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                          CREDIT AND SECURITY AGREEMENT

         THIS AGREEMENT is made as of December 29th, 1998 by and between U.S. 
BANK NATIONAL ASSOCIATION, a national banking association (the "LENDER"), and 
LIFECORE BIOMEDICAL, INC., a Minnesota corporation (the "BORROWER").

         In consideration of the mutual agreements herein contained, the 
parties hereto agree as follows:

                   ARTICLE I DEFINITIONS AND ACCOUNTING TERMS

         1.1 DEFINITIONS. In addition to terms defined elsewhere in this 
Agreement or any Supplement, Exhibit or Schedule hereto, the following terms 
shall have the following respective meanings (and such meanings shall be 
equally applicable to both the singular and plural forms of the terms 
defined, as the context may require):

         "ACCOUNT DEBTOR": Any Person who is or who may become obligated to 
the Borrower under, with respect to, or on account of an Account Receivable, 
General Intangible or other Collateral.

         "ACCOUNT RECEIVABLE": Any account of the Borrower and any other 
right of the Borrower to payment for goods sold or leased or for services 
rendered, whether or not evidenced by an instrument or chattel paper and 
whether or not yet earned by performance.

         "ACCOUNTS RECEIVABLE AVAILABILITY": The term "Accounts Receivable 
Availability" shall have the meaning given such term in SUPPLEMENT A.

         "ADVERSE EVENT": The occurrence of any event that could have a 
material adverse effect on the business, operations, property, assets or 
condition (financial or otherwise) of the Borrower and the Subsidiaries as a 
consolidated enterprise or on the ability of the Borrower or any other 
Obligor to perform its obligations under the Loan Documents.

         "AFFILIATE": Any Person which directly or indirectly through one or 
more intermediaries controls, or is controlled by, or is under common control 
with, the Lender. The term "control" means the possession, directly or 
indirectly, of the power to direct or cause the direction of the management 
and policies of a Person, whether through ownership of stock, by contract or 
otherwise.

         "AGREEMENT": This Credit and Security Agreement, as it may be 
amended, modified, supplemented, restated or replaced from time to time.

         "ATTORNEYS' FEES": The value of the services (and costs, charges and 
expenses related thereto) of the attorneys employed by the Lender (including, 
without limitation, attorneys and paralegals who are employees of the Lender) 
from time to time (a) in connection with the negotiation, preparation, 
execution, delivery, administration and enforcement of the Loan 

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Documents, (b) to prepare documentation related to the Loans and other 
Obligations, (c) to represent the Lender in any litigation, contest, dispute, 
suit or proceeding or to commence, defend or intervene in any litigation 
contest, dispute, suit or proceeding or to file a petition, complaint, 
answer, motion or other pleading, or to take any other action in or with 
respect to, any litigation, contest, dispute, suit or proceeding (whether 
instituted by the Lender, the Borrower or any other Person and whether in 
bankruptcy or otherwise) in any way or respect relating to the Collateral, 
any Third Party Collateral, the Loan Documents, or the Borrower's or any 
other Obligor's or any Subsidiary's affairs, (d) to protect, collect, lease, 
sell, take possession of, or liquidate any of the Collateral or any Third 
Party Collateral, (e) to attempt to enforce any security interest in any of 
the Collateral or any Third Party Collateral or to give any advice with 
respect to such enforcement, and (f) to enforce any of the Lender's rights to 
collect any of the Obligations.

         "BORROWING BASE": The term "Borrowing Base" shall have the meaning 
given such term in SUPPLEMENT A.

         "BORROWING BASE CERTIFICATE": The term "Borrowing Base Certificate" 
shall have the meaning given such term in SECTION 2.5(c).

         "BUSINESS DAY": Any day (other than a Saturday, Sunday or legal 
holiday in the State of Minnesota) on which Lender is open and carrying on 
business transactions of the type contemplated by this Agreement.

         "CAPITAL EXPENDITURE": Any amount debited to the fixed asset account 
on the consolidated balance sheet of the Borrower in respect of (a) the 
acquisition (including, without limitation, acquisition by entry into a 
Capitalized Lease), construction, improvement, replacement or betterment of 
land, buildings, machinery, equipment or of any other fixed assets or 
leaseholds, and (b) to the extent related to and not included in CLAUSE (a), 
materials, contract labor and direct labor (excluding expenditures properly 
chargeable to repairs or maintenance in accordance with GAAP).

         "CAPITALIZED LEASE": Any lease which is or should be capitalized on 
the books of the lessee in accordance with GAAP.

         "CODE": The Internal Revenue Code of 1986, as amended, or any 
successor statute, together with the regulations thereunder.

         "COLLATERAL": The term "Collateral" shall have the meaning given 
such term in SECTION 3.1.

         "COLLATERAL ACCOUNT": The term "Collateral Account" shall have the 
meaning given such term in SECTION 3.2(b).

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         "CONTROLLED DISBURSEMENT ACCOUNT": The term "Controlled Disbursement 
Account" shall have the meaning given such term in SECTION 2.3(c).

         "CREDIT": The facility established under this Agreement pursuant to 
which the Lender will make Loans to the Borrower for the account of the 
Borrower.

         "CREDIT AMOUNT": The term "Credit Amount" shall have the meaning 
given such term in SUPPLEMENT A.

         "DAILY UNUSED CREDIT AMOUNT": For any date of determination, the 
amount obtained by subtracting from the Credit Amount (determined as of (i) 
the last day of the month in which such date falls, or (ii) the date the 
Credit is terminated if the Credit terminates on a day other than the last 
day of a month) the sum of the outstanding principal balance of Loans on such 
date.

         "DEFAULT RATE": The term "Default Rate" shall have the meaning given 
such term in SUPPLEMENT A.

         "DISBURSEMENT ACCOUNT": The term "Disbursement Account" shall have 
the meaning given such term in SECTION 2.3(b).

         "EBIT": For any period of determination, the consolidated net income 
of the Borrower and its Subsidiaries before provision for income taxes and 
interest expense (including, without limitation, implicit interest expense on 
Capitalized Leases), all as determined in accordance with GAAP, excluding 
therefrom (to the extent included): (a) non-operating gains (including, 
without limitation, extraordinary or nonrecurring gains, gains from 
discontinuance of operations and gains arising from the sale of assets other 
than Inventory) during the applicable period; and (b) similar non-operating 
losses during such period.

         "ELIGIBLE ACCOUNT RECEIVABLE": An Account Receivable owing to the 
Borrower which meets the following requirements:

                  (a) it is genuine and in all respects what it purports to 
         be;

                  (b) it arises from either (i) the performance of services   
         by the Borrower, which services have been fully performed 
         and, if applicable, acknowledged and/or accepted by the Account 
         Debtor with respect thereto; or (ii) the sale or lease of goods by 
         the Borrower and (A) such goods comply with such Account Debtor's 
         specifications (if any) and have been shipped to, or delivered to 
         and accepted by, such Account Debtor, (B) the Borrower has 
         possession of, or has delivered to the Lender, at the Lender's 
         request, shipping and delivery receipts evidencing such shipment, 
         delivery and acceptance, and (C) such goods have not been returned 
         to the Borrower;

                  (c) it (i) is evidenced by an invoice rendered to the 
         Account Debtor with respect thereto which (A) is dated not earlier 
         than the date of shipment or performance

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         and (B) has payment terms not unacceptable to the Lender; and (ii) 
         meets the Eligible Account Receivable requirements set forth in 
         SUPPLEMENT A;

                  (d) it is not subject to any assignment, claim or Lien 
         other than (i) a first priority Lien in favor of the Lender and (ii) 
         Liens consented to by the Lender in writing;

                  (e) it is a valid, legally enforceable and unconditional 
         obligation of the Account Debtor with respect thereto and is not 
         subject to setoff, counterclaim, credit or allowance (except any 
         credit or allowance which has been deducted in computing the net 
         amount of the applicable invoice as shown in the original schedule 
         or Borrowing Base Certificate furnished to the Lender identifying or 
         including such Account Receivable) or adjustment by the Account 
         Debtor with respect thereto, or to any claim by such Account Debtor 
         denying liability thereunder in whole or in part, and such Account 
         Debtor has not refused to accept any of the goods or services which 
         are the subject of such Account Receivable or offered or attempted 
         to return any of such goods;

                  (f) there are no proceedings or actions which are then 
         threatened or pending against the Account Debtor with respect 
         thereto or to which such Account Debtor is a party which might 
         result in any material adverse change in such Account Debtor's 
         financial condition or in its ability to pay any Account Receivable 
         in full when due;

                  (g) it does not arise out of a contract or order which, by 
         its terms, forbids, restricts or makes void or unenforceable the 
         assignment by the Borrower to the Lender of such Account Receivable;

                  (h) the Account Debtor with respect thereto is not a 
         Subsidiary, Related Party or Obligor, or a director, officer, 
         employee or agent of the Borrower, a Subsidiary, Related Party or 
         Obligor;

                  (i) the Account Debtor with respect thereto is a resident 
         or citizen of and is located within the United States of America 
         unless the sale of goods giving rise to such Account Receivable is 
         on letter of credit, banker's acceptance or other credit support 
         terms satisfactory to the Lender;

                  (j) it does not arise from a "sale on approval," "sale or 
         return" or "consignment," nor is it subject to any other repurchase 
         or return agreement;

                  (k) it is not an Account Receivable with respect to which 
         possession and/or control of the goods sold giving rise thereto is 
         held, maintained or retained by the Borrower, any Subsidiary, 
         Related Party or Obligor (or by any agent or custodian of the 
         Borrower, any Subsidiary, Related Party or Obligor) for the account 
         of or subject to further and/or future direction from the Account 
         Debtor with respect thereto;

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                  (l) it does not, in any way, violate or fail to meet any 
         warranty, representation or covenant contained in the Loan Documents 
         relating directly or indirectly to the Borrower's Accounts 
         Receivable;

                  (m) the Account Debtor with respect thereto is not located 
         in the States of Indiana, New Jersey or Alabama or any other state 
         which prohibits a Person from availing itself of the benefits of 
         that state's courts unless such Person is qualified to do business 
         or has filed a notice of business activities; PROVIDED, HOWEVER, 
         that such restriction shall not apply if: (i) the Borrower is 
         qualified to do business in such state; (ii) the Borrower has filed 
         and has effective a notice of business activities report with the 
         appropriate office or agency of such state for the then current year 
         or is exempt from the filing of such report; or (iii) upon the 
         Borrower's written request and at the Borrower's sole cost and 
         expense (including, without limitation, the payment of Lender's 
         reasonable Attorneys Fees), Lender determines, in its reasonable 
         business judgment, that it can avail itself of the benefits of the 
         relevant state's courts to collect such Account Debtor's Accounts 
         Receivable, regardless of whether the Borrower can do;

                  (n) it arises in the ordinary course of the Borrower's
         business;

                  (o) if the Account Debtor with respect thereto is the 
         United States of America or any department, agency or 
         instrumentality thereof (a "FEDERAL GOVERNMENTAL AUTHORITY"), or any 
         state, county or local governmental authority, or any department, 
         agency or instrumentality thereof, the Borrower has assigned its 
         right to payment of such Account Receivable to the Lender pursuant 
         to the Assignment of Claims Act of 1940 as amended in the case of 
         the a Federal Governmental Authority, or pursuant to applicable 
         state law, if any, in all other instances, and such assignment has 
         been accepted and acknowledged by the appropriate government 
         officers;

                  (p) if the Lender, in its reasonable business judgment, has 
         established a credit limit for the Account Debtor with respect 
         thereto, the aggregate dollar amount of Accounts Receivable due from 
         such Account Debtor, including such Account Receivable, does not 
         exceed such credit limit; and

                  (q) if it is evidenced by chattel paper or instruments, (i) 
         the Lender shall have specifically agreed to include such Account 
         Receivable as an Eligible Account Receivable, (ii) only payments 
         then due and payable under such chattel paper or instrument shall be 
         included as an Eligible Account Receivable and (iii) the originals 
         of such chattel paper or instruments have been assigned and 
         delivered to the Lender in a manner satisfactory to the Lender.

An Account Receivable which is at any time an Eligible Account Receivable but 
which subsequently fails to meet any of the foregoing requirements shall 
forthwith cease to be an Eligible Account Receivable. Further, with respect 
to any Account Receivable, if the Lender at any time or times hereafter 
determines, in its reasonable business judgment, that the prospect of 

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payment or performance by the Account Debtor with respect thereto is or will 
be impaired for any reason whatsoever, notwithstanding anything to the 
contrary contained above, such Account Receivable shall forthwith cease to be 
an Eligible Account Receivable.

         "ELIGIBLE INVENTORY": Inventory of the Borrower which meets the 
following requirements:

                  (a) it is owned by the Borrower and is not subject to any 
         prior assignment, claim or Lien other than (i) a first priority Lien 
         in favor of the Lender and (ii) Liens consented to by the Lender in 
         writing;

                  (b) if held for sale or lease or furnishing under contracts 
         of service, it is (except as the Lender may otherwise consent in 
         writing) new and unused;

                  (c) except as the Lender may otherwise consent, it is not 
         stored with a bailee, warehouseman or similar party; or, if so 
         stored with the Lender's consent, such bailee, warehouseman or 
         similar party has issued and delivered to the Lender, in form and 
         substance acceptable to the Lender, such documents and agreements as 
         the Lender may require, including, without limitation, warehouse 
         receipts therefor in the Lender's name;

                  (d) the Lender has determined, in its reasonable business 
         judgment, that it is not unacceptable due to age, type, category, 
         quality and/or quantity;

                  (e) it is not held by the Borrower on "consignment" and is 
         not subject to any other repurchase or return agreement;

                  (f) it complies with all standards imposed by any 
         governmental agency having regulatory authority over such goods 
         and/or their use, manufacture or sale;

                  (g) it does not, in any way, violate or fail to meet any 
         warranty, representation or covenant contained in the Loan Documents 
         relating directly or indirectly to the Borrower's Inventory; and

                  (h) it satisfies the Eligible Inventory requirements, if 
         any, set forth in SUPPLEMENT A.

Inventory of the Borrower which is at any time Eligible Inventory but which 
subsequently fails to meet any of the foregoing requirements shall forthwith 
cease to be Eligible Inventory.

         "ENVIRONMENTAL LAWS": The Resource Conservation and Recovery Act of 
1987, the Comprehensive Environmental Response, Compensation and Liability 
Act, any so-called "superfund" or "superlien" law, the Toxic Substances 
Control Act, and any other federal, state or local statue, law, ordinance, 
code, rule, regulation, order or decree regulating, relating to, or imposing 
liability or standards of conduct concerning any Hazardous Materials or other 

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hazardous, toxic or dangerous waste, substance or constituent, or other 
substance, whether solid, liquid or gas, as now or at any time hereafter in 
effect.

         "ENVIRONMENTAL LIEN": A Lien in favor of any governmental entity for 
(a) any liability under any Environmental Law, or (b) damages arising from or 
costs incurred by such governmental entity in response to a spillage, 
disposal, or release into the environment of any Hazardous Material or other 
hazardous, toxic or dangerous waste, substance or constituent, or other 
substance.

         "EQUIPMENT": All equipment of the Borrower of every description, 
including, without limitation, fixtures, furniture, vehicles and trade 
fixtures, together with any and all accessions, parts and equipment attached 
thereto or used in connection therewith, and any substitutions therefor and 
replacements thereof.

         "ERISA": The Employee Retirement Income Security Act of 1974, as 
amended, or any successor statute, together with the regulations thereunder.

         "ERISA AFFILIATE": Any trade or business (whether or not 
incorporated) that is a member of a group of which the Borrower is a member 
and which is treated as a single employer under Section 414 of the Code.

         "EVENT OF DEFAULT": The term "Event of Default" shall have the 
meaning given such term in SECTION 7.1.

         "FEDERAL RESERVE BOARD": The Board of Governors of the Federal 
Reserve System or any successor thereto.

         "GAAP": Generally accepted accounting principles promulgated by the 
Financial Accounting Standards Board, as applied in the preparation of the 
audited financial statement of the Borrower referred to in SECTION 4.6.

         "GENERAL INTANGIBLES": All of the Borrower's intangible personal 
property including things in action, causes of action and all other personal 
property of the Borrower of every kind and nature (other than goods, 
accounts, chattel paper, documents, instruments and money) including, without 
limitation, corporate or other business records, inventions, designs, 
patents, patent applications, trademarks, trademark applications, trade 
names, trade secrets, goodwill, copyrights, registrations, leases, licenses, 
franchises, customer lists, tax refund claims, claims against carriers and 
shippers, guarantee claims, security interests, security deposits or other 
security held by or granted to the Borrower to secure payment by an Account 
Debtor of any of the Accounts Receivable, any other rights to payment, 
including, without limitation, rights to reimbursement or indemnification, 
and any other rights of whatsoever nature, whether earned or unearned.

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         "GUARANTOR": Individually and/or collectively, any Person who may, 
at any time or from time to time, guaranty the Obligations.

         "GUARANTY": Individually and/or collectively, each guaranty executed 
by a Guarantor at any time, together with any amendments, modifications, 
supplements, or replacements thereto.

         "HAZARDOUS MATERIALS": Any hazardous substance or pollutant or 
contaminant defined as such in (or for the purposes of) any Environmental Law 
including, without limitation, petroleum and petroleum products, including 
crude oil or any fraction thereof which is liquid at standard conditions of 
temperature or pressure (60 degrees Fahrenheit and 14.7 pounds per square 
inch absolute), any radioactive material, including any source, special 
nuclear or by-product material as defined at 42 U.S.C. section 2011 ET. SEQ., 
as amended or hereafter amended, and asbestos in any form or condition.

         "INDEBTEDNESS": Without duplication, all obligations, contingent or 
otherwise, which in accordance with GAAP should be classified upon the 
Person's balance sheet as liabilities, but in any event including the 
following (whether or not they should be classified as liabilities upon such 
balance sheet): (a) any obligation secured by any mortgage, pledge, security 
interest, lien, charge or other encumbrance existing on property owned or 
acquired subject thereto, whether or not such obligation shall have been 
assumed and whether or not such obligation is the obligation of the owner or 
another party; (b) any obligation on account of deposits or advances; (c) any 
obligation for the deferred purchase price of any property or services, 
except accounts payable arising in the ordinary course of business; (d) any 
obligation as lessee under any Capitalized Lease; (e) any guaranty, 
endorsement or other contingent obligation in respect to indebtedness of 
others; and (f) any undertaking or agreement to reimburse or indemnify 
issuers of letters of credit. For all purposes of this Agreement, the 
Indebtedness of any Person shall include the Indebtedness of any partnership 
or joint venture in which such Person is a general partner or a joint 
venturer.

         "INDEMNIFIED LIABILITIES": The term "Indemnified Liabilities" shall 
have the meaning given such term in SECTION 10.2.

         "INDEMNITEES": The term "Indemnitees" shall have the meaning given 
such term in SECTION 10.2.

         "INVENTORY": Any and all of the Borrower's goods, including, without 
limitation, goods in transit, wheresoever located which are or may at any 
time be leased by the Borrower to a lessee, held for sale or lease, furnished 
under any contract of service or held as raw materials, work in process, or 
supplies or materials used or consumed in the Borrower's business, or which 
are held for use in connection with the manufacture, packing, shipping, 
advertising, selling or finishing of such goods, and all goods, the sale or 
other disposition of which has given rise to an Account Receivable, which are 
returned to and/or repossessed and/or stopped in transit by the Borrower or 
the Lender, or at any time hereafter in the possession or under the control 
of the Borrower or 

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the Lender, or any agent or bailee of either thereof, and all documents of 
title or other documents representing the same.

         "INVENTORY AVAILABILITY": The term "Inventory Availability" shall 
have the meaning given such term in SUPPLEMENT A.

         "INVENTORY AVAILABILITY SUBLIMIT": The term "Inventory Availability 
Sublimit" shall have the meaning given such term in SUPPLEMENT A.

