REVOLVING CREDIT, TERM LOAN

                                       AND

                               SECURITY AGREEMENT


[GRAPHIC OMITTED]


                         PNC BANK, NATIONAL ASSOCIATION
                            (AS LENDER AND AS AGENT)




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

                                       AND

          HMG WORLDWIDE CORPORATION, HMG WORLDWIDE IN-STORE MARKETING,
        INC., HMG/INTERMARK WORLDWIDE MANUFACTURING, INC., DISPLAY DEPOT,
           INC., HMG GRIFFITH, INC. and HMG SCHUTZ INTERNATIONAL, INC.
                                   (BORROWERS)


                                 August 27, 1999


BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12

<PAGE>




                               TABLES OF CONTENTS

1. DEFINITIONS................................................................1
      1.1      Accounting Terms...............................................1
      1.2      General Terms..................................................1
      1.3      Uniform Commercial Code Terms.................................20
      1.4      Certain Matters of Construction...............................20

2. ADVANCES, PAYMENTS........................................................20
      2.1      Advances......................................................20
      2.2      Procedure for Revolving Advances Borrowing....................21
      2.3      Disbursement of Advance Proceeds..............................23
      2.4      Term Loan.....................................................23
      2.5      Maximum Advances..............................................24
      2.6      Repayment of Advances.........................................24
      2.7      Repayment of Excess Advances..................................25
      2.8      Statement of Account..........................................25
      2.9      Letters of Credit.............................................25
      2.10     Issuance of Letters of Credit.................................25
      2.11     Requirements For Issuance of Letters of Credit................26
      2.12     Additional Payments...........................................27
      2.13     Manner of Borrowing and Payment...............................28
      2.14     Use of Proceeds...............................................29
      2.15     Defaulting Lender.............................................30

3. INTEREST AND FEES.........................................................31
      3.1      Interest......................................................31
      3.2      Letter of Credit Fees.........................................31
      3.3      Closing Fee...................................................32
      3.4      Facility Fee..................................................32
      3.5      Collateral Monitoring Fee.....................................32
      3.6      Computation of Interest and Fees..............................32
      3.7      Maximum Charges...............................................32
      3.8      Increased Costs...............................................32
      3.9      Basis For Determining Interest Rate Inadequate or Unfair......33
      3.10     Capital Adequacy..............................................34

4. COLLATERAL;  GENERAL TERMS................................................35
      4.1      Security Interest in the Collateral...........................35
      4.2      Perfection of Security Interest...............................35
      4.3      Disposition of Collateral.....................................35
      4.4      Preservation of Collateral....................................35
      4.5      Ownership of Collateral.......................................36
      4.6      Defense of Agent's and Lenders' Interests.....................36

BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12

<PAGE>



      4.7      Books and Records.............................................37
      4.8      Financial Disclosure..........................................37
      4.9      Compliance with Laws..........................................37
      4.10     Inspection of Premises........................................37
      4.11     Insurance.....................................................38
      4.12     Failure to Pay Insurance......................................38
      4.13     Payment of Taxes..............................................39
      4.14     Payment of Leasehold Obligations..............................39
      4.15     Receivables...................................................39
      4.16     Inventory.....................................................42
      4.17     Maintenance of Equipment......................................42
      4.18     Exculpation of Liability......................................42
      4.19     Environmental Matters.........................................43
      4.20     Financing Statements..........................................45

5. REPRESENTATIONS AND WARRANTIES............................................45
      5.1      Authority; Ownership..........................................45
      5.2      Formation and Qualification...................................45
      5.3      Survival of Representations and Warranties....................46
      5.4      Tax Returns...................................................46
      5.5      Financial Statements..........................................46
      5.6      Name..........................................................47
      5.7      O.S.H.A. and Environmental Compliance.........................47
      5.8      Solvency; No Litigation, Violation, Indebtedness or Default...47
      5.9      Patents, Trademarks, Copyrights and Licenses..................49
      5.10     Licenses and Permits..........................................49
      5.11     Default of Indebtedness.......................................49
      5.12     No Default....................................................49
      5.13     No Burdensome Restrictions....................................50
      5.14     No Labor Disputes.............................................50
      5.15     Margin Regulations............................................50
      5.16     Investment Company Act........................................50
      5.17     Disclosure....................................................50
      5.18     Swaps.........................................................50
      5.19     Conflicting Agreements........................................50
      5.20     Application of Certain Laws and Regulations...................51
      5.21     Business and Property of Borrower.............................51
      5.22     Year 2000.....................................................51
      5.23     Interrelatedness of Borrowers.................................51

6. AFFIRMATIVE COVENANTS.....................................................51
      6.1      Payment of Fees...............................................51
      6.2      Conduct of Business and Maintenance of Existence and Assets...52
      6.3      Violations....................................................52
      6.4      Government Receivables........................................52

BLU-69367_7/ZRM1343/PNC008-129635                                  012000/11:12

<PAGE>



      6.5      Fixed Charge Coverage.........................................52
      6.6      Execution of Supplemental Instruments.........................52
      6.7      Payment of Indebtedness.......................................52
      6.8      Standards of Financial Statements.............................53
      6.9      Interest Rate Protection......................................53

7. NEGATIVE COVENANTS........................................................53
      7.1      Merger, Consolidation, Acquisition and Sale of Assets.........53
      7.2      Creation of Liens.............................................53
      7.3      Guarantees....................................................53
      7.4      Investments...................................................53
      7.5      Loans.........................................................54
      7.6      Distributions.................................................54
      7.7      Indebtedness..................................................54
      7.8      Nature of Business............................................54
      7.9      Transactions with Affiliates..................................55
      7.10     Leases........................................................55
      7.11     Subsidiaries..................................................55
      7.12     Fiscal Year and Accounting Changes............................55
      7.13     Pledge of Credit..............................................55
      7.14     Amendment of Certificate of Incorporation; By-Laws............55
      7.15     Compliance with ERISA.........................................55
      7.16     Capital Expenditures..........................................56

8. CONDITIONS PRECEDENT......................................................56
      8.1      Conditions to Initial Advances................................56
      8.2      Conditions to Each Advance....................................59

9. INFORMATION AS TO BORROWER................................................60
      9.1      Disclosure of Material Matters................................60
      9.2      Schedules.....................................................60
      9.3      Environmental Reports.........................................61
      9.4      Litigation....................................................61
      9.5      Material Occurrences..........................................61
      9.6      Government Receivables........................................61
      9.7      Annual Financial Statements...................................61
      9.8      Quarterly Financial Statements................................62
      9.9      Monthly Financial Statements..................................62
      9.10     Other Reports.................................................63
      9.11     Additional Information........................................63
      9.12     Projected Operating Budget....................................63
      9.13     Variances From Operating Budget...............................63
      9.14     Notice of Suits, Adverse Events...............................63
      9.15     ERISA Notices and Requests....................................63
      9.16     Borrowing Base Certificate....................................64

BLU-69367_7/ZRM1343/PNC008-129635                                  012000/11:12

<PAGE>



      9.17     Daily Settlement Schedules....................................64
      9.18     Additional Documents..........................................64

10.EVENTS OF DEFAULT.........................................................65

11.LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT................................67
      11.1     Rights and Remedies...........................................67
      11.2     Agent's Discretion............................................68
      11.3     Setoff........................................................68
      11.4     Rights and Remedies not Exclusive.............................68

12.WAIVERS AND JUDICIAL PROCEEDINGS..........................................68
      12.1     Waiver of Notice..............................................68
      12.2     Delay.........................................................69
      12.3     Jury Waiver...................................................69

13.EFFECTIVE DATE AND TERMINATION............................................69
      13.1     Term..........................................................69
      13.2     Termination...................................................69

14.REGARDING AGENT...........................................................70
      14.1     Appointment...................................................70
      14.2     Nature of Duties..............................................70
      14.3     Lack of Reliance on Agent and Resignation.....................71
      14.4     Certain Rights of Agent.......................................71
      14.5     Reliance......................................................72
      14.6     Notice of Default.............................................72
      14.7     Indemnification...............................................72
      14.8     Agent in its Individual Capacity..............................72
      14.9     Delivery of Documents.........................................72
      14.10    Borrower's Undertaking to Agent...............................73

15.BORROWING AGENCY..........................................................73
      15.1     Borrowing Agency Provisions...................................73
      15.2     Waiver of Subrogation.........................................73

MISCELLANEOUS................................................................74
      16.1     Governing Law.................................................74
      16.2     Entire Understanding..........................................74
      16.3     Successors and Assigns; Participations; New Lenders...........76
      16.4     Application of Payments.......................................77
      16.5     Indemnity.....................................................78
      16.6     Notice........................................................78
      16.7     Survival......................................................79
      16.8     Severability..................................................79

BLU-69367_7/ZRM1343/PNC008-129635                                  012000/11:12

<PAGE>



      16.9     Expenses......................................................79
      16.10    Injunctive Relief.............................................80
      16.11    Consequential Damages.........................................80
      16.12    Captions......................................................80
      16.13    Counterparts; Telecopied Signatures...........................80
      16.14    Construction..................................................80
      16.15    Confidentiality; Sharing Information..........................80
      16.16    Publicity.....................................................81





BLU-69367_7/ZRM1343/PNC008-129635                                  012000/11:12

<PAGE>



                           REVOLVING CREDIT, TERM LOAN
                                       AND
                               SECURITY AGREEMENT


     REVOLVING CREDIT,  TERM LOAN AND SECURITY  AGREEMENT dated August 27, 1999,
among  HMG  WORLDWIDE  CORPORATION,  HMG  WORLDWIDE  IN-STORE  MARKETING,  INC.,
HMG/INTERMARK WORLDWIDE MANUFACTURING,  INC., DISPLAY DEPOT, INC., HMG GRIFFITH,
INC. and HMG SCHUTZ INTERNATIONAL,  INC. (each,  individually,  a "Borrower" and
jointly,  severally and collectively,  "Borrowers"),  the financial institutions
which  are now or which  hereafter  become  a party  hereto  (collectively,  the
"Lenders"  and  individually  a  "Lender")  and PNC BANK,  NATIONAL  ASSOCIATION
("PNC"), as agent for Lenders (PNC, in such capacity, the "Agent").

         IN  CONSIDERATION  of the  mutual  covenants  and  undertakings  herein
contained, Borrower, Lenders and Agent hereby agree as follows:

1.       DEFINITIONS.

         1.1 Accounting  Terms.  As used in this  Agreement,  the Notes,  or any
certificate,  report  or  other  document  made or  delivered  pursuant  to this
Agreement,  accounting  terms not  defined in Section 1.2 or  elsewhere  in this
Agreement  and  accounting  terms  partly  defined in Section 1.2, to the extent
therein not  defined,  shall have the  respective  meanings  given to them under
GAAP;  provided,  however,  whenever  such  accounting  terms  are  used for the
purposes of determining  compliance with financial  covenants in this Agreement,
such  accounting  terms shall be defined in  accordance  with GAAP as applied in
preparation of the audited  consolidated and consolidating  financial statements
of HMG Worldwide for the fiscal year ended December 31, 1998.

     1.2 General Terms. For purposes of this Agreement the following terms shall
have the following meanings:

                  "Acceptances"  shall mean any existing and future drafts which
involve any Borrower or beneficiary  under a Letter of Credit as drawer that are
processed  and  accepted  for  payment by Agent or other  accepting  bank in its
absolute discretion.

     "Accountants" shall have the meaning set forth in Section 9.7 hereof.

                  "Additional  Convertible  Notes"  shall  mean  one or more 10%
Convertible  Debentures  issued by HMG  Worldwide  Corporation  in an  aggregate
principal amount not to exceed Two Million Dollars ($2,000,000.00),  in form and
content and on such terms and conditions as shall be  satisfactory to Lenders in
their discretion.

                  "Advances"  shall mean and  include  the  Revolving  Advances,
Letters of Credit and the Term Loan.


BLU-69367_7/ZRM1343/PNC008-129635                                  012000/11:12
                                        1

<PAGE>



     "Advance Rates" shall mean, collectively, the Receivables Advance Rate, the
Inventory Advance Rate and the Securities Advance Rate.

     "Affiliate"  of  any  Person  shall  mean  (a)  any  Person  (other  than a
Subsidiary) which,  directly or indirectly,  is in control of, is controlled by,
or is under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person  described  in clause (a) above.  For  purposes  of this  definition,
control of a Person shall mean the power, direct or indirect, (x) to vote 30% or
more  of the  securities  having  ordinary  voting  power  for the  election  of
directors  of such  Person,  or (y) to  direct  or cause  the  direction  of the
management and policies of such Person, whether by contract or otherwise.

     "Agent" shall have the meaning set forth in the preamble to this  Agreement
and shall include its successors and assigns.

     "Authority" shall have the meaning set forth in Section 4.19(d).

     "Base Rate" shall mean the base commercial  lending rate of PNC as publicly
announced  to be  in  effect  from  time  to  time,  such  rate  to be  adjusted
automatically, without notice, on the effective date of any change in such rate.
This  rate of  interest  is  determined  from  time to time by PNC as a means of
pricing some loans to its  customers and is neither tied to any external rate of
interest or index,  nor does it necessarily  reflect the lowest rate of interest
actually charged by PNC to any particular class or category of customers of PNC.

     "Blocked Accounts" shall have the meaning set forth in Section 4.15(h).

     "Borrower" or "Borrowers"  shall have the meaning set forth in the preamble
to this  Agreement and shall extend to all permitted  successors  and assigns of
such Persons.

     "Borrowers' Account" shall have the meaning set forth in Section 2.8.

     "Borrowing Agent" shall mean HMG Worldwide.

     "Business Day" shall mean, with respect to Eurodollar  Rate Loans,  any day
on which  commercial  banks are open for  domestic and  international  business,
including  dealings  in Dollar  deposits in London,  England  and  Philadelphia,
Pennsylvania, and with respect to all other matters, any day other than a day on
which  commercial  banks in  Pennsylvania  are  authorized or required by law to
close.

     "Capital  Expenditures" shall mean any expenditure that would be classified
as a capital expenditure on a statement of cash flow of any Borrower prepared in
accordance with GAAP.

     "Cash"  shall mean all lawful  cash money of the United  States of America,
and all cash equivalents acceptable to Lenders.


BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                        2

<PAGE>



     "CERCLA" shall mean the Comprehensive Environmental Response,  Compensation
and Liability Act of 1980, as amended, 42 U.S.C. "9601 et seq.

     "Change of Control"  shall mean (a) the occurrence of any event (whether in
one or more transactions) which results in a transfer of control of any Borrower
(other than HMG  Worldwide) to a Person who is not listed on Schedule 5.1 or (b)
any merger or  consolidation  of or with any Borrower  (other than in connection
with or as part of a Permitted  Acquisition) or sale of all or substantially all
of the  property or assets of any  Borrower.  For  purposes of this  definition,
"control  of any  Borrower  (other  than HMG  Worldwide)"  shall mean the power,
direct or indirect  (x) to vote 50% or more of the  securities  having  ordinary
voting  power for the election of  directors  of such  Borrower  (other than HMG
Worldwide)  or (y) to  direct  or cause  the  direction  of the  management  and
policies of such Borrower (other than HMG Worldwide) by contract or otherwise.

     "Change of  Ownership"  shall mean (a) fifty  percent  (50%) or more of the
common stock of any Borrower  (other than HMG  Worldwide)  is no longer owned or
controlled  by  (including,  for the purposes of the  calculation  of percentage
ownership,  any  shares of common  stock  into  which any  capital  stock of any
Borrower  (other  than HMG  Worldwide)  held by any of the  Original  Owners  is
convertible  or for which any such shares of the capital  stock of any  Borrower
(other  than HMG  Worldwide)  or of any other  Person may be  exchanged  and any
shares of common stock  issuable to such  Original  Owners upon  exercise of any
warrants, options or similar rights which may at the time of calculation be held
by such  Original  Owners) one or more  Persons who is or are either an Original
Owner or an Affiliate or  Subsidiary  of an Original  Owner or (b) any merger or
consolidation  of or with any Borrower (other than in connection with or as part
of a Permitted  Acquisition) or the sale of substantially all of the property or
assets of any Borrower.

     "Charges" shall mean all taxes,  charges,  fees,  imposts,  levies or other
assessments,  including, without limitation, all net income, gross income, gross
receipts,  sales, use, ad valorem,  value added, transfer,  franchise,  profits,
inventory,  capital stock, license,  withholding,  payroll,  employment,  social
security, unemployment, excise, severance, stamp, occupation and property taxes,
custom duties,  liens, claims and charges of any kind whatsoever,  together with
any interest and any penalties,  additions to tax or additional amounts, imposed
by any  taxing or other  authority,  domestic  or  foreign  (including,  without
limitation, the Pension Benefit Guaranty Corporation or any environmental agency
or superfund), upon the Collateral, any Borrower or any of its Affiliates.

     "Closing  Date"  shall mean August 27,  1999,  or such other date as may be
agreed to by the parties hereto.

     "Code" shall mean the Internal  Revenue Code of 1986,  as amended from time
to time, and the regulations promulgated thereunder.

     "Collateral" shall mean and include:

     (a) all Receivables;

     (b) all Equipment;


BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                        3

<PAGE>



     (c) all Financial Assets;

     (d) all General Intangibles;

     (e) all Inventory;

     (f) all Investment Property;

     (g) all Real Property;

     (h) the Securities Account;

     (i) all of each  Borrower's  right,  title and  interest  in and to (i) its
respective  goods  and  other  property  including,  but  not  limited  to,  all
merchandise  returned or rejected by  Customers,  relating to or securing any of
the Receivables; (ii) all of such Borrower's rights as a consignor, a consignee,
an unpaid vendor,  mechanic,  artisan,  or other lienor,  including  stoppage in
transit,  setoff,  detinue,  replevin,  reclamation  and  repurchase;  (iii) all
additional  amounts  due to such  Borrower  from any  Customer  relating  to the
Receivables;  (vi) other property,  including  warranty claims,  relating to any
goods  securing this  Agreement;  (v) all of such  Borrower's  contract  rights,
rights of payment  which have been earned under a contract  right,  instruments,
documents,   chattel  paper,  warehouse  receipts,   deposit  accounts,   money,
securities and investment property;  (vi) if and when obtained by such Borrower,
all real and personal  property of third parties in which such Borrower has been
granted a lien or security  interest as security for the payment or  enforcement
of Receivables;  and (vii) any other goods,  personal  property or real property
now owned or hereafter  acquired in which such Borrower has expressly  granted a
security  interest  or may in the  future  grant a  security  interest  to Agent
hereunder,  or in any  amendment or supplement  hereto or thereto,  or under any
other agreement between Agent and such Borrower;

     (j)  all  of  each   Borrower's   ledger  sheets,   ledger  cards,   files,
correspondence,  records, books of account, business papers, computers, computer
software  (owned  by such  Borrower  or in which it has an  interest),  computer
programs,  tapes,  disks and documents relating to (a), (b), (c), (d), (e), (f),
(g), (h) or (i) of this Paragraph; and

     (k) all proceeds and products of (a),  (b),  (c),  (d), (e), (f), (g), (h),
(i) or (j) in  whatever  form,  including,  but not limited  to:  cash,  deposit
accounts (whether or not comprised solely of proceeds), certificates of deposit,
insurance proceeds  (including hazard,  flood and credit insurance),  negotiable
instruments  and other  instruments  for the  payment of money,  chattel  paper,
security agreements,  documents, eminent domain proceeds,  condemnation proceeds
and tort claim proceeds.

     "Commitment  Percentage"  of any Lender shall mean the percentage set forth
below such Lender's  name on the  signature  page hereof as same may be adjusted
upon any assignment by a Lender pursuant to Section 16.3(c) hereof.


BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                        4

<PAGE>



     "Commitment  Transfer  Supplement"  shall  mean a  document  in the form of
Exhibit 16.3 hereto,  properly  completed  and  otherwise in form and  substance
satisfactory  to Agent by which the  Purchasing  Lender  purchases and assumes a
portion of the obligation of Lenders to make Advances under this Agreement.

     "Consents"  shall mean all filings  and all  licenses,  permits,  consents,
approvals, authorizations, qualifications and orders of governmental authorities
and  other  third  parties,  domestic  or  foreign,  necessary  to  carry on any
Borrower's business,  including, without limitation, any Consents required under
all applicable federal, state or other applicable law.

     "Controlled  Group"  shall  mean  all  members  of a  controlled  group  of
corporations and all trades or businesses  (whether or not  incorporated)  under
common control which, together with Borrowers,  are treated as a single employer
under Section 414 of the Code.

     "Convertible  Notes"  means those  certain  HMG  Worldwide  Corporation  7%
Convertible  Notes due February 24, 2002 in the  aggregate  principal  amount of
$5,000,000.00.

     "Customer"  shall mean and include the account  debtor with  respect to any
Receivable  and/or the  prospective  purchaser  of goods,  services or both with
respect to any contract or contract  right,  and/or any party who enters into or
proposes  to enter into any  contract  or other  arrangement  with any  Borrower
pursuant to which such  Borrower is to deliver any personal  property or perform
any services.

     "Default"  shall mean an event which,  with the giving of notice or passage
of time or both, would constitute an Event of Default.

     "Default Rate" shall have the meaning set forth in Section 3.1 hereof.

     "Defaulting  Lender"  shall have the meaning  set forth in Section  2.15(a)
hereof.

     "Depository  Accounts"  shall have the meaning set forth in Section 4.15(h)
hereof.

     "Documents" shall have the meaning set forth in Section 8.1(c) hereof.

     "Dollar" and the sign "$" shall mean lawful  money of the United  States of
America.

     "Domestic  Rate Loan" shall mean any Advance that bears interest based upon
the Base Rate.

     "Early  Termination  Date" shall have the meaning set forth in Section 13.1
hereof.

     "Earnings  Before  Interest and Taxes" shall mean for any period the sum of
(i) net  income  (or loss) of HMG  Worldwide  on a  consolidated  basis for such
period  (excluding  extraordinary  gains,  other  than on  account  of any "swap
agreement"  contemplated  under  Section  6.9  hereof),  plus (ii) all  interest
expense of HMG Worldwide on a consolidated basis for such period,

BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                        5

<PAGE>



     plus (iii) all charges  against  income of HMG Worldwide on a  consolidated
basis for such period for federal, state and local taxes.

     "EBITDA" shall mean for any period the sum of (i) Earnings  Before Interest
and Taxes for such period, plus (ii) depreciation expenses of HMG Worldwide on a
consolidated  basis for such  period,  plus (iii)  amortization  expenses of HMG
Worldwide on a consolidated basis for such period.

     "Eligible  Inventory"  shall mean and include each Borrower's  Inventory of
finished  goods  and raw  materials,  valued  at the  lower  of cost or  market,
determined  on a  first-in-first-out  basis,  which is not, in Agent's  opinion,
obsolete, slow moving or unmerchantable and which Agent, in its sole discretion,
shall not deem ineligible  Inventory,  based on such considerations as Agent may
from time to time deem appropriate  including,  without limitation,  whether the
Inventory is subject to a perfected,  first priority  security interest in favor
of Agent and  whether the  Inventory  conforms to all  applicable  and  relevant
standards imposed by any governmental  agency,  division or department  thereof.
Eligible Inventory shall include all Inventory  in-transit which otherwise meets
all criteria of Eligible  Inventory  from time to time, the payment for which is
being made pursuant to a Letter of Credit.

     "Eligible  Receivables" shall mean and include Receivables of each Borrower
arising in the ordinary course of such  Borrower's  business and which Agent, in
its sole credit judgment, shall deem to be an Eligible Receivable, based on such
considerations  as Agent may from time to time deem  appropriate.  A  Receivable
shall not be deemed  eligible unless such Receivable is subject to Agent's first
priority  perfected  security  interest and no other Lien (other than  Permitted
Encumbrances),  and is  evidenced  by an invoice or other  documentary  evidence
satisfactory  to  Agent.  In  addition,  no  Receivable  shall  be  an  Eligible
Receivable if:

     (a) it arises out of a sale made by any  Borrower  to an  Affiliate  of any
Borrower or to a Person controlled by an Affiliate of any Borrower;

     (b) it is due or unpaid  more than sixty (60) days after the  original  due
date, but in no event more than one hundred twenty (120) days after the original
invoice date;

     (c)  fifty  percent  (50%) or more of the  Receivables  from  the  Customer
obligated with respect to such  Receivable are not deemed  Eligible  Receivables
hereunder.  Such  percentage may, in Lenders' sole  discretion,  be increased or
decreased from time to time;

     (d) any covenant,  representation  or warranty  contained in this Agreement
with respect to such Receivable has been breached;

     (e) the Customer  obligated with respect to such Receivable shall (i) apply
for, suffer, or consent to the appointment of, or the taking of possession by, a
receiver,  custodian, trustee or liquidator of itself or of all or a substantial
part of its property or call a meeting of its  creditors,  (ii) admit in writing
its inability,  or be generally  unable,  to pay its debts as they become due or
cease operations of its present  business,  (iii) make a general  assignment for
the benefit of creditors, (iv)

BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                        6

<PAGE>



     commence a voluntary  case under any state or federal  bankruptcy  laws (as
now or hereafter in effect),  (v) be  adjudicated a bankrupt or insolvent,  (vi)
file a petition  seeking to take  advantage of any other law  providing  for the
relief of debtors,  (vii) acquiesce to, or fail to have dismissed,  any petition
which is filed against it in any involuntary case under such bankruptcy laws, or
(viii) take any action for the purpose of effecting any of the foregoing;

     (f) the sale giving rise to such  Receivable  is to a Customer  outside the
United  States of America  and  Canada,  unless the sale is on letter of credit,
guaranty  or  acceptance  terms,  in each case  acceptable  to Agent in its sole
discretion;

     (g) the sale to the Customer  obligated with respect to such  Receivable is
on a  bill-and-hold,  guaranteed  sale,  sale-  and-return,  sale  on  approval,
consignment  or any other  repurchase or return basis or is evidenced by chattel
paper;

     (h)  Agent  believes,  in  its  sole  judgment,  that  collection  of  such
Receivable is insecure or that such  Receivable may not be paid by reason of the
relevant Customer's financial inability to pay;

     (i) the Customer  obligated  with respect to such  Receivable is the United
States of America, any state or any department, agency or instrumentality of any
of them,  unless  the  relevant  Borrower  assigns  its right to payment of such
Receivable to Agent pursuant to the Assignment of Claims Act of 1940, as amended
(31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15 et seq.) or has
otherwise complied with other applicable statutes or ordinances;

     (j) the goods  giving  rise to such  Receivable  have not been  shipped and
delivered  to and  accepted  by the  relevant  Customer  or its  designee or the
services  giving rise to such Receivable have not been performed by the relevant
Borrower and accepted by the relevant Customer or such Receivable otherwise does
not represent a final sale;

     (k)  the  Receivables  of the  Customer  obligated  with  respect  to  such
Receivable exceed a credit limit determined by Agent, in its sole discretion, to
the extent such Receivable exceeds such limit;

     (l) such Receivable is subject to any offset, deduction,  defense, dispute,
or counterclaim,  the Customer is also a creditor or supplier of any Borrower or
such Receivable is contingent in any respect or for any reason;

     (m) the  relevant  Borrower  has  made  any  agreement  with  the  Customer
obligated with respect to such  Receivable for any deduction  therefrom,  except
for discounts or allowances  made in the ordinary  course of business for prompt
payment,  all of which  discounts or allowances are reflected in the calculation
of the face value of each respective  invoice related thereto,  but the relevant
Receivable  shall be excluded  form Eligible  Receivables  only to the extent of
such deduction to the extent not already  deducted in determining  the amount of
such Receivable;


BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                        7

<PAGE>



     (n) any return, rejection or repossession of the merchandise giving rise to
such Receivable has occurred;

     (o) such Receivable is not payable to any Borrower; or

     (p) such Receivable is not otherwise satisfactory to Agent as determined in
good faith by Agent in the exercise of its discretion in a reasonable manner.

     "Eligible  Securities"  shall mean the Cash and Government  Securities from
time to time maintained in the Securities  Account,  which shall be deemed to be
an Eligible  Security by Agent  based on such  considerations  as Agent may from
time to time deem  appropriate  and which  shall be subject to a first  priority
security interest in favor of Agent.

     "Environmental  Complaint"  shall  have the  meaning  set forth in  Section
4.19(d) ----------------------- --------------- hereof.

     "Environmental Laws" shall mean all federal, state and local environmental,
land use, zoning,  health,  chemical use, safety and sanitation laws,  statutes,
ordinances  and codes  relating  to the  protection  of the  environment  and/or
governing the use, storage, treatment, generation,  transportation,  processing,
handling,  production  or  disposal  of  Hazardous  Substances  and  the  rules,
regulations,  policies,  guidelines,  interpretations,   decisions,  orders  and
directives of federal,  state and local  governmental  agencies and  authorities
with respect thereto.

     "Equipment" shall mean and include all of each Borrower's goods (other than
Inventory)  whether  now  owned  or  hereafter  acquired  and  wherever  located
including,  without  limitation,  all of such Borrower's  equipment,  machinery,
apparatus, motor vehicles, fittings, furniture, furnishings, fixtures, parts and
accessories  and all  replacements  and  substitutions  therefor  or  accessions
thereto.

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder.

     "Eurodollar  Rate  Loan"  shall  mean an  Advance  at any time  that  bears
interest based on the Eurodollar Rate.

     "Eurodollar  Rate"  shall  mean for any  Eurodollar  Rate Loan for the then
current  Interest Period relating thereto the interest rate per annum determined
by PNC by dividing (the resulting quotient rounded upwards, if necessary, to the
nearest  1/100th of 1% per annum) (i) the rate of interest  determined by PNC in
accordance with its usual procedures  (which  determination  shall be conclusive
absent  manifest error) to be the eurodollar rate two (2) Business Days prior to
the  first  day of  such  Interest  Period  for an  amount  comparable  to  such
Eurodollar  Rate Loan and having a borrowing  date and a maturity  comparable to
such  Interest  Period  by  (ii) a  number  equal  to  1.00  minus  the  Reserve
Percentage.


BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                        8

<PAGE>



     "Event of Default" shall mean the occurrence and  continuance of any of the
events set forth in Article 10 hereof  subject  to, to the extent  provided  for
therein, the giving of notice, the lapse of time or both.

