Document:

<PAGE>

[LETTERHEAD OF [Parsons Infrastructure & Technology Group Inc.]]

                                                                     POG #24058

May 1, 2003

Perma-Fix of Dayton, Inc.
300 S. West End Avenue
Dayton, Oh 45427

Attention: Mr. Larry McNamara

Subject:   Newport Chemical Agent Disposal Facility (NECDF)
           Subcontract #742168-40069
           Treatability Studies and Transport, Storage, Disposal
           Facility (TSDF) Subcontract Documents

Dear Mr. McNamara;

Transmitted herewith is a copy of the fully executed bilateral Subcontract
Document for your records. Please initial and date the completion date
correction, on the Subcontract Face Sheet upper right corner and complete the
information as requested in the box located directly above the Parsons signature
block regarding, Individual, Partnership, Incorporated in the State of ?.

Please return a copy of the Subcontract Face Sheet with the above information as
corrected/provided.

Please call me at (765) 245-5984 should you have questions concerning the above.

Regards,

PARSONS

/s/ Mel Mitchell
------------------------------
Mel Mitchell
Sr. Subcontract Administrator

<PAGE>

                                      INDEX

                         SUBCONTRACT NUMBER 742168-40069

           TREATABILITY STUDIES, PUBLIC OUTREACH, TRANSPORT, STORAGE,
                     TREATMENT AND DISPOSAL FACILITY (TSDF)
                       THIRTY PERCENT (30%) PARTICIPATION
                                     (NECDF)

TAB

Subcontract: - Executed Subcontract Face Sheet
a. Section 0   - Statement of Work
b. Section 0   - Statement of Work Attachment 0.1 Material Safety Data Sheet
                 MSDS.
c. Section 0   - Statement of Work Attachment 0.2 Supplemental Property Data
d. Section 0   - Statement of Work Attachment 0.3 Hydrolysate Pretreatment
                 Studies and Experience.
e. Section 0   - Statement of Work Attachment #1 Measurement of Success for
                 Treatability Studies
f. Section 0   - Attachment #2 Protocol For Treatability Studies
g. Section I   - Deliverable Items List
h. Section III - Supplier Data Requirements
i. Section IV  - Compensation and Payment
j. Section IV  - Compensation and Payment Attachment #1 Cost Details for Public
                 Outreach
k. Section IV  - Compensation and Payment Attachment #2 Final Release
                 Certification
1. Section V   - Special Provisions
m. Section V   - Special Provisions Attachment #1 Parent Company Guarantee
n. Section V   - Special Provisions Attachment #2 Documents Incorporated by
                 Reference and Termination Clause for Treatability Studies
o. Section V   - Special Provisions Attachment #3 Cell Phone Use on NECDF
                 Depot
p. Section V   - Special Provisions Attachment #4 Patents and Intellectual
                 Property Ownership Identification
q. Section V   - Special Provisions Exhibit I to Section V, Rev 0
r. Section V   - Special Provisions Exhibit 1 to Section V, Rev 0 Attachment #1
                 Additional FAR Clause
s. Section V   - Special Provisions Exhibit 2 to Section V, Rev 0 RFI/RFD
                 Request Form
t. Section VI  - General Provisions Standard Subcontract

<PAGE>

<TABLE>
<S>                                                                                                   <C>
                                                                                                      ==============================
Parsons                                                 SUBCONTRACT                                   PLEASE INCLUDE THE SUBCONTRACT
Infrastructure & Technology Group Inc.                                                                NUMBER ON ALL CORRESPONDENCE
                                                                                                      ------------------------------
                                                                                                      SUBCONTRACT NO.      AMEND
                                                                                                       742168 40069          0
                                                                                                      ==============================

------------------------------------------------------------------------------------------------------------------------------------
                                                                  Client: US Army, Industrial Operation
------------------------------------------------------------------------------------------------------------------------------------
   SUBCONTRACTOR NAME AND ADDRESS
                                                                     REQUISITION NO.    : 40069                           REV: 0
   PERMA-FIX OF DAYTON, INC.
   300 S. WEST END AVENUE                                            AMENDMENT DATE     : 01-28-03
                                                                     EFFECTIVE DATE     : 12-21-02
   DAYTON, OH 45427                                                  COMPLETION DATE    : 07-01-04
                                                                     TYPE OF S/C        : Fixed Price/Fixed Unit Price
   ATTN: Tom Trebonik                                                PRIME CONTRACT NO. : DAAA09-99-C-0016
   PHONE: 937-268-6501
   FAX NO: 937-268-9059                                              PRIORITY RATING    : N/A

   SUBCONTRACTOR CODE: W6359                                         PREVIOUS TOTAL AMOUNT:                        $         0.00
   CLIENT SUBCONTRACTOR CODE:                                        INCREASE / DECREASE:                          $         0.00
   SMALL NON-DISADVANTAGED BUSINESS                                  NEW TOTAL AMOUNT:                             $10,106,335.00
                                                                     ORDER NOT TO EXCEED:                          $10,106,335.00
   JOBSTTE :                                                         ALL AMOUNTS IN: U.S. Dollars
   CONFIRMING NOTICE TO PROCEED DATED 12-21-02                            PAY TERMS: SEE NOTES
                     TO Perma-Fix or Dayton, Inc.
------------------------------------------------------------------------------------------------------------------------------------
THIS SUBCONTRACT IS ENTERED INTO BY AND BETWEEN PARSONS INFRASTRUCTURE & TECHNOLOGY GROUP INC. (HEREINAFTER CALLED THE
"CONTRACTOR"), A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF NEVADA AND THE INDIVIDUAL, PARTNERSHIP, OR
CORPORATION (HEREINAFTER CALLED THE "SUBCONTRACTOR"). THE PARTIES HEREBY AGREE AS FOLLOWS:

     THE SUBCONTRACTOR SHALL FURNISH ALL LABOR, EQUIPMENT AND MATERIAL AND PERFORM ALL SERVICES SET FORTH IN THE STATEMENT OF WORK
     AND ALL OTHER SECTIONS DESIGNATED IN THE TABLE OF CONTENTS BELOW.

------------------------------------------------------------------------------------------------------------------------------------
                                                           TABLE OF CONTENTS
                                            THIS SUBCONTRACT CONTAINS THE FOLLOWING SECTIONS
------------------------------------------------------------------------------------------------------------------------------------
 SECTION                                                           SECTION
----------                 DESCRIPTION OF SECTION                 ----------                 DESCRIPTION OF SECTION
NO.   REV.                                                        NO.   REV.
------------------------------------------------------------------------------------------------------------------------------------
0       0    Statement of Work                                     VI     0        General Provisions
I       0    Deliverable Items List
III     0    Subcontractor Data Requirements
IV      1    Compensation and Payment
V       1    Special Provisions

------------------------------------------------------------------------------------------------------------------------------------
 REFER ALL QUESTIONS AND CORRESPONDENCE TO:                                     INVOICING INSTRUCTIONS:
                                                                                   MAIL INVOICES TO : (IN QUADRUPLICATE)
   PROJECT NO. 742168          LOCATION Newport, IN                                   PARSONS INFRASTRUCTURE & TECHNOLOGY GROUP
                                                                                      Highway 63 South
      ATTENTION OF: Melvyn Mitchell                                                   Post Office Box 519
                         SUBCONTRACT ADMINISTRATOR                                    Newport, IN 47966

   TELEPHONE: (765) 245-5984   FAX: (765) 245-5833                                    ATTN: Melvyn Mitchell, Subcontracts Depart

------------------------------------------------------------------------------------------------------------------------------------
 CHECK APPROPRIATE BOX:        NOTE: IF, SUBCONTRATOR IS A CORPORAION, THE FOLLOWING CERTIFICATION MUST BE COMPLETED IN FULL.

  [_] INDIVIDUAL
                               I _________________________________________________________, CERTIFY THAT I AM SECRETARY OF THE
  [_] PARTNERSHIP              CORPORATION NAMED AS THE SUBCONTRACTOR HEREIN, THAT ___________________________________ WHO
                               SIGNED THIS SUBCONTRACT ON BEHALF OF THE SUBCONTRACTOR WAS THEN _________________________ OF
  [_] INCORPORATED IN THE      SAID CORPORATION, THAT SAID SUBCONTRACT WAS DULY SIGNED FOR AND ON BEHALF OF SAID CORPORATION BY
      STATE OF:                AUTHORITY OF ITS GOVERNING BODY, AND IS WITHIN THE SCOPE OF ITS CORPORATE POWERS.
 ____________________________

------------------------------------------------------------------------------------------------------------------------------------
         IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS SUBCONTRACT AS OF THE DATE SHOWN BELOW:
         THE EFFECTIVE DATE OF THIS SUBCONTRACT REMAINS AS ENTERED ABOVE.

                   Parsons Infrastructure & Technology Group Inc.                             SUBCONTRACTOR

          John A. Scott                                            By        Larry McNamara
----------------------------------------------------------------      -------------------------------------------------------------
                          PLEASE PRINT                                                      PLEASE PRINT

SIGNATURE /s/ John A. Scott                                        SIGNATURE /s/ Larry McNamara
          ------------------------------------------------------             ------------------------------------------------------

TITLE President                                                    TITLE President, Nuclear Services, Div

DATE  4/25/2003                                                    DATE  2/24/03

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                    Section 0

                                Statement of Work

<PAGE>

[GRAPHIC]                                                       [LOGO]

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

U.S. Army Corps                                  Product Manager for Alternative
of Engineers                                         Technologies and Approaches
Engineering and Support Center, Huntsville           Aberdeen Proving Ground, MD

                    Newport Chemical Agent Disposal Facility

                                    Section 0
                                Statement of Work
                                       for
                   Treatment Storage Disposal Facility (TSDF)
                           Subcontract # 742168-40069

                                 prepared under
                           Contract DAAA 09-99-C-0016

                                     [LOGO]

                                  July 26, 2002

<PAGE>

                                    Section 0

                                Statement of Work

1.0 PROJECT DESCRIPTION

Parsons Infrastructure and Technology Group Inc (CONTRACTOR) is acting under
Prime Contract (DAAA09-C-0016) to the US Army Operations Support Command as the
Systems Contractor responsible for design, construction and operation of the
Newport Chemical Agent Disposal Facility (NECDF) located at the Newport Chemical
Depot (NECD) in Newport, IN. The NECDF is being developed for
destruction/demilitarization of chemical nerve agent (VX) stored at the NECD as
required to satisfy the provisions of the Chemical Weapons Convention (CWC)
Treaty, Article IV and Part IV(A) of the Verification Annex. Project plans call
for destruction of the agent by caustic neutralization at the NECDF, followed by
transport and disposal of the resulting, hazardous, hydrolysate waste by an
appropriately licensed and capable Transporter and Treatment, Storage and
Disposal Facility (TSDF).

2.0 SUBCONTRACT DESCRIPTION

This subcontract defines the terms and conditions for Transporter/TSDF
(SUBCONTRACTOR) support to the Contractor associated with transport and disposal
of NECDF hydrolysate wastes. The Subcontractor shall comply with all sections of
the subcontract. Technical requirements for Subcontractor work are defined in
this Section 0, Statement of Work (SOW). The SOW not only defines technical
requirements for Subcontractor work but also requirements for technical content
of the Subcontractor's Proposal. The Subcontractor's Proposal will further
detail Subcontractor work plans and work requirements, and will be incorporated
into the subcontract upon award.

3.0 WORK DESCRIPTION

In performing work, the Subcontractor shall satisfy all requirements of the
subcontract including the specific work descriptions of this subcontract
section. In providing requested plans and information, the Subcontractor is to
demonstrate an understanding of the risks involved and the procedures necessary
to place the highest priority on the protection of human health and the
environment.

3.1 Waste Transport

Details of Subcontractor requirements related to waste transport are as provided
in the Subcontractor's Proposal. The Subcontractor's Proposal shall satisfy, and
provide documentation of satisfaction of, minimum content and transport
requirements as follow:

<PAGE>

a.   Hydrolysate waste to be transported is as defined in the Attachment 0.1
     Material Safety Data Sheet (MSDS) and Attachment 0.2 Supplemental Property
     Data.

b.   The Subcontractor shall provide transport services for, nominally, 7000
     gal/day of hydrolysate waste throughout the NECDF period of operation as
     defined in SOW Section 6.0, Period of Performance.

c.   Transport services shall be available seven (7) days/week as necessary to
     support NECDF operating schedules.

d.   The Subcontractor's Proposal shall provide plans for transport logistics
     and details including considerations such as vehicle and driver, pickup and
     delivery, security, travel and layover, flushing and decontamination
     requirements and definitions. The Subcontractor shall provide plan updates
     to, and plan implementation and transport performance shall be subject to
     audit by, the Contractor throughout the subcontract period of performance.
     Contractor audits may be performed on-site at the Subcontractor's
     facilities.

e.   Transport services may be either Subcontractor-owned or Subcontractor
     subcontracted as specifically defined in Subcontractor's Proposal.

f.   Transport shall be by dedicated tankers used exclusively for
     NECDF-hydrolysate transport throughout the period of program work.

g.   Transport services shall be performed in compliance with all applicable
     regulations, and vehicles and drivers appropriately licensed and permitted
     for hydrolysate waste transport. The Subcontractor's Proposal shall
     identify all applicable regulations and certifications and include evidence
     of Subcontractor compliance. Such evidence shall include licensing and
     other documentation applicable to all states through which hydrolysate is
     to be transported.

h.   The Subcontractor shall be solely responsible for cleanup and reporting of
     any spills occurring during provisions of transport services whether such
     incidents occur at the NECD site, in transport, or at the receiving TSDF
     site. The Subcontractor's Proposal shall include plan details for spill
     response, remediation and reporting.

3.2 Waste Treatment/Disposal

Details of Subcontractor requirements related to waste treatment/disposal are as
provided in the Subcontractor's Proposal. The Subcontractor's Proposal shall
satisfy, and provide documentation of satisfaction of, minimum
treatment/disposal and content requirements as follow:

a.   Hydrolysate waste to be treated/disposed is as defined in the Attachment
     0.1 Material Safety Data Sheet (MSDS) and Attachment 0.2 Supplemental
     Property Data.

b.   The Subcontractor shall provide necessary pretreatment and primary
     treatment services for, nominally, 7000 gal/day of hydrolysate waste
     throughout the NECDF period of operation as defined in SOW Section 6.0,
     Period of Performance.

c.   All necessary pretreatment and primary treatment operations shall be
     performed at the Subcontractor's TSDF site.

d.   Any required operations associated with hydrolysate waste
     treatment/disposal to be performed off-site from the Subcontractor's
     facilities shall be specifically defined in the Subcontractor's Proposal.

e.   The Subcontractor's Proposal shall define all proposed activities and
     operations associated with pretreatment of waste necessary prior to primary
     treatment, including process

<PAGE>

     development activities. SOW Attachment 0.3 Hydrolysate Pretreatment Studies
     and Experience summarizes Contractor experience relating to hydrolysate
     pretreatment. The Subcontractor's pretreatment plan shall include specific
     pretreatment assumptions, including definition of chemical additives and
     quantities, made in preparation of the Proposal.

f.   The Subcontractor shall have suitable bulk-storage capacity available
     on-site at the TSDF to allow continued receipt of NECDF hydrolysate waste
     in the event of any disruption of Subcontractor pre- or primary treatment
     operations.

g.   The Subcontractor's Proposal shall include an operations plan describing
     equipment and operations involved in storage and processing of hydrolysate
     waste. The plan shall address both normal and abnormal operating scenarios.
     The plan shall include equipment capacities, processing flow rates,
     processing additions, processing conditions, etc. The plan shall define
     anticipated outages and operations during such outages. The plan shall
     define days of storage available and include any contingency plans for
     outages exceeding available storage capabilities. The plan shall include
     definition of secondary wastes resulting from hydrolysate processing and
     the further handling/treatment of such wastes. The plan shall estimate the
     impact on effluents and emissions from the TSDF resulting from hydrolysate
     processing and relate those impacts to permitted conditions. The
     Subcontractor shall provide plan updates to, and plan implementation and
     treatment/disposal performance shall be subject to audit by, the Contractor
     throughout the subcontract period of performance. Contractor audits may be
     performed on-site at the Subcontractor's facilities.

h.   The Subcontractor shall submit with or prior to invoices for
     treatment/disposal services a copy of the NECDF-originated manifests and
     appropriate certifications of disposal/destruction (CODs) associated with
     the manifested and invoiced material.

i.   All tankage used for pretreatment and/or staging prior to primary treatment
     to support normal operations shall be dedicated to NECDF-hydrolysate
     service throughout the period of program work. Also preferable that tankage
     used to provide additional capacity during periods of abnormal operations
     be dedicated to NECDF hydrolysate service. Even during periods of abnormal
     operations, NECDF hydrolysate shall not be mixed with other
     Subcontractor-stored wastes.

j.   All treatment, storage and disposal facilities utilized for hydrolysate
     processing shall be appropriately licensed and permitted and all work
     performed in full compliance with applicable permits and regulations. The
     Subcontractor's Proposal shall identify all applicable regulations and
     certifications and include evidence of Subcontractor compliance.

k.   The Subcontractor shall be solely responsible for cleanup and reporting of
     any spills occurring during treatment, storage and disposal operations. The
     Subcontractor's Proposal shall include plan details for spill response,
     remediation and reporting.

3.3 Public Outreach Support

Detailed Subcontractor requirements for public outreach shall be indicated in an
outreach plan submitted with the Subcontractor's Proposal. Minimum outreach and
related requirements to be addressed in the plan are as follow:

a.   Subcontractor outreach plans shall indicate that outreach responsibility is
     principally that of the Subcontractor, with support from the Contractor and
     Government, for outreach activities

<PAGE>

     in the transport-route and TSDF areas. The Subcontractor shall act as the
     primary spokesman for subcontract work at public sessions or in response to
     written or media inquiries. The outreach plan shall indicate a specific
     point of contact for Subcontractor outreach activities.

b.   The Contractor and Government shall retain primary responsibility for
     outreach in the Newport community. The Subcontractor shall support, as
     requested, Contractor and Government personnel in their Newport-area
     outreach activities.

c.   Subcontractor outreach plans shall acknowledge Contractor and Government
     outreach involvement and include descriptions of interfaces, roles and
     responsibilities.

d.   Subcontractor outreach plans shall include monitoring, and reviewing with
     Contractor and Government personnel, transport-route and TSDF-community
     media and information sources for local sentiments and concerns.

e    Subcontractor outreach plans shall include an early/initial subcontract
     activity involving public and government notifications and public sessions
     intended to establish a measure of public acceptance for planned
     hydrolysate transport and disposal work.

Completion of subcontract work may be contingent upon the establishment and
maintenance of public acceptance throughout the subcontract period of
performance.

3.4 Treaty/Inspection Support

The Subcontractor's Proposal shall indicate intent to support CWC
Treaty-verification inspectors from the Organization for the Prohibition of
Chemical Weapons (OPCW) on-site at the Subcontractor's facilities as determined
necessary and appropriate by the Government. The extent of OPCW-inspector
presence at the Subcontractor's site could range from periodic one-day
inspections to full-time inspector coverage throughout the Subcontractor's
hydrolysate-processing period of performance. OPCW-inspection requirements are
not expected to be established until Nov 02. Once established, related and
appropriate modifications to the subcontract may be requested by the
Subcontractor in accordance with the Changes clause of the subcontract General
Conditions.

