Document:

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                                                                    Exhibit 10.1

                          SECURITIES PURCHASE AGREEMENT

                            LAURUS MASTER FUND, LTD.

                                       AND

                      FORTUNE DIVERSIFIED INDUSTRIES, INC.

                            DATED: NOVEMBER 21, 2005

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                             TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
1.    Agreement to Sell and Purchase.....................................     1

2.    Fees and Warrant...................................................     1

3.    Closing, Delivery and Payment......................................     2
      3.1     Closing....................................................     2
      3.2     Delivery...................................................     2

4.    Representations and Warranties of the Company......................     2
      4.1     Organization, Good Standing and Qualification..............     2
      4.2     Subsidiaries...............................................     3
      4.3     Capitalization; Voting Rights..............................     3
      4.4     Authorization; Binding Obligations.........................     4
      4.5     Liabilities................................................     4
      4.6     Agreements; Action.........................................     5
      4.7     Obligations to Related Parties.............................     5
      4.8     Changes....................................................     6
      4.9     Title to Properties and Assets; Liens, Etc.................     7
      4.10    Intellectual Property......................................     8
      4.11    Compliance with Other Instruments..........................     8
      4.12    Litigation.................................................     9
      4.13    Tax Returns and Payments...................................     9
      4.14    Employees..................................................     9
      4.15    Registration Rights and Voting Rights......................    10
      4.16    Compliance with Laws; Permits..............................    10
      4.17    Environmental and Safety Laws..............................    10
      4.18    Valid Offering.............................................    11
      4.19    Full Disclosure............................................    11
      4.20    Insurance..................................................    11
      4.21    SEC Reports................................................    11
      4.22    Listing....................................................    12
      4.23    No Integrated Offering.....................................    12
      4.24    Stop Transfer..............................................    12
      4.25    Dilution...................................................    12
      4.26    Patriot Act................................................    12
      4.27    ERISA......................................................    13

5.    Representations and Warranties of the Purchaser....................    13
      5.1     No Shorting................................................    13
      5.2     Requisite Power and Authority..............................    13
      5.3     Investment Representations.................................    14
      5.4     The Purchaser Bears Economic Risk..........................    14
      5.5     Acquisition for Own Account................................    14
      5.6     The Purchaser Can Protect Its Interest.....................    14
      5.7     Accredited Investor........................................    15
      5.8     Legends....................................................    15
</TABLE>

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<TABLE>
<CAPTION>
                                                                         PAGE(S)
                                                                         -------
<S>                                                                      <C>
6.    Covenants of the Company........................................      16
      6.1     Stop-Orders.............................................      16
      6.2     Listing.................................................      16
      6.3     Market Regulations......................................      16
      6.4     Reporting Requirements..................................      16
      6.5     Use of Funds............................................      17
      6.6     Access to Facilities....................................      17
      6.7     Taxes...................................................      18
      6.8     Insurance...............................................      18
      6.9     Intellectual Property...................................      18
      6.10    Properties..............................................      19
      6.11    Confidentiality.........................................      19
      6.12    Required Approvals......................................      19
      6.13    Reissuance of Securities................................      20
      6.14    Opinion.................................................      20
      6.15    Margin Stock............................................      20
      6.16    Financing Right of First Refusal........................      20

7.    Covenants of the Purchaser......................................      21
      7.1     Confidentiality.........................................      21
      7.2     Non-Public Information..................................      21
      7.3     Limitation on Acquisition of Common Stock of the
              Company.................................................      21

8.    Covenants of the Company and the Purchaser Regarding
      Indemnification.................................................      21
      8.1     Company Indemnification.................................      21
      8.2     Purchaser's Indemnification.............................      22

9.    Conversion of Convertible Note..................................      22
      9.1     Mechanics of Conversion.................................      22

10.   Registration Rights.............................................      23
      10.1    Registration Rights Granted.............................      23
      10.2    Offering Restrictions...................................      23

11.   Miscellaneous...................................................      23
      11.1    Governing Law...........................................      23
      11.2    Survival................................................      24
      11.3    Successors..............................................      25
      11.4    Entire Agreement; Maximum Interest......................      25
      11.5    Severability............................................      25
      11.6    Amendment and Waiver....................................      26
      11.7    Delays or Omissions.....................................      26
      11.8    Notices.................................................      26
      11.9    Attorneys' Fees.........................................      27
      11.10   Titles and Subtitles....................................      27
      11.11   Facsimile Signatures; Counterparts......................      27
      11.12   Broker's Fees...........................................      27
      11.13   Construction............................................      28
</TABLE>

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                                LIST OF EXHIBITS

<TABLE>
<S>                                                                    <C>
Form of Convertible Term Note.......................................   Exhibit A
Form of Warrant.....................................................   Exhibit B
Form of Opinion.....................................................   Exhibit C
Form of Escrow Agreement............................................   Exhibit D
</TABLE>

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                          SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of November 21, 2005, by and between Fortune Diversified Industries,
Inc., an Indiana corporation (the "Company"), and LAURUS MASTER FUND, LTD., a
Cayman Islands company (the "Purchaser").

                                    RECITALS

     WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of Seven Million Five
Hundred Thousand Dollars ($7,500,000) in the form of Exhibit A hereto (as
amended, modified and/or supplemented from time to time, the "Note"), which Note
is convertible into shares of the Company's common stock, $0.10 par value per
share (the "Common Stock") at an initial fixed conversion price of $5.50 per
share of Common Stock ("Fixed Conversion Price");

     WHEREAS, the Company wishes to issue to the Purchaser a warrant in the form
of Exhibit B hereto (as amended, modified and/or supplemented from time to time,
the "Warrant") to purchase up to 272,727 shares of the Company's Common Stock
(subject to adjustment as set forth therein) in connection with the Purchaser's
purchase of the Note;

     WHEREAS, the Purchaser desires to purchase the Note and the Warrant on the
terms and conditions set forth herein; and

     WHEREAS, the Company desires to issue and sell the Note and Warrant to the
Purchaser on the terms and conditions set forth herein.

                                    AGREEMENT

     NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

     1. Agreement to Sell and Purchase. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company shall sell to the Purchaser, and the Purchaser shall purchase from the
Company, the Note. The sale of the Note on the Closing Date shall be known as
the "Offering." The Note will mature on the Maturity Date (as defined in the
Note). Collectively, the Note and Warrant and Common Stock issuable upon
conversion of the Note and upon exercise of the Warrant are referred to as the
"Securities."

     2. Fees and Warrant. On the Closing Date:

          (a) The Company will issue and deliver to the Purchaser the Warrant to
     purchase up to 272,727 shares of Common Stock (subject to adjustment as set
     forth therein) in connection with the Offering, pursuant to Section 1
     hereof. All the representations, covenants, warranties, undertakings, and
     indemnification, and other

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     rights made or granted to or for the benefit of the Purchaser by the
     Company are hereby also made and granted for the benefit of the holder of
     the Warrant and shares of the Company's Common Stock issuable upon exercise
     of the Warrant (the "Warrant Shares").

          (b) Subject to the terms of Section 2(d) below, the Company shall pay
     to Laurus Capital Management, LLC, the manager of the Purchaser, a closing
     payment in an amount equal to three and one half percent (3.50%) of the
     aggregate principal amount of the Note. The foregoing fee is referred to
     herein as the "Closing Payment."

          (c) The Company shall reimburse the Purchaser for its reasonable
     expenses (including legal fees and expenses) incurred in connection with
     the preparation and negotiation of this Agreement and the Related
     Agreements (as hereinafter defined), and expenses incurred in connection
     with the Purchaser's due diligence review of the Company and its
     Subsidiaries (as defined in Section 4.2) and all related matters. Amounts
     required to be paid under this Section 2(c) will be paid on the Closing
     Date and shall be no greater than $45,000 for such expenses referred to in
     this Section 2(c).

          (d) The Closing Payment and the expenses referred to in the preceding
     clause (c) (net of deposits previously paid by the Company) shall be paid
     at closing out of funds held pursuant to the Escrow Agreement (as defined
     below) and a disbursement letter (the "Disbursement Letter").

     3. Closing, Delivery and Payment.

          3.1 Closing. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), shall take place on the
date hereof, at such time or place as the Company and the Purchaser may mutually
agree (such date is hereinafter referred to as the "Closing Date").

          3.2 Delivery. Pursuant to the Escrow Agreement, at the Closing on the
Closing Date, the Company will deliver to the Purchaser, among other things, the
Note and the Warrant and the Purchaser will deliver to the Company, among other
things, the amounts set forth in the Disbursement Letter by certified funds or
wire transfer.

     4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows

          4.1 Organization, Good Standing and Qualification. Each of the Company
and each of its Subsidiaries is a corporation, partnership or limited liability
company, as the case may be, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of the Company
and each of its Subsidiaries has the corporate, limited liability company or
partnership, as the case may be, power and authority to own and operate its
properties and assets and, insofar as it is or shall be a party thereto, to (1)
execute and deliver (i) this Agreement, (ii) the Note and the Warrant to be
issued in connection with this Agreement, (iii) the Registration Rights
Agreement relating to the Securities dated as of the date hereof between the
Company and the Purchaser (as amended, modified and/or supplemented from time to
time, the "Registration Rights Agreement"), (iv) the Escrow Agreement dated as
of the date

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hereof among the Company, the Purchaser and the escrow agent referred to
therein, substantially in the form of Exhibit D hereto (as amended, modified
and/or supplemented from time to time, the "Escrow Agreement") and (v) all other
documents, instruments and agreements entered into in connection with the
transactions contemplated hereby and thereby (the preceding clauses (ii) through
(v), collectively, the "Related Agreements"); (2) issue and sell the Note and
the shares of Common Stock (subject to AMEX listing approval) issuable upon
conversion of the Note (the "Note Shares"); (3) issue and sell the Warrant and
the Warrant Shares; and (4) carry out the provisions of this Agreement and the
Related Agreements and to carry on its business as presently conducted. Each of
the Company and each of its Subsidiaries is duly qualified and is authorized to
do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature or location of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so has not, or could not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the business,
assets, liabilities, condition (financial or otherwise), properties, operations
or prospects of the Company and its Subsidiaries, taken individually and as a
whole (a "Material Adverse Effect").

          4.2 Subsidiaries. Each direct and indirect Subsidiary of the Company,
the direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 4.2. For the purpose of this Agreement, a "Subsidiary" of any
person or entity means (i) a corporation or other entity whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time.

          4.3 Capitalization; Voting Rights.

          (a) The authorized capital stock of the Company, as of the date hereof
     consists of 101,000,000 shares, of which 100,000,000 are shares of Common
     Stock, par value $0.10 per share, 10,559,843 shares of which are issued and
     outstanding, and 1,000,000 are shares of preferred stock, par value $0.10
     per share of which no shares of preferred stock are issued and outstanding.
     The authorized, issued and outstanding capital stock of each Subsidiary of
     the Company is set forth on Schedule 4.3.

          (b) Except as disclosed on Schedule 4.3, other than: (i) the shares
     reserved for issuance under the Company's stock option plans; and (ii)
     shares which may be granted pursuant to this Agreement and the Related
     Agreements, there are no outstanding options, warrants, rights (including
     conversion or preemptive rights and rights of first refusal), proxy or
     stockholder agreements, or arrangements or agreements of any kind for the
     purchase or acquisition from the Company of any of its securities. Except
     as disclosed on Schedule 4.3, neither the offer, issuance or sale of any of
     the Note or the Warrant, or the issuance of any of the Note Shares or
     Warrant Shares, nor the consummation of any transaction contemplated hereby
     will result in a change in the price or number of any securities of the
     Company outstanding, under anti-dilution or other similar provisions
     contained in or affecting any such securities.

