EXHIBIT 10.16
                                                                   -------------

                           CONVERTIBLE LOAN AGREEMENT

                            DATED AS OF JUNE 28, 2002

                                  BY AND AMONG

                               SIMTEK CORPORATION

                                   AS BORROWER

                                       AND

               RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

                                       AND

                    RENAISSANCE US GROWTH & INCOME TRUST PLC

                                       AND

                      BFSUS SPECIAL OPPORTUNITIES TRUST PLC

                                    AS LENDER

                                       AND

                         RENAISSANCE CAPITAL GROUP, INC.

                             AS AGENT FOR THE LENDER

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                                                    TABLE OF CONTENTS
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WITNESSETH:.......................................................................................................1

ARTICLE I. - DEFINITION OF TERMS..................................................................................1
   SECTION 1.01       DEFINITIONS.................................................................................1
   SECTION 1.02       OTHER DEFINITION PROVISIONS.................................................................7

ARTICLE II. - LOAN PROVISIONS.....................................................................................8
   SECTION 2.01       THE LOAN....................................................................................8
   SECTION 2.02       USE OF PROCEEDS.............................................................................8
   SECTION 2.03       INTEREST RATE AND INTEREST PAYMENTS.........................................................8
   SECTION 2.04       MATURITY....................................................................................9
   SECTION 2.05       MANDATORY PRINCIPAL REPAYMENT...............................................................9
   SECTION 2.06       REDEMPTION..................................................................................9
   SECTION 2.07       CONVERSION..................................................................................9
   SECTION 2.08       FEES AND EXPENSES...........................................................................9
   SECTION 2.09       FINDER'S FEES...............................................................................9
   SECTION 2.10       TAXES.......................................................................................9
   SECTION 2.11       SUBSIDIARY GUARANTY, SECURITY AGREEMENTS AND PLEDGE AGREEMENT..............................10

ARTICLE III. - CONDITIONS PRECEDENT..............................................................................10
   SECTION 3.01       PRE-CLOSING CONDITIONS.....................................................................10

ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BORROWER.........................................................12
   SECTION 4.01       ORGANIZATION AND GOOD STANDING.............................................................12
   SECTION 4.02       AUTHORIZATION AND POWER....................................................................13
   SECTION 4.03       NO CONFLICTS OR CONSENTS...................................................................13
   SECTION 4.04       ENFORCEABLE OBLIGATIONS....................................................................13
   SECTION 4.05       NO LIENS...................................................................................13
   SECTION 4.06       FINANCIAL CONDITION........................................................................13
   SECTION 4.07       NO DEFAULT.................................................................................14
   SECTION 4.08       MATERIAL AGREEMENTS........................................................................14
   SECTION 4.09       NO LITIGATION..............................................................................14
   SECTION 4.10       TAXES......................................................................................14
   SECTION 4.11       CAPITALIZATION.............................................................................15
   SECTION 4.12       USE OF PROCEEDS............................................................................15
   SECTION 4.13       EMPLOYEE MATTERS...........................................................................15
   SECTION 4.14       EMPLOYEE BENEFIT PLANS.....................................................................16
   SECTION 4.15       COMPLIANCE WITH LAWS.......................................................................16
   SECTION 4.16       LICENSES AND PERMITS.......................................................................16
   SECTION 4.17       CONTRACTS..................................................................................17
   SECTION 4.18       SHARES ISSUABLE UPON CONVERSION............................................................17
   SECTION 4.19       INSIDER....................................................................................17
   SECTION 4.20       SUBSIDIARIES...............................................................................17
   SECTION 4.21       CASUALTIES.................................................................................18
   SECTION 4.22       INVESTMENT COMPANY ACT.....................................................................18
   SECTION 4.23       SUFFICIENCY OF CAPITAL.....................................................................18
   SECTION 4.24       CORPORATE NAMES............................................................................18

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   SECTION 4.25       INSURANCE..................................................................................18
   SECTION 4.26       INTELLECTUAL PROPERTY......................................................................18
   SECTION 4.27       REAL PROPERTY..............................................................................19
   SECTION 4.28       ENVIRONMENTAL..............................................................................20
   SECTION 4.29       SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................................................21
   SECTION 4.30       FULL DISCLOSURE............................................................................21

