EXHIBIT 10.24

                           LOAN AND SECURITY AGREEMENT


         THIS LOAN AND SECURITY  AGREEMENT  ("Agreement"),  dated as of the 29th
day of  October,  1999,  is made and  entered  into on the terms and  conditions
hereinafter set forth, by and among NOR'EASTER MICRO, INC., a Nevada corporation
with  principal  offices at 193  Walton  Road,  Seabrook,  New  Hampshire  03874
("Borrower"),  EUROPEAN MICRO HOLDINGS,  INC., a Nevada  corporation  ("European
Micro"),  AMERICAN MICRO COMPUTER CENTER, INC., a Florida corporation ("American
Micro"; European Micro and American Micro are sometimes hereinafter collectively
referred to as  "Guarantors"),  and SOUTHTRUST  BANK,  NATIONAL  ASSOCIATION,  a
national banking association with offices in Nashville, Tennessee ("Lender").

         WHEREAS,  Borrower has requested that Lender make available to Borrower
a line of credit in the original principal amount not exceeding  $1,500,000 (the
"Loan")  on the  terms  and  conditions  hereinafter  set  forth,  and  for  the
purpose(s) hereinafter set forth; and

         WHEREAS,  in  order to  induce  Lender  to make  the Loan to  Borrower,
Borrower and Guarantors have made certain representations to Lender; and

         WHEREAS,  Lender, in reliance upon the  representations and inducements
of  Borrower  and  Guarantors,  has  agreed  to make the Loan upon the terms and
conditions hereinafter set forth;

         NOW,  THEREFORE,  in  consideration  of the  foregoing  and the  mutual
covenants and agreements  hereinafter set forth, and for other good and valuable
consideration,  the receipt and  sufficiency  of which are hereby  acknowledged,
Borrower, Guarantors and Lender hereby agree as follows:


                                     ARTICLE

                                   DEFINITIONS

         As used in this Agreement, the following terms shall have the indicated
meanings:

         "Base  Rate"  shall  mean per annum the rate of  interest  periodically
designated by Lender as its Base Rate. Base Rate does not necessarily  represent
the lowest rate  charged by Lender.  Any rate of interest  calculated  using the
Base Rate as a reference shall change to reflect any change in the Base Rate, as
and when the Base Rate changes.

         "Borrowing Base" shall mean an aggregate amount equal to the sum of (a)
eighty-five percent (85%) of Eligible Receivables,  plus (b) fifty percent (50%)
of Eligible Inventory.


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         "Compliance  Certificate"  shall have the meaning assigned to such term
in subsection 5.4(a) of this Agreement.

         "Eligible  Receivables" shall mean Receivables  arising out of the sale
or other  disposition  of  Borrower's  Inventory or the rendering of services to
Borrower's  customers,  excluding (a) all Receivables that have been outstanding
for more than  ninety (90) days after the dates of the  corresponding  invoices,
(b) all  Receivables  owing  from any  account  debtor  if more  than 50% of the
Receivables  owed to Borrower by such account debtor have been  outstanding  for
more than ninety (90) days after the dates of the  corresponding  invoices,  (c)
the amount by which  Receivables  from any  account  debtor (or its  affiliates)
exceed  twenty-five  percent  (25%) of  Borrower's  total  Receivables,  (d) all
returns,  allowances,  discounts, credits and contra items, (e) all amounts owed
from  employees,  officers,  shareholders,   directors  or  affiliates  and  all
intra-company  items,  (f) any  Receivables  evidenced by instruments or chattel
paper that have not been endorsed and  delivered to Lender by Borrower,  and (g)
all other items which Lender in its sole discretion determines to be ineligible.

         "Eligible  Inventory"  shall mean Borrower's  Inventory,  valued at the
lesser of cost or market,  with such  adjustments  thereto as Lender in its sole
discretion determines to be appropriate.

         "Event of  Default"  shall have the  meaning  assigned  to such term in
Section 7.1 of this Agreement.

         "Guaranties"   shall  mean,   collectively,   one  or  more  Continuing
Guaranties of even date herewith, executed in favor of Lender by Guarantors.

         "Inventory" shall have the meaning assigned to such term in the Uniform
Commercial Code.

         "Line of Credit Borrowing Limit" shall mean $1,500,000.

         "Line of Credit  Interest  Rate" shall mean an annual rate equal to the
lesser of (a) the  maximum  contract  rate of interest  permitted  to be charged
under applicable law or (b) the Base Rate plus one-half percentage point (1/2%),
computed on the basis of a 360-day year, actual number of days elapsed, adjusted
daily as the Base Rate changes.

         "Line of Credit Termination Date" shall mean October __, 2000.

         "Loan Documents" shall mean,  collectively,  the Security  Instruments,
together with the Note and any other  instruments and documents now or hereafter
evidencing,  securing or in any way related to the  indebtednesses  evidenced by
the Note.

         "Note" shall mean that certain Master Secured  Promissory  Note of even
date  herewith,  in the  principal  amount  not  exceeding  the  Line of  Credit
Borrowing Limit, made and executed by Borrower,  payable to the order of Lender,

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evidencing the  indebtedness  of Borrower to Lender in connection with the Loan,
together  with any and all  extensions,  modifications,  renewals,  restatements
and/or replacements thereof.

         "Pledge  Agreements"  shall  mean  those  two (2)  certain  Pledge  and
Security  Agreements of even date  herewith,  executed by John B.  Gallagher and
Harry D. Shields, in favor of Lender.

         "Receivables" shall mean accounts, general intangibles, instruments and
chattel paper, as such terms are defined in the Uniform Commercial Code.

         "Secured  Obligations"  shall have the  meaning  assigned  such term in
Section 3.2 of this Agreement.

         "Security Instruments" shall mean,  collectively,  this Agreement,  the
Guaranties, and any other instruments,  documents or agreements now or hereafter
securing the Secured Obligations, whether by specific or general reference.

         "Uniform  Commercial  Code"  means the  Uniform  Commercial  Code as in
effect in the State of Tennessee from time to time.


                                     ARTICLE

                                    THE LOAN

         ADVANCES.  Prior to the Line of Credit  Termination Date and so long as
no Event of Default  (or event that with the giving of notice or the  passage of
time or both  would  constitute  an Event of  Default)  has  occurred  and is in
existence  hereunder,  Lender shall advance  proceeds under the Loan to Borrower
upon Borrower's  request in an aggregate amount  outstanding at any one time not
to exceed the lesser of (a) the  Borrowing  Base in effect from time to time, or
(b) the Line of Credit  Borrowing  Limit,  although  Lender  may in its sole and
absolute  discretion  permit  advances  to exceed such  amount.  Any such excess
advances  shall be secured by, and subject to the terms and  conditions of, this
Agreement.  In the  absence  of an Event of  Default,  Borrower  may  repay  and
reborrow  amounts under the Loan in accordance  with the terms,  conditions  and
provisions of this Agreement.

         REPAYMENT.  The  indebtedness  of Borrower to Lender in connection with
the Loan shall be evidenced by, and payable in accordance with the terms of, the
Note.  Amounts  outstanding  under the Loan shall bear  interest  at the Line of
Credit  Interest  Rate. In addition,  Borrower  covenants and agrees to maintain
Eligible Receivables and Eligible Inventory in an aggregate amount sufficient to
keep the aggregate outstanding principal balance of the advances made in respect
of the Loan within the limits specified in Section 2.1 of this Agreement.  If at
any time such limits are exceeded,  Borrower shall  immediately pay to Lender an
amount sufficient to reduce the aggregate  outstanding  principal balance of the
Loan to an amount that is within such limits.


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<PAGE>

         LETTERS OF CREDIT.  If and to the extent that Lender has issued or from
time to time hereafter shall issue letters of credit for the account of Borrower
pursuant to applications  submitted to Lender by Borrower,  it is understood and
agreed that:

               () the credit availability under the Loan shall be reduced by the
         aggregate  undrawn amount from time to time available under outstanding
         letters of credit,

               () any amounts  paid by Lender  under any such  letters of credit
         shall be deemed to be advances  against the Note, and the  indebtedness
         of Borrower to Lender in connection  therewith shall  constitute a part
         of the  Secured  Obligations  and shall be secured as  hereinafter  set
         forth in the same manner as all other  advances made by Lender  against
         the Note.

Borrower  acknowledges and agrees that Lender has made no commitment to Borrower
with respect to the issuance of any such letters of credit.

         COMMITMENT FEE. Upon execution of this Agreement, Borrower shall pay
to Lender a non-refundable commitment fee in the amount of $3,750.00.

         PURPOSE. The purpose of the Loan shall be to provide working capital to
Borrower on a revolving basis.