         "INVESTMENT": The acquisition, purchase, making or holding of any 
stock or other security, any loan, advance, contribution to capital, 
extension of credit (except for trade and customer accounts receivable for 
inventory sold or services rendered in the ordinary course of business and 
payable in accordance with customary trade terms), any acquisitions of real 
and personal property (other than real and personal property acquired in the 
ordinary course of business) and any purchase or commitment or option to 
purchase stock or other debt or equity securities of, or any interest in, 
another Person or any integral part of any business or the assets comprising 
such business or part thereof.

         "LIEN": Any security interest, mortgage, pledge, lien, 
hypothecation, statutory lien, judgment lien or similar legal process, 
charge, encumbrance, title retention agreement or analogous instrument or 
device (including, without limitation, the interest of a lessor under 
Capitalized Leases and the interest of a vendor under any conditional sale or 
other title retention agreement).

         "LOAN": A Loan referred to in SECTION 2.1 and any other loans or 
advances made to the Borrower by the Lender under or pursuant to this 
Agreement.

         "LOAN ACCOUNT": The term "Loan Account" shall have the meaning given 
such term in SECTION 2.3(a).

         "LOAN AVAILABILITY": The lesser of (a) the Credit Amount and (b) the 
Borrowing Base.

         "LOAN DOCUMENTS": This Agreement, any Note, and each other 
instrument, document, guaranty, mortgage, deed of trust, chattel mortgage, 
pledge, power of attorney, consent, assignment, contract, notice, security 
agreement, lease, financing statement, subordination agreement, trust account 
agreement, or other agreement executed and delivered by the Borrower or any 
Guarantor or party granting a security interest in connection with this 
Agreement, the Loans or the Collateral, as the same may be amended, modified, 
restated or replaced from time to time.

         "LOAN YEAR": The period from the date of this Agreement (or its 
anniversary date in a succeeding calendar year) through the day preceding the 
anniversary date of this Agreement in the immediately following calendar year.

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         "MULTIEMPLOYER PLAN": A multiemployer plan, as such term is defined 
in Section 4001(a)(3) of ERISA, which is, or which has been, within five 
years of the date of this Agreement, or at any time after the date of this 
Agreement, maintained for the employees of the Borrower or any ERISA 
Affiliate.

         "NET WORTH": At any determination date, the total of all assets 
appearing on a consolidated balance sheet of the Borrower at such date, 
prepared in accordance with GAAP, after deducting all proper reserves 
(including without limitation, reserves for depreciation, obsolescence, 
amortization and taxes related to a LIFO to FIFO conversion) MINUS all 
liabilities which in accordance with GAAP would be included on the liability 
side of a consolidated balance sheet.

         "NOTE": Any promissory note of the Borrower evidencing any loan or 
advance (including but not limited to the Loans) made by the Lender to the 
Borrower pursuant to this Agreement, as the same may be amended, modified, 
restated or replaced from time to time.

         "OBLIGATIONS": All of the liabilities, obligations and indebtedness 
of the Borrower to the Lender, or any Affiliate, of any kind or nature, 
however created, arising or evidenced, whether direct or indirect, absolute 
or contingent, now or hereafter existing or due or to become due, and whether 
joint, several or joint and several including, without limitation, (a) the 
Borrower's obligations under the Loan Documents, including obligations of 
performance, and (b) interest, fees, charges, expenses, Attorneys' Fees and 
other sums chargeable to the Borrower by the Lender or any Affiliate under 
the Loan Documents. "Obligations" shall also include any and all amendments, 
extensions, renewals, refundings or refinancings of any of the foregoing.

         "OBLIGOR": The Borrower, each Guarantor and each other Person who is 
or shall become primarily or secondarily liable on any Obligations or who 
grants to the Lender a Lien on any property of such Person as security for 
any Obligations.

         "OCCUPATIONAL SAFETY AND HEALTH LAW": The Occupational Safety and 
Health Act of 1970 as amended from time to time, or any successor statute, 
together with the regulations thereunder and any other federal, state or 
local statute, law, ordinance, code, rule, regulation, order or decree 
regulating, relating to or imposing liability or standards of conduct 
concerning employee health and/or safety.

         "OVER ADVANCE": The term "Over Advance" shall have the meaning given 
such term in SECTION 2.8.

         "OVERDRAFT LOAN": The term "Overdraft Loan" shall have the meaning 
given such term in SECTION 2.7.

         "PARTICIPANT": Any Person, now or at any time or times hereafter, 
participating with the Lender in the Loans made to the Borrower hereunder.

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         "PBGC": The Pension Benefit Guaranty Corporation, established 
pursuant to Subtitle A of Title IV of ERISA, or any successor thereto or to 
the functions thereof.

         "PERSON": Any natural person, corporation, partnership, joint 
venture, firm, association, trust, unincorporated organization, government or 
governmental agency or political subdivision thereof, or any other entity, 
whether acting in an individual, fiduciary or other capacity.

         "PLAN": Each employee pension or benefit plan (as those terms are 
defined in Section 3 of ERISA) maintained for the benefit of employees, 
officers or directors of the Borrower or of any ERISA Affiliate.

         "PROHIBITED TRANSACTION": The respective meanings assigned to such 
term in Section 4975 of the Code and Section 406 of ERISA.

         "REFERENCE RATE": The rate of interest from time to time publicly 
announced by the Lender as its "reference rate." The Lender may lend to its 
customers at rates that are at, above or below the Reference Rate. For 
purposes of determining any interest rate which is based on the Reference 
Rate, such interest rate shall change on the effective date of any change in 
the Reference Rate.

         "RELATED PARTY": Any Person (other than a Subsidiary): (a) which 
directly or indirectly, through one of more intermediaries, controls, is 
controlled by or is under common control with, the Borrower, (b) which 
beneficially owns or holds 5% or more of the equity interest of the Borrower, 
or (c) 5% or more of the equity interest of which is beneficially owned or 
held by the Borrower or a Subsidiary. The term "control" means the 
possession, directly or indirectly, of the power to direct or cause the 
direction of the management and policies of a Person, whether through the 
ownership of voting securities, by contract or otherwise.

         "REPORTABLE EVENT": A reportable event, as defined in Section 4043 
of ERISA and the regulations issued under such Section, with respect to a 
Plan, excluding, however, such events as to which the PBGC by regulation has 
waived the requirement of Section 4043(a) of ERISA that it be notified within 
30 days of the occurrence of such event; PROVIDED, that for purposes of this 
Agreement, a failure to meet the minimum funding standard of Section 412 of 
the Code and Section 302 of ERISA shall be a Reportable Event regardless of 
the issuance of any waiver in accordance with Section 412(d) of the Code.

         "SUBSIDIARY": Any Person of which or in which the Borrower and its 
other Subsidiaries own, alone or in combination, directly or indirectly, 50% 
or more of: (a) the combined voting power of all classes of stock having 
general voting power under ordinary circumstances to elect a majority of the 
board of directors of such Person, if it is a corporation, (b) the capital 
interest or profits interest of such Person, if it is a partnership, joint 
venture or similar entity, or (c) the beneficial interest of such Person, if 
it is a trust, association or other unincorporated organization.

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         "SUPPLEMENTAL DOCUMENTATION": The term "Supplemental Documentation" 
shall have the meaning given such term in SECTION 3.5.

         "TAXES": With respect to any Person means taxes, assessments or 
other governmental charges or levies imposed upon such Person, its income or 
any of its properties, franchises or assets.

         "TERMINATION DATE": The term "Termination Date" shall have the 
meaning given such term in SUPPLEMENT A.

         "THIRD PARTY COLLATERAL": Any property of any Person other than the 
Borrower which secures payment or performance of any Obligations.

         "UCC": The Uniform Commercial Code as in effect in the State of 
Minnesota and any successor statute, together with any regulations 
thereunder, in each case as in effect from time to time. References to 
sections of the UCC shall be construed to also refer to any successor 
sections.

         "UNMATURED EVENT OF DEFAULT": Any event which, with the giving of 
notice to the Borrower or lapse of time, or both, would constitute an Event 
of Default.

         "UNUSED CREDIT FEE": The term "Unused Credit Fee" shall have the 
meaning given such term in Supplement A.

         1.2 ACCOUNTING TERMS AND CALCULATIONS. Except as may be expressly 
provided to the contrary herein, all accounting terms used herein or in any 
certificate or other document made or delivered pursuant hereto shall be 
interpreted and all accounting determinations hereunder (including, without 
limitation, determination of compliance with financial ratios and 
restrictions in ARTICLES V and VI and in SUPPLEMENT A) shall be made in 
accordance with GAAP consistently applied, using a first in-first out method 
of Inventory valuation. Any reference to "consolidated" financial terms apply 
to circumstances in which the Borrower has Subsidiaries and shall be deemed 
to refer to those financial terms as applied to the Borrower and the 
Subsidiaries in accordance with GAAP. If, in Lender's reasonable business 
judgment, a material change occurs in GAAP, then either (a) the Lender and 
the Borrower shall amend, in writing, the covenants in this Agreement, 
Supplement A, and the other Loan Documents which are calculated on the basis 
of GAAP to reflect such change, or (b) if the Lender and the Borrower fail to 
agree on and enter into such an amendment, then the Lender shall have the 
right to deem such change in GAAP to be an Event of Default.

         1.3 OTHER DEFINITIONAL PROVISIONS. Unless otherwise defined therein, 
all terms defined in this Agreement shall have such defined meanings when 
used in any other Loan Document. Terms used in this Agreement which are 
defined in any Supplement, Exhibit or Schedule hereto shall, unless the 
context otherwise indicates, have the meanings given them in such Supplement, 
Exhibit or Schedule. Other terms used in this Agreement and not otherwise 

                                      12
<PAGE>

defined herein shall, unless the context otherwise indicates, have the 
meanings given such terms in the Minnesota Uniform Commercial Code to the 
extent the same are used or defined therein. Reference to "this Agreement" 
shall include the provisions of SUPPLEMENT A. References to Sections, 
Exhibits, Schedules and like references are to this Agreement unless 
otherwise expressly provided.

         1.4 RULES OF CONSTRUCTION. Section captions used in this Agreement 
are for convenience only, and shall not affect the construction of this 
Agreement. The words "hereof," "herein," and "hereunder" and words of similar 
import when used in this Agreement shall refer to this Agreement as a whole 
and not to any particular provision of this Agreement. Gender references are 
freely interchangeable and shall refer to the masculine, feminine or neuter.

                         ARTICLE II LOANS; OTHER MATTERS

         2.1 LOANS.

                  (a) AMOUNT, AUTHORITY TO MAKE CERTAIN ADVANCES. Subject to 
         the terms and conditions of the Loan Documents, and in reliance upon 
         the representations and warranties of the Borrower set forth herein 
         and in the other Loan Documents, the Lender agrees to make loans 
         (individually, a "LOAN" and collectively, the "LOANS") to the 
         Borrower during the period from and after the date hereof to the 
         date on which the Credit terminates, in such amounts, in the type of 
         Advance and at such times as the Borrower may from time to time 
         request, up to but not in excess of the Loan Availability. Loans 
         made by the Lender may be repaid and, subject to the terms and 
         conditions hereof, reborrowed to the date on which the Credit 
         terminates.

                  (b) MANDATORY PAYMENTS. All Loans and other Obligations 
         hereunder shall be paid by the Borrower on the Termination Date 
         unless payable sooner pursuant to the provisions of this Agreement. 
         In addition, Borrower shall pay to the Lender all proceeds of 
         Collateral in accordance with the provisions of this Agreement and 
         other Loan Documents for application against the Obligations in such 
         order and manner as Lender may deem appropriate. If the aggregate 
         outstanding principal balance of the Loans exceeds the Loan 
         Availability or there is a negative Loan Availability, then, unless 
         the Lender shall otherwise consent in writing, the Borrower shall 
         immediately and without notice of any kind make such payments as 
         shall be necessary to eliminate such excess or negative Loan 
         Availability or take such other action (including, without 
         limitation, delivery of cash collateral) as Lender may require.

                  (c) RECOURSE TO COLLATERAL. Borrower's payment obligations 
         under this Agreement and under any Note and any other Loan Document 
         are primary and absolute and Lender shall not be required to seek 
         recourse to Collateral, Third Party Collateral or other security at 
         any time.

                                      13
<PAGE>

         2.2 LETTERS OF CREDIT.

             Intentionally Deleted.

         2.3 LOAN ACCOUNT; DISBURSEMENT ACCOUNT; CONTROLLED DISBURSEMENT
ACCOUNT.

                  (a) LOAN ACCOUNT. The Lender shall establish or cause to be 
         established on its books in the Borrower's name one or more accounts 
         (each, a "LOAN ACCOUNT") to evidence Loans made to the Borrower. Any 
         amounts advanced as a Loan pursuant to this Agreement will be 
         debited to the applicable Loan Account and result in an increase in 
         the principal balance outstanding in such Loan Account in the amount 
         thereof, PROVIDED, HOWEVER, any failure by Lender to debit such Loan 
         Account in respect of any such Loans shall not affect Borrower's 
         obligation to repay such Loans in accordance with the provisions of 
         this Agreement or any Note. Any amount received by the Lender and 
         applied by the Lender as principal payments in accordance with the 
         provisions hereof, will be credited to the applicable Loan Account 
         and result in a reduction in the principal balance outstanding in 
         such Loan Account.

                  (b) DISBURSEMENT ACCOUNT. Unless otherwise provided in this 
         Agreement, the Lender will credit or cause to be credited to a 
         commercial account (the "DISBURSEMENT ACCOUNT") maintained by the 
         Borrower at the Lender's U.S. Bank Place, 601 Second Avenue South, 
         Minneapolis, Minnesota 55402-4302 office the amount of any sums 
         advanced as Loans.

                  (c) Controlled Disbursement Account. The Borrower shall 
         maintain in its name a commercial account (the "CONTROLLED 
         DISBURSEMENT ACCOUNT") with U. S. Bank, Havre, Montana into which 
         deposits from the Disbursement Account may be authorized by the 
         Borrower and/or the Lender and from which the Borrower may draw 
         checks for corporate purposes. Borrower, Lender and depository bank 
         shall enter into an agreement satisfactory to Lender regarding, 
         among other things, the Controlled Disbursement Account and access 
         to amounts on deposit therein or attributable thereto.

         2.4 INTEREST; FEES.

                  (a) INTEREST. The outstanding principal balance of each 
         Loan to the Borrower hereunder shall bear interest at the rate(s) 
         applicable to such Loan as set forth in SUPPLEMENT A; PROVIDED, 
         HOWEVER, that no provision of this Agreement or of any Note shall 
         require the payment or permit the collection of interest in excess 
         of the rate permitted by applicable law. Interest as aforesaid shall 
         be charged for the actual number of days elapsed over a year 
         consisting of 360 days on the actual daily balance of such Loan. 
         Interest on the unpaid principal of any Loan shall accrue from the 
         date such Loan is made to the date such Loan is paid in full. 
         Interest shall be paid by the Borrower on the last day of each 
         month, commencing on the first such day to occur after the date 
         hereof, and on the Termination Date or other date on which the 
         Credit terminates. Any 

                                      14
<PAGE>

         accrued or accruing interest after the Termination Date or other 
         date on which the Credit terminates shall be payable on demand.

                  (b) INTEREST AFTER DEFAULT. At any time that an Event of 
         Default has occurred and is continuing, the outstanding principal 
         amount of all Loans, all past due interest and all past due fees and 
         other sums payable to the Lender hereunder or under any Loan 
         Document shall bear interest at the Default Rate.

                  (c) UNUSED CREDIT FEE. The Borrower shall pay to the Lender 
         an Unused Credit Fee for the period from and after the date hereof 
         through and including the date the Credit is terminated in the 
         amount and at the times set forth in SUPPLEMENT A.

                  (d) CREDIT TERMINATION FEE. Upon termination or 
         cancellation of the Credit prior to the Termination Date, the 
         Borrower shall pay to the Lender a termination fee in the amount 
         indicated in SUPPLEMENT A.

         2.5 REQUESTS FOR LOANS; BORROWING BASE CERTIFICATES; OTHER INFORMATION.

                  (a) LOAN REQUESTS. Except as otherwise expressly provided 
         elsewhere in this Agreement, Loans shall be requested by telephone 
         and shall be promptly confirmed in writing. The Borrower's failure 
         to confirm any such telephonic request or otherwise comply with the 
         provisions of this SECTION 2.5(a) shall not in any manner affect the 
         obligation of the Borrower to repay such Loan in accordance with the 
         terms of this Agreement.

                  (b) ADDITIONAL INFORMATION. In the event that the Borrower 
         shall at any time, or from time to time, (i) make a request for a 
         Loan, or (ii) be deemed to have requested an Overdraft Loan, the 
         Borrower agrees to forthwith provide the Lender with such 
         information, at such frequency and in such format, as is required by 
         the Lender, such information to be current as of the time of such 
         request.

                  (c) BORROWING BASE CERTIFICATE. As soon as available and in 
         any event within twenty-five (25) days after the end of each month 
         of each fiscal year of the Borrower, the Borrower agrees to provide 
         to the Lender a current borrowing base certificate ("BORROWING BASE 
         CERTIFICATE") as at the end of such month and to further provide to 
         the Lender a Borrowing Base Certificate at such other times as the 
         Lender may request. Such Borrowing Base Certificate shall be in 
         substantially the form of EXHIBIT A, and include such supporting 
         documentation as Lender may require and shall be executed and 
         certified as accurate by such person or persons as the Borrower 
         designates, from time to time, in writing to the Lender as provided 
         herein.

                  (d) BORROWER'S AUTHORIZED REPRESENTATIVES. The Borrower 
         shall provide the Lender with documentation satisfactory to the 
         Lender indicating the names of those employees of the Borrower 
         authorized by the Borrower to sign, among other things, 

                                      15
<PAGE>

         Borrowing Base Certificates, and/or to make a telephone request for 
         a Loan, and/or to authorize disbursement of the proceeds of a Loan 
         by wire transfer or otherwise. The Lender shall be entitled to rely 
         upon such documentation until notified in writing by the Borrower of 
         any change(s) in the names of persons so authorized. The Lender 
         shall be entitled to act on the instructions of anyone identifying 
         himself as one of the persons authorized to request Loans or 
         disbursements of Loan proceeds by telephone and the Borrower shall 
         be bound thereby in the same manner as if the person were actually 
         so authorized. The Borrower agrees to indemnify and hold the Lender 
         harmless from any and all claims, damages, liabilities, losses, 
         costs and expenses (including Attorneys' Fees) which may arise or be 
         created by the acceptance of instructions (telephonic or otherwise) 
         for making Loans or disbursing Loan proceeds by wire transfer or 
         otherwise, or for application of payments.

         2.6 NOTES. Lender, in its sole and absolute discretion, may require 
that any and all Loans hereunder be evidenced by a Note. Whether or not 
evidenced by a Note, all Loans and payments thereof shall be recorded on the 
Lender's books, which shall be rebuttable presumptive evidence of the amount 
of such Loans outstanding at any time hereunder. The Lender will account 
monthly as to all Loans and payments hereunder and each monthly accounting 
will be fully binding on the Borrower unless, within 15 days following the 
Borrower's receipt thereof, the Borrower shall provide the Lender with a 
specific listing of exceptions. Notwithstanding any term or condition of this 
Agreement to the contrary, the failure of the Lender to record the date and 
amount of any Loan shall not limit or otherwise affect the obligation of the 
Borrower to repay any such Loan.