3.5 Management Support

The Subcontractor's Proposal shall include specific definition of the
Subcontractor's team proposed for performance of program work Particular related
requirements are as follow:

a.   The Subcontractor's team shall include, at a minimum, a Program Manager,
     having overall program responsibility and authority, and defined
     representatives for transportation, processing, safety, quality, outreach,
     and contract administration. Approximate level-of-effort (ie, percent
     full-time equivalent) assumed in the Proposal shall be indicated and,
     depending on level-of-effort, a single representative may serve in multiple
     positions. The Proposal shall include a definition of roles and
     responsibilities for each defined position.

b.   The Subcontractor's team shall include a Waste Coordinator, knowledgeable
     in both waste transport and processing activities, to be located on-site at
     NECDF 30 days prior to and throughout the duration of hydrolysate transport
     and processing activities. The Waste

<PAGE>

     Coordinator shall support waste transport and processing logistics,
     assurance of satisfaction of transport-related requirements and
     certifications, preparation and maintenance of waste-related documentation,
     NECDF-site contact with the Subcontractor's team, et al considerations as
     defined in the Subcontractor's Proposal. Facilities to support the Waste
     Coordinator shall be provided by the Subcontractor.

c.   The Subcontractor's Program Manager shall immediately notify the
     Contractor's Subcontract Administrator of any conditions potentially
     detrimental to subcontract work (eg, public outreach/acceptance issues,
     safety incidents, operational problems, regulatory issues, etc).

d.   The Subcontractor's Program Manager shall submit, no later than the final
     workday of each month, a monthly report to the Contractor's Subcontract
     Administrator. The report shall summarize activities (transport and
     processing details and accounting, outreach, et al), plans and status for
     the past month and include plans for the upcoming month.

e.   The Subcontractor's Proposal shall include resume-type, experience and
     qualification information of all identified team participants.

f.   The Proposal shall include an organization chart depicting the program-team
     organization as well as its interrelationship with the Subcontractor's
     facility organization.

4.0 REQUIRED SUPPORTING CERTIFICATIONS AND PROGRAMS

4.1 Permits and Certifications

The Subcontractor shall identify all required permits and certifications
necessary for performance of program work in the Proposal and provide evidence
as appropriate of possession of those necessary permits and certifications. The
Subcontractor shall provide updates to permits and certifications, as well as
notifications of violations to permits and certifications, as program work
proceeds. Permit and certification status and compliance shall be subject to
audit by the Contractor throughout the subcontract period of performance.
Contractor audits may be performed on-site at the Subcontractor's facilities.

4.2 Health and Safety

The Subcontractor shall have a commitment to the health and safety of it's
employees and an established Health and Safety Program consistent, at least,
with hazardous waste industry standards and appropriate for addressing both
program waste transport and waste processing health and safety concerns. The
Subcontractor shall submit for review with the Proposal the Health and Safety
Program description. The Subcontractor shall provide program updates to, and
program implementation shall be subject to audit by, the Contractor throughout
the subcontract period of performance. Contractor audits may be performed
on-site at the Subcontractor's facilities.

The Subcontractor's Proposal shall provide information pertinent to the
Subcontractor's safety commitment and history. More specifically, if the
Subcontractor has been in existence for more than three years, the Subcontractor
shall submit their worker compensation Experience Modification Rating (EMR),
Recordable Incident Rate (RIR) and Lost Workday Incident Rate

<PAGE>

(LWDIR) for each of the last three years (1999, 2000 and 2001) for both
hazardous-waste transport and waste processing work, providing explanation of
any anomalies. Safety performance shall be cited and compared against these
recognized, relevant industry standards for comparable hazardous-waste work.

The Subcontractor shall prepare a NECDF-Site Safety Plan and submit for
Contractor approval prior to commencing any NECDF-site work. The Plan shall
address Subcontractor activities and safety plans and requirements for
Subcontractor work to be performed, specifically, at the NECDF site. The Plan
shall include applicable NECDF-site safety requirements. Plan revisions and
updates shall be provided to, and plan implementation shall be subject to audit
by, the Contractor throughout the subcontract period of performance.

4.3 Quality.

The Subcontractor shall have a commitment to quality and an established Quality
Assurance Program consistent, at least, with hazardous waste industry standards
and appropriate for addressing program quality concerns. The Subcontractor shall
submit for review with the Proposal the quality-program description. The
Subcontractor shall provide program updates to, and program implementation shall
be subject to audit by, the Contractor throughout the subcontract period of
performance. Contractor audits may be performed on-site at the Subcontractor's
facilities.

5.0 CONTRACTOR RESPONSIBILITIES.

Particular Contractor responsibilities pertinent to Subcontractor work are as
follow:

a.   The Contractor, working with Government counterparts, will maintain primary
     responsibility for public outreach efforts in the Newport area. On
     occasions, the Contractor may request outreach support from the
     Subcontractor to help address program work activities.

b.   The Contractor will provide hydrolysate samples sufficient for TSDF
     acceptance testing and any required process development and demonstration
     testing.

c.   The Contractor will provide details of pretreatment studies (see Attachment
     0.3) data to Subcontractor requiring hydrolysate pretreatment prior to
     TSDF primary treatment.

d.   The Contractor will provide NECDF-site safety training, plans and
     requirements pertinent to preparation of the Subcontractor's NECDF-Site
     Safety Plan (see Section 4.2) and performance of work at the NECDF site.

e.   The Contractor will provide waste property certification prior to transfer
     of hydrolysate to Subcontractor's transport vehicles. In particular,
     Contractor will confirm that hydrolysate VX concentration is non-detect at
     the method detection limit (MDL).

f.   The Contractor will provide waste manifests prior to transfer of
     hydrolysate to Subcontractor's transport vehicles, including, in
     particular, waste quantity (ie, volume).

g.   The Contractor will provide a complete transfer station appropriate for
     transfer of hydrolysate waste from the NECDF waste holding tanks to the
     Subcontractor's transport

<PAGE>

     tankers. The transfer station will have the capability of transferring
     hydrolysate to the Subcontractor's transport tankers at a rate of up to 70
     gallons/minute.

6.0 PERIOD OF PERFORMANCE

The term of this subcontract shall commence with contract award and a notice to
proceed and extend through completion of hydrolysate processing. Initial public
outreach activities to confirm public acceptance will commence immediately with
notice to proceed. Actual hydrolysate transport and disposal operations are
scheduled to begin as early as July 2003 and extend into early 2004, depending
on NECDF agent-processing and hydrolysate-production performance.

<PAGE>

ATTACHMENT 0.1 - Material Safety Data Sheet (MSDS)

Note: Provided below is the latest available VX/NaOH Hydrolysate MSDS.
Information provided remains generally appropriate for currently planned NECDF
hydrolysate waste. Updates, however, are anticipated and will be provided as
they become available

             [GRAPHIC] MATERIAL SAFETY DATA SHEET [GRAPHIC]

================================================================================

REVISED: 25 February 1999
ORIGINAL DATE: 21 March 1996

In the Event of an Emergency
Telephone the SBCCOM Operations
Center's 24-hour Emergency
Number: 410-436-2148

--------------------------------------------------------------------------------
                         SECTION I - GENERAL INFORMATION
--------------------------------------------------------------------------------
MANUFACTURER'S ADDRESS: U.S. ARMY SOLDIER AND BIOLOGICAL CHEMICAL COMMAND
                        EDGEWOOD CHEMICAL BIOLOGICAL CENTER (ECBC)
                        ATTN: AMSSB-RCB-RS
                        ABERDEEN PROVING GROUND, MD 21010-5424

Chemical Name: Ethylmethylphosphonic acid and 2-(diisopropylamino) ethanethiol
sodium salts

Trade name and synonyms: VX/NaOH Hydrolysate

Chemical Family: Not known

Formula/Chemical Structure: Not Available

NFPA 704 Signal   Health         -   3         0
                  Flammability   -   0     3       1
                  Reactivity     -   1

--------------------------------------------------------------------------------
                       SECTION II - HAZARDOUS INGREDIENTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                     Weight           Threshold
Ingredients                                    by Volume (mg/mL)   Limit Value (TLV)
-----------                                    -----------------   -----------------
<S>                                              <C>                 <C>
Water                                             54 - 60 wt%        Not Applicable
2-(diisopropylamino) ethyl mercaptan (thiol)      15 - 25 wt%        Unknown
Ethylmethyl phosphoric acid (EMPA)                14 - 22 wt%        Unknown
Sodium Hydroxide                                   0 -  5 wt%        2 mg/m(3) CL
Methyl phosphoric aid (MPA)                        1 -  3 wt%        Unknown
2-(diisopropylamino) ethyl disulfide               0 -  5 wt%        Unknown
Other Compounds                                    2 -  6 wt%        Unknown
EA 2192                                          <  0.002 wt%        Unknown
</TABLE>

--------------------------------------------------------------------------------
                           SECTION III - PHYSICAL DATA
--------------------------------------------------------------------------------

Density: 17g/ml at 25 DEG. C

Appearance: Liquid

<PAGE>

--------------------------------------------------------------------------------
                      SECTION IV - FIRE AND EXPLOSION DATA
--------------------------------------------------------------------------------

Flash Point: Upper Layer ( 1 - 5 % of total) - 127 DEG. F (53 DEG. C) c.c.
             Lower Layer - No flash point up to 96 DEG. C

Flammability Limits: Not known

Special Fire Fighting Procedures: Incipient fires may be fought with a type BC
fire extinguisher. If the fire cannot be controlled, contact the fire
department. Firefighters are to use self-contained breathing apparatus.

Unusual Fire and Explosion Hazards: None known

--------------------------------------------------------------------------------
                         SECTION V - HEALTH HAZARD DATA.
--------------------------------------------------------------------------------

Threshold Limit Value (TLV): A TLV has not been promulgated for this material.
There is no Airborne Exposure Limit (AEL) for the mixture.

Health Hazards: May be harmful if swallowed, inhaled, or, absorbed through the
skin. Material may be destructive to tissue of the mucous membranes and upper
respiratory tract, eyes, and skin. Material is considered hazardous because of
its content of caustic and toxic compounds. This material should be handled with
caution and appropriate protective clothing should be worn when handling.

Effects Of Overexposure: May include burning sensation, coughing, wheezing,
laryngitis, shortness of breath, headache, nausea vomiting. Exposure to large
quantities could cause ataxia, tearing, tremors, and salivation.

Material presently is not listed by the International Agency for Research on
Cancer (IARC), National Toxicology Program (NTP), Occupational Safety and Health
Administration (OSHA), or American Conference of Governmental Industrial
Hygienists (ACGIH) as a carcinogen.

Emergency and First Aid Procedures:

Inhalation: If inhaled, remove victim from source/area to fresh air; seek
medical attention immediately. If victim stops breathing, administer CPR. If
breathing is difficult, give oxygen. Seek medical attention immediately.

Eye contact: If material comes in contact with the eyes, flush with water
immediately for at least 15 minutes. Assure adequate flushing by pulling eyelids
apart with fingers. Seek medical attention immediately.

Skin contact: Remove victim from the source immediately and decon affected area
by flushing with copious amounts of soap and water for at least 15 minutes or
with household bleach while removing contaminated clothing and shoes. Seek
medical attention immediately.

Ingestion: If ingested, wash out mouth with water. Seek medical attention
Immediately.

--------------------------------------------------------------------------------
                          SECTION VI - REACTIVITY DATA
--------------------------------------------------------------------------------

Stability: Unknown

Hazardous polymerization: Unknown

<PAGE>

--------------------------------------------------------------------------------
                SECTION VII - SPILL, LEAK AND DISPOSAL PROCEDURES
--------------------------------------------------------------------------------

Steps To Be Taken In Case Material is Released or Spilled: If leak or spills
occur, evacuate area. Spill response personnel should wear self-contained
breathing apparatus, butyl rubber boots and heavy chemical resistant butyl
rubber gloves. Absorb all spilled materials with vermiculite, dry lime, or soda
ash; scoop up all material and place in a closed container and hold for waste
disposal Ventilate area and wash spill site after material pickup is complete

Waste Disposal Method: Dispose IAW local laws and regulations. A determination
should be made whether the waste displays any characteristics of hazardous waste
prior to disposal. Open pit burning or burying of this material or items
containing or contaminated with this material in any quantity is prohibited.
Consult local regulations before disposal action is taken as some states
regulate products resulting from the decontamination of chemical warfare agent
as hazardous waste.

--------------------------------------------------------------------------------
                  SECTION VIII - SPECIAL PROTECTION INFORMATION
--------------------------------------------------------------------------------

Respiratory Protection: For escape purposes operations should have available a
15 minute NIOSH/MSHA approved escape bottle apparatus with hood.

Local Exhaust: Material should be used in a chemical fume hood. Air emissions
shall meet local, state, and federal regulations.

Protective Gloves: Norton, chemical protective glove set (butyl rubber)
                   M3 butyl rubber glove

Eye Protection: Safety glasses as a minimum. Protective splash goggles and face
shield will be worn if splash hazard is present.

--------------------------------------------------------------------------------
                        SECTION IX - SPECIAL PRECAUTIONS
--------------------------------------------------------------------------------

Precautions To Be Taken In Handling and Storing: Emergency showers, eyewash
stations, and personal cleanliness facilities must be provided. Wash hands after
handling and before meals. The carrying, storage, usage and/or consumption of
food, beverages, cosmetics, smoking materials, tobacco products, or other
products for chewing; or the chewing of such products in all laboratory and/or
chemical storage areas is prohibited. Exits must be designed to permit rapid
evacuation. Do not get in eyes, on skin, on clothing. Avoid prolonged or
repeated exposure. Keep containers tightly closed. Store in a cool, dry place.

Solution Analysis: This material was analyzed for VX using ECBC-TR-010,
"Quantitative Analysis of Residual VX in Caustic Neutralization Solutions by
Solid Phase Extraction and GC/MSD: Analysis of Hydrolysate as Unseparated
Phases" and was found to contain no VX above 20 ppb.

--------------------------------------------------------------------------------
                         SECTION X - TRANSPORTATION DATA
--------------------------------------------------------------------------------

Proper Shipping Name: Poisonous Liquids, corrosive, n.o.s.

Dot Hazard Classification: 6:1

Dot Label: POISON and CORROSIVE

<PAGE>

Dot Marking: Poisonous Liquids, corrosive; n.o.s. (Ethylmethylphosphonic acid
             and 2-(diisopropylamino) ethanethiol sodium salts), UN 2927, PG 1,
             Zone A

Dot Placard: POISON

Emergency Accident Precautions and Procedures: See Sections IV, VII, and VIII.

Precautions To Be Taken In Transportation: Motor vehicles will be placarded
regardless of quantity. Driver shall be given full and complete information
regarding shipment and conditions in case of emergency.

----------
While the Edgewood Chemical Biological Center, Department of the Army believes
that the data contained herein are factual and the opinions expressed are those
of qualified experts regarding the results of the tests conducted, the data are
not to be taken as a warranty or representation for which the Department of the
Army of Edgewood Chemical Biological Center assumes legal responsibility. They
are offered solely for your consideration, investigation, and verification. Any
use of these data and information must be determined by the user to be in
accordance with applicable Federal, State, and local laws and regulations.

<PAGE>

ATTACHMENT 0.2 - Supplemental Property Data

              Table 0.2-1. Chemical Constituents of VX Hydrolysate
                               (Source: NRC, 1998)

--------------------------------------------------------------------------------
                  Component                                 Concentration (mg/L)
--------------------------------------------------------------------------------
Ethyl methylphosphonic acid (EMPA)                                152,673
--------------------------------------------------------------------------------
Methylphosphonic acid (MPA)                                        13,348
--------------------------------------------------------------------------------
Diisopropylaminoethanethiol (RSH or VX thiol)                     160,000
--------------------------------------------------------------------------------
Bis (diisopropylaminoethyl) disulfide (RSSR)                       13,000
--------------------------------------------------------------------------------
Bis (diisopropylaminoethyl) sulfide (RSR)                             970
--------------------------------------------------------------------------------
1,9-bis (diisopropylamino)-3,4,7-trithianonane                      1,700
--------------------------------------------------------------------------------
Total organic carbon (TOC)                                        140,000
--------------------------------------------------------------------------------
Sulfate                                                              96.9
--------------------------------------------------------------------------------
Phosphate (as phosphorus)                                            2.19
--------------------------------------------------------------------------------
Total sulfur (S)                                                   38,400
--------------------------------------------------------------------------------
Total phosphorus (P)                                               37,700
--------------------------------------------------------------------------------
Arsenic (As)                                                        0.125
--------------------------------------------------------------------------------
Barium (Ba)                                                         0.236
--------------------------------------------------------------------------------
Calcium (Ca)                                                          121
--------------------------------------------------------------------------------
Chromium (Cr)                                                        1.38
--------------------------------------------------------------------------------
Copper (Cu)                                                          1.53
--------------------------------------------------------------------------------
Iron (Fe)                                                            2.97
--------------------------------------------------------------------------------
Lead (Pb)                                                            0.50
--------------------------------------------------------------------------------
Magnesium (Mg)                                                       2.79
--------------------------------------------------------------------------------
Mercury (Hg)                                                        0.004
--------------------------------------------------------------------------------
Selenium (Se)                                                         2.0
--------------------------------------------------------------------------------
Sodium (Na)                                                        87,900
--------------------------------------------------------------------------------
Titanium (Ti)                                                        0.25
--------------------------------------------------------------------------------
Zinc (Zn)                                                            0.25
--------------------------------------------------------------------------------

  Table 0.2-2. Hydrolysate Density, Viscosity and Surface Tension Summary Data

--------------------------------------------------------------------------------
                     Parameter                                             Value
--------------------------------------------------------------------------------
Density, upper layer, lb/ft(3)                                             55.16
--------------------------------------------------------------------------------
Density bottom layer, lb/ft(3)                                             67.44
--------------------------------------------------------------------------------
Viscosity upper layer, cP                                                   3.31
--------------------------------------------------------------------------------
Viscosity bottom layer, cP                                                  5.13
--------------------------------------------------------------------------------
Surface tension, upper layer, dynes/cm                                     18.53
--------------------------------------------------------------------------------
Surface tension, bottom layer, dynes/cm                                    30.02
--------------------------------------------------------------------------------
Interfacial tension, dynes/cm                                               5.83
--------------------------------------------------------------------------------

<PAGE>

      Table 0.2-3. Hydrolysate Density, Viscosity and Surface Tension Data(a)

--------------------------------------------------------------------------------
            Temperature (DEG. F)                    77      95     122     167
--------------------------------------------------------------------------------
                                                         Density (lb/ft(3))
NECDF ADP Design Data (measured by ECBC)
   Upper Layer                                    59.35   59.05   58.22
   Lower Layer                                    72.57   72.15   71.49
Old Hydrolysate (measured by SWRI)
   Upper Layer                                    58.47           57.23    54.49
   Lower Layer                                    72.76           71.91    70.93
Fresh Hydrolysate (measured by SWRI)
   Upper Layer                                    58.68           58.05    55.58
   Lower Layer                                    72.35           69.91    68.66
--------------------------------------------------------------------------------
                                                          Viscosity (cP)
NECDF ADP Design Data (measured by ECBC)
   Upper Layer                                     71.7    35.9    16.2
   Lower Layer                                     21.9    13.6     7.8
Old Hydrolysate (measured by SWRI)
   Upper Layer                                    44.52           15.13     7.48
   Lower Layer                                    30.94           12.25     6.56
Fresh Hydrolysate (measured by SWRI)
   Upper Layer                                     40.4            12.8     5.55
   Lower Layer                                    27.24           11.78     7.43
--------------------------------------------------------------------------------
                                                    Surface Tension (dynes/cm)
NECDF ADP Design Data (measured by ECBC)
   Upper Layer                                     24.3    23.0    22.1
   Lower Layer                                     32.9    32.6    31.8
NECDF ADP Design Data (measured by ECBC(b))         8.6     9.6     9.7
Ring Method Data (measured by ECBC(c))             1.27
Old Hydrolysate (measured by SWRI)                  5.9                      6.2
Fresh Hydrolysate (measured by SWRI)               6.42                     5.96
--------------------------------------------------------------------------------
(a)  Data obtained form report "Summary of VX/NaOH Hydrolysate Physical
     Properties Testing," Attachment E Stone and Webster, R12V-16-0, Rev. 0, May
     1999.

