Document:

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                                                                    Exhibit 10.1

                               PURCHASE AGREEMENT

       Purchase Agreement ("Agreement") dated as of June 28, 2002 between Allied
Research Corporation, a Delaware corporation (the "Company"), and RIVERVIEW
GROUP, LLC, a Delaware limited liability company (the "Purchaser"). Undefined
terms contained herein shall have the meaning ascribed to them in the
Debentures.

                              W I T N E S S E T H:

       Whereas, the Company desires to sell and issue to the Purchaser, and the
Purchaser wishes to purchase from the Company, 8% Convertible Debentures (the
"Debentures"), in the aggregate principal amount of $7,500,000 at an aggregate
purchase price of $7,500,000 (the "Purchase Price"), having the rights and
privileges set forth in the Debentures in the form of Exhibit 1A attached
hereto, on the terms and conditions set forth herein;

       Whereas, pursuant to the terms of the Debentures, the Debentures will be
convertible into shares ("Common Shares") of common stock, par value $.10, of
the Company ("Common Stock");

       Whereas, to induce the Purchaser to purchase the Debentures, the Company
has agreed to issue to the Purchaser warrants (the "Warrants") exercisable for
15,000 shares of Common Stock ("Warrant Shares") in the form attached as Exhibit
1B;

       Whereas, pursuant to the terms of this Agreement, both the Company and
the Purchaser may each have the right to cause the purchase by the Purchaser of
additional Debentures and Warrants from the Company up to an aggregate principal
amount of $3,750,000 at an aggregate purchase price equal to the aggregate
principal amount so purchased; and

       Whereas, the Purchaser will have registration rights with respect to such
Common Shares and the Warrant Shares pursuant to the terms of that certain
Registration Rights Agreement to be entered into between the Company and the
Purchaser substantially in the form of Exhibit 4.2(e) hereto ("Registration
Rights Agreement");

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

                                   ARTICLE 1
               Purchase and Sale of Debentures and Warrants, Etc.

       Section 1.1 Issuance of Debentures and Warrants.

               (a) Issuance. Upon the following terms and conditions, the
Company shall issue and sell to the Purchaser and the Purchaser shall purchase
from the Company,

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$7,500,000 principal amount of Debentures and the Warrants to purchase 15,000
shares of Common Stock for the Purchase Price.

              (b) The Closing.

                  (i)   The closing of the purchase and sale of the Debentures
              and the Warrants (the "Closing") shall take place at the offices
              of Kleinberg, Kaplan, Wolff & Cohen, P.C. ("Purchaser's Counsel")
              or at such other place as is mutually agreeable, at 10:00 am.,
              local time on: (x) the date on which the last to be fulfilled or
              waived of the conditions set forth in Article 4 hereof and
              applicable to the Closing shall be fulfilled or waived in
              accordance herewith, or (y) such other time and place and/or on
              such other date as the Purchaser and the Company may agree. The
              date on which the Closing occurs is referred to herein as the
              "Closing Date".

                  (ii)  On the Closing Date, the Company shall deliver to the
              Purchaser (x) one or more Debentures (with the number of and
              outstanding principal amount of each debenture to be as reasonably
              requested by the Purchaser) representing the aggregate Debentures
              purchased hereunder by the Purchaser at the Closing registered in
              the name of the Purchaser or its nominee and (y) the Warrants
              registered in the name of the Purchaser or its nominee in such
              denominations as reasonably requested by the Purchaser, and the
              Purchaser shall deliver the Purchase Price for the Debentures and
              Warrants by wire transfer in immediately available funds to an
              account designated in writing by the Company. In addition, each
              party shall deliver all documents, instruments and writings
              required to be delivered by such party pursuant to this Agreement
              at or prior to the Closing. In addition, at the Closing, the
              Company shall pay (or the Purchaser shall pay for the account of
              the Company, with such payment being credited towards Purchaser's
              payment of the Purchase Price under this paragraph (b)(ii)) to the
              Purchaser's Counsel its legal fees and disbursements as set forth
              in Section 3.4. Furthermore, at the option of the Purchaser, at
              the Closing the Purchaser may pay for its account and for the
              account of the Company, the full fee due to the Transaction Agent
              (as defined below) in connection with the transactions
              contemplated with respect to the Closing, with 25% of such payment
              (equal to 0.5% of the Purchase Price) being credited towards
              Purchaser's payment of the Purchase Price under this paragraph
              (b)(ii).

                                   ARTICLE 2
                         Representations and Warranties

       Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser as of
the date hereof and on the Closing Date:

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       (a) Organization and Qualification; Material Adverse Effect. The Company
is a corporation duly incorporated and existing in good standing under the laws
of the State of Delaware and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company does
not have any direct or indirect subsidiaries (defined as any entity of which the
Company owns, directly or indirectly, 50% or more of the equity or voting power)
other than the subsidiaries listed on Schedule 2.1(a) attached hereto. Except
where specifically indicated to the contrary, all references in this Agreement
to subsidiaries shall be deemed to refer to all direct and indirect subsidiaries
of the Company. Except where specifically indicated to the contrary, all
references in this Article 2 to the Company shall be deemed to refer to the
Company and its consolidated subsidiaries. The Company and its subsidiaries are
duly qualified as foreign corporations to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any adverse effect on the business, operations, properties
or financial condition of the entity with respect to which such term is used and
which is (either alone or together with all other adverse effects) material to
such entity, and any material adverse effect on the transactions contemplated
under this Agreement, the Debentures, the Warrants, the Registration Rights
Agreement or any other agreement or document contemplated hereby or thereby.

       (b) Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Debentures, the Warrants and the Registration Rights Agreement (the "Transaction
Documents") and to issue the Debentures and the Warrants in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including the issuance of the Common Shares and
the Warrant Shares, have been duly authorized by all necessary corporate action,
and no further consent or authorization of the Company or its Board of Directors
(or any committee or subcommittee thereof) or stockholders is required, (iii)
the Transaction Documents have been duly executed and delivered by the Company
and (iv) the Transaction Documents constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.

       (c) Capitalization. The authorized capital stock of the Company consists
of 30,000,000 shares of Common Stock and 1,000,000 shares of preferred stock; as
of June 28, 2002, there were 5,253,488 shares of Common Stock and no shares of
preferred stock issued and outstanding; and, except as set forth on Schedule
2.1(c), no shares of Common Stock and no shares of preferred stock were reserved
for issuance to persons other than the Purchaser. All of the outstanding shares
of the Company's Common Stock have been validly issued and are fully paid and
nonassessable. No shares of capital stock are entitled to preemptive rights and,
except as set forth on Schedule 2.1(c), there are no outstanding options and
outstanding warrants for shares of Common

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Stock (excluding the Warrants). Except as set forth on Schedule 2.1(c)(i), there
are no other scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights exchangeable for or
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, or commitments to purchase or
acquire, any shares, or securities or rights convertible or exchangeable into
shares, of capital stock of the Company. Attached hereto as Exhibit 2.1(c)(i) is
a true and correct copy of the Company's Certificate of Incorporation (the
"Charter"), as in effect on the date hereof, and attached hereto as Exhibit
2.1(c)(ii) is a true and correct copy of the Company's By-Laws, as in effect on
the date hereof (the "By-Laws").

       (d) Issuance of Common Shares. The Common Shares and the Warrant Shares
are duly authorized and reserved for issuance and, upon such conversion in
accordance with the Debentures and/or exercise in accordance with the Warrants
such Common Shares and Warrant Shares, as the case may be, will be validly
issued, fully paid and non-assessable, free and clear of any and all liens,
claims and encumbrances, and (subject to the registration of such shares in
accordance with the applicable provisions of the Securities Act of 1933, as
amended (the "Securities Act" or the "Act") and the Securities Exchange Act of
1934, as amended (the "Exchange Act") entitled to be traded on the American
Stock Exchange (or the New York Stock Exchange, the Nasdaq National Market or
the Nasdaq SmallCap Market, collectively with the American Stock Exchange, the
"Approved Markets"), and the holders of such Common Shares and Warrant Shares
shall be entitled to all rights and preferences accorded to a holder of Common
Stock. The outstanding shares of Common Stock are currently listed on the
American Stock Exchange.

       (e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby and the issuance of the Debentures,
the Warrants, the Put Debentures, the Put Warrants, the Call Debentures and the
Call Warrants (collectively, the "Securities") do not and will not (i) result in
a violation of the Company's Charter or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its subsidiaries is
a party (collectively, "Company Agreements"), or (iii) result in a violation of
any federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries is bound or affected, except (other than
in the case of clause (i) above) where such violation would not reasonably be
expected to have a Material Adverse Effect. The business of the Company and its
direct and indirect subsidiaries is being conducted in compliance with (i) its
Charter and By-Laws, (ii) all Company Agreements and (iii) all applicable laws,
ordinances or regulations of any governmental entity, except (other than in the
case of clause (i) above) where such violation would not

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reasonably be expected to have a Material Adverse Effect. Except for filings,
consents and approvals required under applicable state and federal securities
laws or the rules and regulations of the applicable Approved Markets and covered
by the Registration Rights Agreement, the Company is not required under federal,
state, local or foreign law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights Agreement, the
Debentures and the Warrants or to issue and sell the Debentures, Warrants or the
Common Shares and Warrants Shares issuable upon conversion or exercise thereof
except for the registration provisions provided in the Registration Rights
Agreement.

       (f) SEC Documents; No Non-Public Information. The Common Stock of the
Company is registered pursuant to Section 12(b) of the Exchange Act and the
Company and its subsidiaries have filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Securities
and Exchange Commission ("SEC") pursuant to the reporting requirements of the
Exchange Act, including all such proxy information, solicitation statements and
registration statements, and any amendments thereto required to have been filed
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the "SEC Documents"). The Company has not directly or
indirectly provided, and will not directly or indirectly provide, to the
Purchaser any material non-public information or any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The SEC Documents contain all material information concerning the
Company and its subsidiaries, and no event or circumstance has occurred prior to
the date hereof or will have occurred on the Closing Date which would require
the Company to disclose such event or circumstance in order to make the
statements in the SEC Documents not misleading but which has not, or will have
not, been so disclosed.

       (g) Financial Statements. The financial statements of the Company and its
subsidiaries included in the SEC Documents comply as to form and substance in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes, may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company and its subsidiaries as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). The audited

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financial statements of each of the Company and its subsidiaries for the fiscal
year ending December 31, 2001 have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be otherwise indicated in such
financial statements or the notes thereto) and fairly present in all material
respects the financial position of the Company and its subsidiaries, as the case
may be, as of the dates thereof and the results of operations and cash flows for
the periods then ended. The auditors who audited such financial statements were
independent of the Company, as such term is defined and interpreted under Rule
2-01 of Regulation S-X.

          (h)  Principal Exchange. The principal market on which the Common
Stock is currently traded is the American Stock Exchange.

          (i)  No Material Adverse Change. Since December 31, 2001, no Material
Adverse Effect has occurred or exists, and no event or circumstance has occurred
that with notice or the passage of time or both is reasonably likely to result
in a Material Adverse Effect with respect to the Company or its subsidiaries.

          (j)  No Undisclosed Liabilities. The Company and its subsidiaries have
no liabilities or obligations not disclosed in the Pre-Agreement SEC Documents
(as defined in Section 2.1(q) below), other than those liabilities incurred in
the ordinary course of the Company's or its subsidiaries' respective businesses
since December 31, 2001, which liabilities, individually or in the aggregate, do
not or would not have a Material Adverse Effect on the Company or its direct or
indirect subsidiaries.

          (k)  No Undisclosed Events or Circumstances. To the best knowledge of
the Company, no material event or circumstance has occurred or exists with
respect to the Company or its direct or indirect subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.

          (l)  No General Solicitation. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Debentures, the Warrants, Common Shares or the Warrant Shares.

          (m)  No Integrated Offering. Neither the Company, nor any of its
affiliates, nor to its knowledge any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of the Debentures, the Warrants, the Common Shares or Warrant
Shares under the Securities Act.

     The issuance of the Debentures, Warrants, Common Shares or Warrant Shares
to the Purchaser will not be integrated with any other issuance of the Company's
securities

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(past, current or future) which requires stockholder approval under the rules of
the American Stock Exchange.

          (n)  Form S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) on Form S-3 under
the Securities Act and rules promulgated thereunder, and Form S-3 is permitted
to be used for the transactions contemplated hereby under the Securities Act and
rules promulgated thereunder.

          (o)  Intellectual Property. The Company and/or its wholly-owned
subsidiaries owns or has licenses to use certain patents, copyrights and
trademarks ("intellectual property") associated with its business. The Company
and its subsidiaries have all intellectual property rights which are needed to
conduct the business of the Company and its subsidiaries as it is now being
conducted or as proposed to be conducted as disclosed in the SEC Documents. The
Company and its subsidiaries have no reason to believe that the material
intellectual property rights which it owns are invalid or unenforceable or that
the use of such intellectual property by the Company or its subsidiaries
infringes upon or conflicts with any right of any third party, and neither the
Company nor any of its subsidiaries has received notice of any such infringement
or conflict, which individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect. The Company and its subsidiaries
have no knowledge of any infringement of its intellectual property by any third
party.

          (p)  Poison Pill Provisions. The Company has a stockholder rights plan
effected pursuant to a Rights Agreement dated as of June 6, 2001. None of the
acquisition of Debentures, Warrants, Common Shares or Warrant Shares nor the
deemed beneficial ownership of shares of Common Stock prior to, or the
acquisition of such shares pursuant to, the conversion of Debentures or the
exercise of the Warrants will in any event under any circumstance trigger the
poison pill provisions of such stockholder rights plan or any other or
subsequently adopted plan or agreement, or delay, prevent or interfere with the
performance of any of the Company's obligations under the Transaction Documents.

          (q)  No Litigation. Except as set forth in the reports or documents
filed at least 5 Trading Days prior to the Closing Date by the Company pursuant
to Section 13(a) or 15(d) of the Exchange Act (the "Pre-Agreement SEC
Documents"), no litigation or claim (including those for unpaid taxes) against
the Company or any of its subsidiaries is pending or, to the Company's
knowledge, threatened, and no other event has occurred, which if determined
adversely could reasonably be expected to have a Material Adverse Effect on the
Company or could reasonably be expected to materially and adversely affect the
transactions contemplated hereby. There is no legal proceeding described in the
Pre-Agreement SEC Documents that could reasonably be expected to have a Material
Adverse Effect on the Company.