         2.7 OVERDRAFT LOANS. The Lender, in its sole and absolute discretion 
and subject to the terms hereof, may make a Loan to the Borrower in an amount 
equal to the amount of any overdraft which may from time to time exist with 
respect to the Disbursement Account or any other bank account which the 
Borrower may now or hereafter have with Lender or any other Affiliate. The 
existence of such overdraft shall be deemed to be a request by the Borrower 
for such Loan. The Borrower acknowledges that the Lender is under no duty or 
obligation to make any Loan to the Borrower to cover any overdraft. The 
Borrower further agrees that an overdraft shall constitute a separate Loan 
under this Agreement (an "OVERDRAFT LOAN"), which shall bear interest, from 
the date on which the overdraft occurred until paid, in an amount equal to 
the greater of 130% of the highest rate of interest then charged for Loans 
(other than Overdraft Loans or Over Advances) made hereunder, or $50.00 per 
day. If the Lender, in its sole and absolute discretion, decides not to make 
a Loan to cover part or all of any overdraft, the Lender may return any 
check(s) which created such overdraft.

         2.8 OVER ADVANCES. The Lender, in its sole and absolute discretion, 
may make Loans to the Borrower, either at the Borrower's request or to pay 
amounts due to the Lender under this Agreement or any other Loan Document, in 
excess of the Loan Availability or permit the total Loans to exceed the Loan 
Availability at any time (such excess Obligations are hereinafter referred to 
as "OVER ADVANCES"). No Over Advance or series of Over Advances shall cause 
or constitute a waiver by the Lender of its right to refuse to make any 
further Loan or to

                                      16

<PAGE>

issue, or cause to be issued, any Letters of Credit at any time that an Over 
Advance exists or would result therefrom. During any period in which an Over 
Advance exists, the amount of the Over Advances shall bear interest at a rate 
equal to 130% of the highest rate of interest then charged for Loans (other 
than Overdraft Loans or Over Advances) made hereunder.

         2.9 ALL LOANS ONE OBLIGATION. All Loans under this Agreement shall 
constitute one Loan, and all Obligations shall constitute one general 
obligation, secured by the Lien granted by the Borrower hereunder on all of 
the Collateral and by all other Liens heretofore, now or at any time or times 
hereafter granted by the Borrower or any other Obligor to secure the 
Obligations. The Borrower agrees that all of the rights of the Lender set 
forth in the Loan Documents shall, unless otherwise agreed to in writing, 
apply to any modification of or supplement to the Loan Documents.

         2.10 MAKING OF PAYMENTS; APPLICATION OF COLLECTIONS; CHARGING OF 
ACCOUNTS.

                  (a) All payments hereunder (including payments with respect 
         to any Notes) shall be made without set-off or counterclaim and 
         shall be made to the Lender in immediately available funds (or as 
         the Lender may otherwise consent) prior to 11:00 a.m., Minneapolis 
         time, on the date due at its office at U.S. Bank Place, 601 Second 
         Avenue South, Minneapolis, Minnesota 55402-4302, or at such other 
         place as may be designated by the Lender to the Borrower in writing 
         from time to time. Any payments received after such time shall be 
         deemed received on the next Business Day. Whenever any payment to be 
         made hereunder or under any Note shall be stated to be due on a date 
         other than a Business Day such payment may be made on the next 
         succeeding Business Day and such extension of time shall be included 
         in the computation of payment of interest or any fees.

                  (b) The Borrower authorizes the Lender to, and the Lender 
         will, subject to the provisions of this SECTION 2.10(b), apply the 
         whole or any part of any amounts received by the Lender, or any 
         Affiliate (whether deposited in the Collateral Account or otherwise 
         received by the Lender or any Affiliate) from the collection of 
         items of payment and proceeds of any Collateral or Third Party 
         Collateral against the principal and/or interest of any Loans made 
         hereunder and/or any other Obligations, whether or not then due, in 
         such order of application as the Lender may determine, unless such 
         payments or proceeds are, in the Lender's sole and absolute 
         discretion, released to the Borrower. No checks, drafts or other 
         instruments received by the Lender, or any Affiliate, shall 
         constitute final payment to the Lender unless and until such item of 
         payment has actually been collected. All items or amounts which are 
         delivered to the Lender by or on behalf of the Borrower or any 
         Obligor or any Account Debtor on account of partial or full payment 
         or otherwise as proceeds of any of the Collateral or Third Party 
         Collateral (including any items or amounts which may have been 
         deposited to the Collateral Account) may from time to time, in the 
         Lender's sole and absolute discretion, be released to the Borrower 
         or may be applied by the Lender towards such of the Obligations, 
         whether or not then due, in such order of application as the Lender 
         may determine. Notwithstanding anything to the contrary herein, (i) 
         solely for purposes of determining the occurrence of an Event of 

                                      17
<PAGE>

         Default hereunder, shall be deemed received upon actual receipt by 
         the Lender unless the same is subsequently dishonored for any reason 
         whatsoever, (ii) solely for purposes of determining whether, under 
         SECTIONS 2.1 and 2.2, there is Loan Availability, all cash, checks, 
         instruments and other items of payment shall be applied against the 
         Obligations no later than the first Business Day following receipt 
         thereof by the Lender in Minneapolis, Minnesota or the same Business 
         Day on which the Lender initiates an ACH transaction from the 
         Collateral Account, and (iii) solely for purposes of interest 
         calculation hereunder, all cash, checks, instruments and other items 
         of payment shall be deemed to have been applied against the 
         Obligations no later than the first Business Day following receipt 
         thereof by the Lender in Minneapolis, Minnesota or the same Business 
         Day on which the Lender initiates an ACH transaction from the 
         Collateral Account.

                  (c) The Borrower hereby irrevocably authorizes the Lender 
         and the Lender may, in its sole and absolute discretion, at any time 
         and from time to time, pay all or any portion of any Obligations 
         including, without limitation, interest, Attorneys' Fees and other 
         fees, costs and expenses of the Lender for which the Borrower is 
         liable pursuant to the terms of the Loan Documents, by charging the 
         Disbursement Account or any other bank account of the Borrower 
         maintained with Lender or by advancing the amount thereof to the 
         Borrower as a Loan and applying the proceeds of such Loan against 
         such Obligations; PROVIDED, HOWEVER, that the provisions of this 
         SECTION 2.10(c) shall not affect the Borrower's obligation to pay 
         when due all amounts payable by the Borrower under any of the Loan 
         Documents whether or not there are sufficient funds therefor in the 
         Disbursement Account or any such other bank account of the Borrower 
         with Lender, or sufficient Loan Availability.

         2.11 LENDER'S ELECTION NOT TO ENFORCE. Notwithstanding any term or 
condition of this Agreement to the contrary, the Lender, in its sole and 
absolute discretion, at any time and from time to time may suspend or refrain 
from enforcing any or all of the restrictions imposed in this ARTICLE II but 
no such suspension or failure to enforce shall impair the Lender's right and 
power under this Agreement to refrain from making a Loan if all conditions 
precedent to the Lender's obligation to make such Loan have not been 
satisfied.

                                      18
<PAGE>

ARTICLE III  COLLATERAL

         3.1 GRANT OF SECURITY INTEREST. As security for the payment of all 
Loans now or hereafter made by the Lender to the Borrower hereunder or under 
any Note, and as security for the payment or other satisfaction of all other 
Obligations, the Borrower hereby pledges, assigns and grants to the Lender, 
and its Affiliates, a security interest in all of the Borrower's right, title 
and interest in and to the following property of the Borrower, whether now 
owned or existing, or hereafter acquired or coming into existence, wherever 
now or hereafter located (all such property is hereinafter referred to 
collectively as the "COLLATERAL"):

                  (a) Accounts Receivable (whether or not Eligible Accounts 
         Receivable), including all other rights and interests (including all 
         liens and security interests) that the Borrower may at any time have 
         by law or agreement against any Account Debtor or other obligor 
         obligated to make any such payment or against any of the property of 
         such Account Debtor or other obligor;

                  (b) Equipment;

                  (c) Inventory (whether or not Eligible Inventory);

                  (d) General Intangibles;

                  (e) documents;

                  (f) all chattel paper and instruments evidencing, arising 
         out of or relating to any obligation to the Borrower for goods sold 
         or leased or services rendered or otherwise arising out of or 
         relating to any property described in CLAUSES (a) through (e) above;

                  (g) goods, instruments, documents or chattel paper that are 
         in the possession or control of, or in transit to, the Lender or any 
         Affiliate or any agent or bailee for the Lender or any Affiliate for 
         any reason and all interest on, dividends and distributions and 
         other rights in connection with such property, and any and all 
         balances, credits, deposits (general or special, time or demand, 
         provisional or final), accounts or monies of or in the name of the 
         Borrower now or hereafter with the Lender, or any Affiliate, and any 
         and all property of every kind or description of or in the name of 
         the Borrower now or hereafter, for any reason or purpose whatsoever, 
         in the possession or control of, in transit to or standing to the 
         Borrower's credit on the books of, the Lender, any Affiliate, any 
         agent or bailee for the Lender or any Affiliate, or any Participant 
         and all items in any lockbox;

                  (h) all interest of the Borrower in any goods the sale or 
         lease of which shall have given or shall give rise to, and in all 
         guaranties and other property securing the payment of or performance 
         under, any Accounts Receivable, General Intangibles or any chattel 
         paper or instruments referred to in CLAUSE (f) above;

                                      19
<PAGE>

                  (i) any and all other property of the Borrower of any kind 
         or description, including, without limitation, real estate of the 
         Borrower, subject to a separate mortgage, pledge or security 
         interest in favor of the Lender or in which the Lender now or 
         hereafter has or acquires a security interest securing any 
         Obligations, pursuant to any written agreement or instrument other 
         than this Agreement;

                  (j) all replacements, substitutions, additions or 
         accessions to or for any of the foregoing;

                  (k) to the extent related to the property described in 
         CLAUSES (a) through (j) above, all books, correspondence, credit 
         files, records, invoices and other papers and documents, including, 
         without limitation, to the extent so related, all tapes, cards, 
         computer runs, computer programs and other papers and documents in 
         the possession or control of the Borrower or any computer bureau 
         from time to time acting for the Borrower, and, to the extent so 
         related, all rights in, to and under all policies of insurance, 
         including claims of rights to payments thereunder and proceeds 
         therefrom and refunds of unearned premiums related thereto, 
         including, without limitation, any credit insurance; and

                  (l) all products and proceeds of any of the foregoing 
         (including, without limitation, any Accounts Receivable or other 
         proceeds arising from the sale or other disposition of any 
         Collateral, any returns of any Equipment or Inventory sold by the 
         Borrower and the proceeds of any insurance or condemnation awards 
         covering any of the Collateral).

         3.2 ACCOUNTS RECEIVABLE.

                  (a) ADJUSTMENTS. The Borrower shall notify the Lender 
         immediately of all disputes and claims by any Account Debtor in 
         excess of $50,000 in the aggregate for any one Account Debtor in any 
         one fiscal month or in excess of $100,000 in the aggregate for all 
         Account Debtors in any one fiscal month and settle or adjust all 
         disputes and claims at no expense to the Lender. The Borrower shall 
         not grant any discount or credit allowance to any Account Debtor 
         except that the Borrower may do so in the ordinary course of 
         business so long as. (i) no Event of Default or Unmatured Event of 
         Default has occurred and is continuing; and (ii) the discounts and 
         credit allowances do not exceed $50,000 in the aggregate for any one 
         Account Debtor in any one fiscal month or $100,000 in the aggregate 
         for all Account Debtors in any one fiscal month. All Account Debtor 
         payments and all net amounts received by the Lender in settlement, 
         adjustment or liquidation of any Account Receivable may be applied 
         by the Lender to the Obligations or credited to the Disbursement 
         Account (subject to collection), as the Lender may deem appropriate, 
         as more fully described in SECTION 2.10. If requested by the Lender, 
         the Borrower will make proper entries in its books, disclosing the 
         assignment of Accounts Receivable to the Lender.

                                      20
<PAGE>

                  (b) COLLATERAL ACCOUNT. Unless otherwise consented to by 
         the Lender in writing, the Borrower will, forthwith upon receipt by 
         the Borrower of any and all checks, drafts, cash and other 
         remittances in payment or as proceeds of, or on account of, any of 
         the Accounts Receivable or other Collateral, deposit the same in a 
         special bank account (the "COLLATERAL ACCOUNT") with the Lender or 
         such other bank or financial institution as the Lender shall 
         consent, over which the Lender alone has power of withdrawal, and 
         will designate with each such deposit the particular Accounts 
         Receivable or other item of Collateral upon which the remittance was 
         made. The Borrower acknowledges that the maintenance of the 
         Collateral Account is solely for the convenience of the Lender in 
         facilitating its own operations and the Borrower does not and shall 
         not have any right, title or interest in the Collateral Account or 
         in the amounts at any time appearing to the credit thereof. Said 
         proceeds shall be deposited in precisely the form received except 
         for the Borrower's endorsement where necessary to permit collection 
         of items, which endorsement the Borrower agrees to make. Borrower 
         shall be liable as endorsee on all items deposited in the Collateral 
         Account, whether or not in fact endorsed by Borrower. Pending such 
         deposit, the Borrower agrees not to commingle any such checks, 
         drafts, cash and other remittances with any of its funds or 
         property, but will hold them separate and apart therefrom and upon 
         an express trust for the Lender until deposit thereof if made in the 
         Collateral Account. Upon the full and final liquidation of all 
         Obligations and termination of the Credit, the Lender will pay over 
         to the Borrower any excess amounts received by the Lender as payment 
         or proceeds of Collateral, whether received by the Lender as a 
         deposit in the Collateral Account or received by the Lender as a 
         direct payment on any of the sums due hereunder.

                  (c) LOCKBOX. The Lender may request and upon such request 
         the Borrower will irrevocably direct all present and future Account 
         Debtors and other Persons obligated to make payments on Accounts 
         Receivable or other Collateral to make such payments to a special 
         lockbox (the "Lockbox") under the control of Lender or an Affiliate; 
         PROVIDED, HOWEVER, that the Borrower's obligations to do so shall 
         terminate upon payment in full of the Obligations after the 
         occurrence of the Termination Date. After such request, all of 
         Borrower's invoices, account statements and other written or oral 
         communication directing, instructing, requesting or demanding 
         payment of any Account Receivable or other amount constituting 
         Collateral shall direct that all payments be made to the Lockbox and 
         shall include the Lockbox address. All payments received in the 
         Lockbox shall be processed to the Collateral Account. Borrower 
         agrees to execute and deliver all documentation required by Lender 
         related to the establishment and maintenance of the Lockbox.

                  (d) GOVERNMENT CLAIMS. If any Accounts Receivable, chattel 
         paper or General Intangible arises out of contracts or other 
         transactions with the United States of America or any department, 
         agency, or instrumentality thereof (a "FEDERAL GOVERNMENTAL 
         AUTHORITY") or with any state, county of local government authority 
         or any department, agency or instrumentality thereof (collectively, 
         the "OTHER GOVERNMENTAL AUTHORITIES"), the Borrower will, unless the 
         Lender shall otherwise agree in writing, immediately notify 

                                      21
<PAGE>

         the Lender in writing and execute any instruments and take any steps 
         required by the Lender in order that all monies due and to become 
         due under such contracts or other transactions shall be assigned to 
         the Lender and, with respect to Federal Governmental Authorities, 
         notice thereof given to the government under the Federal Assignment 
         of Claims Act of 1940, as amended, and/or with respect to all Other 
         Governmental Authorities, notice thereof given to the appropriate 
         authority.

                  (d) CHATTEL PAPER. If any Account Receivable is evidenced 
         by chattel paper or instruments, the Borrower will, unless the 
         Lender shall otherwise agree, deliver the originals of same to the 
         Lender, appropriately endorsed to the Lender's order and, regardless 
         of the form of such endorsement, the Borrower hereby expressly 
         waives presentment, demand, notice of dishonor, protest and notice 
         of protest and all other notices with respect thereto.

         3.3 INVENTORY.

                  (a) Unless the Lender shall otherwise agree in writing, if 
         the Borrower sells Inventory for cash, all full and partial payments 
         therefor shall immediately be delivered by the Borrower to the 
         Lender in their original form for deposit in the Collateral Account 
         or application to payment of the Obligations in such order and 
         manner as Lender shall determine. All such cash shall be held by the 
         Borrower in trust for the Lender and shall be remitted to the Lender 
         at the end of the day received or at such other time as the Lender 
         may designate.

                  (b) The Lender shall not be liable or responsible in any 
         way for the safekeeping of any Inventory delivered to it, to any 
         bailee appointed by or for it, to any warehouseman, or under any 
         other circumstances. The Lender shall not be responsible for 
         collection of any proceeds or for losses in collected proceeds held 
         by the Borrower in trust for the Lender. Any and all risk of loss 
         for any or all of the foregoing shall be upon the Borrower except 
         for such loss as shall result from the Lender's gross negligence or 
         willful misconduct.

                  (c) The Borrower shall, upon acquiring an interest in any 
         Inventory, deliver to the Lender schedules of such Inventory, 
         together with supplier's invoices, warranties, production, cost and 
         other records as the Lender may request. If requested by the Lender, 
         the Borrower shall deliver to the Lender schedules of the sale of 
         any Inventory immediately upon its sale. Any material change in the 
         value or condition of any Inventory and any errors discovered in 
         schedules delivered to the Lender shall be reported to the Lender 
         immediately.

                  (d) The Borrower shall notify the Lender immediately if the 
         Borrower obtains possession (by return, repossession or otherwise) 
         of any Inventory in excess of $50,000 in the aggregate for any one 
         Account Debtor in any one fiscal month or in excess of $100,000 in 
         the aggregate for all Account Debtors in any one fiscal month which 
         has

                                      22
<PAGE>

         been sold and shall inform the Lender of the identity of the 
         returned or repossessed Inventory, the applicable Account Debtor and 
         the amount of the applicable Account Receivable. Regardless of 
         whether the Borrower is obligated to notify the Lender pursuant to 
         the immediately preceding sentence with respect to any item of 
         Inventory, the Borrower shall receive such Inventory in trust and 
         resell such Inventory for the Lender unless instructed to deliver it 
         to the Lender.

         3.4 EQUIPMENT.

                  (a) In the event any Equipment is sold, transferred or 
         otherwise disposed of, unless the Lender shall agree otherwise in 
         writing, the Borrower shall deliver all of the proceeds of any such 
         sale, transfer or disposition to the Lender in their original form 
         for deposit in the Collateral Account or application to payment of 
         the Obligations in such order and manner as Lender shall determine.

                  (b) The Borrower will, upon request of the Lender, submit 
         to the Lender a current listing of all of the Borrower's Equipment 
         which listing shall indicate the type, model, serial number and 
         location of such Equipment except that, so long as no Unmatured 
         Event of Default or Event of Default has occurred and is consisting, 
         such listing shall be in substantially the form of the Borrower's 
         "net book value report" delivered to the Lender prior to the date 
         hereof.

         3.5 SUPPLEMENTAL DOCUMENTATION. At the Lender's request, the 
Borrower shall execute and/or deliver to the Lender, at any time or times 
hereafter, such agreements, assignments, documents, financing statements, 
warehouse receipts, bills of lading, notices of assignment of Accounts 
Receivable, schedules of Accounts Receivable assigned, and other written 
matter necessary or requested by the Lender to perfect and maintain a 
perfected security interest in the Collateral granted hereunder (all the 
above hereinafter referred to as "SUPPLEMENTAL DOCUMENTATION"), in form and 
substance acceptable to the Lender, and pay all taxes, fees and other costs 
and expenses associated with any recording or filing of the same. Borrower 
agrees to reimburse the Lender for the costs of all searches and updates of 
searches in public records deemed necessary by the Lender in connection with 
the protection of its security interest. The Borrower hereby irrevocably 
makes, constitutes and appoints the Lender (and all Persons designated by the 
Lender for that purpose) as the Borrower's true and lawful attorney (and 
agent-in-fact) to sign the name of the Borrower on any of the Supplemental 
Documentation and to deliver any of the Supplemental Documentation to such 
Persons as the Lender in its sole and absolute discretion, may elect. The 
Borrower agrees that a carbon, photographic, photostatic, and other 
reproduction of this Agreement or of a financing statement is sufficient as a 
financing statement.

