EXHIBIT 10.15

                              DEBTOR-IN-POSSESSION
                           LOAN AND SECURITY AGREEMENT

     THIS  DEBTOR-IN-POSSESSION LOAN AND SECURITY AGREEMENT (the "Agreement") is
hereby  made and  executed  as of the 5th day of July,  2001,  by and between R1
FRANCHISE SYSTEMS L.L.C. (SUCCESSOR IN INTEREST TO RANCH *1 ACQUISITION L.L.C.),
AN ARIZONA LIMITED LIABILITY  COMPANY  ("Lender") and RANCH *1, INC., A DELAWARE
CORPORATION,  together with each affiliated  entity  identified on SCHEDULE 1.2,
attached   (collectively   referred  to  as  "Borrower").   For  present,   fair
consideration, the receipt and sufficiency of which are hereby acknowledged, and
subject to  Bankruptcy  Court  approval in the  Reorganization  Case (as defined
below), the parties hereto hereby agree as follows:

                                    RECITALS

     A.   Borrower is the debtor and debtor-in-possession in one or more Chapter
          11 bankruptcy cases (collectively,  the "Reorganization Case") pending
          in the United States Bankruptcy Court for the Southern District of New
          York, as shown on SCHEDULE 1.2.

     B.   Borrower     desires    to    establish     certain     post-petition,
          debtor-in-possession  ("DIP")  financing  arrangements with and borrow
          funds  from  Lender,   and  Lender  is  willing  to   establish   such
          arrangements  for and make DIP  loans  and  extensions  of  credit  to
          Borrower,  on the terms and conditions set forth below (subject to the
          approval of the Bankruptcy Court).

     C.   The  ability of Borrower to obtain the DIP  financing  provided  under
          this Agreement is of material  benefit to Borrower.  Without access to
          the DIP financing provided under this Agreement, it is not likely that
          Borrower will be able to reorganize successfully in its Reorganization
          Case.

     NOW, THEREFORE, in consideration of the promises and covenants contained in
this Agreement,  and for other good and valuable consideration,  the receipt and
sufficiency of which are acknowledged, Borrower and Lender agree as follows:

                                   ARTICLE 1

                                   DEFINITIONS

     In addition to the capitalized  terms defined above,  whenever used in this
Agreement,  unless another meaning is expressly indicated, the following defined
terms shall have the meanings  ascribed to them below, all of which  definitions
shall be substantive terms of this Agreement:
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     SECTION 1.1  ACCOUNT.  "Account"  means all of the  following,  whether now
existing or arising in the future: (a) accounts receivable,  including Royalties
and related fees due from Franchisees of Borrower,  and any and all instruments,
documents,  contract rights, chattel paper, general intangibles relating to such
accounts  receivable  acquired  by  Borrower  from  third  parties or created by
Borrower,  including,  without limitation, all accounts acquired by, created by,
or arising from all of the Borrower's sales of goods or rendition of services to
its  respective  customers,  and all accounts  acquired  through or arising from
sales of  goods or  rendition  of  services  made  under  any of the  Borrower's
respective  trade  names  or  styles;  (b)  unpaid  seller's  rights  (including
rescission,  replevin,  reclamation,  and  stoppage in transit)  relating to the
foregoing or arising  therefrom;  (c) rights to any goods  represented by any of
the foregoing,  including rights to returned or repossessed  goods; (d) reserves
and credit balances arising thereunder;  (e) guarantees or collateral for any of
the  foregoing;  (f)  insurance  policies  or  rights  relating  to  any  of the
foregoing; and (g) cash and noncash proceeds of any and all of the foregoing.

     SECTION 1.2 ACCOUNT DEBTOR.  "Account Debtor" means any Person obligated on
any Account of Borrower.

     SECTION 1.3 ADDITIONAL LEASE.  "Additional Lease" has the meaning set forth
in Section 4.23.

     SECTION 1.4 ADVANCE. "Advance" means any advance made under the Loan.

     SECTION  1.5  AFFILIATE.  "Affiliate"  means,  with  respect to a specified
Person, any Person directly or indirectly  controlling,  controlled by, or under
common  control with the specified  Person,  including  without  limitation  its
stockholders  and any Affiliates  thereof.  A Person will be deemed to control a
corporation or other entity if the Person possesses, directly or indirectly, the
power to direct or cause the  direction  of the  management  and business of the
corporation or other entity, whether through the ownership of voting securities,
by contract, or otherwise.

     SECTION 1.6 AGREEMENT. "Agreement" means this Debtor-In-Possession Loan and
Security Agreement, as it may be amended or supplemented from time to time.

     SECTION 1.7 APPROVAL DATE.  "Approval  Date" means the date of the entry of
the Bankruptcy Court Order on the Bankruptcy Court's docket.

     SECTION 1.8 BANKRUPTCY CODE. "Bankruptcy Code" means 11 U.S.C.ss.ss.101, ET
SEQ. as amended from time to time.

     SECTION  1.9  BANKRUPTCY  COURT.  "Bankruptcy  Court" or "Court"  means the
United States Bankruptcy Court for the Southern District of New York.

     SECTION 1.10  BANKRUPTCY  COURT ORDER.  "Bankruptcy  Court Order" means the
following as applicable at any particular  time:  the First Interim  Order,  the
Second  Interim  Order and the  Final  Order  entered  by the  Bankruptcy  Court
approving this  Agreement and the Loan  hereunder.  The  Bankruptcy  Court Order
shall  expressly  provide  that  (i) the  Bankruptcy  Court's  approval  of this
Agreement  shall include  approval of all fixed fees and costs payable to Lender

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hereunder  such that (a) no further court  approval of such fixed fees and costs
shall be  necessary,  and (b) such fees and costs  shall be paid by  Borrower to
Lender  in  the  time  and  manner  provided   herein;   and  (ii)  neither  the
professionals  employed by Lender in  connection  with the Loan nor the fees and
costs charged by such professionals shall be subject to any of the provisions of
the  Bankruptcy  Code, the Federal Rules of Bankruptcy  Procedure,  and/or local
bankruptcy   rules  or  orders   concerning  or  governing  the   employment  or
compensation  of  professionals;  PROVIDED,  HOWEVER,  THAT the  amount  of such
professional fees shall, if disputed by Borrower or the Committee, be subject to
the approval of the Bankruptcy  Court as being  reasonable,  PROVIDED,  FURTHER,
THAT pending resolution of any dispute, any undisputed fees shall be paid in the
time and manner provided herein.

     SECTION  1.11 BASE RATE.  "Base  Rate"  means a rate of  interest  equal to
twelve and one-half percent (12.5%) per annum.

     SECTION 1.12 BORROWED MONEY. "Borrowed Money" means any obligation to repay
money,  any  indebtedness  evidenced  by notes,  bonds,  debentures  or  similar
obligations,  any obligation  under a conditional  sale or other title retention
agreement  and the net aggregate  rentals under any lease which under  generally
accepted accounting  principles would be capitalized on the books of Borrower or
which is the substantial equivalent of the financing of the property so leased.

     SECTION  1.13  BORROWER.  "Borrower"  has  the  meaning  set  forth  in the
Preamble.  Unless  otherwise  expressly  stated and  agreed,  Borrower is acting
hereunder  and pursuant to all orders  approving  or otherwise  relating to this
Agreement, in all of its capacities,  including acting on its own behalf, and as
the  debtor-in-possession  representative of its estate,  in the  Reorganization
Case.

     SECTION 1.14 BUDGET. "Budget" has the meaning set forth in Section 2.6.

     SECTION 1.15 BUSINESS DAY.  "Business Day" means any day on which financial
institutions are open for business in the State of Arizona,  excluding Saturdays
and Sundays.

     SECTION 1.16  CARVE-OUT.  "Carve-Out"  has the meaning set forth in Section
9.1.

     SECTION 1.17 CLOSING;  CLOSING DATE.  "Closing" and "Closing Date" have the
meanings set forth in Section 5.12.

     SECTION 1.18 COLLATERAL.  "Collateral" has the meaning set forth in Section
3.1.

     SECTION 1.19 SECTION 1.19  COMMITTEE.  "Committee" has the same meaning set
forth in the Final Order.

     SECTION 1.20 DEFAULT RATE.  "Default  Rate" means a rate per annum equal to
five percent (5%) above the Base Rate.

     SECTION 1.21 DIP. "DIP" has the meaning set forth in Recital B above.

     SECTION 1.22 EARLY TERMINATION FEE. "Early Termination Fee" has the meaning
set forth in Section 2.4.

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     SECTION 1.23 EMERGENCY LOAN AMOUNT. "Emergency Loan Amount" has the meaning
set forth in Section 2.1.

     SECTION  1.24 EVENT OF DEFAULT.  "Event of Default" and "Events of Default"
have the meanings set forth in Article 8.

     SECTION  1.25  EXAMINER.  "Examiner"  means the  examiner  appointed by the
Bankruptcy Court in the Reorganization  Case while such appointment is effective
and such examiner is serving.

     SECTION  1.26  FILING  DATE.  "Filing  Date"  means  the date on which  the
Reorganization Case was filed with the Bankruptcy Court.

     SECTION 1.27 FIRST INTERIM  ORDER.  "First  Interim  Order" means the order
entered by the  Bankruptcy  Court,  on an  emergency  basis and pending a second
interim  hearing on approval of this  Agreement  and the Loan  hereunder,  which
order is in form and substance wholly  satisfactory to Lender,  which allows and
authorizes  Borrower to borrow from Lender an amount up to $220,000.00 and which
shall provide to Lender,  among other things, the liens, fees and administrative
claims contemplated by this Agreement.

     SECTION  1.28 FINAL  ORDER.  "Final  Order"  means an order  entered by the
Bankruptcy  Court  approving  this  Agreement and the Loan  hereunder on a final
basis, which Final Order is in form and substance wholly acceptable to Lender.

     SECTION  1.29  FRANCHISE  AGREEMENTS.   "Franchise  Agreements"  means  all
franchise agreements,  area development agreements and similar agreements by and
between  Borrower as  franchisor  and one or more third  parties as  franchisee,
and/or area  developer,  including  without  limitation  those shown on SCHEDULE
4.22, attached.

     SECTION 1.30  FRANCHISEES.  "Franchisees"  shall mean the franchisees under
the Franchise  Agreements  and the area  developers  under the area  development
agreements.

     SECTION 1.31 HIGHEST LAWFUL RATE.  "Highest  Lawful Rate" means the maximum
lawful rate of interest  referred to in Section 2.7 that may accrue  pursuant to
this Agreement.

     SECTION 1.32 INTERIM ORDERS.  "Interim Orders" shall mean the First Interim
Order and the Second Interim Order.

     SECTION 1.33 LEASES. "Leases" has the meaning set forth in Section 4.23.

     SECTION 1.34 LENDER. "Lender" has the meaning set forth in the Preamble.

     SECTION 1.35 LENDER INITIATED  FRANCHISEES.  "Lender Initiated Franchisees"
has the meaning set forth in the Bankruptcy Court Order.

     SECTION 1.36 LOAN. "Loan" has the same meaning as Loan set forth in Section
2.1(a).

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     SECTION 1.37 LOAN  DOCUMENTS.  "Loan  Documents"  means and  includes  this
Agreement,  the Note and each and every other document now or hereafter executed
and/or  delivered  in  connection  with  this  Agreement,  as any of them may be
amended, modified, or supplemented from time to time.

     SECTION 1.38 LOAN MANAGEMENT FEE. "Loan Management Fee" has the meaning set
forth in Section 2.4.

     SECTION 1.39 LOAN ORIGINATION  FEE. "Loan  Origination Fee" has the meaning
set forth in Section 2.4.

     SECTION 1.40 MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the meaning set
forth in Section 2.1(a).

     SECTION 1.41 NOTE. "Note" has the meaning set forth in Section 2.1(c).

     SECTION  1.42  OBLIGATIONS.  "Obligations"  has the  meaning  set  forth in
Section 3.1.

     SECTION 1.43 PERMITTED LIENS.  "Permitted Liens" means: (a) liens for taxes
not  delinquent,  or which are being  contested in good faith and by appropriate
proceedings  which  suspend  the  collection  thereof  and in  respect  of which
adequate  reserves have been made  (provided  that such  proceedings  do not, in
Lender's sole  discretion,  involve any substantial  danger of the sale, loss or
forfeiture  of such property or assets or any interest  therein);  and (b) those
liens and encumbrances, if any, identified SCHEDULE 1.39, attached.

     SECTION   1.44  PERSON.   "Person"   means  an   individual,   partnership,
corporation,  trust,  joint  venture,  joint stock  company,  limited  liability
company,  association,  unincorporated organization,  governmental authority, or
any other entity, and includes, without limitation, the Borrower, any affiliates
of the Borrower,  any  statutory  committee,  trustee,  examiner or other estate
representative of any type appointed in or in connection with the Reorganization
Case, and any other party-in-interest in the Reorganization Case.

     SECTION 1.45 PLAN EXPIRATION DATE. shall mean the seventy-fifth  (75th) day
after the Closing Date.

     SECTION  1.46 SALE  MOTION.  "Sale  Motion"  has the  meaning  set forth in
Section 2.8.

     SECTION 1.47 PLAN OF  REORGANIZATION.  "Plan of  Reorganization"  means any
plan of  reorganization  filed pursuant to Chapter 11 of the Bankruptcy  Code by
the  Borrower,  by any  Affiliate  of the  Borrower,  or by any  other  party in
interest in the Reorganization Case.

     SECTION 1.48 REORGANIZATION CASE. "Reorganization Case" has the meaning set
forth in Recital A above.

     SECTION 1.49 ROYALTIES. "Royalties" shall mean all royalties, marketing and
advertising  fees,  development  fees, and all other amounts payable to Borrower
under its Franchise Agreements with Franchisees.

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     SECTION 1.50 SALES DOCUMENTS.  "Sales  Documents" has the meaning set forth
in Section 3.1.

     SECTION 1.51 SECOND INTERIM ORDER.  "Second  Interim Order" means the order
entered by the  Bankruptcy  Court,  on an  emergency  basis and  pending a final
hearing on approval of this Agreement and the Loan hereunder,  which order is in
form and substance  wholly  satisfactory to Lender,  which allows and authorizes
Borrower  to borrow from Lender an amount up to  $500,000.00  (inclusive  of the
amounts authorized  pursuant to the First Interim Order) and which shall provide
to Lender,  among  other  things,  the  liens,  fees and  administrative  claims
contemplated by this Agreement.

     SECTION 1.52 TERM. "Term" has the meaning set forth in Section 2.8.

                                   ARTICLE 2
                                      LOAN

     SECTION 2.1 TERMS.

          (a) All amounts of credit extended by Lender to Borrower hereunder are
collectively  referred to herein as the "Loan". The maximum aggregate  principal
amount  of  credit  extended  by  Lender  to  Borrower  hereunder  that  will be
outstanding  at any  time  prior to entry  of the  Final  Order is FIVE  HUNDRED
THOUSAND  and  No/100  Dollars  ($500,000.00)  (the  "Emergency  Loan  Amount").
Following the Closing,  provided  there exists no Event of Default and all terms
and conditions of this Agreement are met,  Lender will advance funds to Borrower
according to the schedule attached as EXHIBIT B. The maximum aggregate principal
amount of credit  extended  by Lender to  Borrower  hereunder  at any time after
entry of the Final Order  (including  the Emergency  Loan Amount) is TWO MILLION
DOLLARS ($2,000,000.00) (the "Maximum Loan Amount").

          (b) The Loan will include sums  advanced and other credit  extended by
Lender to or for the benefit of Borrower  from time to time under this Article 2
up to (i) after entry of the Interim  Orders and the  satisfaction  of all other
terms  and  conditions  in this  Agreement  but  prior to the entry of the Final
Order,  the Emergency Loan Amount;  and (ii) after the entry of the Final Order,
the Maximum Loan Amount.  The outstanding  principal  balance of the Loan may be
increased  by  future  advances  and  other  extensions  of credit to or for the
benefit of Borrower,  and will be due and payable in full upon the expiration of
the Term.  This Loan will not  revolve.  All  payments  made to Lender,  whether
voluntary or required by the terms of this Agreement,  will not be available for
subsequent Advances.

          (c) At Closing and on the date of each Advance,  Borrower will execute
and  deliver  to  Lender  one or more  promissory  notes  evidencing  Borrower's
unconditional  obligation  to repay Lender for the Loan and other  extensions of
credit  made  under the Loan,  in the form of EXHIBIT A to this  Agreement  (the
"Note"),  dated the date  hereof,  payable to the order of Lender in  accordance
with the terms thereof.  The Note will bear interest from the date thereof until
repaid,  with  interest  payable  monthly  in  arrears,  on any and all  amounts
outstanding under, or as a result of the Loan, on the first Business Day of each
month,  at a rate per annum (on the basis of the actual  number of days  elapsed

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over a year of 360  days)  equal  to the  Base  Rate,  provided  that  upon  the
occurrence  and during the  continuance of an Event of Default such rate will be
equal to the Default  Rate.  Each Advance and other  extension of credit will be
deemed evidenced by the Note,  which is deemed  incorporated by reference herein
and made a part hereof.