          (r)  Brokers. The Company has taken no action which would give rise to
any claim by any person, other than Wharton Capital Markets LLC (the
"Transaction Agent") and Source Capital Ltd. (the "Financial Advisor"), for
brokerage commissions,

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finder's fees or similar payments by the Company or the Purchaser relating to
this Agreement or the transactions contemplated hereby. The Company shall be
responsible for any payments to the Financial Advisor, and the Company shall be
responsible for 25% and the Purchaser shall be responsible for 75% of the fees
payable to the Transaction Agent that have been mutually agreed upon by the
Company, the Purchaser and the Transaction Agent.

          (s)  Other Purchasers. Other than the Securities and except as set
forth on Schedule 2.1(s)(i), there are no outstanding securities issued by the
Company that are entitled to registration rights under the Securities Act. Other
than the Securities and except as set forth on Schedule 2.1(s)(ii), there are no
outstanding securities issued by the Company that are directly or indirectly
convertible into, exercisable into, or exchangeable for, shares of Common Stock,
or that have anti-dilution or similar rights that would be affected by the
issuance of the Debentures, the Common Shares, the Warrants or the Warrant
Shares.

          (t)  Certain Transactions. Except as disclosed in the Pre-Agreement
SEC Documents, none of the officers, directors, or key employees of the Company
is presently a party 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 knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

          (u)  Permits; Compliance. The Company and each of its subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "Company Permits"), except where
failure to possess such Company Permits would not have a Material Adverse Effect
on the Company and there is no action pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the Company
Permits except for such Company Permits the failure of which to possess, or the
cancellation or suspension of which, would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. To the best of its
knowledge, neither the Company nor any of its subsidiaries is in material
conflict with, or in material default or material violation of, any of the
Company Permits. Since December 31, 2001, neither the Company nor any of its
subsidiaries has received any notification with respect to possible material
conflicts, material defaults or material violations of applicable laws.

          (v)  Insurance. The Company and each of its subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its direct and indirect
subsidiaries are engaged. Neither the Company nor any such subsidiary has any
reason to believe that it will not be

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able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.

          (w)   Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's management, to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

          (x)   Environmental Matters. Except as otherwise disclosed in the
Pre-Agreement SEC Documents, the Company and each of its subsidiaries is in
compliance in all respects with all applicable foreign, local, state and federal
environmental laws except where any such non-compliance would not reasonably be
expected to have a Material Adverse Effect on the Company and no event or
condition has occurred that may interfere with the compliance by the Company or
any of its subsidiaries with any environmental law or that may give rise to any
liability under any environmental law that, individually or in the aggregate,
would have a Material Adverse Effect on the Company.

          (y)  Solvency.

                (i)   Based on the financial condition of the Company as of the
          Closing Date, the Company's fair saleable value of its assets exceeds
          the amount that will be required to be paid on or in respect of the
          Company's existing debts and other liabilities (including known
          contingent liabilities) as they mature.

                (ii)  Based on the financial condition of the Company as of the
          Closing Date, the Company's assets do not constitute unreasonably
          small capital to carry out its business for the year 2002 as now
          conducted and as proposed to be conducted including the Company's year
          2002 capital needs taking into account the particular capital
          requirements of the business conducted by the Company, and projected
          capital requirements and capital availability thereof.

                (iii) The Company does not intend to incur debts beyond its
          ability to pay such debts as they mature (taking into account the
          timing and amounts of cash to be payable on or in respect of its
          debt). Based on the financial condition of the Company as of the
          Closing Date, the current cash flow of the Company, together with the
          proceeds the Company would receive, were it to liquidate all of its
          assets, after taking into account all

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          anticipated uses of the cash, would be sufficient to pay all amounts
          on or in respect of its debt when such amounts are required to be
          paid.

               (iv)  Neither the Company nor any of its subsidiaries is subject
          to any bankruptcy, insolvency or similar proceeding.

          (z)  Taxes. All foreign, federal, state, city and other tax returns,
reports and declarations required to be filed or extended by or on behalf of the
Company and each of its subsidiaries have been filed or extended and all such
filed returns are complete and accurate and disclose all taxes (whether based
upon income, operations, purchases, sales, payroll, licenses, compensation,
business, capital, properties or assets or otherwise) required to be paid in the
periods covered thereby. All taxes required to be withheld by or on behalf of
the Company or any such subsidiary in connection with amounts paid or owing to
any employees, independent contractor, creditor or other party have been
withheld, and such withheld taxes have either been duly and timely paid to the
proper governmental authorities or set aside in accounts for such purposes.

          (aa) Title to Properties; Encumbrances. Schedule 2.1(aa) contains a
complete and accurate list of all material real property, leaseholds, or other
interests therein owned by the Company and its subsidiaries. Each of the Company
and its subsidiaries owns (with good and marketable title in the case of real
property) all the properties and assets (whether real, personal, or mixed and
whether tangible or intangible ("Company Property")) that it purports to own.
Other than the leased property, all material Company Property is free and clear
of all encumbrances and are not, in the case of real property (which, for this
purpose, shall not include the Company's interest as tenant in leaseholds),
subject to any rights of way, building use restrictions, exceptions, variances,
reservations or limitations of any nature, except, with respect to all such
properties and assets, (a) mortgages, liens or security interests shown on
Schedule 2.1(aa) as securing specified liabilities or obligations, with respect
to which no default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) liens for current taxes not yet due, and (c)
with respect to real property, (i) minor imperfections of title, if any, none of
which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or impairs the operations of the
Company or any of its subsidiaries, and (ii) zoning laws and other land use
restrictions (including, but not limited to, easements of records) that do not
impair the present or anticipated use of the property subject thereto. All
buildings, plans, and structures owned by the Company or any of its subsidiaries
lie wholly within the boundaries of the real property owned by the Company or
such subsidiaries, and do not encroach upon the property of, or otherwise
conflict with the property rights of, any other person.

          (bb) No Reliance on Purchaser. The Company acknowledges and agrees
that the Purchaser is acting solely in the capacity of an arm's length purchaser
with respect to this Agreement and the Registration Rights Agreement and the
performance under the Debentures and the Warrants and the transactions
contemplated hereby and thereby. The Company further acknowledges that the
Purchaser is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement and the Registration
Rights Agreement and the performance

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under the Debentures and the Warrants and the transactions contemplated hereby
and thereby. The Company further represents to the Purchaser that the Company's
decision to enter into this Agreement and the Registration Rights Agreement and
the performance under the Debentures and the Warrants has been based solely on
the independent evaluation by the Company and its representatives.

          (cc) Foreign Corrupt Practices Act. Neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of acting for, or on behalf of, the
Company, directly or indirectly used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; directly or indirectly made any direct or indirect unlawful
payment to any foreign or domestic government or party official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of
the United States; or directly or indirectly made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.

          (dd) MFN and Variable Rate Transactions. Except as set forth on
Schedule 2.1(dd), the Company has not entered into any MFN Transaction or
Variable Rate Transaction (other than transactions entered into with the
Purchaser), pursuant to which: (1) securities or potential obligations to issue
securities are still outstanding or (2) the issuance conversion, or exercise, as
the case may be, of the Debentures or the Warrants trigger, or may in the future
trigger, an adjustment.

          The term "MFN Transaction" shall mean a transaction in
which the Company issues or sells any securities in a capital raising
transaction or series of related transactions (the "MFN Offering")
which grants to a Purchaser (the "MFN Purchaser") the right to
receive additional shares (including without limitation as a result
of a lower conversion, exchange or exercise price but excluding
customary antidilution protections) based upon subsequent
transactions of the Company on terms more favorable than those
granted to such MFN Purchaser in such MFN Offering. As used herein,
term "Variable Rate Transaction" shall mean a transaction in which
the Company issues or sells (i) any debt or equity securities that
are convertible into, exchangeable or exercisable for, or include the
right to receive additional shares of, Common Stock either (x) at a
conversion, exercise or exchange rate or other price that is based
upon and/or varies with the trading prices of or quotations for the
Common Stock at any time after the initial issuance of such debt or
equity securities, or (y) with a fixed conversion, exercise or
exchange price that is subject to being reset at some future date
after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or
indirectly related to the business of the Company or the market for
the Common Stock (but excluding standard stock split anti-dilution
provisions), or (ii) any securities of the Company pursuant to an
"equity line" structure which provides for the sale, from time to
time, of securities of the Company which are registered for resale
under the Securities Act.

                                       11

<PAGE>

     Section 2.2 Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company as of
the date hereof and on the Closing Date:

          (a)  Organization and Qualification. The Purchaser is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and is duly qualified to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or in good
standing would not reasonably be expected to have a Material Adverse Effect on
the Purchaser.

          (b)  Authorization; Enforcement. (i) The Purchaser has the requisite
power and authority to enter into and perform this Agreement and the
Registration Rights Agreement to purchase the Debentures and to acquire the
Warrants being sold to it hereunder and to acquire the Common Shares and the
Warrant Shares, (ii) the execution and delivery of this Agreement and the
Registration Rights Agreement by the Purchaser and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary limited liability company action, and (iii) this Agreement and the
Registration Rights Agreement constitute valid and binding obligations of the
Purchaser enforceable against the Purchaser in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.

          (c)  No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the performance under the
Debentures and Warrants and the consummation by the Purchaser of the
transactions contemplated hereby and thereby do not and will not (i) result in a
violation of the Purchaser's organizational documents, (ii) conflict with any
agreement, indenture or instrument to which the Purchaser is a party, or (iii)
result in a material violation of any law, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to the
Purchaser. The Purchaser is not required to obtain any consent or authorization
of any governmental agency in order for it to perform its obligations under this
Agreement and the Registration Rights Agreement.

          (d)  Purchase Representations.

               (i)  Access to Other Information. The Purchaser acknowledges that
          the Company has made available to the Purchaser the opportunity to
          examine such additional documents from the Company and to ask
          questions of, and receive full answers from, the Company concerning,
          among other things, the Company, its financial condition, its
          management, its prior activities and any other information which the
          Purchaser considers relevant or appropriate in connection with
          entering into this Agreement.

                                       12

<PAGE>

               (ii)  Risks of Purchase. The Purchaser acknowledges that the
          Securities and the Common Shares and Warrant Shares issuable upon
          conversion and/or exercise of the Securities have not been registered
          under the Securities Act. The Purchaser is familiar with the
          provisions of Rule 144 and understands that in the event all of the
          applicable requirements of Rule 144 are not satisfied, registration
          under the Securities Act or some other exemption from the registration
          requirements of the Securities Act will be required in order to
          dispose of the Securities and the Common Shares and Warrant Shares
          issuable upon conversion and/or exercise of the rights granted in the
          Securities, and that the Purchaser may be required to hold the
          Securities and the Common Shares and Warrant Shares issuable upon
          conversion and/or exercise of the Securities received under this
          Agreement for a significant period of time prior to reselling them,
          subject to the Company successfully registering the Common Shares and
          Warrant Shares pursuant to the Registration Rights Agreement. The
          Purchaser is capable of assessing the risks of an investment in the
          Securities and is fully aware of the economic risks thereof.

               (iii) Purchase Representation. The Purchaser is purchasing the
          Debentures and Warrants and may purchase the Common Shares and
          Warrants Shares in each case, for its own account and not with a view
          to distribution in violation of any securities laws. The Purchaser has
          no present intention to sell the Debentures, Warrants, Common Shares
          or Warrant Shares in violation of federal or state securities laws and
          the Purchaser has no present arrangement (whether or not legally
          binding) to sell the Debentures, Warrants, Common Shares or Warrant
          Shares to or through any person or entity; provided, however, that by
          making the representations herein, the Purchaser does not agree to
          hold the Debentures, Warrants, Common Shares or Warrant Shares for any
          minimum or other specific term and reserves the right to dispose of
          the Debentures, Warrants, Common Shares or Warrant Shares at any time
          in accordance with federal and state securities laws applicable to
          such disposition.

               (iv)  Restricted Securities. It acknowledges and understands that
          the terms of issuance have not been reviewed by the SEC or by any
          state securities authorities and that the Securities have been issued
          in reliance on the certain exemptions for non-public offerings under
          the Securities Act, which exemptions depend upon, among other things,
          the representations made and information furnished by the Purchaser.

               (v)   Ability to Bear Economic Risk. It is an "accredited"
          Purchaser as defined in Rule 501 of Regulation D, as amended, under
          the Securities Act, and that it (i) is able to bear the economic risk
          of its investment in the Debentures, (ii) is able to hold the
          Debentures for an indefinite period of time, (iii) can afford a
          complete loss of its investment

                                       13

<PAGE>

          in the Debentures and (iv) has adequate means of providing for its
          current needs.

               (vi)  No Public Solicitation. At no time was the Purchaser
          presented with or solicited by any general mailing, leaflet, public
          promotional meeting, newspaper or magazine article, radio or
          television advertisement, or any other form of general advertising or
          general solicitation in connection with the issuance.

               (vii) Reliance by the Company. The Purchaser understands that the
          Debentures and Warrants are being or will be, as the case may be,
          offered and sold and that the Common Shares or Warrant Shares, as the
          case may be, will be issued, in reliance on a transactional exemptions
          from the registration requirements of federal and state securities
          laws and that the Company is relying upon the truth and accuracy of
          the representations, warranties, agreements, acknowledgments and
          understandings of such Purchaser set forth herein in order to
          determine the applicability of such exemptions and the suitability of
          the Purchaser to acquire the Debentures and Warrants.

          (e)  Brokers. Other than as set forth in Section 2.1(r) above, the
Purchaser has taken no written action which would give rise to any claim by any
person for brokerage commissions, finder's fees or similar payments by the
Company relating to this Agreement or the transactions contemplated hereby. The
Purchaser shall be responsible for 75% of the fees payable to the Transaction
Agent that have been mutually agreed upon by the Company, the Purchaser and the
Transaction Agent.

          (f)  Short Position; Hedging Activity.

               (i)   The Purchaser does not have an uncovered "short position"
          with respect to the Common Stock and during the period commencing five
          (5) Trading Days prior to the Closing Date and ending on the Closing
          Date it has not engaged in and will not engage in: (i) any short sale
          (as defined by Rule 3b-3 under the Exchange Act, "short sale") of the
          Common Stock; or (ii) any transaction economically equivalent thereto.

               (ii)  On any Trading Day occurring during a Restricted Period (as
          defined below), the Purchaser will not engage in any short sale.

          For purposes of this Section 2.2(f), the term "Restricted Period"
means each period commencing thirty (30) calendar days prior to each Maturity
Date of the Debentures (as defined in the Debentures) and ending on (and
including) the Trading Day immediately preceding the related Maturity Date.
Notwithstanding the foregoing, the Restricted Period as to any Maturity Date
shall apply only if there are Debentures outstanding and the Company is in
compliance with all of its agreements or covenants under the Transaction
Documents.