         3.6 POWER OF ATTORNEY. The Borrower irrevocably designates, makes, 
constitutes, and appoints the Lender (and all Persons designated by the 
Lender) as the Borrower's true and lawful attorney (and agent-in-fact) and 
the Lender, or the Lender's agent, may, without notice to the Borrower:

                                      23

<PAGE>

                  (a) at such time or times hereafter as the Lender or said 
         agent, in its sole and absolute discretion, may determine, in the 
         Borrower's or the Lender's name, (i) endorse the Borrower's name on 
         any checks, notes, drafts or any other items of payment relating to 
         and/or proceeds of the Collateral which come into the possession of 
         the Lender or under the Lender's control and deposit the same in the 
         Collateral Account or apply such payment or proceeds to the 
         Obligations in such manner as Lender shall determine; and (ii) 
         endorse the Borrower's name on any chattel paper, document, 
         instrument, invoice, freight bill, bill of lading or similar 
         document or agreement in the Lender's possession relating to 
         Accounts Receivable, Inventory, Equipment or any other Collateral; 
         and

                  (b) at any time after an Event of Default, as the Lender or 
         said agent, in its sole and absolute discretion, may determine, in 
         the Borrower's or the Lender's name: (i) notify and/or require the 
         Borrower to notify, any Account Debtor or other Person obligated 
         under or in respect of any Collateral, of the fact of the Lender's 
         Lien thereon and of the collateral assignment thereof to the Lender; 
         (ii) direct and/or require the Borrower to direct, any Account 
         Debtor or other Person obligated under or in respect of any 
         Collateral, to make payment directly to the Lender of any amounts 
         due or to become due thereunder or with respect thereto;(iii) 
         receive, open and dispose of all mail received at the street address 
         or any post office box address of the Borrower; (iv) demand, 
         collect, surrender, release or exchange all or any part of any 
         Collateral or any amounts due thereunder or with respect thereto; 
         (v) settle, adjust, compromise, extend or renew for any period 
         (whether or not longer than the initial period) any and all sums 
         which are now or may hereafter become due or owing upon or with 
         respect to any of the Collateral; (vi) enforce, by suit or 
         otherwise, payment or performance of any of the Collateral; (vii) 
         settle, adjust or compromise any legal proceedings brought to 
         collect any sums due or owing upon or with respect to any of the 
         Collateral; (viii) exercise all of the Borrower's rights and 
         remedies with respect to the collection of any amounts due upon or 
         with respect to any of the Collateral; (ix) if permitted by 
         applicable law, sell or assign the Collateral upon such terms, for 
         such amounts and at such time or times as the Lender may deem 
         advisable; (x) discharge and release the Collateral; (xi) prepare, 
         file and sign the Borrower's name on any proof of claim in 
         bankruptcy or similar document against any Account Debtor; (xii) 
         prepare, file and sign the Borrower's name on any notice of lien, 
         assignment or satisfaction of lien or similar document in connection 
         with the Accounts Receivable and/or other Collateral; and (xiii) do 
         all acts and things necessary, in the Lender's sole and absolute 
         discretion, to obtain repayment of the Obligations and to fulfill 
         the Borrower's other obligations under this Agreement.

                  (c) at such time or times after the assertion by the Lender 
         that an Event of Default has occurred and is continuing (whether or 
         not an Event of Default has in fact occurred), as the Lender or said 
         agent, in its reasonable discretion, may determine, in the 
         Borrower's or the Lender's name, notify the post office authorities 
         to change the address for delivery of the Borrower's mail to an 
         address designated by the Lender.

                                      24
<PAGE>

This power, being coupled with an interest, is irrevocable until all 
Obligations are paid in full and the Credit is terminated. Under no 
circumstances shall the Lender be under any duty to act in regard to any of 
the foregoing matters. The costs relating to any of the foregoing matters, 
including Attorneys' Fees and out-of-pocket expenses shall be borne solely by 
the Borrower whether the same are incurred by the Lender or the Borrower.

The Lender and Affiliates and their respective directors, officers, employees 
or agents shall not be liable for any acts of commission or omission nor for 
any error in judgment or mistake of fact or law, unless the same shall have 
resulted from gross negligence or willful misconduct.

         3.7 LICENSE. The Borrower grants to Lender and its Affiliates a 
non-exclusive, worldwide and royalty-free license to use or otherwise exploit 
all leases, licenses, trademarks, franchises, tradenames, copyrights and 
patents of the Borrower (to the extent permissible under the terms of such 
agreements) for the purposes of selling, leasing, preparing for sale or 
disposing or enforcing its rights in any or all of the Collateral; PROVIDED, 
HOWEVER, that such license may be exercised only after the occurrence of an 
Event of Default.

                    ARTICLE IV REPRESENTATIONS AND WARRANTIES

         To induce the Lender to enter into this Agreement and to make Loans 
to the Borrower for the account of Borrower hereunder, the Borrower makes the 
following representations and warranties, all of which shall be true and 
correct as of the date the each Loan is made and survive the execution of 
this Agreement and the making of the initial Loan:

         4.1 ORGANIZATION, NAME. The Borrower and each of its corporate 
Subsidiaries are corporations duly incorporated, validly existing and in good 
standing under the laws of the jurisdiction of their respective 
incorporation. All of the Borrower's other Subsidiaries, if any, are entities 
duly organized, validly existing and in good standing under the laws of the 
jurisdictions of their respective organization. The Borrower and all of the 
Subsidiaries are in good standing and are duly qualified to do business in 
each state where, because of the nature of their respective activities or 
properties, such qualification is required. During the last ten years, the 
Borrower and each Subsidiary has done business solely in the names set forth 
on SCHEDULE 4.1 and has no trade names, styles or doing business forms except 
as disclosed on SCHEDULE 4.1. The Borrower's taxpayer identification number 
is 41-0948334.

         4.2 AUTHORIZATION. The Borrower is duly authorized to execute and 
deliver the Loan Documents and any Supplemental Documentation contemplated by 
this Agreement, and is and will continue to be duly authorized to borrow 
monies hereunder and to perform its obligations under the Loan Documents and 
any Supplemental Documentation contemplated by this Agreement and the 
borrowings hereunder do not and will not require any consent or approval of 
any governmental agency or authority.

         4.3 NO CONFLICTS. The execution, delivery and performance by the 
Borrower of the Loan Documents and any Supplemental Documentation 
contemplated by this Agreement, do not 

                                      25
<PAGE>

and will not conflict with (a) any provision of law, (b) the charter or 
by-laws of the Borrower, (c) any agreement binding upon the Borrower, or (d) 
any court or administrative order or decree applicable to the Borrower, and 
do not and will not require, or result in, the creation or imposition of any 
Lien on any asset of the Borrower or any of the Subsidiaries except as 
provided herein.

         4.4 VALIDITY AND BINDING EFFECT. The Loan Documents constitute (and 
any Supplemental Documentation contemplated by this Agreement, when duly 
executed and delivered will constitute) the legal, valid and binding 
obligations of the Borrower and each Obligor, enforceable against the 
Borrower and each Obligor in accordance with their respective terms. The 
execution, delivery and performance of the Loan Documents by Borrower and any 
Obligor, and the borrowing of money, incurring of obligations and granting of 
Liens thereunder are within their respective corporate powers and have been 
duly authorized by all necessary corporate action.

         4.5 NO DEFAULT. Neither the Borrower nor any of the Subsidiaries is 
in default under any agreement or instrument to which the Borrower or any 
Subsidiary is a party or by which any of their respective properties or 
assets is bound or affected, which default (a) might materially and adversely 
affect the Lender's Lien on or rights with respect to any Collateral or Third 
Party Collateral or (b) constitutes an Adverse Event. No Event of Default or 
Unmatured Event of Default has occurred and is continuing.

         4.6 FINANCIAL STATEMENTS. The Borrower's audited consolidated 
financial statement as at June 30, 1998 and the Borrower's unaudited 
consolidated financial statement as at October 31, 1998, copies of which have 
been furnished to the Lender, have been prepared in conformity with GAAP and 
applied on a basis consistent with that of the preceding fiscal year and 
period and present fairly the financial condition of the Borrower and the 
Subsidiaries as at such dates and the results of their operations for the 
periods then ended, subject (in the case of the interim financial statement) 
to year-end audit adjustments. Since June 30, 1998, no Adverse Event has 
occurred.

         4.7 INSURANCE. SCHEDULE 4.7 sets forth a summary of the property and 
casualty insurance program carried by the Borrower and the Subsidiaries on 
the date hereof, including the insurer's(s') name(s), policy number(s), 
expiration date(s), amount(s) of coverage, type(s) of coverage, the annual 
premium(s), Best's policyholder's and financial size ratings of the insurers, 
exclusions, deductibles and self-insured retention, and describes in detail 
any retrospective rating plan, fronting arrangement or any other 
self-insurance or risk assumption agreed to by the Borrower or any Subsidiary 
or imposed upon the Borrower or any Subsidiary by any such insurer. This 
summary also includes any self-insurance program that is in effect.

         4.8 LITIGATION; CONTINGENT LIABILITIES.

                                      26
<PAGE>

                  (a) Except for those referred to in SCHEDULE 4.8, no claims 
         litigation, arbitration proceedings or governmental proceedings are 
         pending or threatened against or are affecting the Borrower or any 
         Subsidiary.

                  (b) Other than any liability incident to the claims, 
         litigation or proceedings disclosed in SCHEDULE 4.8, neither the 
         Borrower nor any the Subsidiary has any contingent liabilities which 
         are material to the Borrower or any Subsidiary.

         4.9 OWNERSHIP OF PROPERTY, LIENS. Each of the Borrower and the 
Subsidiaries has good and marketable title to its real properties and good 
and sufficient title to its other properties, including all properties and 
assets referred to as owned by the Borrower and/or its Subsidiaries in the 
audited financial statement of the Borrower referred to in SECTION 4.6 (other 
than property disposed of since the date of such financial statement in the 
ordinary course of business as permitted by this Agreement). None of the 
Collateral or other property or assets of the Borrower or any Subsidiary is 
subject to any Lien (including, without limitation, Liens pursuant to 
Capitalized Leases under which the Borrower or any Subsidiary is a lessee) 
except: (a) Liens in favor of the Lender; (b) Liens for current Taxes not 
delinquent or Taxes being contested in good faith and by appropriate 
proceedings and as to which such reserves or other appropriate provisions as 
may be required by GAAP are being maintained; (c) statutory Liens, such as 
carriers', loggers', warehousemen's, mechanics', materialmen's and 
repairmen's' Liens, arising in the ordinary course of business securing 
obligations which are not overdue or which are being contested in good faith 
and by appropriate proceedings and as to which such reserves or other 
appropriate provisions as may be required by GAAP are being maintained; and 
(d) Liens permitted on SCHEDULE 4.9.

         4.10 SUBSIDIARIES, OWNERSHIP. The Borrower has no Subsidiaries 
except as listed on SCHEDULE 4.10. The ownership of the Borrower and each of 
the Subsidiaries is as set forth on SCHEDULE 4.10, which schedule shows the 
name(s) of each Person having an ownership interest, and the percentage of 
such ownership interest in the respective entity. Except as set forth on 
SCHEDULE 4.10, no part of the ownership interest of any Person in Borrower or 
any Subsidiary is subject to any shareholder agreement, voting trust or other 
agreement limiting or otherwise pertaining to the ownership interest of such 
Person.

         4.11 PARTNERSHIPS; JOINT VENTURES; LLCS. Neither the Borrower nor 
any of the Subsidiaries is a partner or joint venturer or member in any 
partnership, joint venture or limited liability company other than the 
partnerships, joint ventures and limited liability companies listed on 
SCHEDULE 4.11.

         4.12 BUSINESS LOCATIONS. On the date hereof, the Borrower's and each 
Subsidiary's chief executive office and principal place of business are 
located at the respective addresses set forth on SCHEDULE 4.12. The 
Borrower's and each Subsidiary's books and records relating to its business 
and the Accounts Receivable and other Collateral are kept at such locations. 
All of Borrower's and each Subsidiary's other locations or places of business 
are as set forth on SCHEDULE 4.12. Borrower and each Subsidiary is the lawful 
owner of fee title or of the lessee's 

                                      27
<PAGE>

interest under a valid and existing lease with respect to the locations 
business described on SCHEDULE 4.12. For each locations subject to a lease or 
mortgage, the legal description(s) of the real property and the name(s) of 
the record owner and any mortgagee of such real property is set forth in 
SCHEDULE 4.12.

         4.13 COLLATERAL LOCATIONS. On the date hereof the Borrower's 
Inventory, Equipment and, if applicable, fixtures (except any part thereof 
which prior to the execution of this Agreement the Borrower shall have 
advised the Lender in writing consists of Collateral normally used in more 
than one state) are located at the addresses set forth in SCHEDULE 4.13. For 
each location subject to a lease or mortgage, the legal descriptions of the 
real property on which any Collateral is located and the name(s) of the 
record owner and any mortgagee of such real property is set forth in SCHEDULE 
4.13.

         4.14 ELIGIBILITY OF COLLATERAL. (a) All of the Accounts Receivable 
are and will continue to be bona fide existing obligations created by the 
sale of goods, the rendering of services, or the furnishing of other good and 
sufficient consideration to Account Debtors in the regular course of business 
and all shipping or delivery receipts and other documents furnished or to be 
furnished to the Lender in connection therewith are and will be genuine; (b) 
each Account Receivable, item of Inventory or item of Equipment which the 
Borrower shall, expressly or by implication, request the Lender to classify 
as an Eligible Account Receivable or as Eligible Inventory, respectively, 
will, as of the time when such request is made, conform in all respects to 
the requirements of such classification set forth in the respective 
definitions of "Eligible Account Receivable" and "Eligible Inventory" set 
forth herein; (c) with respect to each schedule of Inventory delivered to the 
Lender pursuant to SECTION 3.3: (i) the descriptions, origins, size, 
qualities, quantities, weights, and markings of all goods stated thereon, or 
on any attachment thereto, are true and correct in all material respects; 
(ii) all goods stated thereon have been produced by the Borrower in 
compliance with all requirements of the Fair Labor Standards Act; and (iii) 
none of the goods stated thereon are defective, of second quality, used, or 
goods returned after shipment, except where described as such; and (iv) all 
Inventory not included on such schedule has been previously scheduled.

         4.15 CONTROL OF COLLATERAL; LEASE OF PROPERTY. The Borrower is not 
now conducting, or permitting or suffering to be conducted, any activities 
pursuant to or in conjunction with which any of the Collateral is now, or 
will be (while any Obligations exist or this Agreement is in effect), in the 
possession or control of, any Subsidiary, Obligor (other than the Borrower) 
or Related Party. Except as listed on SCHEDULE 4.15, none of the machinery, 
equipment or real property used by the Borrower or any Subsidiary is subject 
to a lease (excluding only Capitalized Leases included on SCHEDULE 6.12) 
under which the Borrower or such Subsidiary is the lessee.

         4.16 PATENTS, TRADEMARKS, ETC. The Borrower and each of the 
Subsidiaries possesses or has the right to use all of the patents, 
trademarks, trade names, service marks and copyrights, and applications 
therefor, and all technology, know-how, processes, methods and designs used 
in or necessary for the conduct of its business, without known conflict with 
the rights of others. All 

                                      28
<PAGE>

such licenses, patents, trademarks, trade names, service marks and 
copyrights, and applications therefor existing on the date hereof are listed 
on SCHEDULE 4.16.

         4.17 SOLVENCY. The Borrower and each of the Subsidiaries now has 
capital sufficient to carry on its respective business and transactions and 
all business and transactions in which it is about to engage and is now 
solvent and able to pay its respective debts as they mature, and the Borrower 
and each of the Subsidiaries now owns property having a value, greater than 
the amount required to pay the Borrower's or such Subsidiary's debts.

         4.18 CONTRACTS; LABOR MATTERS. Except as disclosed on SCHEDULE 4.18: 
(a) neither the Borrower nor any Subsidiary is a party to any contract or 
agreement, or subject to any charge, corporate restriction, judgment, decree 
or order, the performance of which constitutes an Adverse Event; (b) no labor 
contract to which the Borrower or any Subsidiary is subject is scheduled to 
expire during the original term of this Agreement; and (c) on the date of 
this Agreement (i) neither the Borrower nor any Subsidiary is a party to any 
labor dispute and (ii) there are no strikes or walkouts relating to any labor 
contracts to which the Borrower or any Subsidiary is subject.

         4.19 ERISA. Each Plan is in substantial compliance with all 
applicable requirements of ERISA and the Code and with all material 
applicable rulings and regulations issued under the provisions of ERISA and 
the Code setting forth those requirements. No Reportable Event has occurred 
and is continuing with respect to any Plan. All of the minimum funding 
standards applicable to such Plans have been satisfied and there exists no 
event or condition which would reasonably be expected to result in the 
institution of proceedings to terminate any Plan under Section 4042 of ERISA. 
With respect to each Plan subject to Title IV of ERISA, as of the most recent 
valuation date for such Plan, the present value (determined on the basis of 
reasonable assumptions employed by the independent actuary for such Plan and 
previously furnished in writing to the Lender of such Plan's projected 
benefit obligations did not exceed the fair market value of such Plan's 
assets. Except as required under Section 4890B of the Code, Section 601 of 
ERISA or applicable state law, neither the Borrower nor any Subsidiary is 
obligated to provide post-retirement medical or insurance benefits with 
respect to employees or former employees.

         4.20 REGULATION U. The Borrower is not engaged in the business of 
extending credit for the purpose of purchasing or carrying margin stock (as 
defined in Regulation U of the Federal Reserve Board), and no part of the 
proceeds of any Loan will be used to purchase or carry margin stock or for 
any other purpose which would violate any of the margin requirements of the 
Federal Reserve Board.

         4.21 COMPLIANCE. The Borrower and each of the Subsidiaries are in 
material compliance with all statutes and governmental rules and regulations 
applicable to them. All Inventory of the Borrower has been produced in 
compliance with all requirements of the Fair Labor Standards Act.

                                      29
<PAGE>

         4.22 TAXES. The Borrower and each Subsidiary has filed all federal, 
state and local tax returns required to be filed and has paid, or made 
adequate provisions for the payment of, all Taxes due and payable pursuant to 
such returns and pursuant to any assessments made against it or any of its 
property (other than Taxes the amount or validity of which is currently being 
contested in good faith by appropriate proceedings and with respect to which 
reserves in accordance with GAAP have been provided on the books of the 
Borrower). No tax Liens have been filed and no material claims are being 
asserted with respect to any such Taxes. The charges, accruals and reserves 
on the books of the Borrower in respect of Taxes are adequate. The Borrower 
and the Subsidiaries have not been audited by the Internal Revenue Service 
for any tax years up to and including the tax year ended June 30, 1998. The 
Borrower is not aware of any proposed assessment against the Borrower or any 
Subsidiary for additional Taxes (or any basis for any such assessment) which 
might be material to the Borrower and the Subsidiaries taken as a whole.

         4.23 INVESTMENT COMPANY ACT. Neither the Borrower nor any Subsidiary 
is an "investment company" or a company "controlled" by an "investment 
company" within the meaning of the Investment Company Act of 1940, as amended.

         4.24 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor 
any Subsidiary is a "holding company" or a "subsidiary company" of a "holding 
company" or an "affiliate" of a "holding company" within the meaning of the 
Public Utility Holding Company Act of 1935, as amended.