     "Excess Cash Flow" shall mean,  for any fiscal year of HMG  Worldwide,  the
sum remaining after deducting from HMG Worldwide's  consolidated EBITDA for such
fiscal year the following  amounts actually paid or accrued during or in respect
of such  fiscal  year:  (a)  Senior  Debt  Payments;  (b)  non-financed  capital
expenditures permitted hereunder; (c) cash dividends; and (d) accrued taxes. For
purposes of the  foregoing  and for purposes of the  definition of "Fixed Charge
Coverage Ratio" below, the conversion of a portion of the Convertible Notes, the
Additional  Convertible  Notes or any of the obligations  evidenced thereby into
capital stock of any Borrower shall not be deemed a Senior Debt Payment.

     "Federal Funds Rate" shall mean,  for any day, the weighted  average of the
rates on  overnight  Federal  funds  transactions  with  members of the  Federal
Reserve System arranged by Federal funds brokers,  as published for such day (or
if such day is not a Business Day, for the next  preceding  Business Day) by the
Federal  Reserve Bank of New York,  or if such rate is not so published  for any
day which is a Business  Day,  the  average of  quotations  for such day on such
transactions  received by PNC from three  Federal  funds  brokers of  recognized
standing selected by PNC.

     "Fee Letter"  shall mean that certain  letter  agreement  between Agent and
Borrowers of even date herewith  regarding  certain fees to be paid by Borrowers
to Agent.

     "Financial  Assets" shall have the meaning provided for such term under the
Uniform  Commercial  Code as  adopted  in the State of New York and shall in any
event include, without limitation, all items from time to time in the Securities
Account.

     "Fixed Charge Coverage  Ratio" shall mean and include,  with respect to any
fiscal period, the ratio of (a) EBITDA,  minus unfinanced capital  expenditures,
minus cash taxes paid during such period, to (b) all Senior Debt Payments during
such period

     "Formula Amount" shall have the meaning set forth in Section 2.1(a).

     "GAAP"  shall,  subject to Section  1.1  hereof,  mean  generally  accepted
accounting  principles  in the United  States of America in effect  from time to
time.

     "General Intangibles" shall mean and include all of each Borrower's general
intangibles,   whether  now  owned  or  hereafter  acquired  including,  without
limitation,  all choses in action, causes of action, corporate or other business
records,   inventions,   designs,   patents,   patent  applications,   equipment
formulations,  manufacturing procedures, quality control procedures, trademarks,
service   marks,   trade   secrets,   goodwill,   copyrights,   design   rights,
registrations,  licenses,  franchises,  customer lists, tax refunds,  tax refund
claims,  computer programs,  all claims under guaranties,  security interests or
other security held by or granted to such Borrower to secure payment

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12
                                        9

<PAGE>



     of any of the Receivables by a Customer,  all rights of indemnification and
all other intangible property of every kind and nature (other than Receivables).

     "Governmental Body" shall mean any nation or government, any state or other
political   subdivision  thereof  or  any  entity  exercising  the  legislative,
judicial,   regulatory  or  administrative  functions  of  or  pertaining  to  a
government.

     "Government  Securities" shall mean obligations issued or guaranteed by the
United States of America or any agency thereof.

     "HMG Worldwide" shall mean HMG Worldwide Corporation.

     "Hazardous  Discharge"  shall have the meaning set forth in Section 4.19(d)
hereof.

     "Hazardous  Substance"  shall  mean,  without  limitation,   any  flammable
explosives,  radon,  radioactive  materials,  asbestos,  urea  formaldehyde foam
insulation,   polychlorinated  biphenyls,   petroleum  and  petroleum  products,
methane, hazardous materials, Hazardous Wastes, hazardous or Toxic Substances or
related materials as defined in CERCLA, the Hazardous  Materials  Transportation
Act,  as  amended  (49  U.S.C.  Sections  1801,  et  seq.),  RCRA,  or any other
applicable Environmental Law and in the regulations adopted pursuant thereto.

     "Hazardous  Wastes"  shall mean all waste  materials  subject to regulation
under CERCLA, RCRA or applicable state law, and any other applicable Federal and
state  laws  now in force or  hereafter  enacted  relating  to  hazardous  waste
disposal.

     "Indebtedness"  of a Person at a particular date shall mean all obligations
of such Person which in accordance  with GAAP would be classified upon a balance
sheet as liabilities  (except capital stock and surplus earned or otherwise) and
in any event,  without  limitation by reason of  enumeration,  shall include all
indebtedness,  debt and  other  similar  monetary  obligations  of such  Person,
whether  direct or  guaranteed,  and all  premiums,  if any, due at the required
prepayment dates of such indebtedness, and all indebtedness secured by a Lien on
assets owned by such Person,  whether or not such  indebtedness  actually  shall
have been created,  assumed or incurred by such Person. Any indebtedness of such
Person  resulting  from the  acquisition by such Person of any assets subject to
any Lien shall be deemed,  for the purposes hereof,  to be the equivalent of the
creation,  assumption and incurring of the indebtedness secured thereby, whether
or not actually so created, assumed or incurred; provided, however, that, to the
extent any such  indebtedness is a non-recourse or limited  recourse  obligation
where (by law,  contract or  otherwise)  the recovery  with  respect  thereto is
limited  to the  assets  and other  collateral  pledged  to secure  the  payment
thereof, for purposes of the foregoing, the amount of such indebtedness shall be
limited to the value of the assets  that have been  acquired  by such Person and
that secure such indebtedness.

     "Interest  Period" shall mean the period  provided for any Eurodollar  Rate
Loan pursuant to Section 2.2(b) hereof.


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12
                                       10

<PAGE>



     "Inventory"  shall  mean all of each  Borrower's  now  owned  or  hereafter
acquired goods, merchandise and other personal property, wherever located, to be
furnished  under any  contract  of  service  or held for sale or lease,  all raw
materials,  work in process,  finished  goods and  materials and supplies of any
kind,  nature  or  description  which are or might be used or  consumed  in such
Borrower's business or used in selling or furnishing such goods, merchandise and
other  personal  property,  and  all  documents  of  title  or  other  documents
representing them.

     "Inventory  Advance  Rate"  shall  have the  meaning  set forth in  Section
2.1(a)(y)(ii) ---------------------- --------------------- hereof.

     "Investment  Property" shall have the meaning  provided for such term under
the Uniform Commercial Code as adopted in the State of New York and shall in any
event include, without limitation, all items from time to time in the Securities
Account.

     "Issuer"  shall mean any  Person  who issues a Letter of Credit  under this
Agreement.

     "Lender" and "Lenders" shall have the meaning  ascribed to such term in the
preamble  to this  Agreement  and shall  include  each  Person  which  becomes a
transferee, successor or assign of any Lender.

     "Letter of Credit"  shall mean  merchandise  and standby  letters of credit
issued for the account of any Borrower under this Agreement.

     "Letter of Credit Fees" shall have the meaning set forth in Section 3.2(a).

     "Lien"  shall  mean any  mortgage,  deed of trust,  pledge,  hypothecation,
assignment,  security interest, lien (whether statutory or otherwise), Charge or
encumbrance, or preference, priority or other security agreement or preferential
arrangement  held or  asserted  in  respect  of any  asset of any kind or nature
whatsoever  including,  without limitation,  any conditional sale or other title
retention agreement,  any lease having substantially the same economic effect as
any of the  foregoing,  and the filing of, or agreement to give,  any  financing
statement   under  the  Uniform   Commercial  Code  or  comparable  law  of  any
jurisdiction.

     "Material  Adverse  Change" shall mean any set of  circumstances  or events
which (a) has or could  reasonably  be  expected  to have any  Material  Adverse
Effect  whatsoever upon the validity or  enforceability of this Agreement or any
Other  Documents,  (b) is or could  reasonably  be expected  to be material  and
adverse to the business,  properties,  assets,  financial condition,  results of
operations  or  prospects  of any  Borrower,  (c)  impairs  materially  or could
reasonably be expected to impair  materially the ability of any Borrower to duly
and  punctually  pay or perform its  Obligations,  or (d) impairs  materially or
could  reasonably be expected to impair  materially  the ability of the Agent or
Lenders,  to the extent  permitted,  to enforce their legal remedies pursuant to
this Agreement or any Other Documents.

     "Material Adverse Effect" shall mean a material adverse effect with respect
to  (a)  the  condition,  operations,  assets,  business  or  prospects  of  the
applicable Person or Persons, (b)

BLU-69367_7/ZRM1343/PNC008-129635                                 012000/11:12
                                       11

<PAGE>



     Borrowers'  ability to pay the  Obligations  in  accordance  with the terms
thereof, (c) the value of the Collateral,  or Agent's Liens on the Collateral or
the priority of any such Lien or (d) the practical  realization  of the benefits
of Agent's and each Lender's  rights and remedies  under this  Agreement and the
Other Documents.

     "Maximum  Revolving  Advance  Amount"  shall mean  Thirty-One  Million Nine
Hundred Thousand Dollars ($31,900,000.00).

     "Monthly Advances" shall have the meaning set forth in Section 3.1 hereof.

     "Mortgage" shall mean, collectively,  the mortgages on the Real Property in
favor of  Agent  for the  benefit  of  Lenders,  and all  extensions,  renewals,
amendments, supplements,  modifications,  substitutions and replacements thereto
and thereof.

     "Multiemployer  Plan"  shall  mean a  "multiemployer  plan" as  defined  in
Sections 3(37) and 4001(a)(3) of ERISA.

     "Note" shall mean, collectively, each of the Revolving Credit Notes and the
Term ---- Notes.

     "Obligations" shall mean and include any and all of Borrowers' Indebtedness
and/or  liabilities  to Agent or Lenders or any  corporation  that  directly  or
indirectly controls or is controlled by or is under common control with Agent or
any Lender of every kind, nature and description, direct or indirect, secured or
unsecured,  joint, several, joint and several, absolute or contingent, due or to
become  due,  now  existing  or  hereafter  arising,  contractual  or  tortious,
liquidated or unliquidated,  under this Agreement and/or the Other Documents or,
to the  extent  entered  into with PNC (or any  Affiliate  of PNC),  under or in
connection with the "swap agreement" contemplated under Section 6.9 hereof.

     "Original Owners" shall mean HMG Worldwide and its Subsidiaries.

     "Other Documents" shall mean the Note, the Mortgage,  the Securities Pledge
Agreement,  the Questionnaire and any and all other agreements,  instruments and
documents,  including,  without  limitation,   guaranties,  pledges,  powers  of
attorney, consents, and all other writings heretofore, now or hereafter executed
by Borrowers, or any of them, and/or delivered to Agent or any Lender in respect
of the  transactions  contemplated  by this Agreement and, to the extent entered
into with PNC (or any Affiliate of PNC),  any  documents in connection  with the
"swap agreement" contemplated under Section 6.9 hereof.

     "Parent" of any Person shall mean a  corporation  or other  entity  owning,
directly or indirectly,  at least 50% of the shares of stock or other  ownership
interests  having ordinary voting power to elect a majority of (a) the directors
of the  Person,  or (b) other  Persons  performing  similar  functions  for such
Person.


BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                       12

<PAGE>



     "Participant"  shall mean each Person who shall be granted the right by any
Lender to  participate  in any of the Advances and who shall have entered into a
participation agreement in form and substance satisfactory to such Lender.

     "Payment  Office"  shall mean  initially Two Tower Center  Boulevard,  East
Brunswick,  New Jersey 08816;  thereafter,  such other office of Agent,  if any,
which it may designate by notice to Borrowing Agent and to each Lender to be the
Payment Office.

     "PBGC" shall mean the Pension Benefit Guaranty Corporation.

     "Permitted Acquisition" shall mean:

     (a) an  acquisition  by any Borrower of the ownership  interests of another
Person,  in respect of which (i) the  consideration  to such Person is comprised
solely of the capital stock of any Borrower,  (ii) neither such Borrower nor any
other Borrower assumes or becomes in any way, directly or indirectly, liable for
any of the  obligations  of such  Person,  (iii) such  Person  does not become a
"Borrower"  under this  Agreement  and does not  otherwise  receive at any time,
directly or indirectly, the proceeds of any Advances and (iv) the assets of such
Person are not included as Eligible Inventory,  Eligible Receivables or Eligible
Securities; and

     (b) an  acquisition  by any  Borrower of assets or  ownership  interests of
another  Person  other  than as set forth in clause  (a)  above,  subject to the
following conditions with respect to each such acquisition:

     (i) for the thirty  (30) day period  immediately  prior to the date of such
acquisition  and after giving effect to such  acquisition,  Borrowers shall have
Undrawn Availability of not less than Three Million Dollars ($3,000,000.00);

     (ii) after  giving  effect to such  acquisition,  the  aggregate  amount of
Advances  made in respect  of all  acquisitions  shall not be greater  than Five
Million Dollars ($5,000,000.00);

     (iii) the  assets or  ownership  interests  acquired  shall be from or with
respect to a Person engaged in the same or a similar business as any Borrower;

     (iv) any  liabilities  to be  assumed  by any  Borrower  in respect of such
acquisition  shall have been  disclosed  to Agent in writing and approved by the
Required Lenders;

     (v)  Borrowers  shall have  delivered to Lenders a summary  regarding  such
acquisition, which summary shall include,

BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                       13

<PAGE>



     without  limitation,  the  following:  (A) whether such  acquisition  is an
ownership interest or asset  acquisition,  (B) the purchase price, (C) the terms
of any proposed seller  financing,  (D) the amount of Advances required for such
acquisition,  (E) name(s) and  location(s) of the seller and (F) any liabilities
to be assumed in connection therewith. Based on such summary and such additional
information in connection  therewith as may be reasonably  requested by Lenders,
Lenders  shall advise  Borrowers  within  seven (7) Business  Days of receipt by
Lenders of such summary and such additional  information of Lenders' approval or
disapproval (and the reasons therefor) of such acquisition;

     (vi) Borrowers  shall have delivered to Lenders at least seven (7) Business
Days prior to  closing  on such  acquisition,  true and  complete  copies of all
documents in connection therewith,  all of which must be on terms and conditions
consistent in all material  respects with the summary  provided to Lenders under
Subsection (v) above and otherwise reasonably satisfactory to Required Lenders;

     (vii) Borrowers shall have delivered to Agent all such financing statements
and other  agreements  reasonably  required by Agent in order to perfect Agent's
first  priority  security  interest  for the benefit of Lenders in the assets or
ownership interests being acquired;

     (viii) if the  transaction  consists of the  acquisition by any Borrower of
the ownership  interests of another Person (except as contemplated in clause (a)
above),  such Person shall become a "Borrower"  under this Agreement and each of
the Other Documents,  as applicable,  and shall deliver or cause to be delivered
to Agent all such  documents,  financing  statements,  resolutions,  opinions of
counsel and other  agreements as reasonably  requested by Agent, all in form and
content reasonably  satisfactory to Agent,  pursuant to which, inter alia, -----
---- (A) such Person  shall  become  fully  liable for all  Obligations  and (B)
Agent,  for the benefit of Lenders,  shall be granted a first priority  security
interest in all assets of such Person  (subject  only to Permitted  Encumbrances
and other encumbrances acceptable to Required Lenders);

     (ix) assets acquired in connection with any such  acquisition  shall not be
included as Eligible Inventory,  Eligible Receivables or Eligible Securities, as
applicable, unless and until Agent shall

BLU-69367_7/ZRM1343/PNC008-129635                                 012000/11:12
                                       14

<PAGE>



     have  completed all necessary due diligence with respect to such assets and
the results thereof shall be satisfactory to Agent;

     (x) within ten (10) days after closing on such acquisition, Borrowers shall
have delivered to Lenders true, complete and executed copies of all documents in
connection therewith; and

     (xi) if the  acquisition  consists of the merger or  consolidation  of such
Person with such Borrower, such Borrower shall be the surviving entity.

     "Permitted Acquisition Indebtedness" shall mean Indebtedness to a seller in
connection with or as part of a Permitted Acquisition,  which shall be unsecured
and fully  subordinate  to the  Obligations  and otherwise  subject to terms and
conditions satisfactory to Required Lenders.

     "Permitted  Encumbrances"  shall  mean (a)  Liens in favor of Agent for the
benefit of Agent and  Lenders;  (b) Liens for  Charges not  delinquent  or being
contested in good faith and by appropriate proceedings and with respect to which
proper reserves have been taken by the relevant  Borrower;  provided,  that, the
Lien shall have no effect on the  priority of the Liens in favor of Agent or the
value of the assets in which Agent has such a Lien and, if  enforcement  of such
Lien has been  initiated,  a stay of  enforcement  of any such Lien  shall be in
effect; (c) Liens disclosed in the financial  statements  referred to in Section
5.5; (d) deposits or pledges to secure obligations under worker's  compensation,
social security or similar laws, or under unemployment  insurance;  (e) deposits
or pledges to secure bids,  tenders,  contracts  (other than  contracts  for the
payment of money), leases,  statutory  obligations,  surety and appeal bonds and
other  obligations  of  like  nature  arising  in  the  ordinary  course  of any
Borrower's  business;  (f)  judgment  Liens that have been  stayed or bonded and
mechanics',  workers', materialmen's or other like Liens arising in the ordinary
course of any Borrower's  business with respect to obligations which are not due
or which are being  contested in good faith by  Borrower;  (g) Liens placed upon
fixed  assets  hereafter  acquired  to secure a portion  of the  purchase  price
thereof,  provided  that any such lien shall not encumber any other  property of
any Borrower;  (h) Liens  disclosed on Schedule 1.2; (i) exceptions to title and
other  encumbrances  regarding  real  property  disclosed  in Title  Commitments
Numbered  9917CLA and 99116CLA,  respectively  issued by Stewart Title  Guaranty
Company or in any other title policy  issued with  respect to any real  property
hereafter acquired; (j) the interest of lessors and others in or to any property
(real or  personal)  leased by any  Borrower as lessee;  (k) the interest of any
Person, as lessee,  in or to any property leased by any Borrower as lessor;  (l)
the rights and interests of others under any contract  constituting  part of the
Collateral; and (m) liens in favor of PNC.

     "Permitted  Investments"  shall have the  meaning  set forth in Section 7.4
hereof.

     "Person"  shall  mean any  individual,  sole  proprietorship,  partnership,
corporation,   business  trust,  joint  stock  company,  trust,   unincorporated
organization,   association,  limited  liability  company,  institution,  public
benefit corporation, joint venture, entity or government (whether

BLU-69367_7/ZRM1343/PNC008-129635                               012000/11:12
                                       15

<PAGE>



     Federal,  state,  county,  city,  municipal  or  otherwise,  including  any
instrumentality, division, agency, body or department thereof).

     "Plan" shall mean any  employee  benefit plan within the meaning of Section
3(3) of ERISA,  maintained for employees of the relevant  Borrower or any member
of the Controlled  Group or any such Plan to which the relevant  Borrower or any
member of the Controlled Group is required to contribute on behalf of any of its
employees.

     "Pro  Forma  Balance  Sheet"  shall have the  meaning  set forth in Section
5.5(a) ----------------------- -------------- hereof.

     "Pro  Forma  Financial  Statements"  shall  have the  meaning  set forth in
Section 5.5(b) hereof.

     "Projections" shall have the meaning set forth in Section 5.5(b) hereof.

     "Purchasing  Lender"  shall have the meaning  set forth in Section  16.3(c)
hereof.

     "Questionnaire"  shall mean the  Information  Certificate and the responses
thereto provided by Borrowers and delivered to Agent.

     "RCRA" shall mean the Resource  Conservation  and Recovery Act, 42 U.S.C. "
6901 et seq., as same may be amended from time to time.

     "Real Property" shall mean all real property and all  improvements  thereon
now or hereafter owned or leased by any Borrower.

     "Receivables"  shall  mean  and  include  all  of the  relevant  Borrower's
accounts,  contract rights, instruments (including those evidencing indebtedness
owed to such Borrower by its  Affiliates),  documents,  chattel  paper,  general
intangibles relating to accounts, drafts and acceptances, and all other forms of
obligations owing to such Borrower arising out of or in connection with the sale
or lease of Inventory or the  rendition of services,  all  guarantees  and other
security  therefor,  whether  secured or  unsecured,  now  existing or hereafter
created, and whether or not specifically sold or assigned to Agent hereunder.

     "Receivables  Advance  Rate"  shall have the  meaning  set forth in Section
2.1(a)(y)(i) ------------------------ -------------------- hereof.

     "Release" shall have the meaning set forth in Section 5.7(c)(i) hereof.

     "Reportable  Event"  shall mean a  reportable  event  described  in Section
4043(b) of ERISA or the regulations promulgated thereunder.

     "Required  Lenders"  shall mean (a) all Lenders,  at all times during which
there are not more than two Lenders;  and (b) Lenders holding at least 662/3% of
the Advances and, if no

BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                       16

<PAGE>



     Advances  are  outstanding,  shall  mean  Lenders  holding  662/3%  of  the
Commitment  Percentages,  at all  times  during  which  there  are more than two
Lenders.

     "Reserve  Percentage" shall mean the maximum effective percentage in effect
on any day as prescribed by the Board of Governors of the Federal Reserve System
(or any successor) for determining the reserve requirements (including,  without
limitation,  supplemental,  marginal and emergency  reserve  requirements)  with
respect to eurocurency funding.

     "Revolving  Advances" shall mean Advances made other than Letters of Credit
and the Term Loan.

     "Revolving  Credit Note" shall have the meaning set forth in Section 2.1(a)
hereof.

     "Revolving  Interest  Rate" shall mean an interest  rate per annum equal to
the sum of the (a) Base Rate plus .25% with respect to Domestic Rate Loans,  and
(b) Eurodollar Rate plus 2.5% with respect to Eurodollar Rate Loans.

     "Schutz  Note"  means  that  certain   Promissory   Note  from  HMG  Schutz
International,  Inc. to Schutz  International,  Inc.  dated July 31, 1998 in the
original  stated  principal  amount  of Three  Million  Five  Hundred  Seventeen
Thousand Two Hundred Eight Dollars ($3,517,208.00)

     "Securities  Account" shall mean that certain securities account maintained
by HMG  Worldwide  with  PNC,  being  account  number  _______________  and  all
substitutions and replacements thereof.

     "Securities  Advance  Rate"  shall  have the  meaning  set forth in Section
2.1(a)(y) (iii) ----------------------- ----------------------- hereof.

     "Securities  Pledge  Agreement" shall mean that certain  Securities  Pledge
Agreement of even date herewith  between HMG Worldwide and Agent for the benefit
of Lenders.

     "Senior Debt Payments" shall mean and include all cash actually expended by
Borrowers to make (a)  interest  payments on any  Advances  hereunder,  plus (b)
scheduled principal payments on the Term Loan (which, for these purposes,  shall
not be deemed to include payments of principal required to be made on account of
Excess Cash Flow as contemplated  by Section 2.4(b) hereof),  plus, (c) payments
for all fees,  commissions  and charges set forth herein and with respect to any
Advances (but for these purposes fees, commissions and charges payable on or at,
or with  respect to any services  performed or costs or expenses  incurred on or
prior  to,  the  Closing  Date  shall  be  amortized  over the  Term),  plus (d)
capitalized  lease  payments,  plus  (e)  payments  with  respect  to any  other
Indebtedness for borrowed money (including, without limitation, all payments due
under the  Convertible  Notes,  the Schutz Note and the  Additional  Convertible
Notes).

     "Settlement  Date" shall mean the Closing Date and thereafter  Wednesday of
each week unless  such day is not a Business  Day, in which case it shall be the
next succeeding Business Day.

BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                       17

<PAGE>



     "Subsidiary"  shall mean a  corporation  or other entity of whose shares of
stock or other  ownership  interests  having  ordinary  voting power (other than
stock or other  ownership  interests  having  such  power  only by reason of the
happening  of a  contingency)  to  elect a  majority  of the  directors  of such
corporation,  or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.

     "Term" shall have the meaning set forth in Section 13.1 hereof.

     "Term Loan" shall mean Advances made pursuant to Section 2.4 hereof.

     "Term Loan Rate" shall mean an interest  rate per annum equal to the sum of
the (a) Base Rate plus  .75%  with  respect  to  Domestic  Rate  Loans,  and (b)
Eurodollar Rate plus 3.0% with respect to Eurodollar Rate Loans.

     "Term Note" shall have the meaning set forth in Section 2.4 hereof.

     "Termination  Event" shall mean (i) a Reportable  Event with respect to any
Plan or Multiemployer Plan; (ii) the withdrawal of any Borrower or any member of
the  Controlled  Group from a Plan or  Multiemployer  Plan during a plan year in
which such entity was a "substantial  employer" as defined in Section 4001(a)(2)
of ERISA;  (iii) the  providing  of  notice of intent to  terminate  a Plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the institution
by the PBGC of  proceedings to terminate a Plan or  Multiemployer  Plan; (v) any
event or condition  (a) which might  constitute  grounds  under  Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan  or  Multiemployer  Plan,  or (b)  that  may  result  in  termination  of a
Multiemployer  Plan pursuant to Section  4041A of ERISA;  or (vi) the partial or
complete  withdrawal  within the meaning of Sections 4203 and 4205 of ERISA,  of
any Borrower or any member of the Controlled Group from a Multiemployer Plan.

     "Toxic  Substance"  shall mean and include any material present on the Real
Property which has been shown to have significant adverse effect on human health
or which is subject to regulation under the Toxic Substances Control Act (TSCA),
15 U.S.C. " 2601 et seq.,  applicable state law, or any other applicable Federal
or state laws now in force or hereafter  enacted  relating to toxic  substances.
"Toxic  Substance"  includes  but is not  limited to  asbestos,  polychlorinated
biphenyls (PCBs) and lead-based paints.

     "Transactions" shall have the meaning set forth in Section 5.5(a) hereof.

     "Transferee" shall have the meaning set forth in Section 16.3(b) hereof.

     "Undrawn  Availability"  at a particular date shall mean an amount equal to
(a) the lesser of (i) the Formula Amount or (ii) the Maximum  Revolving  Advance
Amount,  minus (b) the sum of (i) the outstanding amount of Advances (other than
the Term  Loan),  plus  (ii) all  amounts  due and  owing  to  Borrowers'  trade
creditors which are outstanding  beyond normal trade terms,  plus (iii) fees and
expenses for which  Borrowers are liable but which have not been paid or charged
to Borrowers' Account.

BLU-69367_7/ZRM1343/PNC008-129635                                  012000/11:12
                                       18

<PAGE>



     "Week" shall mean the time period  commencing  with the opening of business
on a Wednesday and ending on the end of business the following Tuesday.

     "Year 2000  Problem"  shall  have the  meaning  set forth in  Section  5.22
hereof.

     1.3 Uniform Commercial Code Terms. All terms used herein and defined in the
Uniform  Commercial  Code as  adopted  in the State of New York  shall  have the
meaning given therein unless otherwise defined herein.

     1.4 Certain  Matters of  Construction.  The terms  "herein",  "hereof"  and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular  section,  paragraph or subdivision.  Any pronoun used
shall be deemed to cover all genders. Wherever appropriate in the context, terms
used  herein in the  singular  also  include  the  plural  and vice  versa.  All
references to statutes and related  regulations  shall include any amendments of
same and any successor statutes and regulations.  Unless otherwise provided, all
references  to  any  instruments  or  agreements  to  which  Agent  is a  party,
including,  without limitation,  references to any of the Other Documents, shall
include  any  and  all  modifications  or  amendments  thereto  and  any and all
extensions or renewals thereof.

2.       ADVANCES, PAYMENTS.

         2.1      Advances.

     (a) Revolving  Advances.  Subject to the terms and  conditions set forth in
this  Agreement,  each Lender,  severally and not jointly,  will make  Revolving
Advances to Borrowers in aggregate amounts outstanding at any time equal to such
Lender's  Commitment  Percentage  of the  lesser  of (x) the  Maximum  Revolving
Advance Amount less the aggregate amount of outstanding Letters of Credit or (y)
an amount equal to the sum of:

     (i)  up to  85%,  subject  to  the  provisions  of  Section  2.1(b)  hereof
("Receivables Advance Rate"), of Eligible Receivables, plus

     (ii) up to the  lesser of (A) 60%,  subject  to the  provisions  of Section
2.1(b) hereof ("Inventory Advance Rate"), of the value of the Eligible Inventory
or (B)  50% in the  aggregate  at any one  time  of (I)  the  sum of the  amount
determined   pursuant   to   Sections    2.1(a)(y)(i),    2.1(a)(y)(ii)(A)   and
2.1(a)(y)(iii)  hereof,  minus (II) the amount  determined  pursuant  to Section
2.1(a)(y)(v) below, plus

     (iii) up to 100% of Eligible  Securities  consisting of Cash, and up to 90%
of Eligible Securities consisting of Government Securities, in each case subject
to the  provisions of Section  2.1(b) hereof (the  "Securities  Advance  Rate"),
minus

     (iv) the aggregate amount of outstanding Letters of Credit, minus


BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                       19

<PAGE>



     (v) such reserves as Agent may  reasonably  deem proper and necessary  from
time to time.

     The amount  derived  from the sum of (x)  Sections  2.1(a)(y)(i),  (ii) and
(iii) minus (y) Section 2.1 (a)(y)(v) at any time and from time to time shall be
referred to as the "Formula Amount".  The Revolving  Advances shall be evidenced
by the secured  promissory  notes  delivered  to the  Lenders  from time to time
(collectively,  the "Revolving Credit Note"), substantially in the form attached
hereto as Exhibit 2.1(a).

     (b) Discretionary  Rights.  The Advance Rates may be increased or decreased
by Agent at any time and from  time to time in the  exercise  of its  reasonable
discretion. Borrowers consent to any such increases or decreases and acknowledge
that  decreasing  the Advance  Rates or  increasing  the  reserves  may limit or
restrict Advances requested by Borrowing Agent.

     2.2 Procedure for Revolving Advances Borrowing.

     (a) Borrowing  Agent on behalf of Borrowers may notify Agent prior to 11:00
a.m. on a Business Day of Borrowers'  request to incur, on that day, a Revolving
Advance hereunder.  Should any amount required to be paid as interest hereunder,
or as fees or other charges  under this  Agreement or any other  agreement  with
Agent or Lenders included in the Other  Documents,  or with respect to any other
Obligation,  become due, same shall be deemed a request for a Revolving  Advance
as of the date such  payment is due, in the amount  required to pay in full such
interest,  fee,  charge or  Obligation  under this  Agreement  or any such other
agreement with Agent or Lenders, and such request shall be irrevocable.

