Exhibit 10.16

                                                                [EXECUTION COPY]

                          LOAN AND SECURITY AGREEMENT

       THIS LOAN AND SECURITY  AGREEMENT (this  "Agreement") is made and entered
into  as of  April  30,  2001,  by  and  between  LEARNCOM,  INC.,  an  Illinois
corporation,  with its  principal  place of business  located at 714  Industrial
Drive,  Bensenville,  Illinois 60106; LEARNCOM,  INC., a Nevada corporation with
its principal place of business  located at 714 Industrial  Drive,  Bensenville,
Illinois 60106; VIDEOLEARNING SYSTEMS, INC., a Pennsylvania corporation with its
principal  place  of  business  located  at  850  West  Lancaster,   Bryn  Mawr,
Pennsylvania  19010; BNA  COMMUNICATIONS,  INC. a Delaware  corporation with its
principal  place of  business  located  at 714  Industrial  Drive,  Bensenville,
Illinois  60106;  TS  ACQUISITIONS,  INC. with its  principal  place of business
located at 714 Industrial  Drive,  Bensenville,  Illinois  60106  (collectively,
"Borrower"), and AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a national
banking  association,  with its principal place of business at 120 South LaSalle
Street, Chicago, Illinois 60603 ("Lender").


                                 R E C I T A L S

       WHEREAS,  each Borrower is affiliated  through  common  ownership  and/or
control and each directly benefits by the availability of credit to the Borrower
as a whole.

       WHEREAS,  Borrower  desires to borrow from Lender an aggregate amount not
to exceed Eight Hundred  Twenty Seven  Thousand Five Hundred and No/100  Dollars
($827,500.00), which may be referred to herein as the "Term Loan".

       WHEREAS,  Borrower  desires to borrow from Lender an aggregate amount not
to exceed Five Hundred Thousand and No/100 Dollars  ($500,000.00),  which may be
referred to herein as the "Revolving Loan".

       WHEREAS,  in order to induce  Lender to extend credit to the Borrower and
to enter into this Agreement and the other Loan Documents (as defined herein) to
which Lender is a party, the Borrower has agreed that the obligations  hereunder
and under the other Loan  Documents  will be fully secured by the Assets of each
Borrower,  as further set forth herein and  documented as part of this Agreement
and the Loan Documents.

       WHEREAS,  Lender  has  required  as a  condition  to  entering  into this
Agreement and making the Term Loan that Borrower  secure this  Agreement and the
other Loan Documents with a blanket lien on the Assets.

<PAGE>


       NOW THEREFORE,  in consideration of the mutual promises herein contained,
and each intending to be legally bound thereby, the parties agree as follows:

                             Section 1. DEFINITIONS

       1.01   DEFINITIONS.  The following terms,  when used in this Agreement or
any of the Other Agreements (as hereinafter defined) shall have the meanings set
forth herein,  and such meanings  shall be applicable to the singular and plural
form thereof giving effect to the numerical difference.

              "AFFILIATE" shall mean any Person which is controlled by Borrower,
under common  control with  Borrower or having  common  shareholders  or members
owning at least ten percent  (10%) of Borrower,  whether such common  control be
direct or indirect. All of Borrower's officers, shareholders,  directors, parent
and subsidiary  corporations,  members,  managers, joint venturers, and partners
(whether general or limited) shall be deemed Borrower's  Affiliates for purposes
of this Agreement. For purposes of this paragraph, control is defined to include
the power, directly or indirectly through one or more intermediaries,  to direct
the management  and policies of any sole  proprietorship,  partnership,  limited
liability  company or  corporation,  whether  through the ownership of stock, by
contract or otherwise.

              "ASSETS"  shall mean all assets of such  Person as  required to be
included in the balance sheet of such Person in accordance with GAAP.

              "BORROWING BASE" shall mean an amount equal to the lesser of:

                     (a)    $500,000.00 in the aggregate; or

                     (b)    up to  seventy-five  percent  (75%) of the net value
(after deduc tion of such reserves as Lender deems  necessary or desirable)  due
on Eligible  Receivables assigned to Lender to the extent the Receivables Debtor
is the

              "BORROWING BASE CERTIFICATE"  means the Certificate  prepared on a
monthly  basis by  Borrower  in  substantially  the form of  EXHIBIT  7.01(B)(I)
attached hereto and by this reference incorporated herein.

              "BUSINESS  DAY"  means a day of the  year on which  banks  are not
required or authorized to close in Chicago, Illinois.

              "CHARGES" shall mean all national,  federal,  state, county, city,
municipal, and/or other governmental (including, without limitation, the Pension
Benefit Guaranty Corporation) taxes, levies, assessments, charges, liens, claims
or encumbrances upon and/or relating to:

                                      -2-
<PAGE>


                     (a)    the Collateral;

                     (b)    the Obligations;

                     (c)    Borrower's employees,  payroll,  income and/or gross
                            receipts;

                     (d)    Borrower's  ownership  and/or  use  of  any  of  its
                            assets; and/or

                     (e)    any other aspect of Borrower's business.

              "COLLATERAL"  shall  mean  the  total  Assets  of  each  Borrower,
including the following, whether now owned or hereafter acquired by or on behalf
of each Borrower:

                     (a)    All accounts, Receivables,  contract rights, general
intangibles,  goodwill,  trademarks,  trade names,  copyrights,  patent  rights,
chattel paper, instruments,  documents,  acceptances,  notes, drafts, inventory,
goods,  securities,  deposits,  cash, tax refunds, books, records,  customer and
supplier lists, ledgers,  invoices,  purchase and sales orders, data processing,
computer and telecommunications  systems,  including software systems incidental
thereto,  insurance  policies and  certificates,  guaranties,  liens,  and other
personal  property,  and  all  proceeds,  products,   renewals,   substitutions,
replacements, additions and accessions thereto; and

                     (b)    All monies, reserves, deposits, deposit accounts and
interest or dividends thereon,  securities, cash, and cash equivalents and other
property now or at any time or times  hereafter in the  possession  or under the
control of Lender or its bailee; and

                     (c)    All  machinery,  equipment,  apparatus,  appliances,
furniture,  furnishings,  fixtures and supplies,  whether now owned or hereafter
acquired; and

                     (d)    Any  and  all  goodwill,  trademarks,  trade  names,
option rights, books and records, and general intangibles of Borrower; and

                     (e)    Any and all rights of Borrower  under any  contracts
executed by Borrower with any provider of goods or services for or in connection
with any construction  undertaken on or services performed or to be performed in
connection with any property; and

                     (f)    All  proceeds,  products,  renewals,  substitutions,
replacements,  additions  and  accessions  to  any of the  other  categories  of
Collateral contained in this definition; and

                                      -3-
<PAGE>


                     (g)    All other  Collateral  or property  with  respect to
which Borrower has or may hereafter grant to Lender a lien or security interest.

              "CREDIT  COMMITMENT" means the Revolving Credit Commitment and the
Term  Credit  Commitment,  which  shall  be the  maximum  commitment  of  Lender
hereunder.

              "DEBT  SERVICE  COVERAGE  RATIO"  means,  for any period,  for any
Person the ratio  determined  by dividing (i) net income of such Person for such
period plus  interest  expense  (other  than  interest  expense on  subordinated
indebtedness  which is the subject of an  intercreditor  agreement with Lender),
depreciation  and  amortization,  by (ii) the  principal and interest due on all
Indebtedness  (excluding  subordinated  indebtedness  which is the subject of an
intercreditor  agreement  with  Lender)  of such  Person  for such  period,  all
determined in accordance with generally accepted accounting principles.

              "DEFAULT  INTEREST RATE" shall mean three percent (3.0%) in excess
of the otherwise  applicable  rate of interest set forth and payable as provided
in the Notes and shall  apply for the  period of time after the  Revolving  Loan
Maturity Date or the Term Loan  Maturity  Date, as the case may be, and/or after
the occurrence of an Event of Default.

              "ELIGIBLE RECEIVABLES" shall mean those Receivables:

                     (a)    which do not violate the warranties, representations
and negative covenants contained herein;

                     (b)    which   comply   with  the   affirmative   covenants
contained herein;

                     (c)    which are due within thirty (30) days after the date
of the original invoice issued by Borrower and are fully paid within one hundred
twenty  (120) days after the date of the  original  invoice  thereof;  provided,
however,  in the event more than ten percent  (10%) of the balance  owing on all
Receivables  owed by a particular  Receivables  Debtor become or remain due more
than  ninety  (90) days after the date of the  original  invoice  therefor,  all
Receivables owed by that Receivables Debtor shall be ineligible;

                     (d)    which arise from sales of  Inventory  or other goods
to any Person made in the  ordinary  course of  Borrower's  business or from the
rendering of services by Borrower and such services have been fully  rendered or
performed for any Person, unless such Person:

                     (i)    is an Affiliate of Borrower; or

                     (ii)   has filed a petition for  bankruptcy or other relief
under the then existing  Bankruptcy  Code, made an assignment for the benefit of
its creditors,  suspended its business operations,  become insolvent, suffered a
receiver  or trustee  to be  appointed  for its assets or affairs or  suffered a
petition or other application for relief to be filed against it; or

                                      -4-
<PAGE>


                     (iii)  is a supplier  to or creditor  of  Borrower,  unless
such  person has entered  into an  agreement  with Lender  waiving its rights of
set-off or unless Borrower's obligations to such supplier or creditor are backed
by a letter of credit  acceptable  to  Lender,  issued  or  confirmed  by a bank
acceptable to Lender; or

                     (iv)   is located  outside the  continental  United States,
unless such sale is backed by a letter of credit acceptable to Lender, issued or
confirmed by a bank acceptable to Lender; or

                     (v)    is the United  States of America or any  department,
instrumen tality, agency or political subdivision thereof; or

                     (vi)   is a  Receivables  Debtor  whose total  Receivables,
Eligible or  otherwise,  owed to Borrower,  exceed a credit limit  determined by
Lender in its sole discretion;

                     (e)    which the  Receivables  Debtor has not  disputed nor
objected to the goods or services of Borrower nor rejected,  returned or refused
to accept  such goods or services  nor made any claim with  respect to any other
Receivables due from such Receivables Debtor;

                     (f)    which  are not and may  not  become  subject  to any
right of set- off,  counterclaim or other defense on the part of the Receivables
Debtor  or to any  claim  on the  part of the  Receivables  Debtor,  unless  the
Receivables Debtor shall have entered into an agreement with Lender waiving such
right of set-off, counterclaim of other defense;

                     (g)    which  do  not  arise  out  of  a  sale  made  on  a
bill-and-hold,  guaranteed  sale,  sale on approval,  consignment,  or any other
return or repurchase basis;

                     (h)    which do not arise out of a  contract  containing  a
prohibition against assigning or granting a security interest therein;

                     (i)    which do not arise  from an  invoice,  statement  or
other evidence of indebtedness which has been re-dated;

                     (j)    which are not, in Lender's sole  judgment,  an undue
credit risk, or otherwise ineligible; and

                     (k)    which  are  not  subject  to any  lien  or  security
interest  whatsoever  other than those liens and security  interests  granted to
Lender.

                     Receivables  which  are at any  time  Eligible  Receivables
shall  immediately  cease  to be  Eligible  Receivables  at  such  time  as said
Receivables  shall fail to meet any of the foregoing  requirements and shall not
thereafter  be  classified  as  Eligible  Receivables  until  such  time as said
Receivables shall meet all of the foregoing

                                      -5-
<PAGE>


requirements.  No Receivables owing by a particular  Receivables Debtor shall be
considered  Eligible  Receivables  if  twenty-five  percent (25%) or more of the
aggregate  amount of the Receivables  owing by such  Receivables  Debtor,  or an
Affiliate of such Receivables Debtor, shall not be Eligible Receivables.

              "EVENT OF DEFAULT"  shall mean any of the events listed in Section
10.01 hereof.

              "FINANCIALS" shall mean those financial statements of Borrower and
Guarantors which have heretofore been submitted to Lender.

              "GAAP" means generally accepted  accounting  principles as applied
in the United States of America by the Financial  Accounting  Standards Board as
may be amended from time to time.

              "GUARANTOR"   or   "GUARANTORS"   shall  mean,   individually   or
collectively,  as the context so requires,  Denis Mola, David Doerge,  and Lloyd
Singer, jointly and severally.

              "GUARANTY" shall mean that certain Personal  Guaranty of even date
herewith  executed  jointly  and  severally  by  Guarantors,  as the same may be
amended from time to time.

              "INDEBTEDNESS"  means any  obligation for borrowed money or credit
extended,  including any guaranty of borrowed money or credit  extended,  or any
installment sale and capitalized  lease  obligation,  incurred or assumed by any
such Person.

              "INTERCREDITOR  AGREEMENT"  means the  Intercreditor  Agreement of
even date herewith  among  Borrower,  The Doerge Capital  Collateralized  Bridge
Fund, L.P., a Delaware limited partnership, and Lender.

              "INVENTORY" shall mean any and all inventory of Borrower,  whether
now owned or hereafter acquired, including, without limitation:

                     (a)    all  goods  manufactured  or  acquired  for  sale or
lease,  and any  piece  goods,  raw  materials,  work in  process  and  finished
merchandise,  goods, incidentals,  office supplies, packaging materials, and any
and all  items,  including  machinery  and  equipment  used or  consumed  in the
operation  of the  business of Borrower  and which  contribute  to the  finished
product or to the sale, promotion and shipment thereof, in which Borrower now or
at any time  hereafter  may have an interest  whether or not such  inventory  is
listed in this  Agreement  or on any  reports  furnished  to Lender from time to
time; and

                     (b)    all inventory  whether or not the same is in transit
or in the constructive,  actual or exclusive occupancy or possession of Borrower
or is held by Borrower or by others for Borrower's account,  including,  without
limitation,  all goods covered by purchase  orders and contracts  with suppliers
and all goods billed and held by suppliers; and

                                      -6-
<PAGE>


                     (c)    all  inventory  which may be located on the premises
of  Borrower  or of any  carrier,  forwarding  agents,  truckers,  warehousemen,
vendors, selling agents or third parties; and

                     (d)    all general  intangibles  relating to or arising out
of the foregoing; and

                     (e)    all proceeds and products of the foregoing resulting
from the sale, lease or other disposition of inventory, including cash, accounts
receivable, other non-cash proceeds and trade-ins.

              "LOAN" shall mean the Revolving Loan or the Term Loan, or both, as
the case may be in accordance with Section 4.01 hereof.

              "LOAN  ACCOUNT"  shall have the  meaning  ascribed to such term in
Section 4.01(d) hereof.

              "NOTE" shall mean the Revolving Note or the Term Loan Note, as the
case may be, or both.