                                       14

<PAGE>

               (iii) Notwithstanding anything herein to the contrary, the
          representations and agreement in Sections 2.2(f)(i) and (ii) above are
          not intended to cover the activities of other persons and entities
          that are under common control with Purchaser. Such persons and
          entities are not controlled by the Purchaser. Purchaser represents
          that, with respect to the securities of the Company, it does not trade
          in concert with such other persons and entities.

               (iv)  Further notwithstanding anything herein to the contrary,
          nothing in this Section 2.2(f) shall be construed to prevent the
          Purchaser from selling any shares of Common Stock at any time, to the
          extent that the number of shares so sold do not exceed, in the
          aggregate, the number of shares actually received by the Purchaser (or
          shares for which (x) Conversion Notices (as defined in the Debentures)
          have been properly submitted to the Company in accordance with Section
          5 of the Debentures by the Purchaser or (y) the Purchaser is owed a
          Share Interest or Share Principal but has not yet received) in
          connection with (i) conversions of the Debentures; (ii) shares of
          Common Stock received as Share Interest (as defined in the
          Debentures); and (iii) shares of Common Stock received as Share
          Principal (as defined in the Debentures).

                                    ARTICLE 3
                                    Covenants

     Section 3.1 Registration and Listing; Effective Registration. Until the
earlier of (i) such time as no Securities are outstanding and (ii) the third
anniversary of the latest of (x) the Closing Date, (y) the Call Closing Date (if
any), and (z) the Put Closing Date (if any), the Company will cause the Common
Stock issuable upon the exercise or conversion of the Securities to continue at
all times to be registered under Section 12(b) or Section 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, and will not take any action or file any document (whether or
not permitted by the Exchange Act or the rules thereunder) to terminate or
suspend such reporting and filing obligations. Until such time as no Securities
are outstanding, the Company shall continue the listing or trading of the Common
Stock on the American Stock Exchange or one of the other Approved Markets and
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Approved Market on which the Common
Stock is listed. The Company shall cause the Common Stock to be listed on the
American Stock Exchange no later than the registration of the Common Stock under
the Securities Act, and at all times shall continue such listing(s) on one of
the Approved Markets. As used herein and in the Registration Rights Agreement,
the Debenture and the Warrants, the term "Effective Registration" shall mean:
(i) the Company is in compliance with the Transaction Documents; (ii) the resale
of Registrable Securities (as defined in the Registration Rights Agreement) is
covered by an effective registration statement (the "Registration Statement")
and such Registration Statement is not subject to any suspension or stop orders;
(iii) the resale of such securities may be effected pursuant to a

                                       15

<PAGE>

current and deliverable prospectus that is not subject to any blackout or
similar circumstance; (iv) the securities are listed on an Approved Market and
are not subject to any trading suspension; (v) no Interfering Event (as
described in the Registration Rights Agreement) then exists; (vi) none of the
Company or any direct or indirect subsidiary of the Company is subject to any
bankruptcy, insolvency or similar proceeding; and (vii) the Purchaser is not
identified as an "underwriter" in the Registration Statement.

     Section 3.2  Debentures on Conversion and Warrants on Exercise.

          (a) Upon any conversion by the Purchaser (or then holder of
Debentures) of the Debentures pursuant to the terms thereof, the Company shall
issue and deliver to the Purchaser (or holder) within three (3) Trading Days of
the Conversion Date, a new Debenture for the principal amount of Debentures
which the Purchaser (or holder) has not yet elected to convert but which is
evidenced in part by the Debenture(s) submitted to the Company in connection
with such conversion (with the number of and denomination of such new
Debenture(s) designated by the Purchaser or holder).

          (b) Upon any partial exercise by the Purchaser (or then holder of the
Warrants) of the Warrants, the Company shall issue and deliver to the Purchaser
(or holder) within three (3) days of the date on which such Warrants are
exercised, a new Warrant or Warrants representing the number of adjusted Warrant
Shares and/or Common Shares, as the case may be, in accordance with the terms of
such Warrants.

     Section 3.3  Replacement Debentures and Warrants.

          (a) The Debentures held by the Purchaser (or then holder) may be
exchanged by the Purchaser (or such holder) at any time and from time to time
for Debentures with different denominations of at least $500,000 representing an
equal aggregate number of Debentures or to reflect the actual Conversion Price
pursuant to Section 5(c) of the Debentures, as requested by the Purchaser (or
such holder) upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.

          (b) The Warrants will be exchangeable at the option of the Purchaser
(or then holder of the Warrants) at the office of the Company for other Warrants
of different denominations entitling the holder thereof to purchase in the
aggregate the same number of Warrant Shares and/or Common Shares, as the case
may be, as are purchasable under such Warrants. No service charge will be made
for such transfer or exchange.

     Section 3.4  Expenses. The Company shall pay to the Purchaser's Counsel in
immediately available funds, at the Closing the sum of $15,000 for the payment
of expenses (including legal fees) incurred by the Purchaser in connection with
the transactions contemplated by this Agreement. In lieu thereof, the Purchaser
may allocate $15,000 of its payment of the Purchase Price to the payment of such
counsel, and such payment to Purchaser's Counsel shall be credited towards the
payment of the Purchase Price.

                                       16

<PAGE>

     Section 3.5 Securities Compliance. The Company shall notify the SEC, in
accordance with their requirements, of the transactions contemplated by this
Agreement, the Debentures, the Registration Rights Agreement and the Warrants,
and shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Debentures hereunder, the Common Shares issuable upon conversion
thereof, the Warrants and the Warrant Shares issuable upon exercise of the
Warrants.

     Section 3.6 Dividends or Distributions; Purchases of Equity Securities.
Prior to
the time that all Registrable Securities are covered by an effective
Registration Statement in accordance with the terms of the Registration Rights
Agreement, the Company agrees that it shall not (a) declare or pay any dividends
or make any distributions to any holder or holders of Common Stock (other than
dividends payable in Common Stock) in their capacity as shareholders, or (b)
purchase or otherwise acquire for value, directly or indirectly, any shares of
Common Stock or other equity security of the Company; provided that the Company
may purchase or acquire shares of Common Stock that are hereafter issued to
employees pursuant to employment, stock repurchase or other similar agreements.

     Section 3.7 Notices. The Company agrees to provide all holders of
Debentures and Warrants with copies of all notices and information, including
without limitation notices and proxy statements in connection with any meetings,
that are provided to the holders of shares of Common Stock, contemporaneously
with the delivery of such notices or information to such Common Stock holders.

     Section 3.8 Use of Proceeds. The Company agrees that the proceeds received
by the Company from the sale of the Debentures and Warrants hereunder shall be
used for working capital purposes, including acquisitions.

     Section 3.9 Additional Equity Financing. From the date hereof until the one
year anniversary of the Closing Date, if the Company or any subsidiary of the
Company desires to enter into any private placement equity financing transaction
(including, without limitation, a financing transaction involving debt which is
convertible into or exchangeable for equity but excluding a debt financing
transaction where the only equity component is a limited amount of options or
warrants for less than 5% (in the aggregate, on a cumulative basis) of the
number of outstanding shares of Common Stock on the Closing Date), the Purchaser
shall have a right of first refusal with respect to each such transaction and
shall have the right to match the terms of any bona fide offer with respect
thereto received from a third party; provided, in the case of an offer
consisting in whole or in part of consideration other than cash, the Purchaser
shall have the right to offer the cash equivalent of such offer. To effect the
foregoing, the Company shall provide written notice to the Purchaser of the
existence of such proposed transaction, but not the material terms thereof
(including, without limitation, the identity of the financing provider and the
amount and nature of such financing), promptly following its receipt of such
offer. The Purchaser shall have two (2) Trading Days after its receipt of such
notice to notify the Company in writing whether or not it wishes to receive
information describing the material terms of such proposed transaction. If the
Purchaser elects not to receive such

                                       17

<PAGE>

information, the Company shall not provide any such information to the Purchaser
and the Purchaser shall have no right of first refusal with respect to such
proposed transaction. If the Purchaser elects to receive such information, the
Company shall promptly provide such information to the Purchaser and the
Purchaser may then exercise its right to match by issuing a written
counter-notice of its intention to do so within three (3) Trading Days of its
receipt of such information from the Company, and the consummation of such
counteroffer shall occur by the later of (i) the time provided by the original
bona fide third party offer or (ii) 30 days from the receipt of the Purchaser's
counteroffer. Any material changes or modifications to the terms of the proposed
transaction shall be reflected to the Purchaser pursuant to the procedures of
this Section 3.9. The foregoing right of first refusal shall not apply to
issuances of the Company's equity in connection with a strategic partnership of
the Company with any person in the same, related or complementary business as
the Company or any vendor or customer of the Company entered into, in each such
case, with the intent to further the business of the Company and not for the
primary purpose of providing financing. If the Purchaser elects to receive
information regarding the terms of the proposed transaction but elects not to
exercise its right of first refusal with respect thereto, the Purchaser agrees
that it will keep such information confidential and not buy or sell any shares
of Common Stock from the time it receives such information until the earlier of
(i) the time the Company closes or abandons such proposed transaction or is no
longer actively pursuing it and (ii) the expiration of thirty (30) days from the
date the Purchaser receives such information (such expiration date applying to
both such agreements by the Purchaser). The Company agrees and covenants that it
shall publicly disclose the material terms of each proposed transaction
immediately following the closing thereof and shall promptly notify the
Purchaser if such proposed transaction is no longer being actively pursued, has
been materially modified, or has been abandoned. Notwithstanding the above, the
Purchaser may exercise its right of first refusal specified herein only to the
extent that its and its Aggregation Parties' beneficial ownership of Common
Stock will not exceed the Restricted Ownership Percentage (as such terms are
defined in the Debentures).

     Section 3.10 Reservation of Stock Issuable Upon Conversion and Upon
Exercise of the Warrants. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of the Debentures and the exercise of
the Warrants, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding Debentures and
the full exercise of the Warrants and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding Debentures and the full exercise of the
Warrants, the Company will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including without limitation engaging in best efforts to obtain the requisite
shareholder approval. Without in any way limiting the foregoing, the Company
agrees to reserve and at all times keep available solely for purposes of
conversion of Debentures and the exercise of the Warrants such number of
authorized but unissued shares of Common Stock that is at least equal to 200% of
the aggregate shares issuable upon conversion of Debentures, and 100% of the
aggregate shares issuable on exercise of the Warrants,

                                       18

<PAGE>

which number shall be appropriately adjusted for any stock split, reverse split,
stock dividend or reclassification of the Common Stock. If the Company falls
below the reserves specified in the immediately preceding sentence and does not
cure such non-compliance within 30 days of its start, then the Purchaser will be
entitled to the compensatory payments specified in Section 2(b)(i)(A) of the
Registration Rights Agreement. If at any time the number of authorized but
unissued shares of Common Stock is not sufficient to effect the conversion of
all the then outstanding Debentures or the full exercise of the Warrants, the
Purchaser shall be entitled to, inter alia, the premium price redemption rights
provided in the Registration Rights Agreement.

     Section 3.11 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article 4 of this Agreement.

     Section 3.12 Limitations on Liens and Transfers

          (a) So long as any Debentures remain outstanding, the Company agrees
that neither the Company nor any of its subsidiaries shall create, incur or
permit to exist any, indebtedness, or any security interest, lien or other
encumbrance on or with respect to any of the assets of the Company or its
subsidiaries, other than institutional or other funded indebtedness and liens
(1) in connection with the purchase money financings referred to above; (2)
non-consensual statutory liens (other than liens securing the payment of taxes)
arising in the ordinary course of the Company's business to the extent: (A) such
liens secure indebtedness which is not overdue or (B) such liens secure
indebtedness relating to claims or liabilities which are fully insured and being
contested in good faith by appropriate proceedings diligently pursued and
available to the Company, in each case prior to the commencement of foreclosure
or other similar proceedings and with respect to which adequate reserves have
been set aside on its books; (3) zoning restrictions, easements, licenses,
covenants and other restrictions affecting the use of real property which do not
interfere in any material respect with the use of such real property or ordinary
conduct of the business of the Company as presently conducted thereon or
materially impair the value of the real property which may be subject thereto;
(4) liens arising by operation of law securing tax obligations, worker's
compensations, and lease obligations; (5) indebtedness and liens existing on the
date hereof and listed on Schedule 3.12(a) hereto; (6) an aggregate principal
amount of not more than $10 million of senior subordinated indebtedness (which
may or may not be secured) as to which the Debentures shall be expressly
subordinated; provided that no portion of the principal of such indebtedness
shall mature prior to the date on which the entire outstanding principal amount
of Debentures, including any Put Debentures and Call Debentures which have been
issued pursuant hereto, has matured; (7) purchase money security interests
(within the meaning of Section 9-103 of the New York State Uniform Commercial
Code) granted in the ordinary course of business, consistent with past practice;
and (8) the existing Mecar bank pool/syndicate agreement dated March 18, 2002.

          (b) In addition to the immediately preceding paragraph, the Company
shall be permitted to incur an aggregate principal amount of senior secured
indebtedness not to exceed $40 million; provided, that at no time may the
product of (x) 2.5 and (y) aggregate principal and interest payments due on such
indebtedness in any 12-month

                                       19

<PAGE>

period, exceed an amount equal to the Company's 12-month trailing EBITDA (as
defined below). For the purpose of this Section 3.12(b), the Company's "EBITDA"
shall mean, for any period, the total of the Company's and each of its
subsidiary's net income or net loss (calculated on a pro forma basis to account
for any business acquisitions or dispositions completed by the Company during
such period) plus the sum of their aggregate (A) interest expense net of
interest income, (B) income tax expense, (C) depreciation expense, (D)
amortization expense and (E) non-cash extraordinary or unusual losses less
extraordinary or unusual gains, in each case determined in accordance with U.S.
generally accepted accounting principles consistently applied.

          (c) The Purchaser agrees that, in connection with the senior secured
or senior subordinated indebtedness incurred by the Company in compliance with
the limitations set forth in Section 3.12(a)(6) and Section 3.12(b) above, at
the request of the Company, the Purchaser shall enter into reasonable and
appropriate intercreditor agreement(s) with the applicable lender(s).