ARTICLE V. - AFFIRMATIVE COVENANTS OF BORROWER...................................................................21
   SECTION 5.01       FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS................................................22
   SECTION 5.02       ANNUAL FINANCIAL STATEMENTS................................................................23
   SECTION 5.03       QUARTERLY FINANCIAL STATEMENTS.............................................................23
   SECTION 5.04       MONTHLY FINANCIAL STATEMENTS...............................................................23
   SECTION 5.05       PREPARATION OF BUDGETS.....................................................................24
   SECTION 5.06       PAYMENT OF TAXES AND OTHER INDEBTEDNESS....................................................24
   SECTION 5.07       MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS...................................24
   SECTION 5.08       SEC FILINGS................................................................................24
   SECTION 5.09       NOTICE.....................................................................................25
   SECTION 5.10       COMPLIANCE WITH LOAN DOCUMENTS.............................................................25
   SECTION 5.11       COMPLIANCE WITH MATERIAL AGREEMENTS........................................................25
   SECTION 5.12       OPERATIONS AND PROPERTIES..................................................................25
   SECTION 5.13       BOOKS AND RECORDS; ACCESS..................................................................25
   SECTION 5.14       COMPLIANCE WITH LAW........................................................................26
   SECTION 5.15       INSURANCE..................................................................................26
   SECTION 5.16       AUTHORIZATIONS AND APPROVALS...............................................................26
   SECTION 5.17       ERISA COMPLIANCE...........................................................................26
   SECTION 5.18       FURTHER ASSURANCES.........................................................................26
   SECTION 5.19       INDEMNITY BY BORROWER......................................................................26
   SECTION 5.20       RESERVATION OF SHARES......................................................................27
   SECTION 5.21       OWNERSHIP OF SUBSIDIARIES..................................................................27
   SECTION 5.22       RETENTION OF STOCK OWNERSHIP...............................................................28
   SECTION 5.23       SUBSEQUENTLY FORMED U.S. SUBSIDIARIES......................................................28

ARTICLE VI. - NEGATIVE COVENANTS OF BORROWER.....................................................................28
   SECTION 6.01       LIMITATION ON INDEBTEDNESS.................................................................28
   SECTION 6.02       LIMITATION ON LIENS........................................................................28
   SECTION 6.03       LIMITATION ON INVESTMENTS..................................................................29
   SECTION 6.04       ALTERATION OF MATERIAL AGREEMENTS..........................................................29
   SECTION 6.05       TRANSACTIONS WITH AFFILIATES...............................................................29
   SECTION 6.06       LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS..........................................29
   SECTION 6.07       LIMITATION ON SALE OF PROPERTIES...........................................................29
   SECTION 6.08       FISCAL YEAR AND ACCOUNTING METHOD..........................................................30
   SECTION 6.09       LIQUIDATION................................................................................30
   SECTION 6.10       MATERIAL AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.................................30
   SECTION 6.11       EXECUTIVE COMPENSATION.....................................................................30
   SECTION 6.12       RESTRICTED PAYMENTS........................................................................30
   SECTION 6.13       CONSOLIDATION OR MERGER....................................................................30

ARTICLE VII. - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS...................................................31
   SECTION 7.01       FINANCIAL RATIOS...........................................................................31


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ARTICLE VIII. - EVENTS OF DEFAULT................................................................................31
   SECTION 8.01       EVENTS OF DEFAULT..........................................................................31
   SECTION 8.02       REMEDIES UPON EVENT OF DEFAULT.............................................................32
   SECTION 8.03       PERFORMANCE BY THE LENDER..................................................................33
   SECTION 8.04       PAYMENT OF EXPENSES INCURRED BY THE LENDER.................................................33