                                     ARTICLE

                                    SECURITY

         SECURITY.  The Secured Obligations are and shall continue to be secured
by the following:

         ()  Personal  Property.  Borrower  hereby  grants to Lender a  security
      interest in the  following  described  property and interests in property,
      together  with  all  proceeds  (including  but not  limited  to  insurance
      proceeds) and products thereof and all accessions thereto, as applicable:

               ()  Equipment.  All  equipment  of  Borrower  of  every  kind and
         description,  whether  now owned or  hereafter  acquired  and  wherever
         located,  together with all parts,  accessories and attachments and all
         replacements thereof and additions thereto;

               () Inventory, Accounts, Chattel Paper, Instruments, Documents and
         General  Intangibles.  All of  Borrower's  inventory,  whether held for
         lease,  sale  or  for  furnishing  under  contracts  of  service,   all


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         agreements  for  lease  of  same  and  rentals  therefrom,  and  all of
         Borrower's accounts,  accounts receivable,  chattel paper, instruments,
         documents and general  intangibles  (including but not limited to trade
         marks,  copyrights  and patents),  whether now in existence or owned or
         hereafter  acquired,  entered  into,  created or arising,  and wherever
         located; and

               () Books and Records. All of Borrower's right, title and interest
         to all of the books, records, files and all other data and documents of
         Borrower  of all  kinds  in  whatever  form,  whether  computerized  or
         otherwise and including  but not limited to computer  disks,  tapes and
         printouts, relating to the above-described collateral.

               ()  Other  Security  Instruments.   The  Guaranties,  the  Pledge
         Agreements and the other Security Instruments.

         SECURED OBLIGATIONS. Without limiting any of the provisions thereof,
the Security Instruments shall secure:

               () The full and timely payment of the indebtednesses evidenced by
         the  Note,   together  with  interest  thereon,   and  any  extensions,
         modifications  and/or  renewals  thereof and any notes given in payment
         thereof,

               () The full and prompt  performance of all of the  obligations of
         Borrower to Lender under the Loan Documents,

               () The full and  prompt  payment  of all  expenses  and  costs of
         whatever  kind  incident  to  the  collection  of  the   indebtednesses
         evidenced by the Note, the perfection, enforcement or protection of the
         security  interests  of the  Security  Instruments  or the  exercise by
         Lender  of any  rights  or  remedies  of  Lender  with  respect  to the
         indebtednesses  evidenced  by the Note,  including  but not  limited to
         reasonable  attorney's  fees and  expenses  incurred by Lender,  all of
         which Borrower agrees to pay to Lender upon demand,

               ()  The  full  and  prompt  payment  of  the  indebtednesses  and
         obligations  of Guarantors to Lender  evidenced  and/or  secured by (i)
         that certain Loan Agreement of even date herewith, by and among Lender,
         Borrower and  Guarantors,  entered into in connection with that certain
         term  loan from  Lender to  European  Micro in the  original  principal
         amount of $1,500,000, and (ii) that certain Loan and Security Agreement
         of even date herewith,  by and among Lender,  Borrower and  Guarantors,
         entered into in connection with that certain line of credit from Lender
         to American  Micro,  in the  maximum  principal  amount of  $1,500,000,
         together  with  any  and all  renewals,  amendments  and  modifications
         thereof; and

               () The full and prompt  payment  and  performance  of any and all
         other  indebtednesses  and  other  obligations  of  Borrower  or either
         Guarantor to Lender, direct or contingent (including but not limited to
         obligations  incurred  as  indorser,   guarantor  or  surety),  however

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<PAGE>

         evidenced or denominated,  and however and whenever incurred, including
         but not limited to  indebtednesses  incurred pursuant to any present or
         future commitment of Lender to Borrower or either  Guarantor,  together
         with  interest  thereon,  and  any  extensions,   modifications  and/or
         renewals thereof and any notes given in payment thereof.

All of the foregoing  indebtedness and other obligations are herein collectively
referred to as the "Secured Obligations".


                                     ARTICLE

                         REPRESENTATIONS AND WARRANTIES

         Borrower  and  Guarantors  hereby  represent  and  warrant to Lender as
follows:

         CORPORATE  STATUS.  Borrower and European Micro are  corporations  duly
organized,  validly existing and in good standing under the laws of the State of
Nevada. American Micro is a corporation duly organized,  validly existing and in
good  standing  under  the  laws of the  State  of  Florida.  Borrower  and each
Guarantor has the corporate power to own and operate its properties, to carry on
its business as now conducted  and to enter into and to perform its  obligations
under  this  Agreement  and the  other  Loan  Documents  to which it is a party.
Borrower  and  each  Guarantor  is duly  qualified  to do  business  and in good
standing  in each  state in which a  failure  to be so  qualified  would  have a
material adverse effect on its financial  position or its ability to conduct its
business in the manner now conducted.

         AUTHORIZATION.  Borrower and each Guarantor has full legal right, power
and authority to conduct its business and affairs in the manner  contemplated by
the Loan Documents,  and to enter into and perform its  obligations  thereunder,
without the consent or approval of any other person,  firm,  governmental agency
or other  legal  entity.  The  execution  and  delivery of this  Agreement,  the
borrowing  hereunder,  the execution and delivery of each Loan Document to which
Borrower or either  Guarantor is a party,  and the  performance  by Borrower and
each Guarantor of its obligations  thereunder are within the corporate powers of
Borrower  or  Guarantors  and have  been  duly and  properly  authorized  by all
necessary corporate action, have received all necessary governmental  approvals,
if any were  required,  and do not and will not  contravene or conflict with any
provision of law, any applicable judgment, ordinance, regulation or order of any
court or governmental agency, the charters or by-laws of Borrower or Guarantors,
or any agreement  binding upon  Borrower,  Guarantors or their  properties.  The
officer(s) executing this Agreement and all of the other Loan Documents to which
Borrower  and  Guarantors  are a party are duly  authorized  to act on behalf of
Borrower and Guarantors.

         VALIDITY  AND  BINDING  EFFECT.  This  Agreement  and  the  other  Loan
Documents are the legal,  valid and binding  obligations of the parties thereto,
enforceable in accordance with their respective terms.


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<PAGE>

         OTHER TRANSACTIONS.  Except as specifically set forth in this Agreement
and the  other  Loan  Documents,  there  are no  prior  loans,  liens,  security
interests, agreements or other financings upon which Borrower is obligated or by
which  Borrower is bound that will in any way permit any third person to have or
obtain priority over Lender as to any of the security interests or liens granted
to  Lender  pursuant  to this  Agreement  and the  other  Security  Instruments.
Consummation of the transactions  hereby contemplated and the performance of the
obligations of Borrower and Guarantors under and by virtue of the Loan Documents
will not result in any breach of, or constitute a default  under,  any mortgage,
security deed or agreement, deed of trust, lease, bank loan or credit agreement,
corporate charter or by-laws,  agreement or certificate of limited  partnership,
partnership agreement,  license,  franchise or any other instrument or agreement
to  which  Borrower  or  either  Guarantor  is a  party  or by  which  Borrower,
Guarantors or their properties may be bound or affected.

         PLACES OF BUSINESS. The records with respect to all intangible personal
property  constituting  a part  of  the  collateral  security  for  the  Secured
Obligations  are  maintained  at  Borrower's  chief place of business  and chief
executive  office,  which has the  address of 193  Walton  Road,  Seabrook,  New
Hampshire  03874.  All tangible  personal  property  constituting  a part of the
collateral  security  for the  Secured  Obligations  is or will  be  located  at
Borrower's  chief place of business  and chief  executive  office  and/or at any
specific locations set forth in attached Schedule 4.5.

         LITIGATION.  There are no actions, suits or proceedings pending, or, to
the knowledge of Borrower or either Guarantor,  threatened, against or affecting
Borrower or either Guarantor or involving the validity or  enforceability of any
of the Loan Documents or the priority of the liens thereof, at law or in equity,
or before any governmental or administrative  agency, except actions,  suits and
proceedings  that  are  fully  covered  by  insurance  and  that,  if  adversely
determined,  would not impair the ability of Borrower or  Guarantors  to perform
each and every one of their  respective  obligations  under and by virtue of the
Loan  Documents;  and to the  knowledge  of  Borrower  and  Guarantors,  neither
Borrower nor either  Guarantor  is in default  with respect to any order,  writ,
injunction, decree or demand of any court or any governmental authority.

         FINANCIAL  STATEMENTS.  The  financial  statement(s)  of  Borrower  and
Guarantors  heretofore delivered to Lender are true and correct in all respects,
have been prepared in accordance with generally accepted  accounting  principles
consistently applied, and fairly present the financial condition of the subjects
thereof as of the date(s)  thereof.  No material  adverse change has occurred in
the  financial  condition  of  Borrower  or either  Guarantor  since the date(s)
thereof,  and no  additional  borrowings  have been made by  Borrower  or either
Guarantor since the date(s) thereof.

         NO DEFAULTS.  No default or event of default by Borrower or  Guarantors
exists  under this  Agreement or any of the other Loan  Documents,  or under any
other  instrument or agreement to which Borrower or either  Guarantor is a party

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or by which Borrower,  Guarantors or their  properties may be bound or affected,
and no event has  occurred  and is  existing  that with notice or the passage of
time or both would constitute a default or event of default thereunder.