     (b)  Notwithstanding  the provisions of (a) above,  in the event  Borrowers
desire to obtain a  Eurodollar  Rate Loan,  Borrowing  Agent shall give Agent at
least three (3) Business Days' prior written notice,  specifying (i) the date of
the  proposed  borrowing  (which  shall  be a  Business  Day),  (ii) the type of
borrowing  and the  amount on the date of such  Advance  to be  borrowed,  which
amount  shall be at least Five Hundred  Thousand  Dollars  ($500,000.00)  and an
integral  multiple of One Hundred Thousand Dollars  ($100,000.00)  thereof,  and
(iii) the duration of the first Interest Period  therefor.  Interest Periods for
Eurodollar  Rate Loans shall be for one, two or three  months;  provided,  if an
Interest  Period would end on a day that is not a Business  Day, it shall end on
the next  succeeding  Business Day unless such day falls in the next  succeeding
calendar month in which case the Interest Period shall end on the next preceding
Business  Day. No  Eurodollar  Rate Loan shall be made  available  to  Borrowers
during the continuance of a Default or an Event of Default.

     (c) Each Interest  Period of a Eurodollar  Rate Loan shall  commence on the
date such  Eurodollar  Rate Loan is made and shall end on such date as Borrowing
Agent may elect as set forth in (b)(iii)  above;  provided that the exact length
of each Interest  Period shall be determined in accordance  with the practice of
the interbank  market for offshore  Dollar deposits and no Interest Period shall
end after the last day of the Term.

     Borrowing  Agent shall elect the initial  Interest  Period  applicable to a
Eurodollar  Rate Loan by its  notice of  borrowing  given to Agent  pursuant  to
Section 2.2(b) or by its notice of conversion

BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                       20

<PAGE>



     given to Agent pursuant to Section  2.2(d),  as the case may be.  Borrowing
Agent shall  elect the  duration of each  succeeding  Interest  Period by giving
irrevocable  written  notice to Agent of such  duration  not less than three (3)
Business  Days  prior  to the  last  day of the  then  current  Interest  Period
applicable to such Eurodollar Rate Loan. If Agent does not receive timely notice
of the Interest Period elected by Borrowing Agent,  Borrowers shall be deemed to
have  elected  to  convert to a  Domestic  Rate Loan  subject to Section  2.2(d)
hereinbelow.

     (d) Provided that no Default or Event of Default shall have occurred and be
continuing, Borrowers may, on the last Business Day of the then current Interest
Period  applicable to any  outstanding  Eurodollar Rate Loan, or on any Business
Day with  respect to Domestic  Rate Loans,  convert any such loan into a loan of
another type in the same aggregate principal amount provided that any conversion
of a  Eurodollar  Rate Loan shall be made only on the last  Business  Day of the
then  current  Interest  Period  applicable  to such  Eurodollar  Rate Loan.  If
Borrowers  desire to convert a loan,  Borrowing  Agent shall give Agent not less
than three (3) Business  Days' prior  written  notice to convert from a Domestic
Rate Loan to a  Eurodollar  Rate Loan or one (1)  Business  Day's prior  written
notice  to  convert  from a  Eurodollar  Rate  Loan  to a  Domestic  Rate  Loan,
specifying  the date of such  conversion,  the loans to be converted  and if the
conversion is from a Domestic Rate Loan to any other type of loan,  the duration
of the  first  Interest  Period  therefor.  After  giving  effect  to each  such
conversion,  there shall not be outstanding  more than five (5) Eurodollar  Rate
Loans, in the aggregate.

     (e) At its option and upon three (3) Business  Days' prior written  notice,
Borrowers may prepay the  Eurodollar  Rate Loans in whole at any time or in part
from time to time, without premium or penalty,  but with accrued interest on the
principal  being prepaid to the date of such  repayment.  Borrowing  Agent shall
specify the date of prepayment of Advances which are  Eurodollar  Rate Loans and
the amount of such prepayment.  In the event that any prepayment of a Eurodollar
Rate Loan is required or permitted on a date other than the last Business Day of
the then current Interest Period with respect thereto, Borrowers shall indemnify
Agent and Lenders therefor in accordance with Section 2.2(f) hereof.

     (f) Borrowers  shall indemnify Agent and Lenders and hold Agent and Lenders
harmless  from and against any and all losses or expenses that Agent and Lenders
may sustain or incur as a consequence  of any  prepayment,  conversion of or any
default by  Borrowers  in the  payment of the  principal  of or  interest on any
Eurodollar  Rate Loan or failure by  Borrowers  to  complete a  borrowing  of, a
prepayment of or conversion of or to a Eurodollar Rate Loan after notice thereof
has been given, including,  but not limited to, any interest payable by Agent or
Lenders to  lenders of funds  obtained  by it in order to make or  maintain  its
Eurodollar  Rate Loans  hereunder.  A certificate as to any  additional  amounts
payable pursuant to the foregoing  sentence  submitted by Agent or any Lender to
Borrowing Agent shall be conclusive absent manifest error.

     (g)  Notwithstanding  any other  provision  hereof,  if any applicable law,
treaty,  regulation or directive, or any change therein or in the interpretation
or application  thereof,  shall make it unlawful for any Lender (for purposes of
this  subsection  (g), the term "Lender" shall include any Lender and the office
or branch where any Lender or any  corporation or bank  controlling  such Lender
makes or maintains any Eurodollar Rate Loans) to make or maintain its Eurodollar
Rate

BLU-69367_7/ZRM1343/PNC008-129635                                012000/11:12
                                       21

<PAGE>



     Loans,  the  obligation  of such  Lender  to  make  Eurodollar  Rate  Loans
hereunder  shall  forthwith be canceled  and  Borrowers  shall,  if any affected
Eurodollar  Rate Loans are then  outstanding,  promptly upon request from Agent,
either pay all such  affected  Eurodollar  Rate Loans or convert  such  affected
Eurodollar  Rate  Loans  into  loans of  another  type.  If any such  payment or
conversion of any Eurodollar Rate Loan is made on a day that is not the last day
of the Interest Period applicable to such Eurodollar Rate Loan,  Borrowers shall
pay Agent,  upon Agent's request,  such amount or amounts as may be necessary to
compensate the applicable  Lender for any loss or expense  sustained or incurred
by such  Lender  in  respect  of such  Eurodollar  Rate Loan as a result of such
payment or  conversion,  including  (but not limited  to) any  interest or other
amounts  payable by such  Lender to lenders of funds  obtained by such Lender in
order to make or maintain such  Eurodollar  Rate Loan. A  certificate  as to any
additional  amounts payable pursuant to the foregoing  sentence submitted by the
applicable Lender to Borrowing Agent shall be conclusive absent manifest error.

     2.3 Disbursement of Advance Proceeds.  All Advances shall be disbursed from
whichever  office  or other  place  Agent may  designate  from time to time and,
together  with any and all other  Obligations  of Borrowers to Agent or Lenders,
shall be  charged to  Borrowers'  Account  on  Agent's  books.  During the Term,
Borrowers   may  use  the  Revolving   Advances  by  borrowing,   prepaying  and
reborrowing,  all in  accordance  with the  terms  and  conditions  hereof.  The
proceeds of each Revolving Advance requested by Borrowers or deemed to have been
requested  by Borrowers  under  Section  2.2(a)  hereof  shall,  with respect to
requested Revolving Advances to the extent Lenders make such Revolving Advances,
be made  available  to  Borrowers  on the day so  requested  by way of credit to
Borrowers'  operating  account at PNC, or such other bank as Borrowing Agent may
designate  following  notification  to Agent, in immediately  available  federal
funds or other  immediately  available  funds  or,  with  respect  to  Revolving
Advances deemed to have been requested by Borrowers, be disbursed to Agent to be
applied to the outstanding Obligations giving rise to such deemed request.

     2.4 Term Loan. Subject to the terms and conditions of this Agreement,  each
Lender, severally and not jointly, will make a Term Loan to Borrowers in the sum
equal to such  Lender's  Commitment  Percentage  of Three  Million  One  Hundred
Thousand Dollars ($3,100,000.00). The Term Loan shall be advanced on the Closing
Date and shall be, with  respect to  principal,  payable as follows,  subject to
acceleration  upon the  occurrence  and  during the  continuance  of an Event of
Default under this Agreement or termination of this Agreement:

     (a) The  principal  balance  of the  Term  Loan  shall be  repaid  in equal
installments of One Hundred  Fifty-Five  Thousand  Dollars  ($155,000.00)  each,
payable on the first day of each calendar quarter commencing on January 1, 2000.

     (b) In  addition  to the  foregoing,  Borrowers  shall pay to Agent for the
ratable  benefit of Lenders an amount equal to fifty percent (50%) of the Excess
Cash Flow for each fiscal year of  Borrowers,  payable upon delivery to Agent of
the annual  financial  statements  referred to in Section  9.7 below,  but in no
event later than the ninety (90)  Business  Day  following  the end of each such
fiscal year,  commencing with  Borrowers'  fiscal year ending December 31, 1999.
Borrowers  shall  provide  Agent  with a  calculation  of the  Excess  Cash Flow
together with each such payment,  which shall be in form and content  reasonably
satisfactory to Agent and which shall be certified by

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 22

<PAGE>



     the Chief  Financial  Officer  of HMG to be  complete  and  accurate.  Each
payment in respect  of the  Excess  Cash Flow shall be applied to the  principal
payments due under the Term Loan in the inverse order of their maturities.

     (c) On August  27,  2004,  Borrowers  shall  pay to Agent  for the  ratable
benefit of Lenders,  in full, the remaining  principal balance of the Term Loan,
all accrued  and unpaid  interest  thereon and all other sums due in  connection
therewith.

     The Term Loan shall be evidenced by secured promissory notes (collectively,
"Term Note")  delivered to the Lenders  from time to time in  substantially  the
form attached hereto as Exhibit 2.4.

     2.5  Maximum  Advances.   The  aggregate  balance  of  Revolving   Advances
outstanding at any time shall not exceed the lesser of the (a) Maximum Revolving
Advance Amount less the aggregate amount of outstanding Letters of Credit or (b)
Formula Amount less the aggregate amount of outstanding Letters of Credit.

     2.6 Repayment of Advances.

     (a) The Revolving Advances shall be due and payable in full on the last day
of the Term  subject to earlier  prepayment  as herein  provided.  The Term Loan
shall be due and payable as provided in Section 2.4 above and in the Term Note.

     (b) Borrowers recognize that the amounts evidenced by checks, notes, drafts
or any other items of payment  relating to and/or proceeds of Collateral may not
be  collectible  by Agent on the date  received.  In  consideration  of  Agent's
agreement to conditionally  credit Borrowers'  Account as of the Business Day on
which Agent receives those items of payment,  Borrowers agree that, in computing
the charges under this  Agreement,  all items of payment shall be deemed applied
by Agent on account of the  Obligations  one (1) Business Day after the Business
Day Agent  receives such  payments.  Agent is not,  however,  required to credit
Borrowers' Account for the amount of any item of payment which is unsatisfactory
to Agent and Agent may charge  Borrowers'  Account for the amount of any item of
payment which is returned to Agent unpaid.

     (c)  All  payments  of  principal,   interest  and  other  amounts  payable
hereunder,  or under any of the related agreements shall be made to Agent at the
Payment Office not later than 1:00 P.M. (New York Time) on the due date therefor
in lawful money of the United  States of America in federal funds or other funds
immediately available to Agent. Agent shall have the right to effectuate payment
on any and all  Obligations  due and  owing  hereunder  by  charging  Borrowers'
Account or by making Advances as provided in Section 2.2 hereof.

     (d) Borrowers shall pay principal,  interest, and all other amounts payable
hereunder,  or under any related  agreement,  without any deduction  whatsoever,
including, but not limited to, any deduction for any setoff or counterclaim.

     2.7  Repayment  of Excess  Advances.  The  aggregate  balance  of  Advances
outstanding  at any time in excess of the maximum  amount of Advances  permitted
hereunder shall be

BLU-69367_7/ZRM1343/PNC008-129635                                   012000/11:12
                                       23

<PAGE>



     immediately  due and payable  without the  necessity of any demand,  at the
Payment Office, whether or not a Default or Event of Default has occurred.

     2.8 Statement of Account.  Agent shall  maintain,  in  accordance  with its
customary  procedures,  a loan  account  ("Borrowers'  Account")  in the name of
Borrowers in which shall be recorded the date and amount of each Advance made by
Agent and the date and  amount of each  payment in  respect  thereof;  provided,
however, the failure by Agent to record the date and amount of any Advance shall
not  adversely  affect  Agent or any  Lender.  Each  month,  Agent shall send to
Borrowing  Agent a  statement  showing the  accounting  for the  Advances  made,
payments made or credited in respect  thereof,  and other  transactions  between
Agent and Borrowers,  during such month. The monthly  statements shall be deemed
correct and binding upon  Borrowers  in the absence of manifest  error and shall
constitute an account stated between Lenders and Borrowers unless Agent receives
a written statement of Borrowers' specific exceptions thereto within thirty (30)
days after such statement is received by Borrowing  Agent.  The records of Agent
with respect to the loan account shall be conclusive  evidence  absent  manifest
error of the  amounts of  Advances  and other  charges  thereto  and of payments
applicable thereto.

     2.9 Letters of Credit.  Subject to the terms and conditions  hereof,  Agent
shall  issue or cause the  issuance  of Letters of Credit for the account of any
Borrower;  provided,  however, that Agent will not be required to issue or cause
to be issued any  Letters of Credit to the extent  that the face  amount of such
Letters  of Credit  would then cause the sum of the  outstanding  (a)  Revolving
Advances, plus (b) outstanding Letters of Credit to exceed the lesser of (x) the
Maximum Revolving  Advance Amount or (y) the Formula Amount.  The maximum amount
of  outstanding   Letters  of  Credit  shall  not  exceed  One  Million  Dollars
($1,000,000.00)  in the  aggregate at any time.  All  disbursements  or payments
related  to  Letters  of  Credit  shall be  deemed  to be  Domestic  Rate  Loans
consisting  of  Revolving  Advances  and shall bear  interest  at the  Revolving
Interest  Rate for  Domestic  Rate  Loans.  Letters of Credit that have not been
drawn upon shall not bear interest.

     2.10 Issuance of Letters of Credit.

     (a) Borrowing Agent, on behalf of any Borrower,  may request Agent to issue
or cause  the  issuance  of a Letter of  Credit  by  delivering  to Agent at the
Payment  Office,  Agent's form of Letter of Credit  Application  (the "Letter of
Credit  Application")  completed  to the  satisfaction  of Agent and such  other
certificates, documents and other papers and information as Agent may reasonably
request.  Borrowing Agent, on behalf of any Borrower, also has the right to give
instructions and make agreements with respect to any application, any applicable
letter  of  credit  and  security  agreement,  any  applicable  letter of credit
reimbursement  agreement  and/or any other applicable  agreement,  any letter of
credit and the  disposition of documents,  disposition of any unutilized  funds,
and to agree with Agent upon any  amendment,  extension or renewal of any Letter
of Credit.

     (b) Each Letter of Credit shall,  among other  things,  (i) provide for the
payment of sight drafts or acceptances of usance drafts when presented for honor
thereunder in  accordance  with the terms  thereof and when  accompanied  by the
documents  described therein and (ii) have an expiry date not later than six (6)
months after such Letter of Credit's date of issuance and in no event

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 24

<PAGE>



     later than the last day of the Term. Each Letter of Credit shall be subject
to the Uniform  Customs and Practice for  Documentary  Credits (1993  Revision),
International  Chamber of Commerce  Publication  No. 500, and any  amendments or
revision  thereof  adhered to by the Issuer and, to the extent not  inconsistent
therewith, the laws of the State of New York.

     (c) Agent shall use its reasonable efforts to notify Lenders of the request
by Borrowing Agent for a Letter of Credit hereunder.

     (d) Agent  shall  have  absolute  discretion  whether  to accept any draft.
Without in any way limiting  Agent's absolute  discretion  whether to accept any
draft, Borrowing Agent will not present for acceptance any draft, and Agent will
generally not accept any drafts (i) that arise out of transactions involving the
sale of goods by any Borrower not in the ordinary  course of its business,  (ii)
that  involve a sale to an  Affiliate  of any  Borrower,  (iii) that involve any
purchase for which Agent has not received all related documents, instruments and
forms reasonably  requested by Agent, (iv) for which Agent is unable to locate a
purchaser in the ordinary  course of business on standard  terms, or (v) that is
not eligible for discounting  with Federal Reserve Banks pursuant to paragraph 7
of Section 13 of the Federal Reserve Act, as amended.

     2.11 Requirements For Issuance of Letters of Credit.

     (a) In  connection  with the  issuance  of any Letter of Credit,  Borrowers
shall indemnify,  save and hold Agent, each Lender and each Issuer harmless from
any loss, cost, expense or liability,  including,  without limitation,  payments
made by Agent,  any Lender or any Issuer and expenses and reasonable  attorneys'
fees  incurred by Agent,  any Lender or Issuer  arising out of, or in connection
with,  any Letter of Credit to be issued or created for any Borrower.  Borrowers
shall  be  bound  by  Agent's  or  any  Issuer's   regulations  and  good  faith
interpretations  of any  Letter  of  Credit  issued or  created  for  Borrowers'
Account,  although  this  interpretation  may be  different  from its own;  and,
neither Agent,  nor any Lender,  nor any Issuer nor any of their  correspondents
shall be liable for any error, negligence,  or mistakes,  whether of omission or
commission,  in following Borrowing Agent's or Borrowers'  instructions or those
contained  in any  Letter  of  Credit  or of any  modifications,  amendments  or
supplements  thereto or in  issuing  or paying any Letter of Credit,  except for
Agent's, any Lender's, any Issuer's or such correspondents' willful misconduct.

     (b)  Borrowing  Agent  shall  authorize  and  direct any Issuer to name the
relevant  Borrower  as the  "Applicant"  or  "Account  Party" of each  Letter of
Credit.  If Agent is not the  Issuer of any Letter of  Credit,  Borrowers  shall
authorize and direct the Issuer to deliver to Agent all instruments,  documents,
and other writings and property received by the Issuer pursuant to the Letter of
Credit and to accept and rely upon  Agent's  instructions  and  agreements  with
respect to all matters  arising in  connection  with the Letter of Credit or the
application therefor.

     (c) In connection  with all Letters of Credit issued or caused to be issued
by Agent under this Agreement,  Borrowers hereby appoint Agent, or its designee,
as its attorney,  with full power and  authority  during the  continuance  of an
Event of Default or if  Borrowers  fail to do so promptly  upon request of Agent
(unless Borrowers'  failure is for good cause reasonably  satisfactory to Agent)
(i) to sign  and/or  endorse any  Borrower's  name upon any  warehouse  or other
receipts,

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 25

<PAGE>



     letter of credit applications and acceptances;  (ii) to sign any Borrower's
name on bills of lading;  (iii) to clear Inventory  through the United States of
America Customs  Department  ("Customs") in the name of any Borrower or Agent or
Agent's  designee,  and to sign and  deliver  to  Customs  officials  powers  of
attorney in the name of any Borrower for such  purpose;  and (iv) to complete in
any Borrower's name or Agent's,  or in the name of Agent's designee,  any order,
sale or transaction, obtain the necessary documents in connection therewith, and
collect the proceeds thereof. Neither Agent nor its attorneys will be liable for
any acts or omissions  nor for any error of judgment or mistakes of fact or law,
except for Agent's or its  attorney's  willful  misconduct.  This  power,  being
coupled with an interest, is irrevocable as long as any Letters of Credit remain
outstanding.

     (d) Each Lender shall to the extent of the  percentage  amount equal to the
product of such Lender's Commitment Percentage times the aggregate amount of all
unreimbursed  reimbursement  obligations  arising  from  disbursements  made  or
obligations  incurred  with  respect to the  Letters of Credit be deemed to have
irrevocably  purchased  an  undivided  participation  in each such  unreimbursed
reimbursement  obligation.  In the event that at the time a disbursement is made
the unpaid  balance of  Revolving  Advances  exceeds or would  exceed,  with the
making of such disbursement,  the lesser of the Maximum Revolving Advance Amount
or the Formula  Amount,  and such  disbursement  is not  reimbursed by Borrowers
within two (2) Business Days,  Agent shall promptly  notify each Lender and upon
Agent's demand each Lender shall pay to Agent such Lender's  proportionate share
of such  unreimbursed  disbursement  together with such  Lender's  proportionate
share of Agent's  unreimbursed  costs and expenses relating to such unreimbursed
disbursement.  Upon receipt by Agent of a repayment from Borrowers of any amount
disbursed by Agent for which Agent had already been reimbursed by Lenders, Agent
shall  deliver to each Lender that  Lender's  pro rata share of such  repayment.
Each Lender's participation commitment shall continue until the last to occur of
any of the following events:  (A) Agent ceases to be obligated to issue or cause
to be issued  Letters  of  Credit  hereunder;  (B) no  Letter  of Credit  issued
hereunder remains outstanding and uncancelled or (C) all Persons (other than the
Borrowers) have been fully reimbursed for all payments made under or relating to
Letters of Credit.

     2.12 Additional  Payments.  Any sums expended by Agent or any Lender due to
any  Borrower's  failure to perform or comply  with its  obligations  under this
Agreement or any Other Document including,  without  limitation,  any Borrower's
obligations  under Sections 4.2, 4.4, 4.12,  4.13,  4.14 and 6.1 hereof,  may be
charged  to  Borrowers'  Account  as  a  Revolving  Advance  and  added  to  the
Obligations.

     2.13 Manner of Borrowing and Payment.

     (a) Each borrowing of Revolving Advances shall be advanced according to the
applicable  Commitment  Percentages of Lenders.  The Term Loan shall be advanced
according to the applicable Commitment Percentages of Lenders.

     (b) Each payment (including each prepayment) by Borrowers on account of the
principal of and  interest on the  Revolving  Advances,  shall be applied to the
Revolving Advances pro rata according to the applicable  Commitment  Percentages
of Lenders.  Each payment  (including  repayment) by Borrowers on account of the
principal of and interest on the Term Note, shall be

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 26

<PAGE>



     applied to the Term Loan pro rata  according to the  applicable  Commitment
Percentages  of Lenders.  Except as  expressly  provided  herein,  all  payments
(including  prepayments)  to be made  by  Borrowers  on  account  of  principal,
interest  and fees shall be made  without set off or  counterclaim  and shall be
made to Agent on behalf of the Lenders to the Payment Office, in each case on or
prior to 1:00 P.M.,  New York  time,  in Dollars  and in  immediately  available
funds.

     (c) (i)  Notwithstanding  anything to the  contrary  contained  in Sections
2.13(a) and (b) hereof,  commencing  with the first  Business Day  following the
Closing Date,  each  borrowing of Revolving  Advances shall be advanced by Agent
and each payment by Borrowers on account of Revolving  Advances shall be applied
first to those Revolving Advances advanced by Agent. On or before 1:00 P.M., New
York time, on each Settlement  Date  commencing  with the first  Settlement Date
following  the Closing Date,  Agent and Lenders  shall make certain  payments as
follows:  (I) if the aggregate  amount of new  Revolving  Advances made by Agent
during the preceding  Week (if any) exceeds the  aggregate  amount of repayments
applied to outstanding  Revolving Advances during such preceding Week, then each
Lender  shall  provide  Agent  with funds in an amount  equal to its  applicable
Commitment  Percentage of the difference between (w) such Revolving Advances and
(x) such  repayments and (II) if the aggregate  amount of repayments  applied to
outstanding  Revolving Advances during such Week exceeds the aggregate amount of
new  Revolving  Advances  made during such Week,  then Agent shall  provide each
Lender with funds in an amount equal to its applicable  Commitment Percentage of
the difference between (y) such repayments and (z) such Revolving Advances.

     (ii) Each  Lender  shall be entitled  to earn  interest  at the  applicable
Revolving  Interest Rate or Term Loan Rate,  as the case may be, on  outstanding
Advances which it has funded.

     (iii) Promptly  following each Settlement  Date, Agent shall submit to each
Lender a certificate with respect to payments  received and Advances made during
the Week  immediately  preceding such Settlement Date. If not objected to by any
Lender within seven (7) days of receipt thereof, such certificate of Agent shall
be conclusive in the absence of manifest error.

     (d) If any Lender or Participant (a "Benefitted  Lender") shall at any time
receive any payment of all or part of its  Advances,  or  interest  thereon,  or
receive any Collateral in respect thereof (whether  voluntarily or involuntarily
or by set-off) in a greater  proportion  than any such payment to and Collateral
received  by any  other  Lender,  if any,  in  respect  of such  other  Lender's
Advances, or interest thereon, and such greater proportionate payment or receipt
of Collateral is not expressly permitted hereunder, such Benefitted Lender shall
purchase for cash from the other Lenders a participation in such portion of each
such other  Lender's  Advances,  or shall  provide  such other  Lender  with the
benefits of any such Collateral,  or the proceeds thereof, as shall be necessary
to cause such Benefitted  Lender to share the excess payment or benefits of such
Collateral  or  proceeds  ratably  with  each of the  other  Lenders;  provided,
however,  that if all or any  portion  of such  excess  payment or  benefits  is
thereafter  recovered  from  such  Benefitted  Lender,  such  purchase  shall be
rescinded,  and the purchase price and benefits returned,  to the extent of such
recovery,  but without interest.  Each Lender so purchasing a portion of another
Lender's Advances may exercise

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 27

<PAGE>



     all rights of payment (including,  without  limitation,  rights of set-off)
with respect to such  portion as fully as if such Lender were the direct  holder
of such portion.

     (e) Unless  Agent  shall have been  notified  by  telephone,  confirmed  in
writing,  by any Lender that such Lender  will not make  available  to Agent the
amount which would constitute such Lender's applicable  Commitment Percentage of
the Advances,  Agent may (but shall not be obligated to) assume that such Lender
shall make such amount  available to Agent on the next  Settlement  Date and, in
reliance  upon such  assumption,  make  available to  Borrowers a  corresponding
amount.  Agent will promptly  notify  Borrowing Agent of its receipt of any such
notice from a Lender.  If such amount is made available to Agent on a date after
such next  Settlement  Date,  such Lender shall pay to Agent on demand an amount
equal to the product of (i) the daily average  Federal  Funds Rate  (computed on
the basis of a year of 360 days)  during such  period as quoted by Agent,  times
(ii) such  amount,  times  (iii) the  number  of days  from and  including  such
Settlement Date to the date on which such amount becomes  immediately  available
to Agent.  A  certificate  of Agent  submitted to any Lender with respect to any
amounts owing under this  paragraph (e) shall be  conclusive,  in the absence of
manifest  error.  If such amount is not in fact made  available to Agent by such
Lender within three (3) Business Days after such Settlement Date, Agent shall be
entitled to recover such an amount,  with interest thereon at the rate per annum
then applicable to such Revolving Advances hereunder,  on demand from Borrowers;
provided,  however,  that Agent's right to such recovery  shall not prejudice or
otherwise adversely affect Borrowers' rights (if any) against such Lender.

     2.14 Use of Proceeds. Borrowers shall apply the proceeds of Advances to (i)
repay existing  indebtedness owed to Congress Financial Corp., (ii) pay fees and
expenses relating to this  transaction,  (iii) provide for their working capital
needs and other general  corporate  purposes in the ordinary  course of business
and (iv) fund the costs of Permitted Acquisitions, subject to the conditions set
forth in this  Agreement  with  respect  to the use of  Advances  for  Permitted
Acquisitions.

     2.15 Defaulting Lender.

     (a) Notwithstanding anything to the contrary contained herein, in the event
any Lender (x) has refused (which refusal constitutes a breach by such Lender of
its  obligations  under this  Agreement)  to make  available  its portion of any
Advance or (y) notifies  either Agent or Borrowing Agent that it does not intend
to make  available  its  portion of any  Advance  (if the actual  refusal  would
constitute  a breach by such  Lender of its  obligations  under this  Agreement)
(each, a "Lender Default"),  all rights and obligations hereunder of such Lender
(a  "Defaulting  Lender")  as to which a Lender  Default is in effect and of the
other parties  hereto shall be modified to the extent of the express  provisions
of this Section 2.15 while such Lender Default remains in effect.

     (b) Advances shall be incurred pro rata from Lenders (the "Non-  Defaulting
Lenders") which are not Defaulting Lenders based on their respective  Commitment
Percentages, and no Commitment Percentage of any Lender or any pro rata share of
any  Advances  required  to be advanced by any Lender  shall be  increased  as a
result of such Lender Default.  Amounts  received in respect of principal of any
type of Advances shall be applied to reduce the applicable Advances

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 28

<PAGE>



     of each Lender pro rata based on the aggregate of the outstanding  Advances
of that type of all  Lenders at the time of such  application;  provided,  that,
such amount shall not be applied to any  Advances of a Defaulting  Lender at any
time when,  and to the extent  that,  the  aggregate  amount of  Advances of any
Non-Defaulting Lender exceeds such Non-Defaulting Lender's Commitment Percentage
of all Advances then outstanding.

     (c) A Defaulting Lender shall not be entitled to give instructions to Agent
or to approve,  disapprove,  consent to or vote on any matters  relating to this
Agreement  and  the  Other   Documents.   All  amendments,   waivers  and  other
modifications  of this  Agreement  and the Other  Documents  may be made without
regard to a Defaulting  Lender and, for purposes of the  definition of "Required
Lenders", a Defaulting Lender shall be deemed not to be a Lender and not to have
Advances outstanding.

     (d) Other than as expressly set forth in this Section 2.15,  the rights and
obligations of a Defaulting Lender (including the obligation to indemnify Agent)
and the other  parties  hereto shall remain  unchanged.  Nothing in this Section
2.15 shall be deemed to release any Defaulting Lender from its obligations under
this  Agreement and the Other  Documents,  shall alter such  obligations,  shall
operate as a waiver of any default by such Defaulting Lender hereunder, or shall
prejudice  any rights which any  Borrower,  Agent or any Lender may have against
any  Defaulting  Lender as a result of any  default  by such  Defaulting  Lender
hereunder.

     (e)  In  the  event  a  Defaulting  Lender   retroactively   cures  to  the
satisfaction of Agent the breach which caused such Lender to become a Defaulting
Lender,  such Defaulting Lender shall no longer be a Defaulting Lender and shall
be treated as a Lender under this Agreement. 3. INTEREST AND FEES.