ARTICLE IX. - REGISTRATION RIGHTS................................................................................33
   SECTION 9.01       "PIGGY-BACK" REGISTRATION..................................................................33
   SECTION 9.02       SHELF REGISTRATION.........................................................................35
   SECTION 9.03       OBLIGATIONS OF BORROWER....................................................................35
   SECTION 9.04       FURNISH INFORMATION........................................................................36
   SECTION 9.05       EXPENSES OF REGISTRATION...................................................................36
   SECTION 9.06       INDEMNIFICATION REGARDING REGISTRATION RIGHTS..............................................36
   SECTION 9.07       REPORTS UNDER THE 1934 ACT.................................................................38
   SECTION 9.08       ASSIGNMENT OF REGISTRATION RIGHTS..........................................................39
   SECTION 9.09       OTHER MATTERS..............................................................................39

ARTICLE X. - BOARD OF DIRECTORS..................................................................................40
   SECTION 10.01      BOARD REPRESENTATION OR ATTENDANCE BY OBSERVER.............................................40
   SECTION 10.02      LIMITATION OF AUTHORITY OF PERSONS DESIGNATED AS A DIRECTOR NOMINEE........................40
   SECTION 10.03      NONLIABILITY OF THE LENDER.................................................................40

ARTICLE XI. - AGENCY PROVISIONS..................................................................................41
   SECTION 11.01      THE LENDER'S REPRESENTATIONS AND WARRANTIES TO AGENT.......................................41
   SECTION 11.02      WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS................................41
   SECTION 11.03      AGENCY.....................................................................................41

ARTICLE XII. - MISCELLANEOUS.....................................................................................43
   SECTION 12.01      STRICT COMPLIANCE..........................................................................43
   SECTION 12.02      WAIVERS AND MODIFICATIONS..................................................................43
   SECTION 12.03      LIMITATION ON LIABILITY....................................................................43
   SECTION 12.04      CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION............................43
   SECTION 12.05      INVALID PROVISIONS.........................................................................44
   SECTION 12.06      MAXIMUM INTEREST RATE......................................................................44
   SECTION 12.07      PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES...........................................45
   SECTION 12.08      CONFIDENTIALITY............................................................................45
   SECTION 12.09      BINDING EFFECT.............................................................................45
   SECTION 12.10      NO THIRD PARTY BENEFICIARY.................................................................46
   SECTION 12.11      ENTIRETY...................................................................................46
   SECTION 12.12      HEADINGS...................................................................................46
   SECTION 12.13      SURVIVAL...................................................................................46
   SECTION 12.14      MULTIPLE COUNTERPARTS......................................................................46
   SECTION 12.15      KNOWLEDGE OF BORROWER......................................................................46
   SECTION 12.16      NOTICES....................................................................................46
   SECTION 12.17      GOVERNING LAW..............................................................................49

SCHEDULES TO CONVERTIBLE LOAN AGREEMENT..........................................................................51
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     THIS AGREEMENT, dated as of June 28, 2002, by and among SIMTEK CORPORATION,
a Colorado  corporation  ("Borrower"),  and RENAISSANCE  CAPITAL GROWTH & INCOME
FUND, III, INC., a Texas corporation  (individually  referred to as "Renaissance
III") and  RENAISSANCE  US GROWTH & INCOME TRUST PLC, a public  limited  company
registered in England and Wales (individually referred to as "RUSGIT") and BFSUS
SPECIAL  OPPORTUNITIES TRUST PLC, a public limited company registered in England
and Wales  ("BFSUS")  (Renaissance  III,  RUSGIT  and BFSUS,  together  with any
permitted  assignees or successors in interest  referred to as the "Lender") and
RENAISSANCE  CAPITAL GROUP, INC., a Texas  corporation,  as agent for the Lender
(the "Agent"). All references herein to Borrower shall include the Subsidiaries,
unless the context otherwise requires.

                                   WITNESSETH:

     WHEREAS,  Borrower  seeks  to  borrow  a total  of  Three  Million  Dollars
($3,000,000) from the Lender; and

     WHEREAS, Borrower has requested that the Lender provide such loan as herein
provided,  and that the Lender is willing to furnish  such to Borrower  upon the
terms and subject to the conditions and for the  considerations  hereinafter set
forth;

     NOW,  THEREFORE,  in  consideration of the mutual promises herein contained
and for  other  valuable  consideration,  receipt  and  sufficiency  of which is
acknowledged, the parties hereto agree as follows:

                        ARTICLE I. - DEFINITION OF TERMS

SECTION 1.01   DEFINITIONS.