     SECTION  2.2 LOAN  ADMINISTRATION.  Borrowings  under  the Loan  will be as
follows:

          (a) A request for an Advance  under the Loan will be made,  or will be
deemed to be made, in the following  manner:  Borrower may give Lender notice of
its intention to borrow, in which notice Borrower will specify the amount of the
proposed  borrowing and the proposed  borrowing  date,  not later than 2:00 p.m.
Phoenix,  Arizona time three (3) Business  Days prior to the proposed  borrowing
date;  PROVIDED,  HOWEVER,  THAT Lender will have no obligation to fund any such
request made at a time when an Event of Default has  occurred and is  continuing
or a condition precedent to the Advance has not been met, and, PROVIDED, further
Advances (after the Emergency Loan Amount) will not be made more frequently than
on 30 day intervals and will not be made in amounts greater than $250,000.00.

          (b)  Borrower  hereby  irrevocably  authorizes  Lender to disburse the
proceeds of each Advance requested,  or deemed to be requested, by wire transfer
to an account specified by Borrower.

          (c) All Advances and other  extensions of credit to or for the benefit
of Borrower will constitute a single general Obligation of Borrower, and will be
secured by Lender's lien upon all of the Collateral.

          (d) Lender will enter all  Advances as debits to a loan account in the
name of Borrower and may record therein, in accordance with customary accounting
practice,  other  debits and  credits,  including  interest  and all charges and
expenses properly  chargeable to Borrower under this Agreement.  Payments on the
Loan  will be  made as  provided  herein  and/or  in the  Note.  Unless  applied
otherwise in Lender's  sole  discretion,  payments made by Borrower to Lender in
respect of the Loan will be applied first to fees,  costs,  and expenses due and
owing under the Loan  Documents,  then to interest  due and owing under the Loan
Documents, and then to principal outstanding with respect to the Loan.

          (e) Lender will  account to Borrower on a regular  basis (but not more
frequently than monthly) with a statement of Advances, charges and payments made
pursuant to this Agreement,  and such account  rendered by Lender will be deemed
final,  binding  and  conclusive  upon  Borrower  unless  Lender is  notified by
Borrower  in  writing  to the  contrary  within  ten (10)  days of the date each
accounting is transmitted  by facsimile to Borrower.  Such notice will be deemed
an objection only to those items specifically objected to therein.

     SECTION 2.3 (INTENTIONALLY OMITTED).

     SECTION 2.4 FEES.

          (a) Borrower  unconditionally agrees to pay to Lender a non-refundable
loan  origination fee in the amount of $25,000.00,  due and payable on the entry
of the Emergency Order.

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          (b) For so long as any portion of the Loan remains  outstanding and/or
is available to Borrower,  Borrower unconditionally will pay to Lender a monthly
loan management fee (the "Loan Management  Fee") equal to $20,000.00  payable to
the Lender solely from the proceeds,  if any, of the Borrower's share of initial
franchise fees paid by Lender  Initiated  Franchisees.  The Loan Management Fees
due to the Lender  shall begin to accrue  from July 5, 2001.  The payment of the
Loan  Management Fee shall be in addition to the commissions and fees payable to
the Lender on account of the Lender Initiated Franchisees.

          (c) Borrower  unconditionally promises to pay to Lender a fee equal to
five percent (5%) of the Maximum Loan Amount if Lender terminates this Agreement
upon or  after  the  occurrence  of an  Event  of  Default,  if  this  Agreement
terminates as provided in Section  2.8(c),  or if Borrower shall  terminate this
Agreement  effective  prior to the end of the  Term,  which fee shall be due and
payable upon the  termination of this Agreement (the "Early  Termination  Fee");
PROVIDED,  HOWEVER,  the  Borrower  shall  not be  obligated  to pay  the  Early
Termination  Fee in the event that, on or before the Plan  Expiration  Date, the
Borrower files a plan of reorganization  which is not satisfactory to the Lender
(in the Lender's sole discretion),  unless (i) such plan fails to pay the Lender
the full amount of the DIP  Liabilities,  or (ii) such plan is premised upon the
Borrower's  obtaining funding from an alternative lender,  funder or acquirer or
the sale of  substantially  all of the  Borrower's  assets to a third  party not
affiliated with Lender.

          (d)  Borrower  unconditionally  promises to pay to Lender a commitment
fee in the amount of one fourth of one  percent  (.25%) per annum of the average
daily unused  portion of the Maximum Loan Amount (the portion which has not been
Advanced),  which fee shall be due and  payable  and  non-refundable  monthly in
arrears on the first Business Day of each successive calendar month.

     SECTION 2.5 PAYMENTS. Principal and all other amounts payable on account of
the Loan will be payable by Borrower to Lender  immediately upon the earliest of
(i) the  occurrence of an Event of Default in  consequence of which the Loan and
the  maturity  of the  payment  of the  Obligations  are  accelerated,  (ii) the
termination  of this Agreement  pursuant to Section 2.8(c) hereof,  or (iii) the
end of the Term.  Interest  accrued on the Loan will be paid on the  earliest of
(i) the first Business Day of each month (for the immediately  preceding month),
with interest computed on the last calendar day of the preceding month, (ii) the
occurrence  of an Event of  Default  in  consequence  of which  the Loan and the
maturity  of the  payment  of the  Obligations  are  accelerated,  or (iii)  the
termination  of this  Agreement  pursuant to Section  2.8 hereof.  Except to the
extent  otherwise set forth in this Agreement,  all payments of principal and of
interest on the Loan,  all other charges and any other  obligations  of Borrower
hereunder will be made to Lender in immediately available funds.

     SECTION 2.6 USE OF PROCEEDS. Except as otherwise expressly provided in this
Agreement and in the Bankruptcy Court Order,  the proceeds of Lender's  advances
under the Loan will be used solely for: working capital and payment of essential
post-petition operating and administrative  expenses, all strictly in accordance
with the operating  budget of Borrower  (the  "Budget") as set forth on SCHEDULE
2.6, attached, and as set forth on EXHIBIT B.

     SECTION  2.7  INTEREST  RATE  LIMITATION.  The  parties  intend to  conform
strictly  to the  applicable  usury laws in effect  from time to time during the
term of the Loan. Accordingly,  if any transaction  contemplated hereby would be

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usurious under such laws, then  notwithstanding  any other provision hereof: (i)
the aggregate of all interest that is contracted for, charged, or received under
this  Agreement  or under any other Loan  Document  will not exceed the  maximum
amount of interest  allowed by applicable law (the "Highest  Lawful Rate"),  and
any excess  will be  promptly  credited to Borrower by Lender (or, to the extent
that such  consideration  will have been  paid,  such  excess  will be  promptly
refunded to Borrower by Lender);  (ii) neither Borrower nor any other Person now
or  hereafter  liable  hereunder  will be  obligated  to pay the  amount of such
interest  to the extent  that it is in excess of the Highest  Lawful  Rate;  and
(iii) the effective rate of interest will be reduced to the Highest Lawful Rate.
All sums paid,  or agreed to be paid,  to Lender for the use,  forbearance,  and
detention  of the debt of Borrower to Lender  will,  to the extent  permitted by
applicable law, be allocated throughout the full term of the Notes until payment
is made in full so that the actual rate of interest  does not exceed the Highest
Lawful Rate in effect at any particular time during the full term thereof. If at
any time the rate of interest  under the Notes exceeds the Highest  Lawful Rate,
the rate of  interest  to accrue  pursuant  to this  Agreement  will be limited,
notwithstanding anything to the contrary herein, to the Highest Lawful Rate, but
any  subsequent  reductions  in the Base Rate will not  reduce the  interest  to
accrue  pursuant to this Agreement below the Highest Lawful Rate until the total
amount of interest accrued equals the amount of interest that would have accrued
if a varying  rate per annum equal to the  interest  rate under the Notes had at
all times  been in  effect.  If the total  amount of  interest  paid or  accrued
pursuant to this Agreement under the foregoing provisions is less than the total
amount of interest  that would have accrued if a varying rate per annum equal to
the interest rate under the Notes had been in effect,  then  Borrower  agrees to
pay to Lender an amount  equal to the  difference  between (i) the lesser of (x)
the amount of interest that would have accrued if the Highest Lawful Rate had at
all times been in effect,  or (y) the amount of interest that would have accrued
if a varying rate per annum equal to the interest rate under the Note had at all
times been in effect, and (ii) the amount of interest accrued in accordance with
the other provisions of this Agreement.

     SECTION 2.8 TERM.

          (a) Subject to  Lender's  right to cease  making  Advances to Borrower
upon or after any Event of Default has occurred and is  continuing,  and subject
to earlier  termination  as provided  below in this Section 2.8, this  Agreement
will be in effect  for a period  equal to the  EARLIER  of one (1) year from the
Closing Date OR the  effective  date of a Plan of  Reorganization  (the "Term");
and,  in the  absence of any Event of  Default,  this  Agreement  may be renewed
thereafter upon the mutual written agreement of the parties.

          (b)  Notwithstanding  anything  herein  to the  contrary,  subject  to
Section  2.8(d)  hereof,  Lender may terminate  this Agreement upon or after the
occurrence  and during the  continuance  of an Event of Default,  or if Borrower
fails to file a Plan of  Reorganization  within seventy five (75) days after the
Closing,  which is approved by Lender (in Lender's sole  discretion)  and which,
once filed,  is not amended or withdrawn  without the prior  written  consent of
Lender, which consent may be withheld in Lender's sole discretion (the "Approved
Plan").

          (c) This Agreement also will terminate  immediately and  automatically
upon the occurrence of any of the following:

                                       9
<PAGE>
               (i) The appointment of a trustee in the Reorganization Case;

               (ii) The dismissal of the  Reorganization  Case or the conversion
of  the  Reorganization  Case  from a  Chapter  11  proceeding  to a  Chapter  7
proceeding;

               (iii) Without the prior written consent of Lender,  the granting,
by  stipulation  or otherwise,  of relief from the automatic  stay of Bankruptcy
Code Section 362(a),  in favor of a party other than Lender which asserts a lien
or security interest in any of the Collateral;

               (iv)  The  entry of an Order  in the  Reorganization  Case  which
authorizes  (under  Bankruptcy  Code  Sections  105 or 364,  or  otherwise)  the
granting of a lien or security interest in any of the Collateral in favor of any
party other than Lender  which is not  approved  expressly in writing by Lender,
which approval may be withheld in Lender's sole and absolute discretion;

               (v) The modification,  rescission, reversal, termination, stay or
other change in the form,  substance or  effectiveness  of the Bankruptcy  Court
Order which is not approved in writing by Lender, which approval may be withheld
in  Lender's  sole and  absolute  discretion,  or the entry of any order that in
Lender's sole opinion adversely affects the rights, interests and/or protections
of Lender under the Loan or this Agreement; or

               (vi) The  modification,  termination or  subordination  of any of
Lender's  liens on the  Collateral  which is not  approved in writing by Lender,
which approval may be withheld in Lender's sole and absolute discretion.

          (d) All of the  Obligations  will be immediately  due and payable upon
the termination of this Agreement;  PROVIDED, HOWEVER,  notwithstanding anything
to the contrary contained herein, including Section 8.6(l), (i) in the event the
Borrower fails to file a plan of  reorganization  which is  satisfactory  to the
Lender (in the Lender's sole  discretion) on or before the Plan Expiration Date,
all of the  Obligations  will be due and  payable  upon the  earlier  of (1) the
forty-fifth  (45th) day after the Plan Expiration Date and (2) the  consummation
of a plan of reorganization, or such other time which is agreed to in writing by
the Lender,  and (ii) in the event the Borrower  files an  application  with the
Bankruptcy Court seeking  authorization for the sale of substantially all of the
Borrower's  assets  pursuant to Section 363 of the  Bankruptcy  Code without the
Lender's consent (in the Lender's sole  discretion) (the "Sale Motion"),  all of
the  Obligations  will be due and payable upon the earlier of (1) the  thirtieth
(30th) day of the date of the filing of the Sale Motion and (2) the consummation
of such a sale,  or such other time which is agreed to in writing by the Lender.
All undertakings,  agreements,  covenants,  warranties,  and  representations of
Borrower  contained in the Loan Documents will survive any such  termination and
Lender  will  retain  its  liens in the  Collateral  and all of its  rights  and
remedies under the Loan Documents and the Bankruptcy Court  notwithstanding such
termination  until all  Obligations  owing  from  Borrower  to Lender  have been
satisfied indefeasibly and in full.

     SECTION 2.9 COSTS AND EXPENSES.  Borrower shall pay to Lender on demand all
reasonable  costs and expenses that Lender pays or incurs in connection with the
negotiation,  preparation,   consummation,   administration,   enforcement,  and
termination  of this  Agreement and the Loan  Documents,  the  Bankruptcy  Court
Order,  including,  without limitation:  (a) attorneys' and paralegals' fees and

                                       10
<PAGE>
disbursements of counsel to Lender, (b) costs and expenses (including attorneys'
and paralegals' fees and disbursements) for any amendment,  supplement,  waiver,
consent,  or subsequent  closing in connection  with this  Agreement and related
documents,  the  Bankruptcy  Court  Order,  and  any  transaction  mentioned  or
contemplated  thereby;  (c) costs and expenses of lien  searches,  environmental
surveys, recording and filing fees and any other recording taxes associated with
the perfection of interests in the Collateral; (d) taxes, fees and other charges
for recording any agreements or documents with any governmental  authority,  and
the filing of  Financing  Statements  and  continuations,  and other  actions to
perfect, protect, and continue the security interests and liens of Lender in the
Collateral;  (e) sums paid or  incurred  to pay any  amount  or take any  action
required  of  Borrower  under  this  Agreement  and  related  documents,  or the
Bankruptcy  Court  Order  that  Borrower  fails  to pay or  take;  (f)  costs of
appraisals,  inspections  and  verifications  of the  Collateral  and  including
travel,  lodging, and meals for inspections of the Collateral and the Borrower's
operations by Lender or its agents and to attend court  hearings or otherwise in
connection  with the Chapter 11 Case;  (g) costs and expenses of preserving  and
protecting the Collateral;  (h) all out-of-pocket  expenses and costs heretofore
and from time to time  hereafter  incurred  by the  Lender  during the course of
periodic field examinations of the Collateral and Borrower's operations,  plus a
per diem  charge per person per day at  Lender's  then  current  rate (as of the
Closing Date, such rate is $750 per day, per man), for Lender's examiners in the
field  and  office;  and  (i)  costs  and  expenses  (including  attorneys'  and
paralegals'  fees and  disbursements)  paid or incurred to obtain payment of the
Obligations,  enforce  the  security  interests  and  liens of  Lender,  sell or
otherwise  realize upon the Collateral,  and otherwise enforce the provisions of
this  Agreement and related  documents,  and the Bankruptcy  Court Order,  or to
defend  any  claims  made  or  threatened  against  Lender  arising  out  of the
transactions  contemplated hereby (including,  without limitation,  preparations
for and consultations  concerning any such matters).  The foregoing shall not be
construed to limit any other provisions of this Agreement and related  documents
regarding  costs and expenses to be paid by Borrower.  All sums  provided for in
this Section 2.9 shall be part of the  Obligations,  shall be payable on demand,
and shall accrue  interest after demand for payment  thereof at the highest rate
of interest then payable under this Agreement and related  documents.  Lender is
hereby  irrevocably  authorized to charge any amounts payable hereunder directly
to any of the account(s) maintained by Lender with respect to Borrower.

     SECTION 2.10 RIGHT TO CHARGE  ACCOUNT At Lender's  option,  all  principal,
interest,  fees,  costs,  expenses  and  other  charges  provided  for  in  this
Agreement,  or in any other agreement now or hereafter  existing  between Lender
and Borrower,  shall be deemed Obligations  secured by the Collateral and may be
charged to the loan account of Borrower maintained by Lender. By way of example,
Lender may  withhold  from an Advance  fees  which are due and  payable  and for
purposes  of the Loan such fees  shall be  deemed to have been  included  in the
Advance for all intents and purposes as if they had been included in the Advance
and  subsequently  paid to Lender by Borrower.  All  interest,  fees and charges
payable by Borrower to Lender based on a per annum rate shall be  calculated  on
the basis of actual days elapsed over a 360-day year.