              "OBLIGATIONS" shall mean and include all loans,  advances,  debts,
liabilities,  obligations, covenants and duties owing to Lender from Borrower of
any kind or nature,  present or future,  whether or not  evidenced  by any note,
guaranty  or other  instrument,  whether  arising by reason of an  extension  of
credit, opening of a letter of credit, loan, guaranty, indemnification or in any
other  manner,   whether  direct  or  indirect   (including  those  acquired  by
assignment),  absolute  or  contingent,  due or to become due,  now  existing or
hereafter arising and however acquired.  The term includes,  without limitation,
all interest, charges, expenses, fees, and any other sums chargeable to Borrower
under this  Agreement or any of the Other  Agreements  with  Borrower.  The term
further  includes,  without  limitation,  all costs and  expenses  of  attorneys
engaged by Lender,  including local counsel fees and costs and expenses incurred
by paralegals and other staff employed by such attorneys, and further, the fees,
costs  and   expenses  of   appraisers,   consultants,   accountants   or  other
professionals  engaged in connection  with the drafting and  preparation of this
Agreement and the Other  Agreements,  and the  administration,  enforcement  and
defense  of this  Agreement,  the  Other  Agreements  or the  relationships  and
security interest created thereunder, or the collection of the Obligations.  The
term further includes all out- of-pocket expenses incurred by Lender, and/or its
agents  or  employees  incurred  with  respect  to  this  Agreement,  the  Other
Agreements,  the relationship and security interest created  thereunder,  or the
administration,  defense  or  enforcement  thereof  and  the  collection  of the
Obligations.

              "OTHER  AGREEMENTS"  shall mean all  agreements,  instruments  and
documents,  including, without limitation, the Note, the Security Agreement, the
Guaranty,  the  Intercreditor   Agreement  and  all  other  notes,   guaranties,
mortgages, deeds of trust, pledges, powers of attorney,  consents,  assignments,
contracts, letters of credit, notices,

                                      -7-
<PAGE>


security   agreements,   agreements  or  other  documents,   leases,   financing
statements,  applications  and  all  other  written  matter  heretofore,  now or
hereafter  executed by or on behalf of Borrower and  delivered to Lender,  or in
connection  with which  Borrower may be indebted,  the  provisions  of which are
incorporated herein by reference.

              "PERSON" shall mean any individual, sole proprietorship,  general,
limited or other partnership,  joint venture,  limited liability company, trust,
unincorporated  organization,  association,  corporation,  institution,  entity,
party or government (whether national,  federal,  state, county, city, municipal
or otherwise,  including,  without limitation,  any  instrumentality,  division,
agency, body, political subdivision or departments thereof).

              "PRIME RATE" of Lender as announced by Lender from time to time in
effect hereunder,  on a floating basis,  computed and payable monthly in arrears
on the basis of actual days  elapsed and a three  hundred  sixty (360) day year.
The Prime Rate may not  necessarily  be the best rate  charged  by  Lender.  Any
change in the Prime Rate shall become  effective  immediately  on the day of the
announced change in the Prime Rate.

              "RECEIVABLES" shall mean and include all of Borrower's present and
future rights to payment for goods,  merchandise  or Inventory sold or leased or
for  services  rendered,  including,  without  limitation,  those  which are not
evidenced by  instruments  or chattel  paper,  and whether or not they have been
earned by  performance,  whether  or not the same are  listed on any  schedules,
reports or assignments  furnished to Lender from time to time, or any letters of
credit on which  Borrower  is named as  beneficiary,  contract  rights,  chattel
paper,  instruments,  documents,  insurance  proceeds,  and all such obligations
whatsoever owing to Borrower, together with all instruments and all documents of
title representing any of the foregoing, all rights in any goods, merchandise or
Inventory  which any of the same may  represent,  all rights in any  returned or
repossessed goods, merchandise and Inventory, and all right, title, security and
guaranties with respect to each of the foregoing, including, without limitation,
any right of stoppage in transit,  replevin and reclamation and all other rights
and remedies of an unpaid vendor or lienor,  and any liens held by Borrower as a
mechanic,  contractor,   subcontractor,   processor,   materialman,   machinist,
manufacturer, artisan or otherwise.

              "RECEIVABLES  DEBTOR" shall mean that Person obligated to Borrower
on any Receivable, whether one or more.

              "REVOLVING  CREDIT  COMMITMENT"  means the  lesser  of the  amount
established  under the Borrowing Base  Certificate and Five Hundred Thousand and
No/100 ($500,000.00).

              "REVOLVING INTEREST RATE" shall mean with respect to the Revolving
a rate of interest established as set forth in Section 4.01 hereof.

              "REVOLVING  LOAN  MATURITY  DATE"  shall mean the  earliest of (i)
April 28, 2002 or (ii) the occurrence of an Event of Default hereunder.

                                      -8-
<PAGE>


              "REVOLVING  NOTE"  shall  mean  the  Revolving  Note of even  date
herewith in the  principal  amount of Five Hundred  Thousand and No/100  Dollars
($500,000.00)  to be executed by Borrower  and payable to the order of Lender in
the form of EXHIBIT  1.01  attached  hereto and made part hereof and any and all
extensions  and  renewals  thereof,  amendments  thereto  and  substitutions  or
replacements therefor.

              "TERM LOAN CREDIT  COMMITMENT" shall mean the one-time  commitment
by Lender to loan Borrower Eight Hundred Twenty-Seven  Thousand Five Hundred and
No/100 Dollars ($827,500.00).

              "TERM LOAN INTEREST RATE" shall mean with respect to the Term Loan
a rate of interest established as set forth in Section 4.02 hereof.

              "TERM LOAN MATURITY DATE" shall mean the earliest of (i) April 28,
2002 or (ii) the occurrence of an Event of Default hereunder.

              "TERM  LOAN NOTE"  shall mean the Term Loan Note in the  principal
amount of Eight Hundred  Twenty-Seven  Thousand Five Hundred and No/100  Dollars
($827,500.00)  to be executed by Borrower  and payable to the order of Lender in
substantially the form of EXHIBIT 1.01 attached hereto and made part thereof and
any  and  all  extensions   and  renewals   thereof,   amendments   thereto  and
substitutions or replacements therefor.

              1.02   GENERAL.  Unless  otherwise  specifically  defined  in this
Agreement,   any  accounting   terms  used  in  this  Agreement  which  are  not
specifically   defined  shall  have  the  meanings  customarily  given  them  in
accordance  with  Generally  Accepted  Accounting  Principles.  All other  terms
contained in this Agreement shall, unless the context indicates otherwise,  have
the meanings provided for by the Uniform  Commercial Code in effect from time to
time in the State of  Illinois  (the  "Code") to the extent the same are defined
therein.

                    Section 2. REPRESENTATIONS AND WARRANTIES

       Borrower makes the following representations and warranties to Lender and
all future  holders of any part of the  Obligations.  Such  representations  and
warranties  shall be true  throughout  the  entire  term of this  Agreement  and
thereafter so long as any of the Obligations remain unpaid.

       2.01   PLACES OF BUSINESS.  The chief place of business of each  Borrower
is as set forth on the first page of this  Agreement.  Borrower has other places
of business solely at the locations identified in SCHEDULE 2.01 attached hereto.
Borrower  shall  provide  Lender with  written  notice at least thirty (30) days
prior to any change in, addition to, or  discontinuance  of Borrower place(s) of
business.

       2.02   STATUS.  Borrower  is,  and at all  times  hereafter  shall  be, a
corporation duly organized, validly existing and in good standing under the laws
of the state of incorporation

                                      -9-
<PAGE>


and qualified or licensed to do business in good standing in all states in which
the laws therefor require Borrower to be so qualified and/or licensed.

       2.03   AUTHORIZATION.  Borrower has the right,  power and capacity and is
duly  authorized  to (i)  execute  and  deliver  this  Agreement  and the  Other
Agreements,  (ii) perform  Borrower's  obligations  hereunder and thereunder and
(iii) subject the  Collateral to the lien and security  interest of Lender.  The
execution  and  delivery of this  Agreement  and the Other  Agreements,  and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by all appropriate action by Borrower and no other action is required
with respect thereto. This Agreement constitutes,  and the Other Agreements when
executed and delivered  pursuant hereto will  constitute,  the duly  authorized,
valid and legally  binding  obligation of Borrower.  This  Agreement is, and the
Other   Agreements  when  executed  and  delivered   pursuant  hereto  will  be,
enforceable strictly in accordance with their respective terms.

       2.04   CONFLICTS.  The execution  and delivery of this  Agreement and the
Other Agreements,  and the performance by Borrower of its obligations under this
Agreement (including the pledge of Collateral) and the Other Agreements,  do not
and  will  not  conflict  with  the  provisions  of (i) any  law,  order,  rule,
regulation,  writ,  injunction  or decree,  now or hereafter  in effect,  of any
government,  governmental instrumentality or agency or court having jurisdiction
over Borrower or Borrower's assets; (ii) the articles of incorporation,  bylaws,
shareholders  agreement or similar document of Borrower;  or (iii) any contract,
agreement,  deed,  commitment  or other  instrument  binding  upon  Borrower  or
Borrower's  assets,  or give  cause  for  acceleration  of any  indebtedness  of
Borrower.  Without limiting the generality of the foregoing,  Borrower is not in
default under any contract,  agreement,  deed, commitment or other instrument to
which it is a party or by which it is bound.

       2.05   FINANCIALS AND INFORMATION.  The Financials and other  information
which  Borrower  has  submitted  to Lender to induce it to make and  continue in
force  the  Obligations  have been  prepared  from its  books  and  records  and
accurately  present the  financial  condition of Borrower as of the date thereof
and for the periods ending and the respective  dates stated therein.  There have
been no material  adverse changes in either  Borrower's  financial  condition or
business since the date as of which the most recent  Balance Sheet  submitted to
Lender was prepared.  As of the date of said  Financials and other  information,
Borrower  did not  have  any  material  contingent  liabilities  which  were not
provided for or disclosed in the  aforesaid  Financials  and other  information.
Borrower has not sold or otherwise  disposed of any of its assets or  properties
described in the aforesaid  Financials and other information other than for fair
consideration  actually received. The Financials and other information submitted
by each  Guarantor  accurately  present  the  financial  condition  of each such
Guarantor  as of the  respective  dates stated  therein,  and there have been no
material adverse changes in such financial condition since such dates.

       2.06   LIENS AND  ENCUMBRANCES.  Except  as  expressly  disclosed  in the
Financials and this  Agreement,  none of the properties or assets of Borrower is
subject to any

                                      -10-
<PAGE>


mortgage,  pledge,  lien,  encumbrance  or  security  interest  other than liens
created in favor of Lender.

       2.07   CONTINGENT LIABILITIES. Borrower is not a party to any suretyship,
guaranty, or other similar type agreement; nor has it offered its endorsement to
any  individual  concern or acted or failed to act in any manner  which would in
any way create a contingent  liability  that does not appear in the  Financials.
Borrower  has no pending  obligations  or  liabilities,  except  trade  payables
arising  since the date of the  Financials  in the ordinary  course of business,
which would adversely affect its business operations or the Collateral.

       2.08   USE  OF  PROCEEDS.  The  proceeds  of  the  advances  contemplated
hereunder shall be used for the purposes specified in 815 ILCS 205/4(1)(c),  and
the advances contemplated  hereunder constitute business loans which come within
the purview of 815 ILCS 205/4(1)(c).

       2.09   OTHER IDENTITY.  During the preceding five (5) years, Borrower has
not  been  known  by or  done  business  under  any  other  name,  corporate  or
fictitious.

       2.10   TAXES AND ASSESSMENTS.  No claims for past due taxes are presently
being asserted against Borrower,  and Borrower is not aware of any factual basis
for the assertion  against it of any claim for past due taxes which,  if decided
adversely to Borrower,  would have a material  adverse  effect on the  financial
condition  of  Borrower.  Borrower  has filed all  federal,  state and local tax
returns  required  to be filed by it prior to the date  hereof and has paid,  or
made adequate provisions for the payment of, all taxes and other sums which have
or may become due  pursuant  to such  returns or to any  assessments  heretofore
received by it.  Borrower has established  adequate  reserves for the payment of
all federal,  state and local income taxes,  if any, the payment of which is not
yet due. Borrower has not executed any presently  effective waiver extending the
period of the applicable  statute of limitations in respect to any liability for
federal income taxes.

       2.11   LITIGATION.  Borrower is not a party to (or, to the best knowledge
of Borrower,  threatened  with) any claims,  legal actions or other  proceedings
before any court or  administrative  department or agency. To the best knowledge
of  Borrower,  Borrower  is not  aware of any  factual  occurrences  that  would
reasonably  afford a basis  for any  material  adverse  cause of action or claim
against Borrower, the Collateral or the business carried on by Borrower.

       2.12   BANKRUPTCIES.  During the preceding  five (5) years,  Borrower has
not  filed or had filed  against  it any  bankruptcy,  receivership  or  similar
petitions nor has it made any assignments for the benefit of creditors.

       2.13   CONTRACTS.  No  contract,  governmental  or  otherwise,  to  which
Borrower  is a party,  is subject to  renegotiation,  nor is Borrower in default
under any material contract.

                                      -11-
<PAGE>


       2.14   COLLECTIVE BARGAINING  AGREEMENTS,  EMPLOYEE BENEFIT PLANS. Except
as described on SCHEDULE  2.14 attached  hereto,  Borrower is not a party to any
collective  bargaining,  union or pension plan agreement.  Borrower has provided
Lender with copies of all such agreements.

       2.15   ERISA  COMPLIANCE.  Except as  described  on  SCHEDULE  2.14:  (a)
Borrower is not an "employee  benefit  plan" (within the meaning of Section 3(3)
of the Employee  Retirement Income Security Act of 1974, as amended from time to
time ("ERISA"),  to which ERISA applies, and Borrower's assets do not constitute
assets of any such plan;  (b) neither  Borrower nor any of its  Affiliates  is a
party to any plan defined and regulated under ERISA or under Section 4975 of the
Internal  Revenue  Code of  1986,  as  amended,  and (c) none of the  assets  of
Borrower  or any  Affiliate  are "plan  assets" as defined in 29 C.F.R.  Section
2509.75-2 or Section 2510.3-101.  No fact,  including,  without limitation,  any
"Reportable  Event",  as that term is defined in Section 4043 of ERISA exists in
connection  with any pension  plan  (herein  called a "Plan") of Borrower  which
might constitute grounds for termination of any such Plan by the Pension Benefit
Guaranty  Corporation or for the  appointment by the  appropriate  United States
District  Court of a  trustee  to  administer  any  such  Plan.  No  "Prohibited
Transaction"  within the  meaning of Section  406 of ERISA  exists or will exist
upon the  execution  and delivery of this  Agreement or the  performance  by the
parties hereto of their respective  duties and obligations  hereunder.  Borrower
agrees to do all acts,  including,  without  limitation,  to make  contributions
necessary to maintain compliance with ERISA and agrees not to terminate any such
Plan  in a  manner  or do or  fail  to do any  act  which  could  result  in the
imposition of a lien on any property of Borrower pursuant to Section 406B of the
ERISA.  Borrower has incurred no withdrawal  liability  under the  Multiemployer
Pension  Plan  Amendment  Act of 1980,  as the same may be amended  from time to
time.