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          (c) All issued and outstanding shares of the Company's Common Stock:
     (i) have been duly authorized and validly issued and are fully paid and
     nonassessable; and (ii) were issued in compliance with all applicable state
     and federal laws concerning the issuance of securities.

          (d) The rights, preferences, privileges and restrictions of the shares
     of the Common Stock are as stated in the Company's Articles of
     Incorporation (the "Charter"). The Note Shares and Warrant Shares have been
     duly and validly reserved for issuance. When issued in compliance with the
     provisions of this Agreement and the Company's Charter, the Securities will
     be validly issued, fully paid and nonassessable, and will be free of any
     liens or encumbrances; provided, however, that the Securities may be
     subject to restrictions on transfer under state and/or federal securities
     laws as set forth herein or as otherwise required by such laws at the time
     a transfer is proposed.

          4.4 Authorization; Binding Obligations. All corporate, partnership or
limited liability company, as the case may be, action on the part of the Company
and each of its Subsidiaries (including their respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries hereunder
and under the other Related Agreements at the Closing and, the authorization,
sale, issuance and delivery of the Note and Warrant has been taken or will be
taken prior to the Closing. This Agreement and the Related Agreements, when
executed and delivered and to the extent it is a party thereto, will be valid
and binding obligations of each of the Company and each of its Subsidiaries,
enforceable against each such person or entity in accordance with their terms,
except:

          (a) as limited by applicable bankruptcy, insolvency, reorganization,
     moratorium or other laws of general application affecting enforcement of
     creditors' rights; and

          (b) general principles of equity that restrict the availability of
     equitable or legal remedies.

The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.

          4.5 Liabilities. Neither the Company nor any of its Subsidiaries has
any liabilities required to be disclosed on the Company's financial statements
and required to be disclosed in the Company's filings prior to the date of this
Agreement, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any of the Company's filings under the
Securities Exchange Act of 1934 ("Exchange Act") made prior to the date of this
Agreement (collectively, the "Exchange Act Filings"), copies of which have been
provided to the Purchaser.

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          4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings

          (a) The Company maintains disclosure controls and procedures
     ("Disclosure Controls") designed to ensure that information required to be
     disclosed by the Company in the reports that it files or submits under the
     Exchange Act is recorded, processed, summarized, and reported, within the
     time periods specified in the rules and forms of the Securities and
     Exchange Commission ("SEC").

          (b) The Company makes and keep books, records, and accounts, that, in
     reasonable detail, accurately and fairly reflect the transactions and
     dispositions of the Company's assets. The Company maintains internal
     control over financial reporting ("Financial Reporting Controls") designed
     by, or under the supervision of, the Company's principal executive and
     principal financial officers, and effected by the Company's board of
     directors, management, and other personnel, to provide reasonable assurance
     regarding the reliability of financial reporting and the preparation of
     financial statements for external purposes in accordance with generally
     accepted accounting principles ("GAAP"), including that:

               (i) transactions are executed in accordance with management's
          general or specific authorization;

               (ii) unauthorized acquisition, use, or disposition of the
          Company's assets that could have a material effect on the financial
          statements are prevented or timely detected;

               (iii) transactions are recorded as necessary to permit
          preparation of financial statements in accordance with GAAP, and that
          the Company's receipts and expenditures are being made only in
          accordance with authorizations of the Company's management and board
          of directors;

               (iv) transactions are recorded as necessary to maintain
          accountability for assets; and

               (v) the recorded accountability for assets is compared with the
          existing assets at reasonable intervals, and appropriate action is
          taken with respect to any differences.

          (c) There is no weakness in any of the Company's Disclosure Controls
     that is required to be disclosed in any of the Exchange Act Filings, except
     as so disclosed.

          4.7 Obligations to Related Parties. Except as set forth on Schedule
4.7, there are no obligations of the Company or any of its Subsidiaries to
officers, directors, stockholders or employees of the Company or any of its
Subsidiaries other than:

          (a) for payment of salary for services rendered and for bonus
     payments;

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          (b) reimbursement for reasonable expenses incurred on behalf of the
     Company and its Subsidiaries;

          (c) for other standard employee benefits made generally available to
     all employees (including stock option agreements outstanding under any
     stock option plan approved by the Board of Directors of the Company and
     each Subsidiary of the Company, as applicable); and

          (d) obligations listed in the Company's and each of its Subsidiary's
     financial statements or disclosed in any of the Company's Exchange Act
     Filings.

Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any of its Subsidiaries or any members of their
immediate families, are indebted to the Company or any of its Subsidiaries,
individually or in the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company or
any of its Subsidiaries is affiliated or with which the Company or any of its
Subsidiaries has a business relationship, or any firm or corporation which
competes with the Company or any of its Subsidiaries, other than passive
investments in publicly traded companies (representing less than one percent
(1%) of such company) which may compete with the Company or any of its
Subsidiaries. Except as described above, no officer, director or stockholder of
the Company or any of its Subsidiaries, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company or any of its Subsidiaries and no agreements, understandings or
proposed transactions are contemplated between the Company or any of its
Subsidiaries and any such person. Except as set forth on Schedule 4.7, neither
the Company nor any of its Subsidiaries is a guarantor or indemnitor of any
indebtedness of any other person or entity.

          4.8 Changes. Since the May 31, 2005, except as disclosed in any
Exchange Act Filing, in Schedule 4.8 or in any other Schedule to this Agreement
or to any of the Related Agreements, there has not been:

          (a) any change in the business, assets, liabilities, condition
     (financial or otherwise), properties, operations or prospects of the
     Company or any of its Subsidiaries, which individually or in the aggregate
     has had, or could reasonably be expected to have, individually or in the
     aggregate, a Material Adverse Effect;

          (b) any resignation or termination of any officer, key employee or
     group of employees of the Company or any of its Subsidiaries;

          (c) any material change, except in the ordinary course of business, in
     the contingent obligations of the Company or any of its Subsidiaries by way
     of guaranty, endorsement, indemnity, warranty or otherwise;

          (d) any damage, destruction or loss, whether or not covered by
     insurance, which has had, or could reasonably be expected to have,
     individually or in the aggregate, a Material Adverse Effect;

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          (e) any waiver by the Company or any of its Subsidiaries of a valuable
     right or of a material debt owed to it;

          (f) any direct or indirect loans made by the Company or any of its
     Subsidiaries to any stockholder, employee, officer or director of the
     Company or any of its Subsidiaries, other than advances made in the
     ordinary course of business;

          (g) any material change in any compensation arrangement or agreement
     with any employee, officer, director or stockholder of the Company or any
     of its Subsidiaries;

          (h) any declaration or payment of any dividend or other distribution
     of the assets of the Company or any of its Subsidiaries;

          (i) any labor organization activity related to the Company or any of
     its Subsidiaries;

          (j) any debt, obligation or liability incurred, assumed or guaranteed
     by the Company or any of its Subsidiaries, except those for immaterial
     amounts and for current liabilities incurred in the ordinary course of
     business;

          (k) any sale, assignment or transfer of any patents, trademarks,
     copyrights, trade secrets or other intangible assets owned by the Company
     or any of its Subsidiaries;

          (l) any change in any material agreement to which the Company or any
     of its Subsidiaries is a party or by which either the Company or any of its
     Subsidiaries is bound which either individually or in the aggregate has
     had, or could reasonably be expected to have, individually or in the
     aggregate, a Material Adverse Effect;

          (m) any other event or condition of any character that, either
     individually or in the aggregate, has had, or could reasonably be expected
     to have, individually or in the aggregate, a Material Adverse Effect; or

          (n) any arrangement or commitment by the Company or any of its
     Subsidiaries to do any of the acts described in subsection (a) through (m)
     above.

          4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 4.9, each of the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:

          (a) those resulting from taxes which have not yet become delinquent;

          (b) minor liens and encumbrances which do not materially detract from
     the value of the property subject thereto or materially impair the
     operations of the Company or any of its Subsidiaries; and

          (c) those that have otherwise arisen in the ordinary course of
     business.

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All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used the lack of which could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Except as
set forth on Schedule 4.9, the Company and its Subsidiaries are in compliance
with all material terms of each lease to which it is a party or is otherwise
bound.

          4.10 Intellectual Property.

          (a) Each of the Company and each of its Subsidiaries owns or possesses
     sufficient legal rights to all patents, trademarks, service marks, trade
     names, copyrights, trade secrets, licenses, information and other
     proprietary rights and processes necessary for its business as now
     conducted and, to the Company's knowledge, as presently proposed to be
     conducted (the "Intellectual Property"), without any known infringement of
     the rights of others. Except as set forth on Schedule 4.10(a), there are no
     outstanding options, licenses or agreements of any kind relating to the
     foregoing proprietary rights, nor is the Company or any of its Subsidiaries
     bound by or a party to any options, licenses or agreements of any kind with
     respect to the patents, trademarks, service marks, trade names, copyrights,
     trade secrets, licenses, information and other proprietary rights and
     processes of any other person or entity other than such licenses or
     agreements arising from the purchase of "off the shelf" or standard
     products.

          (b) Neither the Company nor any of its Subsidiaries has received any
     communications alleging that the Company or any of its Subsidiaries has
     violated any of the patents, trademarks, service marks, trade names,
     copyrights or trade secrets or other proprietary rights of any other person
     or entity, nor is the Company or any of its Subsidiaries aware of any basis
     therefor.

          (c) The Company does not believe it is or will be necessary to utilize
     any inventions, trade secrets or proprietary information of any of its
     employees made prior to their employment by the Company or any of its
     Subsidiaries, except for inventions, trade secrets or proprietary
     information that have been rightfully assigned to the Company or any of its
     Subsidiaries.

          4.11 Compliance with Other Instruments. Neither the Company nor any of
its Subsidiaries is in violation or default of (x) any term of its Articles or
Bylaws, or (y) any provision of any indebtedness, mortgage, indenture, contract,
agreement or instrument to which it is party or by which it is bound or of any
judgment, decree, order or writ, which violation or default, in the case of this
clause (y), has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. The execution,
delivery and performance of and compliance with this Agreement and the Related
Agreements to which it is a party, and the issuance and sale of the Note by the
Company and the other Securities by the Company each pursuant hereto and
thereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit,

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license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.

          4.12 Litigation. Except as set forth on Schedule 4.12 hereto, there is
no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to initiate.

          4.13 Tax Returns and Payments. Each of the Company and each of its
Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or any of its Subsidiaries on or before the Closing, have been paid or
will be paid prior to the time they become delinquent. Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:

          (a) that any of its returns, federal, state or other, have been or are
     being audited as of the date hereof; or

          (b) of any adjustment, deficiency, assessment or court decision in
     respect of its federal, state or other taxes.

The Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.

          4.14 Employees. Except as set forth on Schedule 4.14, neither the
Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company or any of
its Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in material violation of
any term of any employment contract, proprietary information agreement or any
other agreement relating to the right of any such individual to be employed by,
or to contract with, the Company or any of its Subsidiaries because of the
nature of the business to be conducted by the Company or any of its
Subsidiaries; and to the Company's knowledge the continued employment by the
Company and its Subsidiaries of their present employees, and the performance of
the Company's and its Subsidiaries' contracts with its

                                       9

<PAGE>

independent contractors, will not result in any such violation. Neither the
Company nor any of its Subsidiaries is aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency that would interfere with their duties to the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has received any notice alleging that any such violation has
occurred. Except for employees who have a current effective employment agreement
with the Company or any of its Subsidiaries, no employee of the Company or any
of its Subsidiaries has been granted the right to continued employment by the
Company or any of its Subsidiaries or to any material compensation following
termination of employment with the Company or any of its Subsidiaries. Except as
set forth on Schedule 4.14, the Company is not aware that any officer, key
employee or group of employees intends to terminate his, her or their employment
with the Company or any of its Subsidiaries, nor does the Company or any of its
Subsidiaries have a present intention to terminate the employment of any
officer, key employee or group of employees.