                                       11
<PAGE>
                                   ARTICLE 3
                                   COLLATERAL

     SECTION 3.1  GENERALLY.  As security for the payment of all  Obligations of
Borrower to Lender,  including without  limitation:  (i) indebtedness  evidenced
under the Note,  repayment  of the Loan,  repayment  of the  Advances  and other
extensions  of credit,  all fees and charges  owing by  Borrower,  and all other
liabilities  and  obligations of every kind or nature  whatsoever of Borrower to
Lender,   whether  now  existing  or  hereafter  incurred,   joint  or  several,
contingent,  matured or  unmatured,  direct or indirect,  primary or  secondary,
related or  unrelated,  due or to become due,  including  but not limited to any
extensions, modifications,  substitutions,  increases and renewals thereof, (ii)
the payment of all amounts advanced by Lender to preserve,  protect, defend, and
enforce its rights  hereunder and in the following  property in accordance  with
the terms of this Agreement,  and (iii) the payment of all expenses provided for
herein   incurred  by  Lender  in  connection   therewith   (collectively,   the
"Obligations"),  Borrower hereby assigns and grants to Lender a continuing first
priority lien on and security interest in, upon, and to the following  property,
whether  now-owned or  hereafter  acquired or arising  (the  "Collateral"):  all
property  and  assets  of  Borrower  and  the  proceeds  and  products  thereof,
including, without limitation, the following:

          (a) All Accounts; contract rights (including without limitation rights
under all Franchise  Agreements,  all Royalties and all Leases);  chattel paper;
general  intangibles  (including,  but not  limited  to,  tax and duty  refunds,
patents, patent applications,  trademarks,  trademark applications,  trade names
and tradestyles,  copyrights,  copyright applications,  trade rights (whether or
not registered), discoveries, improvements, processes, know-how, formulas, trade
secrets,   service  marks,  other  rights  in  intellectual   property  (whether
patentable  or not),  goodwill,  customer  and  mailing  lists,  life  insurance
policies,  licenses  (whether as licensor or licensee),  and  permits);  payment
intangibles,   commercial  tort  claims,   supporting   obligations;   documents
(including,  without  limitation,  all  warehouse  receipts);  instruments;  all
guaranties,  letters of credit,  steamship guaranties,  airway releases or other
similar  guaranties,  security  interests,  or  agreements  (including,  but not
limited to,  purchase money  security  interests  granted by Account  Debtors in
connection with  installment  sales);  all cash monies,  investment  properties,
deposits, securities, bank accounts, deposit accounts, and credit card receipts;

          (b) All inventory;

          (c) All equipment;

          (d) All chattel paper;

          (e) All claims, rights, interests,  assets and properties recovered by
or on behalf of Borrower  or any trustee of Borrower  (whether in the Chapter 11
Case or any  subsequent  case to which the  Chapter 11 Case is  converted),  but
excluding all rights and claims arising under Chapter 5 of the Bankruptcy Code;

          (f) All  leasehold  interests of Borrower,  together with all fixtures
and leasehold improvements;

          (g) All  rights  of  Borrower  under  the  promissory  notes and other
instruments  listed on SCHEDULE  3.1(G),  attached,  together with all rights of
Borrower in all security agreements and other documents or instruments  executed
in connection  with such  promissory  notes or in connection with any collateral

                                       12
<PAGE>
given in connection  therewith or as security therefor  (collectively all of the
foregoing is referred to herein as the "Sales Documents").

          (h) All  present and future  books and records  relating to any of the
above including,  without limitation, all present and future books of account of
every kind or nature,  purchase and sale  agreements,  invoices,  ledger  cards,
bills  of  lading  and  other  shipping  evidence,  statements,  correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor,  together with the tapes,  disks,  diskettes and other data and software
storage  media and  devices,  file  cabinets  or  containers  in or on which the
foregoing  are stored  (including  any rights of Borrower with respect to any of
the foregoing maintained with or by any other person); and

          (i) Any and all  products  and  proceeds of the  foregoing in any form
including,  without  limitation,  all  insurance  claims,  warranty  claims  and
proceeds and claims  against third parties for loss or  destruction of or damage
to any or the foregoing.

     In  applying  the law of any  jurisdiction  that at any time  enacts all or
substantially all of the uniform  provisions of Revised Article 9 of the Uniform
Commercial Code, the foregoing collateral  description consists of all assets of
Borrower,  whether now owned or hereafter acquired, but excluding all rights and
claims arising under Chapter 5 of the Bankruptcy Code.

     SECTION  3.2  LIEN  DOCUMENTS.  At  Closing  or as  soon  thereafter  as is
reasonably  practicable,  and  thereafter as Lender deems  necessary in its sole
discretion,  Borrower  will execute and deliver to Lender,  or have executed and
delivered  (all in  form  and  substance  satisfactory  to  Lender  in its  sole
discretion):

          (a) UCC-1 Financing Statements pursuant to the Uniform Commercial Code
in effect in the  jurisdiction(s) in which Borrower  operates,  which Lender may
file in any  jurisdiction  where any  Collateral is or may be located and in any
other  jurisdiction  that  Lender  deems  appropriate;  PROVIDED  that a carbon,
photographic,  or other  reproduction  or other copy of this  Agreement  or of a
financing  statement  is  sufficient  as and may be filed in lieu of a financing
statement;

          (b)   Such   consents,    agreements,    estoppel   certificates   and
acknowledgements  from  third  parties  to  any  Franchise  Agreements,  leases,
contracts,  or other items of Collateral as Lender deems  reasonably  necessary,
together with such landlord consents and lien waivers as Lender deems reasonably
necessary; and

          (c) Any other agreements,  documents, instruments, and writings deemed
reasonably  necessary by Lender or as Lender may otherwise  request from time to
time to evidence,  perfect,  or protect Lender's liens and security interests in
the  Collateral  required  hereunder,  and to allow  Lender  to  enter  upon all
premises where any item of Collateral may be located and remove such  Collateral
upon an Event of Default.

          (d) The  original  promissory  notes  referenced  in SCHEDULE  3.1(G),
endorsed.

     Borrower   specifically  hereby  gives  Lender  permission  to  file  UCC-1
financing  statements in such  jurisdictions as Lender may determine,  including
without  limitation in the states of New York and Delaware,  to evidence  and/or
perfect the security interests and other rights granted herein.

                                       13
<PAGE>
     SECTION 3.3 COLLATERAL ADMINISTRATION.

          (a) Borrower will keep  accurate and complete  records of its Accounts
and Franchise  Agreements and all payments and collections  thereon,  and all of
the other Collateral,  and Borrower will submit to Lender on such periodic basis
as Lender will request a sales and collections  report for the preceding period,
in form  satisfactory to Lender.  If requested by Lender,  Borrower will execute
and  deliver  to Lender  formal  written  collateral  assignments  of all of its
Accounts,  Franchise  Agreements and leases weekly or daily,  which will include
all Accounts,  Franchise  Agreements and leases that have been created since the
date of the last assignment,  together with copies of claims,  invoices or other
information related thereto.

          (b) Whether or not an Event of Default has  occurred,  any of Lender's
officers,  employees  or  agents  will  have  the  right,  at any  time or times
hereafter,  in the name of Lender, any designee of Lender or Borrower, to verify
with any  Account  Debtor or the  obligor  under any  Franchise  Agreements  the
validity,  amount,  or any other  matter  relating to any  Accounts or Franchise
Agreement by mail,  telephone,  telegraph or otherwise.  Borrower will cooperate
fully  with  Lender  in an effort  to  facilitate  and  promptly  conclude  such
verification process.

          (c) To  expedite  collection,  Borrower  will  endeavor  in the  first
instance to make  collection of its Accounts and  Royalties  for Lender.  Lender
retains the right at all times after the occurrence  and during the  continuance
of an Event of Default to notify Account Debtors and  Franchisees  that Accounts
and Royalties  have been pledged and assigned to Lender and to collect  Accounts
and Royalties  directly in its own name and to charge the  collection  costs and
expenses, including reasonable attorneys' fees, to Borrower.

     SECTION 3.4 POWER OF  ATTORNEY.Subject to any applicable law or regulation,
each of the  officers  of Lender is hereby  irrevocably  made,  constituted  and
appointed the true and lawful  attorney for Borrower  (without  requiring any of
them to act as such) with full power of  substitution  to do the following:  (i)
upon the occurance of an Event of Default, endorse the name of Borrower upon any
and all checks,  drafts,  money orders, and other instruments for the payment of
money that are payable to Borrower  and  constitute  collections  on  Borrower's
Accounts;  (ii)  execute  in the  name of  Borrower  any  financing  statements,
schedules, assignments,  instruments, documents, and statements that Borrower is
obligated to give Lender hereunder or perfect Lender's security interest or lien
in any Collateral;  (iii) upon the occurance of an Event of Default,  direct any
Account Debtors,  to remit payments in relation to Borrower's  Accounts directly
to the Lender; and (iv) upon the occurance of an Event of Default, do such other
and  further  acts and  deeds  in the  name of  Borrower  that  Lender  may deem
reasonably  necessary  or  desirable  to enforce any Account or Royalty or other
Collateral.

                                       14
<PAGE>
                                   ARTICLE 4
                         REPRESENTATIONS AND WARRANTIES

     Borrower  hereby  represents and warrants to Lender,  knowing and intending
that Lender shall rely thereon in making the Loan  contemplated  hereby (each of
which  representations  and warranties shall be continuing unless expressly made
in relation only to a specific date), that:

     SECTION  4.1  FINANCING  ORDER.  The  Bankruptcy  Court Order has been duly
entered, is valid, subsisting and continuing and has not been vacated, modified,
reversed on appeal,  or vacated or modified by any order of the Bankruptcy Court
(other than as consented to by Lender) and is not subject to any pending  appeal
or stay;  and  Borrower  will not seek to have such Order  vacated  or  modified
without Lender's prior written  permission,  which permission may be withheld in
Lender's sole discretion.

     SECTION 4.2 EXISTENCE: GOOD STANDING.

          (a) Borrower (i) is a corporation duly organized, validly existing and
in good standing  under the laws of the state of its  incorporation,  (ii) is in
good  standing in all other states in which it is required to be qualified to do
business  as a  foreign  corporation,  and  (iii)  has all  requisite  power and
authority and full legal right to own or to hold under lease its  properties and
to carry on the business as presently engaged.

          (b)  Borrower  has  adequate  power and  authority  and has full legal
rights  to enter  into  each of the Loan  Documents  to which it is a party,  to
perform,  observe and comply with all of its  agreements and  obligations  under
each of such  documents,  and to obtain  all of the Loans  contemplated  by this
Agreement.

     SECTION 4.3  AUTHORITY.  The execution and delivery by Borrower of the Loan
Documents  to which it is a party,  the  performance  by  Borrower of all of its
agreements and obligations  under each of such  documents,  and the incurring by
Borrower of all of the Obligations  contemplated  by this  Agreement,  have been
duly  authorized  by all  necessary  actions  on the  part of  Borrower  and the
officers  and  directors  of each,  does not (a)  contravene  any  provision  of
Borrower's  charter  or bylaws or this  Agreement  (each as from time to time in
effect), (b) conflict with, or result in a breach of the terms,  conditions,  or
provisions of, or constitute a default  under,  or result in the creation of any
mortgage,  lien, pledge, charge, security interest or other encumbrance upon any
of the  property of Borrower  under any  material  agreement,  mortgage or other
instrument to which Borrower is or may become a party, (c) violate or contravene
any provision of any law, regulation, order, ruling or interpretation thereunder
or any  decree,  order or judgment or any court or  governmental  or  regulatory
authority,  bureau,  agency or official  (all as from time to time in effect and
applicable  to such entity),  (d) require any waivers,  consents or approvals by
any of the creditors or trustees for  creditors of Borrower,  or (e) require any
approval, consent, order, authorization,  or license by, or giving notice to, or
taking any other action with respect to, any governmental authority.

     SECTION 4.4 BINDING  EFFECT OF  DOCUMENTS.  Borrower has duly  executed and
delivered  each of the Loan  Documents  to which it is a party,  and each of the
Loan  Documents is valid,  binding and in full force and effect.  The agreements
and  obligations  of  Borrower  as  contained  in  each  of the  Loan  Documents
constitutes,  or upon  execution and delivery  thereof will  constitute,  legal,
valid and binding obligations of Borrower enforceable against each in accordance
with their respective terms, subject, as to the enforcement of remedies only, to
limitations imposed by federal and state laws regarding bankruptcy,  insolvency,

                                       15
<PAGE>
reorganization,  moratorium  and other  laws  affecting  creditors'  rights  and
remedies generally, and by general principles of law and equity.

     SECTION 4.5 NO EVENTS OF DEFAULT.  No Event of Default has  occurred and is
continuing and no event has occurred and is continuing  and no condition  exists
that would,  with notice or the lapse of time,  or both,  constitute an Event of
Default.

     SECTION 4.6 NO GOVERNMENTAL  CONSENT NECESSARY.  No consent or approval of,
giving of notice to,  registration with or taking of any other action in respect
of, any  governmental  authority  is  required  with  respect to the  execution,
delivery  and  performance  by  Borrower  of this  Agreement  and the other Loan
Documents  to  which it is a party  other  than the  filing  of UCC-1  Financing
Statements, and the recording of applicable leasehold mortgages.

     SECTION 4.7 NO  PROCEEDINGS.  There are no actions,  suits,  or proceedings
pending or, to the best of Borrower's knowledge, threatened against or affecting
Borrower in any court or before any  governmental  authority which, if adversely
determined,  would have an adverse  effect on the ability of Borrower to perform
its obligations  under this Agreement or the other Loan Documents to which it is
a party.

     SECTION  4.8  NO  VIOLATIONS  OF  LAWS.  Borrower  has  conducted,  and  is
conducting,  its  business,  so as to comply in all material  respects  with all
applicable  federal,  state,  county and  municipal  statutes  and  regulations.
Borrower or any officer, director or shareholder (except as previously disclosed
to Lender by Borrower) of Borrower is not charged with, or so far as is known by
Borrower,  is not under investigation with respect to, any violation of any such
statutes,  regulations or orders,  which could have a material or adverse effect
on the financial condition, business or operations of Borrower;

     SECTION 4.9 USE OF PROCEEDS OF THE LOAN.

          (a) The  proceeds  of the Loan shall be used by  Borrower  for general
operating  and working  capital  purposes in the ordinary  course of business of
Borrower,  pursuant to the Budget. Unless authorized by the Bankruptcy Court and
approved by Lender in writing, no portion of any administrative expense claim or
other claim relating to the Reorganization  Case shall be paid with the proceeds
of such Loans  provided by Lender to Borrower,  other than those  administrative
expense  claims and other claims  relating to the  Reorganization  Case directly
attributable to the operation of the business of Borrower in the ordinary course
of business.

          (b) Proceeds  from the Loan shall be used only for those  purposes set
forth in this  Agreement.  No part of the  proceeds  of the Loan  shall be used,
directly or  indirectly,  for the purpose of  purchasing  or carrying any margin
stock,  or for the  purpose of  purchasing  or  carrying or trading in any stock
under such  circumstances  as to involve  Borrower in a violation of  applicable
law. In particular, without limitation of the foregoing, no part of the proceeds
from the Loans are intended to be used to acquire any publicly-held stock of any
kind.

     SECTION 4.10 BUDGET. The Budget has been prepared by Borrower and presented
to Lender and has been  agreed to and  accepted  by Lender.  The Budget has been
thoroughly  reviewed by Borrower  and its  management  and sets forth  projected

                                       16
<PAGE>
operating cash disbursements,  and receiptscommencing as of Closing, through and
including  thirty (30) days after Closing.  Borrower  represents and warrants it
has made diligent and good faith  estimates to accurately  project in the Budget
all income  and  expenses.  Borrower  will  prepare  proposed  Budgets  for each
successive thirty (30) day periods,  which must be approved by Lender.  Borrower
represents  and  warrants  it will make  diligent  and good faith  estimates  to
accurately project in the successive  Budgets all income and expenses.  Borrower
will act strictly in  accordance  with the Budget and Lender has relied upon the
Budget and will rely upon  subsequent  Budgets in  determining to enter into the
post-petition financing arrangements provided for herein. Except as specifically
set forth in the Budget which has been approved by Lender, Borrower will make no
expenditures  without the prior consent of Lender,  unless  individually each is
less  than  $2,500.00,  and  cumulatively  the  same  do not  exceed  the sum of
$20,000.00 in any thirty (30) day period.

     SECTION 4.11 FINANCIAL STATEMENTS.