         COMPLIANCE  WITH  LAW.   Borrower  and  Guarantors  have  obtained  all
necessary  licenses,  permits  and  governmental  approvals  and  authorizations
necessary or proper in order to conduct their business and affairs as heretofore
conducted  and as  intended  to be  conducted  hereafter.  To the  knowledge  of
Borrower and  Guarantors,  Borrower and  Guarantors  are in compliance  with all
laws,  regulations,  decrees and orders  applicable to them  (including  but not
limited to laws,  regulations,  decrees and orders relating to occupational  and
health standards and controls, antitrust, monopoly, restraint of trade or unfair
competition). Neither Borrower nor either Guarantor has received, nor expects to
receive,  any order or notice of any violation or claim of violation of any law,
regulation,  decree,  rule,  judgment or order of any governmental  authority or
agency relating to the ownership and/or operation of its properties, as to which
the  cost  of  compliance  is or  might  be  material  and the  consequences  of
noncompliance would or might be materially adverse to its business,  operations,
property or financial  condition,  or which would or might impair its ability to
perform its obligations under the Loan Documents to which it is a party.

         ENVIRONMENTAL MATTERS.

               () As used in this Section  4.10 and in Section 5.12 hereof,  the
         following terms shall have the indicated meanings:

               "BUSINESS" means all of Borrower's and Guarantors'  assets,  both
         real and personal,  tangible and intangible,  now existing or hereafter
         acquired and wherever  located,  and all of Borrower's and  Guarantors'
         current and future  business  operations  at all  locations  and in all
         jurisdictions.

               "ENVIRONMENTAL  AUTHORITIES"  means all federal,  state and local
         governmental   bodies,   authorities   or   agencies   and  all  public
         corporations  created and/or  empowered to administer,  regulate and/or
         enforce  Environmental  Laws,  including  without  limitation  the U.S.
         Environmental Protection Agency.

               "ENVIRONMENTAL LAWS" means any and all federal,  state, regional,
         county  or local  laws,  statutes,  rules,  regulations  or  ordinances
         relating to the  generation,  recycling,  use,  reuse,  sale,  storage,
         handling,  transport,  treatment  or disposal of  Hazardous  Materials,
         including without limitation the Comprehensive  Environmental  Response
         Compensation  Liability  Act of  1980,  as  amended  by  the  Superfund
         Amendments  and  Reauthorization  Act of 1986, 42 U.S.C.  ss.ss.9601 et
         seq. ("CERCLA"), the Resource Conservation and Recovery Act of 1976, as
         amended by the Solid and Hazardous Waste  Amendments of 1984, 42 U.S.C.
         ss.ss.6901 et seq. ("RCRA"),  the Tennessee  Hazardous Waste Management
         Act,  T.C.A.  ss.ss.68-46-101  et seq., and any rules,  regulations and
         guidance documents promulgated or published thereunder,  and any state,
         regional,  county or local statute,  law, rule, regulation or ordinance
         relating  to  public  health,  safety  or the  discharge,  emission  or
         disposal  of  Hazardous  Materials  or  Hazardous  Wastes in or to air,
         water, land or groundwater, to the withdrawal or use of groundwater, to

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         the use, handling or disposal of asbestos,  polychlorinated  biphenyls,
         petroleum,  petroleum derivatives or by-products, other hydrocarbons or
         urea formaldehyde, to the treatment, storage, disposal or management of
         Hazardous  Materials,  to  exposure  to  Hazardous  Materials,  to  the
         transportation,  storage, disposal, management or release of gaseous or
         liquid substances,  and any regulation,  order,  injunction,  judgment,
         declaration, notice or demand issued thereunder.

               "HAZARDOUS  MATERIALS"  means any  hazardous,  toxic or dangerous
         materials, substances, chemicals, waste or pollutants that from time to
         time  are  defined  by  or  pursuant  to or  are  regulated  under  any
         Environmental    Laws,    including   without   limitation    asbestos,
         polychlorinated   biphenyls,   petroleum,   petroleum   derivatives  or
         by-products,  other  hydrocarbons,  urea formaldehyde and any material,
         substance,  pollutant  or waste that is defined  as a  hazardous  waste
         under RCRA or defined as a hazardous substance under CERCLA.

               "HAZARDOUS  WASTES" means Hazardous  Materials that are or become
         "wastes" or "solid wastes" as such terms are used in RCRA.

               "PROPERTY" means all real property now or hereafter  constituting
         a part of, or otherwise  used or operated by Borrower or  Guarantors in
         connection with, the Business.

               () Borrower  and  Guarantors  represent  and warrant to Lender as
         follows:

                    () The Property is being operated by Borrower and Guarantors
               in full  compliance  with  Environmental  Laws,  and Borrower and
               Guarantors  have  obtained,  maintained  and is in good  standing
               under all approvals, consents, certificates, licenses and permits
               required by Environmental Laws with respect to the Property.

                    () To the knowledge of Borrower and Guarantors, the Property
               is  free of all  Hazardous  Wastes  and is free of all  Hazardous
               Materials other than those maintained  therein or thereon in full
               compliance with Environmental  Laws. Borrower and Guarantors have
               not caused or  permitted  the  Property  to be used to  generate,
               manufacture,  refine,  transport,  treat, store, handle, dispose,
               transfer,  produce or process Hazardous  Materials except in full
               compliance with Environmental Laws.

                    ()  Neither  Borrower  nor  either  Guarantor  has  received
               notice, nor has knowledge, of any noncompliance with or violation
               of any  Environmental  Laws with  respect to the  Property or the
               Business.

         NO BURDENSOME  RESTRICTIONS.  No  instrument,  document or agreement to
which  Borrower or either  Guarantor is a party or by which it or its properties
may be bound or affected  materially  adversely  affects,  or may  reasonably be
expected  so  to  affect,  its  business,  operations,   property  or  financial
condition.

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<PAGE>

         TAXES.  Borrower and each Guarantor has filed or caused to be filed all
tax returns that to its  knowledge  are required to be filed (except for returns
that are not yet due),  and has paid all taxes  shown to be due and  payable  on
said  returns  and all  other  taxes,  impositions,  assessments,  fees or other
charges imposed on it by any governmental authority,  agency or instrumentality,
prior to any delinquency  with respect  thereto (other than taxes,  impositions,
assessments,  fees  and  charges  currently  being  contested  in good  faith by
appropriate  proceedings,  for which appropriate amounts have been reserved). No
tax liens have been filed against Borrower, Guarantors or any of their property.

         EQUIPMENT.  The equipment constituting a part of the collateral for the
Secured  Obligations  is owned solely by Borrower,  and Borrower has full right,
power and authority to grant to Lender a valid and enforceable security interest
therein.  Lender's security  interest in such equipment  constitutes a first and
prior lien upon and security interest in such equipment,  and no other person or
entity has any right,  title,  interest,  security interest,  claim or lien with
respect thereto.

         INVENTORY.  The Inventory constituting a part of the collateral for the
Secured Obligations is owned solely by Borrower,  and Borrower has all necessary
right,  power and authority to grant to Lender a valid and enforceable  security
interest therein.  Lender's  security  interest in such Inventory  constitutes a
first and prior lien upon and security interest in such Inventory,  and no other
person or entity has any right,  title,  interest,  security interest,  claim or
lien with respect thereto.

         RECEIVABLES,  ETC. With respect to the Receivables, (a) each Receivable
is a valid and bona fide  existing  obligation  created by or arising out of the
sale and delivery or other disposition of Borrower's  Inventory or the rendition
by Borrower  of  services to  Borrower's  customers  in the  ordinary  course of
business,  (b) the Receivables are owned solely by Borrower and Borrower has all
necessary right,  power and authority to grant to Lender a valid and enforceable
security  interest  therein,  (c) Lender's security interest in such Receivables
constitutes  a  first  and  prior  lien  upon  and  security  interest  in  such
Receivables,  and no other  person or entity  has any  right,  title,  interest,
security  interest,  claim or lien with  respect  thereto;  (d) each  Receivable
constituting an Eligible Receivable will at all times be unconditionally owed to
Borrower and  enforceable  against the obligor(s)  with respect  thereto without
dispute of any kind, and (e) each Receivable constituting an Eligible Receivable
is an "account" as defined in the Uniform  Commercial  Code and is not evidenced
by any instrument or document  (except as  specifically  disclosed to Lender and
accepted  by Lender as an Eligible  Receivable)  that would in any way change or
alter its character as an account.

         EFFECT OF REQUEST FOR ADVANCE.  Each request by Borrower for an advance
of  proceeds  of the Loan  shall  constitute  an  affirmation  by  Borrower  and
Guarantors  that the  representations  and  warranties of this Article IV remain
true and correct on and as of the date of such request.



                                       10
<PAGE>

                                     ARTICLE

                            COVENANTS AND AGREEMENTS

         Borrower and Guarantors covenant and agree that during the term of this
Agreement:

         PAYMENT OF SECURED  OBLIGATIONS.  Borrower shall pay the indebtednesses
evidenced by the Note  according to the terms  thereof,  and shall timely pay or
perform, as the case may be, all of the other Secured Obligations.

         SALES OF AND  ENCUMBRANCES  ON  COLLATERAL.  Borrower  will  not  sell,
exchange, lease, negotiate,  pledge, assign or grant any security interest in or
otherwise  dispose of the  collateral  described in the Security  Instruments to
anyone  other  than  Lender,  nor  permit  any other  lien of any kind to attach
thereto,  nor permit same to be attached  to or  commingled  with other goods or
property, without Lender's prior written consent; provided,  however, that prior
to the  occurrence  of an Event of Default  hereunder,  Borrower  shall have the
right to process and sell its  Inventory in the  ordinary  course of business as
herein provided.