(b)  Determined by differences between the surface tensions of the upper and
     lower layer.

(c)  Measured by Du Nouy ring method; the results could not be verified by
     repeat analyses.
--------------------------------------------------------------------------------

Hydrolysate Phase and Flash Point Notes:

The hydrolysate consists of approximately 5% organics and 95% aqueous solution
by volume. The aqueous phase of the hydrolysate has no flash point up to
200DEG. F; however, the organic phase has a flash point at 127DEG. F
(based on VX hydrolysate MSDS).

Hydrolysate VX Concentration Notes:

The hydrolysate will not be released from the NECDF site until a sample analysis
has verified that the agent VX concentration is non-detect at the method
detection limit (MDL).

<PAGE>

ATTACHMENT 0.3 - Hydrolysate Pretreatment Studies and Experience

Hydrolysate pretreatment studies have been performed with the intent of
determining simple pretreatments that would make the NECDF hydrolysate more
amenable to off-site treatment and/or disposal by an increased variety of
commercial TSDFs. Although it is known that hydrolysate may be readily
incinerated, properties such as odor, low flash point, low biodegradability, and
separate organic phase make it more problematic for other TSDF technologies such
as deep-well injection and biotreatment.

Pretreatments studied included simple, industry-standard processes that could be
relatively easily and cheaply employed. Testing was performed at HoneywellPAI's
laboratories in Des Plaines, IL, in laboratory glassware on approximate
half-liter hydrolysate sample quantities. Test results judged to be of greatest
potential for TSDF application are summarized in the subsections of this
attachment.

It is important to note that testing was performed using diluted hydrolysate
consistent with that expected to result from NECDF's initial baseline design.
The hydrolysate currently expected from NECDF operations is approximately twice
as concentrated as the baseline hydrolysate. Additive requirements to achieve
comparable treatment, however, are believed to be linear to hydrolysate
component concentrations. Additive quantities indicated in the treatment
descriptions of this attachment are extrapolated from studies results, assuming
linear requirements, for treatment of the currently defined NECDF hydrolysate as
described in SOW Attachments 0.1 and 0.2. Additional testing would be considered
necessary to, at least, confirm additive requirements and process performance.

Phase Separation

Studies included confirmation of the ability to separate physically the organic
and aqueous phases of the hydrolysate. Previous studies had indicated that the
organic phase required approximately 12 hours for complete formation/separation
from "fresh/neat" hydrolysate, but also indicated a tendency for a small
fraction of the organic layer to reappear, after initial layer removal, over
time as a result of air exposure, agitation, or some surface phenomenon not well
understood or defined. No such reformation of the organic layer was observed in
samples drawn during the study and specifically observed for greater than 50
hours for organic layer reformation. The hydrolysate used in the studies was
"old" and tests and observations would need to be repeated on "fresh"
hydrolysate to confirm the ability to separate physically the hydrolysate phases
without organic-phase reformation.

Nitric Acid Acidification

Acidification of the alkaline hydrolysate to a pH value of 6.5, or lower,
resulted in solubilization of the organic phase into the aqueous phase. The
elimination of the free-phase organic layer drives the flash point up to
approximately 100DEG. C. The calculated heat of reaction for this pH adjustment
is 165 cal/g reactant, with reactant being 70% (by weight) nitric acid solution,
closely approximating the theoretical (Lange's) acid heat of neutralization. The
analysis of titration curves indicates that acidification of the samples does
not appreciably change the chemical

<PAGE>

composition of the hydrolysate, but rather just alters the solubility of the
organic phase in the aqueous phase. Without changing the hydrolysate
composition, there is no increase in biodegradability or decrease in the odor
associated with acid adjustment. Acidification of hydrolysate to pH 6.5 will
require approximately 13 gal of 70% (by weight) nitric acid solution per 100 gal
of hydrolysate.

Hydrogen Peroxide Oxidation

Following acidification, oxidation of the hydrolysate by hydrogen peroxide
addition resulted in generating a clear, odorless (relative), single-phase
sample with no solids generation upon sample cooling. Resulting flash points
were approximately 100DEG. C. Multiple oxidant-addition quantities were tested
based on percent of stoichiometric equivalent to oxidize VX thiol present in the
hydrolysate to the corresponding sulfonic acid (see below). 30% (by weight)
hydrogen peroxide solution was metered into the acidified hydrolysate sample.
100%-equivalent oxidant addition resulted in an approximate additional 1-2 point
drop in solution pH and 15DEG. C increase in temperature. Heat of reaction was
determined at 511 cal/g reactant, with reactant being 30% peroxide solution.
Observed TOC and COD reductions were approximately 10 and 20%, respectively.
Oxidation of hydrolysate at this 100%-equivalent dosage, preceded by
acidification, will require approximately 13 gal of 70% (by weight) nitric acid
solution and 37 gal of 30% (by weight) hydrogen peroxide solution per 100 gal of
hydrolysate.

Hydrogen peroxide is a powerful oxidant with the standard electrode potential
(E(o)) as shown below:

            H(2)O(2) + 2H(+) + 2e(-) --> 2H(2)O ---- (E(o) = 1.78 V)

Hydrogen peroxide is known to react with and oxidize sulfides, mercaptans,
amines and aldehydes and is well known to reduce odors caused by these
compounds. Hydrogen peroxide activity is dependent upon the temperature and pH
of the reaction conditions and better oxidizing activity is favored under
conditions of acidic pH. Reactivity with hydrogen peroxide increases with
temperature; however, at temperatures above 50DEG. C, hydrogen peroxide
decomposes rapidly. Hydrogen peroxide oxidation of VX thiol to its corresponding
sulfonic acid is illustrated as follows:

                                                CH(2)-(CH(3))(2)
              3H(2)O(2)    HS-CH(2)-CH(2)-N
                                                CH(2)-(CH(3))(2)

                                40DEG. C | pH 6.0

                                                CH(2)-(CH(3))(2)
              3H(2)O + HSO(3)-CH(2)-CH(2)-N
                                                CH(2)-(CH(3))(2)

                                            Di-isopropylaminoethanesulfonic acid

<PAGE>

Oxone(TM) Oxidation

Following acidification, oxidation of the hydrolysate by Oxone(TM) addition, at
50% equivalent dosage (see below), resulted in generating a clear, odorless
(relative), single-phase sample with no solids generation upon sample cooling.
Resulting sample flash point was approximately 100DEG. C. Multiple
oxidant-addition quantities were tested based on percent of stoichiometric
equivalent to oxidize VX thiol present in the hydrolysate to the corresponding
sulfonic acid (see below). Greater than 50%-equivalent Oxone(TM) addition
resulted in precipitate formation upon cooling. Oxone was pre-dissolved and
metered into the acidified hydrolysate sample as a solution. 50%-equivalent
oxidant addition resulted in additional pH suppression to a pH of approximately
1.0 and an approximate 20DEG. C increase in temperature. Heat of reaction was
determined at 180 cal/g reactant, with reactant being Oxone(TM). Oxidation of
hydrolysate at this 50% equivalent dosage, preceded by acidification, will
require approximately 13 gal of 70% (by weight) nitric acid solution and 469 lbs
Oxone(TM), pre-dissolved in 160 gal of water, per 100 gal of hydrolysate.

The active ingredient of Oxone(TM) is potassium peroxymonosulfate, KHSO(5)
[CAS-RN 10058-23-8], commonly known as potassium monopersulfate, which is
present as a component of a triple salt with the formula
2KHSO(5)-KHSO(4)-K2SO(4) [potassium hydrogen peroxymonosulfate sulfate
(5:3:2:2), [CAS-RN 70693-62-8]. The oxidation potential of Oxone(TM) is derived
from its peracid chemistry; it is the first neutralization salt of
peroxymonosulfuric acid H(2)SO(5) (also known as Caro's acid). K+
-0-S(=O)2(-OOH) Potassium Monopersulfate. The standard electrode potential
(E(o)) of Oxone(TM) is shown in the following reaction:

       HSO(5)(-) + 2H+ + 2e(-) --> HSO(4)(-) + H(2)O ---- (E(o) = 1.44 V)

Peroxyacids are known to be strong nucleophiles and have been demonstrated to
oxidize sulfur groups. Solutions of Oxone(TM) are relatively stable when made up
at the unmodified pH of the product (pH 2.0). The stability is adversely
affected by higher pH, especially above pH 7. A point of minimum stability
exists at pH 9, at which the concentration of the mono-anion HSO5- is equal to
that of the di-anion S05(-). Oxone(TM) oxidation of VX thiol to its
corresponding sulfonic acid is illustrated as follows:

                                                CH(2)-(CH(3))(2)
              3KHSO(5)  +  HS-CH(2)-CH(2)-N

                                                CH(2)-(CH(3))(2)

                               pH 2.0 | 70DEG. C

                                                CH(2)-(CH(3))(2)
             3KHSO(4)  +  HSO(3)-CH(2)-CH(2)-N

                                                CH(2)-(CH(3))(2)

     1)   See Section 0 Attachment #1 "Measurement of Success for Treatability
          Studies".

     2)   See Section 0 Attachment #2 for "Protocol for Treatability Studies".

     Note: (See Request for Proposal Addendums #1 and #2 for clarifications and
     changes).

<PAGE>

                                    Section 0

                        Statement of Work Attachment # 1
                           Measurement of Success for
                              Treatability Studies

<PAGE>

                 Measurement of Success for Treatability Study
             Original Baseline agreement effective 21 December 2002

Introduction

After the Limited Notice to Proceed (LNTP) is issued to Perma-Fix, a
treatability study will be conducted utilizing physical, chemical, and
biological treatment technologies to demonstrate an effective treatment
protocol for fresh VX Hydolysate. Award of a contract for the treatment and
disposal of VX Hydrolysate from the Newport Chemical Agent Disposal Facility
(NECDF) is dependent upon certification of a successful treatability study to
establish design criteria and an operating strategy for the full-scale
treatment of 7,000 gallons per day of fresh VX hydrolysate. A successful
treatability study is needed to verify that the discharge from Perma-Fix of
Dayton, Inc. will meet its permit requirements. The treatment study may employ
a combination of physical separation, acidification, chemical oxidation with
catalysts, and co-mingling with other facility wastewater prior to biological
treatment.

Determination of Success

Success of the treatability studies will be determined in a treatment system
that employs a combination of unit operations and processes that includes
acidification, chemical oxidation, waste co-mingling, sorption, and biological
oxidation.

Certification testing will take place over a minimum of 10 days (i.e., the
certification period) or for one (1) Hydraulic Residence Time (HRT) of the
biological reactor system used whichever is longer. The certification testing
must be completed no later than 60 days after the "initiation date" [The
"initiation date" is defined as 17 days after Perma-Fix receives the old VX
hydrolysate]. Analysis for the parameters listed in Table 1 must be satisfied
throughout the certification period at the frequency defined therein. Successful
treatability by Perma-Fix of Dayton, Inc. will be demonstrated by meeting the
discharge and treaty parameters listed in Table 1.

Basic protocol, reporting, schedule for completion and certification
requirements for conducting the treatability study will be developed jointly by
Parsons and Perma-Fix

----------
(1) Criteria for certification of successful treatability studies based on
analyses performed in accordance with the Laboratory Quality Assurance Plan
(being developed).

<PAGE>

Table 1. Certification parameters based on discharge permit limits and reactor
operation. Requirements must be met daily.

--------------------------------------------------------------------------------
                              Permit Based Limits
--------------------------------------------------------------------------------
   Discharge Parameter           Frequency             Concentration Limit
--------------------------------------------------------------------------------
Cd, U/L                     Daily                               40
--------------------------------------------------------------------------------
Cr (total), U/L             Daily                              2000
--------------------------------------------------------------------------------
Cu, U/L                     Daily                              500
--------------------------------------------------------------------------------
Cyanide, U/L                Twice during                       500
                            performance period
--------------------------------------------------------------------------------
Pb, U/L                     Daily                              400
--------------------------------------------------------------------------------
Hg, U/L                     Twice during                       0.12
                            performance period
--------------------------------------------------------------------------------
Ni, U/L                     Daily                              1300
--------------------------------------------------------------------------------
Ag, U/L                     Daily                              600
--------------------------------------------------------------------------------
Zn, U/L                     Daily                              2250
--------------------------------------------------------------------------------
PH                          Daily                            6 - 11.5
--------------------------------------------------------------------------------
BOD(5), mg/L                Daily                              250
--------------------------------------------------------------------------------
Suspended Solids, mg/L      Daily                              300
--------------------------------------------------------------------------------
Ammonia (as N), mg/L        Daily                               50
--------------------------------------------------------------------------------
Oil + Grease, mg/L          Twice during                       300
                            performance period
--------------------------------------------------------------------------------
As, U/L                     Twice during                       400
                            performance period
--------------------------------------------------------------------------------
Mo, U/L                     Daily                              4000
--------------------------------------------------------------------------------
Se, U/L                     Twice during                       100
                            performance period
--------------------------------------------------------------------------------
Total Toxic Organics, U/L   Once during            See 2001 edition of Standard
                            performance period              Methods,
                                                     Method 8260 (volatiles)
                                                   Method 8270 (semi volatiles)
--------------------------------------------------------------------------------
Biomass Acclimation Reactor Limits
--------------------------------------------------------------------------------
   Reactor Parameter             Frequency                    Range
--------------------------------------------------------------------------------
BOD Removal (%)             Daily                             > 85%
--------------------------------------------------------------------------------
Mixed Liquor Suspended      Daily                           3500-7000
Solids, mg/L
--------------------------------------------------------------------------------
Sludge Volume Index, mL/g   Daily                              <350
--------------------------------------------------------------------------------
Specific Oxygen             Daily                              1-10
Consumption Rate (end of
react), mg/g-h
--------------------------------------------------------------------------------
Specific Spiked Oxygen      Daily                    No range provided - for
Consumption Rate (end of                             comparison with Control
react), mg/g-h
--------------------------------------------------------------------------------

<PAGE>

                                    Section 0

                        Statement of Work - Attachment #2
                        Protocol for Treatability Studies

                                        1

<PAGE>

                        Protocol for Treatability Studies
                           Prepared November 20, 2002
                        Latest Revision December 18, 2002

Introduction

After the Limited Notice to Proceed (LNTP) is issued to Perma-Fix, a
Pretreatment treatability study and a biotreatment treatability study will be
conducted. The studies will be conducted at Perma-Fix's analytical laboratory
in Dayton, Ohio using a combination of unit operations and processes that
includes acidification, chemical oxidation, waste co-mingling, sorption, and
biological oxidation. Parsons will supply the VX hydrolysate. Initially, "old"
VX hydrolysate (see the TSDF RFP) will be used. "Fresh" VX hydrolysate will be
supplied as soon as possible as required by Perma-Fix and within sufficient
time to be used in the Treatability Study.

Procedures

The treatability studies will include systems for:

          a.   acidification and chemical oxidation

          b.   biomass acclimation (for certification of success)

          c.   biological treatment

The biomass acclimation and treatability study will be used to certify success
of the chemical oxidation / biological treatment system proposed by Perma-Fix.
The biological treatment portion of the study will employ bench-scale Sequencing
Batch Reactors (SBRs) seeded with biomass from Perma-Fix's full-scale
biological reactors and fed either the waste discharged from the chemical
precipitation system (the Control) or the co-mingled waste (the Hydrolysate
Reactor). The feed will be prepared daily using pretreated VX hydrolysate and
discharge from the chemical precipitation system. The discharge from the
chemical precipitation system will be collected weekly from the equalization
tank and refrigerated. Nutrients will be added to the feed as necessary. The
SBRs will be operated at any temperature between 20DEG. C and 40DEG. C.
The hydraulic residence time (HRT) and organic loading will be consistent with
that expected for the full-scale biological reactors.

The biomass in the bench-scale SBRs will be acclimated to the co-mingled feed
for a minimum of 21 days or for 3 HRTs before performance data are collected for
certification. Certification testing will take place over a minimum of 10 days
(i.e., the certification period) or for 1 HRT of the SBR whichever is longer.
The certification testing must be completed no later than 60 days after the
"initiation date." The "initiation date" is defined as 17 days after receiving
the old VX hydrolysate. Figure 1 presents the Timeline for Treatability Studies
as it relates to the certification period. It is expected, however, that
Perma-Fix will continue the Treatability Studies, as needed, to finalize the
design criteria and an operating strategies for the full-scale treatment of
7000 gallons per day of VX hydrolysate.

<PAGE>

Analysis for the parameters listed in Table 1 must be satisfied throughout the
certification period at the frequency defined therein. The concentration limits
for each discharge parameter are defined in the Measurement of Success for
Treatability Studies document prepared November 7, 2002 (as revised on December
18, 2002) and were obtained from Perma-Fix's POTW - issued permit or from the
Chemical Weapons Convention (CWC) Treaty Requirements for Schedule 2 Compounds.

Verification

One or more Parsons' representatives will be present at the Perma-Fix site
during the treatability studies to provide technical assistance (as needed),
review data, establish an electronic data base, witness progress first hand, and
verify that established conditions are met. Parsons and Perma-Fix will review
and discuss any proposed modifications to the Treatability Studies and will
agree in writing to the modifications prior to their implementation.

Reporting

All reports must be submitted to Parsons electronically. Brief letter reports
will be submitted weekly. More extensive progress reports will be submitted
every third week until the study is completed. A certification report that
summarizes all of the data required during the certification period must be
submitted 5 days after the last sample is collected. A draft final report will
be due two weeks after the study is completed. The final report will be issued
within two weeks of receiving comments from Parsons.

Certification

Parsons will review the certification report with Perma-Fix to determine the
acceptability of the results. Special attention will be paid to the results
from the reactor parameters and their ability to demonstrate the destruction
efficiency of the process.

Coordination with State Environmental Regulators

It is, of course, understood that the TSDF will be operated in accordance with
the facility's permits, however, it is also requested that Perma-Fix personnel
contact state regulators concerning acceptance of the NECDF wastes. The
objective of the contact(s) would be to alleviate any concerns that the
regulators might have concerning acceptance of NECDF wastes. The coordination
with state regulators should be documented (with results) in a letter provided
to the Parsons Contract Group. Telephone numbers for the regulatory personnel
contacted should be provided in this letter--in the event Parsons environmental
personnel might wish to follow-up on this coordination.

Compliance with CWC Treaty

The TSDFs will accept Government oversight for the sampling and analysis of
Schedule 2 Compounds.

                                                                               2

<PAGE>

                                   [FLOWCHART]

<TABLE>
<S>                             <C>                       <C>                          <C>
-----------------------------   -----------------------   --------------------------   --------------------------
1. TSDF receives Hydrolysate.   Brief letter reports to     Progress Reports to be      Certification Report to
2. Co-mingled waste begin to      be submitted weekly     submitted every third week      be submitted 5 days
   be fed to the SBR                                                                   after last sample is taken
-----------------------------   -----------------------   --------------------------   --------------------------

------------------------   -------------------   ---------------------   ----------------------------------------
    INITIATION DATE:       End of Acclimation    Certification Testing           CERTIFICATION TESTING
Defined as 17 days after         Period          will take place for a                 DEADLINE
   the receipt of the      (Minimum of 21 days    minimum of 10 days       [Testing must be completed no later
     Hydrolysate               or 3 HRT)              or 1 HRT           than 60 days after the Initiation Date.]
------------------------   -------------------   ---------------------   ----------------------------------------
</TABLE>

                  Figure. 1: Timeline for Treatability Studies.