          (a) Subject to any  limitation  stated  therein,  all balance  sheets,
income statements and other financial data which have been or shall hereafter be
furnished to Lender to induce it to enter into this  Agreement,  and to continue
to provide  financing under this Agreement or otherwise in connection  herewith,
do and will fairly present the financial condition of Borrower as at the periods
for which the same are furnished to Lender. All other  information,  reports and
other  papers and data  furnished to Lender are, or will be at the time the same
are so furnished, true, accurate and complete in all material respects.

          (b) Except as shown on the most recent financial statements which have
been  delivered  to Lender,  Borrower has no other  indebtedness  as of the date
hereof which would  materially or adversely  affect the  financial  condition of
Borrower or the Collateral.

     SECTION  4.12 CHANGES IN  FINANCIAL  CONDITION.  There has been no material
change in Borrower's  financial  condition  since the date of its last financial
statements which have been delivered to Lender.

     SECTION 4.13  EQUIPMENT.  Borrower  shall keep its  equipment and all other
items of Collateral in good order and repair marketable condition, ordinary wear
and tear excepted.

     SECTION 4.14 TAXES AND  ASSESSMENTS.  Except as  specifically  set forth in
SCHEDULE 4.14,  attached,  Borrower has paid and discharged  when due all taxes,
assessments  and other  governmental  charges  which may  lawfully  be levied or
assessed upon its income and profits, or upon all or any portion of any property
belonging to it, whether real, personal or mixed, to the extent that such taxes,
assessment  and other  charges  have become due,  and Borrower has filed all tax
returns,  federal, state and local, and all related information,  required to be
filed by it.

     SECTION 4.15 ERISA.  Borrower is in  compliance  in all  respects  with the
applicable  provisions  of ERISA and all  regulations  issued  thereunder by the
United  States  Treasury  Department,  the  Department  of Labor and the Pension
Benefit Guaranty Corporation.

                                       17
<PAGE>
     SECTION 4.16 ENVIRONMENTAL  MATTERS.  Borrower has been issued all required
federal,  state and local  licenses,  certificates  or permits  relating  to the
operation of its business;  and Borrower and its facilities,  business,  assets,
property and equipment  (and, to the best of Borrower's  knowledge,  information
and belief,  all of the properties which Borrower leases and the properties upon
which  the  Franchisees  operate  their  franchises)  are in  compliance  in all
material respects with, all applicable federal,  state and local laws, rules and
regulations relating to air emissions,  water discharge,  noise emissions, solid
or liquid waste disposal,  hazardous waste or materials, or other environmental,
health or safety matters.

     SECTION 4.17  LOCATION OF  COLLATERAL.  As of the date hereof,  none of the
Collateral  is or will be  located  in or on any  property  other than those set
forth in SCHEDULE 4.17 of this Agreement.

     SECTION 4.18 OTHER LIENS.  Borrower  has good and  marketable  title to and
owns all of the Collateral free and clear of any and all liens,  encumbrances or
security  interests  whatsoever,   except  the  Permitted  Liens.  None  of  the
Collateral  is  subject  to  any  prohibition  against  encumbering,   pledging,
hypothecating  or assigning the same or requires notice or consent to Borrower's
doing of the same.

     SECTION  4.19 BOOKS AND RECORDS.  Borrower  maintains  its chief  executive
office and its books and  records  related to its  Accounts,  Inventory  and all
other Collateral at its address set forth in SCHEDULE 4.17 of this Agreement.

     SECTION 4.20 REPRESENTATIONS AND WARRANTIES: TRUE, ACCURATE AND COMPLETE.

          (a) None of the representations,  certificates, reports, warranties or
statements  now or hereafter made or delivered to Lender  pursuant  hereto or in
connection with this Agreement or the transactions  contemplated hereby contains
or will contain any untrue  statement of a material  fact, or omits or will omit
to state a material  fact  necessary in order to make the  statements  contained
herein and therein,  in light of the  circumstances  in which they are made, not
misleading.

          (b) All warranties and representations  made herein or in any the Loan
Documents by Borrower will be true and accurate in all material respects at each
time Borrower requests Lender to make an Advance hereunder.

     SECTION  4.21  LOCATION  OF  OFFICES.   SCHEDULE  4.17  hereto  sets  forth
Borrower's  chief  executive  office,  and  further  sets forth a  complete  and
accurate list of all offices and locations at or out of which Borrower  conducts
any of its business or operations.

     SECTION 4.22 FRANCHISE AGREEMENTS.

          (a) The  Franchise  Agreements  in effect as of the date hereof are as
set forth on SCHEDULE 4.22 annexed  hereto and made a part hereof,  and all such
Franchise  Agreements  are in full force and effect  and  constitute  the legal,
valid and binding  obligation of Borrower and each Franchisee party thereto.  No
material  events  of  default  exist  thereunder  and  there  exist no events or
conditions  which  with the  giving of notice or the lapse of time or both would
result  in a  material  event of  default.  Borrower  shall not  amend,  modify,
supplement or terminate any Franchise  Agreements or any exhibits thereto or any

                                       18
<PAGE>
related  agreement  now or  hereafter  entered  into  between a  Franchisee  and
Borrower, without the prior written consent of Lender.

          (b) Borrower shall advise each Franchisee, in writing, that payment of
all amounts under any  Franchise  Agreement or any  promissory  note executed by
such Franchisee in favor of Borrower has been assigned as collateral to Lender.

          (c) Borrower agrees to provide Lender with written notice within three
(3) Business Days after  Borrower  enters into any  Franchise  Agreement not set
forth on SCHEDULE 4.22 hereto (the "Additional Franchise  Agreements").  In each
instance, Borrower shall deliver to Lender true and accurate copies of each such
Additional  Franchise  Agreement.  Such Additional  Franchise Agreements and all
payments  arising  thereunder  shall  be  subject  to  the  provisions  of  this
Agreement.

          (d)  Borrower  shall  not make any  loans  or  advance,  to or for the
account  of any  Franchisee.  Borrower  has not  made  any  agreement  with  any
Franchisee  for any extension of time for the payment of any amounts  payable to
Borrower  under any Franchise  Agreement,  except as disclosed on SCHEDULE 4.22,
any compromise or settlement for less than the full amount thereof,  any release
of any Franchisee from liability therefor, or any deduction therefrom.  Borrower
will not make any agreement  with any  Franchisee  for any extension of time for
the payment of any amounts  payable to Borrower  under any Franchise  Agreement,
other  than in the  ordinary  course of  business  and in  accordance  with past
practices of Borrower and  practices  not  uncommon to the  industry,  and in no
event where any amount  would be deferred for any period of time longer than six
months. Borrower further acknowledges, confirms and agrees that no payments have
been or shall be made in respect of the foregoing  except  payments  immediately
delivered to the Lender as required hereunder.  In the event that any obligation
due and owing Borrower by any Franchisee is evidenced by an instrument,  note or
chattel paper, Borrower shall deliver such original instrument,  note or chattel
paper to Lender, duly endorsed in favor of Lender.

          (c) Borrower  represents  that the franchise  agreements are valid and
not cancellable as a result of insolvency, Chapter 11 or Chapter 7 bankruptcy in
which the DIP survives  operationally  as a successor  company and  continues to
meet its obligations to the Franchisees.

          (d) Borrower  will perform when due all of its  obligations  under the
Franchise Agreements,  and will promptly notify Lender of any default thereunder
by any party or the existence of any event or condition which with the giving of
notice or the lapse of time or both would result in a default  thereunder by any
party.

     SECTION 4.23 LEASES.

          (a) The real property  leases (the  "Leases") in effect as of the date
hereof are as set forth on SCHEDULE 4.23 annexed  hereto and made a part hereof,
and all such Leases are in full force and effect and constitute the legal, valid
and binding  obligations of the Borrower and each lessor  thereto.  No events of
default  (other  than any default  which by the terms of the Leases  would occur
solely as a result of the filing of the  Reorganization  Case) exist  thereunder
and there exist no events or  conditions  which with the giving of notice or the
lapse of time or both would  result in an event of default.  Borrower  shall not
amend, modify, supplement or terminate any Leases or any exhibits thereto or any

                                       19
<PAGE>
related  agreement now or hereafter  entered into between a lessor and Borrower,
without the prior written consent of Lender.

          (b) Borrower shall advise each lessor, in writing, that the applicable
Lease has been assigned as collateral to Lender.

          (c) Borrower agrees to provide Lender with written notice within three
(3) Business Days before  Borrower  enters into any real property  lease not set
forth on SCHEDULE  4.23  hereto  (the  "Additional  Lease").  In each  instance,
Borrower shall deliver to Lender true and accurate  copies of each such proposed
Additional  Lease  and  Lender's  written  consent  shall be  required  prior to
Borrower  executing such Additional  Lease. If approved,  such Additional  Lease
shall be subject to the  provisions  of this  Agreement and shall be assigned by
Borrower to Lender as additional Collateral. Borrower represents that the Leases
are valid and in full force and effect and there  exists no default by any party
thereunder and no event or condition  which with the lapse of time or the giving
of notice or both would result in a default thereunder by any party thereto.

          (d) Borrower  will perform when due all of its  obligations  under the
Leases,  and will promptly notify Lender of any default  thereunder by any party
or the  existence of any event or  condition  which with the giving of notice or
the lapse of time or both would result in a default thereunder by any party.

     SECTION 4.24 SALES DOCUMENTS.

          (a) The Sales  Documents  are in full force and effect and  constitute
the legal,  valid and binding  obligations  of Borrower and each and every other
party thereto.  No events of default exist  thereunder and there exist no events
or conditions which with the giving of notice or the lapse of time or both would
result in an event of default.  Borrower shall not amend, modify,  supplement or
terminate any Sales Documents or any exhibits  thereto or any related  agreement
now or hereafter entered into in connection  therewith without the prior written
consent of Lender.

          (b) Borrower shall advise each obligor under the Sales  Documents,  in
writing, that the Sales Documents have been assigned as collateral to Lender.

          (c) Borrower  will perform when due all of its  obligations  under the
Sales  Documents,  and will promptly notify Lender of any default  thereunder by
any party or the  existence of any event or  condition  which with the giving of
notice or the lapse of time or both would result in a default  thereunder by any
party.

          (d) Borrower has not made,  and will not make,  any agreement with any
obligor  under any Sales  Document for any  extension of time for the payment of
any amounts  payable to Borrower  under any Sales  Document,  any  compromise or
settlement  for less than the full  amount  thereof,  any release of any obligor
from liability  therefor,  or any deduction  therefrom without the prior written
consent of Lender.  Borrower further  acknowledges,  confirms and agrees that no
payments have been or shall be made in respect of the foregoing  except payments
immediately delivered to the Lender as required hereunder. In the event that any
obligation  due and owing Borrower by any obligor is evidenced by an instrument,
note or chattel paper, Borrower shall deliver such original instrument,  note or
chattel paper to Lender, duly endorsed in favor of Lender

                                       20
<PAGE>
     SECTION 4.25  COLLATERAL.  Borrower  owns all of the  Collateral,  free and
clear of all claims, liens and encumbrances, other than the Permitted Liens.

     Each  representation  and warranty by Borrower contained in this Article 4,
and those contained  elsewhere in this  Agreement,  shall be deemed to have been
made by each entity  comprising  Borrower  and made about such entity as well as
about each and every other entity comprising Borrower.

                                   ARTICLE 5
                        CLOSING AND CONDITIONS OF LENDING

     The obligation of Lender to make each Advance under this Agreement shall be
subject to the  satisfaction or waiver by Lender,  prior thereto or concurrently
therewith, of each of the following conditions precedent:

     SECTION 5.1 LOAN DOCUMENTS. Each of the Loan Documents shall have been duly
and properly authorized,  executed and delivered by the parties hereto and shall
be in full  force and  effect on and as of the date  hereof  and shall have been
duly and properly  authorized,  executed and delivered by Borrower and the other
parties  thereto  and shall be in full  force  and  effect on and as of the date
hereof.

     SECTION 5.2 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties  made by or on behalf of Borrower to Lender in this  Agreement  or in
any other Loan Documents  shall be true and correct in all material  respects on
the date hereof.

     SECTION 5.3 CERTIFIED COPIES OF DOCUMENTS.  Lender shall have received from
Borrower, (a) for Ranch *1, Inc., Ranch *1 Group, Inc., and Ranch *1 Metro, Inc.
(and Borrower shall use its best efforts to provide in connection with the other
entities comprising  Borrower) certified by a duly authorized officer to be true
and complete on and as of a date which is not more than ten (10)  Business  Days
prior to the date hereof,  a copy of each of the certificate of incorporation or
such  other  incorporation  documents  of  Borrower  in  effect  on such date of
certification,  the articles of incorporation  and by-laws of Borrower in effect
on such  date,  and a  certificate  of  good  standing  from  the  state  of its
formation, and (b) each Franchise Agreement,  each Lease and all Sales Documents
(including the original promissory notes).

     SECTION 5.4 PROOF OF ACTION.  Lender shall have  received  from  Borrower a
copy,  certified by a duly authorized  officer to be true and complete on and as
of the date  which is not more  than ten (10)  Business  Days  prior to the date
hereof,  of the records of all action  taken by Borrower to  authorize:  (a) its
execution  and  delivery of each of the Loan  Documents  to which it is or is to
become  a  party  as  contemplated  or  required  by  this  Agreement,  (b)  its
performance  of all  of its  agreements  and  obligations  under  each  of  such
documents,  and  (c)  the  incurring  of the  Obligations  contemplated  by this
Agreement.

                                       21
<PAGE>
     SECTION 5.5 SEARCHES.  Such Uniform  Commercial  Code and other searches as
Lender shall reasonably  require to evidence the Collateral is free and clear of
all claims, liens and encumbrances other than the Permitted Liens.

     SECTION 5.6 COLLATERAL.

          (a) All of the  Obligations  of Borrower to Lender under or in respect
of this Agreement  shall be entitled to all of the benefits of and be secured by
this  Agreement  and the Loan  Documents,  and  Lender  shall  have  obtained  a
first-priority,  perfected  security  interest in the  Collateral  of  Borrower,
subject only to the Permitted Liens.

          (b) The Loan  Documents  and all other  documents in respect  thereto,
which shall create and maintain a first perfected  security interest in favor of
Lender and the appropriate financing statements in respect thereto and necessary
to enable Lender to perfect its security interests  thereunder,  shall have been
duly executed and delivered by Borrower to Lender.

     SECTION 5.7 INSURANCE. Lender shall have received evidence of insurance and
loss payee  endorsements  required hereunder and under the other Loan Documents,
in form and substance  satisfactory  to Lender,  and  certificates  of insurance
policies and/or endorsements naming Lender as loss payee as required hereunder.

     SECTION 5.8 INTENTIONALLY OMITTED.

     SECTION 5.9 ASSIGNMENTS.  All existing Franchise Agreements,  notes, Leases
and royalty  agreements  between Borrower and third parties shall be assigned by
Borrower to Lender as  Collateral  for the  Obligations,  and Lender  shall have
received  from  all  other  parties  thereto  such  acknowledgments,   consents,
agreements  and estoppel  certificates  as Lender  shall in its sole  discretion
require.

     SECTION 5.10  FINANCIAL  PROJECTIONS.  Borrowers  shall provide Lender with
financial projections in form and substance satisfactory to Lender.

     SECTION 5.11 MATTERS RELATING TO THE REORGANIZATION CASE.

          (a) No  trustee,  examiner  or  receiver  or the like  shall have been
appointed   or   designated   with   respect   to   Borrower,   as  debtor   and
debtor-in-possession,  or its business,  properties  and assets and no motion or
proceeding shall be pending seeking such relief;

          (b)  Satisfactory  review  by  counsel  for  Lender  of  legal  issues
attendant to the post-petition financing transactions contemplated hereunder;

          (c)  Borrower   shall  comply  in  full  with  the  notice  and  other
requirements  of the  Bankruptcy  Code  and  the  applicable  Federal  Rules  of
Bankruptcy  Procedure with respect to any relevant  Bankruptcy  Court Order in a
manner  acceptable  to Lender and its  counsel,  and such Order  shall have been
entered by the Bankruptcy Court authorizing the secured financing under the Loan
Documents  on the terms and  conditions  set forth in this Loan  Agreement  and,
INTER ALIA,  modifying the automatic  stay,  authorizing and granting the senior
security  interest in liens in favor of Lender  described in this Loan Agreement

                                       22
<PAGE>
and in the Bankruptcy Court Order, and granting super-priority expense claims to
Lender with respect to all  obligations due Lender.  The Bankruptcy  Court Order
shall authorize  post-petition  financing under the terms set forth in this Loan
Agreement in an amount  acceptable  to Lender,  and it shall  contain such other
terms or provisions as Lender and its counsel shall require;

          (d) With  respect to further  credit after  expiration  of the Interim
Orders, on or before the expiration of the Interim Orders,  the Bankruptcy Court
shall have  entered the Final Order  authorizing  the secured  financing  on the
terms and  conditions set forth in this Loan  Agreement,  granting to Lender the
senior  security   interest  and  liens   described  above  and   super-priority
administrative  expense claims described above, modifying the automatic stay and
other provisions required by Lender and its counsel and Lender shall not provide
any Advances (or other  financial  accommodations)  other than those  authorized
under the Interim Orders unless, on or before the ninetieth (90th) day following
the Petition Date,  the Final Order shall have been entered,  and there shall be
no appeal or other  contest  with  respect to either the  Interim  Orders or the
Final Order and the time to appeal to contest such order shall have expired;

          (e) Other than the  commencement  of the Chapter 11 Case,  no material
impairment  of the priority of Lender's  security  interests  in the  Collateral
shall have occurred from the date of the latest field  examinations of Lender to
the Petition Date; and

          (f) As a condition  precedent to any Advances later than  seventy-five
(75) days after the Closing, Borrower shall have filed an Approved Plan.