         FURTHER ASSURANCES.  Borrower will take all actions requested by Lender
to create and maintain in Lender's  favor valid liens upon,  security  titles to
and/or perfected security interests in any collateral  described in the Security
Instruments  and  all  other  collateral  for  the  Secured  Obligations  now or
hereafter held by or for Lender. Without limiting the foregoing, Borrower agrees
to  execute  such  further  instruments   (including  financing  statements  and
continuation  statements) as may be required or permitted by any law relating to
notices  of, or  affidavits  in  connection  with,  the  perfection  of Lender's
security interests or liens, to cooperate with Lender in the filing or recording
and renewal thereof,  and, upon Lender's request, to immediately place notations
upon its  books  of  account  to  disclose  Lender's  security  interest  in all
Receivables granted in this Agreement.

         FINANCIAL STATEMENTS AND REPORTS. Borrower and Guarantors shall furnish
to Lender such financial data as Lender may reasonably request. Without limiting
the foregoing,  Borrower and Guarantors  shall furnish to Lender (or cause to be
furnished to Lender) the following:

               () as soon as  practicable  and in any event  within  ninety (90)
         days after the end of each  fiscal  year of  Borrower  and  Guarantors,
         consolidated   and   consolidating   balance  sheets  of  Borrower  and
         Guarantors  as of the  close  of such  fiscal  year,  consolidated  and
         consolidating  statements of earnings and retained earnings of Borrower
         and  Guarantors as of the close of such fiscal year,  and  consolidated
         and consolidating  statements of cash flows for Borrower and Guarantors
         for such fiscal year, all in reasonable detail,  prepared in accordance
         with generally accepted  accounting  principles  consistently  applied,
         audited in accordance  with generally  accepted  auditing  standards by
         independent certified public accountants  satisfactory to Lender in its
         reasonable  judgment,  and  accompanied  by the  unqualified  favorable
         opinion of such accountants and a certificate of the chief executive or
         chief financial  officers of Borrower and Guarantors,  stating that, to

                                       11
<PAGE>

         the best of the  knowledge of such  officers,  Borrower and  Guarantors
         have kept,  observed,  performed and fulfilled each covenant,  term and
         condition of this  Agreement and the other Loan  Documents  during such
         fiscal year and that no Event of Default  hereunder has occurred and is
         continuing  (or if an Event of Default has occurred and is  continuing,
         specifying  the nature of same, the period of existence of same and the
         action   Borrower  and   Guarantors   propose  to  take  in  connection
         therewith),  and setting forth calculations of the financial  covenants
         set forth in Article VI of this Agreement (a "Compliance Certificate");

                  () within  forty-five  (45) days of the end of the first three
         (3) fiscal  quarters of each fiscal  year of Borrower  and  Guarantors,
         consolidated   and   consolidating   balance  sheets  of  Borrower  and
         Guarantors  as of the  close  of  such  quarter  and  consolidated  and
         consolidating  statements of earnings and retained earnings of Borrower
         and  Guarantors  as of the  close of such  quarter,  all in  reasonable
         detail,  and  prepared   substantially  in  accordance  with  generally
         accepted accounting principles  consistently applied,  certified by the
         chief executive or chief financial  officers of Borrower and Guarantors
         as being true and correct, and accompanied by a Compliance Certificate;

                  () within thirty (30) days of the end of each calendar  month,
         non-  consolidated  balance sheets of Borrower and each Guarantor as of
         the close of such month,  and  non-consolidated  statements of earnings
         and retained earnings of Borrower and each Guarantor as of the close of
         such month,  all in reasonable  detail,  and prepared  substantially in
         accordance with generally accepted accounting  principles  consistently
         applied,  certified by the chief executive or chief financial  officers
         of Borrower and Guarantors as being true and correct,  and  accompanied
         by a Compliance Certificate;

                  () within fifteen (15) days of the end of each calendar month,
         accounts  receivable and accounts  payable  listings of Borrower,  with
         agings,  and a  certification  of inventory of Borrower,  all as of the
         close  of such  month  and  all in form  satisfactory  to  Lender,  and
         accompanied  by a certificate  in form  satisfactory  to Lender setting
         forth a  calculation  of the  Borrowing  Base as of the  close  of such
         month; and

                  () promptly upon receipt  thereof,  copies of all accountants'
         reports and  accompanying  financial  reports  submitted to Borrower or
         either  Guarantor by independent  accountants  in connection  with each
         annual examination of Borrower and Guarantors.

         Maintenance of Books and Records;  Inspection.  Borrower and Guarantors
shall  maintain their books,  accounts and records in accordance  with generally
accepted  accounting  principles  consistently  applied,  and permit Lender, its
officers and employees and any professionals designated by Lender in writing, at
any time to visit and inspect any of their properties (including but not limited
to the collateral  security  described in the Security  Instruments),  corporate
books and financial records, and to discuss their accounts, affairs and finances
with any employee, officer or director thereof.


                                       12
<PAGE>

         INSURANCE. Without limiting any of the requirements of any of the other
Loan Documents,  Borrower shall maintain,  in amounts satisfactory to Lender (a)
public liability insurance,  (b) worker's compensation  insurance (or maintain a
legally  sufficient  amount  of self  insurance  against  worker's  compensation
liabilities,  with adequate reserves, under a plan approved by Lender), (c) fire
and "all risk" casualty  insurance on its properties  (including but not limited
to the collateral  security now or hereafter securing payment and performance of
the Secured  Obligations),  against such hazards and in at least such amounts as
are customary in the type of business in which Borrower is engaged, and (d) rent
or business interruption  insurance against loss of income arising out of damage
or  destruction by such hazards as presently are included in so called "all risk
coverage".  At  the  request  of  Lender,  Borrower  will  deliver  forthwith  a
certificate,  executed by a duly  authorized  representative  of the insurer(s),
specifying the details of such insurance in effect.

         All policies of insurance shall provide that at least thirty (30) days'
prior written  notice of  cancellation  or  modification  of the policy shall be
given to Lender by the insurer,  and all policies of casualty insurance covering
any tangible  security for the Secured  Obligations shall be payable to Borrower
and Lender as their respective interests may appear.  Borrower agrees that there
shall be no recourse  against  Lender for the payment of premiums,  commissions,
assessments or advances in respect of any such policy,  and at Lender's  request
shall provide Lender with the agreement of the insurer(s) to this effect.

         At the request of Lender,  all policies of casualty  insurance covering
any tangible security for the Secured Obligations shall be delivered to and held
by Lender.  Borrower shall act expeditiously in the adjustment and settlement of
claims  under such  policies in order to preserve the  greatest  possible  value
reasonably obtainable in respect of such claims.  Following the occurrence of an
Event of  Default,  Lender  may,  at its  option,  act as  attorney  in fact for
Borrower in adjusting and settling claims under such insurance and endorsing any
drafts with respect  thereto,  and this power,  being  coupled with an interest,
shall be irrevocable prior to payment in full of the indebtednesses evidenced by
the Note and  performance  of all of the  obligations  of  Borrower to Lender in
connection therewith, and any insurer is hereby instructed to rely upon Lender's
representation  that an Event of Default has occurred  hereunder without further
inquiry or investigation.

         TAXES AND ASSESSMENTS; TAX INDEMNITY. Borrower and each Guarantor shall
(a) file all tax returns and appropriate  schedules thereto that are required to
be filed under  applicable  law, prior to the date of  delinquency,  (b) pay and
discharge all taxes, assessments and governmental charges or levies imposed upon
Borrower or either Guarantor, upon its income and profits or upon any properties
belonging to it, prior to the date on which penalties  attach  thereto,  and (c)
pay all taxes,  assessments and governmental  charges or levies that, if unpaid,
might  become a lien or charge upon any of its  properties;  provided,  however,
that Borrower and Guarantors in good faith may contest any such tax, assessment,
governmental  charge or levy  described in the foregoing  clauses (b) and (c) so
long as appropriate  reserves are maintained with respect thereto. If any tax is
or may be imposed by any  governmental  entity in respect of sales of Borrower's
Inventory or the  merchandise  that is the subject of such sales, or as a result

                                       13
<PAGE>

of any other transaction of Borrower,  which tax Lender is or may be required to
withhold  or pay,  Borrower  agrees to  indemnify  and hold  harmless  Lender in
connection  with such taxes  (including  penalties and  interest),  and Borrower
shall immediately reimburse Lender for any such amounts paid by Lender, and such
amounts shall be added to the Secured Obligations pursuant to the terms hereof.

         CORPORATE  EXISTENCE.  Borrower and each  Guarantor  shall maintain its
corporate existence and good standing in the state of its incorporation, and its
qualification and good standing as a foreign corporation in each jurisdiction in
which such qualification is necessary pursuant to applicable law.

         COMPLIANCE WITH LAW AND OTHER  AGREEMENTS.  Borrower and each Guarantor
shall maintain its business  operations and property owned or used in connection
therewith in compliance with (a) all applicable  federal,  state and local laws,
regulations  and ordinances  governing such business  operations and the use and
ownership  of  such  property,  and (b) all  agreements,  licenses,  franchises,
indentures and mortgages to which Borrower or either  Guarantor is a party or by
which Borrower,  either Guarantor or any of their  properties is bound.  Without
limiting  the  foregoing,  Borrower  and  each  Guarantor  shall  pay all of its
indebtedness promptly in accordance with the terms thereof.