          (d) In the event that at any time during which any Debentures remain
outstanding, the Company enters into a binding bona fide agreement with a third
party pursuant to which the Company will incur senior secured indebtedness in
excess of the limitations set forth in Section 3.12(b) above (a "Consent
Transaction"), the Company shall promptly publicly announce the terms of such
Consent Transaction, with a copy of any such announcement being sent by the
Company to the Purchaser at the same time as it is made public (the date of such
public announcement being the "Release Date"). The Purchaser shall thereafter
have the option to waive the limitations set forth in Section 3.12(b) with
respect to such Consent Transaction by delivering a written notice to the
Company of such election no later than three (3) Trading Days following such
public announcement. If the Purchaser elects not to so waive such limitations
with respect to the Consent Transaction, the Company shall be required to redeem
in cash all of the then-outstanding Debentures at the same time as or
immediately following the closing of the Consent Transaction for a purchase
price equal to the Redemption Price (as defined below) in effect at the time of
such closing. For purposes of this Section 3.12(d), the term "Redemption Price"
shall mean 110% of the Debenture Amount (as defined in the Registration Rights
Agreement) of the Debentures being purchased

     Section 3.13 Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Debentures, Warrants, Common Shares and Warrant Shares, as
required under Regulation D and to provide a copy thereof to the Purchaser
promptly after such filing. The Company shall, on or before the Closing Date,
take such action as the Company shall have reasonably determined is necessary to
qualify the Debentures, Warrants, Common Shares and Warrant Shares for sale to
the Purchaser at the Closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Purchaser on or prior to the Closing Date.

     Section 3.14 20% Cap. The Purchasers shall, in the aggregate, be entitled
to convert Debentures into a total of 1,050,172 Common Shares (19.99% of the
Common Stock issued and outstanding on the date hereof, which number shall be
subject to

                                       20

<PAGE>

readjustment for any stock split, stock dividend or reclassification of the
Common Stock) (the "20% Cap"). Once the Purchaser has received its total
allowable number Common Shares upon conversion of its Debentures, it may request
that the Company redeem its remaining Debentures at a price equal to the Premium
Redemption Price (as defined in the Registration Rights Agreement) plus accrued
but unpaid interest and delay payments in effect at that time. The restrictions
and redemption obligations set forth in this Section 3.14 (including, without
limitation, the Purchaser's right to redeem Debentures at the Premium Redemption
Price) shall cease to apply if (a) the Company obtains written shareholder
approval to issue Common Shares in excess of the 20% Cap pursuant to the
American Stock Exchange Listing Standards Section 713 or (b) the Company
provides the Purchaser with irrevocable written notice, based upon the advice of
its counsel, that any such issuance of Common Shares upon conversion of the
Debentures is not subject to the 20% Cap pursuant to the American Stock Exchange
Listing Standards Section 713. In the event that the number of Common Shares
issued or issuable upon conversion of the Debentures exceeds 75% of the 20% Cap,
the Company will use its best efforts promptly to obtain either the shareholder
approval or the irrevocable notice described in the preceding sentence and to
provide the Purchaser with a copy of same without limiting the foregoing, the
Company shall solicit the aforementioned shareholder approval at the next
shareholders meeting (for whatever purpose it may be called) which, in any
event, shall not be later than within 75 days of such event, in which the
Company will solicit the aforementioned shareholder approval, will solicit
proxies in favor of issuing Common Shares in excess of the 20% Cap and will use
its best efforts to have all affiliates of the Company which own or control
shares of Common Stock to vote their shares in favor of such resolution.

     Section 3.15 Transactions With Affiliates. The Company agrees that any
transaction or arrangement between it or any of its affiliates (other than the
subsidiaries of the Company listed on Schedule 2.1(a) attached hereto) or
employees of the Company shall be effected on an arms' length basis in
accordance with customary commercial practice and, except with respect to grants
of options and stock to service providers, including employees, shall be
approved by a majority of the Company's outside directors.

     Section 3.16 Press Release. Immediately following the Closing, the Company
shall issue a press release in the form set forth in Schedule 3.16 hereto. The
Purchaser shall have the opportunity to review such press release prior to its
issuance. No press release shall name the Purchaser except as shall be required
by law. If the Company fails to issue a press release within 1 business day of
the Closing, the Purchaser may issue a press release covering the Closing and
complying with any legal requirement applicable to the Purchaser.

     Section 3.17 Form 8-K. Within 5 calendar days of the Closing, the Company
shall file a Form 8-K with the SEC which discloses the transactions contemplated
hereby and by the Registration Rights Agreement, Warrants and Debentures. The
Purchaser shall have the opportunity to review such Form 8-K prior to its
filing.

     Section 3.18 Additional Registration Statements. The Company shall not file
any registration statements under the Securities Act prior to the date which is
three (3)

                                       21

<PAGE>

months following the date on which each Registration Statement prepared in
accordance with the terms of the Registration Rights Agreement covering the
resale by the Purchaser of Common Shares and Warrant Shares is first declared
effective by the SEC (the "Effective Date") without first obtaining the written
consent of the Purchaser.

                                   ARTICLE 4
                             Conditions to Closings

     Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Debentures and Warrants. The obligation hereunder of the Company to issue
and/or sell the Debentures and Warrants to the Purchaser at the Closing (unless
otherwise specified) is subject to the satisfaction, at or before the Closing,
of each of the applicable conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.

          (a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser will be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties as of an earlier date, which will be
true and correct as of such date).

          (b) Performance by the Purchaser. The Purchaser shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Purchaser at or prior to the Closing.

          (c) No Injunction. No statute, rule, regulation, executive, judicial
or administrative order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement or the Registration Rights Agreement
or the Debentures or the Warrants.

          (d) Purchase Price. The Company shall have received the Purchase Price
from the Purchaser.

     Section 4.2 Conditions Precedent to the Obligation of the Purchaser to
Purchase the Debentures and Warrants. The obligation hereunder of the Purchaser
to acquire and pay for the Debentures and Warrants at the Closing (unless
otherwise specified) is subject to the satisfaction, at or before the Closing,
of each of the applicable conditions set forth below. These conditions are for
the Purchaser's benefit and may be waived by the Purchaser at any time in its
sole discretion.

          (a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties as of an earlier date, which shall be
true and correct as of such date).

                                       22

<PAGE>

          (b) Performance by the Company. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.

          (c) No Injunction. No statute, rule, regulation, executive, judicial
or administrative order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement or the Registration Rights Agreement
or the Debentures or the Warrants.

          (d) Opinion of Counsel. At the Closing, the Purchaser shall have
received an opinion of the independent counsel of the Company, in the form
attached hereto as Exhibit 4.2(d) and such other opinions, certificates and
documents as the Purchaser or its counsel shall reasonably require incident to
the Closing.

          (e) Registration Rights Agreement. The Company and the Purchaser shall
have executed and delivered the Registration Rights Agreement in the form and
substance of Exhibit 4.2(e) attached hereto.

          (f) Adverse Changes. No event which had or is likely to have, in the
reasonable judgment of the Purchasers, a Material Adverse Effect on the Company
or any of its direct or indirect subsidiaries shall have occurred.

          (g) Officer's Certificate. The Company shall have delivered to the
Purchaser a certificate in form and substance of Exhibit 4.2(g) attached hereto,
executed by an officer of the Company, certifying as to satisfaction of closing
conditions, incumbency of signing officers, and the true, correct and complete
nature of the Charter, By-Laws, good standing and authorizing resolutions of the
Company.

          (h) Debentures and Warrants. The Purchaser shall have received
certificates representing the Debentures and Warrants in the form and substance
of Exhibit 1A and Exhibit 1B hereto.

     Section 4.3 Company Put Rights.

          (a) Subject to Section 4.5 below, if at any time or times up to and
including to the six month anniversary of the first date on which there is
Effective Registration (the "Put/Call Period"), the daily VWAP (as defined in
the Debentures) exceeds 130% of the Conversion Price in effect on the Closing
Date (as defined in the Debentures and as adjusted for stock splits, stock
dividends and similar events, but not adjusted for any reduction in the
Conversion Price due to the Company's issuance or sale of any Common Stock or
securities which are convertible into or exchangeable for Common Stock, or any
warrants or other rights to subscribe for or to purchase or any options for the
purchase of Common Stock at a Per Share Selling Price less than the Conversion
Price on the Adjustment Date) (the "Adjusted Closing Conversion Price") for at
least 20 consecutive Trading Days (including, without limitation, the 20
Consecutive Trading Days immediately preceding the date on which the Put Notice
is received by the Purchaser) then the Company shall have the option (the "Put")
to sell to

                                       23

<PAGE>

the Purchaser an additional tranche consisting of at least $1,000,000 but no
more than $3,750,000 aggregate principal amount of Debentures (the "Put
Debentures") containing the same terms as the Debentures, for an aggregate
Purchase Price equal to the principal amount of Put Debentures being purchased,
provided that (1) the initial Conversion Price for such Put Debentures shall be
equal to $25.00 (as adjusted appropriately for any stock splits, reverse stock
splits, stock dividends, recapitalizations and other events that result in an
adjustment in the Conversion Price of the Debentures (the "Put/Call Conversion
Price")), (2) the ten monthly installments of principal payments under such Put
Debenture shall commence on the first anniversary of the Put Closing Date (as
defined below), and (3) the initial payment of interest thereon shall be due on
the first Interest Payment Date following the issuance of the Debenture.
Notwithstanding the foregoing, the aggregate principal amount of any Call
Debentures (as defined below) purchased (or exercised for purchase under Section
4.4 below) by the Purchaser pursuant to the Call (as defined below) shall be
subtracted from the aggregate principal amount of Put Debentures that may be
sold pursuant to this provision. In connection with any Put exercise, the
Purchaser shall also receive without additional consideration, on a pro rata
basis, warrants in the same form as the Warrants to purchase an aggregate number
of shares of Common Stock equal to 5% of the principal amount of Put Debentures
divided by the applicable Put/Call Conversion Price (the "Put Warrants"),
provided that (1) the Put Warrants shall have a term of 48 months, and (2) the
exercise price of the Put Warrants shall initially equal 115% of the Put/Call
Conversion Price.

          (b)  The Put must be exercised by the Company by written notice to the
Purchaser (the "Put Notice"), which must be sent no later than 5 Trading Days
after the occurrence of the condition set forth in Section 4.3(a) above. The Put
Notice shall set forth the date (the "Put Closing Date") of the transaction
contemplated by Section 4.3(a) above (the "Put Closing") which shall be no
sooner than 5 Trading Days but no more than 10 Trading Days following the date
of the Put Notice, subject to the conditions set forth below.

          (c)  The obligation of the Purchaser to purchase the Put Debentures is
subject to the following conditions, which may be waived by the Purchaser:

               (i)   No Event of Default, or any event which, with the giving of
          notice or the passage of time or both, would constitute an Event of
          Default, shall have occurred with respect to any Debenture or Call
          Debenture.

               (ii)  The Company shall not be in breach with respect to any
          representation, warranty or covenant contained in any of the
          Transaction Documents.

               (iii) The closing conditions set forth in Section 4.2, including,
          without limitation, the issuance of a satisfactory legal opinion and
          the issuance of the Put Debentures and Put Warrants, shall have been
          satisfied, mutatis mutandis with respect to the Put Debentures and Put

                                       24

<PAGE>

          Warrants as if the Closing Date as such term is used therein was the
          Put Closing Date.

               (iv) If the Put Closing is to take place on or after the
          Effectiveness Deadline (as defined in the Registration Rights
          Agreement), there shall be Effective Registration (as defined in
          Section 3.1 above) on the Put Closing Date and for the Trading Days
          between delivery of the Put Notice and the Put Closing Date.

          (d)  The number of shares issuable upon conversion of the Put
Debentures, when added to (i) the number of shares of Common Stock previously
issued to Purchaser upon exercise of the Warrants or on conversion or payment of
the Debentures; (ii) the number of Warrant Shares issuable upon exercise of the
Warrants (without regard to any limitations on ownership set forth therein or in
this Agreement); and (iii) the number of Common Shares issuable upon conversions
of the Debentures (based on the lowest conversion price applicable and without
regard to any limitations on ownership set forth therein or in this Agreement),
shall not exceed the 20% Cap.

     Section 4.4 Purchaser Call Rights.

          (a)  Subject to Section 4.5 below, at any time or times during
Put/Call Period, if the average VWAP over any five (5) consecutive Trading Days
exceeds $25.00 (as may be adjusted for subsequent stock splits, reverse splits,
stock dividends and similar events, but not adjusted for any reduction in the
Conversion Price due to the Company's issuance or sale of any Common Stock or
securities which are convertible into or exchangeable for Common Stock, or any
warrants or other rights to subscribe for or to purchase or any options for the
purchase of Common Stock at a Per Share Selling Price less than the Conversion
Price on the Adjustment Date), then the Purchaser shall have the option (the
"Call") to purchase an additional tranche consisting of at least $1,000,000 but
no more than $3,750,000 aggregate principal amount of Debentures (the "Call
Debentures") containing the same terms as the Debentures, for an aggregate
Purchase Price equal to the principal amount of Call Debentures being purchased,
provided that (1) the initial Conversion Price for such Call Debentures shall be
equal to the Put/Call Conversion Price, (2) the ten monthly installments of
principal payments under such Call Debenture shall commence on the first
anniversary of the Call Closing Date (as defined below), and (3) the initial
payment of interest thereon shall be due on the first Interest Payment Date
following the issuance of the Debenture. Notwithstanding the foregoing, the
aggregate principal amount of any Put Debentures actually purchased (or
exercised for sale under Section 4.3 above) by the Purchaser pursuant to the Put
shall be subtracted from the aggregate principal amount of Call Debentures that
may be purchased pursuant to this provision. In connection with any Call
exercise, the Purchaser shall also receive without additional consideration,
warrants in the same form as the Warrants to purchase an aggregate number of
shares of Common Stock equal to 5% of the principal amount of Call Debentures
divided by the applicable Put/Call Conversion Price (the "Call Warrants"),
provided that (1) the Call Warrants shall have a term of 48 months, and (2) the
exercise price of the Call Warrants shall initially equal 115% of the Put/Call
Conversion Price.

                                       25

<PAGE>

          (b)  The Call Right must be exercised by the Purchaser by written
notice (the "Call Notice") after the occurrence of the condition set forth in
Section 4.4(a) above. The Call Notice shall set forth the date (the "Call
Closing Date") of the transaction contemplated by Section 4.4(a) above (the
"Call Closing") which shall be no sooner than 5 Trading Days but no more than 10
Trading Days after the date of the Call Notice, subject to the conditions set
forth below.

          (c)  The obligation of the Purchaser to purchase the Call Debentures
is subject to the following conditions, which may be waived by the Purchaser:

               (i)   No Event of Default, or any event which, with the giving of
          notice or the passage of time or both, would constitute an Event of
          Default, shall have occurred with respect to any Debenture or Put
          Debenture.