     SECTION 5.12  CLOSING.  Closing shall occur on July 5, 2001 and the Closing
Date shall be July 5, 2001 (the "Closing" and "Closing Date").

     SECTION 5.13 LANDLORD CONSENTS. Lender shall receive such landlord consents
and lien waivers as Lender shall require.

     SECTION 5.14 WAIVERS.  Lender may in its sole discretion  waive one or more
conditions precedent for one or more Advances, PROVIDED, HOWEVER, such waiver(s)
shall not be deemed to apply to future Advances,  and as to such future Advances
Lender may as a condition  precedent to such funding insist on strict compliance
with all conditions precedent and other terms and conditions of this Agreement.

                                   ARTICLE 6
                              AFFIRMATIVE COVENANTS

     Until  payment  and  satisfaction  in  full  of  all  Obligations  and  the
termination of this Agreement, Borrower hereby covenants and agrees as follows:

     SECTION 6.1 NOTIFY LENDER. Borrower shall promptly inform Lender if any one
or more of the representations and warranties made by Borrower in this Agreement
or in any document related hereto shall no longer be entirely true, accurate and
complete in any material  respect,  provided,  the foregoing shall not be deemed
consent to any error or falsity in the same.

                                       23
<PAGE>
     SECTION  6.2 PAY TAXES AND  LIABILITIES;  COMPLY WITH  AGREEMENT.  Borrower
shall promptly pay, when due, all indebtedness, sums and liabilities of any kind
now or  hereafter  owing by Borrower  to any party  however  created,  incurred,
evidenced,  acquired,  arising or  payable,  including  without  limitation  the
Obligations,  income taxes, excise taxes, sales and use taxes, license fees, and
all other taxes with respect to any of the Collateral,  or any wages or salaries
paid by Borrower or otherwise,  unless the validity of which are being contested
in good faith by Borrower by  appropriate  proceedings,  provided  that Borrower
shall have  maintained  reasonably  adequate  reserves and accrued the estimated
liability on Borrower's balance sheet for the payment of same.

     SECTION 6.3 OBSERVE COVENANTS.  Borrower shall timely observe,  perform and
comply with the  covenants,  terms and  conditions of this  Agreement,  the Loan
Documents and any other agreement or document  entered into between Borrower and
Lender.

     SECTION 6.4 MAINTAIN EXISTENCE AND QUALIFICATIONS.  Borrower shall maintain
and preserve in full force and effect,  its  existence  and rights,  franchises,
licenses and qualifications  necessary to continue its business, and comply with
all  applicable  statutes,  rules and  regulations  pertaining to the operation,
conduct  and  maintenance  of its  existence  and  business  including,  without
limitation,  all  federal,  state and local  laws  relating  to  benefit  plans,
environmental  safety,  or health  matters,  and  hazardous  or liquid  waste or
chemicals  or  other  liquids  (including  use,  sale,  transport  and  disposal
thereof), if such failure would have a material adverse effect on the Borrower.

     SECTION 6.5 INFORMATION  AND DOCUMENTS TO BE FURNISHED TO LENDER.  Borrower
shall  deliver or cause to be delivered to Lender in form  acceptable to Lender:
(a)  annual  financial  statements  within 60 days of the fiscal  year end;  (b)
interim  financial   statements   consisting  of  compiled  quarterly  financial
statements  to be provided  within 30 days of each end of  quarter,  and monthly
internal  statements  to be  provided  within 20 days of month  end;  (c) weekly
Royalties and note collection reports,  due no later than Wednesday of each week
for the preceding week; (d) notice of judgments, environmental, health or safety
complaints  within 5 days of  receipt;  (e)  within  ten (10)  days  thereafter,
written notice to Lender of the entry of any judgment or the  institution of any
lawsuit or of other  legal or  equitable  proceedings  or the  assertion  of any
crossclaim or counterclaim  seeking  monetary damages from Borrower in an amount
exceeding  $5,000;  (f)  within  ten (10) days  thereafter,  notice or copies if
written of all claims, complaints,  orders, citations or notices, whether formal
or informal,  written or oral,  from a  governmental  body or private  person or
entity,  relating to air emissions,  water discharge,  noise emission,  solid or
liquid waste disposal, hazardous waste or materials, or any other environmental,
health or safety matter, which materially and adversely effect Borrower; and (g)
upon demand,  such other information as Lender may reasonably  request from time
to time, including financial projections and cash flow analysis.

     SECTION 6.6 COMPLY WITH LAWS.  Borrower shall comply with the  requirements
of all  applicable  laws,  rules,  regulations  and  orders of any  governmental
authority,  compliance  with  which  is  necessary  to  maintain  its  corporate
existence  or the  conduct of its  business or  non-compliance  with which would
adversely  affect in any material respect its ability to perform its obligations
or any security given to secure its obligations.

                                       24
<PAGE>
     SECTION 6.7 INSURANCE REQUIRED.

          (a) Borrower shall cause to be maintained, in full force and effect on
all  property of Borrower  insurance  in such  amounts  against such risks as is
reasonably  satisfactory to Lender,  including,  but without  limitation,  fire,
boiler,  theft,  burglary,  pilferage,  vandalism,  malicious mischief,  loss in
transit,  and hazard  insurance  and, if as of the date hereof,  any of the real
property of Borrower is in an area that has been  identified by the Secretary of
Housing and Urban Development as having special flood or mudslide  hazards,  and
on which the sale of flood  insurance has been made available under the National
Flood Insurance Act of 1968, then Borrower shall maintain flood insurance.  Said
policy or policies shall:

               (i) be in a form and with  insurers  which  are  satisfactory  to
Lender;

               (ii) be for such risks and for such  insured  values as Lender or
its assigns may require in order to replace the  property in the event of actual
or constructive total loss;

               (iii) designate Lender and its assignees,  as additional  insured
and loss payees as their interests may from time to time appear;

               (iv)  contain a "breach of warranty  clause"  whereby the insurer
agrees that a breach of the insuring conditions or any negligence by Borrower or
any other  person  shall  not  invalidate  the  insurance  as to Lender  and its
assignee;

               (v) provide that they may not be canceled or  materially  altered
without ten (10) days prior notice to Lender and its assigns; and

               (vi) upon demand, be delivered to Lender;

          (b) Borrower shall obtain,  maintain and provide to Lender evidence of
personal  liability  coverages in minimum  amounts not less than  $5,000,000 for
each occurrence, $5,000,000 for injury or death of any person and $5,000,000 for
property  damage  (provided,  the  foregoing  required  minimum  amounts  may be
satisfied through appropriate  umbrella policies),  containing such endorsements
as are  common  with  like  businesses,  naming  Lender  and  its  assignees  as
additional  insured  and loss  payees as their  interests  may from time to time
appear,  and providing it may not be canceled or materially  altered without ten
(10) days prior notice to Lender and its assigns;

          (c) Borrower shall obtain,  maintain and provide to Lender evidence of
worker's compensation insurance coverage satisfactory to Lender.

          (d)  Borrower  shall  obtain such  additional  insurance as Lender may
reasonably require,  which may include,  without limitation,  insurance covering
vandalism and malicious  mischief,  sprinkler  leakage,  rent  abatement  and/or
business loss.

          (e) Borrower shall, in the event of loss or damage,  forthwith  notify
Lender and file proofs of loss with the appropriate insurer; and

                                       25
<PAGE>
          (f)  Borrower  shall  forthwith  upon  receipt of  insurance  proceeds
endorse and deliver the same to Lender.

     SECTION 6.8 CONDITION OF COLLATERAL;  NO LIENS. Borrower shall maintain all
Collateral  in good  condition  and  repair at all times,  normal  wear and tear
excepted, and preserve it against any loss, damage, or destruction of any nature
whatsoever relating to said Collateral or its use, and keep said Collateral free
and clear of any Liens, except the Permitted Liens permitted hereunder.

     SECTION 6.9 PAYMENT OF PROCEEDS. Prior to an Event of Default, all proceeds
of Collateral  received in other than the ordinary  course of business,  such as
proceeds  from the sale of a store,  will be  immediately  paid to  Lender to be
applied to the amounts  owing Lender under this  Agreement,  whether or not then
due and payable.  Subsequent to an Event of Default,  Borrower  shall  forthwith
upon receipt of all proceeds of Collateral,  pay such proceeds over to Lender to
be applied to the amounts owing Lender under this Agreement, whether or not then
due and payable.

     SECTION  6.10  RECORDS.  Borrower  shall at all  times  keep  accurate  and
complete  records of its  operations and of the  Collateral,  and shall make the
same  available for  inspection,  review and copying from time to time as Lender
shall reasonably request.

     SECTION 6.11 DELIVERY OF DOCUMENTS. If any Collateral shall include, or any
of the Collateral shall be evidenced by, notes, trade acceptances or instruments
or  documents,  or if any  inventory is covered by documents of title or chattel
paper, whether or not negotiable, then Borrower waives protest regardless of the
form of the  endorsement.  If  Borrower  fails  to  endorse  any  instrument  or
document, Lender is authorized to endorse it on Borrower's behalf.

     SECTION  6.12 UNITED  STATES  CONTRACTS.  If any  Collateral  arises out of
contracts  with  the  United  States  or  any of its  departments,  agencies  or
instrumentalities,  Borrower  will notify  Lender,  and, if requested by Lender,
execute any necessary  instruments in order that all monies due or to become due
under such contract  shall be assigned as collateral to Lender and proper notice
of the assignment given under the Federal Assignment of Claims Act.

     SECTION 6.13 NAME CHANGES; LOCATION CHANGES.

          (a) Borrower shall  promptly  notify Lender if Borrower is known by or
conducting  business  under  any  names  other  than  those  set  forth  in this
Agreement; and

          (b)  Borrower  shall  deliver  not less than  thirty  (30) days  prior
written  notice to Lender if Borrower  intends to conduct any of its business or
operations at or out of offices or locations  other than those set forth in this
Agreement,  or if it changes the location of its chief  executive  office or the
address at which it  maintains  its books and records or the  location of any of
the Collateral.

     SECTION 6.14 FURTHER ASSURANCES. Borrower shall at any time or from time to
time upon  request of Lender take such steps and execute and deliver  such other
and further documents and instruments as Lender may reasonably request from time
to time to  evidence or carry out the intent of the parties as set forth in this
Agreement  and to preserve,  maintain,  clarify or give effect to the rights and
remedies  intended by this  Agreement to be given to Lender,  including  without
limitation,  the execution of such financing  statements and other documents all

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in the form of  substance  satisfactory  to  Lender  relating  to the  creation,
validity or perfection of the security interests provided for herein,  under the
UCC or other  laws of the  State of New York or of  another  state or  states in
which the Collateral is located or which are reasonably  necessary to effectuate
the purposes and provisions of this Agreement.

     SECTION 6.15  INDEMNIFICATION.  Borrower  shall and hereby does  indemnify,
protect,  defend and save  harmless  Lender,  as well as  Lender's  members  and
managers,  parents,  subsidiaries,  directors,  officers,  trustees,  employees,
agents,   and  shareholders   (hereinafter   referred  to  collectively  as  the
"Indemnified  Parties"  and  individually  as an  "Indemnified  Party") from and
against (a) any and all losses, damages,  expenses or liabilities of any kind or
nature  and from any  suits,  claims  or  demands,  by third  parties  including
reasonable  counsel fees  incurred in  investigating  or  defending  such claim,
suffered by any of them and caused by,  relating to,  arising out of,  resulting
from, or in any way connected  with the Loan and the  transactions  contemplated
herein, (b) any and all losses, damages,  expenses or liabilities of any kind or
nature  and from any  suits,  claims  or  demands,  by third  parties  including
reasonable  counsel fees  incurred in  investigating  or  defending  such claim,
suffered by any of them and caused by,  relating to,  arising out of,  resulting
from, or in any way connected with the breach of any  representation or warranty
or obligation of Borrower contained herein, and (c) any and all losses, damages,
expenses or liabilities sustained by Lender in connection with any environmental
liabilities  and costs,  provided,  however,  Borrower shall not be obligated to
indemnify,  protect, defend and save harmless an Indemnified Party, if the loss,
damage,  expense or liability was caused by or resulted  solely from the willful
misconduct of that  Indemnified  Party as  determined by a final  non-appealable
order of a court or Governmental  Authority of competent  jurisdiction.  In case
any action shall be brought  against an Indemnified  Party based upon any of the
above and in respect to which  indemnity  may be sought  against  Borrower,  the
Indemnified  Party against whom such action was brought,  shall promptly  notify
Borrower in writing,  and Borrower shall assume the defense  thereof,  including
the employment of counsel  selected by Borrower and reasonably  satisfactory  to
the  Indemnified  Party,  the payment of all costs and expenses and the right to
negotiate and consent to settlement.  Upon reasonable  determination made by the
Indemnified Party, the Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof;  provided,
however that the Indemnified  Party shall pay the costs and expenses incurred in
connection with the employment of separate counsel. Borrower shall not be liable
for any  settlement  of any such  action  effected  without its  consent,  which
consent  shall not be  unreasonably  withheld,  but if settled  with  Borrower's
consent,  or if there be a final  judgment  for the claimant in any such action,
Borrower  agrees to indemnify and save harmless said  Indemnified  Party against
whom such action was brought from and against any loss or liability by reason of
such settlement or judgment,  except as otherwise provided above. The provisions
of this Section shall survive the  termination  of this  Agreement and the final
repayment of the Obligations. All costs and expenses which are indemnified under
this Section shall be reimbursed to the Indemnified Parties as incurred.

     SECTION 6.16  NOTIFICATION  OF EVENTS OF DEFAULT AND ADVERSE  DEVELOPMENTS.
Borrower  promptly will notify Lender upon the  occurrence  of: (i) any Event of
Default;  (ii) any event which,  with the giving of notice or lapse of time,  or
both, could constitute an Event of Default;  (iii) any judicial,  administrative
or  arbitration  proceeding  pending  against  Borrower,  and  any  judicial  or
administrative  proceeding known by Borrower to be threatened  against it which,
if  adversely  decided,  could  adversely  affect its  condition  (financial  or

                                       27
<PAGE>
otherwise)  or  operations  (present  or  prospective);  (iv) any  post-petition
default  claimed by any other creditor for Borrowed Money of Borrower other than
Lender;  and (v) any other  development  in the  business or affairs of Borrower
which may be materially  adverse; in each case describing the nature thereof and
(in the case of  notification  under  clauses (i) and (ii)) the action  Borrower
propose to take with respect thereto.

     SECTION 6.17  APPROVED  PLAN.  Borrower will file an Approved Plan no later
than  seventy-five  (75) days  after  Closing,  and  thereafter  will not amend,
withdraw  or modify the  Approved  Plan  without  the prior  written  consent of
Lender.

                                   ARTICLE 7
                               NEGATIVE COVENANTS

     Without  limiting  its other  Obligations  under this  Agreement,  Borrower
covenants  and agrees that so long as Borrower  may borrow  hereunder  and until
payment in full of the Note and performance of all other Obligations of Borrower
under the Loan Documents:

     SECTION 7.1 LIENS AND  ENCUMBRANCES.  Unless otherwise agreed to in writing
by  Lender,  Borrower  will not  create,  incur,  assume  or suffer to exist any
mortgage,  pledge,  lien or other  encumbrance of any kind (including the charge
upon  property  purchased  under a  conditional  sale or other  title  retention
agreement) upon, or any security interest in, any of the Collateral, whether now
owned or hereafter acquired, except for Permitted Liens.

     SECTION 7.2 MERGER, ACQUISITION, OR SALE OF ASSETS. Borrower will not enter
into any merger or consolidation with or acquire all or substantially all of the
assets of any Person,  and,  without the prior written  consent of Lender (which
consent may be withheld in Lender's sole  discretion),  will not sell, lease, or
otherwise  dispose of any of its  assets  except in the  ordinary  course of its
business, unless the same is ordered by the Bankruptcy Court, in which event all
proceeds  resulting  from the same will be paid to  Lender  and  applied  to all
amounts owing under this Agreement, whether or not then due and payable.