         NOTICE OF DEFAULT. Borrower and Guarantors shall give written notice to
Lender of the  occurrence  of any default,  event of default or Event of Default
under this  Agreement or any other Loan Document  promptly  upon the  occurrence
thereof.

         NOTICE OF LITIGATION.  Borrower and Guarantors shall give notice,  in
writing,  to Lender of (a) any actions,  suits or proceedings wherein the amount
at issue is in excess of $250,000, instituted by any persons against Borrower or
either  Guarantor,  or  affecting  any of  the  assets  of  Borrower  or  either
Guarantor,  and (b) any  dispute,  not  resolved  within  sixty (60) days of the
commencement  thereof,  between Borrower or either Guarantor on the one hand and
any governmental or regulatory body on the other hand, which might reasonably be
expected  to have a  material  adverse  effect  on the  business  operations  or
financial condition of Borrower or either Guarantor.

         ENVIRONMENTAL MATTERS.

               () Borrower and Guarantors will cause the Property to remain free
         of all Hazardous Wastes, and to remain free of all Hazardous  Materials
         other than those maintained  therein or thereon in full compliance with
         Environmental Laws. Neither Borrower nor either Guarantor will cause or
         permit  the  Property  to be used  to  generate,  manufacture,  refine,
         transport,  treat, store, handle, dispose, transfer, produce or process
         Hazardous Materials except in full compliance with Environmental Laws.

               () Borrower and Guarantors will notify Lender immediately if they
         receive any notice or obtain  knowledge  of any  noncompliance  with or
         violation of any Environmental Laws with respect to the Property or the
         Business.


                                       14
<PAGE>

               () In  the  event  that  Hazardous  Materials  unrelated  to  the
         Business,  or Hazardous  Wastes,  are discovered on or are brought onto
         the  Property,  Borrower  and  Guarantors  will  cause  such  Hazardous
         Materials  or  Hazardous  Wastes to be removed and disposed of promptly
         and in full compliance with Environmental Laws. Borrower and Guarantors
         will provide  Lender prior written  notice of such removal and disposal
         actions.

                  () Borrower and Guarantors will comply with all  Environmental
         Laws  in all  jurisdictions  in  which  Borrower  or  either  Guarantor
         operates,  now or in the future, and will comply with all Environmental
         Laws  that in the  future  become  applicable  to the  Property  or the
         Business.

         MERGERS,  CONSOLIDATIONS,  ACQUISITIONS  AND SALES.  Without  the prior
express written consent of Lender,  neither  Borrower nor either Guarantor shall
(a) be a party to any merger,  consolidation  or corporate  reorganization,  (b)
purchase or otherwise  acquire all or  substantially  all of the assets or stock
of, or any partnership or joint venture  interest in, any other person,  firm or
entity, (c) sell, transfer, convey, grant a security interest in or lease all or
any substantial  part of its assets,  nor (d) create any subsidiaries nor convey
any of its  assets to any  subsidiary;  provided,  however,  Borrower  or either
Guarantor  may make  acquisitions  of all or  substantially  all of the stock or
assets of other entities,  so long as (i) no Event of Default exists  hereunder,
(ii) the  purchase  price  payable  in  connection  with each such  acquisition,
including the fair market value of any non-cash  consideration,  does not exceed
$5,000,000,  and (iii) any subsidiary of Borrower or either Corporate  Guarantor
created or acquired in connection with any such acquisition  shall guarantee the
indebtedness  of Borrower to Lender and grant Lender a security  interest in all
of its assets to secure its  obligations  and the  obligations  of  Borrower  to
Lender,  all pursuant to  documentation  in form and substance  satisfactory  to
Lender in all respects.

         MANAGEMENT,  OWNERSHIP.  Neither  Borrower nor either  Guarantor  shall
permit any  significant  change in its ownership,  executive staff or management
without the prior written consent of Lender. The ownership,  executive staff and
management  of  Borrower  and  Guarantors  are  material   factors  in  Lender's
willingness to institute and maintain a lending relationship with Borrower.

         DIVIDENDS,  ETC. Neither Borrower nor either Guarantor shall declare or
pay any  dividend  of any  kind,  in cash or in  property,  on any  class of its
capital stock, nor purchase,  redeem,  retire or otherwise acquire for value any
shares of such stock,  nor make any distribution of any kind in respect thereof,
nor make any return of capital to shareholders, nor make any payments in respect
of any pension, profit sharing, retirement, stock option, stock bonus, incentive
compensation  or similar  plan  (except as  required  or  permitted  hereunder),
without the prior written consent of Lender. Without limiting the foregoing, not
less than seventy-five  percent (75%) of the net proceeds of any equity offering
by Borrower or either  Guarantor  shall be retained and shall not be paid out as
dividends or otherwise distributed to shareholders.

                                       16
<PAGE>

         GUARANTIES;   LOANS.   Neither  Borrower  nor  either  Guarantor  shall
guarantee nor be liable in any manner, whether directly or indirectly, or become
contingently  liable  after the date of this  Agreement in  connection  with the
obligations or indebtedness of any person or persons, except for the indorsement
of  negotiable  instruments  payable to  Borrower or  Guarantors  for deposit or
collection  in the  ordinary  course of  business.  Neither  Borrower nor either
Guarantor  shall  make any loan,  advance or  extension  of credit to any person
other than in the normal course of its business.

         DEBT. Neither Borrower nor either Guarantor shall create, incur, assume
or suffer to exist  indebtedness of any  description  whatsoever in an aggregate
amount in excess of $250,000 (excluding the indebtedness  evidenced by the Note,
trade accounts payable and accrued  expenses  incurred in the ordinary course of
business and the  indorsement of negotiable  instruments  payable to Borrower or
Guarantors for deposit or collection in the ordinary course of business).

         CONDUCT OF BUSINESS.  Borrower and Guarantors  will continue to engage,
in an efficient and economical manner, in a business of the same general type as
conducted by them on the date of this Agreement.

         MAINTENANCE OF COLLATERAL. Borrower will maintain all tangible personal
property  constituting  any part of the  collateral  described  in the  Security
Instruments  in good  condition  and repair and will pay all costs and  expenses
incurred in the  maintenance  of same, and will not permit any act or occurrence
that may  impair  the  value  thereof.  Prior to the  occurrence  of an Event of
Default,  Borrower  shall be entitled to possession of such tangible  collateral
and to use same in any lawful manner permitted hereunder, provided that such use
does not  cause  excessive  wear and tear to such  collateral,  nor  cause it to
decline in value at an  excessive  rate,  nor violate the terms of any policy of
insurance thereon.

         SALE OF INVENTORY. Borrower will not sell, lease, exchange or otherwise
dispose of any of that portion of the collateral that consists of Inventory, nor
remove the same from its place(s) of business as described  herein,  without the
prior written  consent of Lender,  except in the ordinary course of business for
cash or on open  account  or on  terms of  payment  ordinarily  extended  to its
customers.  Upon the sale, exchange or other disposition of said Inventory,  the
security  interest and lien created and  provided for herein,  without  break in
continuity and without further formality or act, shall continue in and attach to
any proceeds  thereof,  including  but not limited to accounts,  chattel  paper,
contract  rights,  shipping  documents,  documents of title and cash or non-cash
proceeds, and in the event of any unauthorized sale, shall also continue in said
Inventory  itself.  All chattel paper shall be delivered to Lender promptly upon
receipt.

         SPECIAL   AGREEMENTS  OF  BORROWER  WITH  RESPECT  TO  RECEIVABLES  AND
INVENTORY.

               () By the  execution  of  this  Agreement,  Lender  shall  not be
         obligated  to do or  perform  any of the acts or  things  to be done or
         performed by Borrower  pursuant to any  contracts in which Lender has a

                                       16
<PAGE>

         security interest, but Lender may, at its election, perform some or all
         of the  obligations  provided  in said  contracts  to be  performed  by
         Borrower,  and if Lender  incurs any  liability  or  expenses by reason
         thereof,  same shall be payable by Borrower  upon demand and same shall
         also be secured by this Agreement and the other Loan Documents.  Lender
         shall be subrogated to all  guaranties and security now or hereafter in
         Borrower's possession or favor.

                  () If requested by Lender following the occurrence of an Event
         of Default,  Borrower shall  immediately  notify all account debtors to
         direct  payments to Lender or to a lockbox in accordance with a Lockbox
         Service  Agreement to be entered  into  between  Borrower and Lender at
         Lender's  request.  Borrower  will  forthwith on receipt of all checks,
         drafts,  cash and other remittances in payment of inventory sold, or in
         payment on account of  Borrower's  Receivables,  deposit  the same in a
         special bank account maintained with Lender over which Lender alone has
         power of withdrawal.  Said proceeds shall be deposited in precisely the
         form received,  except for the  indorsement of Borrower where necessary
         to permit  collection of items,  which  indorsement  Borrower agrees to
         make, and which Lender is also hereby  authorized to make on Borrower's
         behalf.  Pending  such  deposit,  Borrower  agrees  that  it  will  not
         commingle any such checks,  drafts,  cash or other remittances with any
         of Borrower's other funds or property,  but will hold them separate and
         apart  therefrom and in trust for Lender until deposit  thereof is made
         in the  special  account.  The  funds  in said  account  and any  funds
         collected by Lender under a Lockbox Service  Agreement shall be held by
         Lender as additional security for the Secured  Obligations.  Lender may
         on a daily basis apply the whole or any part of the collected  funds on
         deposit in the special account and from the lockbox against the Secured
         Obligations, and the amount, order and method of such application shall
         be in the discretion of Lender;  provided,  however, that so long as no
         Event of  Default  (or  event  that  with the  giving  of notice or the
         passage  of time or both  would  constitute  an Event of  Default)  has
         occurred and is existing, said collected funds will be applied first to
         the outstanding  principal  balance of, and accrued and unpaid interest
         on, the Loan, in such order of priority as Lender shall determine.  Any
         portion of said funds on deposit in the  special  account  and from the
         lockbox  that Lender  elects not to so apply may be paid over by Lender
         to Borrower.