               (ii)  The Company shall not be in breach with respect to any
          representation, warranty, or covenant contained in any of the
          Transaction Documents.

               (iii) The closing conditions set forth in Section 4.2, including,
          without limitation, the issuance of a satisfactory legal opinion and
          the issuance of the Call Debentures and Call Warrants, shall have been
          satisfied, mutatis mutandis with respect to the Call Debentures and
          Call Warrants as if the Closing Date as such term is used therein was
          the Call Closing Date.

          (d)  The number of shares issuable upon conversion of the Call
Debentures, when added to (i) the number of shares of Common Stock previously
issued to Purchaser upon exercise of the Warrants or on conversion or payment of
the Debentures; (ii) the number of Warrant Shares issuable upon exercise of the
Warrants (without regard to any limitations on ownership set forth therein or in
this Agreement); and (iii) the number of Common Shares issuable upon conversions
of the Debentures (based on the lowest conversion price applicable and without
regard to any limitations on ownership set forth therein or in this Agreement),
shall not exceed the 20% Cap.

     Section 4.5 Termination of Put/Call Period. If at any time during the
Put/Call Period, the daily VWAP exceeds 130% of the Adjusted Closing Conversion
Price for 20 consecutive Trading Days, then (i) the Put/Call Period with respect
to the Purchaser's Call shall expire at the close of business on the 5th Trading
Day following such 20th Trading Day, and (ii) if the Purchaser does not exercise
its Call in full, the Put/Call Period with respect to the Company's Put shall
expire at the close of business on the 10th Trading Day following such 20th
Trading Day. Following the expiration of the Put/Call Period with respect to the
Purchaser or the Company, the Purchaser's Call or the Company's Put, as
applicable, to the extent not previously exercised, shall terminate and
thereafter be null and void and unexercisable.

                                       26

<PAGE>

     Section 4.6 Mutatis Mutandis. All terms, covenants, agreements and
conditions contained in this Agreement shall apply mutatis mutandis to the Put
Debentures, Put Warrants, Call Debentures, Call Warrants, Put Closing and Call
Closing in the same manner as the Debentures, Warrants and Closing,
respectively, and each of the representations and warranties contained herein
shall be deemed made as of any Put Closing Date and Call Closing Date in
addition to the Closing Date. Notwithstanding the above, the representations,
warranties and covenants of the Purchaser contained in Section 2.2(f) above
shall not be applicable in any respect to the Put Warrants and Put Closing, or
the Call Warrants and Call Closing.

     Section 4.7 Put and Call Closings. On any Put Closing Date and/or Call
Closing Date, the Company shall deliver to the Purchaser (x) the Put Debentures
and Put Warrants, or Call Debentures and Call Warrants, as the case may be,
representing the aggregate debentures and warrants purchased hereunder by the
Purchaser at the Put Closing or Call Closing, as the case may be, in each case
registered in the name of the Purchaser or its nominee and in such denominations
as reasonably requested by the Purchaser, and the Purchaser shall deliver to the
Company the Purchase Price for such Put Debentures and Put Warrants, or Call
Debentures and Call Warrants, as the case may be, by wire transfer in
immediately available funds to an account designated in writing by the Company.

                                    ARTICLE 5
                                Legend and Stock

     The Company will issue one or more certificates representing the Debentures
and the Warrants in the name of the Purchaser and in such denominations to be
specified by the Purchaser prior to (or from time to time subsequent to)
Closing. Each certificate representing the Debentures and the Warrants and any
shares of Common Stock issued upon conversion or exercise thereof initially
shall be stamped or otherwise imprinted with a legend substantially in the
following form:

     THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
     ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
     TRANSFERRED, ASSIGNED, SOLD OR OFFERED FOR SALE EXCEPT PURSUANT
     TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
     APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL, IN
     FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, THAT
     REGISTRATION IS NOT REQUIRED BECAUSE OF AN APPLICABLE EXEMPTION
     FROM SUCH REGISTRATION REQUIREMENTS.

     The Company agrees to reissue Debentures and reissue or issue Warrants, as
the case may be, without the legend set forth above at such time as (i) the
holder thereof is permitted to dispose of such Debentures and/or Warrants and
Common Stock issuable upon conversion or exercise thereof pursuant to Rule 144
under the Securities Act, or (ii) such Debentures and/or Warrants are sold to a
purchaser or purchasers who (in the opinion of counsel to the seller or such
purchaser(s), in form and substance reasonably

                                       27

<PAGE>

satisfactory to the Company and its counsel) are able to dispose of such shares
publicly pursuant to an Effective Registration or exemption.

     Prior to the Registration Statement (as defined in the Registration Rights
Agreement) being declared effective, any Common Shares issued pursuant to
conversion of Debentures or Warrant Shares or Common Shares issued upon exercise
of the Warrants shall bear a legend in the same form as the legend indicated
above. Upon such Registration Statement becoming effective, or Rule 144 under
the Securities Act becoming available the Company agrees to promptly, but no
later than three (3) Trading Days thereafter, issue new certificates
representing such Common Shares and Warrant Shares without such legend. Any
Common Shares issued pursuant to conversion of Debentures or shares of Common
Stock issued upon exercise of the Warrants after the Registration Statement has
become effective shall be free and clear of any legends, transfer restrictions
and stop orders. Notwithstanding the removal of such legend, the Purchaser
agrees to sell the Common Shares and Warrant Shares represented by the new
certificates in accordance with the applicable prospectus delivery requirements
(if copies of a current prospectus are provided to the Purchaser by the Company)
or in accordance with an exemption from the registration requirements of the
Securities Act.

     Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement.

                                    ARTICLE 6
                                   Termination

     Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual written consent of the Company
and the Purchaser.

     Section 6.2 Other Termination. This Agreement may be terminated by action
of the Board of Directors of the Company or by the Purchaser at any time if the
Closing shall not have been consummated by the third business day following the
date of this Agreement; provided, however, that the party (or parties) prepared
to close shall retain its (or their) right to sue for any breach by the other
party (or parties).

                                    ARTICLE 7
                                  Miscellaneous

     Section 7.1 Stamp Taxes. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities and the
shares of Common Stock issued upon conversion or exercise thereof.

     Section 7.2 Specific Performance; Consent to Jurisdiction; Jury Trial.

          (a) The Company and the Purchaser acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement, the Debentures, the Registration Rights Agreement and the Warrants
were not performed

                                       28

<PAGE>

in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.

          (B) THE COMPANY AND THE PURCHASER (I) HEREBY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT, THE DELAWARE
STATE COURTS AND OTHER COURTS OF THE UNITED STATES SITTING IN THE STATE OF
DELAWARE FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND (II) HEREBY WAIVES, AND AGREES NOT TO ASSERT IN
ANY SUCH SUIT ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT
TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT, ACTION OR
PROCEEDING IS IMPROPER. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE
COMPANY AND THE PURCHASER CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT,
ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS IN
EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN
THIS PARAGRAPH SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY APPLICABLE LAW.

          (C) EACH OF THE COMPANY AND THE PURCHASER HEREBY WAIVES ALL RIGHTS TO
A TRIAL BY JURY.

     Section 7.3 Entire Agreement; Amendment. This Agreement, together with the
Registration Rights Agreement, the Warrants, the Debentures and the agreements
and documents executed in connection herewith and therewith, contains the entire
understanding of the parties with respect to the matters covered hereby and
thereby, supercedes any prior understanding, memoranda or other written or oral
agreements between or among any of them respecting the matters covered hereby
and thereby and, except as specifically set forth herein or therein, neither the
Company nor the Purchaser makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended except by a written instrument signed by both the Company and
the Purchaser. No provision of this Agreement may be waived or amended other
than by a written instrument signed by the party against whom enforcement of any
such amendment or waiver is sought.

     Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing by mail, fax or personal
delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications are:

         to the Company:

                    Allied Research Corporation
                    8000 Towers Crescent Drive, Suite 260
                    Vienna, Virginia 22182
                    Attn: Charles A. Hasper

                                       29

<PAGE>

                      Phone: (703) 847-5268
                      Fax:   (703) 847-5334

          with copies to:

                      Baxter Baker Sidle Conn & Jones, P.A.
                      Suntrust Building, Suite 2100
                      120 East Baltimore Street
                      Baltimore, Maryland 21202
                      Attn:   James E. Baker, Jr., Esq.
                      Phone:  (410) 230-3800
                      Fax:    (410) 230-3801

          to the Purchaser:

                      Riverview Group, LLC
                      666 Fifth Avenue
                      New York, New York 10103
                      Attention: Dan Cardella
                      Phone:     (212) 841-4176
                      Fax:       (212) 841-6302

          with copies to:

                      Kleinberg, Kaplan, Wolff & Cohen, P.C.
                      551 Fifth Avenue, 18th Floor
                      New York, New York 10176
                      Attention: Stephen M. Schultz, Esq.
                      Phone:     (212) 986-6000
                      Fax:       (212) 986-8866

Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.

     Section 7.5 Indemnity. In consideration of the Purchaser's execution and
delivery of this Agreement and the Registration Rights Agreement and in addition
to all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless the Purchaser and all
of its officers, managers, employees, members and direct or indirect investors
and any of the foregoing persons' agents or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Indemnitees") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as
a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in the Transaction
Documents or any other certificate or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other

                                       30

<PAGE>

certificate or document contemplated hereby or thereby, (c) any cause of action,
suit or claim brought or made against such Indemnitee by a third party and
arising out of or resulting from (i) the execution, delivery, performance,
breach by the Company or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (iii) the
status of the Purchaser or holder of the Securities as Purchasers in the
Company, and (d) the enforcement of this Section. Notwithstanding the foregoing,
Indemnified Liabilities shall not include any liability of any Indemnitee to the
extent it arises out of such Indemnitee's willful misconduct, gross negligence,
or fraudulent action(s). To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 7.5 shall be the same as those set forth in
Section 6 (other than Section 6(b)) of the Registration Rights Agreement,
including, without limitation, those procedures with respect to the settlement
of claims and Company's right to assume the defense of claims.

     Section 7.6  Waivers. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.

     Section 7.7  Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

     Section 7.8  Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The parties hereto may amend this
Agreement without notice to or the consent of any third party. The Company may
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of the Purchaser (which consent may be withheld for any
reason in its sole discretion). The Purchaser may not assign this Agreement (in
whole or in part) or any rights or obligations hereunder without the consent of
the Company (which shall not be unreasonably withheld), except that the
Purchaser may assign its rights hereunder in connection with an assignment of
Debentures or Warrants (in accordance with the respective terms thereof);
provided that: (i) the Purchaser may not assign Debentures in an amount less
than $500,000 in principal amount, and (ii) any transferee of Debentures or
Warrants must agree in writing to be bound by the applicable terms of the
Transaction Documents.

     Section 7.9  No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

                                       31

<PAGE>

     Section 7.10  Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED ENTIRELY THEREIN.

     Section 7.11  Survival. The representations, warranties, agreements and
covenants of the Company and the Purchaser contained herein shall survive the
Closing.

     Section 7.12  Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.

     Section 7.13  Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser without
the express written agreement of the Purchaser, unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement. The Company agrees that it will deliver a copy of any public
announcement regarding the matters covered by this Agreement or any agreement
and document executed herewith to the Purchaser and any public announcement
including the name of the Purchaser to the Purchaser, reasonably in advance of
the release of such announcements.

     Section 7.14  Like Treatment of Holders; Redemption. Neither the Company
nor any of its affiliates shall, directly or indirectly, pay or cause to be paid
any consideration (immediate or contingent), whether by way of interest, fee,
payment for the redemption or conversion of Debentures or exercise of the
Warrants, or otherwise, to any holder of Debentures or Warrants, for or as an
inducement to, or in connection with the solicitation of, any consent, waiver or
amendment of any terms or provisions of the Debenture or this Agreement or the
Registration Rights Agreement or the Warrants, unless such consideration is
required to be paid to all holders of Debentures and Warrants bound by such
consent, waiver or amendment whether or not such holders so consent, waive or
agree to amend and whether or not such holders tender their Debentures or
Warrants for redemption, conversion or exercise. The Company shall not, directly
or indirectly, redeem any Debentures or Warrants unless such offer of redemption
is made pro rata to all holders of Debentures or Warrants, as the case may be,
on identical terms.

     Section 7.15  No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against either
party.

     Section 7.16  Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, wherever the Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, the
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.

                                       32

<PAGE>

     Section 7.17  Obligations Absolute. The Company's obligations under the
Transaction Documents are unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction.

                            [Signature Page Follows]

                                       33

<PAGE>

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

                                            COMPANY:

                                            ALLIED RESEARCH CORPORATION

                                            By: ____________________________
                                                  Name:
                                                  Title:

                                            PURCHASER:

                                            RIVERVIEW GROUP, LLC

                                            By: ____________________________
                                                  Name:
                                                  Title:

        Signature page to Allied Research Corporation Purchase Agreement

                                       34

<PAGE>

                             EXHIBITS AND SCHEDULES

Exhibit 1.1A                Form of Debenture

Exhibit 1.1B                Form of Warrant

Schedule 2.1(a)             List of Subsidiaries

Schedule 2.1(c)             Capitalization

Schedule 2.1(c)(i)          Capitalization

Exhibit 2.1(c)(i)           Certificate of Incorporation of the Company

Exhibit 2.1(c)(ii)          By-Laws of the Company

Schedule 2.1 (s)(i)         Outstanding securities entitled to registration
                            rights

Schedule 2.1 (s)(ii)        Outstanding securities affected by the issuance of
                            Debentures, etc.

Schedule 2.1(aa)            Real Property

Schedule 2.1(dd)            MFN and Variable Rate Transactions

Schedule 3.12(a)            Permitted Liens

Schedule 3.16               Press Release

Exhibit 4.2(d)              Opinion of Company Counsel

Exhibit 4.2(e)              Registration Rights Agreement

Schedule 4.2(g)             Officer's Certificate<PAGE>

                                                                    Exhibit 10.2

     THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE TRANSFERRED, ASSIGNED, SOLD
OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL, IN
FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED BECAUSE OF AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.

     No. 1                                                     U.S.$7,500,000

     Dated: June 28, 2002

                           ALLIED RESEARCH CORPORATION

                        8% CONVERTIBLE DEBENTURE SERIES A

     This Debenture ("Debenture") is one of a duly authorized issue of
Debentures of ALLIED RESEARCH CORPORATION (the "Company"), a corporation duly
organized and existing under the laws of the state of Delaware, designated as
the Company's 8% Convertible Debentures Series A, in an aggregate principal
amount of SEVEN MILLION FIVE HUNDRED THOUSAND U.S. Dollars (U.S. $7,500,000)
(the "Debentures").