                                                                               3

<PAGE>

              Table 1. Sample Frequency and Biomass Acclimation Reactor Limits

--------------------------------------------------------------------------------
                       Treatability Study Sample Frequency
--------------------------------------------------------------------------------
           Discharge Parameter                        Frequency
--------------------------------------------------------------------------------
Cd, U/L                                      Daily
--------------------------------------------------------------------------------
Cr (total), U/L                              Daily
--------------------------------------------------------------------------------
Cu, U/L                                      Daily
--------------------------------------------------------------------------------
Cyanide, U/L                                 Twice during performance period
--------------------------------------------------------------------------------
Pb, U/L                                      Daily
--------------------------------------------------------------------------------
Hg, U/L                                      Twice during performance period
--------------------------------------------------------------------------------
Ni, U/L                                      Daily
--------------------------------------------------------------------------------
Ag, U/L                                      Daily
--------------------------------------------------------------------------------
Zn, U/L                                      Daily
--------------------------------------------------------------------------------
PH                                           Daily
--------------------------------------------------------------------------------
BOD(5), mg/L                                 Daily
--------------------------------------------------------------------------------
Suspended Solids, mg/L                       Daily
--------------------------------------------------------------------------------
Ammonia (as N), mg/L                         Daily
--------------------------------------------------------------------------------
Oil & Grease, mg/L                           Twice during performance period
--------------------------------------------------------------------------------
As, U/L                                      Twice during performance period
--------------------------------------------------------------------------------
Mo, U/L                                      Daily
--------------------------------------------------------------------------------
Se, U/L                                      Twice during performance period
--------------------------------------------------------------------------------
Total Toxic Organics, U/L
   See 2001 edition of Standard Methods,
       Method 8260 (volatiles)
       Method 8270 (semi-volatiles)          Once during performance period
--------------------------------------------------------------------------------
CWC Treaty
--------------------------------------------------------------------------------
Schedule 2 Compounds (VX-Thiol,
   EMPA, MPA)                                Daily
--------------------------------------------------------------------------------
Biomass, Acclimation Reactor Limits
--------------------------------------------------------------------------------
    Reactor Parameter                        Frequency           Range
--------------------------------------------------------------------------------
BOD Removal (%)                                Daily             >85%
--------------------------------------------------------------------------------
Mixed Liquor Suspended Solids, mg/L            Daily           3500-7000
--------------------------------------------------------------------------------
Sludge Volume Index, mL/g                      Daily             <350
--------------------------------------------------------------------------------
Specific Oxygen Consumption Rate (end of
react), mg/g-h                                 Daily             1-10
--------------------------------------------------------------------------------
Specific Spiked Oxygen Consumption Rate                  No range provided - for
(end of react), mg/g-h                         Daily     comparison with Control
--------------------------------------------------------------------------------

                                                                               4

<PAGE>

                                    Section I

                             Deliverable Items List

<PAGE>

<TABLE>
<S>                                                    <C>                                                            <C>
PUR10045.01                                                   SECTION I                                               DATE: 01-28-03
                                                       DELIVERABLE ITEMS LIST
                                                                                                                      TIME: 06:28
JOB NO: 735284 - US Army Industrial Operatio
Subcontract: 735284 40069       Rev: 0          Issue Date: 01-28-03    Reg: 40069      Rev: 0                        Page: 1

Commodity: COMMERCIAL TREATMENT, STORAGE AND DISPOSAL FACILITY SERVICES
</TABLE>

<TABLE>
<CAPTION>
                                 TAG / PART NO.                                     PROMISED        UNIT                 EXTENDED
ITEM NO.                       SIZE - DESCRIPTION                        IU   QTY     SHIP         PRICE         TAX      AMOUNT
------------------------------------------------------------------------------------------------------------------------------------
<C>        <C>                                                           <C>    <C> <C>        <C>               <C>  <C>
1.01       NA                                                            LT     1   10-01-03   10,106,335.00     N    10,106,335.00
           COMMERCIAL TREATMENT, STORAGE AND
           DISPOSAL FACILITY FOR OFF-SITE
           TRANSPORT AND DISPOSAL OF NECDF
           HYDROLYSATE WASTE

           REMARK: NOTE: ALSO INCLUDED WILL BE
           TREATABILITY STUDIES.

     All amounts are in U.S. Dollars
*    Items preceded by an asterisk have been revised

                                                                                                Previous Total Amount:          0.00

                                                                                             Change for this Revision: 10,106,335.00

Latest Promised Ship Date: 10-01-03                                                                  New Total Amount: 10,106,335.00

Subcontract Notes
   (NONE)
</TABLE>

<PAGE>

                                   Section III

                           Supplier Data Requirements

<PAGE>

                                   SECTION III
                                   REQUISITION
                           SUPPLIER DATA REQUIREMENTS

<TABLE>
<S>                      <C>           <C>       <C>                      <C>                  <C>
PROJECT # 735361-10101   REQ # 40069   REV # 0   ISSUE DATE: NOT ISSUED   RUN DATE: 01-24-03   PAGE 1
</TABLE>
SDR # 220 GENERAL

<TABLE>
<CAPTION>
                                                    QUANTITY REQUIRED
                                            --------------------------------
LETTER                                              TRANSPA             DATA
/ITEM    DESCRIPTION                        W/BID   RENCIES   PRINTS   COPIES   DUE DATE   APPLIES TO ITEMS
-----------------------------------------------------------------------------------------------------------
<S>                                           <C>                                  <C>           <C>
  GENERAL

  01     TRANSPORT PLAN - SOW REFERENCE
         3.1d WITH PROPOSAL                   5                                    A/C           1.01

  02     TRANSPORT REGULATIONS AND
         CERTIFICATIONS - SOW REFERENCE
         3.1g (AND 4.1) WITH PROPOSAL         5                                    A/C           1.01

  03     TRANSPORT SPILL RESPONSE &
         REMEDIATION PLAN - SOW REFERENCE
         3.1h WITH PROPOSAL                   5                                    A/C           1.01

  04     PRETREATMENT PLAN - SOW
         REFERENCE 3.2e WITH PROPOSAL         5                                    A/C           1.01

  05     TREATMENT/ DISPOSAL OPERATIONS
         PLAN - SOW REFERENCE 3.2g WITH
         PROPOSAL                             5                                    A/C           1.01

  06     TREATMENT/ DISPOSAL REGULATIONS
         AND CERTIFICATIONS - SOW
         REFERENCE 3.2J (AND 4.1) WITH
         PROPOSAL                             5                                    A/C           1.01

  07     TREATMENT/ DISPOSAL SPILL
         RESPONSE & REMEDIATION PLAN -
         SOW REFERENCE 3.2k WITH
         PROPOSAL                             5                                    A/C           1.01

  08     PUBLIC OUTREACH PLAN - SOW
         REFERENCE 3.3 WITH PROPOSAL          5                                    A/C           1.01
</TABLE>

LEGEND: (*) Items preceeded with an asterisk are new or have been revised.
        (#) Items preceeded with a # must be submitted and reviewed prior to
            fabrication.
        (+) Provide one copy with shipment, (A/C) = As completed.
        (XX-WPTF) = XX Weeks Prior To Fabrication (XX-WAPO) = XX Wks After Issue
                    Equip PO
        (XX-WARC) = XX Weeks after receipt of commitment.
        (XX-WARO) = XX Weeks after receipt of orientation.
        (XX-WPTS) = XX Weeks prior to shipment.
        (XX-WPTC) = XX Weeks prior to construction
NOTE: Drawings shall be high quality reproducible suitable for microfilm; text
      data must be high quality bond:

<PAGE>

                                  SECTION III
                                   REQUISITION
                           SUPPLIER DATA REQUIREMENTS

<TABLE>
<S>                      <C>           <C>       <C>                      <C>                  <C>
PROJECT # 735361-10101   REQ # 40069   REV # 0   ISSUE DATE: NOT ISSUED   RUN DATE: 01-24-03   PAGE 2
</TABLE>
SDR # 220 GENERAL

<TABLE>
<CAPTION>
                                                 QUANTITY REQUIRED
                                        --------------------------------
LETTER                                          TRANSPA             DATA
/ITEM    DESCRIPTION                    W/BID   RENCIES   PRINTS   COPIES   DUE DATE   APPLIES TO ITEMS
-------------------------------------------------------------------------------------------------------
<S>      <C>                              <C>                                 <C>           <C>
  09     MANAGEMENT TEAM DESCRIPTION -
         SOW REFERENCE 3.5 WITH
         PROPOSAL                         5                                   A/C           1.01

  10     HEALTH AND SAFETY PROGRAM
         DESCRIPTION - SOW REFERENCE
         4.2 WITH PROPOSAL                2                                   A/C           1.01

  11     HEALTH AND SAFETY PERFORMANCE
         DATA - SOW REFERENCE 4.2 WITH
         PROPOSAL                         5                                   A/C           1.01

  12     QUALITY ASSURANCE PROGRAM
         DESCRIPTION - SOW REFERENCE
         4.3 WITH PROPOSAL                2                                   A/C           1.01

  13     NECDF SITE SAFETY PLAN - SOW
         REFERENCE 4.2 PRIOR TO
         INITIATIONS OF NECDF - SITE
         OPERATIONS                       2                          5       02-15-03       1.01

  14     MONTHLY REPORTS - SOW
         REFERENCE 3.5d MONTHLY (LAST
         WORKDAY OF EACH MONTH)           2                          5        A/C           1.01

  15     WASTE MANIFESTS AND
         CERTIFICATIONS OF
         DISPOSAL/DESTRUCTION - SOW
         REFERENCE 3.2h WITH INVOICES
         (SUBCONTRACT SECTION IV)         2                          5        A/C           1.01
  </TABLE>

LEGEND: (*) Items preceeded with an asterisk are new or have been revised.
        (#) Items preceeded with a # must be submitted and reviewed prior to
            fabrication.
        (+) Provide one copy with shipment, (A/C) = As completed.
        (XX-WPTF) = XX Weeks Prior To Fabrication (XX-WAPO) = XX Wks After Issue
                    Equip PO
        (XX-WARC) = XX Weeks after receipt of commitment.
        (XX-WARO) = XX Weeks after receipt of orientation.
        (XX-WPTS) = XX Weeks prior to shipment.
        (XX-WPTC) = XX Weeks prior to construction
NOTE: Drawings shall be high quality reproducible suitable for microfilm; text
      data must be high quality bond:

<PAGE>

                                   Section IV

                            Compensation and Payment

<PAGE>

                                   SECTION IV

                            COMPENSATION AND PAYMENT

COMPENSATION

As full and complete payment to Subcontractor for all of Subcontractor's
Services and the full performance and observance by Subcontractor of all its
duties, obligations, liabilities, and responsibilities hereunder, Contractor
shall pay Subcontractor a sum not to exceed Ten Million One Hundred Six Thousand
Three Hundred Thirty Five Dollars ($10,106,335.00).

Compensation and payment shall be in accordance with the following Firm Fixed
Price and Fixed Unit Price Agreements and Rate Schedules:

Treatability Studies

Contractor/Subcontractor agrees to a Firm Fixed Price (FFP) of One Million
Eight Hundred Twenty Two Thousand Dollars, ($1,822,000.00) as an initial
component of the Subcontract for treatability studies by Subcontractor. This
FFP will be paid to Subcontractor regardless of the success or failure of the
completed treatability studies. Payment will be made as progress payments with
the total amount due upon completion of the treatability studies, on a net
15-day payment cycle.

The FFP of One Million Eight Hundred Twenty Two Thousand Dollars,
($1,822,000.00) for treatability studies will be allowed to Contractor, as a
full credit against the proposed unit prices for subsequent treatment of the
first 30,000 gallons of Hydrolysate. The credit is based on the assumption
that the treatability studies are successful and Subcontractor has been issued a
Notice to Proceed for either the 30%, 70% or 100% participation options.

Public Outreach

Contractor/Subcontractor agrees to a Fixed Unit Rate total amount of One Million
Two Hundred Sixty Thousand Seven Hundred Seventy Dollars ($1,260,770.00) for
Public Outreach activities with the baseline total of 3,000 man-hours. (Ref:
Section IV Attachment #1).

Two Hundred Sixty Thousand Dollars, ($260,000.00) is to be invoiced by
Subcontractor for deposit in an ESCROW account for the exclusive use in the
local community of Dayton, Ohio for Public Outreach activities, regardless of
the success or failure of the completed treatability studies. Contractor may
process the invoice for payment as soon as the Subcontract has been executed.

All other outreach activities remaining, in the subcontract amount of One
Million Seven Hundred Seventy Dollars, ($1,000,770.00) will be invoiced as they
are incurred on a 15-day payment cycle.

                                   Page 1 of 6

<PAGE>

FIXED PRICE UNIT RATE SCHEDULE FOR PUBLIC OUTREACH

                                                                Extended
1. FIXED PRICE:                  Total Hours   Hourly Rate    Total Price
   ------------                  -----------   -----------   -------------
   Public Outreach Support
      a) Program Manager            1092         $125.00     $  136,500.00
      b) Adm. Assistant              853         $ 45.00     $   38,385.00
      c) Sr. Env. Scientist          480         $ 95.00     $   45,600.00
      d) Clerical                    575         $ 35.00     $   20,125.00
                                                             -------------
                                                 SUB-TOTAL   $  240,610.00

1-A PUBLIC OUTREACH SUPPORT
      a) Travel                                              $   40,610.00
      b) Related Expense                                     $  979,550.00
                                                             -------------
                                                 SUB-TOTAL   $1,020,160.00

                                     PUBLIC OUTREACH TOTAL   $1,260,770.00

The duration of the public outreach effort will commence December 21, 2002 and
continue effectively through the end of the NECDF scheduled process, anticipated
to be July 1, 2004. The initial subcontract baseline total of 3,000 man-hours
was chosen for the purpose of establishing pricing for this Section IV, 1 and
1-A public outreach efforts.

Should the actual hours be more or less than stated above, an equitable
adjustment to the Scope of Work and Subcontract Price may be determined.

Travel and other related expenses incurred, shall not exceed the Joint Federal
Travel Regulation (JFTR), Volume 1, Government Approved Rate(s) for those
expenses. Supporting Documentation will be required with Invoices for all cost
and labor hour charges associated with Public Outreach and Support. The
allocation of public outreach cost and labor hours shown as Section IV
Attachment Number 1, is included as support documentation for the proposed
public outreach baseline price of One Million Two Hundred Sixty Thousand Seven
Hundred Seventy Dollars, ($1,260,770.00).

                      Section IV - Compensation and Payment
                                   Page 2 of 6

<PAGE>

1-B HANDLING AND TRANSPORTATION UNIT PRICES

Fixed Unit Prices (Price per Gallon) for handling and transportation to the TSDF
are in accordance with the graduating volume scale as shown below:

          Item                  Quantity     Unit Price      Extended
                              ------------   ----------   -------------
1. Hydrolysate                 30,000 gal.     $20.11     $  603,300.00
2. Hydrolysate (Additional)    90,000 gal.     $ 1.91     $  171,900.00
3. Hydrolysate (Additional)   138,300 gal.     $ 1.91     $  264,153.00
                              ------------                -------------
                  TOTAL       258,300 gal.
                                              SUB-TOTAL   $1,039,353.00

1-C TREATMENT AND DISPOSAL UNIT PRICES

Fixed Unit Prices (Price per Gallon) for treatment and disposal service in
accordance with the graduating volume scale as shown below:

          Item                  Quantity     Unit Cost      Extended
                              ------------   ---------   --------------
1. Hydrolysate                 30,000 gal.    $116.69    $ 3,500,700.00
2. Hydrolysate (Additional)    90,000 gal.    $ 18.64    $ 1,677,600.00
3. Hydrolysate (Additional)   138,300 gal.    $ 18.64    $ 2,577,912.00
                                                         --------------
                  TOTAL       258,300 gal.
                              ------------

                                             SUB-TOTAL   $ 7,756,212.00
      (From Sub-Totals 1, 1-A, 1-B and 1-C)      TOTAL   $10,056,335.00

      (Insurance Proposal Option 4-A)                    $    50,000.00
                                                         --------------
                             Total Subcontract Amount:   $10,106,335.00

NOTE: Items Number 1-B and 1-C, are subdivided into two or more estimated
quantities and are separately priced. The Contractor will evaluate each of
these items on the basis of total price of its sub-items. Where the actual
quantity of work performed for items Number 1-B and 1-C is less than 85% of
the quantity of the first sub-item listed under such item, the Subcontractor
will be paid at the Subcontract unit price for that sub-item for the actual
quantity of work performed and, in addition, an equitable adjustment to the
Subcontract may be determined upon the request of either party. Any such
adjustment shall be based solely on the increase in costs associated with the
variation of the quantity below the 85% limit. Variation from the estimated
quantity in the actual work performed under any second or subsequent sub-item
will not be the basis for an adjustment in the Subcontract unit price.

The 1-C Unit Prices were developed using Hydrolysate descriptive information
from the MSDS contained in the original Request for Proposal (RFP). Significant
variations in Hydrolysate, as produced at NECDF, may be subject to equitable
price adjustment.

                      Section IV - Compensation and Payment
                                   Page 3 of 6

<PAGE>

INSURANCE

Proposal Option 4-A:                         Fifty Thousand Dollars ($50,000.00)

Subcontractor and/or its Subcontractors shall provide an additional layer of
Insurance so as to increase the aggregate amount of insurance available for
Comprehensive General Liability and Pollution Liability (both sudden and
non-sudden inclusive of environmental impairment) to a level of Twenty Five
Million Dollars ($25,000,000.00) per occurrence.

Proposal Option 4-B:                                      To Be Determined (TBD)

Subcontractor and /or its Subcontractors to exercise any transportation
insurance policy buy back options, related to policy exclusions for Terrorist
Acts.

The additional insurance requirements identified in options 4-A and 4-B will be
arranged and provided by Subcontractor, upon a Notice to Proceed for the
transport, treatment and disposal of Thirty Percent (30%) or more of operational
Hydrolysate. The cost for option 4-B must be submitted and approved by
Contractor when identified/available from Subcontractor's Insurance Carrier.

(Ref: Insurance Requirements Section V Special Provisions and Section VI
General Provisions Article 6).

2. INVOICES

     A.   Subcontractor shall submit an Invoice to Contractor for services
          rendered. Contractor shall pay Subcontractor within fifteen (15) days
          after receipt of Subcontractors Invoice for services rendered
          hereunder; such invoices shall be approved by Contractor before
          payment. Subcontractor shall submit itemized invoices showing gallons
          of Hydrolysate waste handled/transported and gallons of Hydrolysate
          waste treated/disposed, hours and dates worked and task performed by
          Subcontractor, in Public Outreach Support and related travel expenses.
          Supporting documentation including copies of NECDF originated waste
          manifests and certifications of disposal/destruction (COD's)
          associated with invoiced materials, and documentation substantiating
          expenses incurred, shall accompany, invoices rendered. Payments made
          on such Invoices shall relieve Contractor of all further obligations
          for such payments.

     B.   Subcontractor shall mail invoices in duplicate to:

          Parsons NEDCF
          Attn: Mel Mitchell
          Hwy 63 South - For Fedex shipments

          Post Office Box 519 For US Mail
          Newport, Indiana 47966-0519

          Reference: Subcontract Number 40069

                      Section IV - Compensation and Payment
                                   Page 4 of 6

<PAGE>

In addition to the foregoing, Invoices shall:

     Be determined in strict accordance with this Subcontract and Prime
     Contract Clauses, Federal Government Regulations and standards that are
     incorporated into and made a part of this Subcontract.

(2)  Include an Invoice Number, invoice date, the Subcontract number.