         4.25 ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. Except as 
disclosed on SCHEDULE 4.25: (a) the operations of the Borrower and each of 
the Subsidiaries complies in all respects with (i) all applicable 
Environmental Laws, and (ii) all applicable Occupational Safety and Health 
Laws; (b) none of the operations of the Borrower or any Subsidiary are 
subject to any judicial or administrative proceeding alleging the violation 
of any Environmental Law or Occupational Safety and Health Law; (c) none of 
the operations of the Borrower or any Subsidiary is the subject of federal or 
state investigation evaluating whether any remedial action is needed to 
respond to (i) a spillage, disposal or release into the environment of any 
Hazardous Material or other hazardous, toxic or dangerous waste, substance or 
constituent, or other substance, or (ii) any unsafe or unhealthful condition 
at any premises of the Borrower or any Subsidiary; (d) neither the Borrower 
nor any Subsidiary has received or filed any notice under any Environmental 
Law or Occupation Safety and Health Law indicating or reporting (i) any past 
or present spillage, disposal or release into the environment of, or 
treatment, storage or disposal of, any Hazardous Material or other hazardous, 
toxic or dangerous waste, substance or constituent, or other substance or 
(ii) any unsafe or unhealthful condition at any premises of the Borrower or 
any Subsidiary; (e) neither the Borrower nor any Subsidiary has any known 
contingent liability in connection with (i) any spillage, disposal or release 
into the environment of, or otherwise with respect to, any Hazardous Material 
or other hazardous, toxic or dangerous waste, substance or constituent, or 
other substance, or (ii) any unsafe or unhealthful condition at any premises 
of the Borrower or any Subsidiary; and (f) Borrower and each Subsidiary has 

                                      30
<PAGE>

secured and is maintaining all necessary permits, licenses and approvals 
necessary under any Environmental Law to Borrower's or such Subsidiary's 
business.

         4.26 SECURITIES ACT. Borrower has not issued any unregistered 
securities in violation of the registration requirements of Section 5 of the 
Securities Act of 1933, as amended, or any other law, and is not violating 
any rule, regulation or requirement under the Securities Act of 1933, as 
amended, or the Securities Act of 1934, as amended, in any material respect.

         4.27 CONSENTS. No consent of the shareholders of Borrower or any 
Subsidiary or any other Person and no order, consent, approval, license, 
authorization or validation of, or filing, recording or registration with, or 
exemption by, any governmental or public body or authority is required on the 
part of Borrower or any Subsidiary to authorize or is required in connection 
with the execution, delivery and performance of, or the legality, validity, 
binding effect or enforceability of, the Loan Documents.

                         ARTICLE V AFFIRMATIVE COVENANTS

From the date of this Agreement and thereafter until all Obligations are paid 
in full and the Credit has terminated, the Borrower agrees that unless the 
Lender shall otherwise consent in writing, it will:

         5.1 FINANCIAL STATEMENTS AND OTHER REPORTS.

         5.1.1 FINANCIAL REPORTS. Furnish to the Lender in form satisfactory 
to the Lender:

                  (a) ANNUAL AUDIT REPORT. As soon as available and in any 
         event within one hundred-twenty (120) days after the end of each 
         fiscal year of the Borrower, the annual audit report of the Borrower 
         and the Subsidiaries prepared on a consolidated basis in conformity 
         with GAAP, consisting of at least statements of income, cash flow 
         and stockholders' equity, and a consolidated balance sheet as at the 
         end of such year, setting forth in each case in comparative form 
         corresponding figures from the previous annual audit, certified, 
         without qualification, by independent certified public accountants 
         of recognized standing selected by the Borrower and acceptable to 
         the Lender.

                  (b) ACCOUNTANT'S CERTIFICATE. Together with the audited 
         financial statements required under SECTION 5.1.1(a): (i) a debt 
         compliance certificate from the accounting firm performing such 
         audit stating to the effect that it has reviewed this Agreement and 
         that in performing its examination, nothing came to its attention 
         that caused it to believe that any Event of Default or Unmatured 
         Event of Default exists, or, if such Unmatured Event of Default or 
         Event of Default exists, describing its nature; and (ii) a copy of 
         the management letter, if any, delivered to the Borrower by such 
         accounting firm and the Borrower's response thereto.

                                      31
<PAGE>

                  (c) MONTHLY FINANCIAL STATEMENT. As soon as available and 
         in any event within twenty-five (25) days after the end of each 
         month of each fiscal year of the Borrower, a copy of the unaudited 
         financial statement of the Borrower and the Subsidiaries prepared in 
         the same manner as the audit report referred to in SECTION 5.1.1(a), 
         signed by the Borrower's chief financial officer and consisting of 
         at least consolidated statements of income, cash flow and 
         stockholders' equity for the Borrower and the Subsidiaries for such 
         month and for the period from the beginning of such fiscal year to 
         the end of such month, and a consolidated balance sheet of the 
         Borrower as at the end of such month.

                  (d) PROJECTIONS. As soon as available and in any event not 
         later than fifteen (15) days preceding the last day of each fiscal 
         year of the Borrower, a projected financial statement of the 
         Borrower and the Subsidiaries prepared in the same manner as the 
         unaudited financial statements referred to in SECTION 5.1.1(c), 
         signed by the Borrower's chief financial officer and presenting 
         fairly the Borrower's best good faith projections of the financial 
         position and results of operations of the Borrower and the 
         Subsidiaries for each month of the following fiscal year.

                  (e) OFFICER'S CERTIFICATE. Together with the financial 
         statements furnished by the Borrower under SECTION 5.1.1(a) and (c), 
         a certificate of the Borrower's chief financial officer, in 
         substantially the form of EXHIBIT B hereto, dated the date of such 
         annual audit report or such monthly financial statement, as the case 
         may be, to the effect that no Event of Default or Unmatured Event of 
         Default has occurred and is continuing, or, if there is any such 
         event, describing it and the steps, if any, being taken to cure it, 
         and containing a computation of, and showing compliance with, each 
         of the financial ratios and restrictions contained in ARTICLES V and 
         VI and SUPPLEMENT A.

         5.1.2 AGINGS; INELIGIBLE ACCOUNTS RECEIVABLE CERTIFICATION. Within 
twenty-five (25) days after the end of each month: (a) a detailed aging of 
all Accounts Receivable by invoice, including, without limitation, a 
reconciliation to the aging report delivered to the Lender for the preceding 
month, (b) a certification of ineligible Accounts Receivable and (c) an aging 
of all accounts payable as of the end of the preceding month, each in form 
and content acceptable to the Lender, and (d) a reconciliation of Accounts 
Receivable to the Borrower's general ledger and Lender's records each in form 
and content acceptable to the Lender.

         5.1.3 INVENTORY CERTIFICATION. Within twenty-five (25)days after the 
end of each month, an Inventory certification report as of the end of the 
preceding month for all Inventory locations, in form and content acceptable 
to the Lender.

         5.1.4 SALES AND COLLECTION REPORTS. Intentionally Deleted.

         5.1.5 OTHER REPORTS.

                  (a) SEC AND OTHER REPORTS. Promptly upon the making or 
         filing thereof, copies of all financial statements, reports and 
         proxy statements mailed to the Borrower's 

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<PAGE>

         shareholders, and copies of all registration statements, periodic 
         reports and other documents filed with the Securities and Exchange 
         Commission (or any successor thereto) or any national securities 
         exchange.

                  (b) REPORT OF CHANGE IN SUBSIDIARIES OR OTHER ENTITIES. 
         Subject to SECTION 6.7, promptly upon the occurrence thereof, a 
         written report of any change in the list of the Borrower's 
         Subsidiaries set forth on SCHEDULE 4.10 or in the list of 
         partnerships, joint ventures or limited liability companies set 
         forth on SCHEDULE 4.11.

                  (c) PATENTS, ETC. Promptly upon the occurrence thereof, a 
         written report of any change to the list of patents, trademarks, 
         copyrights and other information set forth in SCHEDULE 4.16.

                  (d) INSURANCE UPDATES. If requested, provide to the Lender 
         within 45 days of such request, a certificate signed by its chief 
         financial officer that attests to and summarizes the property and 
         casualty insurance program carried by the Borrower and the 
         Subsidiaries. This summary shall include each insurer's name, policy 
         number(s), expiration date(s), amount(s) of coverage, type(s) of 
         coverage, the annual premium(s), Best's policyholder's and financial 
         size ratings of each insurer, exclusions, deductibles and 
         self-insured retention and shall describe in detail any 
         retrospective rating plan, fronting arrangement or any other 
         self-insurance or risk assumption agreed to by the Borrower or any 
         Subsidiary or imposed upon the Borrower or any Subsidiary by any 
         such insurer, as well as any self-insurance program that is in 
         effect.

                  (e) OTHER REPORTS. The information required to be provided 
         pursuant to other provisions of this Agreement, and such other 
         reports from time to time requested by the Lender.

         5.2 NOTICES. By no later than five (5) Business Days after the 
Borrower becomes aware of any of the following, notify the Lender in writing 
of such occurrence thereof, describing the same and, if applicable, the steps 
being taken by the Person(s) affected with respect thereto:

                  (a) DEFAULT. The occurrence of (i) any Event of Default or 
         Unmatured Event of Default, and (ii) to the extent not included in 
         CLAUSE (i) above, the default by the Borrower, any other Obligor or 
         any Subsidiary under any note, indenture, loan agreement, mortgage, 
         lease, deed or other material similar agreement to which the 
         Borrower, any other Obligor or any Subsidiary, as appropriate, is a 
         party or by which it is bound.

                  (b) LITIGATION. The institution of any litigation, 
         arbitration proceeding or governmental proceeding affecting the 
         Borrower, any other Obligor, any Subsidiary, any Collateral or any 
         Third Party Collateral, whether or not considered to be covered by 
         insurance.

                                      33
<PAGE>

                  (c) JUDGMENT. The entry of any judgment or decree against 
         the Borrower, any other Obligor or any Subsidiary, if the amount of 
         such judgment exceeds $250,000.

                  (d) ERISA. With respect to any Plan, the occurrence of a 
         Reportable Event or Prohibited Transaction, a notice specifying the 
         nature thereof and what action the Borrower proposes to take with 
         respect thereto, and, when received, copies of any notice from PBGC 
         of intention to terminate or have a trustee appointed for any Plan.

                  (e) CHANGE IN COLLATERAL LOCATIONS. Subject to the 
         provisions of SECTION 6.5, any change in location of any of the 
         Borrower's Inventory or Equipment TO locations other than those 
         identified in this Agreement or in SCHEDULE 4.12 or 4.13, together 
         with a list of such new location(s), the legal description of the 
         location and the name and address of any landlord and/or mortgagee. 
         At Lender's request, Borrower shall deliver to Lender a landlord's 
         waiver and/or mortgagee's waiver in form and substance satisfactory 
         to Lender with respect to Collateral at such new locations.

                  (f) CHANGE IN PLACE(s) OF BUSINESS. Subject to the 
         provisions of SECTION 6.5, any proposed opening, closing or other 
         change in the list of offices and other places of business of the 
         Borrower and each Subsidiary set forth in SCHEDULE 4.12, and any 
         opening, closing or other change in the offices and other places of 
         business of each other Obligor, together with a list of such new 
         location(s) the legal description of the location and the name and 
         address of any landlord and/or mortgagee. At Lender's request, 
         Borrower shall deliver to Lender a landlord's waiver and/or 
         mortgagee's waiver in form and substance satisfactory to Lender with 
         respect to Collateral at such new locations.

                  (g) CHANGE OF NAME. Subject to the provisions of SECTION 
         6.5, any change in the name of the Borrower, any other Obligor or 
         any Subsidiary, and any change in the list of trade names and trade 
         styles set forth in SCHEDULE 4.1.

                  (h) ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. 
         Non-compliance with and/or receipt of any notice that the operations 
         of the Borrower, any other Obligor or any Subsidiary are not in full 
         compliance with the requirements of any applicable Environmental Law 
         or any Occupational Safety and Health Law; the occurrence of and/or 
         receipt of notice that the Borrower, any other Obligor or any 
         Subsidiary is subject to federal, state or local investigation 
         evaluating whether any remedial action is needed to respond to (i) 
         any spillage, disposal or release into the environment of any 
         Hazardous Material or other hazardous, toxic or dangerous waste, 
         substance or constituent, or other substance, or (ii) any unsafe or 
         unhealthful condition at any premises of the Borrower, any other 
         Obligor or any Subsidiary; or receipt of notice that any properties 
         or assets of the Borrower any other Obligor or any Subsidiary are 
         subject to an Environmental Lien.

                  (i) ADVERSE EVENT. The occurrence of an Adverse Event.

                                      34
<PAGE>

                  (j) DEFAULT BY OTHERS. Any material default by any Account
         Debtor or other Person obligated to the Borrower, any other Obligor, or
         any Subsidiary, under any contract, chattel paper, note or other
         evidence of amounts payable or due or to become due to the Borrower,
         such Obligor or Subsidiary if the amount payable under such contract,
         chattel paper, note or other evidence of amounts payable or due or to
         become due is material.

                  (k) MOVEABLE COLLATERAL. If any of the Collateral or Third
         Party Collateral shall consist of goods of a type normally used in more
         than one state, whether or not actually so used, any use of any such
         goods in any state other than a state in which the Borrower shall have
         previously advised the Lender such goods will be used. The Borrower
         agrees that such goods will not, unless the Lender shall otherwise
         consent in writing, be used outside the continental United States or in
         Louisiana.

                  (l) CHANGE IN MANAGEMENT OR LINE(s) OF BUSINESS. Any change in
         James Bracke's management responsibilities, or any material change in
         the Borrower's or any Subsidiary's line(s) of business.

                  (m) CHANGE IN INSURANCE. In addition, the Borrower shall (a)
         notify the Lender in writing at least 30 days prior to any cancellation
         or material change of any such insurance by the Borrower or any
         Subsidiary and (b) within five business days after receipt of any
         notice (whether formal or informal) of any cancellation or change in
         any of its insurance by any of its insurers or any material change in
         the cost thereof or which reduces the policyholder's or financial size
         ratings of the insurance carriers of the Borrower or any Subsidiary, as
         established by BEST'S INSURANCE REPORTS.

                  (n) OTHER EVENTS. The occurrence of such other events as the
         Lender may from time to time specify.

         5.3 EXISTENCE. Maintain and preserve, and cause each Subsidiary to 
maintain and preserve, its respective existence as a corporation or other 
form of business organization, as the case may be, and all rights, 
privileges, licenses, patents, patent rights, copyrights, trademarks, trade 
names, franchises and other authority to the extent material and necessary 
for the conduct of its respective business in the ordinary course as 
conducted from time to time.

         5.4 NATURE OF BUSINESS. Engage, and cause each Subsidiary to engage, 
in substantially the same fields of business as it is engaged in on the date 
hereof.

         5.5 BOOKS AND RECORDS, ACCESS. Maintain, and cause each Subsidiary 
to maintain, complete and accurate books and records (including, without 
limitation, records relating to Accounts Receivable, Inventory, Equipment and 
other Collateral), in which full and correct entries in conformity with GAAP 
shall be made of all dealings and transactions in relation to its respective 
business and activities. Cause its books and records as at the end of any 
calendar month to be posted and closed not more than thirty (30) days after 
the last business day of such 

                                      35

<PAGE>

month. Permit, and cause each Subsidiary to permit, access by the Lender and 
its agents or employees to the books and records of the Borrower and such 
Subsidiary at the Borrower's or such Subsidiary's place or places of business 
at intervals to be determined by the Lender and without hindrance or delay, 
and permit, and cause each Subsidiary to permit, the Lender or its agents and 
employees to inspect the Borrower's Inventory and Equipment and such 
Subsidiary's inventory and equipment, and to inspect, audit, check and make 
copies and/or extracts from the books, records, journals, orders, receipts, 
correspondence and other data relating to Inventory, Accounts Receivable, 
chattel paper, General Intangibles, Equipment and any other Collateral or 
Third Party Collateral, or to any other transactions between the parties 
hereto; PROVIDED, HOWEVER, that so long as no Event of Default or Unmatured 
Event of Default has occurred and is continuing, the Lender agrees to notify 
the Borrower of the Lender's intent to conduct any such inspection or audit 
at least five (5) days prior to the commencement date thereof. Any and all 
such inspections and/or audits shall be at the Borrower's expense; provided, 
HOWEVER, that so long as no Event of Default or Unmatured Event of Default 
has occurred and is continuing, Borrower's obligations to pay for such 
inspections and/or audits shall be limited to $500 per day plus expenses.

         5.6 INSURANCE. Maintain, and cause each Subsidiary to maintain, 
insurance to such extent and against such hazards and liabilities as is 
commonly maintained by companies similarly situated or as the Lender may 
request from time to time. Keep the Collateral properly housed and insured 
for its full insurable value against loss or damage by fire, theft, 
explosion, sprinklers, collision (in the case of motor vehicles) and such 
other risks as are customarily insured against by persons engaged in business 
similar to that of the Borrower, with such companies, in such amounts and 
under policies in such form as shall be satisfactory to the Lender. From time 
to time, prior to the expiration of any such insurance, Borrower shall 
deliver to Lender certificates evidencing the renewal of such policies of 
insurance and showing Lender as loss payee (under a lender's or mortgagee's 
loss payee endorsement) with respect to any casualty loss insurance covering 
the Collateral and an additional insured with respect to any liability 
insurance together with evidence of payment of all premiums therefor. The 
Borrower hereby directs all insurers under such casualty loss policies of 
insurance to pay all proceeds payable thereunder directly to the Lender in 
accordance with the lender's or mortgagee's loss payee endorsement. The 
Borrower irrevocably makes, constitutes and appoints the Lender and any 
Person whom the Lender may from time to time designate (and all officers, 
employees or agents designated by the Lender or such Person) as the 
Borrower's true and lawful attorney (and agent-in-fact) for the purpose of 
making, settling and adjusting claims under such policies of insurance, 
endorsing the name of the Borrower on any check, draft, instrument or other 
item of payment for the proceeds of such policies of insurance and for making 
all determinations and decisions with respect to such policies of insurance; 
PROVIDED, HOWEVER, that: (a) the Lender may exercise its power-of-attorney 
only after the occurrence and during the continuance of an Event of Default; 
and (b) so long as no Event of Default or Unmatured Event of Default has 
occurred and is continuing, the Borrower may itself make, settle and adjust 
claims of up to $500,000 in losses during any of the Borrower's fiscal years 
without first obtaining the Lender's consent. Any Lender's consent required 
by this SECTION shall not be unreasonably withheld or delayed. In the event 
the Borrower at any time or times hereafter shall fail to obtain or maintain 
any of the 

                                      36

<PAGE>

policies of insurance required herein or to pay any premium in whole or in 
part relating thereto, the Lender, without waiving or releasing any 
obligations or default by the Borrower hereunder, may at any time or times 
thereafter (but shall be under no obligation to do so) obtain and maintain 
such policies of insurance and pay such premiums and take any other action 
with respect thereto which the Lender deems advisable. All sums so disbursed 
by the Lender, including reasonable Attorneys' Fees, court costs, expenses 
and other charges relating thereto, shall be deemed an Advance hereunder and 
shall be payable on demand by the Borrower to the Lender.

         5.7 INSURANCE RISK MANAGEMENT SURVEY. Within 45 days after Lender's 
request therefor, Borrower shall have a risk management survey completed by a 
recognized independent risk management consultant acceptable to Borrower and 
the Lender which will identify, quantify and assess any catastrophic 
uninsured, underinsured or self-insured exposures faced by the Borrower and 
the Subsidiaries; PROVIDED, HOWEVER, that Lender agrees that it will not 
request a survey unless: (a) an Unmatured Event of Default or Event of 
Default has occurred and is continuing; or (b) the Lender determines, in its 
reasonable business judgment, that the Borrower's casualty loss insurance 
coverage does not adequately protect the Lender's interest in the Collateral. 
The cost of such survey shall be borne solely by the Borrower. A copy of the 
results of each such survey shall be promptly delivered by the Borrower to 
the Lender.

         5.8 REPAIR. Maintain, preserve and keep, and cause each Subsidiary 
to maintain, preserve and keep, its properties in good repair, working order 
and condition, and from time to time make, and cause each Subsidiary to make, 
all necessary and proper repairs, renewals, replacements, additions, 
betterments and improvements thereto so that at all times the efficiency 
thereof shall be fully preserved and maintained.