     SECTION 7.3 LOANS. Borrower will not make loans or advances to any Person.

     SECTION 7.4 CONTINGENT  LIABILITIES.  Borrower will not assume,  guarantee,
endorse,  contingently  agree to purchase or  otherwise  become  liable upon the
obligation of any Person,  except by the  endorsement of negotiable  instruments
for deposit or  collection  or similar  transactions  in the ordinary  course of
business and in connection with borrowings permitted by this Agreement.

     SECTION 7.5  SUBSIDIARIES.  Without  prior  written  consent  from  Lender,
Borrower will not form any subsidiary,  or make any investment in or any loan in
the nature of an investment to, any other Person.

     SECTION 7.6 TRANSACTIONS WITH AFFILIATES.  Borrower will not enter into any
transaction,  including  without  limitation the purchase,  sale, or exchange of
property,  or the  loaning or giving of funds to any  Affiliate  or  subsidiary,
except in the  ordinary  course  of  business  and  pursuant  to the  reasonable
requirements of Borrower's  businesses and upon terms substantially the same and
no less favorable to Borrower as they would obtain in a comparable  arm's length

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<PAGE>
transaction  with any Person not an Affiliate or subsidiary,  and so long as the
transaction is not otherwise prohibited hereunder.

     SECTION 7.7 USE OF LENDER'S  NAME.  Borrower will not use Lender's name (or
the name of any of Lender's  affiliates) in connection  with any of its business
operations unless consented to by Lender. Borrower may disclose to third parties
that  Borrower  have  a  borrowing  relationship  with  Lender.  Nothing  herein
contained  is intended to permit or  authorize  Borrower to make any contract on
behalf of Lender.

     SECTION 7.8  CONTRACTS  AND  AGREEMENTS.  Borrower  will not become or be a
party to any material  contract or agreement  which would breach this Agreement,
or  breaches  any other  material  instrument,  agreement,  or document to which
Borrower are a party or by which  Borrower  are or may be bound unless  Borrower
believes in good faith that Borrower has a valid legal basis for such breach.

     SECTION 7.9 TRUTH OF STATEMENTS AND CERTIFICATES. Borrower will not furnish
to Lender any  certificate or other document that contains any untrue  statement
of a material fact or that omits to state a material  fact  necessary to make it
not misleading in light of the circumstances under which it was furnished.

     SECTION  7.10  PROHIBITION  ON  AMENDMENTS  TO  ORGANIZATIONAL   DOCUMENTS.
Borrower  will  not  amend,  modify,  restate,   supplement,  or  terminate  its
respective  certificate  of  incorporation  or bylaws  (or other  organizational
documents)  in  any  manner  that  would  materially  affect  the  validity  and
enforceability  of  the  Obligations  or  such  Borrower's   ability  to  borrow
hereunder, or that would materially impair any security for the Obligations.

     SECTION 7.11 OTHER OBLIGATIONS. Borrower will not without the prior written
consent of Lender, enter into any new obligations with any Person, other than in
the ordinary course of business.

                                   ARTICLE 8
                                EVENTS OF DEFAULT

     The occurrence of any of the following shall constitute an event of default
(hereinafter referred to as an "Event of Default"):

     SECTION 8.1 FAILURE TO PAY.  The failure by Borrower to pay,  when due, any
payment of principal, interest or other charges due and owing to Lender pursuant
to any obligations of Borrower to Lender including,  without  limitation,  those
Obligations  arising  pursuant to this Agreement or any Loan Document,  or under
any other agreement for the payment of monies then due and payable to Lender, if
the same continues for a period of five (5) days after notice to Borrower.

     SECTION 8.2 FAILURE OF INSURANCE. Failure on the part of Borrower to pay or
cause to be paid all premiums when due, or within any  applicable  grace period,
on the insurance policies pursuant to this Agreement; failure to take such other
action as may be  reasonably  requested by Lender in order to keep said policies
of insurance in full force and effect until the entire indebtedness  represented
by the Loan Documents, and interest thereon, has been paid in full.

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<PAGE>
     SECTION  8.3  FAILURE TO  PERFORM.  Except as  otherwise  provided  herein,
Borrower's failure to perform or observe any covenant, term or condition of this
Agreement  or any other Loan  Document to be  performed or observed by Borrower,
PROVIDED,  HOWEVER,  if the same can  reasonably  be cured  within five (5) days
without  material  harm to  Lender,  and if the same  failure  has not  occurred
previously, Borrower shall have five (5) days following receipt of notice within
which to cure the same and if cured no Event of Default shall exist.

     SECTION 8.4 CROSS DEFAULT.

          (a) The occurrence of any Event of Default on any of the  Obligations,
an  Event of  Default  under  any  Loan  Document  so that  the  holder  of such
obligation or  indebtedness  has  accelerated or has a right to accelerate  such
obligation or indebtedness, if the same is not cured within any applicable grace
or cure period contained in such document.

          (b) INTENTIONALLY OMITTED.

          (c) The failure of Borrower to perform as required any  obligation  of
Borrower under any court order by which Borrower is bound.

     SECTION 8.5 FALSE REPRESENTATION OR WARRANTY.  Borrower shall have made any
statement,  representation  or warranty in this Agreement or in any of the other
Loan  Documents to which it is a party or in a certificate  executed by Borrower
incident to this Agreement, which is at any time found to have been false in any
material respect at the time such representation or warranty was made.

     SECTION  8.6  MATTERS  RELATING  TO  BORROWER'S  REORGANIZATION  CASE.  The
occurrence of any of the following in the  Reorganization  Case shall constitute
an Event of Default hereunder, during the continuance of which Event of Default,
Lender  shall  not be  required  to make any  Advances  or to  extend  any other
financial accommodations to or for the benefit of the Borrower:

          (a) The failure of Borrower to comply with any order of the Bankruptcy
Court which order provides a remedy to Lender in the event of Borrower's failure
to comply; or

          (b) The  termination  or non-renewal of the Loan Documents as provided
for in the Interim Orders or the Final Order; or

          (c) Borrower  suspends or  discontinues or is enjoined by any court or
governmental  agency from  continuing to conduct all or any material part of its
business or if a trustee, receiver or custodian is appointed for Borrower or any
of its properties; or

          (d) Any  act,  condition  or  event  occurring  after  the date of the
commencement of the Reorganization  Case that has a material adverse effect upon
the assets of Borrower  when taken as a whole or the  Collateral or the value of
the rights and  remedies of Lender  under this Loan  Agreement or any other Loan
Documents; or

          (e) Conversion of Borrower's  Reorganization  Case to a Chapter 7 case
under the Bankruptcy Code; or

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<PAGE>
          (f)  Dismissal of  Borrower's  Reorganization  Case or any  subsequent
Chapter 7 case either voluntarily or involuntarily; or

          (g) The  grant  of a lien on or  other  interest  in any  property  of
Borrower  (other than a lien or encumbrance  permitted by this Loan Agreement or
by  the  Interim  Orders  or  Final  Order)  or the  grant  or  allowance  of an
administrative  expense  claim (other than such  administrative  expense  claims
permitted by the Interim  Orders or Final Order or this Loan  Agreement)  by the
Bankruptcy  Court,  in each case,  which is  superior to or ranks in parity with
Lender's   security   interests  in  or  liens  upon  the   Collateral   or  the
super-priority administrative claim of Lender against Borrower; or

          (h) INTENTIONALLY OMITTED.

          (i) The Interim  Orders or Final Order  shall be  modified,  reversed,
revoked,  remanded,  stayed,  rescinded,  vacated or amended on appeal or by the
Bankruptcy  Court  without  the prior  written  consent  of Lender  (and no such
consent  shall be  implied  from any  other  authorization  or  acquiescence  by
Lender); or

          (j) The  appointment of a trustee  pursuant to Sections  1104(a)(1) or
1104(a)(2) of the Bankruptcy Code in the Reorganization Case; or

          (k) The  appointment  of an examiner with special  powers  pursuant to
Section 1104(a) of the Bankruptcy Code in the Reorganization Case; or

          (l) The  filing  of a plan of  reorganization  by  Borrower  or on its
behalf  which does not  provide for  payment in full of the  Obligations  on the
effective date thereof or which does not constitute an Approved Plan; or

          (m) Prior to the  indefeasible  payment  and  satisfaction  in full of
Obligations  due Lender any party other than the Lender shall  foreclose upon or
otherwise  seek to enforce any junior lien or other  rights such other party may
have in and to any of a Borrower's property upon which Lender holds or asserts a
lien or security interest.

          (n) Any loss of any priority by Lender in the Collateral.

     SECTION 8.7 INTENTIONALLY OMITTED.

     SECTION 8.8 CHANGE IN CONDITION.  There occurs any event or a change in the
condition  or  affairs,  financial  or  otherwise,  of  Borrower  which,  in the
reasonable  opinion of Lender,  impairs Lender's security or ability of Borrower
to discharge its obligations  hereunder or which impairs the rights of Lender in
such Collateral,  PROVIDED,  HOWEVER, if the same can reasonably be cured within
five (5) days without material harm to Lender,  Borrower shall have the right to
cure the same  within  five (5) days after  notice  from Lender and if cured the
same shall not  constitute an Event of Default.  Without in any way limiting the
foregoing,  a "Change in  Condition"  shall be deemed to have  occurred upon the
occurrence of any of the following: a reduction during any consecutive six month
period  following  the date of this  Agreement by more than ten (10%) percent of
the amount of Royalties  received by Borrower  during the six month period prior
to the date of this Agreement,  or termination of greater than ten (10%) percent
of the Franchise Agreements.

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<PAGE>
     SECTION 8.9  ENVIRONMENTAL  CLAIMS.  At any time Lender determines that any
environmental  liabilities  and  costs or  environmental  lien with  respect  to
Borrower will have a material or adverse  effect on the  financial  condition of
Borrower or on the Collateral.

     SECTION 8.10 FAILURE TO NOTIFY.  If at any time  Borrower  fails to provide
Lender with notice or copies, if written, of all complaints,  orders,  citations
or notices with respect to environmental,  health or safety  complaints,  within
ten  (10)  days  after  receipt  of any  such  notices,  complaints,  orders  or
citations.

     SECTION  8.11  CHANGE IN  MANAGEMENT.  Any  change  in the chief  executive
officer, the chief financial officer or controlling ownership of Borrower.

     SECTION  8.12  NON-PAYMENT  OF DEBTS.  Any  default  after the date of this
Agreement by Borrower  under any agreement,  document or instrument  relating to
any  indebtedness  for borrowed money owing to any person other than Lender,  or
any capitalized lease  obligations,  contingent  indebtedness in connection with
any  guarantee,  letter of credit,  indemnity or similar type of  instrument  in
favor of any  person  other than  Lender,  in any case in an amount in excess of
$10,000,  which default  continues for more than the applicable cure period,  if
any,  with  respect  thereto,  or any  default by  Borrower  under any  material
contract,  lease,  license or other  obligation to any Person other than Lender,
which default materially and adversely affects its business or the Collateral or
other property which is security for the Obligations and which default continues
for more than the applicable cure period, if any, with respect thereto.

     SECTION 8.13 DISSOLUTION;  MAINTENANCE OF EXISTENCE. Borrower is dissolved,
or the usual  business  of  Borrower  ceases  or is  suspended  in any  material
respect.

     SECTION 8.14  INDICTMENT.  The  indictment  of Borrower  under any criminal
statute,  or commencement  of criminal or civil  proceedings  against  Borrower,
pursuant to which statute or  proceedings  the  penalties or remedies  sought or
available  include  forfeiture  of  any  material  portion  of the  property  of
Borrower.

     SECTION 8.15  ACCELERATION.  Upon the  occurrence  of any of the  foregoing
Events of Default,  the Note will become and be immediately due and payable upon
declaration to that effect delivered by Lender to Borrower.

     SECTION 8.16 REMEDIES.

     Upon  the  occurrence  of an  Event  of  Default  and so  long  as  same is
continuing:

          (a)  Lender  shall  have all  rights  and  remedies  provided  in this
Agreement, any of the other Loan Documents, the UCC or other applicable law, all
of which rights and remedies may be exercised  without  notice to Borrower,  all
such notices being hereby  waived,  except such notice as is expressly  provided
for hereunder or is not waivable under  applicable  law. All rights and remedies
of Lender are  cumulative  and not  exclusive and are  enforceable,  in Lender's
discretion,  alternatively,  successively,  or  concurrently  on any one or more
occasions and in any order Lender may determine. Without limiting the foregoing,
Lender may (a) accelerate the payment of all  Obligations  and demand  immediate
payment thereof to Lender,  (b) with or without  judicial  process or the aid or

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<PAGE>
assistance  of  others,  enter  upon  any  premises  on or in  which  any of the
Collateral  may be located and take  possession  of the  Collateral  or complete
processing,  manufacturing  and repair of all or any portion of the  Collateral,
(c) require Borrower,  at Borrower's  expense, to assemble and make available to
Lender any part or all of the  Collateral  at any place and time  designated  by
Lender, (d) collect, foreclose,  receive,  appropriate,  setoff and realize upon
any and all Collateral,  (e) extend the time of payment of, compromise or settle
for cash, credit, return of merchandise,  and upon any terms or conditions,  any
and all Accounts or other  Collateral  which includes a monetary  obligation and
discharge or release the account debtor or other obligor,  without affecting any
of the Obligations,  (f) sell,  lease,  transfer,  assign,  deliver or otherwise
dispose of any and all Collateral (including, without limitation,  entering into
contracts  with respect  thereto,  by public or private  sales at any  exchange,
broker's  board,  any office of Lender or  elsewhere) at such prices or terms as
Lender may deem reasonable,  for cash, upon credit or for future delivery,  with
Lender  having the right to purchase the whole or any part of the  Collateral at
any such public sale,  all of the foregoing  being free from any right or equity
of  redemption  of  Borrower,  which  right or  equity of  redemption  is hereby
expressly  waived and released by Borrower.  If any of the  Collateral  or other
security  for the  Obligations  is sold or leased by Lender upon credit terms or
for future  delivery,  the Obligations  shall not be reduced as a result thereof
until payment therefor is finally  collected by Lender. If notice of disposition
of  Collateral  is  required  by law,  ten (10) days  prior  notice by Lender to
Borrower  designating  the time and place of any  public  sale or the time after
which any private sale or other  intended  disposition  of  Collateral  is to be
made,  shall be deemed to be reasonable  notice thereof and Borrower  waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks  recovery of any  Collateral  by way of  prejudgment  remedy,  Borrower
waives the posting of any bond which might otherwise be required.

          (b) Lender may apply the cash proceeds of Collateral or other security
for  the  Obligations   actually  received  by  Lender  from  any  sale,  lease,
foreclosure  or other  disposition  of the  Collateral  to payment of any of the
Obligations, in whole or in part (including reasonable attorneys' fees and legal
expenses  incurred by Lender with  respect  thereto or otherwise  chargeable  to
Borrower)  and in such  order as  Lender  may  elect,  whether  or not then due.
Borrower  shall  remain  liable  to  Lender  for the  payment  on  demand of any
deficiency  together  with  interest at the highest rate provided for herein and
all costs and  expenses  of  collection  or  enforcement,  including  reasonable
attorneys' fees and legal expenses.

          (c)  If  Borrower  shall  default  in  the  performance  of any of the
provisions of this  Agreement or any other Loan Document to which it is a party,
Lender may (but without any  obligation  to do so) perform  same for  Borrower's
account and any monies expended in doing so shall be chargeable with interest to
Borrower, repayable by Borrower on demand and added to the Obligations.

          (d) Lender may, at its option,  cure any default by Borrower under any
agreement  with a third  party or pay or bond on  appeal  any  judgment  entered
against  Borrower,   discharge  taxes,   liens,   security  interests  or  other
encumbrances  at any time levied on or existing  with respect to the  Collateral
and pay any amount, incur any expense or perform any act which, in Lender's sole
judgment, is necessary or appropriate to preserve, protect, insure, maintain, or
realize upon the Collateral.  Lender may charge  Borrower's loan account for any
amounts so expended,  such amounts to be repayable by Borrower on demand. Lender
shall be under no obligation to effect such cure, payment, bonding or discharge,

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<PAGE>
and  shall  not,  by doing  so, be deemed  to have  assumed  any  obligation  or
liability of Borrower.