          4.15 Registration Rights and Voting Rights. Except as set forth on
Schedule 4.15 and except as disclosed in Exchange Act Filings, neither the
Company nor any of its Subsidiaries is presently under any obligation, and
neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company's or its Subsidiaries' presently outstanding
securities or any of its securities that may hereafter be issued. Except as set
forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, to the
Company's knowledge, no stockholder of the Company or any of its Subsidiaries
has entered into any agreement with respect to the voting of equity securities
of the Company or any of its Subsidiaries.

          4.16 Compliance with Laws; Permits. Neither the Company nor any of its
Subsidiaries is in violation of any provision of the Sarbanes-Oxley Act of 2002
or any SEC related regulation or rule or any rule of the Principal Market (as
hereafter defined) promulgated thereunder or any other applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
other Related Agreement and the issuance of any of the Securities, except such
as have been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner. Each
of the Company and its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.

          4.17 Environmental and Safety Laws. To the Company's knowledge,
neither the Company nor any of its Subsidiaries is in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety which violation has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect, and to its knowledge, no material expenditures are or will be required
in order to comply with any such existing statute, law or regulation. Except as
set forth on Schedule 4.17,

                                       10

<PAGE>

to the Company's knowledge, no Hazardous Materials (as defined below) are used
or have been used, stored, or disposed of by the Company or any of its
Subsidiaries or, to the Company's knowledge, by any other person or entity on
any property owned, leased or used by the Company or any of its Subsidiaries.
For the purposes of the preceding sentence, "Hazardous Materials" shall mean:

          (a) materials which are listed or otherwise defined as "hazardous" or
     "toxic" under any applicable local, state, federal and/or foreign laws and
     regulations that govern the existence and/or remedy of contamination on
     property, the protection of the environment from contamination, the control
     of hazardous wastes, or other activities involving hazardous substances,
     including building materials; or

          (b) any petroleum products or nuclear materials.

          4.18 Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of Indiana state
securities laws.

          4.19 Full Disclosure. Each of the Company and each of its Subsidiaries
has provided the Purchaser with all information requested by the Purchaser in
connection with its decision to purchase the Note and Warrant. Neither this
Agreement, the Related Agreements, or the exhibits and schedules hereto and
thereto, contain any untrue statement of a material fact nor, to the Company's
knowledge, omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading. Any financial projections and other estimates
provided to the Purchaser by the Company or any of its Subsidiaries as set forth
on Schedule 4.19 hereto were based on the Company's and its Subsidiaries'
experience in the industry and on assumptions of fact and opinion as to future
events which the Company or any of its Subsidiaries, at the date of the issuance
of such projections or estimates, believed to be reasonable.

          4.20 Insurance. Each of the Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.

          4.21 SEC Reports. Except as set forth on Schedule 4.21, the Company
has filed all proxy statements, reports and other documents required to be filed
by it under the Securities Exchange Act 1934, as amended (the "Exchange Act").
The Company has furnished the Purchaser copies of: (i) its Annual Reports on
Form 10-KSB for its fiscal years ended August 31, 2004 (including all amendments
thereto); and (ii) its Quarterly Reports on Form 10-QSB for its fiscal quarter
ended May 31, 2005, and the Form 8-K filings which it has made during the fiscal
year August 31, 2005 to date (collectively, the "SEC Reports"). Except as set
forth on Schedule 4.21, each SEC Report was, at the time of its filing, in
substantial compliance with the requirements of its respective form and none of
the SEC Reports, nor the financial

                                       11

<PAGE>

statements (and the notes thereto) included in the SEC Reports, as of their
respective filing dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

          4.22 Listing. The Company's Common Stock is listed or quoted, as
applicable, on a Principal Market (as hereafter defined) and satisfies and at
all times hereafter will satisfy, all requirements for the continuation of such
listing or quotation, as applicable. The Company has not received any notice
that its Common Stock will be delisted from, or no longer quoted on, as
applicable, the Principal Market or that its Common Stock does not meet all
requirements for such listing or quotation, as applicable. For purposes hereof,
the term "Principal Market" means the NASD Over The Counter Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Markets System, American Stock Exchange
or New York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock).

          4.23 No Integrated Offering. Neither the Company, nor any of its
Subsidiaries or affiliates, nor 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 cause the offering of
the Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.

          4.24 Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. Neither the Company nor any of its Subsidiaries will
issue any stop transfer order or other order impeding the sale and delivery of
any of the Securities at such time as the Securities are registered for public
sale or an exemption from registration is available, except as required by state
and federal securities laws.

          4.25 Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Warrant is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company. The issuance of the Common Stock is subject to the
approval of the American Stock Exchange.

          4.26 Patriot Act. The Company certifies that, to the best of Company's
knowledge, neither the Company nor any of its Subsidiaries has been designated,
nor is or shall be owned or controlled, by a "suspected terrorist" as defined in
Executive Order 13224. The Company hereby acknowledges that the Purchaser seeks
to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents,
warrants and covenants that: (i) none of the cash or property that the Company
or any of its Subsidiaries will pay or will contribute to the Purchaser has been
or shall be derived from, or related to, any activity that is deemed criminal
under United States law; and (ii) no contribution or payment by the Company or
any of its Subsidiaries to the Purchaser, to the extent that they are within the
Company's and/or its Subsidiaries' control shall cause the

                                       12

<PAGE>

Purchaser to be in violation of the United States Bank Secrecy Act, the United
States International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Company shall promptly notify the Purchaser if any of these
representations, warranties or covenants ceases to be true and accurate
regarding the Company or any of its Subsidiaries. The Company shall provide the
Purchaser all additional information regarding the Company or any of its
Subsidiaries that the Purchaser reasonably deems necessary to ensure compliance
with all applicable laws concerning money laundering and similar activities. The
Company understands and agrees that if at any time it is discovered that any of
the foregoing representations, warranties or covenants are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, the Purchaser may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of the Purchaser's investment in the Company. The
Company further understands that the Purchaser may release confidential
information about the Company and its Subsidiaries and, if applicable, any
underlying beneficial owners, to proper authorities if the Purchaser, in its
reasonable discretion, determines that it is in the best interests of the
Purchaser in light of relevant rules and regulations under the laws set forth in
subsection (ii) above.

          4.27 ERISA. Based upon the Employee Retirement Income Security Act of
1974 ("ERISA"), and the regulations and published interpretations thereunder, to
the Company's knowledge: (i) neither the Company nor any of its Subsidiaries has
engaged in any Prohibited Transactions (as defined in Section 406 of ERISA and
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"));
(ii) each of the Company and each of its Subsidiaries has met all applicable
minimum funding requirements under Section 302 of ERISA in respect of its plans;
(iii) neither the Company nor any of its Subsidiaries has any knowledge of any
event or occurrence which would cause the Pension Benefit Guaranty Corporation
to institute proceedings under Title IV of ERISA to terminate any employee
benefit plan(s); (iv) neither the Company nor any of its Subsidiaries has any
fiduciary responsibility for investments with respect to any plan existing for
the benefit of persons other than the Company's or such Subsidiary's employees;
and (v) neither the Company nor any of its Subsidiaries has withdrawn,
completely or partially, from any multi-employer pension plan so as to incur
liability under the Multiemployer Pension Plan Amendments Act of 1980.

     5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):

          5.1 No Shorting. The Purchaser or any of its affiliates and investment
partners has not, will not and will not cause any person or entity, to directly
or indirectly engage in "short sales" of the Company's Common Stock as long as
any part of the Note shall be outstanding, provided, however, for the purposes
of this Section 5.1 Purchasers practice of taking short positions against
"indexed" securities consisting of "baskets of publicly traded securities" shall
not be deemed to violate this Section 5.1.

          5.2 Requisite Power and Authority. The Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on the

                                       13

<PAGE>

Purchaser's part required for the lawful execution and delivery of this
Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of the Purchaser,
enforceable in accordance with their terms, except:

          (a) as limited by applicable bankruptcy, insolvency, reorganization,
     moratorium or other laws of general application affecting enforcement of
     creditors' rights; and

          (b) as limited by general principles of equity that restrict the
     availability of equitable and legal remedies.

          5.3 Investment Representations. The Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon the Purchaser's
representations contained in this Agreement, including, without limitation, that
the Purchaser is an "accredited investor" within the meaning of Regulation D
under the Securities Act of 1933, as amended (the "Securities Act"). The
Purchaser confirms that it has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment
decision with respect to the Note and the Warrant to be purchased by it under
this Agreement and the Note Shares and the Warrant Shares acquired by it upon
the conversion of the Note and the exercise of the Warrant, respectively. The
Purchaser further confirms that it has had an opportunity to ask questions and
receive answers from the Company regarding the Company's and its Subsidiaries'
business, management and financial affairs and the terms and conditions of the
Offering, the Note, the Warrant and the Securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.

          5.4 The Purchaser Bears Economic Risk. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. The Purchaser must bear the economic risk
of this investment until the Securities are sold pursuant to: (i) an effective
registration statement under the Securities Act; or (ii) an exemption from
registration is available with respect to such sale.

          5.5 Acquisition for Own Account. The Purchaser is acquiring the Note
and Warrant and the Note Shares and the Warrant Shares for the Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.

          5.6 The Purchaser Can Protect Its Interest. The Purchaser represents
that by reason of its, or of its management's, business and financial
experience, the Purchaser has the capacity to evaluate the merits and risks of
its investment in the Note, the Warrant and the Securities and to protect its
own interests in connection with the transactions contemplated in this Agreement
and the Related Agreements. Further, the Purchaser is aware of no publication of

                                       14

<PAGE>

any advertisement in connection with the transactions contemplated in the
Agreement or the Related Agreements.

          5.7 Accredited Investor. The Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.

          5.8 Legends.

          (a) The Note shall bear substantially the following legend:

          "THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
          HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
          OR ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
          STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
          FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
          REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT
          AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
          REASONABLY SATISFACTORY TO FORTUNE DIVERSIFIED INDUSTRIES, INC. THAT
          SUCH REGISTRATION IS NOT REQUIRED."

          (b) The Note Shares and the Warrant Shares, if not issued by DWAC
     system (as hereinafter defined), shall bear a legend which shall be in
     substantially the following form until such shares are covered by an
     effective registration statement filed with the SEC:

          "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
          UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
          SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
          PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
          STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
          OPINION OF COUNSEL REASONABLY SATISFACTORY TO FORTUNE DIVERSIFIED
          INDUSTRIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

          (c) The Warrant shall bear substantially the following legend:

          "THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
          WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
          AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
          COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
          OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
          EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
          SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
          LAWS OR AN

                                       15

<PAGE>

          OPINION OF COUNSEL REASONABLY SATISFACTORY TO FORTUNE DIVERSIFIED
          INDUSTRIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

     6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:

          6.1 Stop-Orders. The Company will advise the Purchaser, promptly after
it receives notice of issuance by the SEC, any state securities commission or
any other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock of the Company for offering or sale in
any jurisdiction, or the initiation of any proceeding for any such purpose.

