conduct of Indemnification  Proceedings.  Any person entitled to
indemnification  hereunder  shall:  (i) give prompt  notice to the  indemnifying
party of any claim  with  respect  to which it seeks  indemnification;  and (ii)
permit such indemnifying  party to assume the defense of such claim with counsel
reasonably  satisfactory  to the  indemnified  party;  provided  that any person
entitled to  indemnification  hereunder  shall have the right to employ separate
counsel and to participate  in (but not control) the defense of such claim,  but
the fees and  expenses  of such  counsel  shall be at the expense of such person
unless: (A) the indemnifying  party has agreed to pay such fees or expenses;  or
(B) the indemnifying party shall have failed to assume the defense of such claim
and  employ  counsel  reasonably  satisfactory  to  such  person;  or (C) in the
reasonable  judgment  of any such  person,  based  upon  written  advice  of its
counsel,  a conflict of interest exists between such person and the indemnifying
party with  respect to such claims (in which case,  if the person  notifies  the
indemnifying party in writing that such person elects to employ separate counsel
at the expense of the indemnifying  party, the indemnifying party shall not have
the right to  assume  the  defense  of such  claim on  behalf  of such  person);
provided, further, that the indemnifying party shall not be obligated to pay the
fees and expenses of more than one counsel for all parties  indemnified  by such
indemnifying party; and provided,  further,  that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying party
of its  obligations  hereunder,  except to the extent that such  failure to give
notice shall materially  adversely affect the indemnifying  party in the defense
of any such claim or litigation.  No  indemnifying  party will,  except with the
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the giving
by the  claimant or plaintiff  to such  indemnified  party of a release from all
liability in respect of such claim or litigation.  The  indemnifying  party will
not be subject to any liability for any settlement made without its consent.

            (d) Contribution. If for any reason the indemnification provided for
in the preceding  subparagraphs  (a) and (b) is  unavailable  to an  indemnified
party or  insufficient  to hold it harmless,  other than as expressly  specified
therein,  then the  indemnifying  party shall  contribute  to the amount paid or
payable  by the  indemnified  party as a result of such loss,  claim,  damage or
liability in such  proportion as is appropriate to reflect the relative fault of
the indemnified party and the indemnifying  party, as well as any other relevant
equitable  considerations.  No  person  guilty of  fraudulent  misrepresentation
within  the  meaning  of  Section  11(f) of the 1933 Act  shall be  entitled  to
contribution from any person not guilty of such fraudulent misrepresentation. In
no event shall the contribution obligation of a holder of Registrable Securities
be greater in amount than the dollar amount of the proceeds (net of all expenses
paid by such holder and the amount of any damages such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission) received by it upon the sale of the Registrable  Securities
giving rise to such contribution obligation.

      7.    Miscellaneous.

            (a)  Amendments  and  Waivers.  Any  term of this  Agreement  may be
amended and the  observance of any term of this  Agreement may be waived (either
generally   or  in  a   particular   instance   and  either   retroactively   or
prospectively),  only with the written  consent of

                                      -12-
<PAGE>

the Company and the Required  Investors.  Any  amendment  or waiver  effected in
accordance  with  this  paragraph  shall be  binding  upon  each  holder  of any
Registrable  Securities,  each  future  holder of all such  securities,  and the
Company.

            (b) Notices.  All notices and other  communications  provided for or
permitted  hereunder  shall be made as set forth in Section 8.4 of the  Purchase
Agreement.

            (c) Assignments  and Transfers by Investors.  The provisions of this
Agreement  shall be binding upon and inure to the benefit of the  Investors  and
their respective  successors and assigns. An Investor may transfer or assign, in
whole or, from time to time in part, to one or more Persons its rights hereunder
in connection with the transfer of Registrable  Securities  aggregating at least
ten percent (10%) in principal amount of the outstanding Notes of such Investor,
or ten percent (10%) of all of the Shares of such Investor,  as the case may be,
by such Investor to such Person,  provided that such Investor  complies with all
laws applicable thereto and the Purchase  Agreement,  provides written notice of
assignment to the Company  promptly after such  assignment is effected,  and any
such transferee agrees to be bound by the provisions of this Agreement.