       2.16   RICO. There are no suits,  actions or proceedings  pending (or, to
the  best  knowledge  of  Borrower,  threatened)  against  Borrower,  any of its
partners,  shareholders,   Affiliates  or  any  Guarantor  under  the  Racketeer
Influenced and Corrupt  Organizations  Act of 1970 or any other federal or state
law,  for which  forfeiture  of assets is a potential  penalty (a "RICO  Related
Law").

       2.17   COMPLIANCE WITH LAWS AND REGULATIONS. Borrower is not in violation
of any notice, order, petition or similar document in connection with or arising
out of any environmental,  health or safety law,  regulation or order, and knows
of no  basis  for any such  violation  or  threat  thereof.  Borrower  is not in
violation  of any  other  federal,  state or local  law,  regulation  or  order.
Borrower  covenants  that it shall file or cause to be filed in a timely  manner
all reports,  applications,  estimates, licenses and other documents required by
any governmental authority.

       2.18   LICENSES,  PERMITS.  Borrower requires no license, permit or other
permission from any  governmental,  agency or subdivision  thereof,  or from any
licensing  entity,  other than those listed in SCHEDULE 2.18(i) attached hereto,
which  Borrower  represents to be in good standing and in full force and effect.
Borrower possesses adequate licenses,

                                      -12-
<PAGE>


patents, patent applications,  copyrights,  trademarks,  trademark applications,
and trade names to continue to conduct its business as  heretofore  conducted by
it.

       2.19   OWNERSHIP  OF  COLLATERAL.  Borrower  has,  or as to any  and  all
Collateral  hereafter  acquired  will have,  and shall  continue to have,  good,
indefeasible and marketable  title to and ownership of the Collateral,  free and
clear of all mortgages,  pledges,  liens,  encumbrances  and security  interests
other  than  liens  and  security  interests  created  in favor of  Lender or as
expressly  permitted  hereunder.  Borrower  will not,  without the prior written
consent of Lender, sell, transfer, convey, lease, assign or otherwise dispose of
any Collateral  (other than  Inventory sold or leased in the ordinary  course of
business), or permit anything to be done that may impair the value of any of the
Collateral or the security  intended to be afforded hereby,  or create or permit
to exist any mortgage,  pledge, lien,  encumbrance or other security interest in
any  Collateral  other than the lien created  pursuant to this Agreement and any
other liens created in favor of Lender. Borrower shall pay promptly when due all
taxes and  assessments  upon the  Collateral or for its use or operation and, if
requested in writing by Lender,  shall  deliver to Lender,  within ten (10) days
after such request,  a receipt or other evidence  satisfactory  to Lender of the
payment  thereof.  Lender will have,  so long as any of the  Obligations  remain
unpaid,  a good and valid  lien upon the  Collateral  prior to the rights of all
third parties  whomsoever  and Borrower will defend the  Collateral  against all
claims and demands of all such third  parties.  Borrower is fully  authorized to
sell,  transfer,  pledge and/or grant a security interest in each and every item
of the  Collateral to Lender;  all documents  and  agreements  shall be true and
correct  and in all  respects  what  they  purport  to be;  all  signatures  and
endorsements  that  appear  thereon  shall be genuine  and all  signatories  and
endorsers  shall  have  full  capacity  to  contract;  none of the  transactions
underlying or giving rise to the Collateral  shall violate any applicable  state
or federal laws or regulations;  all documents  relating to the Collateral shall
be  legally  sufficient  under  such laws or  regulations  and shall be  legally
enforceable in accordance  with their terms;  and Borrower  agrees to defend the
Collateral  against  the  claims  of  all  persons  other  than  Lender.  If the
Collateral,  or any part  thereof is at any time in any manner  converted by its
issuer or maker into  another  type of property  or any money or other  proceeds
ever be paid or  delivered to Borrower as a result of  Borrower's  rights in the
Collateral, then, in any such event, all such property, money and other proceeds
shall become part of the Collateral,  and Borrower covenants to forthwith pay or
deliver to Lender all of the same which is  susceptible  of delivery and, at the
same time, if Lender deems it necessary and so requests,  Borrower will properly
endorse  or assign the same.  With  respect  to any of such  property  of a kind
requiring  any  additional  security  agreement,  financing  statement  or other
writing to perfect a security interest therein in favor of Lender, Borrower will
forthwith  execute and deliver to Lender whatever Lender shall deem necessary or
proper for such purpose.

       2.20   ADDITIONAL  INSTRUMENTS.  Borrower  shall  from  time  to  time do
whatever  Lender  may  reasonably  request  by  way  of  obtaining,   executing,
delivering and filing financing  statements,  landlord's or mortgagee's waivers,
and  other  notices,  agreements,  documents,  instruments  and  amendments  and
renewals  thereof,  and  Borrower  will take any and all steps and observe  such
formalities as Lender may request in order to create and maintain

                                      -13-
<PAGE>


a valid and  enforceable  first lien upon,  pledge  of, and  paramount  security
interest  in,  any and  all of the  Collateral.  Lender  is  authorized  to file
financing  statements without  Borrower's  signature or to execute and file such
financing statements on Borrower's behalf as specified by the Code to perfect or
maintain its security interest in all of the Collateral.  Borrower agrees that a
carbon, photographic, photostatic, or other reproduction of this Agreement or of
a financing  statement  is  sufficient  as a financing  statement.  All charges,
expenses and fees Lender may incur in filing any of the foregoing, together with
costs and  expenses of any lien search  reasonably  required by Lender,  and any
taxes relating thereto, shall be charged to Borrower's Loan Account and added to
the Obligations.

       2.21   BORROWER'S FINANCIAL CONDITION. Borrower now has and shall have at
all times hereafter capital sufficient to conduct its current business and other
transactions and those in which it may hereafter engage.  Borrower is now and at
all times  hereafter  shall be solvent  and able to pay its debts as they become
due.  Borrower now owns property  having a value,  both at fair valuation and at
present fair salable value,  greater than the amounts required to pay Borrower's
debts.

       2.22   OWNERSHIP OF RECEIVABLES. Borrower is the true and lawful owner of
its  Receivables,  and has, or at the time each Receivable  comes into existence
will have, good and clear title to each  Receivable,  subject to Lender's rights
thereto.  Each  Receivable is, or at the time it comes into existence will be, a
true and correct statement of:

              (a)    the bona fide indebtedness of each Receivable Debtor; and

              (b)    the  amount  owing  for   merchandise  or  goods  sold  and
delivered  to, or for services  performed  for and accepted by, such  Receivable
Debtor. There are and will be no defenses, counterclaims,  discounts or set-offs
that may be asserted against Eligible Receivables.

       2.23   MACHINERY  AND  EQUIPMENT  AND  VEHICLES.  Borrower  covenants and
agrees to notify Lender, in writing,  no later than ten (10) Business Days prior
to the  transfer of any item of  machinery,  equipment  or vehicles to any state
other  than that where it is  located  at the date of this  Agreement  when such
transfer  is  likely  to be for a period of more than  ninety  (90)  days.  Such
writing shall identify the item, the point to which it is being  transferred and
such other information as Lender may require.

       2.24   TRUTHFUL   INFORMATION.   All  information  with  respect  to  the
Collateral set forth in any exhibit, schedule, certificate or any writing at any
time heretofore or hereafter furnished by Borrower to Lender is and will be true
and correct as of the date furnished.  Neither this Agreement nor any such other
documents,  certificates,  statements or writings delivered or made to Lender by
or on behalf of Borrower in connection with the transactions contemplated hereby
contains any untrue  statement  of a material  fact or omits to state a material
fact  necessary in order to make any statement  contained  herein or therein not
misleading in light of the circumstances in which such statement was made.

                                      -14-
<PAGE>


       2.25   FINANCING STATEMENTS.  No financing statements covering any of the
Collateral which have not been released,  other than those filed by and in favor
of Lender,  are on file in any public office.  Other than in favor of Lender, no
other security agreement covering the Collateral,  or any part thereof, has been
made and no security interest,  other than the one herein created,  has attached
or been perfected in the Collateral or in any part thereof.

       2.26   AGREEMENTS.  Borrower has not made,  nor will Borrower at any time
without  obtaining the prior written consent of Lender make, any agreement which
prohibits  or  restricts  the  pledging  or  creating  of liens  upon any of the
Collateral.

       2.27   DEFAULTS.  After giving effect to any proposed  borrowing,  (i) no
Event of  Default or event,  which  with the giving of notice or the  passage of
time, or both,  could give rise to an Event of Default,  shall have occurred and
shall  be  continuing,  and  (ii) no  litigation,  arbitration  or  governmental
proceeding  or  investigation  is pending or known by  Borrower  or Lender to be
threatened against Borrower,  which, in the sole opinion of Lender, is likely to
affect materially and adversely the financial  condition or business of Borrower
or impair  the  ability  of  Borrower  to  perform  its  obligations  under this
Agreement or under any of the Other Agreements.

       Each loan or advance  made  pursuant  to a request by  Borrower  shall be
deemed to  constitute a  representation  and warranty by Borrower to Lender that
each of the  representations,  warranties and covenants of Borrower contained in
this  Agreement are true and correct as of the date of such loan or advance with
the same force and effect as though made on the date of such loan or advance.

                              Section 3. COVENANTS

       Borrower  makes  the  following   covenants  which  shall  be  in  effect
throughout  the term of this  Agreement  and so long as any  Obligations  remain
unpaid:

       3.01   EXISTENCE. Borrower shall: (a) maintain and preserve its corporate
or company existence,  and its right to carry on its business;  (b) duly procure
all  necessary  renewals and  extensions  thereof;  (c) carry on and conduct its
business in substantially  the same manner and in substantially  the same fields
as such business is now and has heretofore  been carried on and  conducted;  and
(d) use its best  efforts to maintain,  preserve  and renew all rights,  powers,
privileges and franchises which continue to be advantageous to Borrower.

       3.02   MAINTENANCE OF COLLATERAL.  Borrower shall maintain,  preserve and
keep the Collateral and all other assets and properties in good repair,  working
order and condition and make all  necessary and proper  renewals,  replacements,
additions  and  improvements  thereto.  Borrower  shall  take any and all  steps
required in the  judgment of Lender to protect the  Collateral  and in pursuance
thereof Borrower agrees that the Collateral:

                                      -15-
<PAGE>


              (a)    shall be kept solely at the principal  business  office and
other  addresses  set forth or referred to in Section 2 hereof for  Borrower and
shall be used only in the conduct in the ordinary course of Borrower's business;

              (b)    shall not be  misused,  wasted or allowed  to  deteriorate,
except for the ordinary wear and tear resulting from its use, as aforesaid;

              (c)    shall at all times be insured against loss,  damage,  theft
and such other risks as Lender may require in such amounts, with such companies,
with such deductibles, under such policies, in such form and for such periods as
shall be  satisfactory  to Lender,  and each such policy shall  provide that the
loss thereunder and the proceeds  payable  thereunder shall be payable to Lender
as its interest may appear,  and Lender may apply any proceeds of such insurance
which may be received by Lender toward the payment of the Loans;

              (d)    shall not be used in violation of any  applicable  statute,
law, rule, regulation or ordinance; and

              (e)    may be  examined  and  inspected  by  Lender  at any  time,
wherever located.

       3.03   COMPLIANCE AND PAYMENTS. Borrower shall comply with all applicable
federal, state and local statutes, rules and regulations.  Borrower shall comply
promptly with any request of Lender not  inconsistent  with this  Agreement that
Lender from time to time may deem necessary to protect its security interest and
other rights under this  Agreement.  Borrower will cause all payments to be made
as required hereunder and under the Other Agreements. Borrower will promptly and
fully perform and discharge all of the agreements and  indebtedness  of Borrower
under or in connection  with this  Agreement and the Other  Agreements  and will
refrain from doing any act or acts that would  violate any covenant or agreement
thereunder.

       3.04   OTHER  AGREEMENTS.  Borrower  will:  (a)  execute  or  cause to be
executed, at the request of Lender, such financing statements,  notices of lien,
notices of assignment (and  continuations  or amendment of any of the foregoing)
and other documents  deemed  necessary by Lender;  (b) pay the cost of filing or
recording in all public offices deemed reasonably  necessary by Lender;  pay any
taxes or other fees payable upon such filing or recording; and (c) do such other
acts and  things,  all as Lender may from time to time  reasonably  request,  to
establish and maintain a valid security  interest in the Collateral  free of all
other  liens,  claims and rights of third  parties  whatsoever  and to otherwise
carry out the intent hereof. Borrower hereby constitutes and appoints Lender its
true and lawful  attorney-in-fact,  in the place and stead of Borrower  and with
full  power  of  substitution,  either  in  Lender's  own name or in the name of
Borrower,  to execute such financing statements and other documents and pay such
costs as Borrower is obligated  to execute and pay  pursuant to this  paragraph.
Borrower  agrees to reimburse  Lender on demand for any payment so made pursuant
to this paragraph, and until such repayment, the amount

                                      -16-
<PAGE>


so paid by  Lender  shall be added to the  principal  amount  of the  Loan.  The
appointment   hereunder  by  Borrower  of  Lender  as  its  attorney-in-fact  is
irrevocable and coupled with an interest.

       3.05   REIMBURSEMENT.  Borrower shall reimburse  Lender for all expenses,
costs and disbursements,  including,  without limitation,  reasonable attorneys'
fees and other legal costs and  expenses,  incurred or made by Lender in seeking
to enforce any rights to the Collateral  and, upon the occurrence of an Event of
Default, incurred or made by Lender in seeking to collect the Obligations and to
otherwise enforce its rights hereunder.

       3.06   INSPECTION OF BOOKS AND RECORDS. Borrower shall permit Lender, its
agents or assigns,  from time to time during business hours to inspect and audit
Borrower's  books,  records,  accounts and all other papers in the possession of
Borrower  pertaining to the  Collateral  and to make copies  thereof or extracts
therefrom  and to arrange for  verification  of  Receivables,  under  reasonable
procedures established by Lender, directly with the Receivable Debtors. Borrower
shall deliver or cause to be delivered to Lender  copies of any books,  records,
accounts  and  other  papers,   as  shall  be  requested  by  Lender.   Borrower
acknowledges and agrees that Lender  contemplates  conducting at least one field
audit annually.  The cost of such  inspection  and/or audit shall be paid for by
Borrower.

       3.07   BANKING  RELATIONSHIP.   Borrower  shall  maintain  its  principal
lending and depository relationships with Lender.