     3.1 Interest.  Interest on Advances shall be payable in arrears on the last
day of each  month with  respect to  Domestic  Rate Loans and,  with  respect to
Eurodollar  Rate Loans,  at the end of each Interest  Period.  Interest  charges
shall be computed on the actual principal amount of Advances  outstanding during
the month (the "Monthly Advances") at a rate per annum equal to (a) with respect
to Revolving  Advances,  the  applicable  Revolving  Interest  Rate and (b) with
respect to the Term Loan, the applicable Term Loan Rate. Whenever, subsequent to
the date of this  Agreement,  the  Base  Rate is  increased  or  decreased,  the
Revolving  Interest Rate and the Term Loan Rate for Domestic Rate Loans shall be
similarly changed without notice or demand of any kind by an amount equal to the
amount of such  change in the Base Rate  during the time such  change or changes
remain in  effect.  The  Eurodollar  Rate  shall be  adjusted  with  respect  to
Eurodollar Rate Loans without notice or demand of any kind on the effective date
of any change in the Reserve  Percentage  as of such  effective  date.  Upon and
after  the  occurrence  of an Event of  Default,  and  during  the  continuation
thereof, the Obligations shall bear interest at a rate equal to two percent (2%)
per annum in excess of the applicable Revolving Interest Rate or Term Loan Rate,
as the case may be, otherwise in effect (the "Default Rate").

     3.2 Letter of Credit Fees.


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 29

<PAGE>



     (a) Borrowers shall pay (x) to Agent, for the benefit of Lenders,  fees for
each Letter of Credit in an amount  equal to (i) 1/2% of the face amount of each
documentary  Letter of Credit  plus all other  charges  customarily  charged  by
Lenders in connection therewith, (ii) for the period from and excluding the date
of issuance of same to and including the date of expiration or termination,  the
average  daily  face  amount  of  each  outstanding  standby  Letter  of  Credit
multiplied  by 1 1/2% per  annum,  such fee to be  calculated  on the basis of a
360-day year for the actual number of days elapsed and to be payable  monthly in
arrears  on the first day of each  month and on the last day of the Term and (y)
to the  Issuer,  any and all fees and  expenses as agreed upon by the Issuer and
the Borrowing Agent in connection with any Letter of Credit, including,  without
limitation,  in  connection  with the opening,  amendment or renewal of any such
Letter of Credit and any  acceptances  created  thereunder  and shall  reimburse
Agent for any and all fees and  expenses,  if any,  paid by Agent to the  Issuer
(all of the foregoing  fees,  the "Letter of Credit  Fees").  Any such charge in
effect at the time of a  particular  transaction  shall be the  charge  for that
transaction,  notwithstanding  any subsequent change in the Issuer's  prevailing
charges  for that  type of  transaction.  All  Letter  of  Credit  Fees  payable
hereunder  shall be deemed  earned in full on the date when the same are due and
payable  hereunder  and shall not be  subject  to rebate or  proration  upon the
termination of this Agreement for any reason.

     On demand after the  occurrence  and during the  continuance of an Event of
Default or expiration of the Term, Borrowers will cause cash to be deposited and
maintained in an account with Agent, as cash  collateral,  in an amount equal to
one hundred and five percent (105%) of the  outstanding  Letters of Credit,  and
Borrowers hereby irrevocably  authorize Agent, in its discretion,  on Borrowers'
behalf and in Borrowers'  name, to open such an account and to make and maintain
deposits therein, or in an account opened by Borrowers,  in the amounts required
to be made by Borrowers,  out of the proceeds of Receivables or other Collateral
or out of any other funds of Borrowers  coming into any Lender's  possession  at
any time. Agent will invest such cash collateral  (less applicable  reserves) in
such  short-term  money-market  items as to which Agent and  Borrowers  mutually
agree and the net return on such  investments  shall be credited to such account
and constitute  additional cash  collateral.  Borrowers may not withdraw amounts
credited to any such account except upon payment and  performance in full of all
Obligations  and  termination  of this  Agreement  or the  cure of any  Event of
Default that gave rise to the creation of such account; provided, however, that,
as long as no Event of Default shall have occurred and be  continuing,  upon the
cancellation,  expiration  or  termination  of any  Letter  of  Credit  that was
outstanding at the time such account was required to be established and was used
in calculating the amount  Borrowers were required to deposit into such account,
Borrowers shall be entitled to withdraw from such account an amount equal to one
hundred and five percent (105%) of the amount of such Letter of Credit.

     3.3 Closing Fee.  Borrowers  shall pay to Agent a closing fee in the amount
set forth in the Fee Letter.

     3.4  Facility  Fee. If, for any month  during the Term,  the average  daily
unpaid  balance of the  Revolving  Advances  for each day of such month does not
equal the Maximum  Revolving  Advance Amount,  then Borrowers shall pay to Agent
for the ratable  benefit of Lenders a fee at a rate equal to  one-fourth  of one
percent (.25%) per annum on the amount by which the Maximum

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 30

<PAGE>



     Revolving  Advance Amount exceeds such average daily unpaid  balance.  Such
fee shall be payable to Agent in arrears on the last day of each month.

     3.5 Collateral  Monitoring  Fee.  Borrowers shall pay to Agent a collateral
monitoring fee in the amount set forth in the Fee Letter.

     3.6 Computation of Interest and Fees.  Interest and fees hereunder shall be
computed  on the basis of a year of 360 days and for the  actual  number of days
elapsed.  If any payment to be made  hereunder  becomes due and payable on a day
other than a Business  Day, the due date  thereof  shall be extended to the next
succeeding  Business Day and interest thereon shall be payable at the applicable
Revolving  Interest  Rate or Term Loan  Rate,  as the case may be,  during  such
extension.

     3.7  Maximum  Charges.  In no event  whatsoever  shall  interest  and other
charges charged  hereunder exceed the highest rate permissible under law. In the
event interest and other charges as computed  hereunder would  otherwise  exceed
the highest rate permitted  under law, such excess amount shall be first applied
to any unpaid  principal  balance owed by Borrowers,  and if the then  remaining
excess amount is greater than the previously unpaid principal  balance,  Lenders
shall promptly refund such excess amount to Borrowers and the provisions  hereof
shall be deemed amended to provide for such permissible rate.

     3.8  Increased  Costs.  In the event  that any  applicable  law,  treaty or
governmental  regulation,  or any  change  therein or in the  interpretation  or
application  thereof,  or compliance by any Lender (for purposes of this Section
3.8, the term "Lender" shall include Agent or any Lender and any  corporation or
bank controlling Agent or any Lender and the office or branch where Agent or any
Lender (as so defined)  makes or maintains any  Eurodollar  Rate Loans) with any
request or  directive  (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, shall:

     (a)  subject  Agent or any  Lender to any tax of any kind  whatsoever  with
respect to this  Agreement or any Other Document or change the basis of taxation
of payments  to Agent or any Lender of  principal,  fees,  interest or any other
amount payable hereunder or under any Other Documents (except for changes in the
rate of tax on the overall net income of Agent or any Lender by the jurisdiction
in which it maintains its principal office);

     (b)  impose,  modify  or hold  applicable  any  reserve,  special  deposit,
assessment or similar  requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended by, any office of
Agent or any Lender,  including (without limitation) pursuant to Regulation D of
the Board of Governors of the Federal Reserve System; or

     (c) impose on Agent or any Lender or the London interbank Eurodollar market
any other condition with respect to this Agreement or any Other Document;

     and the result of any of the  foregoing is to increase the cost to Agent or
any Lender of making,  renewing or  maintaining  its  Advances  hereunder  by an
amount that Agent or such Lender deems to be material or to reduce the amount of
any payment (whether of principal, interest or otherwise) in

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 31

<PAGE>



     respect of any of the Advances by an amount that Agent or such Lender deems
to be material,  then, in any case  Borrowers  shall  promptly pay Agent or such
Lender, upon its demand, such additional amount as will compensate Agent or such
Lender for such additional cost or such reduction,  as the case may be. Agent or
such Lender shall certify the amount of such  additional  cost or reduced amount
to Borrowing Agent, and such  certification  shall be conclusive absent manifest
error.

     3.9 Basis For Determining  Interest Rate Inadequate or Unfair. In the event
that Agent or any Lender shall have determined that:

     (a) reasonable  means do not exist for ascertaining the Eurodollar Rate for
any Interest Period; or

     (b) Dollar  deposits in the relevant  amount and for the relevant  maturity
are not available in the London interbank  Eurodollar market, with respect to an
outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate Loan, or a proposed
conversion of a Domestic Rate Loan into a Eurodollar Rate Loan, then Agent shall
give Borrowing  Agent prompt written,  telephonic or telegraphic  notice of such
determination.  If such notice is given, (i) any such requested  Eurodollar Rate
Loan shall be made as a Domestic Rate Loan,  unless Borrowing Agent shall notify
Agent no later than 10:00 a.m.  (New York City time) two (2) Business Days prior
to the date of such  proposed  borrowing,  that its request  for such  borrowing
shall be canceled or made as an unaffected  type of Eurodollar  Rate Loan,  (ii)
any Domestic Rate Loan or Eurodollar  Rate Loan which was to have been converted
to an affected type of  Eurodollar  Rate Loan shall be continued as or converted
into a Domestic Rate Loan or, if Borrowing  Agent shall notify  Agent,  no later
than 10:00 a.m. (New York City time) two (2) Business Days prior to the proposed
conversion,  shall be maintained as an unaffected  type of Eurodollar Rate Loan,
and (iii) any outstanding affected Eurodollar Rate Loans shall be converted into
a Domestic Rate Loan, or, if Borrowing  Agent shall notify Agent,  no later than
10:00 a.m. (New York City time) two (2) Business Days prior to the last Business
Day of the then current Interest Period  applicable to such affected  Eurodollar
Rate Loan,  shall be converted into an unaffected  type of Eurodollar Rate Loan,
on the last Business Day of the then current  Interest  Period for such affected
Eurodollar Rate Loans. Until such notice has been withdrawn,  Lenders shall have
no  obligation  to make an  affected  type of  Eurodollar  Rate Loan or maintain
outstanding  affected  Eurodollar  Rate Loans and  Borrowers  shall not have the
right to convert a Domestic Rate Loan or an unaffected  type of Eurodollar  Rate
Loan into an affected type of Eurodollar Rate Loan.

     3.10 Capital Adequacy.

     (a) In the event that Agent or any Lender  shall have  determined  that any
applicable law, rule, regulation or guideline regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental  authority,  central bank or comparable agency charged with the
interpretation or administration  thereof,  or compliance by Agent or any Lender
(for purposes of this Section 3.10, the term "Lender" shall include Agent or any
Lender  and any  corporation  or bank  controlling  Agent or any  Lender and the
office or branch  where Agent or any Lender (as so defined)  makes or  maintains
any  Eurodollar  Rate Loans ) with any request or  directive  regarding  capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 32

<PAGE>



     return on Agent or any Lender's capital as a consequence of its obligations
hereunder to a level below that which Agent or such Lender  could have  achieved
but for such adoption,  change or compliance (taking into consideration  Agent's
and each Lender's policies with respect to capital adequacy) by an amount deemed
by Agent or any Lender to be material,  then, from time to time, Borrowers shall
pay upon  demand to Agent or such Lender  such  additional  amount or amounts as
will  compensate  Agent or such Lender for such reduction.  In determining  such
amount or amounts,  Agent or such  Lender may use any  reasonable  averaging  or
attribution  methods.  The protection of this Section 3.10 shall be available to
Agent and each Lender  regardless  of any possible  contention  of invalidity or
inapplicability with respect to the applicable law, regulation or condition.

     (b) A  certificate  of Agent or such  Lender  setting  forth such amount or
amounts as shall be necessary to compensate Agent or such Lender with respect to
Section  3.10(a)  hereof when  delivered to Borrowing  Agent shall be conclusive
absent manifest error.

     4. COLLATERAL; GENERAL TERMS.

     4.1 Security  Interest in the Collateral.  To secure the prompt payment and
performance to Agent and each Lender of the  Obligations,  each Borrower  hereby
assigns,  pledges and grants to Agent for the  ratable  benefit of each Lender a
continuing security interest in and to all of its Collateral,  whether now owned
or existing or  hereafter  acquired or arising  and  wheresoever  located.  Each
Borrower  shall mark its books and records as may be necessary or appropriate to
evidence,  protect and perfect  Agent's  security  interest  and shall cause its
financial statements to reflect such security interest.

     4.2 Perfection of Security  Interest.  Borrowers shall take all action that
may be necessary or desirable,  or that Agent may reasonably  request,  so as at
all times to maintain the validity,  perfection,  enforceability and priority of
Agent's  security  interest  in the  Collateral  or to enable  Agent to protect,
exercise or enforce its rights hereunder and in the Collateral,  including,  but
not  limited to, (i)  immediately  discharging  all Liens  other than  Permitted
Encumbrances,  (ii)  obtaining  landlords' or  mortgagees'  lien waivers,  (iii)
delivering to Agent,  endorsed or accompanied by such  instruments of collateral
assignment as Agent may  reasonably  specify,  and stamping or marking,  in such
manner as Agent may reasonably specify, any and all chattel paper,  instruments,
letters of credits and advices  thereof and  documents  evidencing  or forming a
part of the  Collateral,  (iv)  entering  into  warehousing,  lockbox  and other
custodial arrangements  reasonably  satisfactory to Agent, and (v) executing and
delivering financing statements,  instruments of pledge, mortgages,  notices and
collateral   assignments,   in  each  case  in  form  and  substance  reasonably
satisfactory  to  Agent,  relating  to  the  creation,   validity,   perfection,
maintenance  or  continuation  of Agent's  security  interest  under the Uniform
Commercial  Code or other  applicable  law.  Agent is hereby  authorized to file
financing  statements  signed  by Agent  instead  of the  relevant  Borrower  in
accordance  with Section  9-402(2) of the Uniform  Commercial Code as adopted in
the State of New York. All reasonable charges, expenses and fees Agent may incur
in doing any of the foregoing,  and any local taxes relating  thereto,  shall be
charged to Borrowers' Account as a Revolving Advance of a Domestic Rate Loan and
added to the Obligations,  or, at Agent's option, shall be paid to Agent for the
ratable benefit of Lenders immediately upon demand.


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 33

<PAGE>



     4.3  Disposition  of  Collateral.  Borrowers will safeguard and protect all
Collateral for Agent's general  account and make no disposition  thereof whether
by sale,  lease or otherwise except the sale of Inventory in the ordinary course
of business.

     4.4  Preservation  of  Collateral.  Following the occurrence and during the
continuance  of a Default or Event of Default  and in addition to the rights and
remedies set forth in Section 11.1 hereof,  Agent: (a) may at any time take such
steps as Agent deems  necessary to protect  Agent's  interest in and to preserve
the  Collateral,  including the hiring of such security guards or the placing of
other security protection measures as Agent may deem appropriate; (b) may employ
and maintain at any of any  Borrower's  premises a custodian who shall have full
authority  to do  all  acts  necessary  to  protect  Agent's  interests  in  the
Collateral;  (c) may lease  warehouse  facilities to which Agent may move all or
part of the  Collateral;  (d) may use any  Borrower's  owned  or  leased  lifts,
hoists,  trucks and other  facilities  or equipment for handling or removing the
Collateral;  and (e) shall have, and is hereby  granted,  a right of ingress and
egress to the places where the  Collateral is located,  and may proceed over and
through any Borrower's owned or leased property. Borrowers shall cooperate fully
with all of  Agent's  efforts  to  preserve  the  Collateral  and will take such
actions to  preserve  the  Collateral  as Agent may  reasonably  direct.  All of
Agent's  reasonable  expenses  of  preserving  the  Collateral,   including  any
reasonable expenses relating to the bonding of a custodian,  shall be charged to
Borrowers'  Account as a Revolving  Advance of a Domestic Rate Loan and added to
the Obligations.

     4.5 Ownership of Collateral.  With respect to the  Collateral,  at the time
the Collateral  becomes subject to Agent's security  interest:  (a) the relevant
Borrower  shall be the  sole  owner of and  fully  authorized  and able to sell,
transfer,  pledge and/or grant a first  priority  security  interest in each and
every item of the its respective  Collateral to Agent; and, except for Permitted
Encumbrances,  the  Collateral  shall  be  free  and  clear  of  all  Liens  and
encumbrances  whatsoever;  (b) each document and agreement executed by Borrowers
or delivered to Agent or any Lender in connection  with this Agreement  shall be
true and correct in all respects as regards information represented or warranted
therein by the relevant  Borrower;  (c) all signatures and  endorsements  of any
Borrower that appear on such documents and agreements  shall be genuine and such
Borrower shall have full capacity to execute same; and (d) Borrowers'  Equipment
and  Inventory  shall be located as set forth on  Schedule  4.5 and shall not be
removed from such location(s)  without the prior written consent of Agent except
with respect to the sale of Inventory in the ordinary course of business.

     4.6  Defense of Agent's  and  Lenders'  Interests.  Until (a)  payment  and
performance  in  full of all of the  Obligations  and  (b)  termination  of this
Agreement,  Agent's interests in the Collateral shall continue in full force and
effect.  During such period  Borrowers shall not,  without Agent's prior written
consent,  pledge,  sell (except  Inventory in the ordinary  course of business),
assign, transfer,  create or suffer to exist a Lien upon or encumber or allow or
suffer to be encumbered in any way except for Permitted  Encumbrances,  any part
of the Collateral.  Borrowers  shall defend Agent's  interests in the Collateral
against  any and all  Persons  whatsoever.  At any time  after  and  during  the
continuance  of an  Event  of  Default,  Agent  shall  have  the  right  to take
possession  of the  indicia of the  Collateral  and the  Collateral  in whatever
physical form  contained,  including  without  limitation:  labels,  stationery,
documents, instruments and advertising materials. If Agent exercises this right

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 34

<PAGE>



     to  take  possession  of the  Collateral,  Borrowers  shall,  upon  demand,
assemble  it in the best manner  possible  and make it  available  to Agent at a
place  reasonably  convenient  to  Agent.  In  addition,  with  respect  to  all
Collateral,  Agent  and  Lenders  shall be  entitled  to all of the  rights  and
remedies set forth herein and further provided by the Uniform Commercial Code or
other  applicable law. With respect to (i) cash or checks in which Agent holds a
security  interest,  Borrowers  shall,  and Agent may, at its  option,  and (ii)
documents or  instruments  in which Agent holds a security  interest,  Borrowers
shall,  at  Agent's  request,  instruct  all  suppliers,  carriers,  forwarders,
warehouses  or others  receiving  or holding  such cash,  checks,  documents  or
instruments to deliver same to Agent and/or subject to Agent's order and if they
shall come into any Borrower's possession, they, and each of them, shall be held
by such Borrower in trust as Agent's trustee, and such Borrower will immediately
deliver  them to  Agent in  their  original  form  together  with any  necessary
endorsement.

     4.7 Books and Records.  Each Borrower shall (a) keep proper books of record
and account in which full, true and correct entries will be made of all dealings
or transactions of or in relation to its business and affairs; (b) set up on its
books  accruals  with  respect to all taxes,  assessments,  charges,  levies and
claims;  and (c) on a  reasonably  current  basis set up on its books,  from its
earnings, allowances against doubtful Receivables,  advances and investments and
all  other  proper  accruals   (including   without   limitation  by  reason  of
enumeration,  accruals  for  premiums,  if any,  due on  required  payments  and
accruals for depreciation,  obsolescence, or amortization of properties),  which
should be set aside from such  earnings in  connection  with its  business.  All
determinations  pursuant to this subsection shall be made in accordance with, or
as required  by, GAAP  consistently  applied in the opinion of such  independent
public accountant as shall then be regularly engaged by such Borrower.

     4.8 Financial Disclosure.  Each Borrower hereby irrevocably  authorizes and
directs all  accountants  and  auditors  employed  by such  Borrower at any time
during the Term to exhibit and deliver to Agent and each Lender copies of any of
such Borrower's financial statements, trial balances or other accounting records
of any sort in the  accountant's  or  auditor's  possession,  and to disclose to
Agent and each Lender any information  such accountants may have concerning such
Borrower's  financial  status and  business  operations.  Each  Borrower  hereby
authorizes all federal,  state and municipal authorities to furnish to Agent and
each Lender copies of reports or examinations relating to such Borrower, whether
made by such Borrower or otherwise;  however, Agent and each Lender will attempt
to obtain such  information  or materials  directly from such Borrower  prior to
obtaining  such   information  or  materials  from  such   accountants  or  such
authorities. 4.9 Compliance with Laws. Each Borrower shall comply with all acts,
rules,  regulations and orders of any  legislative,  administrative  or judicial
body or official applicable to its respective  Collateral or any part thereof or
to the operation of such Borrower's business the non-compliance with which could
reasonably be expected to have a Material  Adverse Effect on such Borrower.  The
assets of each Borrower at all times shall be maintained in accordance  with the
requirements of all insurance  carriers which provide  insurance with respect to
the assets of such  Borrower so that such  insurance  shall remain in full force
and effect.

     4.10 Inspection of Premises.  At all reasonable times Agent and each Lender
shall  have  full  access to and the right to  audit,  check,  inspect  and make
abstracts and copies from each Borrower's books, records, audits, correspondence
and all other papers relating to the Collateral and

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 35

<PAGE>



     the  operation of such  Borrower's  business.  Agent,  any Lender and their
agents may enter upon any of any Borrower's premises at any time during business
hours and at any other  reasonable  time, and from time to time, for the purpose
of inspecting the Collateral and any and all records  pertaining thereto and the
operation of any  Borrower's  business.  Provided no Event of Default shall have
occurred  and be  continuing,  Agent and  Lenders  shall  (a) give the  relevant
Borrower reasonable prior notice of any such inspections under this Section 4.10
and (b) use their best efforts not to interfere  with any Borrower or the normal
operation or conduct of its business during any  inspections  under this Section
4.10.

     4.11  Insurance.  Each Borrower shall bear the full risk of any loss of any
nature  whatsoever with respect to the  Collateral.  At each Borrower's own cost
and expense in amounts and with carriers  reasonably  acceptable to Agent,  each
Borrower  shall (a) keep all its insurable  properties  and  properties in which
such  Borrower  has an interest  insured  against  the  hazards of fire,  flood,
sprinkler leakage, those hazards covered by extended coverage insurance and such
other  hazards,  and for such amounts,  as is customary in the case of companies
engaged in businesses similar to such Borrower's including,  without limitation,
business  interruption  insurance;  (b)  maintain  a bond in such  amount  as is
customary  in the  case of  companies  engaged  in  businesses  similar  to such
Borrower   insuring   against   larceny,    embezzlement   or   other   criminal
misappropriation  of insured's  officers and  employees who may either singly or
jointly  with  others  at any time have  access  to the  assets or funds of such
Borrower  either  directly  or through  authority  to draw upon such funds or to
direct generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others;  (d)  maintain  all such  worker's  compensation  or similar
insurance  as may be  required  under the laws of any state or  jurisdiction  in
which such Borrower is engaged in business; (e) furnish Agent with (i) copies of
all policies and evidence of the  maintenance  of such  policies and the renewal
thereof  at  least  thirty  (30)  days  before  any  expiration  date,  and (ii)
appropriate  lender's loss payable and standard  mortgagee  endorsements in form
and substance  reasonably  satisfactory to Agent, naming Agent as loss payee and
insured  mortgagee  as its  interests  may appear,  and  providing  (A) that all
proceeds  thereunder  shall be payable to Agent,  (B) no such insurance shall be
affected by any act or neglect of the insured or owner of the property described
in such  policy,  and (C) that such policy and loss  payable  clauses may not be
canceled,  amended or terminated unless at least thirty (30) days' prior written
notice is given to  Agent.  In the event of any loss  thereunder,  the  carriers
named therein hereby are directed by Agent and each Borrower to make payment for
such loss to Agent and not to the relevant  Borrower and Agent  jointly.  If any
insurance  losses are paid by check,  draft or other  instrument  payable to any
Borrower and Agent jointly,  Agent may endorse such  Borrower's name thereon and
do such other things as Agent may deem  advisable to reduce the same to cash. If
an Event of Default has occurred and is continuing,  or if Borrowers have failed
to do so  within  a  reasonable  period  of time  after  any loss or  damage  to
Collateral,  Agent is hereby  authorized to adjust and  compromise  claims under
insurance coverage with respect to the Collateral.  All loss recoveries received
by Agent upon any such insurance may be applied to the outstanding  Obligations,
in such order as Agent in its sole discretion shall determine. Any surplus shall
be paid by Agent to Borrowers  or applied as may be  otherwise  required by law.
Any  deficiency  thereon  shall be paid by Borrowers to Agent,  on demand to the
extent the same is then due and payable hereunder.


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 36

<PAGE>



     4.12 Failure to Pay Insurance. If any Borrower fails to obtain insurance as
hereinabove  provided,  or to keep the same in force, Agent, if Agent so elects,
may  obtain  such  insurance  and pay the  premium  therefor  on  behalf of such
Borrower,  and charge  Borrowers'  Account therefor as a Revolving  Advance of a
Domestic Rate Loan and such expenses so paid shall be part of the Obligations.

     4.13  Payment  of Taxes.  Each  Borrower  will pay,  when due,  all  taxes,
assessments and other Charges  lawfully levied or assessed upon such Borrower or
any of the Collateral including,  without limitation, real and personal property
taxes,  assessments and charges and all franchise,  income,  employment,  social
security  benefits,  withholding and sales taxes. If any tax by any governmental
authority is or may be imposed on or as a result of any transaction  between any
Borrower  and Agent or any Lender  which Agent or that Lender may be required to
withhold or pay or if any taxes,  assessments,  or other  Charges  remain unpaid
after the date fixed for their payment,  or if any claim shall be made which, in
Agent's or any Lender's reasonable opinion,  may possibly create a valid Lien on
the  Collateral,  Agent may  without  notice to such  Borrower  pay such  taxes,
assessments  or other Charges and each  Borrower  hereby  indemnifies  and holds
Agent and each Lender harmless in respect thereof.  The amount of any payment by
Agent  under this  Section  4.13 shall be  charged  to  Borrowers'  Account as a
Revolving Advance and added to the Obligations.

     4.14 Payment of Leasehold  Obligations.  Each  Borrower  shall at all times
pay, when and as due, its rental  obligations under all leases under which it is
a tenant, and shall otherwise comply, in all material  respects,  with all other
terms of such  leases  and keep them in full force and  effect  and,  at Agent's
request  will provide  evidence of having done so;  provided,  however,  that no
Borrower  shall be deemed in violation or breach of the foregoing as a result of
such Borrower's termination or failure to renew any lease, or allowing any lease
to expire or  terminate,  with  respect to any property  (real or personal)  for
which such Borrower no longer has a required use.

     4.15 Receivables.

     (a) Nature of Receivables. Each of the Receivables shall be a bona fide and
valid  account  representing  a bona fide  obligation  incurred by the  Customer
therein  named,  for a fixed sum as set forth in the  invoice  relating  thereto
(provided immaterial or unintentional invoice errors shall not be deemed to be a
breach  hereof) with respect to an absolute  sale or lease and delivery of goods
upon stated terms of a Borrower, or work, labor or services theretofore rendered
by a Borrower as of the date each  Receivable is created.  Same shall be due and
owing  in  accordance  with the  applicable  Borrower's  standard  terms of sale
without dispute,  setoff or counterclaim except as may be stated on the accounts
receivable schedules delivered by Borrowers to Agent.

     (b)  Solvency  of  Customers.  Each  Customer,  to the  best of  Borrowers'
knowledge,  as of the date each Receivable for such Customer is created,  is and
will be  solvent  and able to pay all  Receivables  on which  such  Customer  is
obligated  in full  when due or,  with  respect  to such  Customers  who are not
solvent,  the  relevant  Borrower  has set up on its books and in its  financial
records bad debt reserves adequate to cover such Receivables.


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 37

<PAGE>



     (c) Locations of Borrower.  The chief executive  office of each Borrower is
identified on Schedule 4.15(c) hereto. Until written notice is given to Agent by
Borrowing  Agent of any other  office at which any  Borrower  keeps its  records
pertaining  to  Receivables,  all such records  shall be kept at such  executive
office or at such other locations(s) as may be specified in Schedule 4.15(c).

     (d) Collection of Receivables.  Until any Borrower's  authority to do so is
terminated  by written  notice to such effect from Agent (which notice Agent may
give at any time following the occurrence and during the continuance of an Event
of Default or a Default or when Agent in its sole  discretion  deems it to be in
Lenders' best interest to do so), each Borrower  will, at such  Borrower's  sole
cost and  expense,  but on Agent's  behalf and for Agent's  account,  collect as
Agent's property and in trust for Agent all amounts received on Receivables, and
shall not commingle such  collections with such Borrower's funds or use the same
except to pay Obligations.  Each Borrower shall, upon request, deliver to Agent,
or deposit in the Blocked  Account,  in original form and on the date of receipt
thereof, all checks,  drafts, notes, money orders,  acceptances,  cash and other
evidences of Indebtedness  received on account of, or representing  payment with
respect to, any Receivables or the proceeds of any other Collateral.

     (e)  Notification of Assignment of  Receivables.  At any time following the
occurrence and during the  continuance  of a Default or Event of Default,  Agent
shall have the right to send notice of the assignment  of, and Agent's  security
interest in, the Receivables to any and all Customers or any third party holding
or  otherwise  concerned  with any of the  Collateral.  Thereafter,  during  the
continuation of an Event of Default,  Agent shall have the sole right to collect
the Receivables,  take possession of the Collateral, or both. Agent's reasonable
collection  expenses,  including,  but not limited to,  stationery  and postage,
telephone and telegraph,  secretarial and clerical  expenses and the salaries of
any  collection  personnel  used for  collection,  may be charged to  Borrowers'
Account and added to the Obligations.