         5.9 TAXES. File its federal income tax return for each taxable year 
when due and pay, and cause each Subsidiary to pay, when due, all of its 
Taxes, unless and only to the extent that the Borrower or such Subsidiary, as 
the case may be, is contesting such Taxes in good faith and by appropriate 
proceedings and the Borrower or such Subsidiary has set aside on its books 
such reserves or other appropriate provisions therefor as may be required by 
GAAP.

         5.10 COMPLIANCE. Comply, and cause each Subsidiary to comply, with 
all federal, state and local statutes and governmental rules and regulations 
applicable to it, including, without limitation, the Fair Labor Standards 
Act, all Environmental Laws and all Occupational Safety and Health Laws.

         5.11 ERISA. Maintain, and cause each ERISA Affiliate to maintain, 
each Plan in compliance with all material applicable requirements of ERISA 
and of the Code and with all applicable rulings and regulations issued under 
the provisions of ERISA and of the Code and not and not permit any of the 
ERISA Affiliates to (a) engage in any transaction in connection with which 
the Borrower or any of the ERISA Affiliates would be subject to either a 
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed 
by Section 4975 of the Code, in either case in an amount exceeding 
$50,000.00,(b) fail to make full payment when due of all 

                                      37

<PAGE>

amounts which, under the provisions of any Plan, the Borrower or any ERISA 
Affiliate is required to pay as contributions thereto, or permit to exist any 
accumulated funding deficiency (as such term is defined in Section 302 of 
ERISA and Section 412 of the Code), whether or not waived, with respect to 
any Plan in an aggregate amount exceeding $50,000.00 or (c) fail to make any 
payments in an aggregate amount exceeding $50,000.00 to any Multiemployer 
Plan that the Borrower or any of the ERISA Affiliates may be required to make 
under any agreement relating to such Multiemployer Plan or any law pertaining 
thereto.

         5.12 COLLATERAL MONITORING. Permit the Lender to (a) use the 
Borrower's stationery and sign the name of the Borrower to request 
verification of Accounts Receivable or other Collateral from Account Debtors, 
and (b) use the information recorded on or contained in any data processing 
equipment and computer hardware and software to which the Borrower has access 
relating to Accounts Receivable, Inventory, Equipment and/or other Collateral.

                          ARTICLE VI NEGATIVE COVENANTS

         From the date of this Agreement and thereafter until all Obligations 
are paid in full and the Credit has terminated, the Borrower agrees that, 
unless the Lender shall otherwise consent in writing, it will not, and will 
not permit any Subsidiary to, do any of the following:

         6.1 MERGER. Merge or consolidate or enter into any analogous 
reorganization or transaction with any Person.

         6.2 SALE OF ASSETS. Sell, transfer, convey, lease, assign or 
otherwise dispose (with or without recourse) of any of its assets (including, 
without limitation, any Accounts Receivable, instruments or chattel paper) 
except for: (a) sales and leases of Inventory in the ordinary course of 
business; or (b) sales of Equipment which the Borrower has determined have 
become obsolete or unusable in the ordinary course of business so long as: 
(i) no Unmatured Event of Default or Event of Default has occurred and is 
continuing; or (ii) the aggregate fair market value of the Equipment to be 
sold in any such transaction (or related series of transactions) does not 
exceed $100,000 or the aggregate fair market value of the Equipment to be 
sold in all such transactions during any fiscal year does not exceed $250,000 
on a consolidated basis.

         6.3 PURCHASE OF ASSETS. Purchase or lease or otherwise acquire all 
or substantially all the assets of any Person except for Investments 
permitted by SECTION 6.11.

         6.4 ERISA. Permit any event to occur or condition to exist which 
would permit any Plan to terminate under any circumstances which would cause 
the Lien provided for in Section 4068 of ERISA to attach to any assets of the 
Borrower; and the Borrower will not permit, as of the most recent valuation 
date for any Plan subject to Title IV of ERISA, the present value (determined 
on the basis of reasonable assumptions employed by the independent actuary 
for such Plan and previously furnished in writing to the Lender) of such 
Plan's projected benefit obligations to exceed the fair market value of such 
Plan's assets.

                                      38

<PAGE>

         6.5 CHANGES IN COLLATERAL OR BUSINESS LOCATIONS. Change (a) the 
location of its chief executive office or chief place of business; (b) its 
name; or (c) the locations where it stores or maintains Inventory or 
Equipment without, in each case, at least 30 days' prior written notice to 
the Lender.

                                      39

<PAGE>

         6.6 FISCAL YEAR. Change the end of its fiscal year from June 30.

         6.7 SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES. Either: (a) form 
or acquire any corporation which would thereby become a Subsidiary; or (b) 
form or enter into any partnership as a limited or general partner or into 
any joint venture or any limited liability company or other similar entity 
except, in either case, Investments permitted by SECTION 6.11.

         6.8 OTHER AGREEMENTS. Enter into any agreement, bond, note or other 
instrument with or for the benefit of any Person other than the Lender which 
would (a) prohibit the Borrower or such Subsidiary from granting, or 
otherwise limit the ability of the Borrower or such Subsidiary to grant, to 
the Lender any Lien on any assets or properties of the Borrower or such 
Subsidiary, or (b) be violated or breached by the Borrower's performance of 
its obligations under the Loan Documents.

         6.9 RESTRICTED PAYMENTS. Purchase or redeem or otherwise acquire for 
value any shares of the Borrower's or any Subsidiary's stock, declare or pay 
any dividends thereon (other than stock and other dividends payable to the 
Borrower), make any distribution to stockholders as such (other than the 
Borrower) directly or indirectly, or set aside any funds for any such 
purpose; prepay, purchase or redeem any subordinated Indebtedness of the 
Borrower or any Subsidiary; and not take any action which will result in a 
decrease in the Borrower's or any Subsidiary's ownership interest in any 
Subsidiary.

         6.10 LEASES. Except as listed on SCHEDULE 4.15, enter into or permit 
to exist any arrangements for the leasing by the Borrower or any Subsidiary, 
as lessee, of any real or personal property (or any interest therein) under 
leases (other than Capitalized Leases), or which require the payment by the 
Borrower and the Subsidiaries on a consolidated basis of rental amounts in 
the aggregate in excess of (a) $200,000 in any one fiscal year, or (b) 
$1,000,000 during the full remaining terms of such leases.

         6.11 INVESTMENTS. Acquire for value, make, have or hold any 
Investments, except: (a) advances to employees of the Borrower or any 
Subsidiary for travel or other ordinary business expenses; (b) advances to 
subcontractors and suppliers in maximum aggregate amounts reasonably 
acceptable to the Lender; (c) extensions of credit in the nature of Accounts 
Receivable or notes receivable arising from the sale of goods and services in 
the ordinary course of business; (d) shares of stock, obligations or other 
securities received in settlement of claims arising in the ordinary course of 
business; (e) Investments (other than Investments in the nature of loans or 
advances) outstanding on the date hereof in Subsidiaries by the Borrower and 
other Subsidiaries; (f) additional Investments (including, without 
limitation, through loans and advances) in Subsidiaries existing on the date 
hereof by the Borrower and other Subsidiaries so long as the sum of: (i) the 
aggregate amount of such additional Investments; plus (ii) the amount of the 
Indebtedness guarantied by the Borrower pursuant to SECTION 6.14 does not 
exceed $500,000; (g) other Investments outstanding on the date hereof and 
listed on SCHEDULE 6.11; and (h) other Investments consented to by the Lender 
in writing.

                                      40

<PAGE>

         6.12 INDEBTEDNESS. Incur, create, issue, assume or suffer to exist 
any Indebtedness, including, without limitation, Indebtedness as lessee under 
any Capitalized Lease, except: (a) Indebtedness under the terms of this 
Agreement; (b) Subordinated Debt listed on SCHEDULE 6.12; (c) Indebtedness 
hereafter incurred in connection with Liens permitted under SECTION 6.13(d); 
(d) other Indebtedness outstanding on the date hereof and listed on SCHEDULE 
6.12; and (e) other Indebtedness approved in writing by the Lender.

         6.13 LIENS. Create, incur, assume or suffer to exist any Lien with 
respect to any property, revenues or assets now owned or hereafter arising or 
acquired, except: (a) Liens for current Taxes not delinquent or Taxes being 
contested in good faith and by appropriate proceedings and as to which such 
reserves or other appropriate provisions as may be required by GAAP are being 
maintained; (b) statutory Liens, such as carriers', loggers', warehousemen's, 
mechanics', materialmen's, and repairmen's Liens, arising in the ordinary 
course of business securing obligations which are not overdue or which are 
being contested in good faith and by appropriate proceedings and as to which 
such reserves or other appropriate provisions as may be required by GAAP are 
being maintained; (c) pledges or deposits in connection with workers' 
compensation, unemployment insurance and other social security legislation; 
(d) Liens in connection with Capital Expenditures permitted under Supplement 
A attaching only to the property being acquired if the Indebtedness secured 
thereby does not exceed 100% of the fair market value of such property at the 
time of acquisition thereof; (e) Liens in favor of the Lender; (f) Liens 
permitted on SCHEDULE 4.9; and (g) Liens consented to by the Lender in 
writing.

         6.14 CONTINGENT LIABILITIES. Either: (a) endorse, guarantee, 
contingently agree to purchase or to provide funds for the payment of, or 
otherwise become contingently liable upon, any obligation of any other 
Person, except: (i) by the endorsement of negotiable instruments for deposit 
or collection (or similar transactions) in the ordinary course of business; 
or (ii) Guaranties described on SCHEDULE 6.14; or (b) agree to maintain the 
net worth or working capital of, or provide funds to satisfy any other 
financial test applicable to, any other Person except for Guaranties 
described on SCHEDULE 6.14; PROVIDED, HOWEVER, that the sum of: (x) the 
maximum amount of the Indebtedness permitted to be guarantied pursuant to 
SECTION 6.14(a)(ii); PLUS (y) or the maximum contingent liability permitted 
by SECTION 6.14 (b); PLUS (z) the aggregate amount of the additional 
Investments made in accordance with SECTION 6.11(f) shall not exceed 
$500,000.00.

         6.15 CHANGE IN ACCOUNTS RECEIVABLE. After the occurrence of an Event 
of Default and receipt of notice from the Lender that the Lender intends to 
commence direct collection of Accounts Receivable, permit or agree to any 
extension, compromise or settlement or make any change or modification of any 
kind or nature with respect to any Account Receivable, including any of the 
terms relating thereto.

         6.16 UNCONDITIONAL PURCHASE OBLIGATIONS. Enter into or be a party to 
any contract for the purchase of materials, supplies or other property or 
services, if such contract requires that 

                                      41

<PAGE>

payment be made by it regardless of whether or not delivery is ever made of 
such materials, supplies or other property or services.

         6.17 USE OF PROCEEDS. Use or permit any proceeds of the Loans to be 
used, either directly or indirectly, for the purpose, whether immediate, 
incidental or ultimate, of "purchasing or carrying any margin stock" within 
the meaning of Regulation U of the Federal Reserve Board, as amended from 
time to time, and furnish to the Lender upon request, a statement in 
conformity with the requirements of Federal Reserve Form U-1 referred to in 
Regulation U of the Federal Reserve Board.

         6.18 TRANSACTIONS WITH RELATED PARTIES. Enter into or be a party to 
any transaction or arrangement, including, without limitation, the purchase, 
sale, lease or exchange of property or the rendering of any service, with any 
Related Party, except in the ordinary course of and pursuant to the 
reasonable requirements of the Borrower's or such Subsidiary's business and 
upon fair and reasonable terms no less favorable to the Borrower or such 
Subsidiary than would obtain in a comparable arm's-length transaction with a 
Person not a Related Party.

                   ARTICLE VII EVENTS OF DEFAULT AND REMEDIES

         7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the 
following events shall constitute an "Event of Default":

                  (a) NON-PAYMENT. The Borrower shall fail to pay, when due,
         whether by acceleration, maturity or otherwise, any Obligations;

                  (b) NON-PAYMENT OF OTHER INDEBTEDNESS. The Borrower, any other
         Obligor or any Subsidiary shall fail to pay, when due, whether by
         acceleration or otherwise (subject to any applicable grace period), any
         Indebtedness of, or guaranteed by, the Borrower, such other Obligor or
         such Subsidiary that exceeds an aggregate amount of $250,000.

                  (c) ACCELERATION OF OTHER INDEBTEDNESS. Any event or condition
         shall occur which results in the acceleration of the maturity of any
         Indebtedness of, or guaranteed by, the Borrower, any other Obligor or
         any Subsidiary that exceeds an aggregate amount of $250,000 or enables
         the holder or holders of such other Indebtedness or any trustee or
         agent for such holders (any required notice of default having been
         given and any applicable grace period having expired) to accelerate the
         maturity of such other Indebtedness;

                  (d) OTHER OBLIGATIONS. The Borrower, any other Obligor or any
         Subsidiary shall fail to pay, when due, whether by acceleration or
         otherwise, or perform or observe (subject to any applicable grace
         period or waiver of such default) (i) any obligation or agreement of
         the Borrower, such other Obligor or such Subsidiary to or with the
         Lender (other than any obligation or agreement of the Borrower
         hereunder and under any Notes) 

                                      42

<PAGE>

         or (ii) any obligation or agreement of the Borrower, such other 
         Obligor or such Subsidiary to or with any other Person that exceeds 
         an aggregate amount of $250,000 (other than (A) any such obligation 
         or agreement constituting or related to Indebtedness, (B) accounts 
         payable arising in the ordinary course of business, and (C) any 
         obligation or agreement of any Subsidiary to the Borrower or to any 
         other Subsidiary), except only to the extent that the occurrence of 
         any such failure is being contested by the Borrower, such other 
         Obligor or such Subsidiary, as the case may be, in good faith and 
         by appropriate proceedings and the Borrower, such other Obligor or 
         such Subsidiary, as applicable, shall have set aside on its books 
         such reserves or other appropriate provisions therefor as may be 
         required by GAAP;

                  (e) INSOLVENCY. The Borrower, any other Obligor or any
         Subsidiary becomes insolvent, or generally fails to pay, or admits in
         writing its inability to pay, its debts as they mature, or applies for,
         consents to, or acquiesces in, the appointment of a trustee, receiver
         or other custodian for the Borrower, such other Obligor or such
         Subsidiary, or for a substantial part of the property of the Borrower,
         such other Obligor or such Subsidiary, or makes a general assignment
         for the benefit of creditors; or, in the absence of such application,
         consent or acquiescence, a trustee, receiver or other custodian is
         appointed for the Borrower, any other Obligor or any Subsidiary or for
         a substantial part of the property of the Borrower, any other Obligor
         or any Subsidiary; or any bankruptcy, reorganization, debt arrangement
         or other proceeding under any bankruptcy or insolvency law, or any
         dissolution or liquidation proceeding, is instituted by or against the
         Borrower, any other Obligor or any Subsidiary; or any warrant of
         attachment or similar legal process is issued against any substantial
         part of the property of the Borrower, any other Obligor or any
         Subsidiary;

                  (f) ERISA. The institution by the Borrower or any ERISA
         Affiliate of steps to terminate any Plan if, in order to effectuate
         such termination, the Borrower or any ERISA Affiliate would be required
         to make a contribution to such Plan or would incur a liability or
         obligation to such Plan, in excess of $250,000; or the institution by
         the PBGC of steps to terminate any Plan;

                  (g) NON-COMPLIANCE WITH THIS AGREEMENT.

                           (i) The Borrower shall fail to comply with any of the
                    Borrower's agreements set forth in SECTION 5.3 , SECTION
                    5.6, any provision of ARTICLE VI or any provision of Section
                    7 of SUPPLEMENT A; or

                           (ii) The Borrower shall fail to comply with any of
                    the Borrower's agreements set forth in this Agreement (and
                    not constituting an Event of Default under any of the other
                    subsections of this SECTION 7.1, including, without
                    limitation, SECTION 7.1(g)(i)), and such failure to comply
                    shall continue for twenty (20) days;

                                      43

<PAGE>

                  (h) NON-COMPLIANCE WITH OTHER LOAN DOCUMENTS. Failure by the
         Borrower, any other Obligor or any Subsidiary to comply with any of its
         respective agreements set forth in any Loan Documents other than this
         Agreement (and not constituting an Event of Default under any of the
         other subsections of this SECTION 7.1), and such failure to comply
         shall continue after the grace period (if any) set forth therein;

                  (i) REPRESENTATIONS AND WARRANTIES. Any representation or
         warranty made by the Borrower or any other Obligor in any of the Loan
         Documents is untrue or misleading in any material respect when made or
         deemed made; or any schedule, statement, report, notice, certificate or
         other writing furnished by the Borrower or any other Obligor to the
         Lender is untrue or misleading in any material respect on the date as
         of which the facts set forth therein are stated or certified; or any
         certification made or deemed made by the Borrower or any other Obligor
         to the Lender is untrue or misleading in any material respect on or as
         of the date made or deemed made;

                  (j) LITIGATION. There shall be entered against any one of the
         Borrower, any other Obligor or any Subsidiary one or more judgments or
         decrees in excess of $250,000 in the aggregate at any one time
         outstanding, excluding those judgments or decrees (i) that shall have
         been outstanding less than 30 calendar days from the entry thereof or
         (ii) for and to the extent which the Borrower, such Obligor or such
         Subsidiary, as applicable, is insured and with respect to which the
         insurer has assumed responsibility in writing or for and to the extent
         which the Borrower, such Obligor or such Subsidiary, as applicable, is
         otherwise indemnified if the terms of such indemnification are
         satisfactory to the Lender;

                  (k) DEATH OR INCOMPETENCE OF OBLIGOR. If any natural person
         who is an Obligor, partner in a partnership which is an Obligor, or
         owner of a material interest in a corporate Obligor, shall die or be
         declared legally incompetent;

                  (l) VALIDITY. If the validity or enforceability of any of the
         Loan Documents shall be challenged by the Borrower, any other Obligor
         or any other Person, or shall fail to remain in full force and effect;

                  (m) CONDUCT OF BUSINESS. If the Borrower, any other Obligor or
         any Subsidiary is enjoined, restrained or in any way prevented by court
         order, which has not been dissolved or stayed within five Business
         Days, from conducting all or any material part of its business affairs;

                  (n) ADVERSE EVENT. The Lender shall have determined in good
         faith (which determination shall be conclusive) that (i) an Adverse
         Event has occurred or (ii) the Lender's interest in any material
         Collateral or Third Party Collateral has been materially adversely
         affected or impaired, or the value thereof to the Lender has been
         diminished to a material extent, or (iii) the prospect of payment or
         performance of any obligation or agreement of the Borrower or any other
         Obligor under any of the Loan Documents is 

                                      44

<PAGE>

         materially impaired, and the condition giving rise to such 
         determination does not constitute an Event of Default under any of the
         other subsections of this SECTION 7.1;

                  (o) CHANGE IN MANAGEMENT OR LINE(s) OF BUSINESS. James Bracke
         shall cease to be the Borrower's President or shall cease to perform
         the duties associated with such office as of the date of this Agreement
         or any material change occurs in the Borrower's line(s) of business,
         and

                  (p) OWNERSHIP. Any Person, or group of Persons acting in
         concert, shall have acquired more than 40% of the shares of the voting
         stock of the Borrower.

         7.2 EFFECT OF EVENT OF DEFAULT; REMEDIES.

                  (a) In the event that one or more Events of Default described
         in Section 7.1(e) shall occur, then the Credit extended under this
         Agreement shall terminate and all Obligations shall be immediately due
         and payable without demand, notice or declaration of any kind
         whatsoever.

                  (b) Upon the occurrence of an Event of Default, or at any time
         thereafter during the continuance thereof, (other than one described in
         Section 7.1(e)) the Lender may declare all Obligations immediately due
         and payable without demand or notice of any kind whatsoever, whereupon
         the Credit extended under this Agreement shall terminate and all
         Obligations shall be immediately due and payable without demand or
         notice of any kind whatsoever. The Lender shall promptly advise the
         Borrower of any such declaration, but failure to do so shall not impair
         the effect of such declaration.