       3.08   INSURANCE. Borrower shall have and maintain at all times:

              (a)    with  respect  to  its   property,   including   Inventory,
insurance  against risks of loss,  damage,  fire (including  boiler  insurance),
theft,  pilferage,  and  sprinkler  leakage,  and other risks  covered under the
so-called broad form all-risk policies as used from time to time in the state(s)
where such property is located, and

              (b)    with respect to motor  vehicles,  collision,  comprehensive
and bodily injury insurance, and

              (c)    insurance   against   other   risks   (including,   without
limitation,  product and  umbrella  liability)  customarily  insured  against by
companies  engaged in  businesses  similar to that of  Borrower or as Lender may
from time to time request.

All insurance shall be in amounts satisfactory to Lender, and shall contain such
terms,  be in such form, be for such periods and be written by such companies as
shall be satisfactory  to Lender.  Borrower shall cause Lender to be listed as a
loss payee with a Long Form Lender's Loss Payable  Clause  acceptable to Lender.
All  policies  shall  provide for not less than  thirty (30) days prior  written
cancellation notice to Lender and such policies shall, at the request of Lender,
be  deposited  with  Lender.  In the event of failure to  provide  and  maintain
insurance as herein provided,  Lender may, at its option, provide such insurance
and charge  the amount  thereof to the  appropriate  Loan  Account of  Borrower.
Borrower

                                      -17-
<PAGE>


shall furnish to Lender Evidences of Insurance establishing  compliance with the
foregoing  insurance  provisions.  Upon the  occurrence  of an Event of  Default
hereunder  or under any of the  Other  Agreements,  Lender  is hereby  appointed
Borrower's  attorney-in-fact,  in the place and stead of Borrower  and with full
power of  substitution,  either in Lender's own name or in the name of Borrower,
to make proofs of loss and claims for insurance,  to receive insurance  proceeds
and to execute all documents,  checks and drafts in connection  with the payment
of the insurance proceeds. Lender may apply any proceeds of such insurance which
may be received by it toward payment of the Obligations,  whether or not due, in
such order of application as Lender may determine.  The appointment hereunder by
Borrower of Lender as its  attorney-in-fact  is irrevocable  and coupled with an
interest.

       3.09   TAXES  AND  CHARGES.  Borrower  will  comply  with all  applicable
statutes and  governmental  regulations and pay and discharge,  when due, before
any penalty attaches thereto for nonpayment thereof, all taxes,  assessments and
governmental  charges  of any  kind now or  hereafter  levied  upon or  assessed
against  Borrower,  the Collateral,  any income therefrom or upon the subject of
the security interest of Lender;  provided,  however, that Borrower shall not be
required to pay any such taxes,  assessments,  or other governmental  charges so
long as Borrower shall in good faith contest the validity  thereof,  and if such
contest is made, Borrower will provide for the payment of the taxes, assessments
or other governmental  charges so contested in a manner  satisfactory to Lender.
In the event  Borrower,  at any time,  fails to pay such taxes,  assessments and
charges,  or to obtain  discharges,  subject to the  provision of the  preceding
sentence  relative to  contesting  such items,  Borrower  shall so advise Lender
thereof in writing and Lender may, in its sole  discretion,  without  waiving or
releasing  any of the  Obligations  or  liability  of  Borrower  or any Event of
Default,  make such payment,  or any part thereof,  or obtain such  discharge or
take other action with respect thereto which Lender deems advisable. All sums so
paid by Lender and any  expenses  incurred  by Lender in  connection  therewith,
including,  without  limitation,  attorneys'  fees, shall be immediately due and
payable from Borrower to Lender.

       3.10   NOTICES TO LENDER. Borrower shall give immediate written notice to
Lender of:

              (a)    any substantial dispute that may arise between Borrower and
any governmental regulatory body or law enforcement authority including, without
limitation,  any local  governmental  unit having  jurisdiction  over any of the
locations identified as places of business of Borrower or any taxing authority;

              (b)    any Event of Default or any event  which,  with the passage
of time or the giving of notice, or both, would become an Event of Default;

              (c)    any judicial,  arbitral or administrative  investigation or
proceeding or litigation which could adversely  affect Borrower,  which shall be
deemed to include all those  where the amount  claimed in any one suit or action
is Ten Thousand Dollars ($10,000.00) or more;

                                      -18-
<PAGE>


              (d)    any labor controversy resulting in or threatening to result
in a strike or work stoppage against Borrower;

              (e)    any proposal by any public  authority to acquire the assets
or business of Borrower;

              (f)    the  location  of any  Collateral  at any place  other than
Borrower's  places of business as identified on the schedule attached hereto, as
may in accordance herewith be supplemented from time to time;

              (g)    any proposed or actual change of Borrower's name,  identity
or corporate structure; and

              (h)    any other  matter  which has  resulted  or may  result in a
material adverse change in Borrower's financial condition or operations.

       3.11   MERGER,  SALE OR  CONSOLIDATION.  Without  Lender's  prior written
consent,  during  the  term of this  Agreement  or so long as any of  Borrower's
Obligations remain unpaid,  Borrower shall not be a party to any sale, transfer,
conveyance, lease or other disposition of all or substantially all of its assets
except in the ordinary course of Borrower's business.

       3.12   OPERATION  OF  BORROWER'S  BUSINESS.   During  the  term  of  this
Agreement or so long as any of Borrower's Obligations remain unpaid:

              (a)    DIVIDENDS/DISTRIBUTIONS/COMPENSATION.  Borrower  shall  not
declare,  make or pay cash or stock dividends or  distributions or set aside any
funds for any such purpose in  connection  with any of  Borrower's  ownership or
membership  interests or make any distribution of Borrower's  property or assets
or make any loans,  advances or extensions of credit to, or investments  in, any
Persons, including,  without limitation, any of Borrower's Affiliates,  officers
or employees;

              (b)    CAPITAL  STRUCTURE.  As  applicable,   Borrower  shall  not
redeem,  retire,  purchase or otherwise  acquire,  directly or  indirectly,  any
shares of any class of  membership  interests or other capital  stock,  grant or
reserve  options with respect to any membership  interest or capital in Borrower
or make  any  material  change  in  Borrower's  capital  structure  or in any of
Borrower's  business  objectives,  purposes or operations which might in any way
adversely affect the repayment of the Obligations;

              (c)    TRANSACTIONS  WITH PERSONS.  Borrower shall not purchase or
otherwise acquire all or substantially all of the assets or stock of any Person;

              (d)    TRANSACTIONS  WITH  AFFILIATES.  Borrower  shall  not enter
into, or be a party to any transaction with one of Borrower's Affiliates, except
in the ordinary  course of business and pursuant to the reasonable  requirements
of  Borrower's  business  and upon  fair and  reasonable  terms  which are fully
disclosed to Lender and are no less favorable to

                                      -19-
<PAGE>


Borrower than  Borrower  would obtain in a comparable  arm's length  transaction
with a Person which is not  Borrower's  Affiliate  and,  further,  Borrower,  on
behalf of itself  and each of its  Affiliates,  hereby  waives  with  respect to
itself,  its Affiliates and/or Lender,  any common law,  statutory or consensual
rights  to set off,  cross  credit or  otherwise  eliminate  mutual  obligations
without the prior written consent of Lender;

              (e)    OTHER  TRANSACTIONS.  Borrower  shall  not  enter  into any
transaction  which  materially and adversely  affects its business,  operations,
assets,  or condition  (financial or otherwise) or the  Collateral or Borrower's
ability to repay all Obligations or permit or agree to any extension, compromise
or  settlement  or make any change or  modification  of any kind or nature  with
respect to any of the Receivables or any of the terms relating thereto;

              (f)    GUARANTIES.  Borrower shall not assume, guaranty,  become a
surety  for,  pledge its credit on,  otherwise  become  directly  or  indirectly
responsible   or  liable  in  any  manner  with  respect  to  the   obligations,
undertakings or liabilities of any Person,  except the foregoing shall not apply
to  indemnification  of managers,  officers,  directors and agents acting in the
name and on behalf of Borrower to the extent  permitted  by the law of the state
of organization of Borrower;

              (g)    DEPOSITS/WITHDRAWALS.  Except with respect to  transactions
otherwise  permitted herein,  Borrower shall not make deposits to or withdrawals
from  any  of  Borrower's  deposit  accounts  for  the  benefit  of  any  of its
Affiliates;

              (h)    ENCUMBRANCES.   Except  as  otherwise   permitted   herein,
Borrower shall not encumber,  pledge,  mortgage,  grant a security  interest in,
assign, sell, transfer,  convey, release, lease or otherwise dispose of, whether
by sale, merger,  consolidation,  liquidation,  dissolution or otherwise, any of
Borrower's assets;

              (i)    INDEBTEDNESS.  Except in the ordinary  course of Borrower's
business and other than the  Obligations,  Borrower  shall not create,  incur or
permit to exist any indebtedness for borrowed money or create or permit to exist
any mortgage, pledge, lien or other encumbrance upon or security interest in any
of the  Collateral  to or in favor of anyone  and, to the extent that Lender may
consent to an exception to the foregoing covenant,  Borrower hereby covenants to
cause  such  indebtedness  and  encumbrances  to be  subordinated  to all of the
Obligations and the rights of Lender under subordination agreements satisfactory
to Lender in its sole discretion;

              (j)    CAPITAL  EXPENDITURES.  Borrower shall not in the aggregate
make or incur  obligations  for any  capital  expenditures  in any fiscal  year,
including, without limitation,  capitalized lease obligations, in an amount that
exceeds Twenty-Five Thousand Dollars ($25,000.00);

                                      -20-
<PAGE>


              (k)    CONTINGENT  SALES.  Borrower  shall  not make a sale to any
customer on a bill-and-hold, guaranteed sale, sale and return, sale on approval,
consignment, or any other repurchase or return basis;

              (l)    BOOKS AND RECORDS.  Borrower shall not remove its books and
records concerning the Collateral, or the Collateral,  from the locations as set
forth in this  Agreement or keep any of such books and records or the Collateral
at any  office  other  than its  principal  business  locations  as set forth in
Section 2 hereof,  unless  Borrower  gives Lender  written  notice  thereof (and
referring to this  provision of this  Agreement) at least thirty (30) days prior
thereto and the same is within the continental United States of America;

              (m)    NAMES.  Borrower  shall  not use any other  corporation  or
fictitious name, except for the names disclosed in writing to Lender;

              (n)    INVESTMENTS.  Borrower  shall not make,  other  than in the
ordinary course of its business, any investment in the securities of any Person;
provided, however,  notwithstanding the foregoing, Borrower may make investments
in certificates of deposits of Lender or of a banking institution insured by the
Federal Deposit  Insurance  Corporation (the "FDIC"),  if such deposits in other
banking  institutions  are not in excess of the  maximum  amount  insured by the
FDIC;

              (o)    MANAGEMENT. Borrower shall not make, whether voluntarily or
involuntarily,  any  material  change the  Articles  of  Incorporation,  bylaws,
shareholders or other similar  agreement of Borrower,  as certified to Lender on
the date hereof, or in the management of Borrower;

              (p)    TYPE OF  BUSINESS.  Borrower  shall  not make any  material
change in the type of business it now conducts;

              (q)    HEDGING AND MARGINS.  Borrower shall not engage,  and shall
ensure that none of its officers,  employees or agents do not engage, in any one
or a series of speculative  trades or strategies with respect to the business of
Borrower; and

              (r)    DEBT  SERVICE  COVERAGE  RATIO.  Maintain a  combined  Debt
Service Coverage Ratio for each fiscal quarter commencing on June 30, 2001 equal
to or greater than 1.25:1.00.

       3.13   INVENTORY.  Upon the request of Lender,  Borrower will prepare and
submit to Lender on or before the fifteenth  (15th) day of each  calendar  month
during which any of the Obligations  remain  outstanding a statement showing the
amount and location of its Inventory as of the last day of the  preceding  month
and showing such other  information  as requested by Lender.  Lender may examine
and inspect the Inventory: (a) at any time during normal business hours prior to
the occurrence of an Event of Default;  and (b) at any time after the occurrence
of an Event of Default. Borrower shall maintain a perpetual

                                      -21-
<PAGE>


Inventory.  Borrower agrees to perform any and all reasonable steps requested by
Lender  to  protect  Lender's  rights  in  the  Inventory,   including,  without
limitation,  leasing  warehouses  to Lender or  Lender's  designee,  placing and
maintaining signs, appointing custodians, maintaining Inventory records, placing
notations on Borrower's books of account to disclose  Lender's security interest
therein,  delivering  to Lender  warehouse  receipts  covering  that  portion of
Borrower's  Inventory  located in warehouses  for which  warehouse  receipts are
issued,  transferring  Inventory to warehouses  designated by Lender, and if any
Inventory  is in the  possession  or  control  of any of  Borrower's  agents  or
processors, Borrower shall notify such agents or processors of Lender's security
interest  therein and upon request  instruct them to hold all such Inventory for
Lender's account and subject to Lender's instructions.  Borrower will deliver to
Lender a negotiable  document of title covering any Inventory  becoming  subject
thereto  and any letters of credit on which  Borrower  is named as  beneficiary.
From time to time, at Lender's  request,  Borrower  shall execute and deliver to
Lender written  confirmations  pledging to Lender the Inventory described in any
such listings or otherwise;  provided,  however, Lender's failure to execute and
deliver  such  confirmatory  instruments  shall  not  affect  or limit  Lender's
security  interest  and other rights in and to the  Inventory.  Until all of the
Obligations have been fully satisfied or released, Lender's security interest in
the Collateral,  whether now owned or hereafter  acquired,  and all proceeds and
products thereof,  shall continue in full force and effect.  Within two (2) days
of  Lender's  request  therefor,  Borrower  shall  execute and deliver to Lender
schedules of Inventory  specifying  Borrower's  cost of Inventory and such other
matters as Lender may reasonably request.

       3.14   RECEIVABLES.  On or before the fifteenth  (15th) day of each month
during which any of the Obligations  remain  outstanding,  Borrower will prepare
and  submit  to  Lender  a  statement  showing  the  age and  reconciliation  of
Receivables for the preceding  month,  which statement shall be in such form and
detail as Lender may require. Borrower covenants to give prompt notice to Lender
of  any  information  received  by  Borrower  concerning  the  Receivables,  the
Receivables   Debtors  or  other  Persons  obligated  on  Receivables  that  may
materially  affect the value  thereof or the rights and  remedies of Lender with
respect thereto. If any Receivable becomes evidenced by a promissory note, trade
acceptance  or any other  instrument  for the  payment of money,  Borrower  will
immediately  thereafter  deliver  such  instruments  to  Lender,   appropriately
endorsed to Lender, and regardless of the form of presentment, demand, notice of
dishonor,  protest,  and notice of protest with respect  thereto,  Borrower will
remain  liable  thereon  until  such  instrument  is  paid  in  full.   Borrower
unconditionally  guarantees  the payment in full of all  Receivables  and agrees
that upon the failure of any Receivable Debtor to pay within ninety (90) days of
the invoice date of any Eligible  Receivable,  such Eligible Receivable shall be
considered  in  default,  and  Borrower  will pay to Lender the  unpaid  balance
thereof; provided,  however, that any such payments need not be made if Borrower
shall have  Eligible  Receivables,  Inventory  and other  Collateral  reasonably
acceptable  to Lender to  maintain  the  aggregate  outstanding  balance  of the
Obligations at an amount not to exceed the Borrowing Base.