          6.2 Listing. The Company shall promptly secure the listing or
quotation, as applicable, of the shares of Common Stock issuable upon conversion
of the Note and upon the exercise of the Warrant on the Principal Market upon
which shares of Common Stock are listed or quoted for trading, as applicable
(subject to official notice of issuance) and shall maintain such listing or
quotation, as applicable, so long as any other shares of Common Stock shall be
so listed or quoted, as applicable. The Company will maintain the listing or
quotation, as applicable, of its Common Stock on the Principal Market, and will
comply in all material respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable.

          6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, 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 Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.

          6.4 Reporting Requirements. The Company will deliver, or cause to be
delivered, to the Purchaser each of the following, which shall be in form and
detail acceptable to the Purchaser:

          (a) As soon as available, and in any event within ninety (90) days
     after the end of each fiscal year of the Company, each of the Company's and
     each of its Subsidiaries' audited financial statements with a report of
     independent certified public accountants of recognized standing selected by
     the Company (the "Accountants"), which annual financial statements shall be
     without qualification and shall include each of the Company's and each of
     its Subsidiaries' balance sheet as at the end of such fiscal year and the
     related statements of each of the Company's and each of its Subsidiaries'
     income, retained earnings and cash flows for the fiscal year then ended,
     prepared on a consolidating and consolidated basis to include the Company,
     each Subsidiary of the Company and each of their respective affiliates, all
     in reasonable detail and prepared in accordance with GAAP, together with a
     certificate of the Company's President, Chief Executive Officer or Chief
     Financial Officer stating that such financial statements have been prepared
     in accordance with GAAP and whether or not such officer has knowledge

                                       16

<PAGE>

     of the occurrence of any Event of Default (as defined in the Note) and, if
     so, stating in reasonable detail the facts with respect thereto;

          (b) As soon as available and in any event within forty five (45) days
     after the end of each fiscal quarter of the Company, an unaudited/internal
     balance sheet and statements of income, retained earnings and cash flows of
     the Company and each of its Subsidiaries as at the end of and for such
     quarter and for the year to date period then ended, prepared on a
     consolidating and consolidated basis to include all the Company, each
     Subsidiary of the Company and each of their respective affiliates, in
     reasonable detail and stating in comparative form the figures for the
     corresponding date and periods in the previous year, all prepared in
     accordance with GAAP, subject to year-end adjustments and accompanied by a
     certificate of the Company's President, Chief Executive Officer or Chief
     Financial Officer, stating (i) that such financial statements have been
     prepared in accordance with GAAP, subject to year-end audit adjustments,
     and (ii) whether or not such officer has knowledge of the occurrence of any
     Event of Default (as defined in the Note) not theretofore reported and
     remedied and, if so, stating in reasonable detail the facts with respect
     thereto;

          (c) The Company shall timely file with the SEC all reports required to
     be filed pursuant to the Exchange Act and refrain from terminating its
     status as an issuer required by the Exchange Act to file reports thereunder
     even if the Exchange Act or the rules or regulations thereunder would
     permit such termination. Promptly after (i) the filing thereof, copies of
     the Company's most recent registration statements and annual, quarterly,
     monthly or other regular reports which the Company files with the
     Securities and Exchange Commission (the "SEC"), and (ii) the issuance
     thereof, copies of such financial statements, reports and proxy statements
     as the Company shall send to its stockholders; and

          (d) The Company shall deliver, or cause the applicable Subsidiary of
     the Company to deliver, such other information as the Purchaser shall
     reasonably request.

          6.5 Use of Funds. The Company shall use the proceeds of the sale of
the Note and the Warrant for general working capital purposes only.

          6.6 Access to Facilities. Each of the Company and each of its
Subsidiaries will permit any representatives designated by the Purchaser (or any
successor of the Purchaser), upon reasonable notice and during normal business
hours, at such person's expense and accompanied by a representative of the
Company or any Subsidiary to:

          (a) visit and inspect any of the properties of the Company or any of
     its Subsidiaries;

          (b) examine the corporate and financial records of the Company or any
     of its Subsidiaries (unless such examination is not permitted by federal,
     state or local law or by contract) and make copies thereof or extracts
     therefrom; and

                                       17

<PAGE>

          (c) discuss the affairs, finances and accounts of the Company or any
     of its Subsidiaries with the directors, officers and independent
     accountants of the Company or any of its Subsidiaries.

Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.

          6.7 Taxes. Each of the Company and each of its Subsidiaries will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all taxes, assessments and governmental charges or levies imposed upon
the income, profits, property or business of the Company and its Subsidiaries;
provided, however, that any such tax, assessment, charge or levy need not be
paid currently if (i) the validity thereof shall currently and diligently be
contested in good faith by appropriate proceedings, (ii) such tax, assessment,
charge or levy shall have no effect on the lien priority of the Purchaser in any
property of the Company or any of its Subsidiaries and (iii) if the Company
and/or such Subsidiary shall have set aside on its books adequate reserves with
respect thereto in accordance with GAAP; and provided, further, that the Company
and its Subsidiaries will pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any lien which may
have attached as security therefor.

          6.8 Insurance. Each of the Company and its Subsidiaries will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in similar business similarly situated
as the Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. Each of the Company and
each of its Subsidiaries shall (i) keep all its insurable properties and
properties in which it has an interest insured against the hazards of fire,
flood, sprinkler leakage, those hazards covered by extended coverage insurance
and such other hazards, and for such amounts, as is customary in the case of
companies engaged in businesses similar to the Company's or the respective
Subsidiary's ; (ii) maintain a bond in such amounts as is customary in the case
of companies engaged in businesses similar to the Company's or the respective
Subsidiary's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of the
Company or any of its Subsidiaries either directly or through governmental
authority to draw upon such funds or to direct generally the disposition of such
assets; (iii) maintain public and product liability insurance against claims for
personal injury, death or property damage suffered by others; (iv) maintain all
such worker's compensation or similar insurance as may be required under the
laws of any state or jurisdiction in which the Company or the respective
Subsidiary is engaged in business;.

          6.9 Intellectual Property. Each of the Company and each of its
Subsidiaries shall use it best efforts to maintain in full force and effect its
existence, rights and franchises and

                                       18

<PAGE>

all licenses and other rights to use Intellectual Property owned or possessed by
it and reasonably deemed to be necessary to the conduct of its business.

          6.10 Properties. Each of the Company and each of its Subsidiaries will
(i) keep its properties in good repair, working order and condition, reasonable
wear and tear excepted, and from time to time make all needful and proper
repairs, renewals, replacements, additions and improvements thereto; and (ii) at
all times comply with each provision of all leases to which it is a party or
under which it occupies property, if the breach of such provisions could, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

          6.11 Confidentiality. Unless expressly agreed to by the Purchaser or
unless and until such disclosure is required by law (including, but not limited
to, applicable securities laws) or applicable regulation (and then only to the
extent of such requirement,) the Company will not, and will not permit any of
its Subsidiaries to, disclose, and will not include in any public announcement,
the name of the Purchaser. Notwithstanding the foregoing, the Company may
disclose the Purchaser's identity and the terms of this Agreement to its current
and prospective debt and equity financing sources.

          6.12 Required Approvals. (I) For so long as fifty percent (50%) of the
principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser which consent shall not be unreasonably
withheld, conditioned or delayed, shall not, and shall not permit any of its
Subsidiaries to:

          (a) (i) directly or indirectly declare or pay any dividends, other
     than dividends paid to the Company or any of its wholly-owned Subsidiaries,
     or on any preferred stock issued by the Company to Carter Fortune on or
     after the date hereof, (ii) issue any preferred stock that is manditorily
     redeemable prior to the one year anniversary of the Maturity Date (as
     defined in the Note) or (iii) redeem any of its preferred stock or other
     equity interests;

          (b) liquidate, dissolve or effect a material reorganization (it being
     understood that in no event shall the Company or any of its Subsidiaries
     dissolve, liquidate or merge with any other person or entity (unless, in
     the case of such a merger, the Company or, in the case of merger not
     involving the Company, such Subsidiary, as applicable, is the surviving
     entity);

          (c) become subject to (including, without limitation, by way of
     amendment to or modification of) any agreement or instrument which by its
     terms would (under any circumstances) restrict the Company's or any of its
     Subsidiaries, right to perform the provisions of this Agreement, any
     Related Agreement or any of the agreements contemplated hereby or thereby;

          (d) materially alter or change the scope of the business of the
     Company and its Subsidiaries taken as a whole (except through the
     acquisition of other companies completed in the ordinary course of the
     Company's business); or

          (e) (i) create, incur, assume or suffer to exist any indebtedness
     (exclusive of trade debt and debt incurred to finance the purchase of
     equipment (not in excess of five

                                       19

<PAGE>

     percent (5%) of the fair market value of the Company's and its
     Subsidiaries' assets)) whether secured or unsecured other than (x) the
     Company's obligations owed to the Purchaser, (y) indebtedness set forth on
     Schedule 6.12(e) attached hereto and made a part hereof and any
     refinancings or replacements thereof on terms (in the aggregate) no less
     favorable to the Purchaser than the indebtedness being refinanced or
     replaced, and (z) any indebtedness incurred in connection with the purchase
     of stock or assets (other than equipment) in the ordinary course of
     business (including, but not limited to, the acquisition of other
     companies), or any refinancings or replacements thereof on terms (in the
     aggregate) no less favorable to the Purchaser than the indebtedness being
     refinanced or replaced; (ii) other than in the ordinary course of business,
     cancel any indebtedness owing to it in excess of $50,000 in the aggregate
     during any 12 month period; (iii) assume, guarantee, endorse or otherwise
     become directly or contingently liable in connection with any obligations
     of any other person or entity, except the endorsement of negotiable
     instruments by the Company or any Subsidiary thereof for deposit or
     collection or similar transactions in the ordinary course of business or
     guarantees of indebtedness otherwise permitted to be outstanding pursuant
     to this clause (e);

          6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 above at such time as:

          (a) the holder thereof is permitted to dispose of such Securities
     pursuant to Rule 144(k) under the Securities Act; or

          (b) upon resale subject to an effective registration statement after
     such Securities are registered under the Securities Act.

The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the Purchaser and broker, if any.

          6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion reasonably acceptable to the Purchaser from the Company's
external legal counsel. The Company will provide, at the Company's expense, such
other legal opinions in the future as are deemed reasonably necessary by the
Purchaser (and reasonably acceptable to the Purchaser) in connection with the
conversion of the Note and exercise of the Warrant.

          6.15 Margin Stock. The Company will not permit any of the proceeds of
the Note or the Warrant to be used directly or indirectly to "purchase" or
"carry" "margin stock" or to repay indebtedness incurred to "purchase" or
"carry" "margin stock" within the respective meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect.

          6.16 Intentionally Omitted.

                                       20

<PAGE>

          6.17 Authorization and Reservation of Shares. The Company shall at all
times have authorized and reserved a sufficient number of shares of Common Stock
to provide for the conversion of the Note and exercise of the Warrants.

     7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:

          7.1 Confidentiality. The Purchaser will not disclose, and will not
include in any public announcement, the name of the Company, unless expressly
agreed to by the Company or unless and until such disclosure is required by law
or applicable regulation, and then only to the extent of such requirement.

          7.2 Non-Public Information. The Purchaser will not effect any sales in
the shares of the Company's Common Stock while in possession of material,
non-public information regarding the Company if such sales would violate
applicable securities law.