     For Value Received, the Company promises to pay to RIVERVIEW GROUP, LLC the
initial holder hereof, or its order (including successors-in-interest, the
"Holder"), the principal sum of SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS
(U.S. $7,500,000) in the following manner: $750,000, together with all the
accrued but unpaid interest thereon, shall be due and payable on June 28, 2003
("Initial Maturity Date"). Additional repayments of principal, each in the
amount of $750,000, together with accrued but unpaid interest on each such
principal payment, shall be due and payable on each monthly anniversary of the
Initial Maturity Date (each such monthly anniversary being a Subsequent Maturity
Date). The Initial Maturity Date and any Subsequent Maturity Date may be
referred to as a "Maturity Date" (subject to paragraph (d) below). Interest on
the principal sum outstanding under this Debenture ("Outstanding Principal
Amount"), at the rate of 8% per annum, compounded annually, shall be payable in
arrears on the first day of January and July of each year and on each Maturity
Date (each an "Interest Payment Date"), with the first such payment due on
January 1, 2003. Interest shall accrue daily commencing on the date hereof and
shall continue until payment in full of all amounts due under this Debenture.
The interest so payable will be paid to the person in whose name this Debenture
is registered on the records of the Company regarding registration and transfers
of the Debenture (the "Debenture Register"). Capitalized terms used herein and
not otherwise defined shall have the meanings set forth in the Purchase
Agreement dated as of June 28, 2002 between the Company and the Holder (the
"Purchase Agreement") or the Registration Rights Agreement dated as of June 28,
2002 between the Company and the Holder (the "Registration Rights Agreement").

<PAGE>

     The interest on this Debenture is payable, at the Company's option:

     (a)  in such coin or currency of the United States as of the time of
payment is legal tender for payment of public and private debts, at the address
last appearing on the Debenture Register of the Company as designated in writing
by the Holder hereof from time to time;

     (b)  in shares of Common Stock (as hereinafter defined) at the address last
appearing on the Debenture Register of the Company designated in writing by the
Holder hereof from time to time ("Share Interest"). The Company may only elect
to pay interest as Share Interest if the shares being delivered are registered
for resale (with a currently deliverable prospectus) in accordance with the
terms of the Registration Rights Agreement, free of legend, and listed on one of
the Approved Markets (as defined in the Purchase Agreement). The number of
shares to be delivered shall be determined by dividing the cash interest that
would otherwise be due and payable by the product of (i) the average of the VWAP
(as hereinafter defined) for the five Trading Days immediately preceding the
applicable Interest Payment Date, and (ii) ninety percent.

     The principal amounts due on this Debenture are payable, at the Company's
option:

     (c)  in such coin or currency of the United States as of the time of
payment is legal tender for payment of public and private debts, at the address
last appearing on the Debenture Register of the Company as designated in writing
by the Holder hereof from time to time;

     (d)  in shares of Common Stock (as hereinafter defined) at the address last
appearing on the Debenture Register of the Company designated in writing by the
Holder hereof from time to time ("Share Principal"). The Company may only elect
to pay principal as Share Principal if the shares being delivered are registered
for resale (with a currently deliverable prospectus) in accordance with the
terms of the Registration Rights Agreement, free of legend, and listed on one of
the Approved Markets (as defined in the Purchase Agreement). The number of
shares to be delivered shall be determined by dividing the cash principal amount
that would otherwise be due and payable by the product of (i) the average of the
VWAP (as hereinafter defined) for the five trading days immediately preceding
the applicable Maturity Date, and (ii) ninety percent.

     The principal amount due and payable on any Maturity Date shall be reduced
by an amount equal to the principal amount submitted for conversion by the
Holder prior to such Maturity Date pursuant to the terms of this Debenture which
has not been previously applied to reduce the principal amount due on any prior
Maturity Date. Such amounts shall be applied to reduce amounts due on a Maturity
Date in chronological order, commencing with the earliest Maturity following the
conversion. If the principal amount due and payable on a Maturity Date has been
reduced to zero pursuant to the terms of this paragraph, such Maturity Date
shall no longer be deemed a "Maturity Date."

                                        2

<PAGE>

     All amounts payable under this Debenture must (unless waived by the Holder)
be paid in cash (as provided in clauses (a) and (c) above) if, at the time such
payment is due, there exists a Default (as hereinafter defined) under this
Debenture.

     The Company shall exercise its options hereunder for payment of interest
and principal by delivering, on or prior to the applicable Interest Payment Date
or Maturity Date, an irrevocable statement in the form of Exhibit 1 hereto
("Payment Statement"), which shall be applicable for such Interest Payment Date
or Maturity Date only. If the Payment Statement is not timely delivered to the
Holder as provided herein, the payment with respect to such Interest Payment
Date shall be in cash. If the Company selects cash interest in the Payment
Statement and fails to deliver such cash on or before the Interest Payment Date
or Maturity Date, the Holder shall have the right to require the Company to pay
Share Interest or Share Principal in lieu thereof.

     The Company shall not be permitted to exercise its options hereunder to pay
interest and/or principal in shares of Common Stock if and to the extent that
such shares, when added to other shares of Common Stock deemed beneficially
owned by the Holder, would exceed the Restricted Ownership Percentage (as
hereinafter defined) or the 20% Cap (as defined in the Purchase Agreement).

     The Company will pay any principal due and all accrued and unpaid interest
due upon this Debenture to the person that is the Holder of this Debenture on
the records of the Company as of the applicable Interest Payment Date and
addressed to such Holder at the last address appearing on the Debenture
Register.

     The Outstanding Principal Amount and interest due hereunder shall bear
interest, from and after the day following the occurrence and during the
continuance of an Event of Default hereunder, at the per annum rate equal to the
lowest of the Citibank Prime Rate per annum plus six (6%) percent, twelve
percent (12%), or the highest rate permitted by law. The Holder shall have the
option to receive such interest as cash interest or Share Interest and shall
exercise its option by delivering to the Company a statement in a form
substantially similar to the Payment Statement which shall be effective until
the Holder delivers an additional statement to the contrary. If the Holder
elects to receive the interest in cash, it shall be payable on demand.

     Additional cash payments (referred to as "delay payments") may be required
pursuant to the Registration Rights Agreement if there occurs an "Interfering
Event" (as defined therein), or pursuant to the Purchase Agreement under the
terms set forth in Section 3.10 therein. Such delay payments, if not paid in
cash when due, may be treated by the Holder in its sole discretion as being
added to the Outstanding Principal Amount due under this Debenture.

     Subject to applicable law, any interest otherwise payable that is not paid
for any applicable period because it would exceed the highest rate permitted by
law shall become payable whenever the payment thereof, together with other
interest due for any such subsequent period, would not exceed such highest legal
rate.

                                       3

<PAGE>

     The Holder of this Debenture is entitled to certain rights and remedies
pursuant to the Purchase Agreement and Registration Rights Agreement, including
without limitation provisions requiring mandatory redemption of the Debenture.
This Debenture does not provide voting rights to the Holder.

     This Debenture is subject to the following additional provisions:

     1.   Exchange. The Debentures are exchangeable at any time and from time to
time for Debentures with different denominations of at least $500,000
representing an equal aggregate Outstanding Principal Amount of Debentures or to
reflect the actual Conversion Price pursuant to Section 5(c) below, as requested
by the Holder surrendering the same. No service charge will be made for such
registration or transfer or exchange.

     2.   Transfers. This Debenture may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act") and
applicable state securities laws, or applicable exemptions therefrom; provided,
that in no event may this Debenture be sold or otherwise transferred by the
Holder to any person who (i) has been convicted of, or pleaded guilty or nolo
contendere to, a felony under applicable U.S. law in a court of competent
jurisdiction, and such conviction has not been vacated or overturned, (ii) has
been barred by a federal or state regulatory agency from serving as an officer
or director of a public company, (iii) has been found by a court of competent
jurisdiction or a federal or state securities agency or self-regulatory
organization to have made a false statement or omission, been dishonest, unfair
or unethical, been in violation of bank or investment-related statutes or
regulations, or been the cause of a bank or investment-related business to have
its authorization to do business denied, suspended, revoked or restricted, (iv)
had an order entered against him in connection with an investment or securities
related activity, (v) was denied, suspended or had a registration or license
revoked or was otherwise prevented from associating with an investment or
securities related business, or whose activities were restricted via a
disciplinary action, (vi) was discharged or permitted to resign his employment
because he was accused of violating investment or securities related statutes,
regulations, rules or industry standards of conduct, or (vii) within the past
ten (10) years, has served as an officer or director of a public company that
filed for bankruptcy protection or sought legal protection from creditors
through other means. Prior to due presentment for transfer of this Debenture,
the Company may treat the person in whose name this Debenture is duly registered
on the Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided, whether or not this Debenture is overdue.
Notwithstanding the above, the Company shall have a right of first refusal with
respect to any proposed sale by the Holder of this Debenture and shall have the
right to match the terms of any bona fide offer with respect thereto received
from a third party. To effect the foregoing, the Holder shall provide written
notice to the Company of the terms of such proposed sale promptly following
receipt of such offer. The Company may then exercise its right to match by
issuing a written counter-notice of its intention to do so within three (3)
Trading Days of receipt of the notice from the Holder, and the consummation of
such counteroffer shall occur at the later of (i) the time provided by the
original bona fide third party offer and (ii) ten (10) Trading Days from the
date on which the Holder received such written counter-notice. Any material
changes or modifications to the proposed transaction shall be reflected to the
Company pursuant to the procedures of this Section 2. The foregoing

                                       4

<PAGE>

right of first refusal shall not apply to any sale of this Debenture by the
Holder to any affiliate of such Holder or if the Company is or has at any time
been in Default under the terms of this Debenture.

3.       Definitions. For purposes hereof the following definitions shall apply:
         -----------

         "Act" shall have the meaning set forth in Section 2.

         "Adjustment Date" shall have the meaning set forth in Section 7(a).

         "AMEX" shall mean the American Stock Exchange.

         "Change in Control Consideration" shall have the meaning set forth in
Section 4 hereof.

         "Change in Control Conversion Price" shall have the meaning set forth
in Section 4 hereof.

         "Change in Control Transaction" shall mean (i) any consolidation or
merger of the Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving corporation) occurs, or any
other corporate reorganization or transaction or series of related transactions
in which in excess of 50% of the Company's voting power is transferred through a
merger, consolidation, tender offer or similar transaction occurs; or (ii) any
person (as defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), together with its affiliates and associates (as
such terms are defined in Rule 405 under the Act), beneficially owns or is
deemed to beneficially own (as described in Rule 13d-3 under the Exchange Act)
in excess of 50% of the Company's voting power; (iii) there is a replacement of
more than one-half of the members of the Company's Board of Directors which is
not approved by those individuals who are members of the Company's Board of
Directors on the date thereof; or (iv) in one or a series of related
transactions there is a sale or transfer of all or substantially all of the
assets of the Company, determined on a consolidated basis.

         "Closing Date" shall mean the date of the original issuance of this
Debenture.

         "Common Stock" shall mean the common stock, par value $.10, of the
Company.

         "Company" shall have the meaning set forth in the Preamble.

         "Conversion Notice" shall have the meaning set forth in Section 5(d).

         "Convertible Securities "shall have the meaning set forth in Section
7(a).

         "Conversion Price" shall have the meaning set forth in Section 5(c).

         "Conversion Rate" shall have the meaning set forth in Section 5(b).

                                       5

<PAGE>
-

     "Debenture" shall have the meaning set forth in the Preamble.

     "Debentures" shall have the meaning set forth in the Preamble.

     "Debenture Register" shall have the meaning set forth in the Preamble.

     "Default" shall mean an event or occurrence which, with or without the
giving a notice, and/or with or without the passage of time, would constitute an
Event of Default.

     "Delay payments" shall have the meaning set forth in the Preamble.

     "DTC" shall have the meaning set forth in Section 5(d).

     "DWAC" shall have the meaning set forth in Section 5(d).

     "Event of Default" shall have the meaning set forth in Section 17.

     "FAST" shall have the meaning set forth in Section 5(d).

     "Holder Conversion Date" shall have the meaning set forth in Section 5(d).

     "Interest Payment Date" shall have the meaning set forth in the Preamble.

     "Maturity Date" shall have the meaning set forth in the Preamble.

     "Market Price for Shares of Common Stock" shall mean the price of one share
of Common Stock determined as follows:

          (i)   If the Common Stock is listed on NYSE or the AMEX, the closing
bid price on such exchange on the date of valuation;

          (ii)  If (i) does not apply and the Common Stock is approved for
trading on the NASDAQ National Market System or the Nasdaq Small-Cap Market, the
last reported "bid" price thereon on the date of valuation;

          (iii) If neither (i) nor (ii) apply but the Common Stock is quoted in
the over-the-counter market, another recognized exchange, on the pink sheets or
bulletin board, (A) the last sales price on the date of valuation or, if there
is no such sales price, (B) the mean between the last reported "bid" and "asked"
prices thereof on the date of valuation; and

          (iv)  If neither clause (i), (ii) or (iii) above applies, the market
value as determined by a nationally recognized investment banking firm or other
nationally recognized financial advisor retained by the Company for such
purpose, taking into consideration, among other factors, the earnings history,
book value and prospects for the Company, and the prices at which shares of
Common Stock recently have been traded. Such determination shall be conclusive
and binding on all persons.

     "NYSE" shall mean the New York Stock Exchange.

                                       6

<PAGE>

     "Outstanding Principal Amount" shall have the meaning set forth in the
Preamble.

     "Payment Statement" shall have the meaning set forth in the Preamble.

     "Public Announcement" shall mean any public filing with the Securities and
Exchange Commission, any press release by either the Company or a third party or
any other public statement, that announces a proposed transaction which, if
consummated, would constitute a Change in Control Transaction.

     "Purchase Agreement" shall have the meaning set forth in the Preamble.

     "Redemption Price" shall have the meaning set forth in Section 4(a).

     "Registration Statement" shall have the meaning set forth in the
Registration Rights Agreement.

     "Registration Rights Agreement" shall have the meaning set forth in the
Preamble.

     "Restricted Ownership Percentage" shall have the meaning set forth in
Section 12.

     "Share Interest and "Share Principal" shall have the meanings set forth in
the Preamble.