                                      -22-
<PAGE>


       3.15   ERISA.   Borrower  shall  not  assign,  sell,  pledge,   encumber,
transfer,  hypothecate  or  otherwise  dispose of its interest or rights in this
Agreement or attempt to do any of the foregoing or suffer any of the  foregoing,
not shall any Affiliate of Borrower assign,  sell,  pledge  encumber,  transfer,
hypothecate  or otherwise  dispose of any of its interest or rights in Borrower,
attempt  to do any of the  foregoing  or suffer  any of the  foregoing,  if such
action  would  cause the Loan,  or the  exercise  of any of  Lender's  rights in
connection therewith,  to constitute a prohibited transaction under ERISA or the
Internal  Revenue Code (unless Lender agrees in writing that the  transaction is
exempt from the  prohibited  transaction  provisions  of ERISA and the  Internal
Revenue Code based on certain representations, warranties, indemnities and other
agreements  from Borrower or its  transferee(s))  or otherwise  result in Lender
being  deemed in  violation  of any  applicable  provisions  of ERISA.  Borrower
indemnifies  and holds  Lender  free and  harmless  from and against all losses,
costs (including consequential damages) and expenses Lender may suffer by reason
of the  investigation,  defense and  settlement  of claims and in obtaining  any
prohibited transaction exemption under ERISA necessary or desirable, in Lender's
sole  judgment,  or by  reason of a breach of the  foregoing  prohibitions.  The
foregoing indemnification shall survive repayment of the Obligations.

       3.16   ASSIGNMENT. Borrower shall not assign, attempt to assign or suffer
the assignment of any of its rights under this Agreement  either  voluntarily or
by operation of law.

       3.17   ADDITIONAL  INFORMATION.  Borrower  shall furnish Lender with such
additional   information   (including,    without   limitation,    non-financial
information) concerning Borrower or the Collateral (or any Guarantor), as Lender
may from time to time reasonably request.

       3.18   INDEMNIFICATION.  Borrower  shall  indemnify and hold Lender,  its
successors and assigns,  harmless from and against any losses,  costs,  damages,
penalties,  forfeitures,  claims or  expenses  (including,  without  limitation,
attorneys' fees and legal expenses)  related to or arising from the ownership or
use of the Collateral or any portion thereof, including, without limitation, any
claims of third  parties  relating to the  infringement  of  copyright  or other
proprietary  interests in the Collateral or the unlicensed or  unauthorized  use
thereof.  Borrower  shall have the right to defend  against  any claim for which
Lender seeks  indemnity  hereunder  provided that such defense is instituted and
maintained in good faith, with counsel satisfactory to Lender.

       The delivery at any time by Borrower to Lender of the Collateral  Reports
described above shall constitute a representation and warranty by Borrower under
this Agreement  that,  with respect to such  Collateral,  and each item thereof,
Borrower is owner of the Collateral and the matters  heretofore  represented and
warranted in this Section 3 are true, complete and correct.  Further,  Borrower,
at the  request  of  Lender,  agrees  to amend  this  Agreement  and any and all
financing  statements  filed in connection  therewith for the purpose of setting
forth in said Agreement and said  financing  statements an accurate and itemized
list, when known, of the Collateral now generally described herein and in said

                                      -23-
<PAGE>


financing  statements  and to  include in said  accurate  and  itemized  list an
identification  of the  Collateral  by make,  model,  serial  number  and  other
appropriate descriptive data.

                                 Section 4. LOAN

       4.01   AGREEMENT TO BORROWER AND LEND THE REVOLVING LOAN

              (a)    Revolving Loans;  Credit  Commitment.  Subject to the terms
and  conditions of this  Agreement,  Lender,  in its sole  discretion,  may make
advances to Borrower under the Loan on a revolving basis consisting of a loan or
loans in an amount or  amounts  not to exceed  the  lesser of the (i)  Revolving
Credit  Commitment  or (ii)  Borrowing  Base,  available for  Borrower's  use at
Borrower's  request from time to time during the course of this Agreement.  Each
such advance  hereunder  shall be called a "Loan" and all such advances shall be
called the "Loans".

              (b)    Monthly  Borrowing Base;  Advances.  The amounts  allowable
under the Loan shall be  determined by reference to the monthly  Borrowing  Base
certificate,  provided  that Lender,  at any time, in its sole  discretion,  may
suspend the  restrictions  of the  Borrowing  Base,  and further  provided  that
nothing  contained  herein shall require  Lender to advance such loans or extend
such credit to Borrower  except in the exercise of the reasonable  discretion of
Lender. Each loan or advance made by Lender to Borrower pursuant to this Section
4.01 may or may not (at Lender's sole and absolute  discretion)  be evidenced by
promissory  notes or other  instruments  issued or made by  Borrower in favor of
Lender.  Where  such  loans or  advances  are not so  evidenced,  such loans and
advances  shall be evidenced  solely by entries upon Lender's books and records.
Requests  by Borrower  for loans or  advances  shall be made in writing at least
three (3) Business  Days prior to each proposed  advance on forms  acceptable to
Lender, but, at Lender's sole discretion, Lender may make an advance to Borrower
upon the oral  request of  Borrower,  subject to  confirmation  by  Borrower  in
writing.  Each  such  request  by  Borrower  for a loan or an  advance  shall be
accompanied or preceded by  certificates  setting  forth,  in form and substance
satisfactory  to  Lender,  the  amount of  Eligible  Receivables  upon which the
requested loan or advance is to be based.

              (c)    Overadvance. If at any time the aggregate unpaid balance of
all Obligations of Borrower hereunder exceeds the Borrowing Base,  Borrower will
immediately  pay Lender the amount of such excess.  All  Obligations of Borrower
shall  constitute  one  loan  secured  by  Lender's  security  interest  in  the
Collateral and by all other security  interests,  liens, claims and encumbrances
now or hereafter granted by Borrower to Lender.

              (d)    Loan Account. The amount of each loan or advance made under
the Loan by Lender to Borrower  shall be credited by Lender to a "Loan  Account"
maintained  by or on behalf  Borrower  at Lender.  Lender  shall  debit the Loan
Account (or Borrower's general disbursement account if maintained with Lender or
a  participant  of  Lender)  for all fees,  charges,  expenses  and other  items
chargeable to Borrower.  Without limiting any other provision  contained herein,
Borrower in all events promises to pay Lender on or

                                      -24-
<PAGE>


before  the  Maturity  Date  or the day  upon  which  there  occurs  a  default,
expiration or termination  of this  Agreement,  the current  balance of the Loan
Account.  All  collections  shall be applied in such order as Lender in its sole
discretion deems appropriate.

              (e)    Interest Rate.  Borrower  further agrees to pay interest on
the monthly  balance of the Loan Account (which interest shall be charged to the
Loan  Account)  at the rate per  annum  equal to the  "Prime  Rate" of Lender as
announced by Lender from time to time in effect  hereunder PLUS one percent (1%)
and,  after (i) the Revolving  Loan  Maturity Date or (ii) the  occurrence of an
Event of Default  hereunder,  at the rate  otherwise  in effect  under the terms
hereof  plus three  percent  (3%) (the  "Default  Interest  Rate") on a floating
basis,  computed  and  payable  monthly in  arrears on the basis of actual  days
elapsed and a three  hundred and sixty  (360) day year.  Borrower  shall pay all
interest  monthly in arrears  beginning  on the last  Business  Day of the month
after the first loan is made  hereunder and  continuing on the last Business Day
of each calendar  month  thereafter  until all amounts due under this  Agreement
have been paid in full.  Lender is hereby  authorized to debit  Borrower's  Loan
Account,  as of such day of such  calendar  month,  for the  interest  and other
charges accruing hereunder.

              (f)    Interest Payments.  Borrower shall pay all interest monthly
in arrears  beginning on the last Business Day of the month after the first loan
was made  hereunder  and  continuing  on the last  Business Day of each calendar
month  thereafter  until all amounts due under this  Agreement have been paid in
full. Lender is hereby  authorized to debit Borrower's Loan Account,  as of such
day of such  calendar  month,  for  the  interest  and  other  charges  accruing
hereunder.  All collections shall be applied in such order as Lender in its sole
discretion deems appropriate

       4.02   AGREEMENT TO BORROWER AND LEND THE TERM LOAN

              (a)    Borrower  hereby promises to pay to the order of Lender the
principal  sum of Eight  Hundred  Twenty-Seven  Thousand Five Hundred And No/100
Dollars  ($827,500.00),  in lawful money of the United States of America, and to
pay  interest  on the balance of  principal  from time to time  outstanding  and
unpaid hereon from the date hereof until the maturity  hereof  (whether by lapse
of time,  acceleration  or  otherwise) at the rate per annum equal to the "Prime
Rate" of Lender as  announced  by Lender  from time to time in effect  hereunder
PLUS one and  twenty-five one hundredths of one percent (1.25%) and the rate per
annum equal to the Prime Rate of Lender as announced by Lender from time to time
in effect  plus three  percent  (3%) (the  "Default  Interest  Rate")  after the
occurrence of an Event of Default hereunder,  on a floating basis,  computed and
payable  monthly  in  arrears on the basis of actual  days  elapsed  and a three
hundred and sixty (360) day year.

              (b)    Installments  of  interest  only  shall be paid  monthly in
arrears  commencing  on and  continuing  thereafter  on  the  last  day of  each
successive  calendar month.  Borrower shall make a one-time principal payment on
the Term  Note of not less  than One  Hundred  Thousand  and  No/100ths  Dollars
($100,000.00)  on or before July 29,  2001.  Installments  of  principal  in the
amount of Fifteen Thousand and 00/100 Dollars ($15,000.00), plus

                                      -25-
<PAGE>


interest  on the  outstanding  principal  amount of the Term Note  shall be paid
monthly in arrears commencing on the last day of each successive  calendar month
thereafter  through and including  March 31, 2002.  (the "Term Maturity  Date").
Borrower shall make a final payment of all accrued,  unpaid  interest,  together
with the outstanding principal balance of the indebtedness  evidenced hereby, on
the Maturity Date

              (c)    This Term Note is secured by,  among other  things,  with a
blanket lien on the Assets.

              (d)    Borrower  may  prepay  the Term  Loan,  in whole but not in
part, upon thirty (30) days prior written notice.

       4.03   USURY.  It is the intent of the parties  that the rate of interest
and all other charges to Borrower be lawful;  therefore,  if for any reasons the
payment of a portion of interest or charges as required by this Agreement  would
exceed the limit  established  by  applicable  law,  then the  obligation to pay
interest  or  charges  shall  automatically  be reduced to such limit and if any
amounts in excess of such limit shall have been paid,  then such amount shall be
applied to the unpaid  principal amount of the Obligations of Borrower to Lender
or refunded so that under no  circumstances  shall interest or charges  required
hereunder exceed the maximum rate allowed by law.

       4.04   STATEMENT OF ACCOUNT.  At least once each month during the term of
this  Agreement,  Lender shall  render to Borrower a statement of account  which
statement shall be presumed correct and accurate and shall constitute an account
stated between Lender and Borrower unless thereafter waived in writing by Lender
in its sole  discretion  or unless  Borrower  notifies  Lender in writing to the
contrary within twenty (20) days after the date on which said statement was sent
to Borrower,  specifying the errors or omissions therein, provided that Lender's
failure  to  render  such  statement  shall not be  considered  a breach of this
Agreement.

       4.05   TERMS  OF  REPAYMENT;  WAIVERS.  All  Obligations  or any  portion
thereof  incurred under this Agreement or the Other  Agreements shall be payable
by Borrower at Lender's address set forth in this Agreement,  or at such address
as Lender from time to time may give notice of to Borrower. Recourse to security
will not be required at any time. Borrower waives presentment and protest of any
instrument and notice thereof, notice of default and, to the extent permitted by
applicable law, all other notices to which Borrower might otherwise be entitled.
Lender shall have the  continuing  and  exclusive  right to apply or reverse and
re-apply any and all payments to any portion of the  Obligations.  To the extent
that  Borrower  makes a payment or  payments  to Lender or Lender  receives  any
payment or proceeds of the Collateral for Borrower's  benefit,  which payment or
payments of proceeds or any part thereof are subsequently invalidated,  declared
to be fraudulent or  preferential,  set aside and/or  required to be repaid to a
trustee,  borrower  in  possession,  receiver  or  any  other  party  under  any
bankruptcy  law, state or federal law, common law or equitable  cause,  then, to
the extent of such payment or proceeds received, the Obligations

                                      -26-
<PAGE>


or part thereof  intended to be satisfied  shall be revived and continue in full
force and  effect,  as if such  payment or  proceeds  had not been  received  by
Lender.

                 Section 5. CONDITIONS PRECEDENT TO INITIAL LOAN

       As a  condition  precedent  to the right of  Borrower  to obtain the Loan
hereunder,  Borrower shall deliver or cause to be delivered to Lender,  prior to
or  contemporaneously  with the  disbursement  of the  initial  loan or  advance
hereunder, the following:

              (a)    one  original  of the Term  Note and  Revolving  Note  duly
executed by Borrower;

              (b)    one  original  of  the  Guaranty   duly  executed  by  each
Guarantor;

              (c)    such Uniform  Commercial  Code  financing  statements  duly
executed by Borrower as Lender may require in connection  with the perfection of
its security interest in the Collateral;

              (d)    state and county Uniform Commercial Code,  bankruptcy,  tax
lien,  pending  litigation and judgment searches of Borrower and Guarantors (and
any other Person as requested by Lender), which reflect no liens or other issues
upon or with respect to the party named therein which are unacceptable to Lender
in its sole judgment, the cost of which searches is to be paid by Borrower;

              (e)    with respect to Borrower:  (i) a copy, certified to be true
and  complete  by an officer of  Borrower,  of the  articles  of  incorporation,
including all amendments thereto,  of Borrower,  the bylaws and the shareholders
or similar  agreement,  including  all  amendments  thereto,  of Borrower;  (ii)
resolutions  executed  by the  Board  of  Directors  of  Borrower  required  for
approving and  authorizing  the execution  and delivery of this  Agreement,  the
Other Agreements and the transactions  contemplated  hereby; (iii) a certificate
of the  Secretary of State in which its been  incorporated  evidencing  the good
standing of  Borrower;  and (iv) a  certificate  duly  executed by an officer of
Borrower  setting forth the names of the officers of Borrower who are authorized
to execute and deliver this  Agreement and the Other  Agreements and any and all
documents to be delivered pursuant hereto,  which certificate shall certify that
the individuals  named therein are authorized  signatories of Borrower and shall
set forth a specimen of the signature of each such individual;

              (f)    the written  opinion of counsel for Borrower and Guarantors
addressed to Lender, containing such matters as Lender may request;

              (g)    one fully executed copy of the Intercreditor Agreement from
Dorge Capital Collateralized Bridge Fund, L.P.;

                                      -27-
<PAGE>


              (h)    Lender's  closing fee and the fees and expenses of Lender's
counsel through the closing date; and

              (i)    such other  documents or  instruments  (including,  without
limitation,  the Other  Agreements)  as are  identified  on the Closing Index of
Lender of even date herewith or as Lender may otherwise request.