                  () Without  limiting  the  provisions  of  subsection  5.21(b)
         hereof,  Borrower acknowledges and agrees that, upon the occurrences of
         an Event of Default,  Lender shall have the right to notify the account
         debtors  obligated  on any or all of  Borrower's  Receivables  to  make
         payment  thereof direct to Lender,  and to take control of all proceeds
         of any such  Receivables,  and charge the collection costs and expenses
         to Borrower.  Until Lender gives Borrower other instructions,  Borrower
         shall continue to make  collections of all Receivables for Lender.  All
         payments on account of  Receivables,  or as proceeds of any collateral,
         whether such payments are made by check, draft, cash, money order, wire
         transfer,  or  otherwise,  shall be the  specific  property  of Lender.
         Borrower  shall  receive such  payments as trustee for Lender and shall
         immediately deliver them to Lender in their original form as received.

                  () Lender  shall be  privileged  to enjoy all the  rights  and
         remedies  of  Borrower  as to the  Receivables  and shall be and become

                                       18
<PAGE>

         subrogated to all guaranties  and  securities  possessed by Borrower or
         due to come into  Borrower's  hands,  but Lender shall not be liable in
         any manner for  exercising  or refusing to exercise any rights  thereby
         bestowed.

                  () Borrower  shall notify  Lender  promptly of all returns and
         recoveries  of  merchandise  and of all  disputes  and claims where the
         amount at issue exceeds  $25,000 in the  aggregate,  and Borrower shall
         settle or adjust  disputes  and  claims  directly  with  customers  for
         amounts  and  upon  terms  it  considers   advisable   and  dispose  of
         merchandise  returns as it sees fit, unless Lender directs  Borrower to
         make such  settlements,  adjustments and disposals  subject to Lender's
         approval.  In all cases  Lender  will credit the Loan with only the net
         amounts received by Borrower in payment of Receivables.

                  () Borrower  hereby appoints the officers of Lender and/or any
         other    person   whom    Lender   may    designate    as    Borrower's
         attorney(s)-in-fact  with full power to endorse  Borrower's name on any
         checks,  notes,  acceptances,  money  orders,  drafts or other forms of
         payment  or  security  that may come in  Lender's  possession;  to sign
         Borrower's  name  on any  invoice  or bill of  lading  relating  to any
         Receivable, on drafts against customers, on schedules of assignments of
         Receivables,   on  notices  of  assignment,  on  financing  statements,
         applications  for  noting of liens on  certificates  of title and other
         public  records or  documents  of any kind as necessary or desirable to
         insure perfection or  enforceability of Lender's security  interests in
         or liens on property of Borrower  granted  hereunder or  otherwise,  on
         verification  of accounts  and on notices to  customers;  to notify the
         post  office   authorities  to  change  the  address  for  delivery  of
         Borrower's mail to an address  designated by Lender;  to receive,  open
         and dispose of all mail  addressed  to Borrower;  to send  requests for
         verifications  of accounts  to  customers;  and to do all other  things
         Lender deems  necessary to carry out this  Agreement.  Borrower  hereby
         ratifies and approves all acts of the  attorney(s)  and neither  Lender
         nor  the  attorney(s)  for  Lender  will  be  liable  for  any  acts of
         commission  or  omission,  nor for any error of  judgment or mistake of
         fact or law. This power, being coupled with an interest, is irrevocable
         so long as any money remains owing to Lender from Borrower.

                  ()  Lender  will be  entitled  to hold  all  sums at any  time
         standing to Borrower's  credit on Lender's  books and all of Borrower's
         property at any time in Lender's possession, or upon or in which Lender
         at any time has a lien or security  interest,  as  security  for all of
         Borrower's  obligations  at  any  time  owing  to  Lender,  its  parent
         corporation,  subsidiary,  co-subsidiary  or  affiliate,  whether  such
         obligations are direct or indirect, absolute or contingent,  under this
         Agreement  or  otherwise.   Such  obligations  shall  include,  without
         limitation,  all loans, advances, debts,  liabilities,  obligations for
         purchases  made by Borrower from other clients  factored or financed by
         Lender or from any such parent, subsidiary, co-subsidiary or affiliate,
         whether  such  obligations  are absolute or  contingent,  or under this
         Agreement or  otherwise,  no matter how or when arising and whether due
         or to become due, and further  including all interest,  fees,  charges,
         expenses and attorney's  fees  chargeable to Borrower's loan account or
         incurred in connection with  Borrower's  loan account whether  provided
         for herein or in any other agreement  between Borrower and Lender,  and

                                       18
<PAGE>

         Lender  shall have the right to charge to  Borrower's  loan account the
         amounts  of all such  obligations  and pay over  such  amounts  to such
         parent, subsidiary, co-subsidiary or affiliate.

         PLACES OF BUSINESS; MOBILE GOODS. Borrower will not change the location
of its chief place of business,  chief executive office or any place of business
disclosed to Lender  pursuant to Section 4.5 hereof,  nor will Borrower move any
of the tangible personal property  constituting a part of the collateral for the
Secured Obligations to any other location(s) (except during temporary periods in
the normal and customary use thereof),  nor will Borrower change the location at
which it maintains its records  concerning  the  intangible  collateral  for the
Secured Obligations, without thirty (30) days' prior written notice to Lender in
each instance.  If any of the tangible  collateral  for the Secured  Obligations
constitutes goods of a type normally used in more than one state (whether or not
actually so used),  Borrower will  contemporaneously  with the execution  hereof
furnish  to Lender a list of all states in which such goods are or will be used,
and hereafter  will notify Lender in writing of any other state(s) in which such
goods are or will be so used.

         ERISA PLAN. If Borrower has in effect,  or hereafter  institutes  (with
Lender's consent,  as hereinafter  provided),  a pension plan that is subject to
the requirements of Title IV of the Employee  Retirement  Income Security Act of
1974, Pub. L. No. 93 406, September 2, 1974, 88 Stat. 829, 29 U.S.C.A.  ss. 1001
et seq.  (1975),  as amended  from time to time  ("ERISA"),  then the  following
warranty and covenants  shall be applicable  during such period as any such plan
(the "Plan") shall be in effect:  (a) Borrower hereby warrants that no fact that
might constitute grounds for the involuntary termination of the Plan, or for the
appointment  by the  appropriate  United States  District  Court of a trustee to
administer  the Plan,  exists at the time of  execution of this  Agreement,  (b)
Borrower hereby covenants that throughout the existence of the Plan,  Borrower's
contributions under the Plan will meet the minimum funding standards required by
ERISA and Borrower will not institute a distress  termination  of the Plan,  (c)
Borrower  hereby  covenants  that the  Plan's  annual  financial  and  actuarial
statements and the Plan's annual Form 5500 information return will be filed with
Lender  within  thirty (30) days of the  preparation  thereof,  and (d) Borrower
covenants that it will send to Lender a copy of any notice of a reportable event
(as defined in ERISA) required by ERISA to be filed with the Labor Department or
the Pension  Benefit  Guaranty  Corporation,  at the time that such notice is so
filed.

         No Plan shall be instituted by Borrower  unless Lender shall have given
its written consent thereto.


                                     ARTICLE

                               FINANCIAL COVENANTS

         NET WORTH  REQUIREMENTS.  Borrower  and  Guarantors  shall at all times
maintain  a  minimum  tangible  net  worth  of  $12,000,000,   calculated  on  a
consolidated  basis.  For purposes of this covenant,  "tangible net worth" shall
refer to the excess of Borrower's and Guarantors'  total assets above the sum of
their  intangible  assets  plus  total   liabilities   (exclusive  of  any  debt

                                       19
<PAGE>

subordinated  to  indebtedness  of  Borrower  or  Guarantors  to  Lender),   all
determined  in  accordance  with  generally   accepted   accounting   principles
consistently applied.

         DEBT TO  WORTH  RATIO.  Borrower  and  Guarantors  shall  at all  times
maintain a ratio of total  liabilities  (exclusive of any debt  subordinated  to
indebtedness  of Borrower or  Guarantors to Lender) to tangible net worth of not
more than 2.0 to 1.0,  calculated on a consolidated  basis. For purposes of this
covenant,  "tangible  net worth" shall have the meaning set forth in Section 6.1
hereof.