     (f) Power of Agent to Act on Borrower's Behalf.  Agent shall have the right
to receive,  endorse, assign and/or deliver in the name of Agent or any Borrower
any and all  checks,  drafts  and other  instruments  for the  payment  of money
relating  to  the  Receivables,  and  each  Borrower  hereby  waives  notice  of
presentment,  protest  and  non-payment  of any  instrument  so  endorsed.  Each
Borrower  hereby  constitutes  Agent  or  Agent's  designee  as such  Borrower's
attorney  with  power  (i) to  endorse  such  Borrower's  name  upon any  notes,
acceptances,  checks,  drafts,  money  orders or other  evidences of payment for
Collateral;  (ii) to sign such  Borrower's name on any invoice or bill of lading
relating to any of the Receivables of such Borrower,  drafts against  Customers,
assignments  and  verifications  of Receivables of such Borrower;  (iii) to send
verifications of Receivables of such Borrower to any Customer; (iv) to sign such
Borrower's  name  on  all  financing   statements  or  any  other  documents  or
instruments  deemed  reasonably  necessary or  appropriate by Agent to preserve,
protect,  or perfect  Agent's  interest in the  Collateral and to file same; (v)
upon the  occurrence  and  during  the  continuance  of an Event of Default or a
Default,  to demand payment of the  Receivables of such Borrower;  (vi) upon the
occurrence and during the  continuance  of an Event of Default or a Default,  to
enforce  payment of the  Receivables  of such Borrower by legal  proceedings  or
otherwise;  (vii) upon the occurrence and during the  continuance of an Event of
Default,  to exercise all of such Borrower's rights and remedies with respect to
the collection of the

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 38

<PAGE>



     Receivables  of such  Borrower  and any other  Collateral;  (viii) upon the
occurrence and during the continuance of an Event of Default, to settle, adjust,
compromise,  extend or renew the  Receivables  of such  Borrower;  (ix) upon the
occurrence and during the continuance of an Event of Default, to settle,  adjust
or  compromise  any legal  proceedings  brought to collect  Receivables  of such
Borrower;  (x) upon the  occurrence  and during the  continuance  of an Event of
Default or a Default, to prepare,  file and sign such Borrower's name on a proof
of  claim in  bankruptcy  or  similar  document  against  any  Customer  of such
Borrower;  (xi) upon the  occurrence  and during the  continuance of an Event of
Default,  to prepare,  file and sign such Borrower's name on any notice of Lien,
assignment or  satisfaction  of Lien or similar  document in connection with the
Receivables  of such  Borrower;  and (xii)  upon the  occurrence  and during the
continuance of an Event of Default or a Default, to do all other acts and things
necessary to carry out this Agreement. All acts of said attorney or designee are
hereby ratified and approved,  and said attorney or designee shall not be liable
for any acts of omission or commission  nor for any error of judgment or mistake
of fact or of law, unless done maliciously or with gross (not mere)  negligence;
this power  being  coupled  with an  interest  is  irrevocable  while any of the
Obligations  remain  unpaid.  Agent  shall  have the right at any time after and
during the continuance of an Event of Default to change the address for delivery
of mail  addressed to any Borrower to such address as Agent may designate and to
receive,  open and  dispose of all mail  addressed  to any  Borrower;  provided,
however, that, forthwith after receipt of any such mail by Agent or any designee
of Agent, Agent shall (subject to its right to retain copies thereof) deliver or
cause to be delivered to Borrowing  Agent all such mail other than payments with
respect to any of the Collateral.

     (g)  No  Liability.   Neither  Agent  nor  any  Lender  shall,   under  any
circumstances  or in any event  whatsoever,  have any liability for any error or
omission or delay of any kind occurring in the settlement, collection or payment
of any of the Receivables or any instrument  received in payment thereof, or for
any  damage  resulting  therefrom.  Following  the  occurrence  and  during  the
continuance of an Event of Default Agent may, without notice or consent from any
Borrower,  sue  upon or  otherwise  collect,  extend  the  time of  payment  of,
compromise or settle for cash,  credit or upon any terms any of the  Receivables
or any other  securities,  instruments  or insurance  applicable  thereto and/or
release  any  obligor  thereof.  Agent is  authorized  and  empowered  to accept
following the  occurrence  and during the  continuance of an Event of Default or
Default the return of the goods  represented by any of the Receivables,  without
notice to or consent by any  Borrower,  all  without  discharging  or in any way
affecting Borrowers' liability hereunder.

     (h) Establishment of a Lockbox Account,  Dominion Account.  All proceeds of
Collateral  shall,  at the  direction  of Agent,  be  deposited  by the relevant
Borrower  into a  lockbox  account,  dominion  account  or such  other  "blocked
account"  ("Blocked  Accounts") as Agent may require  pursuant to an arrangement
with such bank as may be selected by such Borrower and be reasonably  acceptable
to Agent.  Each Borrower shall issue to the relevant bank an irrevocable  letter
of instruction directing said bank to transfer such funds so deposited to Agent,
either to any account  maintained  by Agent at said bank or by wire  transfer to
appropriate  account(s) of Agent.  All funds  deposited in such Blocked  Account
shall  immediately  become the property of Agent and the relevant Borrower shall
obtain the agreement by such bank to waive any offset  rights  against the funds
so deposited.  Neither Agent nor any Lender assumes any  responsibility for such
Blocked Account arrangement,  including without limitation,  any claim of accord
and satisfaction or release with

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 39

<PAGE>



     respect to deposits accepted by any bank thereunder.  Alternatively,  Agent
may establish depository accounts  ("Depository  Accounts") in the name of Agent
at a bank or banks for the deposit of such funds and Borrower  shall deposit all
proceeds  of  Collateral  or  cause  same  to be  deposited,  in  kind,  in such
Depository Accounts of Agent in lieu of depositing same to the Blocked Accounts.

     (i) Adjustments.  No Borrower will, without Agent's consent,  compromise or
adjust any material  amount of the  Receivables  (or extend the time for payment
thereof) or accept any material  returns of  merchandise or grant any additional
discounts,   allowances  or  credits   thereon  except  for  such   compromises,
adjustments,  returns,  discounts,  credits and allowances  are consistent  with
compromises,  adjustments,  returns, discounts, credits and allowances that have
been  granted,  given or accepted by such  Borrower  in the  ordinary  course of
business.

     4.16  Inventory.  To the extent  Inventory  held for sale or lease has been
produced by any  Borrower,  it has been and will be produced by such Borrower in
accordance with, to the extent applicable,  the Federal Fair Labor Standards Act
of 1938, as amended, and all rules, regulations and orders thereunder.

     4.17  Maintenance of Equipment.  The Equipment  shall be maintained in good
operating  condition  and repair  (reasonable  wear and tear  excepted)  and all
necessary  replacements  of and repairs  thereto shall be made so that the value
(net of market value  depreciation)  and  operating  efficiency of the Equipment
shall be maintained and preserved;  provided, however, that no Borrower shall be
obligated to maintain or repair any Equipment that is or has become  obsolete or
that  otherwise is not  necessary  for the proper  operation of such  Borrower's
business. Each Borrower shall provide Agent a report on a quarterly basis and in
detail  reasonably  satisfactory  to Agent  regarding  any  Equipment  that such
Borrower has deemed obsolete or otherwise not necessary for the proper operation
of such Borrower's  business.  No Borrower shall use or operate the Equipment in
violation of any law, statute, ordinance, code, rule or regulation.

     4.18  Exculpation  of  Liability.  Except for the  appointment  of Agent as
attorney-in-fact  for Borrowers under this Agreement,  nothing herein  contained
shall be construed to constitute Agent or any Lender as any Borrower's agent for
any purpose  whatsoever,  nor shall Agent or any Lender be responsible or liable
for any shortage,  discrepancy,  damage,  loss or destruction of any part of the
Collateral wherever the same may be located and regardless of the cause thereof.
Neither Agent nor any Lender, whether by anything herein or in any assignment or
otherwise,  assume  any of any  Borrower's  obligations  under any  contract  or
agreement  assigned to Agent or such  Lender,  and neither  Agent nor any Lender
shall be  responsible  in any way for the  performance by any Borrower of any of
the terms and conditions thereof.

     4.19 Environmental Matters.

     (a) Each Borrower shall ensure that its Real Property remains in compliance
with all  Environmental  Laws and shall  not  place or  permit to be placed  any
Hazardous  Substances  on any such Real  Property  except as not  prohibited  by
applicable law or appropriate governmental authorities.


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 40

<PAGE>



     (b) Each  Borrower  shall  establish  and  maintain  a system to assure and
monitor continued compliance with all applicable Environmental Laws which system
shall include periodic reviews of such compliance.

     (c) Each Borrower  shall (i) employ in connection  with the use of its Real
Property  appropriate  technology  necessary  to  maintain  compliance  with any
applicable  Environmental  Laws and (ii) dispose of any and all Hazardous  Waste
generated  at its  Real  Property  only at  facilities  and with  carriers  that
maintain valid permits under RCRA and any other applicable  Environmental  Laws.
Each  Borrower  shall use its best efforts to obtain  certificates  of disposal,
such as  hazardous  waste  manifest  receipts,  from all  treatment,  transport,
storage or  disposal  facilities  or  operators  employed  by such  Borrower  in
connection  with the transport or disposal of any Hazardous  Waste  generated at
its Real Property.

     (d) In the event any  Borrower  obtains,  gives or  receives  notice of any
Release  or  threat  of  Release  of a  reportable  quantity  of  any  Hazardous
Substances at its Real Property (any such event being hereinafter referred to as
a  "Hazardous  Discharge")  or  receives  any notice of  violation,  request for
information or notification that it is potentially responsible for investigation
or cleanup of environmental  conditions at such Real Property,  demand letter or
complaint, order, citation, or other written notice with regard to any Hazardous
Discharge or violation of  Environmental  Laws  affecting  such Real Property or
such Borrower's  interest therein (any of the foregoing is referred to herein as
an  "Environmental  Complaint")  from any  Person,  including  any state  agency
responsible in whole or in part for environmental  matters in the state in which
such Real  Property  is located or the United  States  Environmental  Protection
Agency (any such Person  hereinafter  the  "Authority"),  then  Borrowing  Agent
shall,  within five (5)  Business  Days,  give  written  notice of same to Agent
detailing facts and circumstances of which such Borrower is aware giving rise to
the Hazardous  Discharge or Environmental  Complaint.  Such information is to be
provided to allow Agent to protect its security  interest in such Real  Property
and is not intended to create nor shall it create any  obligation  upon Agent or
any Lender with respect thereto.

     (e) Each Borrower shall promptly forward to Agent copies of any request for
information,  notification  of potential  liability,  demand letter  relating to
potential  responsibility  with  respect  to the  investigation  or  cleanup  of
Hazardous Substances at any other site owned,  operated or used by such Borrower
to dispose of  Hazardous  Substances  and shall  continue  to forward  copies of
correspondence  between such Borrower and the Authority regarding such claims to
Agent until the claim is settled.  Each Borrower shall promptly forward to Agent
copies of all documents and reports concerning a Hazardous Discharge at its Real
Property  that such Borrower is required to file under any  Environmental  Laws.
Such  information  is to be provided  solely to allow  Agent to protect  Agent's
security interest in such Real Property and the Collateral.

     (f) Each  Borrower  shall respond  promptly to any  Hazardous  Discharge or
Environmental  Complaint and take all necessary action in order to safeguard the
health of any Person and to avoid  subjecting its Collateral or Real Property to
any Lien other  than a  Permitted  Encumbrance.  If any  Borrower  shall fail to
respond promptly to any Hazardous  Discharge or Environmental  Complaint or such
Borrower shall fail to comply with any of the requirements of any  Environmental
Laws,  Agent on behalf of Lenders may, but without the  obligation to do so, for
the

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 41

<PAGE>



     sole purpose of protecting  Agent's  interest in Collateral:  (A) give such
notices or (B) enter onto such  Borrower's  Real  Property (or  authorize  third
parties to enter  onto such Real  Property)  and take such  actions as Agent (or
such third parties as directed by Agent) deem reasonably  necessary or advisable
to clean  up,  remove,  mitigate  or  otherwise  deal  with  any such  Hazardous
Discharge or Environmental Complaint. All reasonable costs and expenses incurred
by Agent and Lenders (or such third parties) in the exercise of any such rights,
including  any  reasonable   sums  paid  in  connection  with  any  judicial  or
administrative investigation or proceedings,  fines and penalties, together with
interest  thereon  from the date  expended at the  Revolving  Interest  Rate for
Domestic Rate Loans shall be paid upon demand by such  Borrower,  and until paid
shall be added to and  become a part of the  Obligations  secured  by the  Liens
created by the terms of this Agreement or any Other Documents.

     (g)  Promptly  upon the  written  request of Agent from time to time,  each
Borrower  shall  provide  Agent  with  an   environmental   site  assessment  or
environmental  audit  report  prepared  by  an  environmental  engineering  firm
acceptable  in the  reasonable  opinion of Agent,  to assess  with a  reasonable
degree of certainty  the  existence of a Hazardous  Discharge  and the potential
costs in  connection  with  abatement,  cleanup  and  removal  of any  Hazardous
Substances  found on, under,  at or within such  Borrower's  Real Property.  Any
report or investigation of such Hazardous  Discharge  proposed and acceptable to
an  appropriate  Authority  that is  charged  to oversee  the  clean-up  of such
Hazardous  Discharge shall be acceptable to Agent. Agent shall have the right to
require  such  Borrower  to post a bond,  letter  of  credit  or other  security
reasonably  satisfactory to Agent to secure payment of these costs and expenses.
Provided  that (i) an Event of Default  shall have  occurred and be  continuing,
(ii) Agent or any Lender  shall have a  reasonable  good faith  belief  that any
Borrower  has failed to comply with any  Environmental  Law or (iii) a Hazardous
Discharge has occurred with respect to such Borrower's Real Property,  the costs
of any such assessments or audit reports shall be paid by Borrowers.

     (h) Borrowers  shall defend and indemnify Agent and Lenders and hold Agent,
Lenders and their respective employees,  agents, directors and officers harmless
from and against all loss, liability,  damage and expense,  claims, costs, fines
and  penalties,  including  attorney's  fees,  suffered  or incurred by Agent or
Lenders  under or on  account  of any  Environmental  Laws,  including,  without
limitation, the assertion of any Lien thereunder,  with respect to any Hazardous
Discharge, the presence of any Hazardous Substances affecting the Real Property,
whether or not the same  originates  or emerges  from the Real  Property  or any
contiguous  real estate,  including  any loss of value of the Real Property as a
result of the foregoing  except to the extent such loss,  liability,  damage and
expense is attributable to any Hazardous Discharge resulting from actions on the
part  of  Agent  or  any  Lender  or  any  officer,  employee,  agent  or  other
representative of Agent or any Lender. Borrowers' obligations under this Section
4.19 shall arise upon the discovery of the presence of any Hazardous  Substances
at the Real Property,  whether or not any federal, state, or local environmental
agency has taken or threatened any action in connection with the presence of any
Hazardous Substances.  Borrowers' obligation and the indemnifications  hereunder
shall survive the termination of this Agreement.


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 42

<PAGE>



     (i) For purposes of Sections 4.19 and 5.7, all  references to Real Property
shall be deemed to include the property  described  on Schedule  4.19 hereto and
all of each Borrower's  right,  title and interest in and to its other owned and
leased premises.

     4.20  Financing  Statements.  Except as respects the  financing  statements
filed by Agent and the  financing  statements  described  on  Schedule  1.2,  no
financing statement covering any of the Collateral or any proceeds thereof is on
file in any public.

     5. REPRESENTATIONS AND WARRANTIES

     Each Borrower represents and warrants as follows:

     5.1 Authority; Ownership. Such Borrower has full power, authority and legal
right to enter  into this  Agreement  and the Other  Documents  to which it is a
party and to perform all its respective  Obligations  hereunder and  thereunder.
The  execution,  delivery  and  performance  of this  Agreement  and such  Other
Documents  (a) are  within  such  Borrower's  corporate  powers,  have been duly
authorized,  are not in  contravention  of law or the  terms of such  Borrower's
Certificate of Incorporation,  Bylaws or other applicable  documents relating to
Borrower's formation or to the conduct of Borrower's business or of any material
agreement  or  undertaking  to which such  Borrower  is a party or by which such
Borrower is bound,  and (b) will not  conflict  with nor result in any breach in
any of the provisions of or constitute a default under or result in the creation
of any Lien except Permitted  Encumbrances upon any asset of such Borrower under
the provisions of any agreement, charter document,  instrument, by-law, or other
instrument  to which such Borrower is a party or by which it or its property may
be bound.  The holders of all ownership  interests in such Borrower  (except HMG
Worldwide) are as listed on Schedule 5.1.

     5.2 Formation and Qualification.

     (a) Such Borrower is duly formed and in good standing under the laws of the
state  listed on Schedule  5.2(a) and is qualified to do business and is in good
standing in the states listed on Schedule  5.2(a),  which states  constitute all
states in which  qualification and good standing are necessary for such Borrower
to conduct its business and own its property and where the failure to so qualify
could reasonably be expected to have a Material Adverse Effect on such Borrower.
Such Borrower has delivered to Agent true and complete copies of its Certificate
of  Incorporation  and Bylaws and will promptly notify Agent of any amendment or
change thereto.

     (b) The only Subsidiaries of such Borrower are listed on Schedule 5.2(b).

     5.3 Survival of Representations  and Warranties.  All  representations  and
warranties of such Borrower  contained in this Agreement and the Other Documents
to which it is a party shall be true at the time of such Borrower's execution of
this  Agreement  and such Other  Documents,  and shall  survive  the  execution,
delivery and  acceptance  thereof by the parties  thereto and the closing of the
transactions described therein or related thereto.


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 43

<PAGE>



     5.4 Tax Returns.  Such Borrower's federal tax identification  number is set
forth on Schedule 5.4. Such Borrower has filed all federal,  state and local tax
returns and other  reports it is required by law to file and has paid all taxes,
assessments, fees and other governmental charges that are due and payable by it.
Federal,  state and local income tax returns of such Borrower have been examined
and reported upon by the  appropriate  taxing  authority or closed by applicable
statute and  satisfied  for all fiscal years prior to and  including  the fiscal
year  ending  December  31,1989.  The  provision  for taxes on the books of such
Borrower are adequate for all years not closed by applicable  statutes,  and for
its current fiscal year, and such Borrower has no knowledge of any deficiency or
additional assessment in connection therewith not provided for on its books.

     5.5 Financial Statements.

     (a) The pro  forma  consolidated  and  consolidating  balance  sheet of HMG
Worldwide (the "Pro Forma Balance Sheet") furnished to Agent on the Closing Date
reflects the consummation of the transactions  contemplated under this Agreement
and the Other  Documents  (the  "Transactions")  and is  accurate,  complete and
correct in all material respects and fairly reflects the financial  condition of
each  Borrower as of the Closing Date after giving  effect to the  Transactions,
and has been prepared in accordance  with GAAP,  consistently  applied.  The Pro
Forma Balance Sheet has been certified as accurate,  complete and correct in all
material respects by the President and Chief Financial Officer of HMG Worldwide.
All financial  statements  referred to in this subsection 5.5(a),  including the
related  schedules and notes  thereto,  have been prepared,  in accordance  with
GAAP, except as may be disclosed in such financial statements.

     (b)  The  twelve-month  cash  flow  projections  of  HMG  Worldwide,  on  a
consolidated  and  consolidating  basis,  and  its  projected  consolidated  and
consolidating balance sheets as of the Closing Date, copies of which are annexed
hereto  as  Exhibit  5.5(b)  (the  "Projections")  were  prepared  by the  Chief
Financial  Officer of HMG Worldwide,  are based on underlying  assumptions which
provide a reasonable  basis for the  projections  contained  therein and reflect
Borrowers'  judgment  based on present  circumstances  of the most likely set of
conditions  and  course  of  action  for the  projected  period.  The cash  flow
Projections  together with the Pro Forma Balance Sheet are hereinafter  referred
to collectively as the "Pro Forma Financial Statements".

     5.6 Name.  Such  Borrower  has not been known by any other name in the past
five years and does not sell Inventory  under any other name except as set forth
on Schedule 5.6, nor has such Borrower been the surviving  entity of a merger or
consolidation or acquired all or  substantially  all of the assets of any Person
during the preceding five (5) years except as shown on Schedule 5.6.

     5.7 O.S.H.A. and Environmental Compliance.

     (a) Such  Borrower has duly  complied in all material  respects  with,  and
except as  disclosed  in Schedule  5.7(a),  its  facilities,  business,  assets,
property,  leaseholds  and Equipment are in compliance in all material  respects
with,  the  provisions  of the Federal  Occupational  Safety and Health Act, the
Environmental  Protection Act, RCRA and all other Environmental Laws; there have
been no outstanding  citations,  notices or orders of  non-compliance  issued to
such Borrower or

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 44

<PAGE>



     relating to its business,  assets, property,  leaseholds or Equipment under
any such laws, rules or regulations.

     (b) Such  Borrower  has been issued all required  federal,  state and local
licenses, certificates or permits relating to all applicable Environmental Laws.

     (c) (i) Except as disclosed in Schedule 5.7(a),  there are no visible signs
of releases, spills, discharges,  leaks or disposal (collectively referred to as
"Releases") of Hazardous  Substances at, upon,  under or within such  Borrower's
Real  Property  or any  premises  leased  by such  Borrower;  (ii)  there are no
underground storage tanks or polychlorinated  biphenyls on such Real Property or
any premises  leased by such Borrower;  (iii) neither such Real Property nor any
premises  leased by such Borrower has, to such Borrower's  knowledge,  ever been
used as a treatment,  storage or disposal  facility of Hazardous Waste; and (iv)
no Hazardous Substances are present on such Real Property or any premises leased
by such Borrower,  excepting such  quantities as are handled in accordance  with
all applicable  manufacturer's  instructions and governmental regulations and in
proper  storage  containers  and as  are  necessary  for  the  operation  of the
commercial business of such Borrower or of its tenants.

     5.8 Solvency; No Litigation, Violation, Indebtedness or Default.

     (a) After giving effect to the  Transactions,  Borrowers on a  consolidated
basis will be solvent,  able to pay their  debts as they  mature,  have  capital
sufficient  to carry on their  businesses  and all  businesses in which they are
about to engage,  and (i) as of the Closing  Date,  the  aggregate  fair present
saleable value of Borrowers' assets,  calculated on a going concern basis, is in
excess of the amount of their  consolidated  liabilities  and (ii) subsequent to
the Closing  Date,  the  aggregate  fair  saleable  value of  Borrowers'  assets
(calculated  on a going  concern  basis)  will be in  excess  of the  amount  of
Borrowers' liabilities on a consolidated basis.

     (b) Except as  disclosed  in  Schedule  5.8(b),  such  Borrower  has no (i)
pending or threatened  litigation,  arbitration,  actions or  proceedings  which
involve the reasonable  possibility of having a Material  Adverse Effect on such
Borrower,   and  (ii)   liabilities  nor  indebtedness  for  borrowed  money  or
capitalized lease obligations other than the Obligations.

     (c) Such Borrower is not in violation of any applicable statute, regulation
or  ordinance  in any  respect  which  could  reasonably  be  expected to have a
Material  Adverse Effect on such Borrower,  nor is such Borrower in violation of
any order of any court,  governmental authority or arbitration board or tribunal
in a manner that could  reasonably be expected to have a Material Adverse Effect
on such Borrower.

     (d) Neither such Borrower nor any member of the Controlled  Group maintains
or  contributes  to any Plan other than those listed on Schedule  5.8(d) hereto.
Except  as  set  forth  in  Schedule  5.8(d),  (i)  no  Plan  has  incurred  any
"accumulated  funding  deficiency," as defined in Section 302(a)(2) of ERISA and
Section  412(a) of the Code,  whether or not waived,  and such Borrower and each
member  of  the  Controlled  Group  has  met  all  applicable   minimum  funding
requirements  under Section 302 of ERISA in respect of each Plan, (ii) each Plan
which is intended

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 45

<PAGE>



     to be a qualified  plan under  Section  401(a) of the Code as  currently in
effect has been determined by the Internal Revenue Service to be qualified under
Section 401(a) of the Code and the trust related  thereto is exempt from federal
income tax under Section 501(a) of the Code, (iii) neither such Borrower nor any
member of the Controlled Group has incurred any liability to the PBGC other than
for the payment of premiums, and there are no premium payments which have become
due which are unpaid, (iv) no Plan has been terminated by the plan administrator
thereof nor by the PBGC,  and no event  which would cause the PBGC to  institute
proceedings  under Title IV of ERISA to terminate any Plan has occurred,  (v) at
this time,  the  current  value of the assets of each Plan  exceeds  the present
value of the accrued  benefits  and other  liabilities  of such Plan and neither
such  Borrower  nor any  member of the  Controlled  Group  knows of any facts or
circumstances which would materially change the current value of such assets and
accrued  benefits and other  liabilities,  (vi)  neither  such  Borrower nor any
member  of the  Controlled  Group  has  breached  any  of the  responsibilities,
obligations  or duties  imposed on it by ERISA with  respect to any Plan,  (vii)
neither such  Borrower nor any member of the  Controlled  Group has incurred any
liability  for any excise tax arising  under  Section 4972 or 4980B of the Code,
and no  circumstance  which could give rise to any such  liability has occurred,
(viii)  neither  such  Borrower nor any member of the  Controlled  Group nor any
fiduciary  of, nor any  trustee  to,  any Plan,  has  engaged  in a  "prohibited
transaction"  described  in Section 406 of the ERISA or Section 4975 of the Code
nor taken any action which would  constitute  or result in a  Termination  Event
with respect to any such Plan which is subject to ERISA,  (ix) such Borrower and
each member of the Controlled Group has made all  contributions  due and payable
with respect to each Plan, (x) no event  described in Section  4043(b) of ERISA,
for which the thirty (30) day notice period  contained in 29 CFR '2615.3 has not
been waived has  occurred,  (xi)  neither  such  Borrower  nor any member of the
Controlled Group has any fiduciary  responsibility  for investments with respect
to any Plan existing for the benefit of persons  other than  employees or former
employees of such  Borrower and any member of the  Controlled  Group,  and (xii)
neither such  Borrower  nor any member of the  Controlled  Group has  withdrawn,
completely or partially,  from any  Multiemployer  Plan so as to incur liability
under the  Multiemployer  Pension  Plan  Amendments  Act of 1980.  5.9  Patents,
Trademarks,   Copyrights  and  Licenses.   All  patents,   patent  applications,
trademarks,  trademark  applications,  service marks, service mark applications,
copyrights,  copyright applications,  design rights, tradenames,  assumed names,
trade  secrets and licenses  owned or utilized by such Borrower are set forth on
Schedule  5.9,  are  valid  and have  been  duly  registered  or filed  with all
appropriate  governmental  authorities  and constitute  all of the  intellectual
property rights which are necessary for the operation of its business;  there is
no  objection  to or pending  challenge  to the  validity  of any such  material
patent, trademark,  copyright,  design right, tradename, trade secret or license
and such Borrower is not aware of any grounds for any  challenge,  except as set
forth in Schedule 5.9 hereto. Each patent,  patent application,  patent license,
trademark, trademark application,  trademark license, service mark, service mark
application,   service  mark  license,  copyright,   copyright  application  and
copyright  license owned or held by such Borrower and all trade secrets owned by
such  Borrower  consist of  original  material  or  property  developed  by such
Borrower or was lawfully  acquired by such  Borrower  from the proper and lawful
owner  thereof.  Each of such items has been  maintained  so as to preserve  the
value thereof from the date of creation or acquisition thereof.  With respect to
all software used by such Borrower, such Borrower is in possession of all source
and object codes  related to each piece of software or is the  beneficiary  of a
source code escrow  agreement,  each such  source  code escrow  agreement  being
listed on Schedule 5.9 hereto.

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 46

<PAGE>



     Notwithstanding  anything  contained  herein to the  contrary,  no Borrower
makes any  representation  or warranty  as to (A)  whether  any  patent,  patent
application,  trademark,  trademark  application,  service  mark,  service  mark
application, copyright, copyright application, design right, trade name, assumed
name,  trade  secret,  license  or  other  intellectual  property  (all  of  the
foregoing, collectively,  "Intellectual Property") not owned by such Borrower is
valid or has been duly  registered  or filed,  (B)  whether  there is  currently
pending or threatened  any objection or challenge to any  Intellectual  Property
not owned by such  Borrower or (C) whether  such  Borrower has (under any escrow
agreement   or   otherwise)   any   source  or  object   code   related  to  any
word-processing,  accounting,  inventory  or  other  software  that is  marketed
generally  to the public or that  otherwise  has not been  created  expressly or
exclusively for such Borrower.

     5.10  Licenses  and  Permits.  Except as set forth in Schedule  5.10,  such
Borrower is in compliance  with,  and has procured and is now in possession  of,
all material  licenses or permits required by any applicable  federal,  state or
local law or regulation  for the operation of its business in each  jurisdiction
wherein it is now  conducting  or  proposes  to conduct  business  and where the
failure to procure such licenses or permits could have a Material Adverse Effect
on such Borrower.

     5.11 Default of  Indebtedness.  Except as set forth on Schedule 5.11,  such
Borrower is not in default in the payment of the principal of or interest on any
Indebtedness  or under any instrument or agreement under or subject to which any
Indebtedness  has been issued and no event has occurred  under the provisions of
any such  instrument or agreement which with or without the lapse of time or the
giving of notice,  or both,  constitutes or would constitute an event of default
thereunder.

     5.12 No Default. Except as set forth on Schedule 5.12, such Borrower is not
in default in the payment or performance of any of its  contractual  obligations
and no Default has occurred. 5.13 No Burdensome  Restrictions.  Such Borrower is
not party to any contract or agreement  the  performance  of which is reasonably
expected to have a Material  Adverse Effect on such Borrower.  Such Borrower has
not agreed or consented to cause or permit in the future (upon the  happening of
a contingency or otherwise) any of its property,  whether now owned or hereafter
acquired, to be subject to a Lien which is not a Permitted Encumbrance.

     5.14 No Labor Disputes. Such Borrower is not involved in any labor dispute;
there are no  strikes  or  walkouts  or union  organization  of such  Borrower's
employees  threatened  or in  existence  and no labor  contract is  scheduled to
expire during the Term other than as set forth on Schedule 5.14 hereto.

     5.15 Margin Regulations.  Such Borrower is not engaged, nor will it engage,
principally or as one of its important activities,  in the business of extending
credit for the purpose of  "purchasing"  or "carrying" any "margin stock" within
the  respective  meanings  of each of the quoted  terms  under  Regulation  U or
Regulation G of the Board of Governors of the Federal  Reserve System as now and
from time to time  hereafter  in effect.  No part of the proceeds of any Advance
will be used for  "purchasing"  or  "carrying"  "margin  stock"  as  defined  in
Regulation U of such Board of Governors.


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 47

<PAGE>



     5.16 Investment  Company Act. Such Borrower is not an "investment  company"
registered  or required to be  registered  under the  Investment  Company Act of
1940, as amended, nor is it controlled by such a company.

     5.17  Disclosure.  No  representation  or warranty made by such Borrower in
this Agreement or in any financial statement,  report,  certificate or any other
document  furnished  in  connection  herewith or  therewith  contains any untrue
statement of fact or omits to state any fact  necessary  to make the  statements
herein or therein,  in the circumstances in which they are made, not misleading.
There  is no  currently  existing  condition  known  to such  Borrower  or which
reasonably  should  be  known  to such  Borrower  which  such  Borrower  has not
disclosed to Agent in writing with respect to the  transactions  contemplated by
this  Agreement  which could  reasonably be expected to have a Material  Adverse
Effect on such Borrower.