                          Section 6. SECURITY INTEREST

       To secure the payment  and  performance  by Borrower of the  Obligations,
Borrower  hereby  grants to Lender,  its  successors  and assigns,  a continuing
security  interest  in, and does  hereby  assign,  transfer,  mortgage,  convey,
pledge,  hypothecate and set over to Lender, its successors and assigns,  all of
Borrower's right, title and interest in and to the Collateral, whether now owned
or hereafter acquired,  and all proceeds  (including,  without  limitation,  all
insurance proceeds) and products of any of the Collateral. The security interest
granted herein shall be deemed to be a purchase  money security  interest to the
fullest extent permitted by applicable law.

                        Section 7. FINANCIAL INFORMATION

       7.01   REPORTS AND FINANCIAL INFORMATION TO LENDER. Borrower, at its sole
cost and  expense,  so long as any loan or advance made  pursuant  hereto or any
part thereof  remains unpaid,  or which there are any  outstanding  Obligations,
shall  prepare,  submit and  furnish,  or cause to be  prepared,  submitted  and
furnished, to Lender:

              (a)    As soon as possible  and in any event  within ten (10) days
after  receiving  notice from Lender as to the occurrence of an Event of Default
or after any event  which,  with the giving of notice,  lapse of time,  or both,
would  constitute an Event of Default,  the statement of Borrower  setting forth
details of such Event of Default  or event and the  action  which  Borrower  has
taken or proposes to take to cure the same;

              (b)    As soon as available and in any event

                     (i)    on a monthly basis,  the Borrowing Base  Certificate
fully and  accurately  completed,  certified by the chief  financial  officer of
Borrower;

                     (ii)   within  thirty  (30)  days  after  the  end of  each
calendar   quarter   beginning   with  the  quarter   ending   March  31,  2001,
internally-prepared  financial statements of Borrower,  including a combined and
combining  Balance Sheet and the related Income  Statement as of the end of such
quarter and for the portion of the fiscal year ended at the end of such quarter,
setting forth in each case in comparative form the figures for the corresponding
quarter  and the  corresponding  portion of the  previous  fiscal  year,  all in
reasonable detail and certified  (subject to normal year-end  adjustments) as to
fairness  of  presentation,  in  accordance  with GAAP,  by the chief  financial
officer of Borrower,  together with management's  discussion and analysis of the
same;

                                      -28-
<PAGE>


                     (iii)  within  forty-five (45) after the end of each fiscal
quarter,  a covenant  compliance  certificate in substantially the form attached
hereto as EXHIBIT  7.01(B)(III)  with  respect to this  Agreement  and the Other
Agreements  certifying  that the Borrower has complied with all of the terms and
conditions  contained herein and therein and stating whether, to the best of the
knowledge  after due inquiry of the Person so certifying,  any Event of Default,
or event  which,  with the  passage  of time or giving of notice or both,  would
constitute, mature into or become such an Event of Default, currently exists and
is continuing and what  activities,  if any, the Borrower is taking or proposing
to take with respect thereto.

              (c)    As soon as available  and in any event  within  ninety (90)
days after the close of each fiscal year of Borrower,  a combined and  combining
Balance  Sheet and the  related  Income  Statement  as of the end of such fiscal
year, fairly and accurately presenting the financial condition of Borrower as at
such date and the results of  operations  of  Borrower  for such fiscal year and
setting forth in each case in comparative form the corresponding figures for the
preceding  fiscal year, all in reasonable  detail,  prepared in accordance  with
GAAP  consistently  applied,  and  audited by an  independent  certified  public
accountant   reasonably   acceptable  to  Lender,   together  with  management's
discussion and analysis of the same;

              (d)    Promptly upon receipt and, in any event within fifteen (15)
days after receipt  thereof,  copies of all interim and  supplemental  financial
reports  submitted to Borrower and  Guarantors by independent  certified  public
accountants  in connection  with any interim  review of the books and records of
Borrower or Guarantors, as the case may be, made by such accountants;

              (e)    Immediately  after  notice to Borrower of the  commencement
thereof, notice, in writing, of any action, suit, arbitration,  investigation or
other  proceeding  instituted,  commenced  or  threatened  against or  affecting
Borrower or Guarantors  with an amount in  controversy in excess of Ten Thousand
and No/100 Dollars ($10,000.00);

              (f)    Borrower's  and  Guarantors'  federal,  state and local tax
returns,  if applicable,  as soon as said returns are completed in the form said
returns will be filed with the Internal  Revenue  Service and any state or local
department of revenue or taxing authority;

              (g)    As soon as available  and in any event  within  ninety (90)
days after the end of each calendar year, personal financial  statements of each
Guarantor, as of the end of such calendar year, fairly and accurately presenting
the  financial  condition of such  individual  at such date,  in form and detail
acceptable to Lender;

              (h)    Such  other   information   respecting   the  condition  or
operations,  financial or otherwise,  of Borrower or  Guarantors,  as Lender may
from time to time reasonably request.

                                      -29-
<PAGE>


       7.02   CERTIFICATION.  All  reports,  schedules,  notices  and  financial
information  submitted  to Lender by  Borrower  under  this  Agreement  shall be
certified as materially correct by the chief financial officer of Borrower.


                Section 8. COLLECTION OF RECEIVABLES BY BORROWER

       8.01   COLLECTION.  Until  Lender  exercises  its rights to  collect  the
Receivables under Section 8 hereof, Borrower shall collect with diligence all of
Borrower's  Receivables,  whether or not said  Receivables  are deemed  Eligible
Receivables  hereunder.  Collections  will then be  deposited  in a bank account
maintained  at Lender  over  which  Lender  has sole  signature  authority  (the
"depository  account").  All collections of Receivables  shall be set forth on a
schedule in form and  substance  satisfactory  to Lender.  Collections  shall be
credited  to  Borrower's  Obligations  two (2)  Business  Days after the date of
deposit  in  the  depository  account,   provided  that  all  credits  shall  be
conditional  credits  subject to  collection.  Any  collections  of  Receivables
received  directly by Borrower  shall be in trust for Lender and Borrower  shall
keep all  collections  separate  and  apart  from all other  funds and  property
capable of  identification  as the  property of Lender and shall  deliver  these
collections  within two (2) Business  Days of receipt to Lender in the identical
form received.

       8.02   RETURNED GOODS AND MERCHANDISE.  Until Lender exercises its rights
to collect the  Receivables  under  Section 8 hereof,  Borrower may continue its
present policies for returned goods and merchandise and  adjustments,  but shall
promptly  notify  Lender of any  credits,  adjustments  or  disputes  arising in
connection with the goods or services  represented by Eligible  Receivables.  In
any event, Borrower will immediately pay Lender from its own funds (and not from
the proceeds of Eligible Receivables), for application to Borrower's Obligations
secured by this  Agreement,  an amount equal to any credit or adjustment made to
any  Eligible  Receivables;  provided,  however,  that so long as there does not
exist an Event of Default  hereunder,  such payment need not be made if Borrower
shall  have,  after  making  such  credit  or  adjustment,  sufficient  Eligible
Receivables,  Inventory,  and other Collateral  acceptable to Lender to maintain
the aggregate outstanding balance of the Loan Account at an amount not to exceed
the Borrowing Base.

          Section 9. DIRECT COLLECTION OF RECEIVABLES BY SECURED PARTY

              (a)    Upon the  occurrence  of an Event of  Default  or an event,
which with the passage of time of the giving of notice, or both, would give rise
to an Event of Default,  Borrower hereby  authorizes and directs each Receivable
Debtor to pay all sums  otherwise  due or to become due to Borrower  directly to
Lender,  when and if Lender so demands,  and agrees that such payments to Lender
as aforesaid  shall be a good receipt and  acquittance to Borrower to the extent
made. Except as otherwise  provided herein,  unless and until Lender in its sole
discretion has elected,  with or without cause, to collect directly the sums due
or to become due in respect of the Collateral, Lender hereby authorizes Borrower
to collect the Receivables at no cost or expense to Lender.

                                      -30-
<PAGE>


              (b)    Upon the  occurrence  of an Event of  Default  or an event,
which with the giving of notice or the passage of time, or both, would give rise
to  an  Event  of  Default,  Borrower  hereby  irrevocably  designates,   makes,
constitutes  and  appoints  Lender  (and all  persons  designated  by Lender) as
Borrower's  attorney-in-fact,  in the place and stead of Borrower  and with full
power of  substitution,  either in Lender's own name or in the name of Borrower,
without notice to Borrower and at such time or times thereafter as Lender in its
sole and absolute discretion, may determine, to:

                     (i)    give notice of assignment to the Receivable Debtors;
and

                     (ii)   ask for, demand, sue for, collect,  receive and give
acquittance  for, the Receivables  directly and charge the collection  costs and
expenses to the Loan Account; and

                     (iii)  settle or adjust  disputes and claims  directly with
the  Receivable  Debtors  for  amounts  and upon terms  which  Lender  considers
advisable and credit  Borrower's  Loan Account with the net amounts  received in
payment of Receivables; and

                     (iv)   exercise the powers  granted  pursuant to Section 10
of this Agreement; and

                     (v)    receive,  open and dispose of all mail  addressed to
Borrower and notify the  authorities  of the United States Post Office to change
the address for delivery of Borrower's mail to an address  designated by Lender;
and

                     (vi)   endorse  Borrower's  name  on  any  checks,  drafts,
orders and other instruments or other evidence of payment that may come into the
possession of Lender and on any invoice, freight or express bill, bill of lading
or other document; and

                     (vii)  in Borrower's  name or otherwise,  demand,  sue for,
collect  and give  acquittance  for any and all  monies  due or to become due on
Receivables; and

                     (viii) settle, compromise,  prosecute or defend any action,
claim or proceeding concerning Receivables; and

                     (ix)   sell,   assign,   pledge,   transfer  and  make  any
agreement  respecting,  or otherwise  deal with,  the  Collateral,  and take any
action or execute any instrument which Lender may deem necessary or desirable to
accomplish the purposes  hereof,  and do any and all things necessary and proper
to carry out the purposes contemplated in this Agreement between the parties;

provided, however, that nothing herein contained shall be construed as requiring
or obligating  Lender to: (a) make any demand;  or (b) take any of the foregoing
actions;  or (c) make any inquiry as to the nature or sufficiency of any payment
received  by it; or (d)  present  or file any claim or notice or take any action
with respect to the Collateral or the

                                      -31-
<PAGE>


monies due or to become due  thereunder;  or (e) protect the  Receivables or any
income therefrom; or (f) preserve any rights pertaining thereto; or (g) take any
further  action as to the  collection or protection of Receivables or any income
therefrom;  and no action  taken by Lender or omitted to be taken by Lender with
respect to the Collateral shall give rise to any defense, counterclaim or offset
in favor of Borrower or to any claim or action against Lender,  all of which are
hereby waived by Borrower to the extent permitted by law. Neither Lender nor any
person  acting  as its  attorney  hereunder  shall  be  liable  for any  acts or
omissions  or for any  error  of  judgment  or  mistake  of  fact  or  law.  The
appointment   hereunder  by  Borrower  of  Lender  as  its  attorney-in-fact  is
irrevocable and coupled with an interest.

       All costs, expenses and fees (including,  without limitation,  attorneys'
fees)  incurred by Lender,  or for which  Lender  becomes  obligated  to pay, in
connection with the foregoing shall be paid by Borrower to Lender.

                               Section 10. DEFAULT

       10.01  EVENTS OF DEFAULT.  It shall be an "Event of Default" hereunder if
any of the following shall occur:

              (a)    the failure, neglect or refusal of Borrower to promptly pay
any of the  Obligations  when due under the Note,  this  Agreement or any of the
Other Agreements; or

              (b)    the failure,  neglect or refusal of Borrower to perform any
of the covenants or obligations  on its part to be kept or performed  under this
Agreement or under any of the Other Agreements; or

              (c)    the breach of any of the  representations  or warranties of
Borrower as set forth in this Agreement or in any of the Other Agreements; or

              (d)    any  statement  or  representation  made for the purpose of
obtaining credit under this Agreement proves false; or

              (e)    Lender  believes in good faith that the prospect of payment
or performance by Borrower is impaired; or

              (f)    Borrower or any of Guarantors  becomes  insolvent or admits
in  writing  its  inability  to pay its  debts as they  become  due or makes any
assignment  for the  benefit  of  creditors  or ceases  business  operations  or
consents to, or acquiesces in the  appointment  of, a trustee or receiver for it
or any of its  property  or, in the  absence  of such  application,  consent  or
acquiesce,  a trustee  or  receiver  is  appointed  for it or for a  substantial
portion of its property and is not  discharged  or stayed on appeal within sixty
(60) days; or

                                      -32-
<PAGE>


              (g)    any bankruptcy,  reorganization,  state receivership,  debt
arrangement,  readjustment  of  debts  or  moratorium  law or  statute  or other
proceeding  under any  bankruptcy  or  insolvency  law,  or any  dissolution  or
liquidation proceeding,  is instituted by or against Borrower and, if instituted
against it, is  consented to or  acquiesced  in by Borrower or remains for sixty
(60) days undismissed or unstayed on appeal; or

              (h)    any indebtedness of Borrower to Lender other than the Loans
(without regard to amount),  or any  indebtedness of Borrower for borrowed money
to parties other than Lender,  becomes, or by the exercise of any option, may be
declared to be, due and payable prior to its expressed maturity by reason of any
default by  Borrower in the  performance  or  observance  of any  obligation  or
condition; or

              (i)    Borrower overdraws any account it maintains with Lender and
Borrower  fails to  deposit  in such  account  funds  sufficient  to cover  such
overdraft  within  one  (1)  Business  Day  after  notice  from  Lender  of such
overdraft; or

              (j)    the  issuance  of any  writ  of  attachment  or  execution,
garnishment, tax lien or other legal process against the Collateral or any other
property of Borrower; or

              (k)    any  assessment  for unpaid taxes against  Borrower,  other
than for real property taxes and taxes being contested in good faith by Borrower
and with  respect  to which  appropriate  reserves  have  been  established  and
maintained  in  accordance  with  GAAP,  by any  federal,  state  or  any  local
government body or department or agency thereof; or

              (l)    the filing of formal charges,  by any governmental or quasi
governmental  entity,  including,   without  limitation,  the  issuance  of  any
indictment,  under any RICO Related Law against  Borrower,  any of its partners,
shareholders, Affiliates or any of Guarantors; or

              (m)    the  occurrence  of any  default or event of default or any
indebtedness,  whether now  existing or  hereafter  arising of any  Guarantor to
Lender  (without  regard to amount),  or any  indebtedness  of any Guarantor for
borrowed money to parties other than Lender,  becomes, or by the exercise of any
option,  may be declared to be, due and payable prior to its expressed  maturity
by reason of any default in the  performance  or observance of any obligation or
condition relating thereto; or

              (n)    the  occurrence  of any  default or event of default by any
Guarantor  under any of the Guaranties or any other  instrument  executed by any
Guarantor and  delivered to Lender and such default or event of default  remains
uncured  following the  expiration of any and all  applicable  grace and/or cure
periods; or

              (o)    the death or permanent  disability  of any Guarantor or the
failure of any  Guarantor  to  maintain  (at a minimum)  its  current  ownership
interest in Borrower.