            (d) Assignments and Transfers by the Company. This Agreement may not
be assigned by the Company  (whether by operation of law or  otherwise)  without
the prior written consent of the Required Investors.

            (e)  Benefits of the  Agreement.  The terms and  conditions  of this
Agreement  shall  inure to the  benefit  of and be binding  upon the  respective
permitted  successors  and assigns of the  parties.  Nothing in this  Agreement,
express or implied,  is intended to confer upon any party other than the parties
hereto  or  their  respective  successors  and  assigns  any  rights,  remedies,
obligations,  or  liabilities  under or by reason of this  Agreement,  except as
expressly provided in this Agreement.

            (f)  Counterparts;  Faxes.  This Agreement may be executed in two or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same  instrument.  This Agreement may also
be executed via facsimile, which shall be deemed an original.

            (g) Titles and  Subtitles.  The  titles and  subtitles  used in this
Agreement  are  used  for  convenience  only  and  are not to be  considered  in
construing or interpreting this Agreement.

            (h) Severability. Any provision of this Agreement that is prohibited
or  unenforceable  in  any  jurisdiction  shall,  as to  such  jurisdiction,  be
ineffective  to the  extent  of such  prohibition  or  unenforceability  without
invalidating the remaining  provisions  hereof but shall be interpreted as if it
were  written  so as to be  enforceable  to  the  maximum  extent  permitted  by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall  not  invalidate  or  render  unenforceable  such  provision  in any other
jurisdiction.  To the extent  permitted by  applicable  law, the parties  hereby
waive any provision of law which  renders any  provisions  hereof  prohibited or
unenforceable in any respect.

                                      -13-
<PAGE>

            (i) Further  Assurances.  The parties  shall execute and deliver all
such further  instruments  and  documents and take all such other actions as may
reasonably be required to carry out the transactions  contemplated hereby and to
evidence the fulfillment of the agreements herein contained.

            (j) Entire Agreement. This Agreement is intended by the parties as a
final  expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the  subject  matter  contained  herein.  This  Agreement  supersedes  all prior
agreements and  understandings  between the parties with respect to such subject
matter.

            (k) Governing Law; Consent to Jurisdiction.  This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
New York without  regard to the choice of law  principles  thereof.  Each of the
parties hereto irrevocably  submits to the exclusive  jurisdiction of the courts
of the  State of New York  located  in New York  County  and the  United  States
District  Court for the  Southern  District  of New York for the  purpose of any
suit,  action,  proceeding  or  judgment  relating  to or  arising  out  of  the
Agreements  and the  transactions  contemplated  thereby.  Service of process in
connection with any such suit,  action or proceeding may be served on each party
hereto anywhere in the world by the same methods as are specified for the giving
of notices under this Agreement. Each of the parties hereto irrevocably consents
to the jurisdiction of any such court in any such suit, action or proceeding and
to the laying of venue in such court. Each party hereto  irrevocably  waives any
objection to the laying of venue of any such suit, action or proceeding  brought
in such courts and  irrevocably  waives any claim that any such suit,  action or
proceeding brought in any such court has been brought in an inconvenient forum.

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                                      -14-
<PAGE>

      IN WITNESS  WHEREOF,  the parties have executed  this  Agreement or caused
their duly  authorized  officers to execute this  Agreement as of the date first
above written.

The Company:                      KROLL INC.

                                  By: /s/
                                     --------------------------------------
                                     Name:
                                     Title:

The Investors:                    PALISADE CONCENTRATED EQUITY PARTNERSHIP, L.P.

                                  By: Palisade Concentrated Holdings, L.L.C.
                                      as General Partner

                                  By: /s/
                                     --------------------------------------
                                     Name:  Mark Hoffman
                                     Title: Member

                                  PEGASUS PARTNERS II, L.P.
                                  By: Pegasus Investors II GP, LLC,
                                      as General Partner

                                  By: /s/
                                     --------------------------------------
                                     Name:  Jonathan I. Berger
                                     Title: Vice President

                                      -15-

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