     5.18 Swaps. Such Borrower is not a party to, nor will it be a party to, any
swap  agreement  whereby such Borrower has agreed or will agree to swap interest
rates or currencies unless same provides that damages upon termination following
an event of default  thereunder  are  payable on an  unlimited  "two-way  basis"
without regard to fault on the part of either party.

     5.19  Conflicting  Agreements.  No  provision of any  mortgage,  indenture,
contract,  agreement,  judgment,  decree or order  binding on such  Borrower  or
affecting its Collateral  conflicts  with, or requires any Consent which has not
already been  obtained or waived as a condition  to, or would in any way prevent
the  execution,  delivery or  performance by such Borrower of, the terms of this
Agreement or the Other Documents to which it is a party.

     5.20 Application of Certain Laws and Regulations. Neither such Borrower nor
any  Affiliate of such  Borrower is subject to any statute,  rule or  regulation
which  regulates  the  incurrence  of  any   Indebtedness,   including   without
limitation, statutes or regulations relative to common or interstate carriers or
to the sale of electricity,  gas, steam,  water,  telephone,  telegraph or other
public  utility  services and that would  proscribe or otherwise  restrict  such
Borrower entering into this Agreement,  any of the Other Documents to which such
Borrower is a party or performing its obligations hereunder or thereunder.

     5.21  Business and Property of Borrower.  Upon and after the Closing  Date,
such Borrower does not  currently  propose to engage in any business  other than
the business in which it (directly or through any  Subsidiary  or  Affiliate) is
currently engaged or similar businesses and activities  necessary to conduct the
foregoing.  On the Closing  Date,  such  Borrower  will own all the property and
possess all of the rights and Consents necessary for the conduct of the business
of such Borrower.

     5.22 Year 2000. Such Borrower and its Subsidiaries  have reviewed the areas
within their business and operations  which could be adversely  affected by, and
have  developed or are developing a program to address,  on a timely basis,  the
risk  that  certain  computer   applications   used  by  such  Borrower  or  its
Subsidiaries  may be unable to  recognize  and perform  properly  date-sensitive
functions  involving  dates prior to and after December 31, 1999 (the "Year 2000
Problem"). To the

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 48

<PAGE>



     best of such Borrower's knowledge, the Year 2000 Problem will not result in
any Material Adverse Change to such Borrower.

     5.23  Interrelatedness  of  Borrowers.  The  business  operations  of  each
Borrower are  interrelated  and  complement  one another,  and Borrowers  have a
common  business   purpose,   with   intercompany   bookkeeping  and  accounting
adjustments  used to  separate  their  respective  properties,  liabilities  and
transactions.  To permit  Borrowers'  uninterrupted  and continuous  operations,
Borrowers  now require and will from time to time  hereafter  require  funds and
credit  accommodations for general business  purposes.  The proceeds of Advances
will  directly or  indirectly  benefit  each  Borrower,  severally  and jointly,
regardless of which Borrower requests or receives part or all of the proceeds of
such advances.

     6. AFFIRMATIVE COVENANTS.

     Each  Borrower  shall,  until  payment  in  full  of  the  Obligations  and
termination of this Agreement, jointly and severally with the other Borrowers:

     6.1 Payment of Fees.  Pay to Agent on demand all usual and  customary  fees
and expenses which Agent incurs in connection with (a) the forwarding of Advance
proceeds and (b) the  establishment  and maintenance of any Blocked  Accounts or
Depository  Accounts  as provided  for in Section  4.15(h).  Agent may,  without
making demand, charge Borrowers' Account for all such fees and expenses.

     6.2  Conduct of Business  and  Maintenance  of  Existence  and Assets.  (a)
Conduct  continuously  and  operate  actively  its  business  according  to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition  (reasonable wear and tear excepted
and  except  as  may be  disposed  of in  accordance  with  the  terms  of  this
Agreement),  including,  without limitation, all licenses, patents,  copyrights,
design  rights,  tradenames,  trade secrets and  trademarks and take all actions
necessary to enforce and protect the validity of any intellectual property right
or other right included in the Collateral; (b) keep in full force and effect its
existence  and comply in all  material  respects  with the laws and  regulations
governing  the  conduct  of  its  business  where  the  failure  to do so  could
reasonably be expected to have a Material  Adverse Effect on such Borrower;  and
(c) make all such reports and pay all such franchise and other taxes and license
fees and do all such  other  acts and  things  as may be  lawfully  required  to
maintain its rights,  licenses,  leases, powers and franchises under the laws of
the United States or any political subdivision thereof.

     6.3  Violations.  Promptly  notify Agent in writing of any violation of any
law, statute, regulation or ordinance of any Governmental Body, or of any agency
thereof,  applicable to such Borrower which could reasonably be expected to have
a Material Adverse Effect on such Borrower.

     6.4 Government  Receivables.  Take all steps  necessary to protect  Agent's
interest in the Collateral  under the Federal  Assignment of Claims Act or other
applicable   state  or  local  statutes  or  ordinances  and  deliver  to  Agent
appropriately endorsed, any instrument or chattel paper connected

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 49

<PAGE>



     with any Receivable  arising out of contracts between such Borrower and the
United States, any state or any department,  agency or instrumentality of any of
them.

     6.5 Fixed  Charge  Coverage  Ratio.  Maintain  at all times a Fixed  Charge
Coverage  Ratio  of not  less  than  1.05 to 1.0 as of the  end of  each  fiscal
quarter,  calculated  on  a  rolling  four-quarter  basis  commencing  with  the
four-quarter period ending September 30, 1999.

     6.6  Execution of  Supplemental  Instruments.  Execute and deliver to Agent
from  time to  time,  promptly  following  demand  therefor,  such  supplemental
agreements,  statements, assignments and transfers, or instructions or documents
relating to the Collateral,  and such other  instruments as Agent may reasonably
request,  in order that the full intent of this  Agreement  may be carried  into
effect.

     6.7 Payment of  Indebtedness.  Pay,  discharge or  otherwise  satisfy at or
before maturity (subject,  where applicable,  to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its obligations
and liabilities of whatever  nature,  except when the failure to do so could not
reasonably be expected to have a Material  Adverse  Effect or when the amount or
validity  thereof is  currently  being  contested  in good faith by  appropriate
proceedings  and Borrower  shall have  provided  for such  reserves as Agent may
reasonably deem proper and necessary.

     6.8  Standards  of Financial  Statements.  Cause all  financial  statements
referred to in Sections 9.7, 9.8, 9.9,  9.10,  9.11,  9.12,  9.13 and 9.14 as to
which GAAP is stated  herein to be  applicable to be complete and correct in all
material  respects  (subject,  in the case of interim financial  statements,  to
normal year-end audit  adjustments) and to be prepared in reasonable  detail and
in accordance with GAAP applied  consistently  throughout the periods  reflected
therein (except as concurred in by such reporting accountants or officer, as the
case may be, and disclosed therein).

     6.9 Interest  Rate  Protection.  On or before  October 27, 1999,  Borrowers
shall enter into a "swap  agreement" which provides for interest rate protection
for a period of at least five (5) years for an amount not less than Five Million
Dollars  ($5,000,000.00),  and  otherwise  on terms  and  conditions  reasonably
satisfactory to Lenders.  The Borrowers entering into and/or performing any such
"swap  agreement"  shall be permitted under this Agreement and,  notwithstanding
anything  contained in this  Agreement or in any Other Document to the contrary,
shall  not  constitute  a  breach  or  violation  of,  or  default  under,   any
representation,  warranty,  covenant  or  other  agreement  set  forth  in  this
Agreement or in any Other Document.

     7. NEGATIVE COVENANTS.

     No  Borrower  shall,  until  satisfaction  in full of the  Obligations  and
termination of this Agreement:


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 50

<PAGE>



     7.1 Merger, Consolidation, Acquisition and Sale of Assets.

     (a)  Except  with  respect  to any  Permitted  Acquisition,  enter into any
merger,  consolidation or other  reorganization with or into any other Person or
acquire all or a substantial portion of the assets or ownership interests of any
Person or permit any other Person to consolidate with or merge with it.

     (b) Sell, lease,  transfer or otherwise dispose of any of its properties or
assets, except in the ordinary course of its business.

     7.2  Creation of Liens.  Create or suffer to exist any Lien upon or against
any of its property or assets now owned or hereafter acquired,  except Permitted
Encumbrances.

     7.3  Guarantees.  Become  liable  upon the  obligations  of any  Person  by
assumption, endorsement or guaranty thereof or otherwise (other than to Lenders)
except the  endorsement  of checks in the  ordinary  course of business  and the
guarantee by any Borrower of the Permitted  Acquisition  Indebtedness of another
Borrower,  which  guarantee  must be on terms  and  conditions  satisfactory  to
Required Lenders.

     7.4 Investments. Except with respect to any Permitted Acquisition, purchase
or acquire obligations or stock of, or any other interest in, any Person, except
(a)  obligations  issued or  guaranteed  by the United  States of America or any
agency thereof,  (b) commercial  paper with maturities of not more than 180 days
and a published  rating of not less than A-1 or P-1 (or the equivalent  rating),
(c) certificates of time deposit and bankers'  acceptances  having maturities of
not more  than 180  days and  repurchase  agreements  backed  by  United  States
government  securities  of a  commercial  bank if (i) such  bank has a  combined
capital and surplus of at least $500,000,000,  or (ii) its debt obligations,  or
those of a holding company of which it is a Subsidiary,  are rated not less than
A (or the  equivalent  rating)  by a  nationally  recognized  investment  rating
agency, and (d) U.S. money market funds that invest solely in obligations issued
or guaranteed by the United States of America or an agency thereof.

     7.5 Loans.  Make  advances,  loans or  extensions  of credit to any Person,
including without  limitation,  any Parent,  Subsidiary or Affiliate;  provided,
however,  as long as no Event of Default shall have occurred and be  continuing,
any Borrower (a) may make  advances,  loans or extensions of credit to any other
Borrower  and (b) shall be entitled to make  advances,  loans or  extensions  of
credit (in an aggregate amount, when aggregated with similar advances,  loans or
extensions of credit made by the other Borrowers,  not to exceed $300,000.00) to
employees of one or more of the Borrowers.

     7.6  Distributions.  Declare,  pay or make any  distribution  on any of its
ownership  interests  or apply  any of its  funds,  property  or  assets  to the
purchase,  redemption or other retirement of any of its ownership interests,  or
of any  options  to  purchase  or  acquire  any  such  shares  of its  ownership
interests. Notwithstanding anything contained herein to the contrary and subject
to the  provisions of this Agreement  regarding  Change of Control and Change of
Ownership,  each  Borrower  shall be entitled (a) to issue any  preferred  stock
(whether or not convertible into common stock or

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 51

<PAGE>



     other  securities of such  Borrower),  (b) to grant and issue stock options
and warrants, under any of the employee stock option plans described on Schedule
7.6, a true and complete copy of which has been  delivered to Agent or any other
stock  option  plan of any  Borrower  adopted  after the date  hereof,  true and
complete copies of which shall be delivered to Agent promptly after the adoption
thereof by such Borrower,  (c) upon the  conversion of any security  convertible
into,  or the  exercise of any  security  exercisable  for, any security of such
Borrower,  to issue the security of such  Borrower  into which such  security is
convertible  or for which such  security is  exercisable  and (d) as part of any
Permitted Acquisition or otherwise, to issue any share of its capital stock.

     7.7 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness
(exclusive of trade debt) except in respect of (i) Indebtedness to Lenders, (ii)
Permitted Acquisition Indebtedness, (iii) Indebtedness described on Schedule 7.7
and (iv) Indebtedness in respect of Additional Convertible Notes.

     7.8 Nature of Business.  Substantially change the nature of the business in
which it is presently engaged,  nor except as specifically  permitted under this
Agreement purchase or invest, directly or indirectly,  in any assets or property
other than in the ordinary  course of business for assets or property  which are
useful  in,  necessary  for  and are to be used  in its  business  as  presently
conducted.

     7.9 Transactions with Affiliates. Directly or indirectly, purchase, acquire
or lease any  property  from,  or sell,  transfer or lease any  property  to, or
otherwise  deal  with,  any  Affiliate,  except  transactions  disclosed  in the
ordinary course of business, on an arm's-length basis on terms no less favorable
than  terms  which  would  have  been  obtainable  from a Person  other  than an
Affiliate.

     7.10  Leases.  Enter as  lessee  into  any  lease  arrangement  for real or
personal  property if after  giving  effect  thereto,  aggregate  annual  rental
payments   for  all  leased   property   would   exceed  Two   Million   Dollars
($2,000,000.00) in any one fiscal year.

     7.11  Subsidiaries.  Except in connection  with or as part of any Permitted
Acquisitions,  (a) form any Subsidiary or (b) enter into any partnership,  joint
venture or similar arrangement.

     7.12  Fiscal  Year and  Accounting  Changes.  Change its  fiscal  year from
December  31 or make  any  change  (i) in  accounting  treatment  and  reporting
practices  except as required by GAAP or (ii) in tax reporting  treatment except
as required by law.

     7.13 Pledge of Credit.  Now or  hereafter  pledge  Agent's or any  Lender's
credit on any purchases or for any purpose  whatsoever or use any portion of any
Advance in or for any business other than such Borrower's  business as conducted
on the date of this Agreement or business similar thereto.

     7.14 Amendment of Certificate of Incorporation;  By-Laws.  Amend, modify or
waive any term or material  provision of its  Certificate  of  Incorporation  or
By-Laws if the same could  reasonably  be  expected  to have a Material  Adverse
Effect on such Borrower.


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 52

     <PAGE>



     7.15 Compliance with ERISA.  (i) (x) Maintain,  or permit any member of the
Controlled Group to maintain,  or (y) become obligated to contribute,  or permit
any member of the Controlled  Group to become  obligated to  contribute,  to any
Plan, other than those Plans disclosed on Schedule 5.8(d) and Plan(s) adopted by
any Borrower  after the date hereof,  which must be reasonably  satisfactory  to
Required  Lenders,  (ii) engage, or permit any member of the Controlled Group to
engage, in any non-exempt "prohibited  transaction",  as that term is defined in
section 406 of ERISA and Section 4975 of the Code,  (iii) except as set forth on
Schedule 7.15 hereto,  incur,  or permit any member of the  Controlled  Group to
incur, any "accumulated funding deficiency",  as that term is defined in Section
302 of ERISA or Section 412 of the Code, (iv) terminate, or permit any member of
the Controlled Group to terminate, any Plan where such event could result in any
liability  of  such  Borrower  or any  member  of the  Controlled  Group  or the
imposition  of a lien on the  property  of such  Borrower  or any  member of the
Controlled  Group pursuant to Section 4068 of ERISA,  (v) assume,  or permit any
member of the  Controlled  Group to assume,  any obligation to contribute to any
Multiemployer  Plan not disclosed on Schedule 5.8(d),  (vi) incur, or permit any
member  of the  Controlled  Group to  incur,  any  withdrawal  liability  to any
Multiemployer Plan; (vii) fail promptly to notify Agent of the occurrence of any
Termination  Event,  (viii) fail to comply, or permit a member of the Controlled
Group to fail to  comply,  with the  requirements  of ERISA or the Code or other
applicable  laws in respect of any Plan  (provided that as long as Borrowers are
in compliance with the current funding  requirements with respect to the funding
deficiency  described on Schedule 7.15,  Borrowers  shall not be deemed to be in
breach of this  covenant),  or (ix) fail to meet,  or permit  any  member of the
Controlled Group to fail to meet, all minimum funding  requirements  under ERISA
or the Code or postpone or delay or allow any member of the Controlled  Group to
postpone or delay any funding requirement with respect of any Plan.

     7.16  Capital  Expenditures.  Borrowers  will not  cause,  suffer or permit
Borrowers'   aggregate  Capital  Expenditures  to  exceed  Two  Million  Dollars
($2,000,000.00)  during any fiscal year,  exclusive  of any Capital  Expenditure
made in  conjunction  with any Permitted  Acquisition.  Such  permitted  Capital
Expenditures are on a non-cumulative  basis as to unused portions for any fiscal
year.

     8. CONDITIONS PRECEDENT.

     8.1  Conditions to Initial  Advances.  The agreement of Lenders to make the
initial  Advances  requested  to be made on the  Closing  Date is subject to the
satisfaction,  or waiver by Agent, immediately prior to or concurrently with the
making of such Advances, of the following conditions precedent:

     (a) Note. Agent shall have received the Note duly executed and delivered by
an authorized officer of Borrowers;

     (b)  Filings,  Registrations  and  Recordings.  Each  document  (including,
without limitation, any Uniform Commercial Code financing statement) required by
this Agreement,  any related  agreement or under law or reasonably  requested by
the Agent to be filed,  registered  or recorded in order to create,  in favor of
Agent, a perfected  security  interest in or lien upon the Collateral shall have
been properly filed, registered or recorded in each jurisdiction in which the

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 53

<PAGE>



     filing,  registration  or recordation  thereof is so required or requested,
and  Agent  shall  have  received  an  acknowledgment  copy,  or other  evidence
reasonably satisfactory to it, of each such filing,  registration or recordation
and reasonably satisfactory evidence of the payment of any necessary fee, tax or
expense relating thereto;

     (c) Corporate Proceedings of Borrower.  Agent shall have received a copy of
the resolutions in form and substance  reasonably  satisfactory to Agent, of the
Board  of  Directors  or  shareholders  of  each  Borrower  authorizing  (i) the
execution,  delivery and performance of this Agreement, the Note and any related
agreements (collectively the "Documents") and (ii) the granting by each Borrower
of the  security  interests  in and  liens  upon the  Collateral,  in each  case
certified by the Secretary or an Assistant  Secretary of each Borrower as of the
Closing Date; and, such  certificate  shall state that the  resolutions  thereby
certified have not been amended,  modified,  revoked or rescinded as of the date
of such certificate;

     (d)  Incumbency  Certificates  of  Borrower.  Agent  shall have  received a
certificate of the Secretary or an Assistant  Secretary of each Borrower,  dated
the Closing  Date,  as to the  incumbency  and signature of the officers of such
Borrower  executing this  Agreement,  any  certificate or other  documents to be
executed and  delivered by it pursuant  hereto,  together  with  evidence of the
incumbency of such Secretary or Assistant Secretary;

     (e)  Certificates.  Agent shall have received a copy of the  Certificate of
Incorporation  of each Borrower,  and all amendments  thereto,  certified by the
Secretary of State or other  appropriate  official of its jurisdiction  together
with a copy of the By-Laws of each  Borrower  certified as accurate and complete
by the Secretary of such Borrower;

     (f) Good  Standing  Certificates.  Agent shall have  received good standing
certificates for each Borrower dated not more than twenty (20) days prior to the
Closing Date, issued by the Secretary of State or other appropriate  official of
each Borrower's  jurisdiction of incorporation and each  jurisdiction  where the
conduct  of  each  Borrower's  business  activities  or  the  ownership  of  its
properties necessitates qualification;

     (g) Legal Opinion.  Agent shall have received the executed legal opinion of
Borrowers' counsel in form and substance reasonably  satisfactory to Agent which
shall cover such  matters  incident  to the  transactions  contemplated  by this
Agreement,  the Note and related  agreements as Agent may reasonably require and
each Borrower hereby authorizes and directs such counsel to deliver such opinion
to Agent and Lenders;

     (h) No Litigation. (i) No litigation, investigation or proceeding before or
by any arbitrator or Governmental Body shall be continuing or threatened against
any  Borrower  or against the  officers  or  directors  of any  Borrower  (A) in
connection  with the Other  Documents  or any of the  transactions  contemplated
thereby and which, in the reasonable opinion of Agent, is deemed material or (B)
which could, in the reasonable  opinion of Agent, have a Material Adverse Effect
on such Borrower; and (ii) no injunction, writ, restraining order or other order
of any nature materially  adverse to any Borrower or the conduct of its business
or inconsistent  with the due consummation of the  Transactions  shall have been
issued by any Governmental Body;

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 54

<PAGE>




     (i) Financial Condition Certificates. Agent shall have received an executed
Financial Condition Certificate in the form of Exhibit 8.1(i).

     (j)  Collateral   Examination.   Agent  shall  have  completed   Collateral
examinations and received  appraisals with respect to such Collateral as Lenders
shall require, the results of which shall be reasonably satisfactory in form and
substance to Agent.

     (k) Fees.  Agent  shall have  received  or shall be entitled to deduct from
Borrowers'  Account,  all fees  payable to Agent and  Lenders on or prior to the
Closing Date pursuant to Article III hereof and in the Fee Letter;

     (l) Pro Forma Financial Statements. Agent shall have received a copy of the
Pro Forma  Financial  Statement  which shall be reasonably  satisfactory  in all
respects to Agent;

     (m) Insurance.  Agent shall have received, in form and substance reasonably
satisfactory to Agent,  certified copies of each Borrower's  casualty  insurance
policies,  together with loss payable  endorsements on Agent's  standard form of
loss  payee  endorsement  naming  Agent  as  lenders'  loss  payee  and  insured
mortgagee, and certified copies of each Borrower's liability insurance policies,
together with endorsements naming Agent as additional insured;

     (n) Payment  Instructions.  Agent shall have received written  instructions
from  Borrowing  Agent  directing  the  application  of  proceeds of the initial
Advances made pursuant to this Agreement;

     (o) Blocked  Accounts.  Agent shall have received duly executed  agreements
establishing  the  Blocked  Accounts  or  Depository   Accounts  with  financial
institutions  reasonably  acceptable to Agent for the collection or servicing of
the Receivables and proceeds of the Collateral;

     (p) Consents.  Agent shall have received any and all Consents  necessary to
permit the effectuation of the  transactions  contemplated by this Agreement and
the Other Documents;  and Agent shall have received such Consents and waivers of
such third  parties as might assert  claims with respect to the  Collateral,  as
Agent and its counsel shall reasonably deem necessary;

     (q) No  Adverse  Material  Change.  (i) Since the date of  Borrowers'  most
recent financial  statements  delivered to Agent,  there shall not have occurred
any event,  condition  or state of facts which could  reasonably  be expected to
have a Material Adverse Effect on any Borrower and (ii) no representations  made
or  information  supplied to Agent shall have been  proven to be  inaccurate  or
misleading in any material respect;

     (r) Contract  Review.  Agent shall have reviewed all material  contracts of
each Borrower including,  without  limitation,  leases,  union contracts,  labor
contracts,  vendor supply  contracts,  license  agreements  and  distributorship
agreements,  and such contracts and agreements shall be reasonably  satisfactory
in all material respects to Agent;

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 55

<PAGE>




     (s) Closing  Certificate.  Agent shall have received a closing  certificate
signed by the Chief  Financial  Officer  of each  Borrower  dated as of the date
hereof, stating that (i) all representations and warranties of such Borrower set
forth in this  Agreement  and the Other  Documents  to which such  Borrower is a
party are true and correct on and as of such date, (ii) such Borrower is on such
date in compliance with all the terms and provisions set forth in this Agreement
and such Other  Documents  and (iii) on such date no Default or Event of Default
has occurred or is continuing;

     (t) Borrowing Base. Agent shall have received  evidence from Borrowers that
the aggregate amount of Eligible  Receivables,  Eligible  Inventory and Eligible
Securities is  sufficient in value and amount to support  Advances in the amount
requested  by Borrowing  Agent on the Closing  Date;  (u) Undrawn  Availability.
After giving  effect to the initial  Advances  hereunder,  Borrowers  shall have
Undrawn  Availability  of at least Two Million  Five  Hundred  Thousand  Dollars
($2,500,000.00);

     (v) Title  Insurance.  Agent shall have received fully paid mortgagee title
insurance  policies (or binding  commitments to issue title insurance  policies,
marked to Agent's  satisfaction  to  evidence  the form of such  policies  to be
delivered  with respect to the  Mortgage),  in standard  ALTA form,  issued by a
title insurance  company  reasonably  satisfactory  to Agent,  each in an amount
equal to not less than the fair market value of the Real Property subject to the
Mortgage, insuring the Mortgage to create a valid Lien on the Real Property with
no  exceptions  which  Agent  shall not have  approved  in writing and no survey
exceptions;

     (w)  Environmental  Reports.  Agent shall have  received all  environmental
studies and reports  prepared by  independent  environmental  engineering  firms
reasonably  acceptable to Agent with respect to all Real  Property,  in form and
content reasonably satisfactory to Agent;

     (x) Leasehold Agreements.  Agent shall have received landlord, mortgagee or
warehouseman  agreements  reasonably  satisfactory  to Agent with respect to all
premises leased by Borrowers at which Inventory is located;

     (y) Mortgage.  Agent shall have  received in form and substance  reasonably
satisfactory to Agent (i) an executed  Mortgage and (ii) surveys with respect to
the Real Property; (z) Securities. [INTENTIONALLY OMITTED]

     (aa) Convertible Notes.  Evidence that the aggregate  outstanding principal
balance under the  Convertible  Notes is not less than  $5,000,000.00,  together
with  true  and  complete  copies  of the  Convertible  Notes  and all  material
documents in connection therewith,  all of which must be on terms and conditions
reasonably satisfactory to Agent; and

     (bb)  Other.  All  corporate  and  other  proceedings,  and all  documents,
instruments and other legal matters in connection with the  Transactions,  shall
be reasonably satisfactory in form and substance to Agent and its counsel.

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 56

<PAGE>




     8.2  Conditions  to Each  Advance.  The  agreement  of  Lenders to make any
Advance  requested to be made on any date (including,  without  limitation,  the
initial  Advance),  is subject to the  satisfaction of the following  conditions
precedent as of the date such Advance is made:

     (a)  Representations  and  Warranties.  Each  of  the  representations  and
warranties  made by Borrower in or  pursuant to this  Agreement  and any related
agreements  to  which  it is a  party,  and  each  of  the  representations  and
warranties  contained  in  any  certificate,  document  or  financial  or  other
statement  furnished at any time under or in connection  with this  Agreement or
any related  agreement shall be true and correct in all material respects on and
as of such date as if made on and as of such  date,  or the  reason for any such
representations  and warranties no longer being true and correct in all material
respects  shall have been  disclosed to and approved by the Required  Lenders or
all Lenders, as applicable;

     (b) No Default.  No Event of Default or Default  shall have occurred and be
continuing  on such date,  or would exist after  giving  effect to the  Advances
requested to be made on such date; provided, however that Lenders, in their sole
discretion,  may continue to make Advances  notwithstanding  the existence of an
Event of Default or Default and that any  Advances so made shall not be deemed a
waiver of any such Event of Default or Default; and

     (c) Maximum  Advances.  In the case of any  Advances  requested to be made,
after giving effect thereto, the aggregate Advances shall not exceed the maximum
amount of Advances permitted under Section 2.1 hereof.

     Each request for an Advance by Borrowing Agent hereunder shall constitute a
representation and warranty by Borrowers as of the date of such Advance that the
conditions  contained  in this  subsection  (except the approval by the Required
Lenders  or  Lenders  as  contemplated  by clause  (a)  above)  shall  have been
satisfied.

     9. INFORMATION AS TO BORROWER

     Each Borrower shall,  until satisfaction in full of the Obligations and the
termination of this Agreement:

     9.1  Disclosure of Material  Matters.  Immediately  upon learning  thereof,
report to Agent all  matters  materially  and  adversely  affecting  the  value,
enforceability  or  collectibility  of any portion of the Collateral  including,
without  limitation,  such  Borrower's  reclamation or  repossession  of, or the
return to such  Borrower  of, a material  amount of goods or claims or  disputes
asserted by any Customer or other obligor.

     9.2  Schedules.  Deliver to Agent on or before the fifteenth  (15th) day of
each  month as and for the prior  month (a)  accounts  receivable  ageings,  (b)
accounts payable  schedules and (c) perpetual  Inventory  reports.  In addition,
such  Borrower will deliver to Agent at such  intervals as Agent may  reasonably
require:  (i)  confirmatory  assignment  schedules,  (ii)  copies of  Customer's
invoices,  (iii)  evidence  of  shipment  or  delivery,  and (iv)  such  further
schedules, documents and/or

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 57

     <PAGE>



     information  regarding  the  Collateral  as Agent  may  reasonably  require
including,  without  limitation,  trial balances and test  verifications.  Agent
shall have the right to confirm  and  verify all  Receivables  by any manner and
through  any medium it  reasonably  considers  advisable  and do whatever it may
reasonably  deem necessary to protect its interests  hereunder.  The items to be
provided under this Section are to be in form  reasonably  satisfactory to Agent
and executed by such  Borrower  and  delivered to Agent from time to time solely
for Agent's  convenience  in  maintaining  records of the  Collateral,  and such
Borrower's  failure to  deliver  any of such  items to Agent  shall not  affect,
terminate,   modify  or  otherwise  limit  Agent's  Lien  with  respect  to  the
Collateral.

     9.3 Environmental Reports. Furnish Agent, concurrently with the delivery of
the  financial  statements  referred to in Sections  9.7 and 9.8, a  certificate
signed by the President of such Borrower stating,  to the best of his knowledge,
that such Borrower is in  compliance in all material  respects with all federal,
state and local laws  relating  to  environmental  protection  and  control  and
occupational safety and health. To the extent such Borrower is not in compliance
with the foregoing  laws, the certificate  shall set forth with  specificity all
areas of non-compliance  and the proposed action such Borrower will implement in
order to achieve full compliance.

     9.4 Litigation. Promptly notify Agent in writing of any litigation, suit or
administrative  proceeding affecting such Borrower,  whether or not the claim is
covered by insurance, and of any suit or administrative proceeding, which in any
such case could reasonably be expected to have a Material Adverse Effect on such
Borrower.

     9.5  Material  Occurrences.  Promptly  notify  Agent  in  writing  upon the
occurrence of (a) any Event of Default or Default; (b) any event, development or
circumstance  whereby any financial  statements  or other  reports  furnished to
Agent fail in any material  respect to present  fairly,  in accordance with GAAP
consistently  applied, the financial condition or operating results of Borrowers
as of the  date of such  statements  or the  periods  covered  thereby;  (c) any
accumulated  retirement  plan  funding  deficiency  which,  if  such  deficiency
continued  for two plan years and was not  corrected as provided in Section 4971
of the Code, could subject such Borrower to a tax imposed by Section 4971 of the
Code;  (d) each and every  default by such  Borrower  which might  result in the
acceleration  of the  maturity  of any  Indebtedness,  including  the  names and
addresses of the holders of such  Indebtedness  with respect to which there is a
default  existing  or with  respect to which the  maturity  has been or could be
accelerated, and the amount of such Indebtedness;  and (e) any other development
in the business or affairs of such Borrower  which could  reasonably be expected
to have a Material Adverse Effect on such Borrower;  in each case describing the
nature  thereof  and the action  such  Borrower  proposes  to take with  respect
thereto.