                  (c) Upon the occurrence of an Event of Default, or at any time
         thereafter during the continuance thereof, the Lender may exercise any
         one or more or all of the following remedies, all of which are
         cumulative and non-exclusive:

                           (i) any other remedy contained in this Agreement, the
                    other Loan Documents or any Supplemental Documentation;

                           (ii) any rights and remedies available to the Lender
                    under the Uniform Commercial Code as enacted in Minnesota as
                    of the date of this Agreement, and any other applicable law;

                           (iii) without notice, demand or legal process of any
                    kind, the Lender may take possession of any or all of the
                    Collateral (in addition to Collateral which it might already
                    have in its possession), wherever it might be found, and for
                    that purpose may pursue the same wherever it may be found,
                    and may enter into any premises where any of the Collateral
                    may be or is supposed to be, and search for, take possession
                    of, remove, keep and store any of the Collateral until the

                                      45

<PAGE>

                    same shall be sold or otherwise disposed of, and the Lender
                    shall have the right to store the same in any of the
                    Borrower's premises without cost to the Lender;

                           (iv) at the Lender's request, the Borrower will, at
                    the Borrower's expense, assemble the Collateral and make it
                    available to the Lender at a place or places to be
                    designated by the Lender and reasonably convenient to the
                    Lender and the Borrower; and

                           (v) the Lender at its option, and pursuant to
                    notification given to the Borrower as provided for below,
                    may sell any Collateral actually or constructively in its
                    possession at public or private sale and apply the proceeds
                    thereof as provided in SECTION 8.2 below.

         7.3 SETOFF. In addition to and not in limitation of all rights of 
offset that the Lender, any Affiliate, or any other holder of any interest in 
this Agreement or any Note may have under applicable law, upon the occurrence 
and during the continuation of any Event of Default, or any Unmatured Event 
of Default, Lender and any Affiliate shall have the right, in its sole 
discretion and without demand and without notice to anyone, to appropriate or 
set off and apply to the payment of the Obligations, whether or not due, any 
and all balances, credits, deposits, accounts or moneys of the Borrower then 
or thereafter with such Person and any and all other liabilities owed to the 
Borrower by such Person.

         7.4 USE OF PREMISES. Borrower hereby irrevocably grants to Lender 
the right, subject to the rights of any landlord of the premises, to enter 
upon and hold the premises of Borrower wherever located at any time following 
the occurrence of an Event of Default and during the continuation thereof; 
PROVIDED, HOWEVER, that the Borrower's obligations to do so shall terminate 
upon payment in full of the Obligations after the occurrence of the 
Termination Date. Lender may use the premises to hold, process, manufacture, 
sell, use, store, liquidate, realize upon or otherwise dispose of Collateral 
and for other purposes that the Lender may in good faith deem to be related 
or incidental purposes. Lender's right to hold the premises shall cease and 
terminate upon the earlier of (i) payment in full of all Obligations, 
expiration or termination of all Letters of Credit and termination of the 
Credit or (ii) final sale or disposition of all goods constituting Collateral 
and delivery of all such goods to purchasers. The Lender shall not be 
obligated to pay any rent or other compensation for the occupancy or use of 
any of the premises unless required by the landlord of such premises, 
PROVIDED, HOWEVER, if Lender does pay or account for any rent or other 
compensation for the occupancy or use of any of the premises, such rent or 
compensation shall be considered an Advance under this Agreement and shall 
constitute part of the Obligations.

                 ARTICLE VIII COLLATERAL AND THE LENDER'S RIGHTS

         8.1 NOTICE OF DISPOSITION OF COLLATERAL. Any notification of intended
disposition of any of the Collateral required by law shall be deemed reasonably
and properly given if given at least ten calendar days before such disposition.

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<PAGE>

         8.2 APPLICATION OF PROCEEDS OF COLLATERAL. Any proceeds of any 
disposition by the Lender of any of the Collateral may be applied by the 
Lender to the payment of expenses in connection with the taking possession 
of, storing, preparing for sale, and disposition of Collateral, including 
Attorneys' Fees and legal expenses, and any balance of such proceeds may be 
applied by the Lender toward the payment of such of the Obligations, and in 
such order of application, as the Lender may from time to time elect.

         8.3 CARE OF COLLATERAL. The Lender shall be deemed to have exercised 
reasonable care in the custody and preservation of any Collateral in its 
possession if it takes such action for that purpose as the Borrower requests 
in writing, but failure of the Lender to comply with such request shall not, 
of itself, be deemed a failure to exercise reasonable care, and no failure of 
the Lender to preserve or protect any rights with respect to such Collateral 
against prior parties, or to do any act with respect to the preservation of 
such Collateral not so requested by the Borrower, shall be deemed a failure 
to exercise reasonable care in the custody or preservation of such Collateral.

         8.4 PERFORMANCE OF BORROWER'S OBLIGATIONS. The Lender shall have the 
right, but shall not be obligated, to discharge any claims against or Liens, 
and any Taxes at any time levied or placed upon any or all Collateral 
including, without limitation, those arising under statute or in favor of 
landlords, taxing authorities, government, public and/or private 
warehousemen, common and/or private carriers, processors, finishers, draymen, 
coopers, dryers, mechanics, artisans, laborers, attorneys, courts, or others. 
The Lender may also pay for maintenance and preservation of Collateral. The 
Lender may, but is not obligated to, perform or fulfill any of the Borrower's 
responsibilities under this Agreement which the Borrower has failed to 
perform or fulfill. All amounts expended by Lender under this SECTION 8.4 
shall be deemed to be an Advance under this Agreement.

         8.5 LENDER'S RIGHTS. None of the following shall affect the 
obligations of the Borrower to the Lender under this Agreement or the 
Lender's rights with respect to the Collateral or any Third Party Collateral 
(any or all of which actions may be taken by the Lender at any time, whether 
before or after an Event of Default, at its sole and absolute discretion and 
without notice to the Borrower):

                  (a) acceptance or retention by the Lender of other property or
         interests in property as security for the Obligations, or acceptance or
         retention of any Obligor(s), in addition to the Borrower, with respect
         to any Obligations;

                  (b) release of its security interest in, or surrender or
         release of, or the substitution or exchange of or for, all or any part
         of the Collateral or any Third Party Collateral or any other property
         securing any Obligations (including, without limitation, any property
         of any Obligor other than the Borrower), or any extension or renewal
         for one or more periods (whether or not longer than the original
         period), or release, compromise, 

                                      47

<PAGE>


         alteration or exchange, of any obligations of any Guarantor or other
         Obligor with respect to any Collateral or any such property;

                  (c) extension or renewal for one or more periods (whether or
         not longer than the original period), or release, compromise,
         alteration or exchange of any Obligations, or release or compromise of
         any obligation of any Obligor with respect to any Obligations; or

                  (d) failure by the Lender to resort to other security or
         pursue any Person liable for any Obligations before resorting to the
         Collateral.


                         ARTICLE IX CONDITIONS PRECEDENT

         9.1 CONDITIONS PRECEDENT TO INITIAL LOAN. The obligation of the Lender
to make the initial Loan shall be subject to the satisfaction of the following
conditions precedent, in addition to the applicable conditions precedent set
forth in SECTION 9.2:

                  9.1.1 NO CHANGE IN CONDITION. No change in the condition or
         operations, financial or otherwise, of the Borrower, any other Obligor
         or any Subsidiary, shall have occurred which change, in the sole credit
         judgment of the Lender, may constitute an Adverse Event or have a
         material adverse effect on any Collateral or Third Party Collateral or
         the Lender's interest therein.

                  9.1.2 ACCOUNTING METHODS. The Borrower shall not have made any
         material, as determined by the Lender, change in its accounting methods
         or principles.

                  9.1.3 SURVEY. The Lender shall have completed its updated
         survey of the business, operations and assets of the Borrower, each
         Subsidiary and each other Obligor, and such survey shall provide the
         Lender with results and information which, in the Lender's
         determination, are satisfactory to the Lender.

                  9.1.4 NO MATERIAL TRANSACTION. None of the Borrower, any other
         Obligor or any Subsidiary shall have entered into any material, as
         determined by the Lender, commitment or transaction, including, without
         limitation, transactions for borrowings and Capital Expenditures, which
         are not in the ordinary course of their respective businesses.

                  9.1.5 LITIGATION. No litigation shall be outstanding or have
         been instituted or threatened which the Lender determines to be
         material against the Borrower, any other Obligor or any Subsidiary.

                  9.1.6 FILING OF DOCUMENTS. All financing statements, mortgages
         and other documents relating to the Collateral and Third Party
         Collateral shall have been filed or recorded, as appropriate.

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<PAGE>

                  9.1.7 DELIVERY OF DOCUMENTS. The Borrower shall have delivered
         or cause to be delivered to the Lender with each of the following, each
         in form and substance satisfactory to the lender in all respects and
         each duly executed and dated the date of the initial Loan or such
         earlier date as shall be acceptable to the Lender:

                           (a) THIS AGREEMENT. Duly executed by Borrower and
                  Lender.

                           (b) OTHER AGREEMENTS. Duly executed copies of each of
                  the Loan Documents not specifically identified herein which
                  the Lender determines to be necessary or desirable, each in
                  form and content satisfactory to the Lender;

                           (c) RESOLUTIONS OF BORROWER. A copy, duly certified
                  by the secretary or an assistant secretary of the Borrower, of
                  (i) the resolutions of the Board of Directors of the Borrower
                  authorizing (A) the borrowings by the Borrower hereunder, (B)
                  the execution, delivery and performance by the Borrower of the
                  Loan Documents to which the Borrower is a party or by which it
                  is bound, (C) the conveyance of a lien on assets of Borrower
                  to Lender, and (D) certain officers or employees of the
                  Borrower to request borrowings by telephone and to execute
                  Borrowing Base Certificates; (ii) all documents evidencing
                  other necessary corporate action; and (iii) all approvals or
                  consents, if any, with respect to the Loan Documents;

                           (d) INCUMBENCY CERTIFICATE OF BORROWER. A certificate
                  of the secretary or an assistant secretary of each Borrower,
                  certifying the names of the officers of such Borrower
                  authorized to sign the Loan Documents to which it is a party
                  and any Supplemental Documentation, together with the true
                  signatures of such officers;

                           (e) BYLAWS OF BORROWER. A copy, duly certified by the
                  secretary or an assistant secretary of the Borrower, of the
                  Borrower's Bylaws;

                           (f) ARTICLES OF INCORPORATION OF BORROWER. A copy,
                  duly certified by the Secretary of State of Borrower's state
                  of incorporation, of the Borrower's Articles of Incorporation;

                           (g) GOOD STANDING CERTIFICATES OF BORROWER.
                  Certificates of good standing as to the Borrower issued by the
                  Secretary of State of the state in which the Borrower is
                  organized, and each other state in which the failure of the
                  Borrower to be in good standing would constitute an Adverse
                  Event or have a material adverse effect on the Lender's rights
                  in any Collateral;

                           (h) OPINION. A legal opinion of Dorsey & Whitney,
                  LLP, counsel to the Borrower;

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<PAGE>

                           (i) BORROWER'S CERTIFICATE. The certificate of the
                  President of each Borrower certifying, to the best of his/her
                  knowledge after diligent inquiry, to the fulfillment of all
                  conditions precedent to closing and funding the secured
                  financing transaction contemplated by this Agreement and to
                  the truth and accuracy, as of such date, of the
                  representations and warranties of such Borrower contained in
                  the Loan Documents to which such Borrower is a party;

                           (j) INSURANCE. Evidence satisfactory to the Lender of
                  the existence of insurance on the Collateral and Third Party
                  Collateral in amounts and with insurers acceptable to the
                  Lender, together with evidence establishing that the Lender is
                  named as a loss payee and, if required by the Lender,
                  additional insured, on all related insurance policies and an
                  endorsement or an independent instrument from each issuer of
                  an insurance policy substantially in the form set forth as
                  EXHIBIT C;

                           (k) LANDLORD, MORTGAGEE AND WAREHOUSEMEN WAIVERS. If
                  required by the Lender, (i) from each lessor or landlord
                  identified on SCHEDULE 4.12 or SCHEDULE 4.13, a landlord
                  waiver; (ii) from each mortgagee identified on SCHEDULE 4.12
                  or SCHEDULE 4.13, a mortgagee's waiver; and (ii) from each
                  operator of a public warehouse where Inventory is stored, a
                  letter from such operator, in each case in form acceptable to
                  the Lender; and

                           (v) OTHER. Such other documents, instruments or
                  agreements as the Lender shall determine to be necessary or
                  desirable.

                  9.1.8 SECURITY INTEREST. The Lien in the Collateral and Third
         Party Collateral granted to the Lender to secure the Obligations shall
         be senior, perfected Liens except as otherwise agreed by the Lender.

                  9.1.9 SPECIAL ACCOUNTS. The Borrower shall have entered into
         (a) a Restricted Access Lockbox; Collateral Account and Disbursement
         Account Agreement, substantially in the form of EXHIBIT D, with the
         Lender, and (b) a Controlled Disbursement Account Agreement,
         substantially in the form set forth as EXHIBIT E, with U.S. Bank and
         the Lender for, among other things, the collection and remittance to
         the Lender of cash proceeds of the Collateral.

                  9.1.10 EFFECT OF LAW. No law or regulation affecting the
         Lender's entering into the secured financing transaction contemplated
         by this Agreement shall impose upon the Lender any material obligation,
         fee, liability, loss, cost, expense or damage.

                  9.1.11 EXHIBITS; SCHEDULES. All Exhibits and Schedules to the
         Loan Documents shall have been completed in form and substance
         satisfactory to the Lender and shall 

                                      50

<PAGE>

         contain no facts or information which the Lender, in its sole 
         judgment, determines to be unacceptable.

         9.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the Lender to
make any Loan (including the initial Loan) shall be subject to the satisfaction
of the following conditions precedent:

                  (a) REPRESENTATIONS AND WARRANTIES. All of the representations
         and warranties of the Borrower and each other Obligor set forth in the
         Loan Documents to which the Borrower or such other Obligor, as
         applicable, is a party shall be true and correct.

                  (b) EVENT OF DEFAULT. Immediately before and after making such
         Loan, no Event of Default or Unmatured Event of Default shall exist or
         be continuing.

                               ARTICLE X INDEMNITY

         10.1 ENVIRONMENTAL AND SAFETY AND HEALTH INDEMNITY. The Borrower hereby
indemnifies the Lender and Affiliates and agrees to hold the Lender and
Affiliates harmless from and against any and all losses, liabilities, damages,
injuries, costs, expenses and claims of any and every kind whatsoever
(including, without limitation, court costs and Attorneys' Fees) which at any
time or from time to time may be paid, incurred or suffered by, or asserted
against, the Lender or any Affiliate (a) for, with respect to, or as a direct or
indirect result of the violation by the Borrower or any Subsidiary, of any
Environmental Law or Occupational Safety and Health Law; or (b) with respect to,
or as a direct or indirect result of (i) the presence on or under, or the
escape, seepage, leakage, spillage, disposal, discharge, emission or release
from, properties owned or utilized by the Borrower and/or any Subsidiary in the
conduct of its business into or upon any land, the atmosphere, or any
watercourse, body of water or wetland, of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance (including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under the Environmental
Laws) or (ii) the existence of any unsafe or unhealthful condition on or at any
premises owned or utilized by the Borrower and/or any Subsidiary in the conduct
of its business. The provisions of and undertakings and indemnification set out
in this SECTION 10.1 shall survive satisfaction and payment of the Obligations
and termination of this Agreement.

         10.2 GENERAL INDEMNITY. In addition to the payment of expenses pursuant
to SECTION 12.3, whether or not the transactions contemplated hereby shall be
consummated, the Borrower hereby indemnifies, and agrees to pay and hold the
Lender, its Affiliates and any holder of any Notes, and their respective
officers, directors, employees, agents, successors and assigns (collectively
called the "INDEMNITEES") harmless from and against, any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for any of such Indemnitees in connection with any 

                                      51
<PAGE>

investigative, administrative or judicial proceeding commenced or threatened, 
whether or not any of such Indemnitees shall be designated a party thereto), 
that may be imposed on, incurred by, or asserted against the Indemnitees (or 
any of them), in any manner relating to or arising out of the Loan Documents, 
the statements contained in any commitment letters delivered by the Lender, 
the Lender's agreement to make the Loans or to issue Letters of Credit 
hereunder, or the use or intended use of any Letters of Credit, or the use or 
intended use of the proceeds of any of the Loans (the "INDEMNIFIED 
LIABILITIES"); PROVIDED, HOWEVER, that the Borrower shall have no obligation 
to an Indemnitee hereunder with respect to Indemnified Liabilities arising 
from the gross negligence or willful misconduct of an Indemnitee. To the 
extent that the undertaking to indemnify, pay and hold harmless set forth in 
the preceding sentence may be unenforceable because it is violative of any 
law or public policy, the Borrower shall contribute the maximum portion that 
it is permitted to pay and satisfy under applicable law, to the payment and 
satisfaction of all Indemnified Liabilities incurred by the Indemnitees or 
any of them. The provisions of the undertakings and indemnification set out 
in this SECTION 10.2 shall survive satisfaction and payment of the 
Obligations and termination of this Agreement.

         10.3 CAPITAL ADEQUACY. If the Lender shall reasonably determine that 
the application or adoption of any law, rule, regulation, directive, 
interpretation, treaty or guideline regarding capital adequacy, or any change 
therein or in the interpretation or administration thereof, whether or not 
having the force or law (including, without limitation, application of 
changes to Regulation H and Regulation Y of the Federal Reserve Board issued 
by the Federal Reserve Board on January 19, 1989 and regulations of the 
Comptroller of the Currency, Department of the Treasury, 12 CFR Part 3, 
Appendix A, issued by the Comptroller of the Currency on January 27, 1989) 
increases the amount of capital required or expected to be maintained by the 
Lender or any Person controlling the Lender, and such increase is based upon 
the existence of the Lender's obligations hereunder and other commitments of 
this type, then from time to time, within 10 days after demand from the 
Lender, the Borrower shall pay to the Lender such amount or amounts as will 
compensate the Lender or such controlling Person, as the case may be, for 
such increased capital requirement. The determination of any amount to be 
paid by the Borrower under this SECTION 10 shall take into consideration the 
policies of the Lender or any Person controlling the Lender with respect to 
capital adequacy and shall be based upon any reasonable averaging, 
attribution and allocation methods. A certificate of the Lender setting forth 
the amount or amounts as shall be necessary to compensate the Lender as 
specified in this SECTION 10.3 shall be delivered to the Borrower and shall 
be conclusive in the absence of manifest error. The amounts set forth in said 
certificate shall be payable on demand.

                        ARTICLE XI ADDITIONAL PROVISIONS

              Additional provisions are set forth in SUPPLEMENT A.

                               ARTICLE XII GENERAL

                                      52

<PAGE>

         12.1 BORROWER'S WAIVER. Except as otherwise provided for in this 
Agreement, the Borrower waives (a) presentment, demand and protest and notice 
of presentment, protest, default, non-payment, maturity, release, compromise, 
settlement, one or more extensions or renewals of any or all commercial 
paper, accounts, documents, instruments, chattel paper and guaranties at any 
time held by the Lender on which the Borrower may in any way be liable and 
hereby ratifies and confirms whatever the Lender may do in this regard; (b) 
all rights to notice and a hearing prior to the Lender's taking possession or 
control of, or the Lender's relevy, attachment or levy on or of, the 
Collateral or any bond or security which might be required by any court prior 
to allowing the Lender to exercise any of the Lender's remedies; and (c) the 
benefit of all valuation, appraisement and exemption laws.

         12.2 BORROWER'S ACKNOWLEDGMENT. The Borrower acknowledges that it 
has read and understands this Agreement and has been advised by counsel of 
its choice with respect to this Agreement and the transactions evidenced by 
this Agreement or has knowingly waived its right to such counsel.