(3)  Include a certification that the amounts being invoiced are accurate and
     that satisfactory services were provided in the quantities or percentage
     set out in the Invoice; and

     Be signed by a responsible representative of the Subcontractor.

3. ADDITIONAL SERVICES / PRICING OF CHANGES

Subcontractor shall be compensated for approved additional services not included
in this Subcontract, on an hourly basis, or a negotiated mutually agreeable
basis as determined in accordance with the rate schedules as shown above or on a
Firm Fixed Price. All additional services shall be determined in accordance with
the Changes clause of the General Provisions of this Subcontract.

4. LIMITATION OF FUNDS

If at any time Subcontractor has reason to believe that the total cost that it
expects to incur in the performance of the public outreach/support work will
exceed seventy-five percent (75%) of the total amount set forth in Item Number 1
and 1-A, Compensation, above, Subcontractor shall provide a thirty (30) day
advance notification to the Contractor's Subcontract Administrator in writing to
that effect, giving its revised estimate to complete the work under this
subcontract.

Contractor shall not be obligated to pay costs in excess of the total amount
specified; and the Subcontractor shall not be obligated to perform the work,
unless the Subcontractor is notified in writing, that such amount has been
increased.

5. FINAL PAYMENT

The acceptance by Subcontractor of final payment under this subcontract shall
operate as a full release of Contractor from any and all claims of Subcontractor
and its agents for all services performed hereunder. The attached
Subcontractor's Final Release and Indemnity Certificate and Indemnity Form SU-5
(1/91), (Section IV Attachment #2) must be completed, signed, notarized, and
accompany the Subcontractor's request for final payment. (Reference Section VI,
General Provisions Article 16).

                      Section IV - Compensation and Payment
                                   Page 5 of 6

<PAGE>

6. AUDIT

Contractor's duly authorized representatives shall have access at all reasonable
times to all records, documents, files, and personnel necessary to audit and
verify Subcontractor's charges to Contractor for work performed. Subcontractor
shall retain records, documents and files related to such charges for a period
of three (3) years following the date of final payment to Subcontractor for all
work performed. Contractor's representatives shall have the right to reproduce
any of the aforesaid documents.

If, as the result of an audit hereunder, Subcontractor is determined to have
charged Contractor for amounts that are not allocable or non-verifiable,
Subcontractor shall promptly reimburse Contractor for said amounts.

                      Section IV - Compensation and Payment
                                   Page 6 of 6

<PAGE>

                                   Section IV

                    Compensation and Payment - Attachment #1

                                        1

<PAGE>

                           ATTACHMENT 1 TO SECTION IV

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Public Outreach                                          Travel
                           Total                                               Per Diem      Per Diem
                           Hours     Rate    Extended Price   Travel Days        Rate          Total
                           -----   -------   --------------   -----------   -------------   ----------
<S>                         <C>    <C>         <C>               <C>            <C>         <C>
Job Classification
Program Manager             1092   $125.00     $136,500.00       108            $85.00      $ 9,180.00
Admin Assit                  853   $ 45.00     $ 38,385.00        36            $85.00      $ 3,060.00
Clerical (3)                 575   $ 35.00     $ 20,125.00       108            $85.00      $ 9,180.00
Senior Ent/Scientist (2)     480   $ 95.00     $ 45,600.00        72            $85.00      $ 6,120.00
                                               $240,610.00                                  $27,540.00
------------------------------------------------------------------------------------------------------

<CAPTION>
----------------------------------------------------------------
Public Outreach

                           Rental Car Days    Rate
                           ---------------   ------
<S>                             <C>          <C>      <C>
Job Classification
Program Manager                 108          $65.00   $ 7,020.00
Admin Assit                      10          $65.00   $   650.00
Clerical (3)                     36          $65.00   $ 2,340.00
Senior Ent/Scientist (2)         36          $85.00   $ 3,060.00
                                                      $13,070.00
----------------------------------------------------------------
                                                      $40,610.00
</TABLE>

-------------------------------------------------------------------------------
                                                                      Extended
                                      Unit    Number      Rate         Price
Related Expense                     -------   ------   ----------   -----------

Public Meetings
Meeting Rooms                       days        24     $   500.00   $ 12,000.00
Equipment Rental                    days        24     $   800.00   $ 19,200.00
Advertisement                       days       120     $   200.00   $ 24,000.00
Graphics                            each        25     $   750.00   $ 18,750.00
Supplies                                         1     $ 4,150.00   $  4,150.00
Telephones                          monthly      9     $   500.00   $  4,500.00
Equipment Purchase                               1     $ 3,000.00   $  3,000.00
Total                                                               $ 85,600.00

Other Outreach
Newspaper Subscriptions             monthly    180     $    40.00   $  7,200.00
Clipping Service                    monthly            $ 5,500.00   $  5,500.00
Printing                                               $15,000.00   $ 15,000.00
Purchase TV / Radio Tapes           each        50     $   125.00   $  6,250.00
PR Consultants                                                      $100,000.00
Total                                                               $133,950.00

Community Development
Training First Responders           each        10     $ 5,000.00   $ 50,000.00
Equipment First Responders                      18     $20,000.00   $360,000.00
Outreach Grants                     each        10     $20,000.00   $200,000.00
Community Education                 each        10     $ 5,000.00   $ 50,000.00
Dayton Community
Involvement Grants                  each         2     $50,000.00   $100,000.00
Total                                                               $760,000.00
-------------------------------------------------------------------------------

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

  Related
Expense Total                                                     Extended Total
-------------                                                     --------------

Public Outreach                                                    $  281,220.00

Public Meetings                                                    $   85,600.00

Other Outreach                                                     $  133,950.00

Community Development                                              $  760,000.00
                                                                   -------------
TOTAL                                                              $1,260,770.00
--------------------------------------------------------------------------------

<PAGE>

                                   Section IV

                    Compensation and Payment - Attachment #2

                                        1

<PAGE>

                           ATTACHMENT 2 TO SECTION IV

             SUBCONTRACTOR'S FINAL RELEASE CERTIFICATE AND INDEMNITY

Project No. DAAA09-99-C-0016                        Subcontract No. 742168-40069

This Release and Certificate is made in accordance with the provisions of
Subcontract No. __________________ including any and all Amendments thereto,
executed by the __________________________________________ hereinafter referred
to as the "SUBCONTRACTOR" and PARSONS hereinafter referred to as the
"CONTRACTOR." The "OWNER," hereinafter referred to, is ________________________.

In consideration of payments made heretofore, or to be made, by the CONTRACTOR
to the SUBCONTRACTOR for labor, materials, and services furnished by the
SUBCONTRACTOR in the performance of said Subcontract, the SUBCONTRACTOR hereby
unconditionally releases the CONTRACTOR and OWNER, their Officers, Agents,
Employees, Assigns, or Heirs from any and all liens and claims whatsoever
arising out of or during the performance of said Subcontract other than such
claims, if any, that may with the consent of the CONTRACTOR and the OWNER, be
specifically excepted from the terms of this Release and Certificate, stated on
Sheet l, attached hereto (or, if none, so state): ______________________________
________________________________________________________________________________
and in further consideration of the aforesaid payments as SUBCONTRACTOR being
first duly sworn, further affirms and certifies under penalty of perjury that
all labor, materials, and services of every nature by whomsoever furnished in
connection with the performance of said Subcontract and all applicable state and
federal payroll taxes and payroll insurances have been paid and SUBCONTRACTOR
hereby agrees to indemnify CONTRACTOR and OWNER, respectively, against, and
hold them harmless of and from, all liens, claims, demands, penalties, losses,
costs, damages, and liability in any manner whatsoever heretofore or hereafter
arising out of or in respect of any claim by any person or governmental agency
for payment for work, labor, services, or materials heretofore or hereafter
performed, furnished, or rendered under or pursuant to or in respect of the
performance of said SUBCONTRACTOR or the aforesaid applicable taxes and
insurances.

Executed this __________ day of ______________ 200__

(Corporate Seal)

                                     -------------------------------------------
                                                    SUBCONTRACTOR

                                     By
                                        ----------------------------------------

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

                                                    OFFICIAL TITLE

(If the SUBCONTRACTOR is a corporation, the following Certificate will be
executed.)

I, _____________________________________________, certify that I am the
_________________________________________ of the Corporation executing this
Release and Certificate; that ___________________________________ who signed
this Release and Certificate on behalf of the SUBCONTRACTOR was then
______________________________ of said Corporation; that said Release and
Certificate was duly signed for and on behalf of said Corporation authority of
its governing body, and is within the scope of its corporate powers.

STATE OF ___________________________

                                     SS

COUNTY OF __________________________)

Subscribed and sworn to before me this _____________ day of ____________ 200__

                                       -----------------------------------------
                                       NOTARY PUBLIC IN AND FOR SAID STATE

<PAGE>

                                    Section V

                               Special Provisions

<PAGE>

                                    SECTION V
                                     Rev. 0
                               SPECIAL PROVISIONS
                            SUBCONTRACT 742168-40069

1.   FEDERAL ACQUISITION REGULATION (FAR) FLOWDOWN CLAUSES:

Exhibit 1 to this Section identifies all FAR clauses incorporated by reference
and/or in full text.

2.   REQUESTS FOR INFORMATION (RFI) and DEVIATION (RFD)

Requests for Information/Deviation (RFI/D) Process:

All Subcontractor requests for technical information or technical clarification
shall be forwarded to Contractor on Contractor's approved "Request for
Information/Deviation" form, attached as Exhibit 2. Subcontractor shall control
and maintain a log of all RFI/D's it submits to Contractor (reference Parsons
Project Procedure 7.1.5). RFI/D's shall be controlled by using the last 3 digits
of this Subcontract number followed by a 3 digit sequential number, i.e. 001. To
assist in expediting the Work, Subcontractor shall discuss the RFI/D with
Contractor's responsible Cost Account Manager (CAM) or his designee and obtain
the CAM's initials on the RFI/D prior to officially submitting to Contractor's
Document Control Department. RFI/D's submitted without the CAM's initials will
be returned to the Subcontractor unanswered and not logged into Contractor's
document control system. Contractor will endeavor to return all accepted RFI/D's
to Subcontractor within 7 working days, or less.

3.   SMALL BUSINESS SUBCONTRACTING PLAN

Federal Acquisition Regulation 52.219-9, identified in this Section V, Exhibit
1, establishes the requirement to submit such a plan with your proposal. The
Plan must be approved prior to any subsequent Notice to Proceed. Failure to
establish, and maintain the approved Plan may be grounds for Termination of the
Subcontract.

NOTE: This requirement is applicable only if the awarded SUBCONTRACTOR(s) is a
large business. If the awarded SUBCONTRACTOR(s) is a small business, the Small
Business Subcontracting Plan IS NOT REQUIRED.

4.   SALES/USE TAXES

The Newport Chemical Agent Disposal Facility (NECDF) Project is exempt from
sales/use taxes for all materials, equipment, and other tangible personal
property that is incorporated into the NECDF government facility. The exemption
covers property for which the government will be the ultimate user. Contractor
will issue the appropriate exemption certificate for Subcontractor use.

                                     1 of 4

<PAGE>

5.   SITE ACCESS

The NECD and NECDF are "closed" facilities requiring appropriate badging et al
considerations for entry. Separate entry considerations will be required for the
NECD and limited area of the NECDF. Transport vehicles will be subject to search
at both entry facilities and inspection time is estimated at approximately 15
minutes each. Badging et al access details will be provided and reviewed prior
to initiation of NECDF-site work, but particular personnel requirements are
noted as follow:

A.   Subcontractor Waste Coordinator.

The Subcontractor's Waste Coordinator (see Statement of Work item 3.5b) will
require unescorted entry to the NECDF limited area. The Waste Coordinator must
be a U.S. citizen, have the ability to wear PPE as necessary, and be enrolled in
the NECD Commander's Unescorted Access Program. A National Agency check is
required for Unescorted Access Program entry and the Subcontractor will need to
request, complete and return to the Contractor no later than four (4) months
prior to the start of NECDF-site work the following related information:

     (1)  Application for Civilian ID Card/Security Badge,
     (2)  FD Form 258, Applicant Fingerprint Card, and
     (3)  DD Form 398-2, Department of Defense National Agency Questionnaire.

A.   Subcontractor Waste-Transport Personnel.

The Subcontractor's waste-transport personnel (ie, drivers) will need to be U.S.
citizens and capable of wearing necessary PPE.

6.   INSURANCE

     Modifications to Section VI General Provisions - Standard Subcontract
     Article 6:

     A.   Substitute "6.A" with the following:

          Workers' Compensation Insurance and Employer's Liability Insurance
          including occupational disease in accordance with the laws of States
          or Provinces where the Services are to be performed. Employer's
          Liability Insurance will have a limit of $1,000,000 per person per
          accident.

          If the performance of this Subcontract requires the use of watercraft
          or is performed over water, Subcontractor shall also provide coverage
          for liability under U.S. Longshoremen's and Harbor Workers'
          Compensation Act and liability for admiralty benefits and damages
          under the Jones Act and further provide that a claim "in rem" shall be
          treated as a claim against the employer.

     B.   Substitute "6.B" with the following:

          Comprehensive General Liability Insurance, including contractual
          liability and Products Completed Operations coverage with limits of
          not less than $5,000,000 combined single limit per occurrence.

                                     2 of 4

<PAGE>

     C.   Substitute "6.C" with the following:

          Automobile Liability Insurance covering owned, non-owned and hired
          vehicles used by Subcontractor with limits of not less than $5,000,000
          combined single limit per occurrence.

          If Subcontractor's Comprehensive General Liability Insurance and Auto
          Liability Insurance are combined forming one policy and one limit of
          liability, the limits shall not be less than $5,000,000 combined
          single limit per occurrence.

          With respect to transportation responsibilities under this
          Subcontract, Subcontractor shall maintain or, if responsibility is
          subcontracted, require the transportation Subcontractor to maintain
          any other insurance or surety bonding in amounts that may be required
          under the laws, ordinances and regulations of any governmental
          authority, including the Federal Motor Carrier Act of 1980 and all
          rules and regulations of the Department of Transportation.

     D.   Substitute "6.D" with the following:

          l. Professional Liability Insurance with a limit of at least
          $1,000,000 each occurrence with annual aggregate for all claims of
          $1,000,000 subject to a deductible each occurrence of not more than
          $50,000.

          2. Pollution Liability Insurance for sudden pollution, incidents,
          covering bodily injury and property damage, including cost of cleanup
          for pollution conditions arising from transportation, treatment and
          disposal operations performed under this Subcontract. The limit of
          liability for such insurance shall not be less than $5,000,000
          combined single limit per occurrence.

     E.   Insert and incorporate the following as "6.E.3":

          Pollution Liability Insurance for non-sudden pollution incidents,
          covering bodily injury and property damage, including cost of cleanup
          for pollution conditions arising from transportation, treatment and
          disposal operations performed under this Subcontract. The limits of
          liability for such insurance shall not be less than $5,000,000
          combined single limit per occurrence.

     G.   Substitute Paragraph "6.G.1" with the following:

          Additional Insured; As to insurance set out in Paragraphs 6.B, 6.C,
          6.D.2, 6.E.1, 6.E.2, 6.E.3, 6.F.1, and 6.F.2, hereof shall name the
          indemnities as additional insured in matters covered by this
          Subcontract. "Indemnities" shall be defined as the Contractor or Owner
          or any of their respective parents, subsidiaries, agents, employees,
          invitees, servants, subcontractors, insurers, underwriters, and such
          other parties as they may designate.

          Insert and incorporate the following as "6.G.3.1":

          The insurance as specified in Paragraph 6.D.2 and 6.E.3 shall be
          issued on a claims made basis.

                                     3 of 4

<PAGE>

7.   INDEMNIFICATION

     Modifications to Section VI General Provisions - Standard Subcontract
     Article 15:

     Substitute Article 15 with the Following:

     To the fullest extent permitted by law, Subcontractor shall defend,
     indemnify and hold harmless Contractor, its parent and affiliates (and the
     officers, directors, employees, agents, and invitees of any of them), its
     subcontractors and suppliers of any tier (subcontractors), and Client from
     and against any and all liabilities, claims, demands, damages, or costs,
     including, without limitation, settlement sums, attorney fees, consultant
     and expert fees (liabilities), alleged or incurred in connection with (1)
     personal injury and/or property damage, (2) workers' compensation
     assessments or claims involving employees of Subcontractor and/or its
     subcontractors, (3) environmental and/or natural resource damages, (4)
     breach by Subcontractor of this Subcontract, (5) violation by Subcontractor
     of any applicable law pursuant to clause 7, (6) fines/penalties/assessments
     levied by any regulatory body or governmental entity, and/or (7) any other
     liabilities arising from Subcontractor's and/or its subcontractors
     performance of the Services, and including liability caused by the
     concurrent negligence of Contractor and/or Client, unless caused by the
     sole negligence of Contractor.

     See Special Provisions Incorporated by Attachments:

     Special Provisions - Attachment #1 Parent Company Guarantee (Tab m)
     Special Provisions - Attachment #2 Documents Incorporated by Reference and
     Termination Clause for Treatability Studies (Tab n)
     Special Provisions - Attachment #3 Cell Phone use on NECDF Depot (Tab o)
     Special Provisions - Attachment #4 Patents and Intellectual Property
     Ownership identification (Tab p)

                                     4 of 4

<PAGE>

                                    Section V

                       Special Provisions - Attachment #1

                                        1

<PAGE>

                                     [LOGO]

                                                      Attachment #1 to Section V

                            PARENT COMPANY GUARANTEE

This Guarantee Agreement (hereinafter referred to as "Guarantee") is given by
PERMA-FIX ENVIRONMENTAL SERVICES, INC. (hereinafter referred to as "Guarantor"),
a corporation duly organized and existing under the laws of the State of
Delaware, the United States of America to PARSONS INFRASTRUCTURE AND TECHNOLOGY
GROUP, INC. (hereinafter referred to as "PARSONS"), a corporation duly organized
and existing under the laws of the State of Nevada, the United States of
America.

                                    RECITALS

(1)  PARSONS wishes to utilize the services, know-how, technology, engineering,
     and expertise of companies related to Guarantor for Treatability Studies,
     Public Outreach, Transport, Treatment and Disposal of Hydrolysate Waste,
     relative to the Newport Chemical Disposal Facility ("TSDF Project") at
     Newport, Indiana.

(2)  As an inducement to PARSONS for awarding a subcontract for the above
     services to Perma-Fix of Dayton, Inc. (hereinafter, "Subcontractor"), the
     Guarantor is willing to guarantee the performance, duties and obligations
     of Subcontractor on the TSDF Project, under Parsons Subcontract
     #742168-40069 effective December 21, 2002.

In consideration of the award by PARSONS of the TSDF Project, Subcontract
#742168-40069, for Treatability Studies, Public Outreach, Transport, Treatment
and Disposal of Hydrolysate Waste Services, to Subcontractor, the Guarantor
hereby agrees as follows:

(1)  Guarantor hereby guarantees the complete performance and fulfillment of
     contractual obligations by Subcontractor as set forth in the fully executed
     Subcontract #742168-40069 (hereinafter, "Subcontract") between PARSONS
     and Subcontractor;

(2)  If Subcontractor fails to perform according to the terms and conditions of
     the Subcontract or fails to fulfill contractual obligations under the
     Subcontract, then Guarantor shall perform or cause to be performed such
     obligations, and/or fulfill such contractual obligations, promptly upon the
     demand of PARSONS, to the same extent and in the same manner as if
     Guarantor were the Subcontractor;

(3)  This Guarantee shall be subject to and enforceable under the laws, of the
     State of Delaware.

IN WITNESS WHEREOF, the Guarantor has executed this Guarantee effective the 21st
day of December 2002.