     9.6  Government  Receivables.  Notify  Agent  immediately  if  any  of  its
Receivables arises out of contracts between such Borrower and the United States,
any state, or any department, agency or instrumentality of any of them.

     9.7 Annual  Financial  Statements.  Furnish  Agent within  ninety (90) days
after the end of each fiscal year of Borrowers,  audited financial statements of
Borrowers,  on a consolidated  and a  consolidating  basis,  including,  but not
limited to, statements of income and stockholders' equity and cash flow from the
beginning of the current fiscal year to the end of such fiscal year and the

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 58

<PAGE>



     balance sheet as at the end of such fiscal year, all prepared in accordance
with GAAP applied on a basis consistent with prior practices,  and in reasonable
detail and  reported  upon without  qualification  by an  independent  certified
public  accounting  firm selected by Borrowers and  reasonably  satisfactory  to
Agent (the "Accountants").  The independent  certified public accounting firm of
Friedman Alpern & Green LLP is currently  satisfactory  to Agent.  The report of
the  Accountants  shall  be  accompanied  by  a  statement  of  the  Accountants
certifying that (i) they have caused the Loan Agreement to be reviewed,  (ii) in
making the  examination  upon which such report was based either no  information
came to their attention which to their knowledge constituted an Event of Default
or a  Default  under  this  Agreement  or any  related  agreement  or,  if  such
information  came to their  attention,  specifying  any such Default or Event of
Default,  its nature,  when it occurred and whether it is  continuing,  and such
report  shall  contain or have  appended  thereto  calculations  which set forth
Borrowers'  compliance with the requirements or restrictions  imposed by Section
6.5 hereof.  In addition,  the reports shall be  accompanied by a certificate of
each Borrower's  Chief Financial  Officer,  which shall state that,  based on an
examination  sufficient to permit him to make an informed statement,  no Default
or Event of Default exists, or, if such is not the case, specifying such Default
or Event of Default, its nature, when it occurred,  whether it is continuing and
the  steps  being  taken by  Borrowers  with  respect  to such  event,  and such
certificate shall have appended thereto  calculations which set forth Borrowers'
compliance with the requirements or restrictions imposed by Section 6.5 hereof.

     9.8 Quarterly  Financial  Statements.  Furnish Agent within forty-five (45)
days  after  the end of each  fiscal  quarter,  an  unaudited  balance  sheet of
Borrowers and unaudited  statements of income and stockholders'  equity and cash
flow of Borrowers,  on a  consolidated  and a  consolidating  basis,  reflecting
results of  operations  from the beginning of the fiscal year to the end of such
quarter  and for  such  quarter,  prepared  on a  basis  consistent  with  prior
practices and complete and correct in all material  respects,  subject to normal
year end adjustments.  The reports shall be accompanied by a certificate  signed
by the Chief Financial  Officer of each Borrower,  which shall state that, based
on an  examination  sufficient to permit him to make an informed  statement,  no
Default or Event of Default exists, or, if such is not the case, specifying such
Default  or Event of  Default,  its  nature,  when it  occurred,  whether  it is
continuing  and the steps being taken by Borrowers  with respect to such default
and, such certificate shall have appended thereto  calculations  which set forth
Borrowers'  compliance with the requirements or restrictions  imposed by Section
6.5 hereof.

     9.9 Monthly  Financial  Statements.  Furnish  Agent within thirty (30) days
after  the end of each  month,  an  unaudited  balance  sheet of  Borrowers  and
unaudited  statements  of  income  and  stockholders'  equity  and cash  flow of
Borrowers,  on a consolidated and a consolidating  basis,  reflecting results of
operations  from the  beginning  of the fiscal year to the end of such month and
for such month, prepared on a basis consistent with prior practices and complete
and correct in all material  respects,  subject to normal year end  adjustments.
The reports shall be accompanied by a certificate of the Chief Financial Officer
of each Borrower,  which shall state that, based on an examination sufficient to
permit him to make an informed statement, no Default or Event of Default exists,
or, if such is not the case,  specifying  such Default or Event of Default,  its
nature, when it occurred,  whether it is continuing and the steps being taken by
Borrowers with respect to such event and, such  certificate  shall have appended
thereto calculations which set forth Borrowers' compliance with the requirements
or restrictions imposed by Section 6.5 hereof.

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 59

<PAGE>




     9.10 Other  Reports.  Furnish Agent as soon as available,  but in any event
within ten (10) days after the issuance  thereof,  with copies of such financial
statements, reports and returns as any Borrower shall send to its shareholders.

     9.11 Additional Information. Furnish Agent with such additional information
as Agent shall reasonably  request in order to enable Agent to determine whether
the terms,  covenants,  provisions and conditions of this Agreement and the Note
have been complied with by Borrowers,  including, without limitation and without
the necessity of any request by Agent,  (a) copies of all  environmental  audits
and  reviews,  (b) at least  thirty  (30)  days  prior  thereto,  notice of such
Borrower's  opening of any new office or place of  business  or such  Borrower's
closing of any existing office or place of business,  and (c) promptly upon such
Borrower's  learning thereof,  notice of any labor dispute to which Borrower may
become a party,  any strikes or walkouts  relating to any of its plants or other
facilities, and the expiration of any labor contract to which such Borrower is a
party or by which such Borrower is bound.

     9.12 Projected  Operating Budget.  Furnish Agent, no later than thirty (30)
days prior to the beginning of Borrowers' fiscal year commencing with the fiscal
year beginning January 1, 2000, a month-by-month  projected operating budget and
cash flow of Borrowers on a consolidated and consolidating basis for such fiscal
year (including an income statement for each month and a balance sheet as at the
end  of  the  last  month  in  each  fiscal  quarter),  such  projections  to be
accompanied by a certificate  signed by the President or Chief Financial Officer
of each Borrower to the effect that such  projections  have been prepared on the
basis of sound  financial  planning  practice  consistent  with past budgets and
financial  statements  and that  such  officer  has no reason  to  question  the
reasonableness  of any  material  assumptions  on which  such  projections  were
prepared.

     9.13 Variances From Operating Budget. Furnish Agent,  concurrently with the
delivery of the financial statements referred to in Section 9.7 and each monthly
report,  a written  report  summarizing  all  material  variances  from  budgets
submitted by Borrowers pursuant to Section 9.12 and a discussion and analysis by
management with respect to such variances.

     9.14 Notice of Suits,  Adverse Events.  Furnish Agent with prompt notice of
(i) any lapse or other termination of any Consent issued to such Borrower by any
Governmental  Body or any other Person that is material to the operation of such
Borrower's  business,  (ii) any  refusal by any  Governmental  Body or any other
Person to renew or extend any such Consent;  and (iii) copies of any periodic or
special reports filed by such Borrower with any Governmental  Body or Person, if
such reports indicate any material change in the business,  operations,  affairs
or condition of such Borrower, or if copies thereof are requested by Lender, and
(iv)  copies  of  any  material  notices  and  other   communications  from  any
Governmental Body or Person which specifically relate to such Borrower.

     9.15 ERISA  Notices and  Requests.  Furnish  Agent with  immediate  written
notice in the event that (i) such Borrower or any member of the Controlled Group
knows or has reason to know that a Termination Event has occurred, together with
a written  statement  describing such Termination  Event and the action, if any,
which Borrower or member of the Controlled Group has

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 60

<PAGE>



     taken, is taking, or proposes to take with respect thereto and, when known,
any action taken or threatened by the Internal  Revenue  Service,  Department of
Labor or PBGC with  respect  thereto,  (ii) such  Borrower  or any member of the
Controlled  Group knows or has reason to know that a prohibited  transaction (as
defined in Sections  406 of ERISA and 4975 of the Code) has  occurred,  together
with a written  statement  describing such transaction and the action which such
Borrower or any member of the Controlled  Group has taken, is taking or proposes
to take with respect thereto, (iii) a funding waiver request has been filed with
respect to any Plan, together with all communications  received by such Borrower
or any member of the  Controlled  Group with respect to such  request,  (iv) any
increase in the benefits of any existing  Plan or the  establishment  of any new
Plan or the  commencement of contributions to any Plan to which such Borrower or
any member of the Controlled Group was not previously  contributing shall occur,
(v) such Borrower or any member of the  Controlled  Group shall receive from the
PBGC a notice of intention to terminate a Plan or to have a trustee appointed to
administer a Plan,  together with copies of each such notice, (vi) such Borrower
or any member of the Controlled Group shall receive any favorable or unfavorable
determination   letter  from  the  Internal   Revenue   Service   regarding  the
qualification  of a Plan under Section 401(a) of the Code,  together with copies
of each such letter;  (vii) such Borrower or any member of the Controlled  Group
shall  receive  a notice  regarding  the  imposition  of  withdrawal  liability,
together with copies of each such notice;  (viii) such Borrower or any member of
the  Controlled  Group  shall fail to make a required  installment  or any other
required  payment  under  Section  412 of the Code on or before the due date for
such  installment  or  payment  (provided  that  as  long  as  Borrowers  are in
compliance  with the current  funding  requirements  with respect to the funding
deficiency  described on Schedule 7.15, the existence of such funding deficiency
shall not require  notice under this Section  9.15(viii);  (ix) such Borrower or
any member of the  Controlled  Group  knows that (a) a  Multiemployer  Plan with
respect  to which  such  Borrower  is  obligated  has been  terminated,  (b) the
administrator  or  plan  sponsor  of any  such  Multiemployer  Plan  intends  to
terminate a Multiemployer Plan, or (c) the PBGC has instituted or will institute
proceedings  under  Section  4042 of ERISA to terminate  any such  Multiemployer
Plan.

     9.16  Borrowing  Base  Certificate.  Deliver  to  Agent  on or  before  the
fifteenth  (15th) day of each month a  borrowing  base  certificate  and related
documents in form reasonably satisfactory to Agent.

     9.17 Daily  Settlement  Schedules.  Deliver to Agent on each Business Day a
sales and cash report in form reasonably satisfactory to Agent.

     9.18 Additional Documents. Execute and deliver to Agent, upon request, such
documents and agreements as Agent may, from time to time,  reasonably request to
carry out the purposes, terms or conditions of this Agreement.

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 61

<PAGE>



     10. EVENTS OF DEFAULT.

     The occurrence of any one or more of the following  events shall constitute
an "Event of Default":

     10.1  failure by any  Borrower  to pay any  principal  or  interest  on the
Obligations when due, whether at maturity or by reason of acceleration  pursuant
to the terms of this  Agreement  or by  notice of  intention  to  prepay,  or by
required prepayment or failure to pay any other liabilities or make when due any
other payment, fee or charge provided for herein or in any Other Document;

     10.2 any  representation or warranty made or deemed made by any Borrower in
this  Agreement  or any related  agreement  or in any  certificate,  document or
financial or other  statement  furnished at any time in  connection  herewith or
therewith  shall prove to have been  misleading  in any material  respect on the
date when made or deemed to have been made;

     10.3 failure by any Borrower to (i) furnish financial  information when due
or when requested, or (ii) permit the inspection of its books or records;

     10.4  issuance  of a  notice  of  Lien,  levy,  assessment,  injunction  or
attachment,  other than a Permitted  Encumbrance,  against a material portion of
any Borrower's property which Lien, levy,  assessment,  injunction or attachment
shall not be bonded,  discharged,  stayed or dismissed  within fifteen (15) days
after the issuance thereof.

     10.5  except as  otherwise  provided  for in this  Article  10,  failure or
neglect  of any  Borrower  to  perform,  keep or  observe  any term,  provision,
condition,  covenant in this  Agreement,  or contained in any other agreement or
arrangement, now or hereafter entered into between any Borrower and Agent or any
Lender,  which is not cured within fifteen (15) days from the earlier of (a) the
date such  Borrower  first has  knowledge  of such failure or neglect or (b) the
date of receipt of written notice from Agent to Borrowing  Agent of such failure
or neglect;

     10.6  failure or neglect of any  Borrower to  perform,  keep or observe any
term, provision, condition or covenant contained in Sections 4.5, 4.6, 4.7, 4.9,
4.11, 4.15, 6.1, 6.3, 6.4, 6.5, 7.1, 7.2, 7.6, 7.7, 9.4 or 9.6 hereof;

     10.7 any judgment or judgments are rendered or judgment liens filed against
any  Borrower,  in each case in excess of Two  Hundred  Fifty  Thousand  Dollars
($250,000.00)  individually or in the aggregate, which within forty (40) days of
such  rendering  or filing is not  either  satisfied,  stayed or  discharged  of
record;

     10.8 Any Borrower shall (i) apply for, consent to or suffer the appointment
of, or the taking of possession by, a receiver,  custodian,  trustee, liquidator
or similar  fiduciary of itself or of all or a substantial part of its property,
(ii) make a general  assignment  for the benefit of creditors,  (iii) commence a
voluntary case under any state or federal  bankruptcy  laws (as now or hereafter
in effect),  (iv) be  adjudicated a bankrupt or  insolvent,  (v) file a petition
seeking to take  advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 62

<PAGE>



     thirty (30) days,  any petition  filed against it in any  involuntary  case
under such  bankruptcy laws (provided that Lenders shall not be required to make
any Advances  during such thirty (30) day period),  or (vii) take any action for
the purpose of effecting any of the foregoing;

     10.9 Any  Borrower  shall admit in writing its  inability,  or be generally
unable,  to pay its debts as they become due or cease  operations of its present
business;

     10.10 any  change in any  Borrower's  condition  or affairs  (financial  or
otherwise) which in Agent's reasonable opinion has a Material Adverse Effect;

     10.11 any Lien in favor of Agent or Lenders  created  hereunder or provided
for hereby or under any related  agreement for any reason ceases to be or is not
a valid and perfected  Lien having a first  priority  interest  (subject only to
Permitted Encumbrances);

     10.12 any Change of Control shall occur;

     10.13 a default shall occur and be continuing under the Convertible  Notes,
the Additional Convertible Notes or the Schutz Note;

     10.14 any material provision of this Agreement shall, for any reason, cease
to be valid  and  binding  on any  Borrower  or any  Borrower  shall so claim in
writing to Agent;

     10.15 (i) any  Governmental  Body shall (A) revoke,  terminate,  suspend or
adversely  modify any  license,  permit,  patent  trademark  or tradename of any
Borrower,  the  continuation  of which is  material to the  continuation  of any
Borrower's business, or (B) commence proceedings to suspend,  revoke,  terminate
or adversely modify any such license, permit, trademark, tradename or patent and
such proceedings shall not be dismissed or discharged within sixty (60) days, or
(c)  schedule  or  conduct a hearing  on the  renewal  of any  license,  permit,
trademark,  tradename or patent necessary for the continuation of any Borrower's
business and the staff of such  Governmental  Body issues a report  recommending
the termination,  revocation,  suspension or material,  adverse  modification of
such license, permit,  trademark,  tradename or patent; (ii) any agreement which
is necessary or material to the operation of any  Borrower's  business  shall be
revoked or  terminated  and not  replaced by a  substitute  acceptable  to Agent
within thirty (30) days after the date of such  revocation or  termination,  and
such revocation or termination and non-replacement  would reasonably be expected
to have a Material Adverse Effect on such Borrower;

     10.16  any  portion  of the  Collateral  shall  be  seized  or  taken  by a
Governmental  Body,  or any  Borrower  or the title and  rights of any  Borrower
therein shall have become the subject matter of litigation  which might,  in the
reasonable opinion of Agent, upon final  determination,  result in impairment or
loss of the security provided by this Agreement or the Other Documents;

     10.17 the operations of any of any Borrower's revenue producing  facilities
are  interrupted at any time for more than  forty-five  (45)  consecutive  days,
unless  such  Borrower  shall (i) be  entitled  to  receive  for such  period of
interruption,  proceeds of business interruption insurance in amounts reasonably
satisfactory to Lenders and (ii) receive such proceeds commencing not later than
thirty

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 63

<PAGE>



     (30) days  following the initial date of any such  interruption;  provided,
however,  that  notwithstanding  the  provisions of clauses (i) and (ii) of this
section,  an Event of Default  shall be deemed to have  occurred if any Borrower
shall be receiving the proceeds of business interruption  insurance for a period
of sixty (60) consecutive days;

     10.18 an event or condition specified in Sections 7.15 or 9.15 hereof shall
occur or exist  with  respect  to any Plan  and,  as a result  of such  event or
condition,  together with all other such events or  conditions,  any Borrower or
any member of the Controlled Group shall incur, or in the reasonable  opinion of
Agent be reasonably likely to incur, a liability to a Plan or the PBGC (or both)
which, in the reasonable judgment of Agent, would have a Material Adverse Effect
on such Borrower; or

     10.19 Borrowers fail to make any payment required in respect of the funding
deficiency  described on Schedule  7.15 hereto or  Borrowers  give notice to the
PBGC or any other Person  required to receive such notice that Borrowers  intend
to miss a payment with respect thereto.

     11. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.

     11.1 Rights and  Remedies.  Upon the  occurrence of (i) an Event of Default
pursuant to Section 10.8 all  Obligations  shall be immediately  due and payable
and this  Agreement  and the  obligation  of Lenders to make  Advances  shall be
deemed terminated;  and, (ii) any of the other Events of Default and at any time
thereafter (such default not having  previously been cured or waived at Lenders'
sole  discretion),  at the option of Required Lenders (as evidenced by notice to
such effect to Borrowing  Agent) all  Obligations  shall be immediately  due and
payable and Lenders  shall have the right to  terminate  this  Agreement  and to
terminate  the  obligation  of Lenders to make  Advances and (iii) a filing of a
petition against any Borrower in any involuntary case under any state or federal
bankruptcy  laws, the obligation of Lenders to make Advances  hereunder shall be
terminated  other  than  as may  be  required  by an  appropriate  order  of the
bankruptcy court having jurisdiction over such Borrower. Upon the occurrence and
during the  continuance  of any Event of Default,  Agent shall have the right to
exercise any and all other rights and  remedies  provided for herein,  under the
Uniform  Commercial  Code and at law or  equity  generally,  including,  without
limitation,  the right to foreclose the security interests granted herein and to
realize upon any Collateral by any available  judicial  procedure and/or to take
possession  of and sell any or all of the  Collateral  with or without  judicial
process.  Agent may enter any of any Borrower's  premises  without legal process
and  without  incurring  liability  to any  Borrower  therefor,  and  Agent  may
thereupon,  or at any time  thereafter,  in its  reasonable  discretion  without
notice or demand, take the Collateral and remove the same to such place as Agent
may  reasonably  deem  advisable  and Agent may require any Borrower to make the
Collateral  available to Agent at a convenient place. With or without having the
Collateral at the time or place of sale,  Agent may sell the Collateral,  or any
part thereof,  at public or private  sale, at any time or place,  in one or more
sales, at such price or prices, and upon such terms,  either for cash, credit or
future delivery,  as Agent may reasonably  elect.  Except as to that part of the
Collateral  which is perishable or threatens to decline  speedily in value or is
of a type  customarily sold on a recognized  market,  Agent shall give Borrowing
Agent reasonable notification of such sale or sales, it being agreed that in all
events written notice mailed to Borrowing  Agent at least five (5) days prior to
such sale or sales is reasonable notification. At any public sale Agent or

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 64

<PAGE>



     any Lender may bid for and become the purchaser,  and Agent,  any Lender or
any other purchaser at any such sale  thereafter  shall hold the Collateral sold
absolutely free from any claim or right of whatsoever kind, including any equity
of redemption and such right and equity are hereby expressly waived and released
by Borrowers.  In connection with the exercise of the foregoing remedies,  Agent
is granted  permission to use all of any  Borrower's  trademarks,  trade styles,
trade  names,  patents,  patent  applications,  licenses,  franchises  and other
proprietary  rights  which are used in  connection  with (a)  Inventory  for the
purpose of  disposing of such  Inventory  and (b)  Equipment  for the purpose of
completing the manufacture of unfinished  goods. The proceeds  realized from the
sale of any  Collateral  shall be applied as follows:  first,  to the reasonable
costs,  expenses  and  attorneys'  fees  and  expenses  incurred  by  Agent  for
collection and for acquisition,  completion,  protection, removal, storage, sale
and  delivery  of the  Collateral;  second,  to  interest  due  upon  any of the
Obligations  and any fees  payable  under this  Agreement;  and,  third,  to the
principal of the  Obligations.  If any deficiency  shall arise,  Borrowers shall
remain liable to Agent and Lenders therefor.

     11.2 Agent's  Discretion.  Subject to the  provisions  of Section 14 below,
Agent shall have the right in its sole  discretion  to determine  which  rights,
Liens, security interests or remedies Agent may at any time pursue,  relinquish,
subordinate, or modify or to take any other action with respect thereto and such
determination  will not in any way modify or affect  any of Agent's or  Lenders'
rights hereunder.

     11.3 Setoff.  In addition to any other rights which Agent or any Lender may
have under  applicable law, upon the occurrence and during the continuance of an
Event of Default  hereunder,  Agent and such Lender  shall have a right to apply
any Borrower's property held by Agent and such Lender to reduce the Obligations.

     11.4 Rights and Remedies not  Exclusive.  The  enumeration of the foregoing
rights and  remedies is not  intended to be  exhaustive  and the exercise of any
right or remedy  shall not  preclude the exercise of any other right or remedies
provided  for  herein  or  otherwise  provided  by law,  all of  which  shall be
cumulative and not alternative.

     12. WAIVERS AND JUDICIAL PROCEEDINGS.

     12.1  Waiver of Notice.  After and during  the  continuance  of an Event of
Default,  each  Borrower  hereby  waives  notice  of  non-payment  of any of the
Receivables, demand, presentment, protest and notice thereof with respect to any
and all instruments,  notice of acceptance  hereof,  notice of loans or advances
made, credit extended, Collateral received or delivered, or any other action

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 65

<PAGE>



     taken  in  reliance  hereon,  and all  other  demands  and  notices  of any
description, except such as are expressly provided for herein.

     12.2 Delay. No delay or omission on any Borrower's, Agent's or any Lender's
part in exercising any right, remedy or option shall operate as a waiver of such
or any other right, remedy or option or of any default.

     12.3 Jury Waiver.  EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY  CLAIM,  DEMAND,  ACTION  OR CAUSE OF  ACTION  (A)
ARISING  UNDER THIS  AGREEMENT  OR ANY OTHER  INSTRUMENT,  DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION  HEREWITH,  OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR  INCIDENTAL  TO THE DEALINGS OF THE PARTIES  HERETO OR ANY OF THEM
WITH RESPECT TO THIS  AGREEMENT OR ANY OTHER  INSTRUMENT,  DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING,  AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE,  AND EACH PARTY HEREBY  CONSENTS THAT
ANY SUCH  CLAIM,  DEMAND,  ACTION OR CAUSE OF ACTION  SHALL BE  DECIDED BY COURT
TRIAL WITHOUT A JURY,  AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN  EVIDENCE OF THE
CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

     13. EFFECTIVE DATE AND TERMINATION.

     13.1 Term. This Agreement, which shall inure to the benefit of and shall be
binding upon the respective  successors and permitted  assigns of each Borrower,
Agent and each  Lender,  shall  become  effective  on the date  hereof and shall
continue  in full force and effect  until  August 27, 2004 (the  "Term")  unless
sooner terminated as herein provided.  Borrowers may terminate this Agreement at
any time upon at least  ninety (90) days' prior  written  notice upon payment in
full of the Obligations.  In the event the Obligations are prepaid in full prior
to the last day of the Term (the date of such prepayment hereinafter referred to
as the "Early Termination  Date"),  Borrowers shall pay to Agent for the benefit
of Lenders an early  termination  fee in an amount equal to Three  Hundred Fifty
Thousand Dollars ($350,000.00) if the Early Termination Date occurs on or before
February 27, 2001.

     13.2  Termination.  The  termination of this Agreement shall not affect any
Borrower's,  Agent's or any Lender's  rights,  or any of the Obligations  having
their  inception  prior  to the  effective  date  of such  termination,  and the
provisions  hereof shall continue to be fully operative  until all  transactions
entered  into,  rights or  interests  created  or  Obligations  have been  fully
disposed of, concluded or liquidated.  The security interests,  Liens and rights
granted  to Agent and  Lenders  hereunder  and the  financing  statements  filed
hereunder shall continue in full force and effect,

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 66

<PAGE>



     notwithstanding  the  termination  of  this  Agreement  or  the  fact  that
Borrowers'  Account  may from  time to time be  temporarily  in a zero or credit
position,  until all of the Obligations of Borrowers have been paid or performed
in full after the  termination  of this  Agreement or Borrowers  have  furnished
Agent and Lenders with an indemnification satisfactory to Agent and Lenders with
respect thereto.  Accordingly, each Borrower waives any rights which it may have
under Section  9-404(1) of the Uniform  Commercial  Code to demand the filing of
termination  statements with respect to the  Collateral,  and Agent shall not be
required to send such termination  statements to any Borrowers,  or to file them
with any  filing  office,  unless  and  until  this  Agreement  shall  have been
terminated  in  accordance  with its terms and all  Obligations  paid in full in
immediately available funds. All representations, warranties, covenants, waivers
and  agreements  contained  herein shall  survive  termination  hereof until all
Obligations are paid or performed in full.

     14. REGARDING AGENT.

     14.1  Appointment.  Each Lender hereby  designates  PNC to act as Agent for
such Lender under this  Agreement  and the Other  Documents.  Each Lender hereby
irrevocably  authorizes  Agent to take  such  action  on its  behalf  under  the
provisions of this Agreement and the Other Documents and to exercise such powers
and to  perform  such  duties  hereunder  and  thereunder  as  are  specifically
delegated to or required of Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto and Agent shall hold all Collateral,
payments of principal and  interest,  fees (except the fees set forth in the Fee
Letter),  charges and collections (without giving effect to any collection days)
received pursuant to this Agreement,  for the ratable benefit of Lenders.  Agent
may perform any of its duties  hereunder by or through its agents or  employees.
As to any matters  not  expressly  provided  for by this  Agreement  (including,
without  limitation,  collection  of the Note)  Agent  shall not be  required to
exercise any  discretion or take any action,  but shall be required to act or to
refrain  from acting  (and,  as regards any claim by any Lender,  shall be fully
protected in so acting or refraining  from acting) upon the  instructions of the
Required  Lenders,  and such  instructions  shall  be  binding  on all  Lenders;
provided,  however,  that Agent shall not be  required to take any action  which
exposes  Agent to liability or which is contrary to this  Agreement or the Other
Documents or applicable  law unless Agent is furnished  with an  indemnification
reasonably satisfactory to Agent with respect thereto.

     14.2  Nature of  Duties.  Agent  shall  have no duties or  responsibilities
except those  expressly  set forth in this  Agreement  and the Other  Documents.
Neither Agent nor any of its officers,  directors,  employees or agents shall be
(i)  liable for any action  taken or  omitted  by them as such  hereunder  or in
connection  herewith,  unless  caused by their  gross (not mere)  negligence  or
willful  misconduct,  or  (ii)  responsible  in any  manner  for  any  recitals,
statements,  representations  or warranties  made by any Borrower or any officer
thereof contained in this Agreement,  or in any of the Other Documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by Agent under or in connection  with,  this Agreement or any of the
Other  Documents  or  for  the  value,  validity,  effectiveness,   genuineness,
enforceability  or sufficiency of this Agreement,  or any of the Other Documents
or for any failure of any Borrower to perform its obligations  hereunder.  Agent
shall not be under any obligation to any Lender to ascertain or to

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 67

<PAGE>



     inquire  as to the  observance  or  performance  of  any of the  agreements
contained in, or conditions of, this Agreement or any of the Other  Documents or
to inspect the properties, books or records of any Borrower. The duties of Agent
as respects the Advances to Borrowers shall be mechanical and  administrative in
nature;   Agent  shall  not  have  by  reason  of  this  Agreement  a  fiduciary
relationship in respect of any Lender; and nothing in this Agreement,  expressed
or implied,  is intended to or shall be so construed as to impose upon Agent any
obligations in respect of this Agreement except as expressly set forth herein.

     14.3 Lack of Reliance on Agent and Resignation.  Independently  and without
reliance upon Agent or any other Lender, each Lender has made and shall continue
to make (i) its own  independent  investigation  of the financial  condition and
affairs of each Borrower in connection  with the making and the  continuance  of
the Advances  hereunder and the taking or not taking of any action in connection
herewith and (ii) its own appraisal of the  creditworthiness  of each  Borrower.
Agent shall have no duty or responsibility,  either initially or on a continuing
basis, to provide any Lender with any credit or other  information  with respect
thereto,  whether coming into its possession before making of the Advances or at
any time or  times  thereafter  except  as shall  be  provided  by any  Borrower
pursuant to the terms hereof.  Agent shall not be  responsible to any Lender for
any recitals, statements,  information,  representations or warranties herein or
in any agreement,  document,  certificate or a statement delivered in connection
with or for the execution, effectiveness, genuineness, validity, enforceability,
collectibility or sufficiency of this Agreement or any Other Document, or of the
financial  condition  of any  Borrower,  or be  required  to  make  any  inquiry
concerning either the performance or observance of any of the terms,  provisions
or conditions of this Agreement,  the Note, the Other Documents or the financial
condition  of any  Borrower,  or the  existence  of any Event of  Default or any
Default.

     Agent may resign on sixty (60) days' written  notice to each of Lenders and
Borrowing Agent, and upon such  resignation,  the Required Lenders will promptly
designate a successor Agent reasonably satisfactory to Borrowing Agent.

     Any such successor Agent shall succeed to the rights,  powers and duties of
Agent,  and the term "Agent" shall mean such successor  agent effective upon its
appointment,  and the former Agent's rights, powers and duties as Agent shall be
terminated,  without any other or further act or deed on the part of such former
Agent. After any Agent's resignation as Agent, the provisions of this Article 14
shall inure to its benefit as to any actions  taken or omitted to be taken by it
while it was Agent under this Agreement.

     14.4 Certain  Rights of Agent.  If Agent shall  request  instructions  from
Lenders  with  respect  to any  act or  action  (including  failure  to  act) in
connection with this Agreement or any Other Document, Agent shall be entitled to
refrain  from such act or taking such  action  unless and until Agent shall have
received  instructions  from the  Required  Lenders;  and Agent  shall not incur
liability  to any  Person by  reason  of so  refraining.  Without  limiting  the
foregoing,  Lenders shall not have any right of action whatsoever  against Agent
as a result of its acting or refraining from acting hereunder in accordance with
the instructions of the Required Lenders.