     "Trading Day" shall mean a day on which the Common Stock is traded on the
American Stock Exchange or principal exchange on which the Common Stock has been
listed (or any similar organization or agency succeeding such market or
exchange's functions of reporting prices).

     "VWAP" shall mean the "Volume Weighted Average Price" for the Common Stock
on its principal market as reported by Bloomberg Financial L.P. using the AQR
function.

4.   Change in Control, Etc.

     (a)  If at any time there occurs any Change in Control Transaction, Holder
shall be entitled, at its sole option, to have the Company redeem this Debenture
in whole or in part at a Redemption Price equal to the Outstanding Principal
Amount of this Debenture plus all accrued but unpaid interest and delay payments
on this Debenture (the "Redemption Price"). Such Holder shall be entitled to
make such election at any time up to five (5) Trading Days following a Public
Announcement of a pending or completed Change in Control Transaction.

     (b)  If at any time there occurs a Public Announcement of a pending Change
in Control Transaction in which the public shareholders of the Company are to
receive consideration, a portion of which is capital stock or any security
convertible into capital stock of another entity in exchange for shares of
Common Stock ("Change in Control

                                        7

<PAGE>

Consideration"), then prompt provision shall be made in a manner reasonably
acceptable to the Holders so that each Holder shall have the right (in addition
to its other rights, including conversion rights, under this Debenture):

          (i)   following the closing of the transaction covered by such Public
Announcement, to convert its Debentures into the Change in Control Consideration
that such Holder would have been or would be entitled to receive had it
converted all of its Debentures into Common Stock (notwithstanding any
restrictions imposed upon the Holder pursuant to this Debenture or the Purchase
Agreement in its ability to do so) immediately prior to the Change in Control
Transaction at the then-current Conversion Price, and acquired the Change in
Control Consideration as a shareholder of the Company; or

          (ii)  following such Public Announcement, convert its Debentures into
Common Stock at the then-current Conversion Price.

     5.   Conversion at the Option of the Holder. The Holder of this Debenture
shall have the following conversion rights:

     (a)  Holder's Right to Convert. At any time and from time to time, the
Holder may convert amounts due under this Debenture, in whole or in part, into
fully paid, validly issued and non-assessable shares of Common Stock. If this
Debenture is converted in part, the remaining portion or this Debenture not so
converted shall remain entitled to the conversion rights provided herein.

     (b)  Conversion Rate. The Outstanding Principal Amount, accrued interest
and delay payments of this Debenture that is converted into shares of Common
Stock at the option of the Holder shall be convertible into the number of shares
of Common Stock which results from application of the following formula:

                                    P + I + D
                         ------------------------------
                                Conversion Price

     P =  Outstanding Principal Amount of this Debenture submitted for
          conversion as of the Holder Conversion Date
     I =  accrued but unpaid interest (not previously added to principal) on P
          as of the Holder Conversion Date
     D =  delay payments (not previously added to principal) on P as of the
          Holder Conversion Date

     The number of shares of Common Stock into which each $1,000 principal
amount of this Debenture hereto may be converted pursuant to this paragraph
hereof is hereafter referred to as the "Conversion Rate."

     (c)  Conversion Price.

                                        8

<PAGE>

          (i)   Subject to adjustments pursuant to Sections 4 and 7, this
Debenture will have a conversion price (the "Conversion Price") equal to $25.00.

          (ii)  The Company may, from time to time, upon written notice to all
holders of Debentures, reduce the Conversion Price of the Debentures for such
period as is set forth in such notice; provided however, that such reduction in
the Conversion Price shall apply equally to all outstanding Debentures.

     (d)  Mechanics of Conversion. In order to convert this Debenture (in whole
or in part) into full shares of Common Stock, the Holder (i) shall give written
notice in the form of Exhibit 2 hereto (the "Conversion Notice") by facsimile to
the Company at such office that the Holder elects to convert the principal
amount (plus accrued but unpaid interest and delay payments) specified therein,
which such notice and election shall be revocable by the Holder at any time
prior to its receipt of the Common Stock upon conversion, and (ii) if the entire
Outstanding Principal Amount is being converted, as soon as practicable after
such notice, shall surrender this Debenture, duly endorsed, by either overnight
courier or 2-day courier, to the principal office of the Company; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of the Common Stock issuable upon such conversion (where
the entire Outstanding Principal Amount is being converted) unless either the
Debenture evidencing the principal amount is delivered to the Company as
provided above, or the Holder notifies the Company that such Debenture(s) have
been lost, stolen or destroyed and promptly executes an agreement reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such lost, stolen or destroyed Debentures.

          The Holder shall not be required to physically surrender this
Debenture to the Company unless the full Outstanding Principal Amount
represented by this Debenture is being converted. The Holder and the Company
shall maintain records showing the Outstanding Principal Amount so converted and
the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical
surrender of this Debenture upon each such conversion. Notwithstanding the
foregoing, if this Debenture is converted as aforesaid, the Holder may not
transfer this Debenture unless the Holder first physically surrenders this
Debenture to the Company, whereupon the Company will forthwith issue and deliver
upon the order of the Holder a new Debenture of like tenor, registered as the
Holder may request, representing in the aggregate the remaining Outstanding
Principal Amount represented by this Debenture. The Holder and any assignee, by
acceptance of this Debenture or a new Debenture, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of any portion
of this Debenture, the Outstanding Principal Amount represented by this
Debenture may be less than the Outstanding Principal Amount and the accrued
interest set forth on the face hereof.

          The Company shall issue and deliver within three Trading Days of the
delivery to the Company of such Conversion Notice, to such Holder of
Debenture(s) at the address of the Holder, or to its designee, a certificate or
certificates for the number of shares of Common Stock to which the Holder shall
be entitled as aforesaid, together with a Debenture or Debentures for the
principal amount of Debentures not submitted for

                                        9

<PAGE>

conversion. The date on which the Conversion Notice is given (the "Holder
Conversion Date") shall be deemed to be the date the Company received by
facsimile the Conversion Notice, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date. In the event that such Holder or its designee has not received such
certificate or certificates within ten (10) calendar days of the Company's
receipt of the Conversion Notice, the Holder shall, in addition to any other
rights or remedies it may have be entitled to receive a cash payment at the rate
of 1% per month of the amount submitted for conversion (such cash payment due on
demand by the Holder) for each day, after the third Trading Day following the
Holder Conversion Date, that the certificates have not been received.

          In lieu of delivering physical certificates representing the Common
Shares issuable upon conversion of Debentures or the Warrant Shares (as defined
in the Purchase Agreement) deliverable upon exercise of Warrants (as defined in
the Purchase Agreement), provided the Company's transfer agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
("FAST") program, upon request of the holder, the Company shall use its best
efforts to cause its transfer agent to electronically transmit the Common Shares
and Warrant Shares issuable upon conversion or exercise to the Holder, by
crediting the account of Holder's prime broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery
described above shall apply to the electronic transmittals through the DWAC
system. The parties agree to coordinate with DTC to accomplish this objective.
The conversions pursuant to Sections 5 shall be deemed to have been made
immediately prior to the close of business on the Holder Conversion Date. The
person or persons entitled to receive the Common Shares issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Common Shares at the close of business on the Holder Conversion Date.

     6.   Holder Option to Grant Extensions. The Holder of this Debenture shall
have the right at any time and from time to time to defer for up to one (1) year
the date of any Interest Payment Date or Maturity Date. Interest on deferred
amounts shall accrue at the rate of 8% per annum, compounded annually and shall
be payable (in cash or in shares of Common Stock) as provided hereinabove in
this Debenture. Any such extension must refer to specific Interest Payment Dates
and/or Maturity Dates, and must be in writing.

     7.   Stock Splits; Dividends; Adjustments; Reorganizations.

     (a)  (1)   If the Company, at any time while the Debentures are
outstanding, shall (i) pay a stock dividend or otherwise make a distribution or
distributions on any equity securities (including investments or securities
convertible into or exchangeable for such equity securities) in shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock into a larger
number of shares, (iii) combine outstanding shares of Common Stock into a
smaller number of shares, then the Conversion Price (as defined below) shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding before such event and of which the denominator shall be
the number of shares of Common Stock outstanding after such event. Any

                                       10

<PAGE>

adjustment made pursuant to this Section 7(a) shall become effective immediately
after the record date for the determination of shareholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of an issuance, a subdivision or a combination.

     (2)  In the event that the Company issues or sells any Common Stock or
securities which are convertible into or exchangeable for its Common Stock or
any convertible securities, or any warrants or other rights to subscribe for or
to purchase or any options for the purchase of its Common Stock or any such
convertible securities (other than (i) securities issued in connection with a
strategic partnership, acquisition, merger or joint venture of or by the Company
with any person in the same, related or complementary business as the Company or
any vendor or customer of the Company, entered into in each such case, with the
intent to further the business of the Company and not for the primary purpose of
providing financing, (ii) shares or options issued or which may be issued
pursuant to the Company's current or future employee or director option plans,
(iii) shares issued upon exercise of options, warrants or rights outstanding on
the date of the Purchase Agreement and listed in the Company's most recent
periodic report filed under the Exchange Act or (iv) warrants issued by the
Company in connection with non-convertible senior or subordinated indebtedness,
up to a maximum number of warrant shares in the aggregate equal to five percent
(5%) of the number of outstanding shares of Common Stock on the date of issuance
of this Debenture) at an effective selling price per share ("Per Share Selling
Price") which is less than the Conversion Price on the Trading Day next
preceding such issue or sale or, in the case of issuances to holders of Common
Stock, the date fixed for determination of stockholders entitled to receive such
warrants, rights or options (the "Adjustment Date"), then the Conversion Price
per share shall be adjusted effective concurrently with such issue or sale to an
amount determined by multiplying the Conversion Price then in effect by a
fraction, (x) the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale, plus
(2) the number of shares of Common Stock which the aggregate consideration
received by the Company for such additional shares would purchase at such
Conversion Price then in effect; and (y) the denominator of which shall be the
number of shares of Common Stock of the Company outstanding immediately after
such issue or sale.

     For the purposes of the foregoing adjustment, in the case of the issuance
of any convertible securities, warrants, options or other rights to subscribe
for or to purchase or exchange for, shares of Common Stock ("Convertible
Securities"), the maximum number of shares of Common Stock issuable upon
exercise, exchange or conversion of such Convertible Securities shall be deemed
to be issued and outstanding based upon a Per Share Selling Price equal to the
lowest price at which Common Stock can be acquired pursuant to the Convertible
Securities, provided that no further adjustment shall be made upon the actual
issuance of Common Stock upon exercise, exchange or conversion of such
Convertible Securities.

     (b)  If the Company, at any time while the Debentures are outstanding,
shall distribute to all holders of shares of Common Stock cash, evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 7(a) above), then the
Conversion Price shall be reduced by being

                                       11

<PAGE>

multiplied by a fraction (i) the numerator of which is equal to (A) the existing
Conversion Price minus (B) the price allocable to one share of Common Stock of
the value (as jointly determined in good faith by the board of directors of the
Company and the Holder) of any and all such evidences of indebtedness, shares of
capital stock, other securities or property, so distributed and (ii) the
denominator of which is equal to the existing Conversion Price.

     (c)  In the event that at any time or from time to time after the Closing
Date, the Common Stock issuable upon the conversion of the Debentures is changed
into the same or a different number of shares of any class or classes of stock,
whether by merger, consolidation, recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Section 7), then and as a
condition to each such event provision shall be made in a manner reasonably
acceptable to the Holders of Debentures so that each Holder of Debentures shall
have the right thereafter to convert such Debenture into the kind of stock
receivable upon such merger, consolidation, recapitalization, reclassification
or other change by holders of shares of Common Stock, all subject to further
adjustment as provided herein. In such event, the formulae set forth herein for
conversion and redemption shall be equitably adjusted to reflect such change in
number of shares or, if shares of a new class of stock are issued, to reflect
the market price of the class or classes of stock (applying the same factors
used in determining the Conversion Price) issued in connection with the above
described transaction.

     (d)  Whenever the Conversion Price is adjusted pursuant to Section 7, the
Company shall promptly mail to each Holder of the Debentures, a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.

     (e)  In the event of any taking by the Company of a record date of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, any
security or right convertible or exchangeable into or entitling the holder
thereof to receive additional shares of Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall deliver
to each Holder of Debentures at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, security or right and the amount
and character of such dividend, distribution, security or right.

     (f)  If the Company, at any time while the Debentures are outstanding,
shall distribute to all holders of Shares of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 7(a) above) then the Holder
shall participate in such distribution on a pro rata basis with the holders of
shares of Common Stock entitled to receive such dividend, distribution,
issuance, subdivision or combination as if the Holder held that number of shares
of Common Stock that the Holder would have been entitled to receive hereunder
upon conversion of the Debenture (without regard to Section 12) immediately

                                       12

<PAGE>

prior to the record date fixed for determination of shareholders entitled to
receive such dividend, at the Conversion Price then in existence.

     8.   Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder. The
number of shares of Common Stock that are issuable upon any conversion shall be
rounded up to the nearest whole share.

     9.   Reservation of Stock Issuable Upon Conversion or Payment.

     (a)  Reservation Requirement. The Company covenants that it will at all
times reserve and keep available out of its authorized and unissued Common Stock
solely for the purpose of issuance upon conversion of the Debentures and/or
payment of principal or interest in shares of Common Stock as herein provided,
free from preemptive rights or any other present or contingent purchase rights
of persons other than the Holders of the Debentures, 200% of the maximum number
of shares of Common Stock as shall be issuable (taking into account the
adjustments and restrictions of Sections 5 and 7 hereof) upon the conversion of
all of the Debentures pursuant hereto. The Company covenants that all shares of
Common Stock that shall be so issuable shall upon issue, be duly and validly
authorized, issued and fully paid and nonassessable. Without in any way limiting
the foregoing, so long as any Debentures remain outstanding the Company agrees
to reserve and at all times keep available solely for purposes of conversion
and/or payment of principal or interest in shares of Common Stock of Debentures
such number of authorized but unissued shares of Common Stock that is set forth
in the Purchase Agreement.

     (b)  Deficiency. If the Company does not have a sufficient number of shares
of Common Stock available to satisfy the Company's obligations to a Holder of
Debentures upon receipt of a Conversion Notice or is otherwise unable to issue
such shares of Common Stock in accordance with the terms of this Agreement such
Holder shall (in addition to its rights under the Debenture) be entitled to the
rights and remedies set forth in the Registration Rights Agreement.

     10.  No Reissuance of the Debenture. No Debentures acquired by the Company
by reason of redemption, purchase, exchange or otherwise shall be reissued, and
all such Debentures shall be retired.