                                      -33-
<PAGE>


       10.02  ACCELERATION IN EVENT OF DEFAULT. Upon the occurrence of any Event
of Default,  or at any time thereafter while such Event of Default  continues to
exist,  all Obligations of Borrower to Lender,  including,  without  limitation,
repayment of the Note,  shall, at the option of Lender and  notwithstanding  any
time allowed in any  instrument  evidencing an Obligation or in any of the Other
Agreements, immediately become due and payable without demand and without notice
to Borrower.  Thereafter,  Lender shall have no  obligation  to make any further
advances to Borrower pursuant to this Agreement.

       10.03  WAIVER OF TRIAL BY JURY.  EACH OF THE PARTIES HERETO HEREBY WAIVES
THE  RIGHT TO  TRIAL BY JURY IN ANY  COURT IN ANY  SUIT,  ACTION  OR  PROCEEDING
ARISING  ON, OUT OF,  UNDER,  OR BY REASON OF, OR  RELATING  IN ANY WAY TO, THIS
AGREEMENT  OR THE OTHER  AGREEMENTS  OR  RESULTING  FROM ANY  OTHER  TRANSACTION
HEREUNDER,  OR CONCERNING  THE VALIDITY,  INTERPRETATION  OR ENFORCEMENT OF THIS
AGREEMENT  OR THE OTHER  AGREEMENTS,  OR  PERTAINING  TO  PROCEEDS,  PRODUCTS OR
EVIDENCE  THEREOF  OR TO ANY OTHER  CONTROVERSY,  CLAIM OR  DISPUTE  OF ANY KIND
ARISING  BETWEEN  THE  PARTIES  HERETO  OR  THEIR  RESPECTIVE   REPRESENTATIVES,
SUCCESSORS, ASSIGNS OR ASSIGNORS.

                        Section 11. REMEDIES UPON DEFAULT

       11.01  REMEDIES. If an Event of Default hereunder shall occur, Lender may
exercise,  at it option and without  further  demand or notice to  Borrower  and
without a prior court hearing, as to all or any part of the Collateral,  any one
or more or all of the rights and remedies  available to it under this  Agreement
or at law, including, without limitation, the rights and remedies available to a
Secured  party  under the Code (as now in effect in the State of  Illinois  plus
such  additional  or  enlarged  remedies,  if any,  as may from  time to time be
provided for therein), or otherwise given to a Secured party by any other law or
proceeding, at law or in equity, to assure that the Collateral is devoted to the
satisfaction  of the  Obligations  and, in conjunction  with, in addition to, or
substitution for those rights and remedies, at Lender's discretion,  Lender may:
(a) to the extent  permitted  by law,  enter upon  Borrower's  premises  to take
possession  of,  assemble  and  collect  the  Collateral  or to render it or any
portion  of the  Collateral  unusable;  and/or  (b)  remedy  any  default in any
reasonable  manner,  without  waiving its rights and  remedies  upon default and
without waiving any other prior or subsequent default.  The granting of specific
rights and remedies to Lender herein shall not be deemed to limit or exclude any
right or  remedy  granted  to a Secured  party by the Code or such  other law or
proceeding.  No delay on the part of  Lender  in the  exercise  of any  right or
remedy available to it shall operate as a waiver thereof.  To the fullest extent
permitted by applicable law,  Borrower  covenants and agrees that it will not at
any  time  insist  upon or  plead or in any  manner  whatever  claim or take any
benefit or advantage of any law requiring the  marshalling  of assets.  Lender's
remedies are cumulative and no single or partial exercise of any right or remedy
available  to Lender shall  preclude  other or further  exercise  thereof or the
exercise of any other right or remedy.  Without  limiting the  generality of the
foregoing,  as to all or any portion of the Collateral,  Lender may from time to
time, either before or after the exercise by Lender of any other

                                      -34-
<PAGE>


remedies,  exercise any one or more of the following remedies,  all of which are
acknowledged by Borrower to be commercially reasonable:

              (a)    Lender  may  sell,  lease,  assign,  contract  to  sell  or
otherwise  dispose of all or any portion of the  Collateral in any  commercially
reasonable  manner,  including by private or public sale, with or without having
the  Collateral at the place of sale, at such prices and on such terms as Lender
may in its absolute discretion deem reasonable in the circumstances, for cash or
on credit or for future  delivery and without the assumption of any credit risk.
If Lender  shall  purchase  all or any  portion of the  Collateral  at any sale,
payment of the purchase price may be made by credit against the  Obligations and
such  purchase  shall be made  free of any  right or  equity  of  redemption  in
Borrower,  which right or equity, if any, is hereby waived.  The net proceeds of
any  disposition  of  Collateral  by Lender,  after  deduction  of all  expenses
provided as in the Code and in this  paragraph or  elsewhere in this  Agreement,
shall  be  applied  toward  satisfaction  of  Borrower's   indebtedness  secured
hereunder,  first to reduce all unpaid fees and expenses due to Lender hereunder
or under any promissory note executed by Borrower in connection herewith, second
to reduce earned but unpaid interest and then to reduce  principal.  Lender will
account for any surplus  realized upon such disposition and Borrower will remain
liable for any deficiency.

              (b)    Lender may take  possession of all  Collateral  then in the
possession or control of Borrower,  wherever it may be found,  together with all
or any of  Borrower's  records  identifying  the  Collateral,  and to  this  end
Borrower hereby agrees to assemble or cause to be assembled, at its expense, all
Collateral at a convenient  place  acceptable to Lender,  and to make  available
Borrower's  facilities for the purpose of Lender taking  possession of, removing
and putting the Collateral in such saleable form as Lender may deem appropriate.
Borrower  hereby  waives all claims for damages due to or arising  from any such
taking.

              (c)    To the extent  permitted by the Code,  Lender may (but need
not) retain the Collateral in full satisfaction of the Obligations.

              (d)    Lender may proceed in the foreclosure of Lender's  security
interest and sale of the  Collateral in any manner  permitted by law or provided
for herein or in any of the Other Agreements.

              (e)    Lender may  set-off  the  Obligations  against the funds of
Borrower on deposit with Lender,  on demand,  or represented by any  obligations
issued by Lender to Borrower.

              (f)    Lender may apply to any court of  appropriate  jurisdiction
for the appointment of a receiver to take possession of the Collateral, to which
appointment Borrower hereby expressly consents.

                                      -35-
<PAGE>


              (g)    Lender  may  exercise  any other  rights or  remedies  of a
secured creditor under the Code.

       11.02  DISPOSITION  OF  COLLATERAL.  Lender  may,  from  time to time and
without  notice to Borrower,  surrender,  release or exchange all or any part of
the Collateral,  or compromise or extend or renew for any period (whether or not
longer  than  the  original  period)  any  indebtedness  due in  respect  to the
Collateral and take such action (including,  without  limitation,  the making of
any payments) as Lender shall deem necessary, desirable or expedient in order to
enforce any right or privilege in respect of any of the Collateral arising under
or pursuant  hereto or any other  agreement  between  Lender and  Borrower or to
protect,  sell or enhance  the value of any of the  Collateral  or to  preserve,
protect or enforce any of the liens of Lender thereon. In addition, Lender shall
be entitled to collect and receive any and all payments made on or in respect to
any Receivables constituting  Collateral,  if any, and, in connection therewith,
may notify any party  obligated  to make any  payments  with respect to any such
Receivables to make any and all payments,  otherwise due to Borrower,  to Lender
and  Lender  shall  have and may  exercise  from  time to  time,  as in its sole
discretion shall be necessary or appropriate,  all rights and remedies available
to Borrower in respect to any such Receivables.

       11.03  RIGHT TO ASSIGN.  Lender may assign this Agreement,  and if Lender
does assign this Agreement, the assignee shall be entitled to the performance of
all of Borrower's  agreements  and  obligations  under this  Agreement,  and the
assignee  shall be entitled to all the rights and  remedies of Lender under this
Agreement,  and  Borrower  expressly  agrees  that it will  assert  no claims or
defenses it may have against Lender against the assignee  except those available
to it in this Agreement.  Borrower shall not assign, attempt to assign or suffer
the assignment of any of its rights or obligations  under this Agreement  either
voluntarily or by operation of law.

       11.04  RIGHT TO  DISCHARGE  BORROWER'S  OBLIGATIONS.  Lender  may, at its
option,  discharge taxes,  liens or security  interests or other encumbrances at
any time levied or placed on the  Collateral,  may remedy or cure any default of
Borrower under the terms of any lease,  rental agreement or other document which
in any way pertains to or affects  Borrower's title to or interest in any of the
Collateral,  may  pay  for  insurance  on the  Collateral,  and  may pay for the
maintenance and preservation of the Collateral, and Borrower agrees to reimburse
Lender,  on demand,  for any  payment  made or any  expense  incurred by Lender,
including,  without  limitation,  attorneys'  fees,  pursuant  to the  foregoing
authorization, together with interest at the Default Interest Rate from the date
so paid or incurred by Lender,  which  payments,  expenses and interest shall be
secured by the security  intended to be afforded by this Agreement and the Other
Agreements.

       11.05  LICENSE. Lender is hereby granted a license or other right to use,
without charge,  Borrower's labels,  patents,  copyrights,  trade secrets, trade
names,  trade  marks or any  property  of a  similar  nature  pertaining  to the
Collateral,  and Borrower's  rights under all licenses and franchise  agreements
shall inure to the benefit of Lender.

                                      -36-
<PAGE>


       11.06  EXPENSES.  In connection with any disposition of the Collateral as
provided in this Article 11 or in connection  with and as a prerequisite  to any
redemption  of the  Collateral  by Borrower as provided in Section  9-506 of the
Code,  Borrower  shall pay and  discharge  all  expenses,  if any, of  retaking,
holding,  preparing for sale, selling and the like, including,  without limiting
the  generality of the  foregoing,  accounting  fees and expenses and reasonable
attorneys'  fees and legal  expenses  incurred by Lender in connection  with the
enforcement of any of its rights hereunder, all of which are hereby acknowledged
as being of a reasonable  nature. Any such expenses may be deducted and retained
by Lender from the proceeds of any disposition of the Collateral.

       11.07  REASONABLE  NOTIFICATION.  If any notification of intended sale or
other  disposition  of the  Collateral or any part thereof is required under the
Uniform  Commercial Code or other law, such  notification,  if mailed,  shall be
deemed  reasonably  and  properly  given if mailed to Borrower at least ten (10)
days before such sale or disposition.

                          Section 12. TERM OF AGREEMENT

       This  Agreement  shall  commence as of the date hereof and shall continue
until the Maturity Date. Upon such dates, however, there shall be no termination
of the  provisions of this  Agreement  except those  provisions  whereby  Lender
agrees to advance  loans to  Borrower  unless (a)  Borrower  has no  outstanding
Obligations to Lender;  and (b) the security  interest,  liens and  encumbrances
provided  for,  created  by or  described  in  this  Agreement  or in the  Other
Agreements  have been  satisfied by purchase in full or by payment in full which
Lender has collected  without  contest or objection as to Lender's right to such
satisfaction and collection.

                            Section 13. MISCELLANEOUS

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

       13.02  MATERIALITY  OF  REPRESENTATIONS  AND  WARRANTIES.   Each  of  the
representations,  warranties  and covenants  contained  herein have been made by
Borrower to Lender in order to induce  Lender to enter into this  Agreement  and
shall survive the execution and delivery of this Agreement and the making of any
advance  hereunder.  Each of the  representations,  warranties  and covenants of
Borrower contained herein shall be deemed to be material and to have been relied
upon by Lender  notwithstanding any investigation made by Lender. This Agreement
and all of the covenants,  warranties and representations of Borrower and all of
the powers and rights of Lender hereunder shall be in addition to and

                                      -37-
<PAGE>


cumulative of all other  covenants,  representations  and warranties of Borrower
and all other  rights and powers of Lender  contained  in or provided for in any
other instrument or document now or hereafter executed and delivered by Borrower
to or in favor of Lender.

       13.03  DISCHARGE  OF TAXES AND  LIENS.  Lender  shall  have the right but
shall not be  obligated  to pay and to charge as an advance to  Borrower's  Loan
Account any taxes,  liens or other charges at any time levied upon or against or
placed on any or all of the Collateral,  including,  without  limitation,  those
liens or charges  arising  under any  statute or in favor of  landlords,  taxing
authorities  (including,  without limitation,  withholding taxes),  governments,
public and  private  warehousemen,  common  and  private  carriers,  processors,
finishers,  stevedores,  mechanics,  artisans,  laborers,  attorneys,  courts or
others.  Borrower  agrees to reimburse  Lender on demand for any payment so made
pursuant to this paragraph, and until such reimbursement,  the amount so paid by
Lender shall be added to the Obligations.

       13.04  RELEASE  OF  SECURITY  INTEREST.  Upon  payment  in  full  of  all
liabilities,  Lender  shall  promptly  execute  and  deliver  to  Borrower  such
documents as may be necessary or  appropriate  to release the security  interest
granted by Borrower to Lender hereunder.

       13.05  NO WAIVER OF DEFAULTS.  No default hereunder,  including any Event
of  Default,  shall be waived by Lender  except in writing  and no waiver of any
default shall operate as a waiver of any other default or of the same default at
a future occasion. All rights of Lender hereunder shall be cumulative.

       13.06  OFFSET.  Upon the  occurrence  of an Event of Default  and without
limitation of any other right or remedy of Lender  hereunder or provided by law,
any indebtedness now or hereafter owing (i) from Lender to Borrower  (including,
without limitation,  any amounts on deposit in any demand, time, savings or like
account maintained by Borrower with Lender and any receivables owed by Lender to
Borrower for services  rendered) may be offset and applied by Lender against the
Obligations  and (ii) to or from any  Affiliate  of Borrower  may not be offset,
waived or modified  without the prior express  written  consent of Lender in its
sole discretion.