                                     /s/ Louis Centofanti
                                     -------------------------------------------
                                     Name: Louis Centofanti
                                     Title: Chairman Permafix Env. Services Inc.

1940 N.W. 67th Place, Suite A      Telephone (352) 373-4200 / Fax (352) 373-0040
Gainesville, Florida 32563

<PAGE>

                                    Section V

                       Special Provisions - Attachment #2

                                        1

<PAGE>

                  Attachment #2 to Section V special Provisions

The documents listed below are incorporated herein, by reference, in full force
and effect as if they were presented in full text:

     1)   Request for Proposal (RFP) dated July 26, 2002.

     2)   Request for Proposal (RFP) Amendment #1 dated August 13, 2002.

     3)   Request for Proposal (RFP) Amendment #2 dated August 26, 2002.

     4)   Perma-Fix Proposal for TSDF dated August 26, 2002.

     5)   Parsons letter to Perma-Fix dated September 16, 2002 identifying
          Proposal deficiencies.

     6)   Parsons letter to Perma-Fix dated September 18, 2002 identifying
          Proposal omissions and math errors.

     7)   Perma-Fix letter to Parsons dated September 19, 2002 with response and
          clarification for item #5: and #6 above.

     8)   Parsons letter to Perma-Fix for site survey visit and
          questions/answers.

     9)   Minutes for TSDF negotiations on November 6, 2002.

     10)  Memoranda of Agreements for TSDF negotiations on November 6, 2002.

     11)  Minutes for TSDF negotiations on November 7, 2002.

     12)  Memoranda of Agreements for TSDF negotiations on November 7, 2002.

     13)  Minutes for conference call November 12, 2002 with Parsons/Perma-Fix
          regarding TSDF Negotiations on November 6, 2002 and November 7, 2002.

     14)  Perma-Fix letter to Parsons dated November 15, 2002 providing Parent
          Company guarantee and D&B, Report clarifications.

     15)  Perma-Fix letter to Parsons dated November 18, 2002 providing
          clarification and supplemental information.

     16)  Parsons letter dated December 21, 2002 Notice of Award and Limited
          Notice to Proceed.

Insert the following Special Provisions Clauses into Section V Rev 0 Special
Provisions.

TERMINATION TREATABILITY STUDIES:

"Subcontractor agrees that should Subcontractor fail to provide satisfactory
assurance to Contractor or its customer, in accordance with the established
criteria for satisfactory completion of the Phase I treatability study,
Contractor will suspend all follow on work for transport, treatment and disposal
of Hydrolysate without further obligation beyond Phase I activities. It is the
understanding of both parties that all cost associated with the treatability and
required actions related to Subcontractor's preparation for performance of
follow on phase II activities related to the established scope for Phase II and
to meet established program schedules are included in the fixed price Phase I
activities and are severable from Phase II transport, treatment and disposal
activities. Further, that both parties agree that should subcontractor fail to
meet the established criteria for successful completion of the Phase I
treatability study, Contractor may based on its sole opinion terminate all work
related to Phase II transport, treatment and disposal, in accordance

                                        1

<PAGE>

with the provision established within the contract without obligation for any or
all cost incurred by Subcontractor in preparation for Phase II work beyond those
accomplished in accordance with the firm fixed priced activities under Phase I".

"Subcontractor agrees that due to the nature and sensitivity of this project
conditions may arise that are beyond the control or independent of the actions
of either party. Should in its sole opinion the Contractor determine that the
project can not proceed due to a material impairment beyond the control of
either party; both parties agree that the Contractor may suspend work in
accordance with the established provisions of the Contract. Further that during
the period of such suspension the Subcontractor shall fully support the
Contractor actions to recommence subcontractor performance and or actions
necessary to obtain and initiate an alternate source(s) for performance of work.
It is the intent of both parties that should a condition exists after the
successful completion of the Phase I treatability study (and beyond the control
of either party) that in the sole opinion of the Contractor can not be resolved
after due effort by both parties; the Contractor may terminate or cancel for
convenience without prejudice, all remaining work in accordance with the
provisions established within the Contract. Further, that during the period of
notification to terminate, the Contractor may immediately proceed to and the
Subcontractor shall support actions required to obtain alternate performance of
the established scope of work".

<PAGE>

                                    Section V

                       Special Provisions - Attachment #3

<PAGE>

[GRAPHIC]         Attachment #3 to Section V Special Provisions

                             DEPARTMENT OF THE ARMY
                             NEWPORT CHEMICAL DEPOT
                                  P.O.BOX 160
                           NEWPORT, INDIANA 47966-0160

     REPLY TO
     ATTENTION OF

AMSSB-ONC-SF                                                    12 December 2002

MEMORANDUM FOR All Depot Employees

SUBJECT: Use of Cell Phones in Vehicles on the Depot

1. Effective immediately the use of cell phones while driving vehicles on the
depot is prohibited. When using a cell phone in a vehicle, the vehicle must be
stopped out of the flow of traffic. This requirement will be added to the Depot
safety rules.

2. The, National Safety Council, the National Transportation Safety Board, and
the Department of Defense recommend not using communications devices while
operating vehicles. Statistically, the probability of accidents increases when
using communications devices while operating vehicles.

                                                          /s/ JOSEPH F. MARQUART
                                                          ----------------------
                                                          JOSEPH F. MARQUART
                                                          LTC, CM
                                                          Commanding

<PAGE>

                                    Section V

                       Special Provisions - Attachment #4

<PAGE>

[LETTERHEAD OF [Perma-Fix Environmental Services, Inc]]

February 24, 2003

Government Office Complex
Parsons
Highway 63 South
Newport, IN 47966

Attn: Melvyn Mitchell
      Subcontract Administrator

Subject: Subcontract No. 742168 40069, Amendment 0

Dear Melvyn:

Please find attached the applications for patents and intellectual properties
that we previously discussed.

It is my understanding that this letter will be incorporated into the contract.

The described patents and intellectual properties activities were clearly
started prior to Perma-Fix's involvement in the Newport Hydrolysate Project.

If you have any questions or need additional information, please feel free to
contact me at 865-376-0084.

Sincerely,

/s/ Larry W. McNamara
-------------------------
Larry W. McNamara
President
Nuclear Services Division

Attachments: As noted above.

<PAGE>

                   APPLICABLE PATENT & INTELLECTIAL PROPERTIES

Patent Application

1.   Separation and destruction of organic materials.

     Description:

          Use of separation and persulfate oxidation in water from solids (soils
          & sludges) to remove and destroy organic materials.

     Status:

          Patents filed on 7/21/98, Serial Number 09/120,351

Patent Application

2.   Destruction of Tributyl phosphates, organo-phosphates and
     organo-phosphonates.

     Description:

          Use of persulfate in water to destroy the above class of compounds.

     Status:

          Perma-Fix Patent disclosures sent to attorneys - May 2002.
          (Perma-Fix Control Number 0205-3) Filing in process.

Patent Application

3.   Catalyzed destruction of Tributyl-phosphates, organo-phosphates and
     organo-phosphonates.

     Description:

          The use of metal salts and hydrogen peroxides at highly specific
          conditions to destroy the above class of compounds.

     Status:

          Perma-Fix Patent disclosure sent to attorneys in May 2002
          (Perma-Fix Control Number 0205-4) Filing in process.

<PAGE>

Patent Application

4.   Separation and destruction of mixed organic compounds using solvent
     extraction and oxidants in water.

     Description:

          Using solvent extraction then oxidants (persulfate & peroxide) to
          destroy organic compounds in water.

     Status:

          Discussion on considering whether to amend Number 1 with data or new
          patent.

Patent Application

5.   Use of activated charcoal as an extractant in solvent extraction.

     Description:

          Activated charcoal is used to extract large volumes of organic
          materials from aqueous phase with and without an organic solvent.

     Status:

          Perma-Fix Patent Disclosure sent to file Oct. 2000. Not sent to
          attorneys; considering filing.

<PAGE>

                                   Section V

                               Special Provisions
                         Exhibit 1 to Section V, Rev 0

                                        1

<PAGE>

                                  EXHIBIT 1 TO
                                SECTION V, Rev 0
                               SPECIAL PROVISIONS

                        PRIME CONTRACT FLOW-DOWN CLAUSES
                         APPLICABLE TO THIS SUBCONTRACT

1. The following clauses from the Federal Acquisition Regulation (FAR) and the
Defense Federal Acquisition Regulation Supplement (DFARS) are cited by reference
and by this reference are incorporated, as applicable, herein to the same extent
as though set forth in full text. A copy of the clauses will be made available
upon request. Additionally, the Federal Acquisition Regulation (FAR), are
available on the World Wide Website (WWW): http://www.arnet.gov/far/., and the
Defense Federal Acquisition Regulation Supplements, are available on:
http://farsite.hill.af.mil/VFFARA.HTM.

2. In the following clauses, the term "CONTRACTOR" shall be substituted for the
terms "GOVERNMENT" and "CONTRACTING OFFICER" wherever they occur. The term
"SUBCONTRACTOR" shall be substituted for the term "CONTRACTOR".

3. The substitutions shall be made wherever they occur except in the
"Examination of Records by Comptroller General" and "Government Property"
clauses where the terms "GOVERNMENT" and "CONTRACTING OFFICER" remain unchanged
and "SUBCONTRACTOR" is substituted for "CONTRACTOR".

4. FAR CLAUSES

FAR
CLAUSE
NUMBER         TITLE OF CLAUSE
---------      ----------------
52.202-1       Definitions (10/95)
52.203-3       Gratuities (4/84)
52.203-5       Covenant Against Contingent Fees (4/84)
52.203-6       Restrictions on Subcontractor Sales to the Government (7/95)
52.203-7       Anti-Kickback Procedures (7/95)
52.203-8       Cancellation, Rescission, and Recovery of Funds for Illegal or
               Improper Activity (1/97)
52.203-10      Price or Fee Adjustment for Illegal or Improper Activity (1/97)
52.203-12      Limitation on Payments to Influence Certain Federal Transactions
               (6/97)
52.204-2       Security Requirements (8/96)
52.204-4       Printing/Copying Double-sided on recycled paper (6/96)
52.209-6       Protecting the Government's Interest When Subcontracting With
               Subcontractors Debarred, Suspended or Proposed for Debarment
               (7/95)
52.215-2       Audit and Records - Negotiation (6/99)
52.215-13      Subcontractor Cost or Pricing Data - Modifications (10/97)
52.215-15      Pension Adjustments and Asset Reversions (12/98)
52.215-18      Revision or Adjustment of Plans for Postretirement Benefits (PRB)
               Other Than Pensions (10/97)
52.217-8       Option to extend services (11/97)
52.219-8       Utilization of Small Business Concerns (10/99)
52.219-9       Small, Small Disadvantaged and Women-Owned Small Business
               Subcontracting Plan (AUG 1996) - Alternate II (MAR 1996)
52.219-16      Liquidated Damages - Subcontracting Plan (1/99)

                                     1 of 3

<PAGE>

52.222-3       Convict Labor (8/96)
52.222-4       Contract Work Hours and Safety Standards Act - Overtime
               Compensation (7/95)
52.222-22      Previous Contracts and Compliance Reports (2/99)
52.222-21      Prohibition of Segregated Facilities (2/99)
52.222-26      Equal Opportunity (2/99)
52.222-35      Affirmative Action for disabled Veterans and Veterans of the
               Vietnam Era (4/98)
52.222-36      Affirmative Action for Workers with Disabilities (6/98)
52.222-37      Employment reports on disabled veterans and veterans of the
               Vietnam Era
52.222-41      Service Contract Act of 1965, as Amended (5/89)
52.222-43      Fair Labor Standards Act and Service Contract Act - Price
               Adjustment (Multiple Year and Option Contracts) (5/89)
52.223-1       Clean Air and Water Certification (2/99)
52.223-2       Clean Air and Water
52.223-3       Hazardous Material Identification and Material Safety Data (1/97)
52.223-6       Drug-Free Workplace (1/97)
52.223-10      Waste Reduction Program (10/97)
52.223-14      Toxic Chemical Release Reporting (10/96)
52.224-1       Privacy Act Notification (4/84)
52.224-2       Privacy Act (4/84)
52.227-1       Authorizations and Consent (7/95)
52.227-2       Notice and Assistance Regarding Patent and Copyright Infringement
               (8/96)
52.227-10      Filing of Patent Applications - Classified Subject Matter (4/84)
52.228-5       Insurance - Work on a Government Installation (1/97)
52.229-5       Taxes - Contracts performed in U.S. Possessions or Puerto Rico
               (4/84)
52.232-17      Interest (6/96)
52.237-2       Protection of Government Buildings, Equipment, and Vegetation
               (4/84)
52.242-13      Bankruptcy (7/95)
52.244-5       Competition in Subcontracting (12/96)
52.244-6       Subcontracts for Commercial Items and Commercial Components
               (5/2001)
52.246-25      Limitation of Liability - Services (2/97)
52.247-63      Preference for U.S. Flag Air Carriers (1/97)
52.248-1       Value Engineering (2/2000)
52.249-2       Termination for Convenience of the Government (Fixed Price)
               (9/96)
52.252-6       Authorized Deviations in Clauses (4/84)
52.253-1       Computer Generated Forms (1/91)

5. DFARS CLAUSES

DFARS
CLAUSE
NUMBER         TITLE OF CLAUSE
------------   ---------------
252.201-7000   Contracting Officer's Representative
252.203-7001   Special Prohibition on Employment
252.203-7002   Display of DOD Hotline Poster
252.204-7000   Disclosure of Information
252.204-7003   Control of Government Personnel Work Product
252.205-7000   Provision of Information to Cooperative Agreement Holders

                                     2 of 3

<PAGE>

252.209-7000   Acquisition from Subcontractors subject to on-site inspection
               under the Intermediate-Range Nuclear Forces (INF) Treaty.
252.211-7000   Acquisition Streamlining
252.215-7000   Pricing Adjustments
252.215-7002   Cost Estimating System Requirements
252.219-7003   Small, Small Disadvantaged and Women-Owned Small Business
               Subcontracting Plan (DOD Contracts)
252.223-7004   Drug-Free Work Force
252.225-7012   Preference for Certain Domestic Commodities
252.225-7026   Reporting of Contract Performance Outside the United States
252.225-7031   Secondary Arab Boycott of Israel
252.227-7013   Rights in Technical Data - Noncommercial items
252.227-7020   Rights in Special Works
252.227-7030   Technical Data Withholding of Payment
252.227-7037   Validation of Restrictive Markings on Technical Data
252.231-7000   Supplemental Cost Principles
252.243-7001   Pricing of Contract Modifications
252.245-7001   Reports of Government Property
252.249-7002   Notification of Anticipated Contract Termination or Reduction
252.232-7007   Limitation of Government's Obligation
252.236-7000   Modification Proposals - Price Breakdown
252.243-7000   Engineering Change Proposals
252.243-7002   Certification of Requests for Equitable Adjustments

See Special Provisions Exhibit 1 to Section V, Rev 0 Attachment 1 Incorporating
additional FAR Clause

                                     3 of 3

<PAGE>

                                    SECTION V

                               SPECIAL PROVISIONS
                          EXHIBIT 1 TO SECTION V, REV 0
                                  ATTACHMENT #1

<PAGE>

                             SECTION V ATTACHMENT #1

                SPECIAL PROVISIONS EXHIBIT 1 TO SECTION V, REV 0

               PRIME CONTRACT FLOW-DOWN CLAUSES APPLICABLE TO THIS
                                   SUBCONTRACT

Insert the following Federal Acquisition (FAR) Clause into Exhibit 1 to Section
V, Rev 0 Special Provisions:

52.223-13   Certification of Toxic Chemical Release Reporting (10/96).

<PAGE>

                                    Section V

                               Special Provisions
                          Exhibit 2 to Section V, Rev 0

<PAGE>

                                                                       Exhibit 2

<TABLE>
---------------------------------------------------------------------------------------------------------
<S>                                                 <C>                       <C>
                                                    No.:                      Date:
[_] REQUEST FOR DEVIATION
                                                    -----------------------   ---------------------------
[_] REQUEST FOR INFORMATION                         Job No.:                  CLIN No.:

---------------------------------------------------------------------------------------------------------
Subject:                                                                      Discipline:

---------------------------------------------------------------------------------------------------------
RFD/For Deviation:        Eng. Drawings:   [_]   Specification:   [_]   Standard:   [_]   Other:   [_]

RFI/Reason:          [_]  Information:   [_]  Clarification:   [_]  Discrepancy:   [_]  Other:
---------------------------------------------------------------------------------------------------------
Reference:
---------------------------------------------------------------------------------------------------------
Justification/Description:

[_]  CIS ATTACHED
                                               CAM Review:             Date:
---------------------------------------------------------------------------------------------------------
Originator:                                                                   Date:
---------------------------------------------------------------------------------------------------------
Reply:   Response to a RFD/RFI is a technical solution only to the above query and does not authorize
         additional cost. If Subcontractor feels additional costs is justified, a "Change Request" must
         be submitted by the Subcontractor and approved by Parsons Program Management prior to the work
         being performed in the feild.
---------------------------------------------------------------------------------------------------------

[_]  CIS ATTACHED

---------------------------------------------------------------------------------------------------------
Discipline Engineer:                                                          Date:
---------------------------------------------------------------------------------------------------------
Engineer:                                                                     Date:
---------------------------------------------------------------------------------------------------------
__________:                                         AS-BUILT REQ'D:           Date:
---------------------------------------------------------------------------------------------------------
Manager:                                                                      Date:

Operations Manager:                                     FCCB REQ'D:           Date:
---------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                   Section VI

                     General Provisions Standard Subcontract

<PAGE>

                                   SECTION VI

                               GENERAL PROVISIONS
                              STANDARD SUBCONTRACT

                               TABLE OF CONTENTS

1 DEFINITIONS ..............................................................1
2 GOVERNING LAW ............................................................1
3 INDEPENDENT CONTRACTOR ...................................................1
4 TAXES, DUTIES, PERMITS, AND FEES .........................................1
5 UNEMPLOYMENT INSURANCE AND TAXES .........................................1
6 INSURANCE ................................................................2
7 LAWS AND REGULATIONS .....................................................3
8 TIME OF PERFORMANCE ......................................................3
9 PERFORMANCE REQUIREMENTS .................................................3
10 WARRANTIES ..............................................................3
11 CHANGES AND EXTRA WORK ..................................................3
12 OVERTIME ................................................................3
13 LIENS, ENCUMBRANCES, AND CLAIMS .........................................3
14 PATENTS AND ROYALTIES ...................................................4
15 INDEMNIFICATION .........................................................4
16 SUBCONTRACTOR'S FINAL RELEASE CERTIFICATE AND INDEMNIFICATION ...........4
17 TERMINATION .............................................................4
18 SUSPENSION OF WORK ......................................................5
19 NOTICE OF THIRD PARTY CLAIMS AGAINST THE SUBCONTRACTOR ..................5
20 NOTICES AND CORRESPONDENCE ..............................................5
21 DISPUTES ................................................................5
22 ASSIGNMENT ..............................................................6
23 CONFIDENTIALITY OF ALL DRAWINGS, SPECIFICATIONS, AND PLANS ..............6
24 RELEASE OF NEWS INFORMATION .............................................6
25 GRATUITIES ..............................................................6
26 RIGHTS, REMEDIES AND WAIVER .............................................6
27 ORDER OF PRECEDENCE .....................................................6
28 OFFSET ..................................................................6
29 SEVERABILITY ............................................................6
30 ENTIRE AGREEMENTS .......................................................6

1    DEFINITIONS

As used throughout this Subcontract, the following terms and expressions have
the meanings and interpretation set forth below:

A.   "Subcontract" means this written contract executed between Contractor and
     Subcontractor.

B.   "Services" and/or "Work" mean all services, labor, material and actions
     necessary for the performance of this Subcontract.