          7.3 Limitation on Acquisition of Common Stock of the Company.
Notwithstanding anything to the contrary contained in this Agreement, any
Related Agreement or any document, instrument or agreement entered into in
connection with any other transactions between the Purchaser and the Company,
the Purchaser may not acquire stock in the Company (including, without
limitation, pursuant to a contract to purchase, by exercising an option or
warrant, by converting any other security or instrument, by acquiring or
exercising any other right to acquire, shares of stock or other security
convertible into shares of stock in the Company, or otherwise, and such
contracts, options, warrants, conversion or other rights shall not be
enforceable or exercisable) to the extent such stock acquisition would cause any
interest (including any original issue discount) payable by the Company to the
Purchaser not to qualify as "portfolio interest" within the meaning of Section
881(c)(2) of the Code, by reason of Section 881(c)(3) of the Code, taking into
account the constructive ownership rules under Section 871(h)(3)(C) of the Code
(the "Stock Acquisition Limitation"). The Stock Acquisition Limitation shall
automatically become null and void without any notice to the Company upon the
earlier to occur of either (a) the Company's delivery to the Purchaser of a
Notice of Redemption (as defined in the Note) or (b) the existence of an Event
of Default (as defined in the Note) at a time when the average closing price of
the Company's common stock as reported by Bloomberg, L.P. on the Principal
Market for the immediately preceding five trading days is greater than or equal
to [150%] of the Fixed Conversion Price (as defined in the Note).

     8. Covenants of the Company and the Purchaser Regarding Indemnification.

          8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against all claims, costs, expenses, liabilities, obligations, losses or damages
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which result, arise out of or are based upon: (i) any
misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any exhibits or schedules attached hereto or thereto; or
(ii) any breach or default in performance by Company or any of its Subsidiaries
of any covenant or undertaking to be performed by Company

                                       21

<PAGE>

or any of its Subsidiaries hereunder, under any other Related Agreement or any
other agreement entered into by the Company and/or any of its Subsidiaries and
the Purchaser relating hereto or thereto.

          8.2 Purchaser's Indemnification. The Purchaser agrees to indemnify,
hold harmless, reimburse and defend the Company and each of the Company's
officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claims, costs, expenses, liabilities,
obligations, losses or damages (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which result, arise out of or are based
upon: (i) any misrepresentation by the Purchaser or breach of any warranty by
the Purchaser in this Agreement or in any exhibits or schedules attached hereto
or any Related Agreement; or (ii) any breach or default in performance by the
Purchaser of any covenant or undertaking to be performed by the Purchaser
hereunder, under any other Related Agreement or any other agreement entered into
by the Company and the Purchaser relating hereto or thereto.

     9. Conversion of Convertible Note.

          9.1 Mechanics of Conversion.

          (a) Provided the Purchaser has notified the Company of the Purchaser's
     intention to sell the Note Shares and the Note Shares are included in an
     effective registration statement or are otherwise exempt from registration
     when sold: (i) upon the conversion of the Note or part thereof, the Company
     shall, at its own cost and expense, take all necessary action (including
     the issuance of an opinion of counsel reasonably acceptable to the
     Purchaser following a request by the Purchaser) to assure that the
     Company's transfer agent shall issue shares of the Company's Common Stock
     in the name of the Purchaser (or its nominee) or such other persons as
     designated by the Purchaser in accordance with Section 9.1(b) hereof and in
     such denominations to be specified representing the number of Note Shares
     issuable upon such conversion; and (ii) the Company warrants that no
     instructions other than these instructions have been or will be given to
     the transfer agent of the Company's Common Stock (unless otherwise required
     by law) and that after the Effectiveness Date (as defined in the
     Registration Rights Agreement) the Note Shares issued will be freely
     transferable subject to the prospectus delivery requirements of the
     Securities Act, any other applicable legal requirements and the provisions
     of this Agreement, and will not contain a legend restricting the resale or
     transferability of the Note Shares.

          (b) The Purchaser will give notice of its decision to exercise its
     right to convert the Note or part thereof by telecopying or otherwise
     delivering an executed and completed notice of the number of shares to be
     converted to the Company (the "Notice of Conversion"). The Purchaser will
     not be required to surrender the Note until the Purchaser receives a credit
     to the account of the Purchaser's prime broker through the DWAC system (as
     defined below), representing the Note Shares or until the Note has been
     fully satisfied. Each date on which a Notice of Conversion is telecopied or
     delivered to the Company in accordance with the provisions hereof shall be
     deemed a "Conversion Date." Pursuant to the terms of the Notice of
     Conversion, the Company will issue instructions to the transfer agent
     accompanied by an opinion of counsel within

                                       22

<PAGE>

     three (3) business days of the date of the delivery to the Company of the
     Notice of Conversion and shall cause the transfer agent to transmit the
     certificates representing the Conversion Shares to the Holder by crediting
     the account of the Purchaser's prime broker with the Depository Trust
     Company ("DTC") through its Deposit Withdrawal Agent Commission ("DWAC")
     system within three (3) business days after receipt by the Company of the
     Notice of Conversion (the "Delivery Date").

          (c) The Company understands that a delay in the delivery of the Note
     Shares in the form required pursuant to Section 9 hereof beyond the
     Delivery Date could result in economic loss to the Purchaser. In the event
     that the Company fails to direct its transfer agent to deliver the Note
     Shares to the Purchaser via the DWAC system within the time frame set forth
     in Section 9.1(b) above and the Note Shares are not delivered to the
     Purchaser by the Delivery Date, as compensation to the Purchaser for such
     loss, the Company agrees to pay late payments to the Purchaser for late
     issuance of the Note Shares in the form required pursuant to Section 9
     hereof upon conversion of the Note in the amount equal to the greater of:
     (i) $500 per business day after the Delivery Date; or (ii) the Purchaser's
     actual damages from such delayed delivery. The Company shall pay any
     payments incurred under this Section in immediately available funds upon
     demand and, in the case of actual damages, accompanied by reasonable
     documentation of the amount of such damages. Such documentation shall show
     the number of shares of Common Stock the Purchaser is forced to purchase
     (in an open market transaction) which the Purchaser anticipated receiving
     upon such conversion, and shall be calculated as the amount by which (A)
     the Purchaser's total purchase price (including customary brokerage
     commissions, if any) for the shares of Common Stock so purchased exceeds
     (B) the aggregate principal and/or interest amount of the Note, for which
     such Conversion Notice was not timely honored.

     10. Registration Rights.

          10.1 Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to the Registration Rights
Agreement.

          10.2 Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to
as the "Excepted Issuances"), neither the Company nor any of its Subsidiaries
will, prior to the full repayment or conversion of the Note (together with all
accrued and unpaid interest and fees related thereto), (x) enter into any equity
line of credit agreement or similar agreement or (y) issue, or enter into any
agreement to issue, any securities with a variable/floating conversion and/or
pricing feature which are or could be (by conversion or registration)
free-trading securities (i.e. common stock subject to a registration statement,
commonly known as "death spirals" or "floorless" convertible securities).

     11. Miscellaneous.

          11.1 Governing Law, Jurisdiction and Waiver of Jury Trial.

                                       23

<PAGE>

          (a) THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE GOVERNED
     BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
     NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT
     REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

          (b) THE COMPANY AND THE PURCHASER HEREBY CONSENT AND AGREE THAT THE
     STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW
     YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
     DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND THE PURCHASER, ON THE
     OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE RELATED AGREEMENTS
     OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE
     OTHER RELATED AGREEMENTS; PROVIDED, THAT THE PURCHASER AND THE COMPANY
     ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
     COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
     FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE
     TO PRECLUDE THE PURCHASER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION
     IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, OR TO ENFORCE A
     JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE PURCHASER. THE COMPANY
     EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
     ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES
     ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
     IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY AND THE PURCHASER
     HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
     ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH SUMMONS,
     COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL,
     RETURN RECEIPT REQUESTED ADDRESSED TO THE COMPANY OR THE PURCHASER AT THE
     ADDRESS SET FORTH IN SECTION 11.9 AND THAT SERVICE SO MADE SHALL BE DEEMED
     COMPLETED UPON THE EARLIER OF THE COMPANY'S OR THE PURCHASER'S ACTUAL
     RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
     POSTAGE PREPAID.

          (c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
     APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
     OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES
     HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING
     BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR
     OTHERWISE BETWEEN THE PURCHASER AND/OR THE COMPANY ARISING OUT OF,
     CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
     BETWEEN THEM IN CONNECTION WITH

                                       24

<PAGE>
     THIS AGREEMENT, ANY OTHER RELATED AGREEMENT OR THE TRANSACTIONS RELATED
     HERETO OR THERETO.

          11.2 Severability. Wherever possible each provision of this Agreement
and the Related Agreements shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
or any Related Agreement shall be prohibited by or invalid or illegal under
applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity or illegality, without invalidating the remainder of
such provision or the remaining provisions thereof which shall not in any way be
affected or impaired thereby.

          11.3 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument. All indemnities set forth herein shall survive
the execution, delivery and termination of this Agreement and the Note and the
making and repayment of the obligations arising hereunder, under the Note and
under the other Related Agreements.

          11.4 Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person or entity which shall
be a holder of the Securities from time to time, other than the holders of
Common Stock which has been sold by the Purchaser pursuant to Rule 144 or an
effective registration statement. The Purchaser shall not be permitted to assign
its rights hereunder or under any Related Agreement to a competitor of the
Company unless an Event of Default (as defined in the Note) has occurred and is
continuing.

          11.5 Entire Agreement; Maximum Interest. This Agreement, the Related
Agreements, the exhibits and schedules hereto and thereto and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and no
party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein. Nothing contained in this Agreement, any Related
Agreement or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum rate permitted by applicable
law. In the event that the rate of interest or dividends required to be paid or
other charges hereunder exceed the maximum rate permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Company to the Purchaser and thus refunded to the Company.

                                       25

<PAGE>

          11.6 Amendment and Waiver.

          (a) This Agreement may be amended or modified only upon the written
     consent of the Company and the Purchaser.

          (b) The obligations of the Company and the rights of the Purchaser
     under this Agreement may be waived only with the written consent of the
     Purchaser.

          (c) The obligations of the Purchaser and the rights of the Company
     under this Agreement may be waived only with the written consent of the
     Company.

          11.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.

          11.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given:

          (a) upon personal delivery to the party to be notified;

          (b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;

          (c) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or

          (d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt.

All communications shall be sent as follows:

     If to the Company, to:   Fortune Diversified Industries, Inc.
                              6402 Corporate Drive
                              Indianapolis, IN 46278

                              Attention: Chief Financial Officer
                              Facsimile: 317-532-1376

                              with a copy to:

                                       26

<PAGE>

                              Drewry Simmons Vornehm, LLP
                              8888 Keystone Crossing, Suite 1200
                              Indianapolis, IN 46240

                              Attention: Robert J. Milford
                              Facsimile: 317-580-4855

     If to the Purchaser, to: Laurus Master Fund, Ltd.
                              c/o M&C Corporate Services Limited
                              P.O. Box 309 GT
                              Ugland House
                              George Town
                              South Church Street
                              Grand Cayman, Cayman Islands
                              Facsimile: 345-949-8080

                              with a copy to:

                              John E. Tucker, Esq.
                              825 Third Avenue 14th Floor
                              New York, NY 10022
                              Facsimile: 212-541-4434

or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.

          11.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement or any Related Agreement,
the prevailing party in such dispute shall be entitled to recover from the
losing party all fees, costs and expenses of enforcing any right of such
prevailing party under or with respect to this Agreement and/or such Related
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.

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

          11.11 Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
agreement.

          11.12 Broker's Fees. Except as set forth on Schedule 11.12 hereof,
each party hereto represents and warrants that no agent, broker, investment
banker, person or firm acting on behalf of or under the authority of such party
hereto is or will be entitled to any broker's or finder's fee or any other
commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 11.12 being untrue.

                                       27

<PAGE>

          11.13 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement or any Related Agreement to favor any party
against the other.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

                                       28

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.