     SECTION 8.17 SET-OFF.  Upon the occurrence and during the continuance of an
Event of  Default,  Lender  shall  have  the  right to  set-off  against  any of
Borrower's  liabilities to Lender any money or other liability owed by Lender or
any  Affiliate of Lender (and such  Affiliate of Lender is hereby  authorized to
effect such set-off) in any capacity to Borrower, whether or not due, and Lender
or such Affiliate shall be deemed to have exercised such right of set-off and to
have made a charge against any such money or other  liability  immediately  upon
the  occurrence of such Event of Default even though the actual book entries may
be made at a time subsequent  thereto.  The right of set-off  granted  hereunder
shall be effective  irrespective  of whether Lender shall have made demand under
or in connection with the Loan.  Lender is hereby granted a security interest in
all money and property of Borrower  being held by it or any Affiliate of Lender,
which security interest shall be a first priority perfected security interest in
favor of Lender as a result of Lender's  or  Affiliates  of Lender's  possession
thereof.  None of the  rights  of  Lender  described  in this  SECTION  8.17 are
intended  to diminish or limit in any way  Lender's  or  Affiliates  of Lender's
common-law set-off rights.

     SECTION 8.18 CUMULATIVE  REMEDIES;  WAIVERS.  No remedy referred to in this
Agreement  or the other Loan  Documents  is intended to be  exclusive,  but each
shall be  cumulative  and in addition to any other  remedy  referred to above or
otherwise  available to Lender at law or in equity. No express or implied waiver
by Lender of any default or Event of Default hereunder shall be effective unless
in a writing  signed by an  officer of Lender and shall not in any way be, or be
construed  to be, a waiver  of any  future  or  subsequent  default  or Event of
Default,  whether similar in kind or otherwise.  The failure, delay or waiver of
Lender in  exercising  any rights  granted it  hereunder or under the other Loan
Documents upon the occurrence of any of the contingencies set forth herein shall
not constitute a waiver of any such right upon the continuation or recurrence of
any such  contingency or similar  contingency and any single or partial exercise
of any  particular  right by Lender  shall not exhaust the same or  constitute a
waiver of any other right  provided  herein.  The Events of Default and remedies
set forth herein are not  restrictive of and shall be in addition to any and all
other  rights  and  remedies  of  Lender  provided  for by  this  Agreement  and
applicable law.

     SECTION 8.19 COSTS AND  EXPENSES.  Borrower  shall be liable for all costs,
charges and expenses,  including  reasonable  attorney's fees and disbursements,
incurred  by Lender by reason of the  occurrence  of any Event of Default or the
exercise of  Lender's  remedies  with  respect  thereto,  each of which shall be
repayable by Borrower on demand with interest, and added to the Obligations.

     SECTION 8.20 NO MARSHALLING. Lender shall be under no obligation whatsoever
to proceed  first  against  any of the  Collateral  or other  property  which is
security  for  the  Obligations  before  proceeding  against  any  other  of the
Collateral.  It is expressly understood and agreed that all of the Collateral or
other  property which is security for the  Obligations  stands as equal security
for all Obligations, and that Lender shall have the right to proceed against any
or all of the Collateral or other property which is security for the Obligations
in any order, or simultaneously, as in its sole and absolute discretion it shall
determine. It is further understood and agreed that Lender shall have the right,
as it in its sole and absolute discretion shall determine, to sell any or all of
the Collateral or other  property  which is security for the  Obligations in any
order or  simultaneously,  as Lender  shall  determine  in its sole and absolute
discretion.

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     SECTION 8.21 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No delay on the part of
Lender in exercising any right,  remedy,  power or privilege  hereunder or under
any of the Loan  Documents  or  provided  by  statute  or at law or in equity or
otherwise  shall  impair,  prejudice  or  constitute a waiver of any such right,
remedy,  power or  privilege or be construed as a waiver of any Event of Default
or as an acquiescence therein. No right, remedy, power or privilege conferred on
or reserved to Lender  hereunder or under any of the Loan Documents or otherwise
is intended to be exclusive of any other right, remedy, power or privilege. Each
and every right,  remedy,  power or privilege conferred on or reserved to Lender
under this Agreement or under any of the other Loan Documents or otherwise shall
be cumulative  and in addition to each and every other right,  remedy,  power or
privilege  so  conferred on or reserved to Lender and may be exercised by Lender
at such time or times and in such order and manner as Lender  shall (in its sole
and complete discretion) deem expedient.

     SECTION 8.22  COLLECTIONS.  Borrower is  authorized to collect any monetary
obligations  included  in, or proceeds  of, the  Collateral  on behalf of and in
trust for Lender, at Borrower's  expense,  but such authority shall, at Lender's
option,  automatically terminate upon the occurrence and continuance of an Event
of  Default.  Lender may upon the  occurrence  of an Event of Default  modify or
terminate  such  authority  at  any  time  and  directly  collect  the  monetary
obligations  included in the Collateral.  Borrower shall, at Borrower's  expense
and in the manner requested by Lender from time to time, direct that remittances
and all other  proceeds of  Collateral  shall be (a) remitted in kind to Lender,
(b) sent to a post office box designated by and/or in the name of Lender,  or in
the name of  Borrower,  but as to which  access is limited to Lender  and/or (c)
deposited into a bank account  maintained in the name of Lender and/or a blocked
bank account under  arrangements  with the depository bank under which all funds
deposited to such blocked bank account are required to be transferred  solely to
Lender.

     SECTION 8.23 REPAYMENT OF OBLIGATIONS.  All Obligations shall be payable at
Lender's  office set forth  below or at a bank or such other place as Lender may
expressly  designate  from time to time for purposes of this  Section.  Upon the
occurrence of an Event of Default, Lender shall apply all proceeds of Collateral
received by Lender and all other  payments in respect of the  Obligations to the
Loans whether or not then due or to any other  Obligations then due, in whatever
order or manner Lender shall determine.  For purposes of determining remittances
and other  payments  with  respect to the  Collateral  and  Obligations  will be
treated as credited to the loan  account of  Borrower  maintained  by Lender and
Collateral balances to which they relate, upon the date that such remittances or
other payments have been credited to Lender's account at Lender's bank or in the
case of remittances or other payments received directly in kind by Lender,  upon
the date of Lender's deposit thereof at Lender's bank,  subject to final payment
and  collection.  In computing  interest  charges,  the Loan Account of Borrower
maintained by Lender will be credited with remittances and other payments on the
Business Day that such  remittances  have been deposited in Lender's  account at
Lender's Bank.

     SECTION  8.24  NOTIFICATION  OF ACCOUNT  DEBTORS AND BAILEES OF  INVENTORY.
Immediately  following  an Event of  Default,  Lender  may at any time,  without
notice to or assent of Borrower,  notify any party,  including  any  Franchisee,
that the Collateral  which  includes a monetary  obligation has been assigned to
Lender by Borrower  and that  payment  thereof is to be made to the order of and
directly  to Lender,  and Lender may demand,  collect or enforce  payment of the
Collateral,  but without  any duty to do so, and Lender  shall not be liable for
any failure to collect or enforce payment thereof. At any time, Lender may send,
or cause to be sent by its  designee,  requests for  verification  of Collateral
directly to any obligor or any bailee with respect thereto.

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<PAGE>
     SECTION 8.25 LENDER APPOINTED ATTORNEY-IN-FACT. Borrower hereby irrevocably
constitutes and appoints Lender,  with full power of  substitution,  as its true
and lawful  attorney-in-fact,  with full irrevocable  power and authority in its
place  and  stead and in its name or  otherwise,  from time to time in  Lender's
discretion,  at Borrower's  sole cost and expense,  take any and all appropriate
action and to execute and deliver any and all  documents and  instruments  which
Lender may deem reasonably  necessary or advisable to accomplish the purposes of
this Agreement, including, without limiting the generality of the foregoing, (a)
upon the occurance of an Event of Default, to receive,  take,  endorse,  assign,
deliver,  accept and  deposit,  in the name of Lender or  Borrower,  any and all
cash, checks,  commercial paper,  drafts,  remittances and other instruments and
documents relating to the Collateral or the proceeds thereof;  (b) to execute in
the name of Borrower  and file  against  Borrower in favor of Lender,  Financing
Statements or amendments with respect to the Collateral,  or record a copy or an
excerpt hereof in the United States Copyright Office or the United States Patent
and  Trademark  Office and (c) to take all other steps as are  necessary  in the
reasonable  opinion  of Lender  under  applicable  law to perfect  the  security
interests granted herein. In addition to the foregoing,  Lender may (d) transmit
to account  debtors,  other  obligors or any bailees  notice of the  interest of
Lender in the Collateral or request from account  debtors or such other obligors
or bailees at any time,  in the name of  Borrower  or Lender or any  designee of
Lender, information concerning the Collateral and any amounts owing with respect
thereto,  (e) upon the occurance of an Event of Default,  notify account debtors
or other  obligors to make payment  directly to Lender,  or notify bailees as to
the  disposition of  Collateral,  (f) upon the occurance of an Event of Default,
take or bring, in the name of Lender or Borrower,  all steps, actions,  suits or
proceedings  deemed by Lender necessary or desirable to effect  collection of or
other realization upon the accounts and other Collateral, (g) upon the occurance
of an Event of Default,  change the address for delivery of mail to Borrower and
to receive and open mail  addressed  to Borrower,  (h) upon the  occurance of an
Event of Default,  extend the time of payment of, compromise or settle for cash,
credit,  return of  merchandise,  and upon any terms or conditions,  any and all
accounts or other Collateral which includes a monetary  obligation and discharge
or release the account  debtor or other  obligor,  without  affecting any of the
Obligations,  (i) upon the  occurance of an Event of Default,  obtain and adjust
insurance  required pursuant to this Agreement and to pay all or any part of the
premiums therefor and the costs thereof,  and (j) upon the occurance of an Event
of  Default,  pay  or  discharge  taxes,  liens,  security  interests  or  other
encumbrances levied or placed on or threatened against the Collateral.

     SECTION 8.26 RELEASE OF LENDER.  Borrower  hereby  releases and  exculpates
Lender,  its officers,  directors,  employees,  agents and  designees,  from any
liability arising from any acts under this Agreement or in furtherance  thereof,
whether as attorney-in-fact or otherwise, whether of omission or commission, and
whether  based upon any error of judgment or mistake of law or fact,  except for
gross   negligence   or  willful   misconduct  as  determined  by  a  final  and
non-appealable  order from a court of competent  jurisdiction.  In no event will
Lender have any  liability  to  Borrower  for lost  profits or other  special or
consequential damages.

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<PAGE>
     SECTION 8.27 UNIFORM  COMMERCIAL CODE. At all times prior and subsequent to
an Event of Default hereinafter,  Lender shall be entitled to all the rights and
remedies of a secured party under the UCC with respect to all Collateral.

     SECTION 8.28 PRESERVATION OF COLLATERAL.  At all times prior and subsequent
to an Event of Default  hereinafter,  and after  reasonable  notice to Borrower,
Lender may take any and all action which in its sole and absolute  discretion is
necessary  and proper to  preserve  its  interest in the  Collateral,  including
without  limitation  the payment of debts of Borrower  which might,  in Lender's
sole and  absolute  discretion,  impair  the  Collateral  or  Lender's  security
interest  therein,  purchasing  insurance  on  the  Collateral,   repairing  the
Collateral,  or paying taxes or assessments thereon, and the sums so expended by
Lender shall be secured by the  Collateral,  shall be added to the amount of the
Obligations  due Lender and shall be payable on demand with interest at the rate
set forth in SECTION  1.10 hereof from the date  expended by Lender until repaid
by Borrower.

     SECTION 8.29 LENDER'S  RIGHT TO CURE. In the event  Borrower  shall fail to
perform any of its Obligations hereunder or under any of the Loan Documents, and
after the occurrence and continuance of an Event of Default, Lender, in addition
to all of its rights and remedies hereunder, may perform the same, but shall not
be obligated  to do so, at the cost and expense of Borrower.  In any such event,
Borrower shall promptly  reimburse Lender together with interest at the rate set
forth in Section 3.1 hereof from the date such sums are expended until repaid by
Borrower.

     SECTION 8.30  INSPECTION  OF  COLLATERAL.  From time to time as  reasonably
requested by Lender,  at the sole  expense of  Borrower,  Lender or its designee
shall have access, prior to an Event of Default during normal business hours and
on or after an  Event of  Default  at any  time,  to all of the  premises  where
Collateral  is located for the purposes of  inspecting,  disposing and realizing
upon the Collateral,  and all Borrower's  books and records,  and Borrower shall
permit  Lender or its  designee to make such copies of such books and records or
extracts  therefrom as Lender may request.  Without expense to Lender,  upon the
occurance of an Event of Default,  Lender may use such of Borrower's  personnel,
equipment,  including computer equipment,  programs, printed output and computer
readable  media,  supplies  and  premises  for the  collection  of Accounts  and
realization  on  other  Collateral  as  Lender,  in its sole  discretion,  deems
appropriate.  Borrower hereby  irrevocably  authorizes all accountants and third
parties to disclose and deliver to Lender at  Borrower's  expense all  financial
information,  books and  records,  work  papers,  management  reports  and other
information in their possession regarding Borrower.

                                   ARTICLE 9
                          SPECIAL BANKRUPTCY PROVISIONS

     SECTION 9.1  POST-PETITION  SECURITY.  From and after the Filing Date,  the
liens granted to and held by Lender with respect to the  Collateral  will be and
are  post-petition  liens,  entitled  to  first  priority  as set  forth  in the
Bankruptcy  Court Order,  subject only to the Permitted Liens and the Carve-Out.
Lender will be entitled to the protections and priorities provided under Section
507(b)  of the  Bankruptcy  Code  if its  interests  in the  Collateral  are not
adequately protected from and after the commencement of the Bankruptcy Case. The
post-petition  liens granted under  Section 364 of the  Bankruptcy  Code and the
protections  and  priorities  provided to Lender under  Bankruptcy  Code Section

                                       37
<PAGE>
507(b) are subject to the payment of allowed professional fees and disbursements
incurred by Borrower, including, without limitation,  attorneys' fees and costs,
and by any  statutory  committee,  trustee,  examiner  or  other  representative
appointed  in  the  Bankruptcy  Case  in  an  aggregate  amount  not  to  exceed
$150,000.00 prior to the filing of the Approved Plan and an additional  $150,000
subsequent to the filing of the Approved Plan, provided, an additional aggregate
amount  not to  exceed  $20,000  may be paid  for a  Creditor's  Committee  (the
"Carve-Out").  Lender  hereby  consents  to  entry  of an  order  providing  for
professional fees to be paid on a monthly basis.

     SECTION 9.2 LIENS PERFECTED WITHOUT FILING OR RECORDING.  Upon entry of the
Bankruptcy Court Order,  the  post-petition  liens and  encumbrances  granted to
Lender  on the  Collateral  by  virtue of the  Bankruptcy  Court  Order and this
Agreement will be first and prior,  and valid and perfected as against all third
parties  (except for Permitted  Liens),  without  regard to applicable  federal,
state or local  filing or recording  statutes,  NUNC PRO TUNC as of the Approval
Date, and without further action of any party, including Lender;  PROVIDED, that
Lender may, but need not, take such steps as it deems  desirable and  applicable
to comply  with such  statutes,  and all  financing  statements  which are filed
listing Borrower as debtor and Lender as secured party, all mortgages or similar
instruments which are filed granting to Lender liens upon and security interests
in  Collateral  will be deemed to have been filed and the security  interest and
liens  evidenced  thereby  will be  deemed  perfected  NUNC  PRO  TUNC as of the
Approval Date.

     SECTION 9.3 EXTENSION OF POST-PETITION CREDIT AND OTHER REMEDIES OF LENDER.
The agreement of Lender to provide  post-petition  financing to Borrower will be
subject to the following exceptions:

          (a) The agreement to provide post-petition financing will not prohibit
Lender from  moving in the  Bankruptcy  Court for any other and  further  relief
which:  (i) Lender  believes  in good  faith to be  reasonably  and  immediately
necessary  to protect  its rights  with  respect to the  Collateral  (including,
without  limitation,  a  request  for the  Debtor  to  abandon  any  part of the
Collateral);  and as to which (ii) Lender also believes  reasonably  and in good
faith that the Bankruptcy Court Order is not sufficient to protect the rights of
Lender with respect to the  Collateral  under the  circumstances  existing  when
Lender requests such other and further relief; and

          (b) From and after the termination of this Agreement, Lender will have
no obligation to provide financing to or on behalf of Borrower or its bankruptcy
estate;  and there will be no  restriction  of any kind  against the exercise by
Lender of its rights and remedies  under the Loan  Documents,  including but not
limited to, the right of Lender to exercise all of its remedies  with respect to
the  Collateral so long as such  exercise is  consistent  with the terms of this
Agreement.