         INTEREST COVERAGE RATIO. Borrower and Guarantors shall maintain a ratio
of earnings  before  interest and taxes to interest  expense,  all determined in
accordance with generally accepted accounting  principles  consistently applied,
calculated  on a  consolidated  basis  as of the  last  day of  each  September,
December,  March and June, for the then-previous  twelve-month period (beginning
September 30, 1999), of not less than 4.0 to 1.0.


                                     ARTICLE

                              DEFAULT AND REMEDIES

         EVENTS  OF  DEFAULT.  The  occurrence  of any of  the  following  shall
constitute an Event of Default hereunder:

               () Failure to make payment of the principal of or interest on the
         indebtedness evidenced by the Note within five (5) days of when due;

               () Any  misrepresentation  by Borrower or either  Guarantor as to
         any material matter hereunder or under any of the other Loan Documents,
         or delivery by Borrower or either Guarantor of any schedule, statement,
         resolution,  report,  certificate,  notice or writing to Lender that is
         untrue in any  material  respect  on the date as of which the facts set
         forth therein are stated or certified;

               () Failure of  Borrower  or any  Guarantor  to perform any of its
         obligations  under Sections 5.7, 5.9 or 5.12 of this  Agreement  within
         fifteen  (15) days after the earlier of (i) written  notice from Lender
         to  Borrower  of such  failure to  perform,  or (ii) the date  Borrower
         becomes aware of such failure to perform;

               () Failure of Borrower or either  Guarantor  to perform any other
         of its obligations under this Agreement,  the Note, any of the Security
         Instruments or any of the other Loan Documents;

               () Borrower or either  Guarantor  (i) shall  generally not pay or
         shall be unable  to pay its debts as such  debts  become  due;  or (ii)
         shall make an  assignment  for the benefit of  creditors or petition or
         apply to any court or  tribunal  for the  appointment  of a  custodian,
         receiver or trustee  for it or a  substantial  part of its  assets;  or
         (iii)  shall  commence  any  proceeding  or case under any  bankruptcy,

                                       20
<PAGE>

         reorganization,  arrangement,  readjustment  of  debt,  dissolution  or
         liquidation  law  or  statute  of  any  jurisdiction,  whether  now  or
         hereafter  in  effect;  or (iv)  shall  have had any such  petition  or
         application  filed or any such proceeding or case commenced  against it
         in  which  an  order  for  relief  is  entered  or an  adjudication  or
         appointment is made; or (v) shall indicate, by any act or omission, its
         consent  to,   approval  of  or  acquiescence  in  any  such  petition,
         application, case, proceeding or order for relief or the appointment of
         a custodian,  receiver or trustee for it or a  substantial  part of its
         assets;  or (vi) shall suffer any such  custodianship,  receivership or
         trusteeship to continue  undischarged  for a period of thirty (30) days
         or more;

               () Borrower or either  Guarantor shall be liquidated,  dissolved,
         partitioned or  terminated,  or the charter or certificate of authority
         thereof shall expire or be revoked;

               () A default or event of  default  shall  occur  under any of the
         other Loan Documents;

               ()  Borrower  or either  Guarantor  shall  default  in the timely
         payment or  performance  of any  obligation  now or  hereafter  owed to
         Lender in connection with any other  indebtedness of Borrower or either
         Guarantor now or hereafter owed to Lender;

               () Lender shall reasonably  suspect the occurrence of one or more
         of the  aforesaid  events of default  and  Borrower,  upon the  written
         request  of  Lender,   shall  fail  to  provide   evidence   reasonably
         satisfactory to Lender that such event or events of default have not in
         fact occurred; or

               () Lender in good faith shall deem itself insecure.

         ACCELERATION OF MATURITY; REMEDIES. Upon the occurrence of any Event of
Default  described in subsection  7.1(d)  hereof as it relates to Borrower,  the
indebtednesses  evidenced by the Note as well as any and all other  indebtedness
of Borrower to Lender shall be immediately due and payable in full; and upon the
occurrence  of any other Event of Default  described  above  (including  but not
limited to subsection  7.1(d) hereof as it relates to any Guarantor),  Lender at
any  time  thereafter  may  at  its  option   accelerate  the  maturity  of  the
indebtednesses  evidenced by the Note as well as any and all other  indebtedness
of Borrower to Lender;  all without  notice of any kind.  Upon the occurrence of
any  such  Event  of  Default  and  the  acceleration  of  the  maturity  of the
indebtednesses evidenced by the Note:

               () any  obligation  of Lender to advance any  proceeds  under the
         Loan shall immediately cease and be of no further force nor effect, and
         Lender shall be immediately entitled to exercise any and all rights and
         remedies  possessed  by Lender  pursuant  to the terms of the  Security
         Instruments and all of the other Loan Documents;

               () Lender  shall have all of the rights and remedies of a secured
         party under the Uniform Commercial Code; and


                                       21
<PAGE>

               () Lender shall have any and all other  rights and remedies  that
         Lender may now or hereafter possess at law, in equity or by statute.

         RIGHT  OF  SETOFF.  Without  limitation  of  the  foregoing,  upon  the
occurrence and during the continuance of any Event of Default,  Lender is hereby
authorized  at any time and from time to time,  without  notice to  Borrower  or
Guarantors (any such notice being expressly  waived by Borrower and Guarantors),
to set off and apply any and all deposits  (general or special,  time or demand,
provisional or final) at any time held by Lender or any of its  affiliates,  and
any other  indebtedness  at any time owing by Lender or its affiliates to or for
the credit or the account of Borrower or Guarantors,  against any and all of the
Secured  Obligations,  irrespective of whether Lender shall have made any demand
under this  Agreement or the Note or any other Loan  Document and although  such
obligations may be unmatured. Lender agrees to notify Borrower or Guarantors (as
applicable)  within a  reasonable  time after any such  setoff and  application;
provided  that the failure to give such notice  shall not affect the validity of
such setoff and application.  The rights of Lender under this Section 7.3 are in
addition to any other rights and remedies (including,  without limitation, other
rights of setoff) that Lender may have.

         REMEDIES  CUMULATIVE;  NO WAIVER.  No right,  power or remedy conferred
upon or reserved to Lender by this  Agreement or any of the other Loan Documents
is intended to be exclusive of any other  right,  power or remedy,  but each and
every such right,  power and remedy shall be cumulative and concurrent and shall
be in addition to any other right,  power and remedy given hereunder,  under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute.  No delay or omission by Lender to exercise any right,  power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such  right,  power or remedy or shall be  construed  to be a waiver of any such
Event of Default or an acquiescence  therein,  and every right, power and remedy
given by this  Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed necessary by Lender.

         PROCEEDS OF REMEDIES.  Any or all proceeds  resulting from the exercise
of any or all of the  foregoing  remedies  shall be  applied as set forth in the
Loan  Document(s)  providing  the  remedy  or  remedies  exercised;  if  none is
specified, or if the remedy is provided by this Agreement, then as follows:

                  First,  to  the  costs  and  expenses,   including  reasonable
         attorney's fees and expenses, incurred by Lender in connection with the
         exercise of its remedies;

                  Second,  to the  expenses  of  curing  the  default  that  has
         occurred,  in the event that Lender elects, in its sole discretion,  to
         cure the default that has occurred;

                  Third,  to the payment of the Secured  Obligations,  including
         but not limited to the payment of the  principal of and interest on the
         indebtednesses  evidenced  by the Note,  in such order of  priority  as
         Lender shall determine in its sole discretion; and

                                       22
<PAGE>

                  Fourth,  the  remainder,  if any,  to Borrower or to any other
         person lawfully thereunto entitled.


                                     ARTICLE

                                  MISCELLANEOUS

         INDEPENDENCE  OF  COVENANTS.  All  covenants  hereunder  shall be given
independent  effect so that if a particular action or condition is not permitted
by any of such  covenants,  the fact that it would be  permitted by an exception
to, or otherwise would be within the limitations of, another  covenant shall not
avoid the occurrence of an Event of Default if such action is taken or condition
exists.

         PERFORMANCE BY LENDER.

                  () Lender may file one or more financing statements disclosing
         Lender's  security  interests  under this  Agreement and the other Loan
         Documents  without the  signature of Borrower  appearing  thereon,  and
         Borrower  shall pay the costs of, or  incidental  to, any  recording or
         filing of any financing  statements  concerning the collateral security
         described in the Security  Instruments.  Borrower agrees that a carbon,
         photographic,  photostatic or other  reproduction  of this Agreement or
         any other Security Instrument or of a financing statement is sufficient
         as a financing statement.

                  () If Borrower or  Guarantors  shall  default in the  payment,
         performance  or observance  of any covenant,  term or condition of this
         Agreement, Lender may, at its option, pay, perform or observe the same,
         and all  payments  made or costs or  expenses  incurred  by  Lender  in
         connection   therewith   (including   but  not  limited  to  reasonable
         attorney's  fees and  expenses),  with interest  thereon at the default
         rate provided in the Note (if none,  then at the maximum rate from time
         to time allowed by  applicable  law),  shall be  immediately  repaid to
         Lender by Borrower and  Guarantors  and shall  constitute a part of the
         Secured  Obligations  and be secured hereby until fully repaid.  Lender
         shall  determine  at its sole  discretion  the  necessity  for any such
         actions and of the amounts to be paid.