COMPANY:                                PURCHASER:

FORTUNE DIVERSIFIED INDUSTRIES, INC.    LAURUS MASTER FUND, LTD.

By:                                     By:
    ---------------------------------       ------------------------------------
Name:                                   Name:
      -------------------------------         ----------------------------------
Title:                                  Title:
       ------------------------------          ---------------------------------

                                       29

<PAGE>

                                    EXHIBIT A

                            FORM OF CONVERTIBLE NOTE

                                      A-1

<PAGE>

                                    EXHIBIT B

                                 FORM OF WARRANT

                                       B-1

<PAGE>

                                    EXHIBIT C

                                 FORM OF OPINION

     1. The Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its formation and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted.

     2. Each of the Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the Related Agreements. All corporate action on the part
of the Company and each of its Subsidiaries and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder (subject to the approval of
the issuance of the stock by AMEX); and (ii) the authorization, sale, issuance
and delivery of the Securities pursuant to the Agreement and the Related
Agreements. The Note Shares and the Warrant Shares, when issued pursuant to and
in accordance with the terms of the Agreement and the Related Agreements and
upon delivery shall be validly issued and outstanding, fully paid and non
assessable.

     3. The execution, delivery and performance by each of the Company and each
of its Subsidiaries of the Agreement and the Related Agreements (to which it is
a party) and the consummation of the transactions on its part contemplated by
any thereof, will not, with or without the giving of notice or the passage of
time or both:

          (a) Violate the provisions of their respective Charter or bylaws; or

          (b) Violate any judgment, decree, order or award of any court binding
     upon the Company or any of its Subsidiaries; or

          (c) Violate any [insert jurisdictions in which counsel is qualified]
     or federal law

     4. The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of each of the Company and each of its Subsidiaries
(to the extent such entity is a party thereto), and are enforceable against each
of the Company and each of its Subsidiaries party thereto in accordance with
their respective terms, except:

          (a) as limited by applicable bankruptcy, insolvency, reorganization,
     moratorium or other laws of general application affecting enforcement of
     creditors' rights; and

          (b) general principles of equity that restrict the availability of
     equitable or legal remedies.

<PAGE>

     5. To such counsel's knowledge, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
To such counsel's knowledge, the sale of the Warrant and the subsequent exercise
of the Warrant for Warrant Shares are not subject to any preemptive rights or,
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with.

     6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's knowledge, neither the Company, nor any
of its affiliates, nor 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 and security under circumstances that would cause the offering of the
Securities pursuant to the Agreement or any Related Agreement to be integrated
with prior offerings by the Company for purposes of the Securities Act which
would prevent the Company from selling the Securities pursuant to Rule 506 under
the Securities Act, or any applicable exchange-related stockholder approval
provisions.

     7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the right of the Company or any of its Subsidiaries
to enter into this Agreement or any Related Agreement, or to consummate the
transactions contemplated thereby. To such counsel's knowledge, the Company is
not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.

                                       C-2

<PAGE>

                                    EXHIBIT D

                            FORM OF ESCROW AGREEMENT

                                       D-1<PAGE>
                                                                    Exhibit 10.2

THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FORTUNE DIVERSIFIED INDUSTRIES, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED.

                              CONVERTIBLE TERM NOTE

          FOR VALUE RECEIVED, FORTUNE DIVERSIFIED INDUSTRIES, INC., an Indiana
corporation (the "COMPANY"), promises to pay to LAURUS MASTER FUND, LTD., c/o
M&C Corporate Services Limited, P.O. Box 309 GT, Ugland House, South Church
Street, George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the
"HOLDER") or its registered assigns or successors in interest, the sum of SEVEN
MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000), together with any accrued
and unpaid interest hereon, on November __, 2008 (the "MATURITY DATE") if not
sooner paid.

          Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in that certain Securities Purchase Agreement
dated as of the date hereof by and between the Company and the Holder (as
amended, modified and/or supplemented from time to time, the "PURCHASE
AGREEMENT").

          The following terms shall apply to this Convertible Term Note (this
"NOTE"):

                                    ARTICLE I
                         CONTRACT RATE AND AMORTIZATION

          1.1 Contract Rate. Subject to Sections 4.2 and 5.10, interest payable
on the outstanding principal amount of this Note (the "PRINCIPAL AMOUNT") shall
accrue at a rate per annum equal to the "prime rate" published in The Wall
Street Journal from time to time (the "PRIME RATE"), plus three percent (3.0%)
(the "CONTRACT RATE"). The Contract Rate shall be increased or decreased as the
case may be for each increase or decrease in the Prime Rate in an amount equal
to such increase or decrease in the Prime Rate; each change to be effective as
of the day of the change in the Prime Rate. Subject to Section 1.2, the Contract
Rate shall not at any time be less than nine and one half percent (9.50%).
Interest shall be (i) calculated on the basis of a 360 day year, and (ii)
payable monthly, in arrears, commencing on January 1, 2006, on the first
business day of each consecutive calendar month thereafter through and including
the Maturity Date, and on the Maturity Date, whether by acceleration or
otherwise.

          1.2 Contract Rate Adjustments and Payments. The Contract Rate shall be
calculated on the last business day of each calendar month hereafter (other than
for increases or decreases in the Prime Rate which shall be calculated and
become effective in accordance with the terms of Section 1.1) until the Maturity
Date (each a "DETERMINATION DATE") and shall be subject to adjustment as set
forth herein. If (i) the Company shall have registered the shares of

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the Common Stock underlying the conversion of this Note and each Warrant on a
registration statement declared effective by the Securities and Exchange
Commission (the "SEC"), and (ii) the market price (the "MARKET PRICE") of the
Common Stock as reported by Bloomberg, L.P. on the Principal Market for the five
(5) trading days immediately preceding a Determination Date exceeds the then
applicable Fixed Conversion Price by at least twenty-five percent (25%), the
Contract Rate for the succeeding calendar month shall automatically be reduced
by 200 basis points (200 b.p.) (2%) for each incremental twenty-five percent
(25%) increase in the Market Price of the Common Stock above the then applicable
Fixed Conversion Price. Notwithstanding the foregoing (and anything to the
contrary contained herein), in no event shall the Contract Rate at any time be
less than zero percent (0%).

          1.3 Principal Payments. Amortizing payments of the aggregate principal
amount outstanding under this Note at any time (the "PRINCIPAL AMOUNT") shall be
made by the Company on March 1, 2006 and on the first business day of each
succeeding month thereafter through and including the Maturity Date (each, an
"AMORTIZATION DATE"). Subject to Article III below, commencing on the first
Amortization Date, the Company shall make monthly payments to the Holder on each
Repayment Date, each such payment in the amount of ($227,272.72) together with
any accrued and unpaid interest on such portion of the Principal Amount plus any
and all other unpaid amounts which are then owing under this Note, the Purchase
Agreement and/or any other Related Agreement (collectively, the "MONTHLY
AMOUNT"). Any outstanding Principal Amount together with any accrued and unpaid
interest and any and all other unpaid amounts which are then owing by the
Company to the Holder under this Note, the Purchase Agreement and/or any other
Related Agreement shall be due and payable on the Maturity Date. Notwithstanding
the foregoing, with respect to Monthly Amounts due hereunder, the Company shall
have the option upon two business days' prior written notice to Holder to
postpone payment of any twelve (12) amortizing principal payments due and
payable on any twelve Amortization Dates (each a "Postponed Principal Amount",
collectively, the "Deferred Principal Amounts"; such Deferred Principal Amounts
shall be due and payable, at the Company's option, on any subsequent
Amortization Date or on the Maturity Date.

                                   ARTICLE II
                            CONVERSION AND REDEMPTION

          2.1 Payment of Monthly Amount.

                    (a) Payment in Cash or Common Stock. If the Monthly Amount
          (or a portion of such Monthly Amount if not all of the Monthly Amount
          may be converted into shares of Common Stock pursuant to Section 3.2)
          is required to be paid in cash pursuant to Section 2.1(b), then the
          Company shall pay the Holder an amount in cash equal to 102% of the
          Monthly Amount (or such portion of such Monthly Amount to be paid in
          cash) due and owing to the Holder on the Amortization Date. If the
          Monthly Amount (or a portion of such Monthly Amount if not all of the
          Monthly Amount may be converted into shares of Common Stock pursuant
          to Section 3.2) is required to be paid in shares of Common Stock
          pursuant to Section 2.1(b), the number of such shares to be issued by
          the Company to the Holder on such Amortization Date (in respect of
          such portion of the Monthly Amount converted into shares of Common
          Stock pursuant to Section 2.1(b)), shall be the

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          number determined by dividing (i) the portion of the Monthly Amount
          converted into shares of Common Stock, by (ii) the then applicable
          Fixed Conversion Price. For purposes hereof, subject to Section 3.6
          hereof, the initial "FIXED CONVERSION PRICE" means $5.50.

                    (b) Monthly Amount Conversion Conditions. Subject to
          Sections 2.1(a), 2.2, and 3.2 hereof, the Holder shall convert into
          shares of Common Stock all or a portion of the Monthly Amount due on
          each Amortization Date if the following conditions (the "CONVERSION
          CRITERIA") are satisfied: (i) the average closing price of the Common
          Stock as reported by Bloomberg, L.P. on the Principal Market for the
          five (5) trading days immediately preceding such Amortization Date
          shall be greater than or equal to 109% of the Fixed Conversion Price
          and (ii) the amount of such conversion does not exceed twenty five
          percent (25%) of the aggregate dollar trading volume of the Common
          Stock for the period of twenty-two (22) trading days immediately
          preceding such Amortization Date. If subsection (i) of the Conversion
          Criteria is met but subsection (ii) of the Conversion Criteria is not
          met as to the entire Monthly Amount, the Holder shall convert only
          such part of the Monthly Amount that meets subsection (ii) of the
          Conversion Criteria. Any portion of the Monthly Amount due on an
          Amortization Date that the Holder has not been able to convert into
          shares of Common Stock due to the failure to meet the Conversion
          Criteria, shall be paid in cash by the Company at the rate of 102% of
          the Monthly Amount otherwise due on such Amortization Date, within
          three (3) business days of such Amortization Date.

                    (c) Additional Conversion. Subject to prior satisfaction of
          the conversion of Monthly Amounts then due and owing to Holder into
          Common Stock as set forth in Section 2.1(b) above, if (i) the average
          closing price of the Common Stock as reported by Bloomberg, L.P. on
          the Principal Market for five (5) consecutive trading days in any
          calendar month (the fifth day being called the "Trigger Date") shall
          be greater than or equal to 200% of the Fixed Conversion Price, then
          the Holder shall convert on each such Trigger Date, subject to
          Sections 2.1(a), 2.2, and 3.2 hereof, such principal amount of the
          Note as does not exceed twenty five percent (25%) of the aggregate
          dollar trading volume of the Common Stock for the period of twenty-two
          (22) trading days immediately preceding such Trigger Date less any
          amounts previously converted during such period under Section 2.1(b)
          above. No more than one (1) Trigger Date may occur in any calendar
          month.

          2.2 No Effective Registration. Notwithstanding anything to the
contrary herein, none of the Company's obligations to the Holder may be
converted into Common Stock unless (a) either (i) an effective current
Registration Statement (as defined in the Registration Rights Agreement)
covering the shares of Common Stock to be issued in connection with satisfaction
of such obligations exists or (ii) an exemption from registration for resale of
all of the Common Stock issued and issuable is available pursuant to Rule 144 of
the Securities Act and (b) no Event of Default (as hereinafter defined) exists
and is continuing, unless such Event of Default is cured within any applicable
cure period or otherwise waived in writing by the Holder.