     11.  No Impairment. The Company shall not intentionally take any action
which would impair the rights and privileges of the Debentures set forth herein
or the Holders thereof.

     12.  Limitations on Holder's Right to Convert.

     (a)  Notwithstanding anything to the contrary contained herein, the number
of shares of Common Stock that may be acquired by the Holder upon conversion of
this Debenture pursuant to the terms hereof shall not exceed a number that, when
added to the total number of shares of Common Stock deemed beneficially owned by
such Holder (other than by virtue of the ownership of securities or rights to
acquire securities that

                                       13

<PAGE>

have limitations on the holder's right to convert, exercise or purchase similar
to the limitation set forth herein), together with all shares of Common Stock
deemed beneficially owned (other than by virtue of the ownership of securities
or rights to acquire securities that have limitations on the right to convert,
exercise or purchase similar to the limitation set forth herein) by the Holder's
"affiliates" (as defined in Rule 144 of the Act) ("Aggregation Parties") that
would be aggregated for purposes of determining whether a group under Section
13(d) of the Securities Exchange Act of 1934 as amended, exists, would exceed
9.99% of the total issued and outstanding shares of the Common Stock (the
"Restricted Ownership Percentage"). Each Holder shall have the right (i) at any
time and from time to time to reduce its Restricted Ownership Percentage
immediately upon notice to the Company and (ii) (subject to waiver) at any time
and from time to time, to increase its Restricted Ownership Percentage
immediately in the event of the announcement as pending or planned, of a Change
of Control Transaction.

     (b)  The Company's obligation to issue shares of Common Stock on conversion
which would exceed such limits referred to in this Section 12 shall be suspended
to the extent necessary until such time, if any, as shares of Common Stock may
be issued in compliance with such restrictions.

                                       14

<PAGE>

     13.  Obligations Absolute. No provision of this Debenture, the Purchase
Agreement or the Registration Rights Agreement shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest and delay payments on, this Debenture or to issue
shares of Common Stock in response to a Conversion Notice at the time, place and
rate, and in the manner, herein prescribed.

     14.  Waivers of Demand, Etc. The Company hereby expressly and irrevocably
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder.

     15.  Replacement Debenture. In the event that any Holder notifies the
Company that its Debenture(s) have been lost, stolen or destroyed, replacement
Debenture(s) identical in all respects to the original Debenture(s) (except for
registration number and Outstanding Principal Amount, if different than that
shown on the original Debenture(s)), shall be issued to the Holder, provided
that the Holder executes and delivers to the Company an agreement reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such Debenture.

     16.  Payment of Expenses; Issue Taxes. The Company agrees to pay all debts
and expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in enforcing the provisions of this Debenture and/or collecting any
amount due under this Debenture, the Purchase Agreement, any Warrant or the
Registration Rights Agreement. The Company shall pay any and all issue and other
taxes (excluding any income, franchise or similar taxes) that maybe payable in
respect of any issue or delivery of shares of Common Stock on conversion of any
Debenture pursuant hereto.

     17.  Defaults. If one or more of the following described "Events of
Default" shall occur with respect to any of the Debentures:

          (a)  the Company shall default in the payment of (i) interest on this
               Debenture or any other Debenture issued pursuant to the Purchase
               Agreement (subject to the Company's option to pay Share
               Interest), and such default shall continue for five (5) days
               after the due date thereof, or (ii) the principal of this
               Debenture or any other Debenture issued pursuant to the Purchase
               Agreement and such default shall continue for five (5) days after
               the due date thereof; or

          (b)  any of the material representations or warranties made by the
               Company in any of the Debentures, in the Purchase Agreement, the
               Registration Rights Agreement, any Warrant or in any certificate
               or financial or other statements heretofore or hereafter
               furnished by or on behalf of the Company in connection with the
               execution and delivery of this Debenture or such other documents
               shall be false or misleading at the time made; or

                                       15

<PAGE>

          (c)  the Company shall fail to materially perform or observe any
               covenant or agreement in the Purchase Agreement, any Warrant or
               the Registration Rights Agreement, or any other covenant, term,
               provision, condition, agreement or obligation of the Company
               under any of the Debentures and such failure shall continue
               uncured for a period of ten (10) days after notice of such
               failure; or

          (d)  the Company shall (1) become insolvent; (2) admit in writing its
               inability to pay its debts generally as they mature; (3) make an
               assignment for the benefit of creditors or commence proceedings
               for its dissolution; or (4) apply for or consent to the
               appointment of a trustee, liquidator or receiver for it or for a
               substantial part of its property or business; or

          (e)  a trustee, liquidator or receiver shall be appointed for the
               Company or for a substantial part of its property or business
               without its consent and shall not be discharged within forty-five
               (45) days after such appointment; or

          (f)  any governmental agency or any court of competent jurisdiction at
               the instance of any governmental agency shall assume custody or
               control of the whole or any substantial portion of the properties
               or assets of the Company and shall not be dismissed within
               forty-five (45) days thereafter; or

          (g)  bankruptcy, reorganization, insolvency or liquidation proceedings
               or other proceedings, or relief under any bankruptcy law or any
               law for the relief of debt shall be instituted by or against the
               Company and, if instituted against the Company shall not be
               dismissed within forty-five (45) days after such institution, or
               the Company shall by any action or answer approve of, consent to,
               or acquiesce in any such proceedings or admit to any material
               allegations of, or default in answering a petition filed in any
               such proceeding; or

          (h)  the Company shall be in default of any other of its indebtedness
               exceeding $500,000, and such default is not waived by the holders
               of such indebtedness or cured within any applicable grace periods
               set forth therefore, or any other event shall have occurred such
               that as a result thereof the holders thereof shall have
               accelerated or shall have the right (upon the giving of notice,
               the passage of time, or both) to accelerate such indebtedness; or

          (i)  a "going private" transaction under Rule 13e-3 promulgated
               pursuant to the Exchange Act shall have been announced; or

          (j)  a tender offer by the Company under Rule 13e-4 promulgated
               pursuant to the Exchange Act shall have been announced;

                                       16

<PAGE>

          (k)  an event of default shall exist in any other of the Company's
               indebtedness to any one or more of the Holder or other Holders of
               Debentures without further cure or grace periods being available;

then, or at any time thereafter, in the case of Events of Default arising from
the events described in paragraphs (a), (b), (c), (h) (i), (j) and (k), unless
such Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may declare
the Debenture immediately due and payable and concurrently demand payment
thereof, and the Holder may immediately, and without expiration of any period of
grace, enforce any and all of the Holder's rights and remedies provided herein
or any other rights or remedies afforded by law. In the event of Events of
Default arising from the events described in paragraphs (d), (e), (f) or (g)
above, this Debenture shall become immediately due and payable without further
action or notice. In the event that the Debenture is due and payable pursuant to
this provision, the Debenture shall be redeemed at the Premium Redemption Price
(as defined in the Registration Rights Agreement).

     18.  Savings Clause. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby, and such provision shall remain effective in
all other jurisdictions.

     19.  Entire Agreement. This Debenture and the agreements referred to in
this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof. Neither
this Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and the
Holder.

     20.  Assignment, Etc. Subject to Section 7.8 of the Purchase Agreement and
Section 2 above, the Holder (but not the Company) may without notice, transfer
or assign this Debenture or any interest herein and may mortgage, encumber or
transfer any of its rights or interest in and to this Debenture or any part
hereof and, without limitation, each assignee, transferee and mortgagee (which
may include any affiliate of the Holder) shall have the right to transfer or
assign its interest. Each such assignee, transferee and mortgagee shall have all
of the rights of the Holder under this Debenture. The Company agrees that,
subject to compliance with the Purchase Agreement, after receipt by the Company
of written notice of assignment from the Holder or from the Holder's assignee,
all principal, interest and other amounts which are then and thereafter become
due under this Debenture shall be paid to such assignee at the place of payment
designated in such notice. This Debenture shall be binding upon the Company and
its successors and affiliates and shall inure to the benefit of the Holder and
its successors and assigns.

     21.  No Waiver. No failure on the part of the Holder to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder

                                       17

<PAGE>

preclude any other or future exercise of any other right, remedy or power. Each
and every right, remedy or power hereby granted to the Holder or allowed it by
law or other agreement shall be cumulative and not exclusive of any other, and
may be exercised by the Holder from time to time.

     22.  Certificate. The Company shall, upon the written request at any time
of any Holder of Debentures, furnish or cause to be furnished to such Holder a
certificate prepared by the chief financial officer of Company setting forth any
adjustments or readjustments of the Conversion Price pursuant to this Debenture
and any right of the Holder to receive additional shares of Common Stock or any
other equity or debt security pursuant to Section 7.

     23.  Notices. The Company shall distribute to the Holders of Debentures
copies of all notices, materials, annual and quarterly reports, proxy
statements, information statements and any other documents distributed generally
to the holders of shares of Common Stock of the Company, at such times and by
such method as such documents are distributed to such holders of such Common
Stock, but shall not directly or indirectly provide material non-public
information to the Holder without such Holder's prior written consent.

     24.  Specific Enforcement. The Company agrees that irreparable damage would
occur in the event that any of the provisions of this Debenture were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the Holders of Debentures shall be entitled to swift
specific performance, injunctive relief or other equitable remedies to prevent
or cure breaches of the provisions of this Debenture and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which any of them may be entitled under agreement, at law or in equity.

     25.  Miscellaneous. Unless otherwise provided herein, any notice or other
communication to a party hereunder shall be sufficiently given if in writing and
personally delivered, facsimiled or mailed to said party by certified mail,
return receipt requested, at its address set forth herein or such other address
as either may designate for itself in such notice to the other and
communications shall be deemed to have been received when delivered personally
or, if sent by mail or facsimile, then when actually received by the party to
whom it is addressed. Whenever the sense of this Debenture requires, words in
the singular shall be deemed to include the plural and words in the plural shall
be deemed to include the singular. Paragraph headings are for convenience only
and shall not affect the meaning of this document.

     26.  GOVERNING LAW; CONSENT TO JURISDICTION. THIS DEBENTURE SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF DELAWARE APPLICABLE TO CONTRACTS TO BE EXECUTED AND PERFORMED ENTIRELY WITHIN
SUCH STATE. THE COMPANY (I) HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF DELAWARE
FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO
THIS

                                       18

<PAGE>

DEBENTURE AND (II) HEREBY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUCH SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER. THE COMPANY CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION
OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AS PROVIDED HEREIN AND
AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS
AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR LIMIT ANY RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. THE COMPANY WAIVES ALL
RIGHTS TO A TRIAL BY JURY.

                             Signature Page Follows

                                       19

<PAGE>

         In Witness Whereof, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.

                                          ALLIED RESEARCH CORPORATION

                                          By:___________________________________
                                                 Name:
                                                 Title:

     Signature page to 8% Convertible Debenture Series A of ALLIED RESEARCH
                                  CORPORATION

                                       20

<PAGE>

                                    EXHIBIT 1

                                PAYMENT STATEMENT

Date:______________

To: [Name of Holder of Debenture] ("Holder")

Re:  8% Convertible Debenture Series A ("Debenture") of ALLIED RESEARCH
CORPORATION (the "Company"), in the Outstanding Principal Amount of US
$7,500,000.

     The Company hereby irrevocably elects to pay interest on the Debenture, for
the Interest Payment Date indicated below, in the following manner (the Company
should check its selection):

     ____ cash interest; or

     ____ Share Interest.

           Interest Payment Date: _________________________

     The Company hereby irrevocably elects to pay principal on the Debenture,
for the Maturity Date indicated below, in the following manner (the Company
should check its selection):

     ____ cash principal; or

     ____ Share Principal.

           Principal Maturity Date: _________________________

     Capitalized terms used in this Payment Statement and not otherwise defined
shall have the meaning ascribed thereto in the Debenture.

<PAGE>

         IN WITNESS WHEREOF, this Payment Statement has been duly executed and
delivered on the date first written above.

                                                 ALLIED RESEARCH CORPORATION

                                                 By:____________________________
                                                    Name:
                                                    Title:

                                       22

<PAGE>

                                    EXHIBIT 2

                      (To be Executed by Registered Holder
                         in order to Convert Debenture)

                                CONVERSION NOTICE
                                       FOR
                        8% CONVERTIBLE DEBENTURE SERIES A

The undersigned, as Holder of the 8% Convertible Debenture Series A of ALLIED
RESEARCH CORPORATION (the "Company"), in the outstanding principal amount of
U.S. $7,500,000 (the "Debenture"), hereby elects to convert that portion of the
outstanding principal amount of the Debenture shown on the next page into shares
of Common Stock, $.10 par value per share (the "Common Stock"), of the Company
according to the conditions of the Debenture, as of the date written below. The
undersigned hereby requests that share certificates for the Common Stock to be
issued to the undersigned pursuant to this Conversion Notice be issued in the
name of, and delivered to, the undersigned or its designee as indicated below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto. No fee
will be charged to the Holder for any conversion, except for transfer taxes, if
any.

Conversion Information:                   NAME OF HOLDER:_______________________

                                    By:_________________________________________
                                          Print Name:
                                          Print Title:

                                          Print Address of Holder:
                                          ______________________________________

                                          ______________________________________

                                          Issue Common Stock to: _______________
                                          at: __________________________________

                                          Electronically transmit and credit
                                          Common Stock to:
                                          ________________ at: _________________

                                          ______________________________________
                                           Date of Conversion

                                          ______________________________________
                                           Applicable Conversion Rate

                THE COMPUTATION OF THE NUMBER OF COMMON SHARES TO
                  BE RECEIVED IS SET FORTH ON THE ATTACHED PAGE

<PAGE>

Page 2 to Conversion Notice for:   ____________________________________________
                                                 (Name of Holder)

              COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
<TABLE>
<S>                                                                           <C>
A.   Outstanding Principal Amount converted:                                  $_______
B.   Accrued, unpaid interest on Outstanding Principal Amount converted:      $_______
C.   Delay payments due Holder on Outstanding Principal Amount converted:     $_______

                                                                            ------------
Total dollar amount converted (total of A + B + C)                            $_______

                                                                            ============
</TABLE>

<TABLE>
<S>                                                                           <C>
Exchange Price                                                                $_______

Number of Shares of Common Stock   =    Total dollar amount converted       = $
                                        -----------------------------         --------
                                              Conversion Price                $

Number of shares of Common Stock = ___________________________
</TABLE>

If the conversion is not being settled by DTC, please issue and deliver _____
certificate(s) for shares of Common Stock in the following amount(s):

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

Please issue and deliver _____ new Debenture(s) in the following amounts:

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

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