         COSTS AND  EXPENSES.  Borrower  agrees  to pay all  costs and  expenses
incurred by Lender in connection with the making of the Loan,  including but not
limited to filing  fees,  recording  taxes and  reasonable  attorney's  fees and
expenses,  promptly upon demand of Lender.  Borrower  further  agrees to pay all
premiums for insurance  required to be  maintained  pursuant to the terms of the
Loan  Documents  and all of the  out-of-pocket  costs and  expenses  incurred by
Lender in connection with the administration, servicing and/or collection of the
Loan,  including  but not limited to  reasonable  attorney's  fees and expenses,
promptly upon demand of Lender.

         ASSIGNMENT.  The Note,  this Agreement and the other Loan Documents may
be endorsed,  assigned and/or transferred in whole or in part by Lender, and any

                                       23
<PAGE>

such holder and/or assignee of the same shall succeed to and be possessed of the
rights and powers of Lender under all of the same to the extent  transferred and
assigned.  Lender may grant participations in all or any portion of its interest
in the  indebtednesses  evidenced by the Note.  Borrower shall not assign any of
its rights nor  delegate  any of its duties  hereunder or under any of the other
Loan Documents without the prior express written consent of Lender.

         SUCCESSORS AND ASSIGNS  INCLUDED IN PARTIES.  Subject to the provisions
of Section 8.4 hereof,  whenever in this  Agreement one of the parties hereto is
named  or   referred   to,  the  heirs,   legal   representatives,   successors,
successors-in-title  and  assigns of such  parties  shall be  included,  and all
covenants and agreements contained in this Agreement by or on behalf of Borrower
or by or on behalf  of  Lender  shall  bind and  inure to the  benefit  of their
respective  heirs,  legal  representatives,   successors-in-title  and  assigns,
whether so expressed or not.

         THIRD PARTY BENEFICIARIES.  This Agreement and the other Loan Documents
are intended for the sole and exclusive  benefit of the parties hereto and their
respective  successors and permitted assigns,  and shall not serve to confer any
rights or benefits in favor of any person not a party  hereto.  No other  person
shall have any right to rely on this Agreement or the other Loan  Documents,  or
to derive any benefit herefrom.

         TIME OF THE  ESSENCE.  Time is of the essence  with respect to each and
every  covenant,  agreement and obligation of Borrower and Guarantors  hereunder
and under all of the other Loan Documents.

         SEVERABILITY.  If any provision(s) of this Agreement or the application
thereof to any person or circumstance  shall be invalid or  unenforceable to any
extent,  the remainder of this Agreement and the  application of such provisions
to other  persons or  circumstances  shall not be affected  thereby and shall be
enforced to the greatest extent permitted by law.

         INTEREST  AND  LOAN  CHARGES  NOT TO  EXCEED  MAXIMUM  ALLOWED  BY LAW.
Anything in this  Agreement,  the Note,  the Security  Instruments or any of the
other Loan Documents to the contrary  notwithstanding,  in no event  whatsoever,
whether by reason of  advancement of proceeds of the Loan,  acceleration  of the
maturity of the unpaid balance of the Loan or otherwise,  shall the interest and
loan charges agreed to be paid to Lender for the use of the money advanced or to
be advanced  hereunder exceed the maximum amounts  collectible  under applicable
laws in effect  from time to time.  It is  understood  and agreed by the parties
that,  if for  any  reason  whatsoever  the  interest  or loan  charges  paid or
contracted to be paid by Borrower in respect of the indebtednesses  evidenced by
the Note shall exceed the maximum amounts  collectible  under applicable laws in
effect from time to time,  then ipso facto,  the obligation to pay such interest
and/or loan charges shall be reduced to the maximum  amounts  collectible  under
applicable laws in effect from time to time, and any amounts collected by Lender
that  exceed  such  maximum  amounts  shall be applied to the  reduction  of the
principal balance(s) of the indebtednesses evidenced by the Note and/or refunded
to  Borrower  so that at no time  shall the  interest  or loan  charges  paid or
payable  in  respect  of the  indebtednesses  evidenced  by the Note  exceed the
maximum amounts permitted from time to time by applicable law.


                                       24
<PAGE>

         ARTICLE  AND  SECTION  HEADINGS;  DEFINED  TERMS.  Numbered  and titled
article and section  headings  and defined  terms are for  convenience  only and
shall not be construed as amplifying  or limiting any of the  provisions of this
Agreement.

         NOTICES.  Any  and all  notices,  elections  or  demands  permitted  or
required  to be made  under  this  Agreement  shall be in  writing  and shall be
delivered  personally,  telecopied  or sent  by  certified  mail  or  nationally
recognized courier service (such as Federal Express),  to the other party at the
address set forth below,  or at such other address as may be supplied in writing
by the party  whose  address  is being  changed  and of which  receipt  has been
acknowledged in writing.  The date of personal  delivery or telecopy or the date
of mailing (or delivery to such courier  service),  as the case may be, shall be
the date of such notice, election or demand. For the purposes of this Agreement:

                  The address of Lender is:

                           SouthTrust Bank, National Association
                           230 Fourth Avenue North
                           8th Floor
                           Nashville, Tennessee  37219
                           Attention: Marci Osesek
                           Telecopy Number: 615/880-4004

                  with a copy to:

                           Bass, Berry & Sims PLC
                           2700 First American Center
                           Nashville, Tennessee  37238
                           Attention: Felix R. Dowsley, III
                           Telecopy Number:  615/742-2728

                  The address of Borrower is:

                           Nor'easter Micro, Inc.
                           803 Third Avenue North
                           Nashville, Tennessee 37210
                           Attention: Jay Nash
                           Telecopy Number: 615/254-9318

                  with a copy to:

                           Kirkpatrick & Lockhart LLP
                           Miami Center, 20th Floor
                           201 South Biscayne Boulevard
                           Miami, Florida 33131-2399
                           Attention: Clayton E. Parker, Esq.
                           Telecopy Number: 305/358-7095


                                       25
<PAGE>

                  The addresses of Guarantors are:

                           European Micro Holdings, Inc.
                           6073 N.W. 167th Street, Unit C-25
                           Miami, Florida 33015
                           Attention: Frank Cruz
                           Telecopy Number: 305/825-7774

                           American Micro Computer Center, Inc.
                           6073 N.W. 167th Street, Unit C-25
                           Miami, Florida 33015
                           Attention: Frank Cruz
                           Telecopy Number: 305/825-7774

         INTEGRATION.  This Agreement and the Loan Documents  contain the entire
agreement  between  the  parties  relating  to the  subject  matter  hereof  and
supersede all oral statements and prior writings with respect thereto.

         INDEMNITY.  Borrower and Guarantors hereby agree to defend,  indemnify,
and  hold  Lender  harmless  from  and  against  any  and all  claims,  damages,
judgments,  penalties,  costs and expenses (including reasonable attorney's fees
and  expenses  and  court  costs now or  hereafter  arising  from the  aforesaid
enforcement of this clause)  arising  directly or indirectly from the activities
of Borrower or Guarantors,  their  predecessors  in interests,  or third parties
with  whom  they  have  a  contractual  relationship,  or  arising  directly  or
indirectly  from the  violation of any law,  whether such claims are asserted by
any  governmental  agency or any other person.  This indemnity shall survive the
termination of this Agreement.

         JURY TRIAL WAIVER.  BORROWER,  GUARANTORS AND LENDER HEREBY WAIVE TRIAL
BY JURY IN ANY ACTION, PROCEEDING,  CLAIM OR COUNTER-CLAIM,  WHETHER IN CONTRACT
IN TORT,  AT LAW OR IN  EQUITY,  ARISING  OUT OF OR IN ANY WAY  RELATED  TO THIS
AGREEMENT OR THE LOAN DOCUMENTS.

         VENUE. All actions or proceedings in any way, manner or respect arising
out of or from or related to this Agreement  shall be litigated in courts having
situs within the City of Nashville, State of Tennessee.  Borrower and Guarantors
hereby  consent and submit to the  jurisdiction  of any local,  state or federal
courts located within said city and state.

         MISCELLANEOUS. This Agreement shall be construed and enforced under the
laws of the State of  Tennessee.  No  amendment,  modification,  termination  or
waiver  of any  provision  of any Loan  Document  to which  Borrower  or  either
Guarantor  is a party,  nor  consent  to any  departure  by  Borrower  or either
Guarantor from  compliance  with the terms of any Loan Document to which it is a
party,  shall be  effective  unless the same  shall be in writing  and signed on
behalf of Lender by a duly authorized officer of Lender, and then such waiver or

                                       26
<PAGE>

consent  shall be effective  only in the specific  instance and for the specific
purpose for which given.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers,  as
of the day and year first above written.

                                     LENDER:

                                     SOUTHTRUST BANK, NATIONAL ASSOCIATION

                                     By:____________________________
                                     Title:_________________________






                                    BORROWER:

                                    NOR'EASTER MICRO, INC.
                                    By:_____________________________
                                    Title:__________________________


                                   GUARANTORS:

                                   EUROPEAN MICRO HOLDINGS, INC.

                                   By:_____________________________
                                   Title:__________________________


                                   AMERICAN MICRO COMPUTER CENTER, INC.

                                   By:_____________________________
                                   Title:__________________________


                                       27