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          2.3 Optional Redemption in Cash. The Company may prepay this Note
("OPTIONAL REDEMPTION") by paying to the Holder a sum of money equal to one
hundred thirty percent (130%) of the Principal Amount outstanding at such time
together with accrued but unpaid interest thereon and any and all other sums
due, accrued or payable to the Holder arising under this Note, the Purchase
Agreement or any other Related Agreement (the "REDEMPTION AMOUNT") outstanding
on the Redemption Payment Date (as defined below). The Company shall deliver to
the Holder a written notice of redemption (the "NOTICE OF REDEMPTION")
specifying the date for such Optional Redemption (the "REDEMPTION PAYMENT
DATE"), which date shall be seven (7) business days after the date of the Notice
of Redemption (the "REDEMPTION PERIOD"). A Notice of Redemption shall not be
effective with respect to any portion of this Note for which the Holder has
previously delivered a Notice of Conversion (as hereinafter defined) or for
conversions elected to be made by the Holder pursuant to Article III during the
Redemption Period. The Redemption Amount shall be determined as if the Holder's
conversion elections had been completed immediately prior to the date of the
Notice of Redemption. On the Redemption Payment Date, the Redemption Amount must
be paid in good funds to the Holder. In the event the Company fails to pay the
Redemption Amount on the Redemption Payment Date as set forth herein, then such
Redemption Notice will be null and void.

                                   ARTICLE III
                           HOLDER'S CONVERSION RIGHTS

          3.1 Optional Conversion. Subject to the terms set forth in this
Article III, the Holder shall have the right, but not the obligation, to convert
all or any portion of the issued and outstanding Principal Amount and/or accrued
interest and fees due and payable into fully paid and nonassessable shares of
Common Stock at the Fixed Conversion Price. The shares of Common Stock to be
issued upon such conversion are herein referred to as, the "CONVERSION SHARES."

          3.2 Conversion Limitation. Notwithstanding anything contained herein
to the contrary, the Holder shall not be entitled to convert pursuant to the
terms of this Note an amount that would be convertible into that number of
Conversion Shares which would exceed the difference between (i) 4.99% of the
issued and outstanding shares of Common Stock and (ii) the number of shares of
Common Stock beneficially owned by the Holder. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. The
Conversion Share limitation described in this Section 3.2 shall automatically
become null and void following notice to the Company upon the occurrence and
during the continuance of an Event of Default, upon 75 days prior notice to the
Company, or upon receipt by the Holder of a Notice of Redemption, except that at
no time shall the number of shares of Common Stock beneficially owned by the
Holder exceed 19.99% of the outstanding shares of Common Stock. Notwithstanding
anything contained herein to the contrary, the number of shares of Common Stock
issuable by the Company and acquirable by the Holder at a price below $update
Friday $4.95 per share pursuant to the terms of this Note, the Purchase
Agreement or any other Related Agreement, shall not exceed an aggregate of
2,108,764 shares of Common Stock (subject to appropriate adjustment for stock
splits, stock dividends, or other similar recapitalizations affecting the Common
Stock) (the "MAXIMUM COMMON STOCK ISSUANCE"), unless the issuance of Common
Stock hereunder

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<PAGE>

in excess of the Maximum Common Stock Issuance shall first be approved by the
Company's shareholders. If at any point in time and from time to time the number
of shares of Common Stock issued pursuant to the terms of this Note, the
Purchase Agreement or any other Related Agreement, together with the number of
shares of Common Stock that would then be issuable by the Company to the Holder
in the event of a conversion or exercise pursuant to the terms of this Note, the
Purchase Agreement or any other Related Agreement, would exceed the Maximum
Common Stock Issuance but for this Section 3.2, the Company shall promptly call
a shareholders meeting to solicit shareholder approval for the issuance of the
shares of Common Stock hereunder in excess of the Maximum Common Stock Issuance.
Notwithstanding anything contained herein to the contrary, the provisions of
this Section 3.2 are irrevocable and may not be waived by the Holder or the
Company.]

          3.3 Mechanics of Holder's Conversion. In the event that the Holder
elects to convert this Note into Common Stock, the Holder shall give notice of
such election by delivering an executed and completed notice of conversion in
substantially the form of Exhibit A hereto (appropriate completed) ("NOTICE OF
CONVERSION") to the Company and such Notice of Conversion shall provide a
breakdown in reasonable detail of the Principal Amount, accrued interest and
fees that are being converted. On each Conversion Date (as hereinafter defined)
and in accordance with its Notice of Conversion, the Holder shall make the
appropriate reduction to the Principal Amount, accrued interest and fees as
entered in its records and shall provide written notice thereof to the Company
within two (2) business days after the Conversion Date. Each date on which a
Notice of Conversion is delivered or telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion Date (the "CONVERSION
DATE"). Pursuant to the terms of the Notice of Conversion, the Company will
issue instructions to the transfer agent accompanied by an opinion of counsel
within three (3) business days of the date of the delivery to the Company of the
Notice of Conversion and shall cause the transfer agent to transmit the
certificates representing the Conversion Shares to the Holder by crediting the
account of the Holder's designated broker with the Depository Trust Corporation
("DTC") through its Deposit Withdrawal Agent Commission ("DWAC") system within
three (3) business days after receipt by the Company of the Notice of Conversion
(the "DELIVERY DATE"). In the case of the exercise of the conversion rights set
forth herein the conversion privilege shall be deemed to have been exercised and
the Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Company of the Notice of Conversion. The
Holder shall be treated for all purposes as the record holder of the Conversion
Shares, unless the Holder provides the Company written instructions to the
contrary.

          3.4 Late Payments. The Company understands that a delay in the
delivery of the Conversion Shares in the form required pursuant to this Article
beyond the Delivery Date could result in economic loss to the Holder. As
compensation to the Holder for such loss, in addition to all other rights and
remedies which the Holder may have under this Note, applicable law or otherwise,
the Company shall pay late payments to the Holder for any late issuance of
Conversion Shares in the form required pursuant to this Article II upon
conversion of this Note, in the amount equal to $500 per business day after the
Delivery Date. The Company shall make any payments incurred under this Section
in immediately available funds upon demand.

          3.5 Conversion Mechanics. The number of shares of Common Stock to be
issued upon each conversion of this Note shall be determined by dividing that
portion of the

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principal and interest and fees to be converted, if any, by the then applicable
Fixed Conversion Price. In the event of any conversions of a portion of the
outstanding Principal Amount pursuant to this Article III, such conversions
shall be deemed to constitute conversions of the outstanding Principal Amount
applying to Monthly Amounts for the remaining Amortization Dates in
chronological order.

          3.6 Adjustment Provisions. The Fixed Conversion Price and number and
kind of shares to be issued upon conversion determined pursuant to this Note
shall be subject to adjustment from time to time upon the occurrence of certain
events during the period that this conversion right remains outstanding, as
follows:

                    (a) Reclassification. If the Company at any time shall, by
          reclassification or otherwise, change the Common Stock into the same
          or a different number of securities of any class or classes, this
          Note, as to the unpaid Principal Amount and accrued interest thereon,
          shall thereafter be deemed to evidence the right to purchase an
          adjusted number of such securities and kind of securities as would
          have been issuable as the result of such change with respect to the
          Common Stock (i) immediately prior to or (ii) immediately after, such
          reclassification or other change at the sole election of the Holder.

                    (b) Stock Splits, Combinations and Dividends. If the shares
          of Common Stock are subdivided or combined into a greater or smaller
          number of shares of Common Stock, or if a dividend is paid on the
          Common Stock or any preferred stock issued by the Company in shares of
          Common Stock, the Fixed Conversion Price shall be proportionately
          reduced in case of subdivision of shares or stock dividend or
          proportionately increased in the case of combination of shares, in
          each such case by the ratio which the total number of shares of Common
          Stock outstanding immediately after such event bears to the total
          number of shares of Common Stock outstanding immediately prior to such
          event.

                    (c) Share Issuances. Subject to the provisions of this
          Section 3.6, if the Company shall at any time prior to the conversion
          or repayment in full of the Principal Amount issue any shares of
          Common Stock or securities convertible into Common Stock to a Person
          other than the Holder (except (i) pursuant to Sections 3.6(a) or (b)
          above; (ii) pursuant to options, warrants, or other obligations to
          issue shares outstanding on the date hereof as disclosed to the Holder
          in writing; (iii) pursuant to options that may be issued under any
          employee stock option and/or any stock bonus plan adopted by the
          Company) or (iv) pursuant to an acquisition of a company (including
          stock or assets) by the Company for a consideration per share (the
          "OFFER PRICE") less than the Fixed Conversion Price in effect at the
          time of such issuance, then the Fixed Conversion Price shall be
          immediately reset pursuant to the formula below. For purposes hereof,
          the issuance of any security of the Company convertible into or
          exercisable or exchangeable for Common Stock shall result in an
          adjustment to the Fixed Conversion Price upon the issuance of such
          securities. If the Company issues any additional shares of Common
          Stock for a consideration per share less than the then-applicable
          Fixed Conversion Price pursuant to this Section 3.6 then, and
          thereafter successively upon each such issue, the Fixed Conversion
          Price shall be

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          adjusted by multiplying the then applicable Fixed Conversion Price by
          the following fraction:

                                      A + B
                          -----------------------------
                          (A + B) + [((C - D) x B) / C]

          A = Total amount of shares convertible pursuant to this Note

          B = Actual shares sold in the offering

          C = Fixed Conversion Price

          D = Offer Price .

                    (d) Computation of Consideration. For purposes of any
          computation respecting consideration received pursuant to Section
          3.6(c) above, the following shall apply:

               (i) in the case of the issuance of shares of Common Stock for
     cash, the consideration shall be the amount of such cash, provided that in
     no case shall any deduction be made for any commissions, discounts or other
     expenses incurred by the Company for any underwriting of the issue or
     otherwise in connection therewith;

               (ii) in the case of the issuance of shares of Common Stock for a
     consideration in whole or in part other than cash, the consideration other
     than cash shall be deemed to be the fair market value thereof as determined
     in good faith by the Board of Directors of the Company (irrespective of the
     accounting treatment thereof); and

               (iii) upon any such exercise, the aggregate consideration
     received for such securities shall be deemed to be the consideration
     received by the Company for the issuance of such securities plus the
     additional minimum consideration, if any, to be received by the Company
     upon the conversion or exchange thereof (the consideration in each case to
     be determined in the same manner as provided in subsections (i) and (ii) of
     this Section 3.6(d)).

          3.7 Reservation of Shares. During the period the conversion right
exists, the Company will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Conversion Shares
upon the full conversion of this Note and the Warrant. The Company represents
that upon issuance, the Conversion Shares will be duly and validly issued, fully
paid and non-assessable. The Company agrees that its issuance of this Note shall
constitute full authority to its officers, agents, and transfer agents who are
charged with the duty of executing and issuing stock certificates to execute and
issue the necessary certificates for the Conversion Shares upon the conversion
of this Note.

          3.8 Registration Rights. The Holder has been granted registration
rights with respect to the Conversion Shares as set forth in the Registration
Rights Agreement.

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          3.9 Issuance of New Note. Upon any partial conversion of this Note, a
new Note containing the same date and provisions of this Note shall, at the
request of the Holder, be issued by the Company to the Holder for the principal
balance of this Note and interest which shall not have been converted or paid.
Subject to the provisions of Article IV of this Note, the Company shall not pay
any costs, fees or any other consideration to the Holder for the production and
issuance of a new Note.