C.   "Prime Contract" means the contract between Contractor and Contractor's
     Client in support of which this Subcontract is issued, including any
     amendments thereto.

D.   "Contractor" means the entity identified as such on the face page of this
     Subcontract.

E.   "Subcontractor" means the entity, and all of its lower tier subcontractors,
     identified as such on the face page of this Subcontract.

F.   "Client" and/or "Owner" refers to the entity identified as Client on the
     face page of this Subcontract.

G.   "Subcontract Administrator" refers to Contractor's Procurement Department
     representative assigned to administer this Subcontract.

H.   "Subcontract Price" refers to the total price as set forth in Paragraph 1,
     Compensation and Payment section of this Subcontract.

I    "Site", "Worksite" and/or "Jobsite" refer to Client's premises associated
     with the Prime Contract.

2    GOVERNING LAW

This Subcontract shall be interpreted and enforced in accordance with the laws
of the State of California.

3    INDEPENDENT CONTRACTOR

Subcontractor shall be an independent contractor in all its operations and
activities hereunder, and all employees furnished by Subcontractor to perform
the Services shall be deemed to be Subcontractor's employees exclusively; and
shall be paid by Subcontractor for all services in this connection.
Subcontractor is not authorized to represent Contractor or otherwise bind
Contractor in any dealings between Subcontractor and any third parties.

4    TAXES, DUTIES, PERMITS, AND FEES

Subcontractor shall be responsible for all taxes, duties, permits, or fees
necessary for the performance of the Services.

5    UNEMPLOYMENT INSURANCE AND TAXES

Subcontractor shall have full and exclusive liability for the reporting and
payment of any and all taxes and contributions for unemployment insurance, old
age retirement benefits and similar pensions, and annuities that may now or
hereafter be imposed by the United States, any state, or any local governmental
authority, whether measured by the wages, salaries, or remuneration paid to
persons employed by Subcontractor or otherwise, for the Services. Subcontractor
shall comply with all federal and state laws on such subjects, including all
rules and

                                   Page 1 of 6

<PAGE>

              Section VI GENERAL PROVISIONS - STANDARD SUBCONTRACT

regulations and shall maintain suitable forms, books, and records.

6    INSURANCE

Subcontractor, from the time of start of the Services hereunder until completion
of the Services, shall provide at its own expense and maintain in effect the
following types and amounts of insurance with terms and with insurance companies
satisfactory to the Contractor:

A.   Workers' Compensation Insurance and Employer's Liability Insurance
     including occupational disease in accordance with the laws of States or
     Provinces where the Services are to be performed Employer's Liability
     Insurance will have a limit of $250,000 per person per accident.

     If the performance of this Subcontract requires the use of watercraft or is
     performed over water, Subcontractor shall also provide coverage for
     liability under U.S. Longshoremen's and Harbor Workers' Compensation Act
     and liability for admiralty benefits and damages under the Jones Act and
     further provide that a claim "in rem" shall be treated as a claim against
     the employer.

B.   Comprehensive General Liability Insurance, including contractual liability
     and Products Completed Operations coverage with limits of not less than
     $1,000,000 combined single limits.

C.   Automobile Liability Insurance coveringg owned, non-owned and hired
     vehicles used by Subcontractor with limits of not less than $1,000,000
     combined single limit.

     If Subcontractor's Comprehensive General Liability Insurance and Auto
     Liability Insurance are combined forming one policy and one limit of
     liability, the limits shall not be less than $1,000,000 combined single
     limit.

D.   Professional Liability Insurance with a limit of at least $1,000,000 each
     occurrence with annual aggregate for all claims of $1,000,000 subject to a
     deductible each occurrence of not more than $50,000.

E.   If the performance of this Subcontract requires the use of watercraft,
     Subcontractor shall carry, or require the owners of such watercraft to
     carry:

     1.   Hull and Machinery (including Collision Liability) Insurance in an
          amount not less than the market value of the watercraft (Charterer's
          and/or Owner's Limitation Clause to be deleted) and,

     2.   Protection Indenmity Insurance in an amount not less than the market
          value of the watercraft or $1,000,000, whichever is greater
          (Charterer's and/or Owner's Limitation Clause to be deleted).

F.   If the performance of this Subcontract requires the use of aircraft,
     Subcontractor shall carry, or require the owners of such aircraft to carry:

     1.   All Risks Hull Insurance in an amount equal to the replacement value
          of the aircraft; and

     2.   Bodily Injury Liability, including Passenger Liability of not less
          than $1,000,000 applicable to any one person and $1,000,000 for more
          than one person in any occurrence and $1,000,000 for loss of or damage
          to property in any one occurrence.

G.   Other Requirements

     1.   Additional Insured: As to insurance set out in Paragraphs B, C, E.1,
          E.2, F.1, and F.2, Contractor and Owner shall be included as an
          additional insured.

     2.   Waiver of Subrogation: All policies shall be endorsed to provide that
          underwriters and insurance companies of Subcontractor shall not have
          any right of subrogation against Contractor or Owner or any of its
          parents, subsidiaries, agents, employees, invitees, servants,
          subcontractors, insurers, underwriters, and such other parties as they
          may designate.

     3.   Primary Insurance: All policies shall be endorsed to provide that,
          with respect to Subcontractor's Services, Subcontractor's insurance
          shall always be primary coverage with respect to any insurance that
          may be maintained by Contractor or Owner.

     4.   Notice of Cancellation: All policies shall be endorsed to provide that
          thirty (30) days prior written notice shall be given to Contractor in
          the event of cancellation or material change in the policies.

     5.   Subcontractor and its subcontractors at all times shall waive any
          right of recovery against Contractor or Owner or any of their parents,
          subsidiaries, affiliates, agents, employees, invitees, servants,
          subcontractors, insurers, underwriters, and such other parties as they
          may designate for loss or damage covered by insurance of the types
          specified in paragraphs B, C, D, E, and F above and the Excess
          Employers Liability Insurance.

     6.   Certificates: Subcontractor shall furnish Certificates of Insurance
          evidencing insurance required hereunder before the start of any
          Services and upon request, shall furnish copies of the actual
          policies.

                                   Page 2 of 6

<PAGE>

               SECTION VI GENERAL PROVISIONS - STANDARD SUBCONTRACT

          Certificates of Insurance shall include specific reference to
          compliance with Paragraphs G.1, G.2, G.3, and G.4.

Subcontractor shall require its lower tier subcontractors to provide the same
insurance coverages and requirements as described herein, unless otherwise
agreed in writing between the parties.

7    LAWS AND REGULATIONS

A.   Subcontractor, its employees, and representatives, shall at all times
     comply with any and all applicable laws, ordinances, statutes, rules, and
     regulations, of the federal, state, or local government, including but
     expressly not limited to those relating to wages, hours, and working
     conditions. Subcontractor shall procure and pay for all permits and
     inspections required by any governmental authority for any part of the
     Services and shall furnish any bonds, security, or deposits required for
     performance of the Services.

B.   Subcontractor shall comply with all applicable laws, executive orders, and
     regulations concerning nondiscrimination in employment (including the
     Equal Opportunity Clause of Section 202, Executive Order 11246, dated
     September 24, 1965) 38 USC 2012, as amended by Section 402 of the Vietnam
     Veterans Readjustment Assistance Act of 1974 and Section 503 of the
     Rehabilitation Act of 1973, where are hereby incorporated herein by
     reference.

8    TIME OF PERFORMANCE

Time is of the essence in the performance of Subcontractor's obligations under
this Subcontract. Subcontractor shall reimburse Contractor for the amount of any
liability incurred by Contractor or Owner and the amount of any increase in the
cost or expense to Contractor in performing Contractor's Services under the
Prime Contract as a result of Subcontractor's failure to perform the Services
within the time specified in this Subcontract.

9    PERFORMANCE REQUIREMENTS

Anything that may be called for in the specifications and not shown on the
drawings, or shown on the drawings and not called for by the specifications,
shall be of like effect as if called for and shown in both. In the event of a
conflict between the drawings and the specifications, the specifications shall
govern. If Subcontractor discovers any ambiguities or discrepancies,
Subcontractor shall immediately submit the matter to Contractor for
determination.

10   WARRANTIES

Subcontractor warrants that the Services to be performed pursuant to this
Subcontract shall be performed in accordance with the standards customarily
provided by an experienced and competent organization rendering the same or
similar services. Subcontractor shall reperform any of said services that were
not performed in accordance with this standard at no cost to Contractor.

11   CHANGES AND EXTRA WORK

A.   Contractor may at any time, by written order to Subcontractor, and without
     notice to or consent of any sureties, make changes in or additions to the
     specifications or drawings, require additional work or services, or delete
     Services covered by this Subcontract (collectively "Change"). If any such
     Change causes any increase or decrease in the cost of, or the time required
     for performance of this Subcontract, an equitable adjustment shall be made
     in the Subcontract Price or performance schedule, or both, and this
     Subcontract shall be modified in writing accordingly. Any claim by
     Subcontractor for adjustment under this clause must be asserted within
     thirty (30) days from the date of receipt by Subcontractor of a written
     order from Contractor, provided, however, that Contractor may, in its
     discretion, receive and act upon any such claim at any time before final
     payment under this Subcontract. The claim shall be submitted to
     Contractor's designated Subcontract Administrator. Subcontractor shall make
     no additions, changes, alterations, or omissions except upon the prior
     written order of Contractor.

B.   No change shall be binding on either Subcontractor or Contractor unless
     issued in writing and signed by Contractor.

12   OVERTIME

Subcontractor shall operate on a straight time forty (40) hour work week.
Overtime incurred by Subcontractor to maintain the Subcontract delivery or
completion schedule shall not be reimbursed by Contractor.

13   LIENS, ENCUMBRANCES, AND CLAIMS

With respect to all Services provided by Subcontractor pursuant to this
Subcontract: (1) no liens or other encumbrances shall be filed by Subcontractor;
(2) Subcontractor expressly waives and relinquishes any and all rigs to such
liens or encumbrances; (3) the waiver stated in (2) is an independent covenant
supported by separate consideration included within the Subcontract Price; and
(4) Subcontractor shall ensure that a clause

                                   Page 3 of 6

<PAGE>

              SECTION VI GENERAL PROVISIONS - STANDARD SUBCONTRACT

substantially similar to this clause 13 is included in all lower tier
subcontracts issued hereunder.

Contractor may, as a condition precedent to any payment, require Subcontractor
to furnish complete waivers or releases of any and all such liens, charges,
encumbrances, and claims. Waivers or releases must be furnished by
Subcontractor covering all liens, charges, encumbrances, and claims as a
condition to final payment.

14   PATENTS AND ROYALTIES

Subcontractor shall defend all suits and claims against Owner or Contractor, and
shall hold each of them free and harmless, and hereby indemnifies Owner and
Contractor from all liability, damages, costs, and royalties, including without
limitation reasonable attorney fees, from: (a) any infringement or alleged
infringement of any patent, or for the misuse of any patented article, by
Subcontractor in the performance of the Services, or (b) the infringement or
alleged infringement of any patent by Owner's use or operation of the Services
following the completion thereof by Subcontractor, or (c) the use or misuse, by
Subcontractor during the performance of the Services, of any confidential
information or secret processes, or (d) any use or misuse of confidential
information or secret processes by Owner in the use or operation of the Services
following acceptance.

15   INDEMNIFICATION

To the fullest extent permitted by law, Subcontractor shall defend, indemnify
and hold harmless Contractor, its parent and affiliates (and the officers,
directors, employees, agents, and invitees of any of them), its subcontractors
and suppliers of any tier (subcontractors), and Client from and against any and
all liabilities, claims, demands, damages, or costs, including, without
limitation, settlement sums, attorney fees, consultant and expert fees
(liabilities), alleged or incurred in connection with (1) personal injury and/or
property damage, (2) workers' compensation assessments or claims involving
employees of Subcontractor and/or its subcontractors, (3) environmental and/or
natural resource damages, (4) breach by Subcontractor of this Subcontract, (5)
violation by Subcontractor of any applicable law pursuant to clause 7, and/or
(6) any other liabilities arising from Subcontractor's and/or its subcontractors
performance of the Services, unless caused by the sole negligence of
Contractor.

16   SUBCONTRACTOR'S FINAL RELEASE CERTIFICATE AND INDEMNIFICATION

After completion and acceptance of all Services, Subcontractor shall complete
the "Subcontractor's Final Release Certificate or Indemnity" attached hereto and
incorporated into this Subcontract by reference. This Certificate shall be
submitted to the Subcontract Administrator along with Subcontractor's final
invoice as prescribed in the Compensation and Payment section of this
Subcontract.

17   TERMINATION

A.   Default: Should Subcontractor at any time refuse or neglect to supply
     sufficient and properly skilled workers, or fail in any respect to
     prosecute the Services or any separable portion, with promptness and
     diligence, or fail in the performance of any portion of this Subcontract
     required for the satisfactory completion of the Services, or become
     insolvent, Contractor may terminate this Subcontract for default, after
     fortyeight (48) hours written notice to Subcontractor to correct the
     deficiency. Contractor may also terminate Subcontractor's right to proceed
     with the Services or such part of the Services where defaults have
     occurred.

B.   Convenience: Should the Prime Contract be terminated or canceled pursuant
     to the terms thereof, or upon ten (10) days advance notice, Contractor may
     terminate this Subcontract by written notice to Subcontractor. Such
     termination shall be effective in the manner specified in the notice and
     shall be without prejudice to any claims that Contractor or Owner may have
     against Subcontractor.

C.   Upon receipt of a termination notice pursuant to paragraphs A or B, above,
     Subcontractor shall, unless the notice directs otherwise, immediately
     discontinue the Services.

D.   In the event of a termination for default, Subcontractor shall not be
     entitled to receive any further payment, if any may then be due, until the
     Service is completed. Contractor may acquire, in the manner Contractor
     considers appropriate, services similar to the Services terminated for
     default. Subcontractor shall be liable for, and pay to, Contractor any
     reasonable cost, including the cost for additional managerial and
     administrative services, in excess of the Subcontract Price for the
     Services.

E.   In the event this Subcontract is terminated for convenience, the
     obligations of this Subcontract shall continue as to Services already
     performed, as to obligations entered into by Subcontractor, before the date
     of termination and as to obligations not reasonably terminable thereafter.
     Subcontractor shall be entitled to relative proportions of the agreed
     Subcontract Price for the portions of the Services done before the
     effective date of termination. Subcontractor shall not be entitled to any
     profit or fee on unperformed Services.

                                   Page 4 of 6

<PAGE>

              SECTION VI GENERAL PROVISIONS - STANDARD SUBCONTRACT

F.   Subcontractor shall incorporate a termination clause substantially the same
     as set forth in this clause, in all purchase orders and subtier
     subcontracts.

18   SUSPENSION OF WORK

A.   Contractor may at any time suspend performance of all or any part of the
     Services by giving not less than five (5) working days written notice to
     Subcontractor. The suspension may be continued by Contractor for up to
     sixty (60) days during which period Contractor may at any time, by written
     notice, require Subcontractor to resume performance of the Services. If at
     the end of the sixty (60) day period of suspension, Contractor has not
     required a resumption of the Service, that portion of the Service that has
     been suspended may be terminated by either party pursuant of the provisions
     of this paragraph. Subcontractor shall be compensated in accordance with,
     and shall follow the procedures specified in Clause 17, paragraphs C and E
     above.

B.   Contractor, shall not be liable for any damages, anticipated profits, or
     costs incurred with respect to suspended Services during any period of
     suspension.

19   NOTICE OF THIRD PARTY CLAIMS AGAINST THE SUBCONTRACTOR

Subcontractor shall give Contractor immediate notice of any suit or action
filed, or any claims made, against Subcontractor arising out of the performance
of this Subcontract or any lower-tier subcontracts. Subcontractor shall furnish
immediately to Contractor copies of all documents received by Subcontractor
pertinent to such actions, suits, or claims.

20   NOTICES AND CORRESPONDENCE

Unless otherwise indicated in the Special Provisions of this Subcontract, any
notice or communication shall be considered as having been given to
Subcontractor or Contractor, if mailed by registered mail, postage prepaid, to
Subcontractor Name and Address or the Contractor "Refer All Questions and
Correspondence To" blocks on the face page of this Subcontract.

21   DISPUTES

The parties shall use the following procedures as a condition precedent to
either party pursing other available remedies:

A.   The parties agree to make a good faith effort to mutually resolve any
     dispute as quickly as practicable.

B.   If, however, the parties have not so resolved the dispute, the parties'
     representatives shall submit the dispute to one of their senior-level
     executives (including Presidents, Executive Vice Presidents, Senior Vice
     Presidents, and Chief Financial Officers) for review and simultaneously
     notify the other party in writing thereof. A meeting shall be held within
     ten (10) business days after such notice of submission attended by such
     senior-level executives of the parties and any necessary representatives to
     attempt in good faith to negotiate a resolution of the dispute.

C.   If, within ten (10) business days after such meeting, the parties have not
     succeeded in negotiating a resolution of the dispute, either party may
     institute suit in the Superior Court of the State of California for the
     County of Los Angeles, or, if mutually agreed to by the parties, the
     dispute shall be settled by arbitration in Pasadena, California, in
     accordance with the Construction Industry Arbitration Rules of the American
     Arbitration Association and shall be conducted by a single arbitrator,
     licensed to practice law within the State of California and established to
     be a member of the American Bar Association's Forum Committee on the
     Construction Industry.

     1.   If the dispute is arbitrated, the award of the sole arbitrator shall
          be conclusive and binding upon the parties, subject to the provisions
          of the California Code of Civil Procedure relating to arbitration, as
          the code now exists, or may be amended during the term of this
          Subcontract. The arbitrator may fix and assess expenses of the
          arbitration against either or both parties.

     2.   Judgment upon the arbitration award rendered by the arbitrator, may
          be entered in a court of competent jurisdiction.

     3.   The final judgment of the Court (after all appeals have been finally
          determined or the time for appeal has expired, without an appeal
          having been made) or in absence thereof the decision of the arbitrator
          with respect to any dispute shall be binding on Contractor and
          Subcontractor.

     4.   During the pendency and conduct of any litigation or arbitration, or
          litigation to enforce the award of an arbitrator, at Contractor's
          direction, Subcontractor shall continue to perform the Services.
          However, nothing in this paragraph shall limit the right of Contractor
          to complete the Services.

D.   The rights and obligations of the parties under this provision shall
     survive completion or termination of this Subcontract.

                                   Page 5 of 6

<PAGE>

              SECTION VI GENERAL PROVISIONS - STANDARD SUBCONTRACT

22   ASSIGNMENT

Subcontractor shall not subcontract, ______, or assign the Services, or any part
thereof, and shall not assign any monies to become due, without first obtaining
the written consent of Contractor in each and every instance.

23   CONFIDENTIALITY OF ALL DRAWINGS, SPECIFICATIONS, AND PLANS

All drawings, specifications, plans, and all other information furnished to
Subcontractor by Contractor or obtained by Subcontractor pursuant to its
performance of the Services under this Subcontract shall be held in confidence
by Subcontractor and shall not be used by Subcontractor for any purpose other
than for the performance of the Services or as authorized in writing by
Contractor or Owner. Subcontractor acknowledges that all such plans, drawings,
specifications, and all information gathered by Subcontractor in the performance
of the Services under this Subcontract is the property of Contractor or Owner
and shall be returned to Contractor with any copies made at the completion of
the Services, save one confidential record copy.

24   RELEASE OF NEWS INFORMATION

No news release, including photographs and films, public announcement, denial,
or confirmation shall be made by Subcontractor concerning the subject matter
of this Subcontract without the prior written approval of Contractor.