         12.3 EXPENSES; ATTORNEY'S FEES. The Borrower agrees, whether or not 
any Loan is made hereunder, to pay the Lender upon demand for all expenses 
and Attorneys' Fees, including, without limitation, those incurred by the 
Lender in connection with (a) the preparation, negotiation and execution of 
the Loan Documents; PROVIDED, HOWEVER, that the Borrower's obligations to pay 
Attorneys' Fee under this subsection (a) shall be limited to $7,500, (b) the 
preparation of any and all amendments to the Loan Documents and all other 
instruments or documents provided for therein or delivered or to be delivered 
thereunder or in connection therewith, (c) the collection or enforcement of 
the Borrower's or any other Obligor's obligations under any of the Loan 
Documents, (d) the costs of all searches and updates of searches in public 
records deemed necessary by the Lender in connection with the protection of 
its security interest, and (e) the collection or enforcement of any of the 
Lender's rights in or to any Collateral or Third Party Collateral. The 
Borrower also (y) hereby indemnifies and holds the Lender harmless from any 
loss or expense which may arise or be created by the acceptance of telephonic 
or other instructions for making Loans and (z) agrees to pay, and save the 
Lender harmless from all liability for, any stamp or other taxes which may be 
payable with respect to the execution or delivery of this Agreement or the 
issuance of any Note or of any other instruments or documents provided for 
herein or to be delivered hereunder or in connection herewith. The Borrower's 
foregoing obligations shall survive any termination of this Agreement.

         12.4 LENDER FEES AND CHARGES. The Borrower agrees to pay the Lender, 
or any Affiliate, on demand the customary fees and charges of the Lender, or 
such Affiliate, for maintenance of accounts with the Lender, or such 
Affiliate, or for providing other services to the Borrower. The Lender may, 
in its sole and absolute discretion, provide for such payment by charging the 
Disbursement Account or any other account of the Borrower with Lender or any 
other Affiliate, or advancing the amount thereof to the Borrower as a Loan.

         12.5 NO WAIVER BY LENDER; AMENDMENTS. No failure or delay on the 
part of the Lender in the exercise of any power or right, and no course of 
dealing between the Borrower and 

                                      53

<PAGE>

the Lender shall operate as a waiver of such power or right, nor shall any 
single or partial exercise of any power or right preclude other or further 
exercise thereof or the exercise of any other power or right. The remedies 
provided for herein are cumulative and not exclusive of any remedies which 
may be available to the Lender at law or in equity or otherwise by agreement. 
No notice to or demand on the Borrower not required hereunder shall in any 
event entitle the Borrower to any other or further notice or demand in 
similar or other circumstances or constitute a waiver of the right of the 
Lender to any other or further action in any circumstances without notice or 
demand. No amendment, modification or waiver of, or consent with respect to, 
any provision of this Agreement shall in any event be effective unless the 
same shall be in writing and signed and delivered by the Lender. Any waiver 
of any provision of this Agreement, and any consent to any departure by the 
Borrower from the terms of any provision of this Agreement, shall be 
effective only in the specific instance and for the specific purpose for 
which given.

         12.6 NOTICE. Except as otherwise expressly provided herein, any 
notice hereunder to the Borrower or the Lender shall be in writing (including 
telecopy communication) and shall be given to the Borrower or the Lender at 
its address or fax number set forth on the signature pages hereof or at such 
other address, or telecopier number as the Borrower or the Lender may, by 
written notice, designate as its address or fax number for purposes of notice 
hereunder. All such notices shall be deemed to be given (i) when transmitted 
by fax on the date the appropriate answer back is received, (ii) when 
delivered by a commercially recognized courier service on the date specified 
for delivery in the instructions to the courier, (iii) on the date personally 
delivered or, (iv) in the case of notice by mail, three days following 
deposit in the United States mails, certified mail, return receipt requested 
properly addressed as herein provided, with proper postage prepaid PROVIDED, 
HOWEVER, that any notice to the Lender under ARTICLE II hereof shall be 
deemed to have been given only when received by the Lender.

         12.7 PARTICIPATIONS; INFORMATION. With the prior written consent of 
the Borrower (other than with respect to any of the transactions described in 
the proviso clause hereto (an "Exempt Transfer")), which consent shall not be 
unreasonably withheld or delayed by the Borrower, the Lender may grant 
participations in or sell, assign, transfer or other disposition, at any time 
and from time to time hereafter, of the Loan Documents, or of any portion of 
any thereof, including without limitation Lender's rights, titles, interests, 
remedies, powers and/or duties; PROVIDED, HOWEVER, that no Borrower consent 
shall be required with respect to any assignment made: (a) during any period 
when an Event of Default has occurred and is continuing; (b) to another 
subsidiary or affiliate of U.S. Bancorp; (c) in connection with the sale of 
all or substantially all of the Lender's assets; or (d) in response to any 
regulatory action affecting the Lender. The Lender may furnish any 
information concerning the Borrower in the possession of the Lender from time 
to time to assignees of the rights and/or obligations of the Lender hereunder 
and to participants in any Loan (including prospective assignees and 
participants) and may furnish information in response to credit inquiries 
consistent with general banking practice.

         12.8 SEVERABILITY. Any provision of this Agreement which is 
prohibited or unenforceable in any jurisdiction shall, as to such 
jurisdiction, be ineffective to the extent of such 

                                      54

<PAGE>

prohibition or unenforceability without invalidating the remaining provisions 
hereof or affecting the validity or enforceability of such provision in any 
other jurisdiction.

         12.9 SUCCESSORS. This Agreement shall be binding upon the Borrower 
and the Lender and their respective successors and assigns, and shall inure 
to the benefit of the Borrower and the Lender and the successors and assigns 
of the Lender. The Borrower shall not assign its rights or duties hereunder 
without the consent of the Lender. The Lender may assign its rights and 
duties hereunder subject to any Borrower consent required by SECTION 12.7.

         12.10 ENTIRE AGREEMENT. This Agreement and the other Loan Documents 
embody the entire agreement and understanding between the Borrower and the 
Lender with respect to the subject matter hereof and thereof. This Agreement 
supersedes all prior agreements and understandings relating to the subject 
matter hereof.

         12.11 COUNTERPARTS. This Agreement may be executed in any number of 
counterparts, all of which taken together shall constitute one and the same 
instrument, and either of the parties hereto may execute this Agreement by 
signing any such counterpart.

         12.12 CONSTRUCTION. The Borrower acknowledges that this Agreement 
shall not be binding upon the Lender or become effective until and unless 
accepted by the Lender, in writing. If so accepted by the Lender, THE LOAN 
DOCUMENTS AND ANY SUPPLEMENTAL DOCUMENTATION SHALL, UNLESS OTHERWISE 
EXPRESSLY PROVIDED THEREIN, BE DEEMED TO HAVE BEEN NEGOTIATED AND ENTERED 
INTO IN, AND SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF, THE 
STATE OF MINNESOTA WITHOUT GIVING EFFECT TO CHOICE OF LAW PROVISIONS AS TO 
INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, CHOICE OF LAW, 
AND IN ALL OTHER RESPECTS, INCLUDING, BUT NOT LIMITED TO, THE LEGALITY OF THE 
INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING PERFECTION OF SECURITY 
INTERESTS AND LIENS WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE 
RELEVANT JURISDICTION.

         12.13 CONSENT TO JURISDICTION. To induce the Lender to accept this 
Agreement, the Borrower, irrevocably, agrees that, subject to the Lender's 
sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR 
RESPECT, ARISING OUT OF OR FROM OR RELATED TO THE LOAN DOCUMENTS OR ANY 
SUPPLEMENTAL DOCUMENTATION OR THE COLLATERAL SHALL BE LITIGATED IN COURTS 
HAVING SITUS WITHIN THE CITY OF MINNEAPOLIS, STATE OF MINNESOTA. THE BORROWER 
HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR 
FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE AND WAIVES PERSONAL SERVICE 
OF ANY AND ALL PROCESS UPON THE BORROWER, AND CONSENTS THAT ALL SUCH SERVICE 
OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE BORROWER AT THE ADDRESS 
STATED ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE 
COMPLETED UPON ACTUAL RECEIPT THEREOF.

                                      55

<PAGE>

         12.14 SUBSIDIARY REFERENCE. Any reference herein to a Subsidiary or 
Subsidiaries of the Borrower, and any financial definition, ratio, 
restriction or other provision of this Agreement which is stated to be 
applicable to "the Borrower and the Subsidiaries" or which is to be 
determined on a "consolidated" basis, shall apply only to the extent the 
Borrower has any Subsidiaries and, where applicable, to the extent any such 
Subsidiaries are consolidated with the Borrower for financial reporting 
purposes.

         12.15 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER EACH WAIVES 
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND 
ANY RIGHTS (a) UNDER THE LOAN DOCUMENTS OR UNDER ANY AMENDMENT, INSTRUMENT, 
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN 
CONNECTION THEREWITH OR (b) ARISING FROM ANY RELATIONSHIP EXISTING IN 
CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING 
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      56

<PAGE>

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

                           LIFECORE BIOMEDICAL, INC.


                           By:  /s/ James Bracke
                               -------------------------------
                           Title:   President
                                  ----------------------------

                           Address:
                           3515 Lyman Boulevard
                           Chaska, Minnesota 55318-3051
                           Attention: James Bracke, President
                           Telephone: 612-368-4300
                           Fax No.: 612-368-3411


                           U.S. BANK NATIONAL ASSOCIATION

                           By:   /s/ David W. Slavik
                               -------------------------------
                           Title:    Assistant Vice President
                                  ----------------------------

                           Address:
                           601 Second Avenue South, MPFP0512
                           Minneapolis, Minnesota 55402
                           Attention: Mr. David Slavik/Asset Based Lending
                           Telephone: 612-973-2453
                           Fax No.: 612-973-0829

                                      57

<PAGE>

                                    EXHIBITS

Exhibit A -       Form of Borrowing Base Certificate
Exhibit B -       Form of Compliance Certificate
Exhibit C -       Form of Insurance Endorsement
Exhibit D -       Form of Restricted Access Lockbox; Collateral Account; and
                  Disbursement Account Agreement
Exhibit E -       Form of Controlled Disbursement Account Agreement


                                    SCHEDULES

Schedule 4.1       -     Trade Names, Etc.
Schedule 4.7       -     Insurance
Schedule 4.8       -     Litigation and Contingent Liabilities
Schedule 4.9       -     Liens
Schedule 4.10      -     Subsidiaries/Ownership
Schedule 4.11      -     Partnerships; Joint Ventures; LLCs
Schedule 4.12      -     Business Locations
                           Principal offices
                           Other locations
Schedule 4.13      -     Collateral Locations
                           Owned by Borrower
                           Owned by others
Schedule 4.15      -     Leases
Schedule 4.16      -     Patents, Trademarks, Copyrights
Schedule 4.18      -     Contracts and Labor Disputes
Schedule 4.25      -     Environmental Matters
Schedule 6.11      -     Investments
Schedule 6.12      -     Indebtedness
Schedule 6.14      -     Guaranties

                                      58

<PAGE>




                                  SUPPLEMENT A
                        EFFECTIVE AS OF DECEMBER 29, 1998
                                       TO
                          CREDIT AND SECURITY AGREEMENT
                                     BETWEEN
                  U.S. BANK NATIONAL ASSOCIATION (THE "LENDER")
                                       AND
                   LIFECORE BIOMEDICAL, INC. (THE "BORROWER")

         1. CREDIT AGREEMENT REFERENCE. This Supplement A, as it may be 
amended or modified from time to time, is a part of the Credit and Security 
Agreement, dated as of December 29, 1998, between the Borrower and the Lender 
(together with all amendments, modifications and supplements thereto, the 
"CREDIT AGREEMENT"). Capitalized terms used herein which are defined in the 
Credit Agreement shall have the meanings given such terms in the Credit 
Agreement unless the context otherwise requires.

         2.       DEFINITIONS.

                  2.1 CREDIT AMOUNT. The term "Credit Amount" shall be Five
         Million and No/100ths ($5,000,000.00).

                  2.2 BORROWING BASE. The term "Borrowing Base" shall mean:

                           (i) an amount (the "ACCOUNTS RECEIVABLE
                  AVAILABILITY") of up to the sum of: (1) 85% of the net amount
                  (as determined by the Lender after deduction of such reserves
                  and allowances as the Lender deems proper and necessary) of
                  the Borrower's Eligible Accounts Receivable other than the
                  Eligible Accounts Receivable arising from purchase agreements
                  or contracts permitting to pay such Account Receivable through
                  installments ( such Accounts Receivable being an "Installment
                  Accounts Receivable"); PLUS (2) 50% of the net amount (as
                  determined by the Lender after deduction of such reserves and
                  allowances as the Lender deems proper and necessary) of the
                  Borrower's Eligible Accounts Receivable that are Installment
                  Accounts Receivable; PLUS

                           (ii) an amount (the "INVENTORY AVAILABILITY") of up
                  to the sum of:

                                    (1) the lesser of (A) 50% of the net value
                           (the lower of the cost, determined on a first in
                           first out basis, or market value of such Inventory,
                           as determined by the Lender after deduction of such
                           reserves and allowances as the Lender deems proper
                           and necessary)(such value is hereinafter called the
                           "Net Value") of the Borrower's Oral Restorative
                           Division`s Eligible Inventory comprised of finished
                           goods inventory; or (B) $1,500,000, such dollar
                           amount is hereinafter called the "ORAL RESTORATIVE
                           DIVISION'S INVENTORY AVAILABILITY SUBLIMIT"); PLUS

<PAGE>

                                    (2) the lesser of (A) the sum of: (i) 50% of
                           the Net Value of the Borrower's Hyaluronate
                           Division`s Eligible Inventory comprised of aseptic
                           fill finished goods inventory ; PLUS (ii) 20% of the
                           Net Value of the Borrower's Hyaluronate Division`s
                           Eligible Inventory comprised of raw materials
                           inventory; PLUS (iii) an amount of the Hyaluronate
                           Division`s Eligible Inventory comprised of
                           hyaluronate powder to the extent subject to a
                           contract between the Borrower and Alcon Laboratories
                           ("Alcon") requiring Alcon to purchase such amount of
                           hyaluronate powder but in no event shall the
                           Borrowing Base amount of hyaluronate powder exceed
                           $1,100,000; or (B) $2,000,000, such dollar amount is
                           hereinafter called the "HYALURONATE DIVISION'S
                           INVENTORY AVAILABILITY SUBLIMIT;" and together with
                           the Oral Restorative Division's Inventory
                           Availability Sublimit being sometimes hereinafter
                           referred to as an Inventory Availability Sublimit").

                  2.3      LETTER OF CREDIT SUBLIMIT.  Intentionally Deleted.

                  2.4 TERMINATION DATE. The term "Termination Date" shall mean
         the earliest of (i) December 29, 2001, or (ii) the date on which the
         Credit is terminated pursuant to SECTION 7.2 of the Credit Agreement.

         3.       INTEREST; FEES.

                  3.1      LOANS.

                           (a) INTEREST RATE. The unpaid principal balance of
                  the Loans (other than Overdraft Loans and Over Advances) shall
                  bear interest at the Reference Rate.

                           (b) DEFAULT RATE. The rate per annum equal to 2.00 %
                  in excess of the Reference Rate from time to time in effect.

                           (c) MINIMUM INTEREST CHARGE. If the aggregate
                  interest accrued on the Loans during any Loan Year is less
                  than $96,000, then the Borrower shall pay the difference
                  between $96,000 and the actual interest accrued on the Loans
                  during such Loan Year. The amount payable under this SECTION
                  is immediately due and payable upon the Lender's submission of
                  an invoice therefor.

                  3.2 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over
         Advances shall bear interest at the rate(s) determined pursuant to
         SECTION 2.7 or SECTION 2.8 of the Credit Agreement, as applicable.

                  3.3 UNUSED CREDIT FEE. The Unused Credit Fee shall be an
         amount equal to 0.25% per annum of the average Daily Unused Credit
         Amount, calculated on the basis of 

<PAGE>

         actual days elapsed over a year of 360 days and twelve 30-day 
         months. The Unused Credit Fee shall be and is payable quarterly in 
         arrears on the last day of each March, June, September and 
         December, commencing on the first such day to occur after the date 
         hereof, and on the date the Credit terminates.

                  3.4      LETTER OF CREDIT COMMISSION.  Intentionally Deleted.

                  3.5 CREDIT TERMINATION FEE. Upon termination or cancellation
         of the Credit prior the stated Termination Date described in Section
         2.4(i) of this Supplement A, the Borrower shall pay to the Lender a
         termination fee in an amount equal to: (a) two percent percent (2.00%)
         of the Credit Amount in the event that the Credit is terminated or
         cancelled during the first Loan Year, and (b) one percent (1.00 %) of
         the Credit Amount thereafter; PROVIDED, that no credit termination fee
         is payable if Lender refinances the credit facility provided by the
         Credit Agreement..

         4. ELIGIBLE ACCOUNT RECEIVABLE REQUIREMENTS. The Account Receivable,
other than an Installment Account Receivable, cannot be payable in installments.
The Account Receivable, other than an Installment Account Receivable, must not
be unpaid on the date that is the earlier of 91 days after the date of the
invoice evidencing such Account Receivable or 60 days after the original due
date stated in such invoice or, if such unpaid, such Account Receivable shall
cease to be an Eligible Account Receivable. If any installment on any
Installment Account Receivable remains unpaid more than 31 days past its
original due date, then such Installment Account Receivable shall cease to be an
Eligible Account Receivable in its entirety. If 10% or more of the unpaid net
amount of all Accounts Receivable from any one Account Debtor cease to be
Eligible Accounts Receivable pursuant to this Section 4 where such percentage is
calculated based on all of such Account Debtor's Accounts Receivable regardless
of type, then all of such Account Debtor's Accounts Receivable shall cease to be
Eligible Accounts Receivable.

         5. ELIGIBLE INVENTORY REQUIREMENTS. Inclusion of hyaluronate powder in
the Borrowing Base is conditioned upon the existence of a contract between the
Borrower and Alcon requiring Alcon to purchase hyaluronate powder.

         6.       ELIGIBLE EQUIPMENT REQUIREMENTS.  Intentionally Deleted.

         7. ADDITIONAL COVENANTS. From the date of this Supplement A and
thereafter until all of the Borrower's Obligations under the Credit Agreement
are paid in full, the Borrower agrees that, unless the Lender shall otherwise
consent in writing, it will not, and will not permit any Subsidiary to, do any
of the following:

                  7.1 NET WORTH Permit at any time the Borrower's Net Worth to
         be less than the sum of: (a) (i) from the Closing Date through and
         including June 30, 1999, $51,000,000; or (ii) at any time thereafter,
         the sum of: (A) $51,000,000; PLUS (B) 50% of the Borrower's cumulative
         after-tax net income (without any deduction for losses) earned 

<PAGE>

         on or after July 1, 1998; PLUS (b) 100% of the book value increase 
         resulting from the issuance of any capital stock including, without 
         limitation, any increase in paid-in-capital resulting from such 
         issuance.

                  7.2 CAPITAL EXPENDITURES. Make Capital Expenditures in an
         amount exceeding on a consolidated basis: (a) $2,000,000 during the
         Borrower's 1999 fiscal year; (b) $3,000,000 during the Borrower's 2000
         fiscal year; or (c) $4,500,000 during the Borrower's 2001 fiscal year.

                  7.5 INTEREST COVERAGE RATIO. As of the last day of any fiscal
         quarter, commencing with the fiscal quarter ending on June 30, 1999,
         permit the ratio of (a) the Borrower's EBIT for 12 consecutive fiscal
         months ending on that date to (b) its consolidated interest expense
         (including, without limitation, imputed interest expense on Capitalized
         Leases) for the same period to be less than 1.0 to 1.0.


Borrower's Initials    JWB
                    -------
Lender's Initials      DWS
                    -------
Date December 29, 1998