     SECTION 9.4 PLAN OF REORGANIZATION.  Borrower will not file or propose, and
will object to (and will not  thereafter  withdraw or modify such objection to),
any Plan of  Reorganization  (including,  but not limited to, any  amendment  or
modification of a Plan of Reorganization,  whether before or after confirmation)
(i) which does not  incorporate  all of the terms of the Bankruptcy  Court Order
and this  Agreement that pertain to the treatment of the secured claim of Lender
and the  preservation of Lender's rights in the Collateral,  (ii) which does not
provide for  payment  and  performance  in full of all of the  Obligations  upon
confirmation of the Plan of Reorganization, (iii) that would allow any Person to
improve its lien priority VIS A VIS Lender with respect to the Collateral,  (iv)

                                       38
<PAGE>
which does not provide  for Lender (if Lender so elects) to purchase  the assets
of Borrower upon terms and conditions reasonably  satisfactory to Lender, or (v)
which does not  otherwise  meet all of the  requirements  of an  Approved  Plan.
Nothing in this  Agreement  will be  construed  as a consent  by  Lender,  or an
approval by Lender of, the terms of any Plan of  Reorganization or any amendment
or modification thereto.

                                   ARTICLE 10
                                  MISCELLANEOUS

     SECTION 10.1 ENTIRE  AGREEMENT;  AMENDMENTS.  This  Agreement and the other
Loan Documents  constitute the full and entire understanding and agreement among
the parties with regard to their subject  matter and supersede all prior written
or oral  agreements,  understandings,  representations  and warranties made with
respect thereto. No amendment,  supplement or modification of this Agreement nor
any waiver of any provision  thereof will be made except in writing  executed by
the party against whom enforcement is sought.

     SECTION 10.2 NO WAIVER; CUMULATIVE RIGHTS. No waiver by any party hereto of
any one or more  defaults  by the other party in the  performance  of any of the
provisions  of this  Agreement  will  operate or be construed as a waiver of any
future default or defaults, whether of a like or different nature. No failure or
delay on the  part of any  party  in  exercising  any  right,  power  or  remedy
hereunder  will  operate  as a waiver  thereof,  nor will any  single or partial
exercise  of any such  right,  power or remedy  preclude or require any other or
further  exercise  thereof or the exercise of any other right,  power or remedy.
The remedies  provided for herein are  cumulative  and are not  exclusive of any
remedies  that may be  available  to any  party  hereto  at law,  in  equity  or
otherwise.

     SECTION  10.3  NOTICES.  Any  notice  or other  communication  required  or
permitted  hereunder  will be in writing  and  personally  delivered,  mailed by
registered or certified  mail (return  receipt  requested and postage  prepaid),
sent by telecopier  (with a confirming  copy sent by regular  mail),  or sent by
prepaid  overnight  courier service,  and addressed to the relevant party at its
address set forth below,  or at such other address as such party may, by written
notice, designate as its address for purposes of notice hereunder:

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<PAGE>
          (a)  If to Lender, at:

               R1 Franchise Systems L.L.C.
               Attn: Michael J. Reagan, Esq.
               7730 E. Greenway Road, Suite 104
               Scottsdale, Arizona  85260

               With Copy to:

               KAYE SCHOLER LLP
               Attn: Albert Fenster, Esq. and
               Benjamin Mintz, Esq.
               425 Park Avenue
               New York, New York  10022

          (b)  If to Borrower, at:

               Ranch * 1, Inc.
               Attn: Raymond DioGuardi
               567 7th Avenue, 3rd Floor
               New York, New York  10018

               with a copy to:

               Buchanan Ingersoll
               Attn: Louis DeLucia, Esq.
               650 College Road East
               Princeton, New Jersey  08540

     If mailed,  notice  will be deemed to be given  five (5) days  after  being
sent, if sent by personal  delivery or  telecopier,  notice will be deemed to be
given when delivered,  and if sent by prepaid courier,  notice will be deemed to
be given on the next Business Day following deposit with the courier.

     SECTION  10.4  SEVERABILITY.  If any term,  covenant or  condition  of this
Agreement,  or the application of such term,  covenant or condition to any party
or circumstance will be found by a court of competent jurisdiction to be, to any
extent,  invalid or  unenforceable,  the  remainder  of this  Agreement  and the
application  of such term,  covenant,  or condition to parties or  circumstances
other than those as to which it is held  invalid or  unenforceable,  will not be
affected  thereby,  and each  term,  covenant  or  condition  will be valid  and
enforced to the fullest  extent  permitted by law, or, at Lender's  sole option,
this Agreement shall be deemed terminated. Upon determination that any such term
is invalid, illegal or unenforceable,  and if Lender does not chose to treat the
Agreement as  terminated,  the parties hereto will amend this Agreement so as to
effect  the  original  intent  of the  parties  as  closely  as  possible  in an
acceptable manner.

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<PAGE>
     SECTION 10.5  SUCCESSORS  AND ASSIGNS.  This  Agreement,  the Note, and the
other Loan  Documents  will be binding upon and inure to the benefit of Borrower
and Lender and their  respective  successors  and assigns.  Notwithstanding  the
foregoing,  Borrower  may not assign any of its  rights or  delegate  any of its
Obligations  hereunder without the prior written consent of Lender, which may be
withheld  in  its  sole  discretion.  Lender  may  sell,  assign,  transfer,  or
participate any or all of its rights or obligations  hereunder without notice to
or consent of Borrower.

     SECTION 10.6 COUNTERPARTS.  This Agreement may be executed in any number of
counterparts,  each of  which  will be  deemed  an  original,  but all of  which
together will constitute but one instrument. Signatures transmitted by facsimile
shall bind the parties signing.

     SECTION 10.7  INTERPRETATION.  No provision of this  Agreement or any other
Loan Document will be  interpreted  or construed  against any party because that
party or its legal  representative  drafted  that  provision.  The titles of the
paragraphs of this  Agreement are for  convenience of reference only and are not
to be  considered  in  construing  this  Agreement.  Any  pronoun  used  in this
Agreement will be deemed to include singular and plural and masculine,  feminine
and  neuter  gender  as the case  may be.  The  words  "herein,"  "hereof,"  and
"hereunder"  will be deemed  to refer to this  entire  Agreement,  except as the
context otherwise requires.

     SECTION 10.8 SURVIVAL OF TERMS. All covenants, agreements,  representations
and  warranties  made in this  Agreement,  any other Loan  Document,  and in any
certificates  and other  instruments  delivered in connection  therewith will be
considered  to have been  relied  upon by Lender and will  survive the making by
Lender of the Loan herein  contemplated and the execution and delivery to Lender
of the Notes,  and will continue in full force and effect until all  liabilities
and Obligations of Borrower to Lender are satisfied in full.

     SECTION  10.9  RELEASE OF LENDER.  Borrower  release  Lender,  its parents,
subsidiaries,  officers,  employees, and agents, of and from any claims for loss
or damage resulting from acts or conduct of any or all of them, unless caused by
Lender's gross negligence or willful misconduct.

     SECTION 10.10 TIME.  Whenever  Borrower are required to make any payment or
perform any act on a Saturday,  Sunday, or a legal holiday under the laws of the
State of Arizona (or other  jurisdiction where Borrower are required to make the
payment or perform the act), the payment may be made or the act performed on the
next Business Day. Time is of the essence in Borrower's  performance  under this
Agreement and all other Loan Documents.

     SECTION 10.11 COMMISSIONS.  The transaction  contemplated by this Agreement
was brought about by Lender and Borrower  acting as  principals  and without any
brokers,  agents,  or finders  being the  effective  procuring  cause.  Borrower
represent  that they have not  committed  Lender to the payment of any brokerage
fee,  commission,  or charge in connection  with this  transaction.  If any such
claim is made on  Lender  by any  broker,  finder,  or  agent  or other  person,
Borrower will indemnify,  defend,  and hold Lender harmless from and against the
claim and will defend any action to recover on that claim,  at  Borrower's  cost
and expense, including Lender's counsel fees. Borrower further agrees that until
any such claim or demand is adjudicated in Lender's  favor,  the amount demanded
will be deemed a liability  of  Borrower  under this  Agreement,  secured by the
Collateral.

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<PAGE>
     SECTION 10.12 THIRD PARTIES. No rights are intended to be created hereunder
or under any other  Loan  Document  for the  benefit of any third  party  donee,
creditor,  or  incidental  beneficiary  of Borrower.  Nothing  contained in this
Agreement  will be  construed as a delegation  to Lender of  Borrower's  duty of
performance, including without limitation Borrower's duties under any account or
contract in which Lender has a security interest.

     SECTION 10.13  DISCHARGE OF  BORROWER'S  OBLIGATIONS.  Lender,  in its sole
discretion,  will  have the right at any  time,  and from time to time,  without
prior  notice to Borrower if Borrower  fails to do so, to: (i) obtain  insurance
covering  any  of the  Collateral  as  required  hereunder;  (ii)  pay  for  the
performance of any of Borrower's obligations  hereunder;  (iii) discharge taxes,
liens, security interests, or other encumbrances at any time levied or placed on
any of the Collateral in violation of this Agreement unless Borrower are in good
faith with due diligence by appropriate  proceedings contesting those items; and
(iv) pay for the maintenance and preservation of any of the Collateral. Expenses
and advances will be added to the Loan,  until  reimbursed to Lender and will be
secured by the Collateral.  Any such payments and advances by Lender will not be
construed as a waiver by Lender of an Event of Default.

     SECTION  10.14  INFORMATION  TO  PARTICIPANTS.  Lender  may  divulge to any
participant it may obtain in the Loan, or any portion thereof,  all information,
and  furnish  to such  participant  copies  of  reports,  financial  statements,
certificates,  and documents  obtained  under any provision of this Agreement or
any other Loan Document.

     SECTION  10.15 CHOICE OF LAW. THE VALIDITY OF THIS  AGREEMENT AND ALL OTHER
DOCUMENTS EXECUTED AND DELIVERED HEREWITH, THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO
WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE UNITED STATES OF AMERICA  (INCLUDING  THE BANKRUPTCY  CODE),  IT
BEING THE INTENT OF THE PARTIES  THAT  FEDERAL  LAW SHALL  GOVERN THE RIGHTS AND
DUTIES OF THE PARTIES HERETO WITHOUT REGARD TO THE  APPLICATION OF ANY PROVISION
OF STATE LAW. TO THE EXTENT THAT FEDERAL LAW WOULD APPLY THE LAW OF ANY STATE AS
THE FEDERAL RULE FOR THE PURPOSES OF THIS AGREEMENT,  THE PARTIES AGREE THAT THE
LAWS OF THE STATE OF ARIZONA SHALL BE USED TO SUPPLEMENT APPLICABLE FEDERAL LAW.

     THE PARTIES  AGREE THAT ALL ACTIONS OR  PROCEEDINGS  ARISING IN  CONNECTION
WITH THIS AGREEMENT  SHALL BE TRIED AND LITIGATED ONLY IN THE BANKRUPTCY  COURT.
BORROWER AND LENDER WAIVE,  TO THE EXTENT  PERMITTED  UNDER  APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON  CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
10.15.

     BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THIS  AGREEMENT
OR ANY OF THE TRANSACTIONS  CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT

                                       42
<PAGE>
CLAIMS,  BREACH OF DUTY CLAIMS,  AND ALL OTHER  COMMON LAW OR STATUTORY  CLAIMS.
BORROWER  AND  LENDER  REPRESENT  THAT EACH HAS  REVIEWED  THIS  WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY  WAIVES ITS JURY TRIAL RIGHTS  FOLLOWING  CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,  A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

     SECTION 10.16 CONSENT TO  JURISDICTION  AND SERVICE OF PROCESS.  Each party
hereto  hereby  irrevocably  submits  to  the  exclusive   jurisdiction  of  the
Bankruptcy Court and each party agrees that any action, suit or proceeding shall
be brought only in the  Bankruptcy  Court which shall be the  exclusive and only
proper forum for adjudicating any action, suit or proceeding.

     SECTION 10.17 INTENTIONALLY OMITTED.

     SECTION  10.18 LOCK BOX. If requested by Lender at any time,  Borrower will
consent  to  setting  up a lock box into  which  all  money  thereafter  paid to
Borrower (from Account Debtors, Franchisees, obligors under the Sales Documents,
or otherwise),  will be deposited; and, in such event, Borrower will immediately
instruct all applicable  obligors to thereafter send their payments  directly to
the lock box.

     SECTION 10.19 WAIVER.

          (a)  Borrower  waives  presentment,  demand,  protest  and  notices of
protest,  nonpayment,  partial  payment and all other  notices  and  formalities
except as  expressly  called for in this  Agreement.  Borrower  consents  to and
waives  notice of: (i) the  granting of  indulgences  or  extensions  of time of
payment,  (ii) the taking or releasing  of  security,  and (iii) the addition or
release of persons who may be or become primarily or secondarily  liable for the
Loan or any other indebtedness  arising in connection with the Loan, or any part
thereof, and all in such manner and at such time as Lender may deem advisable.

          (b) No delay or omission by Lender in exercising  any right,  power or
remedy hereunder, and no indulgence given to Borrower, with respect to any term,
condition or provision set forth herein, shall impair any right, power or remedy
of Lender  under this  Agreement,  or be  construed as a waiver by Lender of, or
acquiescence  in, any Event of Default.  Likewise,  no such  delay,  omission or
indulgence  by Lender  shall be construed as a variation or waiver of any of the
terms,  conditions or provisions of this Agreement.  Any actual waiver by Lender
of any Event of Default  shall not be a waiver of any other prior or  subsequent
Event of  Default  or of the same  Event of  Default  after  notice to  Borrower
demanding strict performance.

                                       43
<PAGE>
     SECTION  10.20 JOINT AND SEVERAL  LIABILITY.  The  liability of each entity
signing this  Agreement and all other Loan  Documents as Borrower shall be joint
and several, and each entity shall be fully liable to Lender for the performance
of all obligations of Borrower hereunder and under the other Loan Documents.

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

                                   LENDER:

                                   R1 FRANCHISE SYSTEMS L.L.C.,
                                   an Arizona limited liability company


                                   By: /s/ David Guarino
                                       -----------------------------------------
                                   Name: David Guarino
                                   Title: VP-CFO of its Sole Member


                                   BORROWER:

                                   RANCH* 1, INC., a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1, GROUP, INC., a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 METRO, INC., a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                       44
<PAGE>
                                   RANCH* 1 PEARL, INC., a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 OF AMERICA, INC.,
                                   a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 DOWNTOWN, INC.,
                                   a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 EIGHTH AVENUE, INC.,
                                   a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 OF BROADWAY, INC.,
                                   a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 ON 34TH STREET, INC.,
                                   a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 FASHION, INC.,
                                   a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                       45
<PAGE>
                                   RANCH* 1 METRO TECH, INC.,
                                   a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 52ND, INC., a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 PALISADES, INC.,
                                   a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 NUMBER 0135, INC.,
                                   a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 NUMBER 0202, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 NUMBER 0117, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 NUMBER 0125, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                       46
<PAGE>
                                   RANCH* 1 NUMBER 0112, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 NUMBER 0113, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 NUMBER 0128, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 NUMBER 0150, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 NUMBER 1701, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 NUMBER 0207, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 NUMBER 0118, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                       47
<PAGE>
                                   RANCH* 1 NUMBER 0137, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   RANCH* 1 NUMBER 1904, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   OME, INC., a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   DOME ENTERPRISES, INC.,
                                   a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   MORGRHO, INC., a New York corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO


                                   FRANCHISE CONCEPTS GROUP, INC.,
                                   a Delaware corporation


                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                       48
<PAGE>
                                    EXHIBIT A
                                      NOTE
<PAGE>
                                    EXHIBIT B
                            DIP LOAN FUNDING SCHEDULE
<PAGE>
                                  SCHEDULE 4.22
          LIST OF FRANCHISE AGREEMENTS AND AREA DEVELOPMENT AGREEMENTS
<PAGE>
                                  SCHEDULE 4.23
                                 LIST OF LEASES
<PAGE>
                                  SCHEDULE 4.17
                       LOCATIONS OF OPERATIONS OF BORROWER
<PAGE>
                                  SCHEDULE 1.39
                                 PERMITTED LIENS
<PAGE>
                                  SCHEDULE 1.2
            LIST OF BORROWER AND BANKRUPTCY FILINGS AND CASE NUMBERS
<PAGE>
                                SCHEDULE 3.1 (G)
           PROMISSORY NOTES, SECURITY AGREEMENTS AND RELATED DOCUMENTS
                          EXECUTED IN FAVOR OF BORROWER
<PAGE>
                                  SCHEDULE 4.14
           TAXES NOT PAID AND TAX RETURNS NOT FILED (TOGETHER WITH AN
                           ESTIMATE OF THE AMOUNT DUE)