25   GRATUITIES

Subcontractor warrants that neither it nor any of its agents or representatives
has offered or given any gratuities to Contractor's or Owner's employees, agents
or representatives to secure this Subcontract or to secure favorable treatment
with respect thereto.

26   RIGHTS, REMEDIES AND WAIVER

The rights and remedies provided in this Subcontract to Contractor shall be
cumulative with and in addition to the rights and remedies otherwise available
at law or elsewhere provided for herein. No failure to exercise or delay in
exercising on the part of Contractor of any right provided by this Subcontract
or at law shall operate as a waiver thereof.

27   ORDER OF PRECEDENCE

In the event of an inconsistency between provisions of this Subcontract, the
inconsistency shall be resolved in the following order:

     (1) Special Provisions

     (2) General Provisions

     (3) Statement of Work

     (4) Compensation and Payment

28   OFFSET

Contractor may deduct from any payments due to the Subcontractor under this
Subcontract any amounts due, or claimed to be due, to Contractor or Owner from
Subcontractor.

29   SEVERABILITY

If any provision in this Subcontract is determined to be void or unenforceable,
such determination shall not affect the validity of any other provision.

30   ENTIRE AGREEMENT

This Subcontract, together with all documents, specifications, and drawings
incorporated herein by reference, constitutes the entire agreement between
Contractor and Subcontractor, and there are no terms, conditions, or provisions,
either oral or written, between the parties other than those herein contained,
and this Subcontract supersedes any and all oral or written representations,
inducements, or understandings of any kind or nature between the parties
relating to the Services.

                                   Page 6 of 6Exhibit 10.1
                                                                           Leumi

                                         March 11, 2003

Elk Associates Funding Corporation ("Borrower")
747 Third Avenue, 4th Floor
New York, New York 10017

Attn: Mr. Gary Granoff, President

Dear Mr. Granoff:

      Reference is made to promissory note dated March 03, 2003 in the principal
amount of $8,000,000.

      You have agreed that for good and valuable consideration including but not
limited to the extension and increase of credit accommodations to Borrower, in
the amount of $8,000,000, that letter agreement dated January 20, 1998 shall
continue to be in full force and effect with respect to credit accommodations
now or in the future outstanding to Borrower.

      You have agreed that the first paragraph of such letter is modified to
      provide as follows:

      "In order to induce you to make and/or continue loans for the account of
      the undersigned pursuant to Promissory Note (Grid) dated March 03, 2003,
      as such note is hereafter modified, extended, renewed or replaced with
      other notes, the Borrower will, and will cause each affiliate and
      subsidiary (to the extent applicable) to:"

      Please confirm your agreement to the foregoing by signing and returning a
copy of this letter to the undersigned.

                                              Very truly yours,

                                              BANK LEUMI USA

                                              By: /s/ Iris Schechter
                                                  --------------------------
                                                  Iris Schechter, Vice President

Consented and Agreed to:

ELK ASSOCIATES FUNDING CORPORATION

By: /s/ Gary Granoff
    -----------------------
    Gary Granoff, President

By: /s/ Silvia M. Mullens
    ----------------------------------
    Silvia M. Mullens, Vice President

<PAGE>

"THIS NOTE SUPERSEDES AND REPLACES THAT CERTAIN PROMISSORY NOTE (GRID) DATED
JANUARY 3, 2003 IN THE ORIGINAL PRINCIPAL AMOUNT OF $8,000,000.00."

                             PROMISSORY NOTE (GRID)

New York, N.Y. MARCH 3, 2003                                          $8,000,000

      For Value Received, ELK ASSOCIATES FUNDING CORP. promises to pay to the
order of BANK LEUMI USA (the "Bank"), at its offices at 579 Fifth Avenue, New
York, New York, the principal sum of Eight Million Dollars ("Maximum Principal
Amount") or, if less, the aggregate unpaid principal sum of all loans made by
the Bank, in its sole discretion, to the maker of this Note from time to time.
The principal sum of each such loan shall be payable November 03, 2003.

      Within the limits of the Maximum Principal Amount, the maker may borrow,
prepay, and reborrow in the manner provided herein.

      Each loan shall bear interest (from the date of such loan), at the option
of the maker, at a rate per annum which shall be equal to (a) the rate of
interest designated by the Bank, and in effect from time to time, as its
"Reference Rate" minus 1/2% per annum, adjusted when said Reference Rate changes
(the maker acknowledges that the Reference Rate may not necessarily represent
the lowest rate of interest charged by the Bank to customers) or (b) 1 1/2% per
annum above the Libor Rate (Reserve Adjusted)* for a one, two or three month
term, as elected by the maker and calculated by the Bank, in the manner
hereinafter provided, but in no event in excess of the maximum rate permitted by
applicable law; provided, that in the event the Bank shall have determined that
by reason of circumstances affecting the Libor Rate (Reserve Adjusted) adequate
and reasonable means do not exist for ascertaining the Libor Rate (Reserve
Adjusted) for any Interest Period, the applicable rate of interest during such
Interest Period shall be equal to its Reference Rate minus 1/2% per annum
adjusted when said Reference Rate changes, but in no event in excess of the
maximum rate permitted by law; further provided that if, at the end of any
Interest Period, the maker has failed to timely notify the Bank of its election
of the choice of interest rate for or length of the next Interest Period, then
the interest rate in effect thereafter shall be at the Libor Rate (Reserve
Adjusted) plus 1 1/2% per annum for an Interest Period the length of which shall
be the same length as the immediately preceding Interest Period unless such
Interest Period would end after the stated maturity date of this Note, in which
case the Interest Period shall be of a duration equal to the next longest
Interest Period which would end prior to such scheduled maturity date, provided
further that no Libor Rate (Reserve Adjusted)-based loan shall be made less than
one month before the stated maturity date of this Note, or after the occurrence
and continuance of an Event of Default or an event which, upon notice, passage
of time or both would constitute an Event of Default.

----------

*     "Libor Rate" means, relative to any Interest Period (hereinafter defined)
      for loans made pursuant to this Note and which bear interest at the "Libor
      Rate (Reserve Adjusted)", the rate of interest per annum determined by the
      Bank to be the arithmetic mean (rounded upward to the next 1/16th of 1%)
      of the rates of interest per annum at which dollar deposits in the
      approximate amount of the amount of the loan to be made or continued
      hereunder by the Bank and having a maturity comparable to such Interest
      Period would be offered to the Bank in the London Interbank market at its
      request at approximately 11:00 a.m. (London time) two Business Days prior
      to the commencement of such Interest Period.

      "Libor Reserve Percentage" means, relative to any Interest Period for
      loans hereunder, the percentage (expressed as a decimal, rounded upward to
      the next 1/100th of 1%) in effect on such day (whether or not applicable
      to the Bank) under the regulations issued from time to time by the Federal
      Reserve System Board for determining the maximum reserve requirement
      (including any emergency, supplemental or other marginal reserve
      requirement) with respect to Eurocurrency funding (currently referred to
      as a "Eurocurrency Liabilities" in Regulation D of the Federal Reserve
      System Board).

      "Libor Rate (Reserve Adjusted)" means, relative to any loan to be made or
      continued hereunder for any Interest Period, the rate of interest per
      annum (rounded upwards to the next 1/16th of 1%) determined by the Bank as
      follows:

                                                         Libor Rate
                       Libor Rate        =    ---------------------------------
                   (Reserve Adjusted)          1.00 - Libor Reserve Percentage

<PAGE>

Interest hereunder shall be payable on the last day of each Interest Period and
at maturity (whether by acceleration or otherwise). The term "Interest Period"
as used in this Note shall mean a period of one, two or three month(s), as
elected by the maker by written or facsimile notice to the Bank given not later
than 12:00 noon three Business Days prior to the commencement of an Interest
Period. No Interest Period shall extend beyond the stated maturity date of this
Note. The initial Interest Period for this Note shall begin on the day of the
initial draw down under the Note, and each subsequent Interest Period shall
begin on the last day of the immediately preceding Interest Period. The Bank
shall give notice to the maker of the interest rate determined for each Interest
Period as provided herein, and such notice shall be conclusive and binding upon
the maker for all purposes absent manifest error. The maker shall pay to the
Bank to compensate it for any loss, cost or expense that the Bank determines is
attributable to any prepayment of a loan made by the Bank to the maker using the
Libor Rate (Reserve Adjusted). Such compensation shall include an amount equal
to the excess (if any) of (i) the amount of interest that otherwise would have
accrued on the principal amount so prepaid for the period from the date of such
prepayment to the last day of the then current Interest Period for such loan at
the applicable rate of interest for such loan provided herein over (ii) the
amount of interest that otherwise would have accrued to such principal amount at
a rate per annum equal to the interest component of the amount the Bank would
have bid in The London Interbank market for dollar deposits of leading banks in
amounts comparable to such principal amount and with maturities comparable to
such period (as reasonably determined by the Bank). The term "Business Day"
shall mean any day of the year on which the Bank is open for business (as
required or permitted by law or otherwise) and on which dealings in the U.S.
dollar deposits are carried on in London, England.

      If any law, treaty, rule, regulation or determination of a court or
governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for the
Bank to make Libor Rate (Reserve Adjusted)-based loans, or to maintain interest
rates based on Libor, then in the former event, any obligation of the Bank
contained herein or in any agreement of the Bank to make available such unlawful
Libor Rate (Reserve Adjusted)-based loans shall immediately be cancelled, and in
the latter event, any such unlawful Libor Rate (Reserve Adjusted)-based loans
then outstanding shall be converted, at the Bank's option, so that interest on
the outstanding principal balance subject hereto is determined in relation to
the Reference Rate as hereinabove provided; provided however, that if any such
Change in Law shall permit any Libor Rate (Reserve Adjusted)-based loans to
remain in effect until the expiration of the Interest Period applicable thereto,
then such permitted Libor Rate (Reserve Adjusted)-based loans shall continue in
effect until the expiration of such Interest Period. Upon the occurrence of any
of the foregoing events, maker shall pay to the Bank immediately upon demand
such amounts as may be necessary to compensate the Bank for any fines, fees,
charges, penalties or other costs incurred or payable by the Bank as a result
thereof and which are attributable to any Libor Rate (Reserve Adjusted) options
made available to maker hereunder, and any reasonable allocation made by the
Bank among its operations shall be conclusive and binding upon maker.

      If any Change in Law or compliance by the Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:

      (A)   subject the Bank to any tax, duty or other charge with respect to
            any Libor Rate (Reserve Adjusted) options, or change the basis of
            taxation of payments to the Bank of principal, interest, fees or any
            other amount payable hereunder (except for changes in the rate of
            tax on the overall net income of the Bank); or

      (B)   impose, modify or hold applicable any reserve, special deposit,
            compulsory loan or similar requirement against assets held by,
            deposits or other liabilities in or for the account of, advances or
            loans by, or any other acquisition of funds by any office of the
            Bank; or

      (C)   impose on the Bank any other condition;

and the result of any of the foregoing is to increase the cost to the Bank of
making, renewing or maintaining any Libor Rate (Reserve Adjusted)-based loan
hereunder and/or to reduce any amount receivable by the Bank in connection
therewith, then in any such case, maker shall pay to the Bank immediately upon
demand such amounts as may be necessary to compensate the Bank for any
additional costs incurred by the Bank and/or reductions received by the Bank
which are attributable to such Libor Rate (Reserve Adjusted)-based loan. In
determining which costs incurred by the Bank and/or reductions in amounts
received by the Bank

                                      -2-
<PAGE>

are attributable to any Libor Rate (Reserve Adjusted)-based loan made to maker
hereunder, any reasonable allocation made by the Bank among its operations shall
be conclusive and binding upon maker.

      The Bank is hereby authorized to enter on the schedule attached hereto the
amount of each loan and each payment of principal thereon, without any further
authorization on the part of the maker or any endorser or guarantor of this
Note, but the Bank's failure to make such entry shall not limit or otherwise
affect the obligations of the maker or any endorser or guarantor of this Note.
In the event that any Liabilities (as hereinafter defined) of maker to the Bank
are due at any time that the Bank receives a payment from maker on account of
this Note or any such other Liabilities of maker, the Bank may apply such
payments to amounts due under this Note or any such other Liabilities in such
manner as the Bank, in its discretion, elects, regardless of any instructions
from maker to the contrary.

      The maker and each endorser and guarantor of this Note acknowledge and
agree that the use of this form of Note is for their convenience, and there is
no obligation on the part of the Bank to make loans to the maker whatsoever.

      Interest shall be computed on the basis of a 360-day year.

      Each maker or endorser authorizes (but shall not require) the Bank to
debit any account maintained by the maker or endorser with the Bank, at any date
on which the payment of principal or of interest on any of the Liabilities is
due, in an amount equal to any unpaid portion of such payment. If the time for
payment of principal of or interest on any of the Liabilities or any other money
payable hereunder or with respect to any of the Liabilities becomes due on a day
on which the Bank's offices are closed (as required or permitted by law or
otherwise), such payment shall be made on the next succeeding business day, and
such extension shall be included in computing interest in connection with such
payment. All payments by any maker or endorser of this Note on account of
principal, interest or fees hereunder shall be made in lawful money of the
United States of America, in immediately available funds.

      All Property (as hereinafter defined) held by the Bank shall be subject to
a security interest in favor of the Bank or holder hereof as security for any
and all Liabilities. The term "Property" shall mean the balance of every deposit
account of the maker with the Bank or any of the Bank's nominees or agents and
all other obligations of the Bank or any of its nominees or agents to the maker,
whether now existing or hereafter arising, and all other personal property of
the maker (including without limitation all money, accounts, general
intangibles, goods, instruments, documents and chattel paper) which, or evidence
of which, are now or at any time in the future shall come into the possession or
under the control of or be in transit to the Bank or any of its nominees or
agents for any purpose, whether or not accepted for the purposes for which it
was delivered. The term "Liabilities" shall mean the indebtedness evidenced by
this Note and all other indebtedness, liabilities and obligations of any kind of
the maker (or any partnership or other group of which the maker is a member) to
(a) the Bank, (b) any group of which the Bank is a member, or (c) any other
person if the Bank has a participation or other interest in such indebtedness,
liabilities or obligations, whether (i) for the Bank's own account or as agent
for others, (ii) acquired directly or indirectly by the Bank from the maker or
others, (iii) absolute or contingent, joint or several, secured or unsecured,
liquidated or unliquidated, due or not due, contractual or tortious, now
existing or hereafter arising, or (iv) incurred by the maker as principal,
surety, endorser, guarantor or otherwise, and including without limitation all
expenses, including attorneys' fees, incurred by the Bank in connection with any
indebtedness, liabilities or obligations or any of the Property (including any
sale or other disposition of the Property).

      Upon the happening, with respect to any maker, endorser or guarantor of
this Note or any assets of any such maker, endorser or guarantor, of any of the
following events (each an "Event of Default"): death of the maker, endorser or
guarantor or any member of the maker, endorser or guarantor (if a partnership);
the failure to furnish the Bank with any requested information or failing to
permit inspection of books or records by the Bank or any of its agents; the
making of any misrepresentation to the Bank in obtaining credit for any of them;
dissolution (if a corporation or partnership); the making of a mortgage or
pledge; the commencement of a foreclosure proceeding; default in the payment of
principal or interest on this Note or in the payment of any other obligation of
any said maker, endorser or guarantor held by the Bank or holder hereof or in
the performance or observance of any covenant or agreement contained in the
instrument evidencing such obligation; default in the payment of principal of or
interest on any indebtedness for borrowed money owed to any other person or
entity (including any such indebtedness in the nature of a lease) or default

                                      -3-
<PAGE>

in the performance or observance of the terms of any instrument pursuant to
which such indebtedness was created or is secured, the effect of which default
is to cause or permit any hoder of any such indebtedness to cause the same to
become due prior to its stated maturity (and whether or not such default is
waived by the holder thereof); a change in the financial condition or affairs of
any of them which in the opinion of the Bank or subsequent holder hereof
materially reduces his, their or its ability to pay all of his their or its
obligations; the suspension of business; the making of an assignment for the
benefit of creditors, or appointment of a trustee, receiver or liquidator for
the maker, endorser or guarantor or for any of his, its or their property, or
the commencement of any proceedings by the maker, endorser or guarantor under
any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of
debt, receivership, liquidation or dissolution law or statute (including, if the
maker, endorser or guarantor is a partnership, its dissolution pursuant to any
agreement or statute), or the commencement of any such proceedings without the
consent of the maker, endorser or guarantor, as the case may be, and such
proceedings shall continue undischarged for a period of 30 days; the sending of
notice of an intended bulk sale; the entry of judgments or any attachment, levy
or execution against any of his, their or its properties shall not be released,
discharged dismissed, stayed or fully bonded for a period of 30 days or more
after its entry, issue or levy, as the case may be; or the issuance of a warrant
of distraint or assertion of a lien for unpaid taxes, this Note, if not then due
or payable on demand, shall become due and payable immediately without demand or
notice and all other debts or obligations of the makers and endorsers hereof to
the Bank or holder hereof, whether due or not due and whether direct or
contingent and however evidenced, shall, at the option of the Bank or holder
hereof, also become due and payable immediately without demand or notice. After
this Note becomes due, at stated maturity or on acceleration, any unpaid balance
hereof shall bear interest from the date it becomes due until paid at a rate per
annum 3% above the rate borne by this Note when it becomes due or, if such rate
shall not be lawful with respect to the undersigned, then at the highest lawful
rate. The liability of any party to commercial paper held by the Bank or holder
hereof, other than the makers and endorsers hereof, shall remain unaffected
hereby and such parties shall remain liable thereon in accordance with the
original tenor thereof. Each maker and endorser agrees that if an attorney is
retained to enforce or collect this Note or any other obligations by reason of
non-payment of this Note when due or made due hereunder, a reasonable attorneys'
fee shall be paid in addition, which fees shall be computed as follows: 15% of
the principal, interest and all other sums due and owing to the payee or holder
or the reasonable value of the attorneys' services, whichever is greater.

      This Note shall be governed by the laws of the State of New York and shall
be binding upon the maker and each endorser and the maker's and each endorser's
heirs, administrators, successors and assigns. The maker and each endorser
hereby irrevocably consent to the jurisdiction of any New York State or Federal
court located in New York City over any action or proceeding arising out of any
dispute between the maker and each endorser and the Bank, and the maker further
irrevocably consents to the service of process in any such action or proceeding
by the mailing of a copy of such process to the maker at the address set forth
below. In the event of litigation between the Bank and the maker over any matter
connected with this Note or resulting from the transactions hereunder, the right
to a trial by jury is hereby waived by the Bank and the maker. The maker also
waives the right to interpose any set-off or counterclaim of any nature. The
Bank or any holder may accept late payments, or partial payments, even though
marked "payment in full" or containing words of similar import or other
conditions, without waiving any of its rights. No amendment, modification or
waiver of any provision of this Note nor consent to any departure by maker
therefrom shall be effective, irrespective of any course of dealing, unless the
same shall be in writing and signed by the Bank, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.

      The rights and remedies of the Bank provided for hereunder (including but
not limited to the right to accelerate Liabilities of maker and to realize on
any security for any such Liabilities) are cumulative with the rights and
remedies of the Bank available under any other instrument or agreement or under
applicable law.

      The undersigned, if more than one, shall be jointly and severally liable
hereunder.

                                ELK ASSOCIATES FUNDING CORPORATION

                                By: /s/ Gary Granoff
                                    ------------------------------
                                    Gary Granoff, President

                                      -4-
<PAGE>

                                By: /s/ Sylvia M. Mullens
                                    ------------------------------
                                    Sylvia M. Mullens, Vice President

                                (Address)

                                        747 Third Avenue
                                        New York, New York 10017

                                      -5-

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