       13.07  FEES AND EXPENSES. Borrower agrees to pay all of Lender's fees and
out-of-pocket  expenses incurred in connection with administering and monitoring
the Loan provided for hereunder,  including without limitation,  attorneys' fees
in connection with the preparation, negotiation, execution and administration of
this Agreement and all documents required hereunder or in connection herewith.

       13.08  RELATIONSHIP.  Nothing  contained  herein  or in any of the  Other
Agreements  and no action or inaction  whatsoever on the part of Lender shall be
deemed to make Lender a partner or joint venturer with Borrower or in any way or
for any purpose be deemed to place Lender in "control"  (as that term is defined
in any judicial or administrative  interpretation  or in any statutes,  rules or
regulations) of Borrower and Borrower shall protect,  defend, indemnify and hold
Lender harmless from and against all claims, losses, costs, expenses (including,
without limitation, attorneys' fees) and damages arising from

                                      -38-
<PAGE>


the  relationship  between  Borrower and Lender pursuant to this Agreement being
construed as anything other than that of borrower and lender.

       13.09  JURISDICTION; VENUE; SERVICE OF PROCESS. To induce Lender to enter
into this Agreement,  Borrower irrevocably agrees that, subject to Lender's sole
and absolute election,  all actions or proceedings in any way, manner or respect
arising out of or from or related to this Agreement, any of the Other Agreements
or the Collateral shall be litigated only in courts having situs within the City
of Chicago,  State of  Illinois.  Borrower  hereby  consents  and submits to the
jurisdiction  of any local,  state or federal court located within said city and
state.  Borrower hereby irrevocably appoints and designates  Borrower's Counsel,
as identified  in Section  13.12  hereof,  or any other person whom Borrower may
from time to time hereafter designate (having given five (5) Business Days prior
written  notice  thereof to Lender) as Borrower's  true and lawful  attorney and
duly  authorized  agent for  acceptance  of service of legal  process.  Borrower
agrees that service of such process upon such person shall  constitute  personal
service of such process upon Borrower. Such party, within five (5) Business Days
after  receipt of any such process,  shall  forward the same by certified  mail,
together  with all papers  affixed  thereto,  to  Borrower  as set forth in this
Agreement.  Borrower  hereby  waives any right it may have to transfer or change
the venue of any litigation brought in accordance with this paragraph.  Borrower
and Lender hereby  irrevocably  waive the right to trial by jury with respect to
any action in which Borrower and Lender are parties.

       13.10  CONFESSION OF JUDGMENT.  Borrower hereby authorizes,  irrevocably,
any  attorney  of any court of record in any state or  territory  of the  United
States of America where the same is allowed by law, in term time or vacation, at
any time after the  occurrence  of an Event of Default  hereunder by Borrower to
waive the  issuance  and service of process or any other  notice,  and confess a
judgment  against  Borrower  for such amount as may appear to be due or declared
due and unpaid  hereunder,  together with costs and reasonable  attorneys'  fees
included  in the  judgment,  further  authorizing  said  attorney to release all
errors and waive all right of appeal and  consent to  immediate  execution  upon
such  judgment,  hereby  agreeing  that no  writ  of  error  or  appeal  will be
prosecuted  from such  judgment,  nor any bill in equity  filed to restrain  the
operation of said judgment,  or any execution thereon,  and hereby ratifying and
confirming all that the said attorney may do by virtue hereof.

       13.11  JOINT AND SEVERAL LIABILITY. If Borrower is comprised of more than
one  Person,  all  references  herein to  Borrower  shall be deemed to each such
Person, individually and collectively,  and all obligations of Borrower shall be
joint and several.

       13.12  NOTICES.  Any  and all  notices  given  in  connection  with  this
Agreement shall be deemed adequately given only if in writing and (i) personally
delivered; or (ii) sent by a nationally-recognized overnight courier service; or
(iii) sent by certified  United States mail,  postage  prepaid,  return  receipt
requested, to the party or parties for whom such notices are intended. A written
notice shall be deemed  received (i) when delivered in person;  (ii) on the next
business day immediately  following the day sent by overnight courier; and (iii)
on

                                      -39-
<PAGE>


the third (3rd) business day following the day sent by certified mail. A written
notice shall also be deemed  received on (i) the date  delivery  shall have been
refused at the  address  required  by this  Agreement;  or (ii) with  respect to
notices sent by United States mail but not  delivered,  the date as of which the
postal  service  shall have  indicated  such notice to be  undeliverable  at the
address  required by this  Agreement.  Any and all  notices  referred to in this
Agreement  or which any party  desires to give to another  shall be addressed as
follows:

     As to Lender:                      American National Bank and Trust
                                        Company of Chicago
                                        120 South LaSalle Street
                                        Chicago, Illinois 60603
                                        Attention: David W. De Witt

     with a courtesy copy to:           Harris Kessler & Goldstein LLC
                                        640 North LaSalle Street
                                        Suite 590
                                        Chicago, Illinois 60610
                                        Attention: Drew J. Scott, Esq.

     As to Borrower:                    c/o LearnCom, Inc.
                                        714 Industrial Drive
                                        Bensenville, Illinois 60106
                                        Attention:  Lloyd Singer
                                                    Denis Mola
                                                    David Doerge

     with a courtesy copy to:           Shefsky & Froelich Ltd.
                                        444 North Michigan Avenue
                                        Chicago, Illinois 60611
                                        Attention: James Asmussen

or in such other manner or to such other address,  as such party shall designate
in a written notice to the other party hereto.

       13.13  BROKERS.  Borrower  represents that it has not contracted with any
broker or finder in connection with this  transaction.  Borrower shall indemnify
and hold Lender  harmless from any claim of any broker or finder  arising out of
the  transactions  contemplated  hereby  or  arising  out of  actions  taken  or
contracts entered into by Borrower.

       13.14  DELAY NOT A WAIVER.  Neither  the  failure or delay on the part of
Lender to exercise any right,  power or privilege  hereunder or under any of the
Other  Agreements  shall  operate  as a waiver  thereof  nor shall any single or
partial  exercise of any such right,  power or  privilege  preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.

                                      -40-
<PAGE>


       13.15  SEVERABILITY.  In the  event  any one or  more  of the  provisions
contained  in this  Agreement  or in any of the Other  Agreements  shall for any
reason be held to be invalid,  illegal or  unenforceable  in any  respect,  such
invalidity,  illegality or unenforceability  shall, at the option of Lender, not
affect any other provisions of this Agreement or any of the Other Agreements, as
the case may be, but this Agreement and the Other  Agreements shall be construed
as if such invalid,  illegal or unenforceable provision had never been contained
herein.

       13.16  PROHIBITION  OF  INDIRECT  ACTION.   Any  act  which  Borrower  is
prohibited  from doing shall not be done  indirectly  through an Affiliate or by
any other indirect means.

       13.17  CURRENCY.  Borrower agrees that all of its Obligations  under this
Agreement  or  otherwise  shall be repaid in  currency  of the United  States of
America.

       13.18  ASSIGNMENT AND PARTICIPATION. Lender may assign, negotiate, pledge
or otherwise  hypothecate  all or any portion of this  Agreement  and in case of
such assignment,  Borrower will accord full  recognition  thereto and agree that
upon the occurrence of an Event of Default hereunder, all rights and remedies of
Lender in connection with the interest so assigned shall be enforceable  against
Borrower by such  assignee with the same force and effect and to the same extent
as the same  would  have been  enforceable  by Lender  but for such  assignment.
Lender may, at its sole discretion, sell one or more participations in the loans
and  advances to Borrower  hereunder,  on such terms as Lender  deems  desirable
without affecting the liability of Borrower hereunder.

       13.19  MODIFICATION.  Any modification of this Agreement or any provision
herein contained shall be binding upon the parties hereto only if contained in a
writing signed by or on behalf of the parties hereto.

       13.20  GOVERNING LAW. This  Agreement  shall be governed by and construed
in accordance with the internal laws of the State of Illinois, which laws shall,
without limitation,  govern the  enforceability,  validity and interpretation of
this  Agreement,  except  to the  extent  that the  perfection  of any  security
interest  or  enforcement  of any  remedy is  governed  by the laws of any other
state.

       13.21  SUCCESSORS AND ASSIGNS;  BINDING EFFECT. The rights and privileges
of Lender  hereunder  shall also  inure to the  benefit  of its  successors  and
assigns,  and all  obligations  hereunder of Borrower shall also be binding upon
its legal representatives, successors and assigns and shall inure to the benefit
of Lender, its successors and assigns.

       13.22  ENTIRE AGREEMENT.  This Agreement constitutes the entire agreement
between  the  parties  hereto as to the  subject  matter  hereof.  The  exhibits
attached  hereto  are  hereby  made a part of  this  Agreement  and  are  hereby
incorporated herein by reference.

                                      -41-
<PAGE>


       13.23  TERMINOLOGY. All personal pronouns used in this Agreement, whether
used in the  masculine,  feminine  or neutral  gender,  shall  include all other
genders; the singular shall include the plural, and the plural shall include the
singular, as the context requires.

       13.24  TITLES.  The section titles and paragraph  headings herein are for
convenience  only and do not  define,  limit or  construe  the  contents of such
sections or paragraphs.

       13.25  CONSTRUCTION.  In the  event  of a  conflict  between  the  terms,
covenants  and  conditions  of this  Agreement  and  those  of any of the  Other
Agreements,  the terms,  covenants and  conditions  of the document  which shall
enlarge  the  interest  of  Lender  in the  Collateral,  afford  Lender  greater
financial benefits or financial security in the Collateral and/or assure payment
of the Obligations in full shall control.

       13.26  SUBROGATION.  If the Obligations, or any part thereof, be given in
renewal or extension,  or applied toward the payment of indebtedness  secured by
mortgage,  pledge,  security  agreement  or other lien,  Lender  shall be and is
hereby  subrogated to all of the rights,  titles,  security  interests and other
liens securing the indebtedness so renewed, extended or paid.

       13.27  SOLELY FOR BENEFIT OF LENDER. It is expressly intended, understood
and agreed that this  Agreement,  the Note and the Other  Documents are made and
entered into for the sole  protection  and benefit of Lender and  Borrower,  and
their respective successors and assigns (but in the case of assigns of Borrower,
only to the extent  permitted  hereunder),  and no other person or persons shall
have any right of action  hereunder or rights to the proceeds of the Loan at any
time;  that the  proceeds  of the Loan do not  constitute  a trust  fund for the
benefit of any third party; that no third party shall under any circumstances be
entitled to any equitable  lien on any  undisbursed  proceeds of the Loan at any
time; and that Lender shall have a lien upon and right to direct  application of
any undisbursed  proceeds of the Loan as additional security for this Agreement,
the Note and the Other Agreements.

       13.28  MARSHALING  OF ASSETS.  To the extent  permitted by law,  Borrower
hereby waives any and all rights to require marshaling of assets by Lender.

                            [SIGNATURE PAGE FOLLOWS]

                                      -42-
<PAGE>


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

                                         BORROWER:

                                         LEARNCOM, INC., an Illinois corporation

                                         By: /s/ Lloyd W. Singer
                                            ------------------------------------
                                            Lloyd W. Singer, President and CEO

                                         LEARNCOM, INC., a Nevada corporation

                                         By: /s/ Lloyd W. Singer
                                            ------------------------------------
                                            Lloyd W. Singer, President and CEO

                                         VIDEOLEARNING SYSTEMS, INC., a
                                         Pennsylvania corporation

                                         By: /s/ Homer H. Hewitt
                                            ------------------------------------
                                            Homer H. Hewitt, President and CEO

                                         BNA COMMUNICATIONS, INC.,
                                         a Delaware corporation

                                         By: /s/ Lloyd W. Singer
                                            ------------------------------------
                                            Lloyd W. Singer, President and CEO

                                         TS ACQUISITIONS, INC.,

                                         By: /s/ Lloyd W. Singer
                                            ------------------------------------
                                            Lloyd W. Singer, President and CEO

                                         LENDER:
                                         ------

                                         AMERICAN NATIONAL BANK AND TRUST
                                         COMPANY OF CHICAGO,
                                         a national banking association

                                         By: /s/ David W. DeWitt
                                            ------------------------------------
                                            David W. DeWitt

                                      -43-
<PAGE>


                         LIST OF EXHIBITS AND SCHEDULES

Exhibit 1.01             The Notes

Schedule 2.01            Places of Business

Schedule 2.14            Collective Bargaining, Employee Benefit and Other Plans

Schedule 2.18(i)         List of Licenses

Exhibit 7.01(b)(i)       Borrowing Base Certificate

Exhibit 7.01(b)(iii)     Quarterly Compliance Certificate

                                      -44-
<PAGE>


                                  SCHEDULE 1.01

                                    THE NOTES

See attached.



                                      -45-
<PAGE>



                                  SCHEDULE 2.01

                               PLACES OF BUSINESS


Not Applicable.



                                      -46-
<PAGE>



                                  SCHEDULE 2.14

             COLLECTIVE BARGAINING, EMPLOYEE BENEFIT AND OTHER PLANS



Not Applicable.



                                      -47-
<PAGE>


                                SCHEDULE 2.18(I)

                                LIST OF LICENSES

1.     General  business  licenses  in  Bensenville,  Illinois  and  Bryn  Mawr,
       Pennsylvania.

2.     No further required licenses or approvals.



                                      -48-
<PAGE>


                                EXHBIT 7.01(B)(I)

                           BORROWING BASE CERTIFICATE

Attached.


                                      -49-
<PAGE>


                              EXHIBIT 7.01 (B)(III)

                        QUARTERLY COMPLIANCE CERTIFICATE

Date__________


American National Bank and Trust
Company of Chicago
120 South LaSalle Street
Chicago, Illinois 60603
Attention: David W. De Witt

GENERAL COMPLIANCE STATEMENT

       As required by Section 7.01 (b)(iii) of Loan and Security Agreement dated
April 30, 2001 (the "Loan  Agreement"),  the  undersigned  hereby  certify  that
Borrower has  complied  with all of the terms and  conditions  contained in such
Agreement and the Other Agreements and that, to the best of the knowledge of the
undersigned after due inquiry,  no Event of Default, or event which, with giving
of notice or the  passage of time,  or both,  would  constitute,  mature into or
become such an Event of Default,  currently  exists and is  continuing as of the
final day of the __________  quarter,  _____________,  200__.  Capitalized terms
used in this Certificate have the meanings given them in the Loan Agreement.

       On a combined basis,  the Borrower had a Debt Service  Coverage Ration of
___ to 1.0.




Certified by the undersigned as of the __ day of __ 20__.




By:________________________
   Chief Executive Officer


By:________________________
   Chief Financial Officer


                                      -50-