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 68

<PAGE>



     14.5  Reliance.  Agent  shall  be  entitled  to  rely,  and  shall be fully
protected in relying,  upon any note, writing,  resolution,  notice,  statement,
certificate,  telex, teletype or telecopier message,  cablegram,  order or other
document or  telephone  message  believed by it to be genuine and correct and to
have been signed,  sent or made by the proper  Person,  and, with respect to all
legal  matters  pertaining  to this  Agreement  and the Other  Documents and its
duties hereunder, upon advice of counsel selected by it. Agent may employ agents
and  attorneys-in-fact  and shall not be liable for the default or misconduct of
any such agents or attorneys-in-fact selected by Agent with reasonable care.

     14.6 Notice of  Default.  Agent  shall not be deemed to have  knowledge  or
notice of the  occurrence of any Default or Event of Default  hereunder or under
the Other  Documents,  unless  Agent has  received  notice  from a Lender or any
Borrower  referring to this Agreement or the Other  Documents,  describing  such
Default  or Event of  Default  and  stating  that such  notice  is a "notice  of
default".  In the event  that Agent  receives  such a notice,  Agent  shall give
notice  thereof to Lenders.  Agent  shall take such action with  respect to such
Default or Event of  Default as shall be  reasonably  directed  by the  Required
Lenders;  provided,  that,  unless  and until  Agent  shall have  received  such
directions,  Agent may (but  shall not be  obligated  to) take such  action,  or
refrain  from  taking  such  action,  with  respect to such  Default or Event of
Default as it shall deem advisable in the best interests of Lenders.

     14.7 Indemnification. To the extent Agent is not reimbursed and indemnified
by Borrowers,  each Lender will  reimburse and indemnify  Agent in proportion to
its  respective  portion of the Advances  (or, if no Advances  are  outstanding,
according  to  its  Commitment  Percentage),   from  and  against  any  and  all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses or disbursements of any kind or nature  whatsoever which may be
imposed on,  incurred  by or asserted  against  Agent in  performing  its duties
hereunder,  or in any way  relating to or arising out of this  Agreement  or any
Other  Document;  provided that,  Lenders shall not be liable for any portion of
such liabilities,  obligations,  losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements  resulting from Agent's gross (not mere)
negligence or willful misconduct.

     14.8 Agent in its  Individual  Capacity.  With respect to the obligation of
Agent to lend under this Agreement,  the Advances made by it shall have the same
rights and powers hereunder as any other Lender and as if it were not performing
the duties as Agent specified herein;  and the term "Lender" or any similar term
shall,  unless the context  clearly  otherwise  indicates,  include Agent in its
individual capacity as a Lender.  Agent may engage in business with any Borrower
as if it were not performing the duties specified herein and may accept fees and
other  consideration  from any  Borrower for  services in  connection  with this
Agreement or otherwise without having to account for the same to Lenders.

     14.9  Delivery  of  Documents.  To  the  extent  Agent  receives  financial
statements  required under Sections 9.7, 9.8 and 9.9 from Borrowers  pursuant to
the terms of this  Agreement,  Agent will  promptly  furnish such  documents and
information to Lenders.

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 69

<PAGE>



     14.10  Borrower's   Undertaking  to  Agent.   Without  prejudice  to  their
respective  obligations to Lenders under the other provisions of this Agreement,
each Borrower hereby  undertakes with Agent to pay to Agent from time to time on
demand all  amounts  from time to time due and  payable by it for the account of
Agent or Lenders or any of them  pursuant  to this  Agreement  to the extent not
already  paid.  Any payment  made  pursuant  to any such demand  shall pro tanto
satisfy the  Borrowers'  obligations to make payments for the account of Lenders
or the relevant one or more of them pursuant to this Agreement.

     15. BORROWING AGENCY.

     15.1 Borrowing Agency Provisions.

     (a) Each Borrower hereby irrevocably  designates  Borrowing Agent to be its
attorney and agent and in such capacity to borrow,  sign and endorse notes,  and
execute and deliver all instruments,  documents, writings and further assurances
now or hereafter  required  hereunder,  on behalf of such  Borrower,  and hereby
authorizes Agent to pay over or credit all loan proceeds hereunder in accordance
with the request of Borrowing Agent.

     (b) The handling of this credit facility as a co-borrowing  facility with a
borrowing  agent in the  manner  set  forth in this  Agreement  is  solely as an
accommodation  to Borrowers and at their  request.  Neither Agent nor any Lender
shall incur liability to any Borrower as a result  thereof.  To induce Agent and
Lenders to do so and in consideration  thereof, each Borrower hereby indemnifies
Agent and each Lender and holds Agent and each Lender  harmless from and against
any and all  liabilities,  expenses,  losses,  damages  and  claims of damage or
injury  asserted  against  Agent or any  Lender by any  Person  arising  from or
incurred by reason of the handling of the financing arrangements of Borrowers as
provided  herein,  reliance by Agent or any Lender on any request or instruction
from  Borrowing  Agent or any other  action  taken by Agent or any  Lender  with
respect to this  Section  15.1 except due to willful or unlawful  misconduct  or
gross (not mere) negligence by the indemnified party.

     (c) All  Obligations  shall be joint and several,  and Borrowers shall make
payment upon the maturity of the Obligations by  acceleration or otherwise,  and
such  obligation  and  liability  on the  part of  Borrowers  shall in no way be
affected by any  extensions,  renewals and  forbearance  granted by Agent or any
Lender to any  Borrower,  failure  of Agent or any  Lender to give any  Borrower
notice of borrowing or any other notice not provided for herein,  any failure of
Agent or any Lender to pursue or preserve its rights  against any Borrower,  the
release by Agent or any Lender of any Collateral now or thereafter acquired from
any Borrower,  and such  agreement by any Borrower to pay upon any notice issued
pursuant  thereto is,  subject to the terms and  conditions  of this  Agreement,
unconditional  and  unaffected  by prior  recourse by Agent or any Lender to any
Borrower or any Collateral for such Borrower's Obligations or the lack thereof.

     15.2 Waiver of  Subrogation.  Each  Borrower  expressly  waives any and all
rights of subrogation, reimbursement, indemnity, exoneration, or contribution or
any other claim which such

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 70

<PAGE>



Borrower  may now or  hereafter  have  against  any  other  Person  directly  or
contingently liable for the Obligations hereunder, or against or with respect to
such Borrower's property (including,  without limitation,  any property which is
Collateral  for the  Obligations),  arising from the existence or performance of
this Agreement, until termination of this Agreement and repayment in full of the
Obligations.

     16. MISCELLANEOUS.

     16.1 Governing  Law. This  Agreement  shall be governed by and construed in
accordance  with the laws of the State of New York  applied to  contracts  to be
performed  wholly  within  such state.  Any  judicial  proceeding  brought by or
against any Borrower with respect to any of the  Obligations,  this Agreement or
any related  agreement may be brought in any court of competent  jurisdiction in
the State of New York, United States of America,  and, by execution and delivery
of this Agreement,  each Borrower  accepts for itself and in connection with its
properties, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid courts, and (subject to all rights of appeal) irrevocably agrees to be
bound by any judgment  rendered thereby in connection with this Agreement.  Each
Borrower  hereby  waives  personal  service of any and all  process  upon it and
consents  that all such service of process may be made by both  registered  mail
(return  receipt  requested)  and regular first class mail directed to Borrowing
Agent and its counsel at their  respective  addresses set forth in Section 16.6,
and service so made shall be deemed completed five (5) days after the same shall
have been so deposited in the mails of the United States of America,  or, at the
Agent's and/or any Lender's  option,  by service upon Borrowing Agent which each
Borrower  irrevocably  appoints as Borrower's Agent for the purpose of accepting
service  within the State of New York.  Nothing herein shall affect the right to
serve  process in any manner  permitted by law or shall limit the right of Agent
or any Lender to bring  proceedings  against  any  Borrower in the courts of any
other jurisdiction. Each Borrower waives any objection to jurisdiction and venue
of any action  instituted  hereunder  and shall not assert any defense  based on
lack of jurisdiction  or venue or based upon forum non conveniens.  Any judicial
proceeding by any Borrower  against Agent or any Lender  involving,  directly or
indirectly,  any  matter  or  claim in any way  arising  out of,  related  to or
connected with this Agreement or any related agreement, shall be brought only in
a federal or state court located in the County of New York, State of New York.

     16.2 Entire Understanding.

     (a) This Agreement and the Other Documents contain the entire understanding
among  Borrowers,  Agent and each Lender and supersedes all prior agreements and
understandings,  if any, relating to the subject matter hereof and thereof.  Any
promises,  representations,  warranties or guarantees  not herein  contained and
hereinafter made shall have no force and effect unless in writing, signed by the
party to be  charged  therewith.  Neither  this  Agreement  nor any  portion  or
provisions  hereof may be  changed,  modified,  amended,  waived,  supplemented,
discharged,  canceled or terminated orally or by any course of dealing or in any
manner other than by an agreement in writing, signed by the party to be charged.
Each  Borrower  acknowledges  that it has been advised by counsel in  connection
with the execution of this Agreement and Other Documents and is not

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 71

<PAGE>



     relying upon oral representations or statements inconsistent with the terms
and provisions of this Agreement.

     (b) The Required Lenders, Agent with the consent in writing of the Required
Lenders,  and Borrowers may, subject to the provisions of this Section 16.2 (b),
from time to time enter into written  supplemental  agreements to this Agreement
or the Other  Documents  executed  by  Borrowers,  for the  purpose of adding or
deleting any provisions or otherwise changing,  varying or waiving in any manner
the  rights  of  Lenders,  Agent  or  Borrowers  thereunder  or the  conditions,
provisions  or terms  thereof or waiving any Event of  Default,  but only to the
extent specified in such written  agreements;  provided,  however,  that no such
supplemental agreement shall, without the consent of all Lenders:

     (i) increase the Commitment Percentage of any Lender.

     (ii) extend the maturity of any Note or the due date for any amount payable
hereunder,  or  decrease  the rate of  interest  or reduce  any fee  payable  by
Borrower to Lenders pursuant to this Agreement.

     (iii) alter the definition of the term Required Lenders or alter,  amend or
modify this Section 16.2(b).

     (iv)  release  any  Collateral  during any  calendar  year  (other  than in
accordance with the provisions of this Agreement).

     (v) change the rights and duties of Agent.

     (vi) permit any Revolving Advance to be made if after giving effect thereto
the total of Revolving  Advances  plus Letters of Credit  outstanding  hereunder
would exceed the Formula Amount for more than thirty (30)  consecutive  Business
Days or exceed one hundred and ten percent (110%) of the Formula Amount.

     (vii)  increase the Advance  Rates above the Advance Rates in effect on the
Closing Date.

     (viii) increase the Maximum Revolving Advance Amount.

Any such supplemental  agreement shall apply equally to each Lender and shall be
binding  upon  Borrowers,  Lenders  and  Agent  and all  future  holders  of the
Obligations.  In the case of any waiver,  Borrowers,  Agent and Lenders shall be
restored to their former  positions and rights,  and any Event of Default waived
shall be  deemed  to be cured and not  continuing,  but no waiver of a  specific
Event of Default shall extend to any subsequent Event of Default (whether or not
the  subsequent  Event of Default is the same as the Event of Default  which was
waived), or impair any right consequent on such subsequent Event of Default.

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 72

<PAGE>



     In the event that Agent  requests the consent of a Lender  pursuant to this
Section  16.2 and such  Lender  shall not  respond  or reply to Agent in writing
within ten (10) days of receipt of such request,  such Lender shall be deemed to
have  consented to the matter that was the subject of the request.  In the event
that Agent  requests  the consent of a Lender  pursuant to this Section 16.2 and
such  consent is denied,  then PNC may,  at its option,  require  such Lender to
assign its interest in the Advances to PNC or to another  Lender or to any other
Person designated by the Agent (the "Designated  Lender"),  for a price equal to
the then  outstanding  principal amount thereof plus accrued and unpaid interest
and fees due such Lender,  which  interest and fees shall be paid when collected
from  Borrowers.  In the event PNC  elects to  require  any Lender to assign its
interest  to PNC or to a  Designated  Lender,  PNC will so notify such Lender in
writing  within forty five (45) days following  such Lender's  denial,  and such
Lender will assign its interest to PNC or such  Designated  Lender no later than
five (5) days following receipt of such notice pursuant to a Commitment Transfer
Supplement   executed  by  such  Lender,  PNC  or  such  Designated  Lender,  as
appropriate, and Agent.

     16.3 Successors and Assigns; Participations; New Lenders.

     (a) This  Agreement  shall be  binding  upon and  inure to the  benefit  of
Borrowers,  Agent, each Lender,  all future holders of the Obligations and their
respective  successors  and  assigns,  except  that no  Borrower  may  assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Agent and each Lender.

     (b) Each  Borrower  acknowledges  that in the regular  course of commercial
banking  business one or more Lenders may at any time and from time to time sell
participating  interests in the Advances to other financial  institutions  (each
such transferee or purchaser of a participating interest, a "Transferee").  Each
Transferee  may exercise all rights of payment  (including,  without  limitation
rights of set-off)  with respect to the portion of such  Advances  held by it or
other  Obligations  payable  hereunder as fully as if such  Transferee  were the
direct holder thereof, provided that no Borrower shall be required to pay to any
Transferee more than such  Transferee's  applicable  portion of the amount which
such  Borrower  would have been  required to pay to the Lender which  granted an
interest  in its  Advances  or  other  Obligations  payable  hereunder  to  such
Transferee had such Lender  retained such interest in the Advances  hereunder or
other  Obligations  payable  hereunder  and in no event  shall any  Borrower  be
required to pay any such amount  arising  from the same  circumstances  and with
respect to the same Advances or other Obligations payable hereunder to both such
Lender and such  Transferee.  Each Borrower  hereby  grants to any  Transferee a
continuing  security interest in any deposits,  moneys or other property of such
Borrower actually or constructively  held by such Transferee as security for the
Transferee's interest in the Advances.

     (c) Any  Lender  may,  with  the  consent  of  Agent  (which  shall  not be
unreasonably  withheld or delayed),  sell, assign or transfer all or any part of
its  rights  under  this  Agreement  and  the  Other  Documents  to one or  more
additional banks or financial institutions,  and one or more additional banks or
financial institutions may commit to make Advances hereunder (each a

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 73

<PAGE>



     "Purchasing  Lender"),  in minimum  amounts  of not less than Five  Million
Dollars ($5,000,000.00),  pursuant to a Commitment Transfer Supplement, executed
by a Purchasing  Lender, the transferor Lender, and Agent and delivered to Agent
for recording. Upon such execution, delivery, acceptance and recording, from and
after  the  transfer  effective  date  determined  pursuant  to such  Commitment
Transfer  Supplement,  (i) Purchasing  Lender thereunder shall be a party hereto
and, to the extent provided in such  Commitment  Transfer  Supplement,  have the
rights and obligations of a Lender  thereunder  with a Commitment  Percentage as
set forth  therein,  and (ii) the transferor  Lender  thereunder  shall,  to the
extent provided in such  Commitment  Transfer  Supplement,  be released from its
obligations under this Agreement,  the Commitment Transfer Supplement creating a
novation for that purpose.  Such Commitment  Transfer Supplement shall be deemed
to amend this  Agreement  to the extent,  and only to the extent,  necessary  to
reflect the addition of such Purchasing  Lender and the resulting  adjustment of
the Commitment  Percentages  arising from the purchase by such Purchasing Lender
of all or a portion of the  rights and  obligations  of such  transferor  Lender
under this Agreement and the Other  Documents.  Each Borrower hereby consents to
the  addition of such  Purchasing  Lender and the  resulting  adjustment  of the
Commitment  Percentages  arising from the purchase by such Purchasing  Lender of
all or a portion of the rights and obligations of such  transferor  Lender under
this Agreement and the Other Documents.  Each Borrower shall execute and deliver
such  further  documents  and do such  further  acts  and  things  in  order  to
effectuate the foregoing.

     (d) Agent shall maintain at its address a copy of each Commitment  Transfer
Supplement  delivered to it and a register (the  "Register") for the recordation
of the names and  addresses  of the  Advances  owing to each Lender from time to
time.  The  entries  in the  Register  shall be  conclusive,  in the  absence of
manifest  error,  and  Borrowers,  Agent and Lenders may treat each Person whose
name is recorded in the  Register as the owner of the Advance  recorded  therein
for the  purposes  of this  Agreement.  The  Register  shall  be  available  for
inspection by any Borrower or any Lender at any reasonable time and from time to
time upon  reasonable  prior notice.  Agent shall receive a fee in the amount of
$2,500  payable by the applicable  Purchasing  Lender upon the effective date of
each transfer or assignment to such  Purchasing  Lender;  and no Borrower  shall
have any  obligation to pay or reimburse any  Purchasing  Lender for such fee or
any portion thereof.

     (e) Each Borrower  authorizes  each Lender to disclose to any Transferee or
Purchasing  Lender and any prospective  Transferee or Purchasing  Lender any and
all financial information in such Lender's possession concerning Borrowers which
has been delivered to such Lender by or on behalf of Borrowers  pursuant to this
Agreement or in connection  with such Lender's  credit  evaluation of Borrowers,
provided that such disclosure shall be subject to Section 16.15.

     16.4 Application of Payments. Agent shall have the continuing and exclusive
right to apply or reverse and  re-apply  any payment and any and all proceeds of
Collateral  to any portion of the  Obligations.  To the extent that any Borrower
makes a payment or Agent or any Lender  receives  any payment or proceeds of the
Collateral  for any  Borrower's  benefit,  which are  subsequently  invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee,  debtor in possession,  receiver,  custodian or any other party under
any bankruptcy law, common law

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 74

<PAGE>



     or equitable cause,  then, to such extent,  the Obligations or part thereof
intended to be  satisfied  shall be revived and  continue as if such  payment or
proceeds had not been received by Agent or such Lender.

     16.5 Indemnity.  Each Borrower shall indemnify Agent,  each Lender and each
of their respective officers, directors,  Affiliates,  employees and agents from
and against any and all liabilities,  obligations,  losses, damages,  penalties,
actions,  judgments,  suits,  costs,  expenses and  disbursements of any kind or
nature  whatsoever   (including,   without   limitation,   reasonable  fees  and
disbursements  of counsel) that are imposed on, incurred by, or asserted against
Agent or any Lender in any litigation, proceeding or investigation instituted or
conducted by any governmental agency or instrumentality or any other Person with
respect to any aspect of, or any transaction contemplated by, or referred to in,
or any matter related to, this Agreement or the Other Documents,  whether or not
Agent or any Lender is a party  thereto and that have occurred on account of any
breach by any Borrower of this  Agreement or any Other Document to which it is a
party,  except to the extent that any of the foregoing arises out of the willful
or unlawful misconduct or gross negligence of the party being indemnified.

     16.6 Notice.  Any notice or request  hereunder may be given to any Borrower
or Agent or any Lender at its  respective  addresses  set forth below or at such
other address as may  hereafter be specified in a notice  designated as a notice
of change of address under this Section.  Any notice or request  hereunder shall
be given  by (a)  hand  delivery,  (b)  overnight  courier,  (c)  registered  or
certified mail, return receipt  requested,  (d) telex or telegram,  subsequently
confirmed by registered or certified mail, or (e) telecopy to the number set out
below (or such other number as may hereafter be specified in a notice designated
as a notice of change of address) with  electronic  confirmation of its receipt.
Any  notice  or other  communication  required  or  permitted  pursuant  to this
Agreement shall be deemed given (a) when personally  delivered to any officer of
the party to whom it is addressed,  (b) on the earlier of actual receipt thereof
or three (3) Business Days following  posting thereof by certified or registered
mail, postage prepaid, (c) upon actual receipt thereof when sent by a recognized
overnight  delivery  service or (d) upon  actual  receipt  thereof  when sent by
telecopier  to the number set forth below with  electronic  confirmation  of its
receipt,  in each case addressed to each party at its address set forth below or
at such other  address as has been  furnished in writing by a party to the other
by like notice:

     (A) If to Agent or

                        PNC at:       PNC Bank, National Association
                                             Two Tower Center Boulevard
                                             East Brunswick, NJ   08816
                                             Attention: Arthur Lippens
                                             Telephone: (732) 220-4352
                                             Telecopier: (732) 220-4393


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 75

<PAGE>



                        with a copy to:

                                      Wolf, Block, Schorr and Solis-Cohen LLP
                                      350 Sentry Parkway, Bldg. 640
                                      Blue Bell, PA 19422
                                      Attention: Richard M. Zucker, Esquire
                                      Telephone: (610) 94102465
                                      Telecopier: (610) 238-00305
                                      (If after September 1, 1999:
                                      Wolf, Block, Schorr and Solis-Cohen LLP
                                      1650 Arch Street - 24th Floor
                                      Philadelphia, PA   19103
                                      Attention: Richard M. Zucker, Esquire
                                      Telecopier: (215) 977-2334))

             (B)  If to Borrowing Agent
                  or any Borrower, at:

                                      HMG Worldwide Corporation
                                      475 Tenth Avenue
                                      New York, NY   10018
                                      Attention: Robert V. Cuddihy, Jr.
                                      Telephone: (212) 714-6251
                                      Telecopier: (212) 714-6559

                        with a copy to:

                                      Parker Duryee Rosoff & Haft
                                      529 Fifth Avenue
                                      New York, NY   10017
                                      Attention: Herbert F. Kozlov, Esquire
                                      Telephone: (212) 599-0500
                                      Telecopier: (212) 972-9487

     16.7 Survival.  The  obligations of Borrowers under Sections  2.2(f),  3.9,
3.10, 3.11,  4.19(h),  14.7 and 16.5 shall survive termination of this Agreement
and the Other Documents and payment in full of the Obligations.

     16.8 Severability. If any part of this Agreement is contrary to, prohibited
by, or deemed invalid under applicable laws or regulations, such provision shall
be  inapplicable  and deemed  omitted to the extent so contrary,  prohibited  or
invalid,  but the remainder hereof shall not be invalidated thereby and shall be
given effect so far as possible.

     16.9  Expenses.  All  reasonable  costs  and  expenses  including,  without
limitation,  reasonable  attorneys'  fees  (including the allocated  costs of in
house counsel) and disbursements  incurred by Agent,  Agent on behalf of Lenders
and Lenders  (a) in all efforts  made to enforce  payment of any  Obligation  or
effect  collection of any  Collateral,  or (b) in  connection  with the entering
into, modification,  amendment, administration and enforcement of this Agreement
or any consents or waivers hereunder and all related  agreements,  documents and
instruments, or (c) in

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 76

<PAGE>



     instituting,  maintaining, preserving, enforcing and foreclosing on Agent's
security interest in or Lien on any of the Collateral,  whether through judicial
proceedings  or  otherwise,  or (d) in defending or  prosecuting  any actions or
proceedings  arising out of or relating to Agent's or any Lender's  transactions
with  Borrowers,  or (e) in  connection  with any  advice  given to Agent or any
Lender with respect to its rights and  obligations  under this Agreement and all
related  agreements,  may be charged to Borrowers'  Account and shall be part of
the Obligations.

     16.10 Injunctive Relief.  Each Borrower  recognizes that, in the event such
Borrower  fails to  perform,  observe or  discharge  any of its  obligations  or
liabilities  under this Agreement,  any remedy at law may prove to be inadequate
relief to Lenders;  therefore, Agent, if Agent so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving that actual damages are not an adequate remedy.

     16.11 Consequential Damages. Neither Agent nor any Lender, nor any agent or
attorney for any of them, shall be liable to Borrowers for consequential damages
arising  from any  breach  of  contract,  tort or other  wrong  relating  to the
establishment, administration or collection of the Obligations.

     16.12  Captions.  The  captions  at various  places in this  Agreement  are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.

     16.13 Counterparts;  Telecopied Signatures.  This Agreement may be executed
in any number of and by different parties hereto on separate  counterparts,  all
of  which,  when so  executed,  shall  be  deemed  an  original,  but  all  such
counterparts  shall  constitute  one  and  the  same  agreement.  Any  signature
delivered by a party by facsimile transmission shall be deemed to be an original
signature hereto.

     16.14 Construction. The parties acknowledge that each party and its counsel
have reviewed this  Agreement  and that the normal rule of  construction  to the
effect that any ambiguities are to be resolved  against the drafting party shall
not be employed  in the  interpretation  of this  Agreement  or any  amendments,
schedules or exhibits thereto.

     16.15 Confidentiality; Sharing Information.

     (a) Agent,  each  Lender  and each  Transferee  shall  hold all  non-public
information  obtained by Agent,  such Lender or such Transferee  pursuant to the
requirements  of this  Agreement in accordance  with Agent's,  such Lender's and
such Transferee's customary procedures for handling confidential  information of
this nature;  provided,  however,  Agent,  each Lender and each  Transferee  may
disclose such confidential information (a) to its examiners, affiliates, outside
auditors,  counsel and other professional  advisors, (b) to Agent, any Lender or
to any prospective  Transferees and Purchasing  Lenders,  and (c) as required or
requested  by any  Governmental  Body or  representative  thereof or pursuant to
legal  process;  provided,  further that (i) unless  specifically  prohibited by
applicable law or court order,  Agent, each Lender and each Transferee shall use
its

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 77

<PAGE>



     best  efforts as soon as  reasonably  practical,  and in any event prior to
disclosure thereof, to notify the relevant Borrower[s] of the applicable request
for disclosure of such  non-public  information  (A) by a  Governmental  Body or
representative  thereof  (other  than any such  request  in  connection  with an
examination  of the  financial  condition  of a Lender or a  Transferee  by such
Governmental  Body) or (B) pursuant to legal  process and (ii) in no event shall
Agent,  any  Lender or any  Transferee  be  obligated  to return  any  materials
furnished by Borrowers  other than those documents and instruments in possession
of Agent or any Lender in order to perfect its Lien on the  Collateral  once the
Obligations have been paid in full and this Agreement has been terminated.

     (b) Each Borrower  acknowledges that from time to time financial  advisory,
investment  banking  and other  services  may be  offered  or  provided  to such
Borrower or one or more of its Affiliates (in connection  with this Agreement or
otherwise)  by any Lender or by one or more  Subsidiaries  or Affiliates of such
Lender and such Borrower hereby  authorizes each Lender to share any information
delivered to such Lender by such Borrower and its Subsidiaries  pursuant to this
Agreement,  or in connection with the decision of such Lender to enter into this
Agreement,  to any  such  Subsidiary  or  Affiliate  of such  Lender,  it  being
understood  that any such  Subsidiary or Affiliate of any Lender  receiving such
information  shall be bound by the  provision  of Section  16.15 as if it were a
Lender  hereunder.  Such  authorization  shall  survive  the  repayment  of  the
Obligations and the termination of this Agreement.

     16.16 Publicity.  Each Borrower and each Lender hereby  authorizes Agent to
make appropriate  announcements of the financial  arrangement entered into among
Borrowers, Agent and Lenders, including, without limitation, announcements which
are commonly  known as  tombstones,  in such  publications  and to such selected
parties as Agent shall in its sole and absolute discretion deem appropriate.

                            [SIGNATURES ON NEXT PAGE]



     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 78

<PAGE>



     Each of the  parties  has  signed  this  Revolving  Credit,  Term  Loan and
Security  Agreement as of the day and year first above  written.  HMG  WORLDWIDE
CORPORATION


                                        By:_______________________________
                                               Robert V. Cuddihy, Jr.,
                                               Executive Vice President


                                        HMG WORLDWIDE IN-STORE
                                        MARKETING, INC.


                                        By:___________________________________
                                               Robert V. Cuddihy, Jr.,
                                               Executive Vice President


                                        HMG/INTERMARK WORLDWIDE
                                        MANUFACTURING, INC.


                                        By:___________________________________
                                               Robert V. Cuddihy, Jr.,
                                               Executive Vice President


                                        DISPLAY DEPOT, INC.


                                        By:___________________________________
                                               Robert V. Cuddihy, Jr.,
                                               Executive Vice President


                                        HMG GRIFFITH, INC.


                                        By:___________________________________
                                               Robert V. Cuddihy, Jr.,
                                               Executive Vice President

                    (SIGNATURES CONTINUED ON FOLLOWING PAGE)

     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12 79

<PAGE>



                    (SIGNATURES CONTINUED FROM PREVIOUS PAGE)


                                               HMG SCHUTZ INTERNATIONAL, INC.


                                        By:___________________________________
                                               Robert V. Cuddihy, Jr.,
                                               Executive Vice President


                                            475 Tenth Avenue, New York, NY 10018


                                        PNC BANK, NATIONAL ASSOCIATION, as
                                         Lender and as Agent


                                        By:_______________________________
                                               Kevin M. Patton, Vice President

                                               Two Tower Center Boulevard
                                               East Brunswick, NJ   08816

                                        Commitment Percentage: 57.14%


                                        FIRSTAR BANK, N.A.



                                        By: _________________________________
                                        Name/Title: ___________________________

                                               1350 Euclid Avenue, 8th Floor
                                               Cleveland, OH   44115

                                        Commitment Percentage: 42.86%


     BLU-69367_7/ZRM1343/PNC008-129635 012000/11:12
                                                        80

<PAGE>


                         List of Exhibits and Schedules

Exhibits

Exhibit 2.1(a)    Revolving Credit Note
Exhibit 2.4       Term Note
                    Exhibit 5.5(b)    Financial Projections
                    Exhibit 8.1(i)    Financial Condition Certificate
                  Exhibit 16.3      Commitment Transfer Supplement

Schedules

                    Schedule 1.2    Permitted Encumbrances
                    Schedule 4.5    Equipment and Inventory Locations
Schedule 4.15(c)  Location of Executive Offices
                    Schedule 4.19   Real Property
                    Schedule 5.1    Holders of Ownership Interests
                    Schedule 5.2(a)    States of Qualification and Good Standing
                    Schedule 5.2(b)    Subsidiaries
                    Schedule 5.4    Federal Tax Identification Number
                    Schedule 5.6    Prior Names
                    Schedule 5.7(a) Compliance Issues
                    Schedule 5.8(b)    Litigation
                    Schedule 5.8(d)    Plans
                    Schedule 5.9    Intellectual Property
                    Schedule 5.10   Licenses and Permits
                    Schedule 5.11   Contested Defaults
                    Schedule 5.12   Defaults under Contractual Obligations
                    Schedule 5.14   Labor Disputes
                    Schedule 7.6    Employee Stock Option Plan
                    Schedule 7.7    Permitted Indebtedness
                    Schedule 7.15   Accumulated Funding Deficiency

                                                        81

<PAGE>