                                   ARTICLE IV
                                EVENTS OF DEFAULT

          4.1 Events of Default. The occurrence of any of the following events
set forth in this Section 4.1 shall constitute an event of default ("EVENT OF
DEFAULT") hereunder:

                    (a) Failure to Pay. The Company fails to pay when due any
          installment of principal, interest or other fees hereon in accordance
          herewith, or the Company fails to pay any of the other Obligations
          (under and as defined in the Guaranty) when due, and, in any such
          case, such failure shall continue for a period of five (5) days
          following the date upon which any such payment was due.

                    (b) Breach of Covenant. The Company or any of its
          Subsidiaries breaches any covenant or any other term or condition of
          this Note in any material respect and such breach, if subject to cure,
          continues for a period of fifteen (15) days after the occurrence
          thereof.

                    (c) Breach of Representations and Warranties. Any
          representation, warranty or statement made or furnished by the Company
          or any of its Subsidiaries in this Note, the Purchase Agreement or any
          other Related Agreement shall at any time be false or misleading in
          any material respect on the date as of which made or deemed made.

                    (d) Default Under Other Agreements. The occurrence of any
          default in the observance or performance of any other agreement or
          condition relating to any indebtedness or contingent obligation of the
          Company or any of its Subsidiaries beyond the period of grace (if
          any), the effect of which default is to cause, or permit the holder or
          holders of such indebtedness or beneficiary or beneficiaries of such
          contingent obligation to cause, such indebtedness to become due prior
          to its stated maturity or such contingent obligation to become
          payable;

                    (e) Bankruptcy. The Company or any of its Subsidiaries shall
          (i) apply for, consent to or suffer to exist the appointment of, or
          the taking of possession by, a receiver, custodian, trustee or
          liquidator of itself or of all or a substantial part of its property,
          (ii) make a general assignment for the benefit of creditors, (iii)
          commence a voluntary case under the federal bankruptcy laws (as now or
          hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v)
          file a petition seeking to take advantage of any other law providing
          for the relief of debtors, (vi) acquiesce to, without challenge within
          twenty (20) days of the filing thereof, or

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          failure to have dismissed, within sixty (60) days, any petition filed
          against it in any involuntary case under such bankruptcy laws, or
          (vii) take any action for the purpose of effecting any of the
          foregoing;

                    (f) Judgments. Attachments or levies in excess of $200,000
          in the aggregate are made upon the Company or any of its Subsidiary's
          assets or a judgment is rendered against the Company's property
          involving a liability of more than $200,000 which shall not have been
          vacated, discharged, stayed or bonded within thirty (30) days from the
          entry thereof;

                    (g) Insolvency. The Company or any of its Subsidiaries shall
          admit in writing its inability, or be generally unable, to pay its
          debts as they become due or cease operations of its present business;

                    (h) Change of Control. A Change of Control (as defined
          below) shall occur with respect to the Company, unless Holder shall
          have expressly consented to such Change of Control in writing. A
          "Change of Control" shall mean any event or circumstance as a result
          of which (i) any "Person" or "group" (as such terms are defined in
          Sections 13(d) and 14(d) of the Exchange Act, as in effect on the date
          hereof), other than the Holder, is or becomes the "beneficial owner"
          (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act),
          directly or indirectly, of 50% or more on a fully diluted basis of the
          then outstanding voting equity interest of the Company [other than a
          "Person" or "group" that beneficially owns 50% or more of such
          outstanding voting equity interests of the Company on the date
          hereof), or (ii) the Company merges or consolidates with, or sells all
          or substantially all of its assets to, any other person or entity,
          unless the Company shall be party to a merger in which the Company
          shall be the surviving entity;

                    (i) Indictment; Proceedings. The indictment of the Company
          or any of its Subsidiaries or any executive officer of the Company or
          any of its Subsidiaries under any criminal statute, or commencement of
          criminal or civil proceeding against the Company or any of its
          Subsidiaries or any executive officer of the Company or any of its
          Subsidiaries pursuant to which statute or proceeding penalties or
          remedies sought or available include forfeiture of any of the property
          of the Company or any of its Subsidiaries;

                    (j) The Purchase Agreement and Related Agreements. (i) An
          Event of Default shall occur under and as defined in the Purchase
          Agreement or any other Related Agreement, (ii) the Company or any of
          its Subsidiaries shall breach any term or provision of the Purchase
          Agreement or any other Related Agreement in any material respect and
          such breach, if capable of cure, continues unremedied for a period of
          fifteen (15) days after the occurrence thereof;

                    (k) Stop Trade. An SEC stop trade order or Principal Market
          trading suspension of the Common Stock shall be in effect for five (5)
          consecutive days or five (5) days during a period of ten (10)
          consecutive days, excluding in all cases a suspension of all trading
          on a Principal Market, provided that the Company

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          shall not have been able to cure such trading suspension within thirty
          (30) days of the notice thereof or list the Common Stock on another
          Principal Market within sixty (60) days of such notice; or

                    (l) Failure to Deliver Common Stock or Replacement Note. The
          Company's failure to deliver Common Stock to the Holder pursuant to
          and in the form and time period required by this Note and the Purchase
          Agreement and, if such failure to deliver Common Stock shall not be
          cured within two (2) business days after the expiration of such period
          or the Company is required to issue a replacement Note to the Holder
          and the Company shall fail to deliver such replacement Note within
          seven (7) business days after the Company's receipt of a request for a
          replacement Note.

          4.2 Default Interest. Following the occurrence and during the
continuance of an Event of Default, the Company shall pay additional interest on
this Note in an amount equal to one percent (1.0%) per month, and all
outstanding obligations under this Note, the Purchase Agreement and each other
Related Agreement, including unpaid interest, shall continue to accrue interest
at such additional interest rate from the date of such Event of Default until
the date such Event of Default is cured or waived.

          4.3 Default Payment. Following the occurrence and during the
continuance of an Event of Default, the Holder, at its option, may demand
repayment in full of all obligations and liabilities owing by Company to the
Holder under this Note, the Purchase Agreement and/or any other Related
Agreement and/or may elect, in addition to all rights and remedies of the Holder
under the Purchase Agreement and the other Related Agreements and all
obligations and liabilities of the Company under the Purchase Agreement and the
other Related Agreements, to require the Company to make a Default Payment
("DEFAULT PAYMENT"). The Default Payment shall be 105% of the outstanding
principal amount of the Note, plus accrued but unpaid interest, all other fees
then remaining unpaid, and all other amounts payable hereunder. The Default
Payment shall be applied first to any fees due and payable to the Holder
pursuant to this Note, the Purchase Agreement, and/or the other Related
Agreements, then to accrued and unpaid interest due on this Note and then to the
outstanding principal balance of this Note. The Default Payment shall be due and
payable immediately on the date that the Holder has exercised its rights
pursuant to this Section 4.3.

                                    ARTICLE V
                                  MISCELLANEOUS

          5.1 Conversion Privileges. The conversion privileges set forth in
Article III shall remain in full force and effect immediately from the date
hereof until the date this Note is indefeasibly paid in full.

          5.2 Cumulative Remedies. The remedies under this Note shall be
cumulative.

          5.3 Failure or Indulgence Not Waiver. No failure or delay on the part
of the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude

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other or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing hereunder are cumulative to, and not exclusive of,
any rights or remedies otherwise available.

          5.4 Notices. Any notice herein required or permitted to be given shall
be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address provided in the Purchase Agreement executed in connection
herewith, and to the Holder at the address provided in the Purchase Agreement
for such Holder, with a copy to John E. Tucker, Esq., 825 Third Avfenue, 14th
Floor, New York, New York 10022, facsimile number (212) 541-4434, or at such
other address as the Company or the Holder may designate by ten days advance
written notice to the other parties hereto. A Notice of Conversion shall be
deemed given when made to the Company pursuant to the Purchase Agreement.

          5.5 Amendment Provision. The term "Note" and all references thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument as such successor instrument may be
amended or supplemented.

          5.6 Assignability. This Note shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement. The Company may not assign any of its
obligations under this Note without the prior written consent of the Holder, any
such purported assignment without such consent being null and void.

          5.7 Cost of Collection. In case of any Event of Default under this
Note, the Company shall pay the Holder reasonable costs of collection, including
reasonable attorneys' fees.

          5.8 Governing Law, Jurisdiction and Waiver of Jury Trial.

                    (a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND
          ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
          REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

                    (b) THE COMPANY AND THE HOLDER HEREBY CONSENT AND AGREE THAT
          THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE
          OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
          ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND THE
          HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE

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          OR ANY OF THE OTHER RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF
          OR RELATED TO THIS NOTE OR ANY OF THE RELATED AGREEMENTS; PROVIDED,
          THAT THE COMPANY AND THE HOLDER ACKNOWLEDGE THAT ANY APPEALS FROM
          THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE
          COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT
          NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE A PARTY
          FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
          JURISDICTION TO COLLECT THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR
          OTHER COURT ORDER IN FAVOR OF SUCH PARTY . THE COMPANY AND THE HOLDER
          EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY
          ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY AND THE
          HOLDER HEREBY WAIVE ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
          PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE
          COMPANY AND THE HOLDER HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS,
          COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
          AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY
          BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY OR
          THE HOLDER AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT AND THAT
          SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE
          ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
          MAILS, PROPER POSTAGE PREPAID.

                    (c) THE COMPANY AND THE HOLDER DESIRE THAT THEIR DISPUTES BE
          RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
          ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM
          AND OF ARBITRATION, THE COMPANY AND THE HOLDER HERETO WAIVE ALL RIGHTS
          TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
          ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
          THE HOLDER AND THE COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR
          INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION
          WITH THIS NOTE, ANY OTHER RELATED AGREEMENT OR THE TRANSACTIONS
          RELATED HERETO OR THERETO.

          5.9 Severability. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision of this
Note.

          5.10 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum

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permitted by applicable law. In the event that the rate of interest required to
be paid or other charges hereunder exceed the maximum rate permitted by such
law, any payments in excess of such maximum rate shall be credited against
amounts owed by the Company to the Holder and thus refunded to the Company.

          5.11 Guarantee. The obligations of the Company under this Note are
jointly and severally guaranteed by each of Messrs. John Fisbeck and Carter
Fortune the Guaranty dated as of the date hereof.

          5.12 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.

          5.13 Registered Obligation. This Note is intended to be a registered
obligation within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)
and the Company (or its agent) shall register the Note (and thereafter shall
maintain such registration) as to both principal and any stated interest.
Notwithstanding any document, instrument or agreement relating to this Note to
the contrary, transfer of this Note (or the right to any payments of principal
or stated interest thereunder) may only be effected by (i) surrender of this
Note and either the reissuance by the Company of this Note to the new holder or
the issuance by the Company of a new instrument to the new holder, or (ii)
transfer through a book entry system maintained by the Company (or its agent),
within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).

       [Balance of page intentionally left blank; signature page follows]

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          IN WITNESS WHEREOF, the Company has caused this Convertible Term Note
to be signed in its name effective as of this ___ day of November, 2005.

                                        FORTUNE DIVERSIFIED INDUSTRIES, INC.

                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------

WITNESS:

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

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                                    EXHIBIT A

                              NOTICE OF CONVERSION

        (To be executed by the Holder in order to convert all or part of
                  the Convertible Term Note into Common Stock)

[Name and Address of Company]

     The undersigned hereby converts $_________ of the principal due on [specify
applicable Repayment Date] under the Convertible Term Note dated as of November
__, 2005 (the "NOTE") issued by Fortune Diversified Industries, Inc. (the
"COMPANY") by delivery of shares of Common Stock of the Company ("SHARES") on
and subject to the conditions set forth in the Note.

1. Date of Conversion _______________________

2. Shares To Be Delivered: _______________________

                                        [HOLDER]

                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------

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