     For the  purposes of this  Agreement,  the  following  terms shall have the
respective  meanings  assigned  to them in this  Article I or in the  section or
recital referred to below:

     "Affiliate" with respect to any Person shall mean a person that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, such Person.

     "Bank One" shall mean Bank One, N.A.

     "BFSUS" shall mean BFSUS Special  Opportunities Trust PLC, a public limited
company registered in England and Wales.

     "Capital Expenditure" shall mean an expenditure for assets that is properly
classifiable as a capital expenditure in accordance with GAAP.

     "Capital Lease" shall mean any lease of property,  real or personal,  which
would be properly classifiable as a capital lease in accordance with GAAP.

     "Closing Fee" shall mean that amount equal to 1.0% of the commitment amount
which equals  Thirty  Thousand  Dollars  ($30,000),  deposited by Borrower in an
escrow account and which shall be applied to Lender's  reasonable  closing costs
and out of pocket expenses.

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     "Closing  Expense  Fee"  shall  mean  that  amount  equal  to  0.50% of the
commitment amount which equals Fifteen Thousand Dollars ($15,000),  deposited by
Borrower in an escrow account and which shall be applied to Lender's  reasonable
closing costs and out-of-pocket expenses.

     "Commitment  Fee" shall mean that  amount  equal to 1.0% of the  commitment
amount, which equals Thirty Thousand Dollars ($30,000), deposited by Borrower in
an escrow account.

     "Common  Stock" shall mean  Borrower's  common stock,  par value $.0.01 per
share.

     "Consolidated  Trailing  Twelve  Months  Free Cash Flow" shall mean for any
Person,  for the  immediately  preceding  twelve-month  period on such date, Net
Income of such Person for such twelve-month period, plus (a) all deferred income
tax expense of such Person and its  Subsidiaries for such  twelve-month  period,
(b) all  depreciation  expense  of such  Person  and its  Subsidiaries  for such
twelve-month  period,  and (c) all  amortization  expense of such Person and its
Subsidiaries for such  twelve-month  period,  less capital  expenditures of such
Person and its Subsidiaries for such twelve-month period.

     "Conversion"  or "Conversion  Rights" shall mean exchange of, or the rights
to exchange,  the Principal  Amount of the Loan, or any part thereof,  for fully
paid and nonassessable  Common Stock on the terms and conditions provided in the
Debentures.

     "Current  Assets" shall mean,  for any Person as of any date, the assets of
such  Person and its  consolidated  Subsidiaries  which  would be  reflected  as
current  assets  on a  consolidated  balance  sheet  for  such  Person  and  its
Subsidiaries prepared as of such date in accordance with GAAP.

     "Current  Liabilities"  shall  mean,  for any  Person as of any  date,  the
liabilities  of such  Person and its  consolidated  Subsidiaries  which would be
reflected as current liabilities on a consolidated balance sheet for such Person
and its  subsidiaries  prepared  as of such date in  accordance  with GAAP.  For
purposes of calculating compliance with any covenant contained in this Agreement
or any other Loan Document,  the principal amount of Current  Liabilities  shall
include  any  balance  under any  revolving  credit  facility  of the  Borrower,
regardless of whether such  revolving  credit  facility  would be reflected as a
current liability in accordance with GAAP.

     "Current  Ratio"  shall mean,  for any Person as of any date,  the ratio of
such Person's Current Assets to Current Liabilities as of such date.

     "Debentures"  shall mean the Debentures  executed by Borrower and delivered
pursuant to the terms of this Agreement,  together with any renewals, extensions
or modifications thereof.

     "Debtor  Laws"  shall  mean all  applicable  liquidation,  conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization or
similar  laws from time to time in effect  affecting  the rights of creditors or
debtors generally.

     "Default" or "Event of Default"  shall mean any of the events  specified in
Article VIII.

     "Dividends,"   in  respect  of  any   corporation,   shall  mean  (i)  cash
distributions  or any other  distributions  on, or in  respect  of, any class of
capital  stock of such  corporation,  except for  distributions  made  solely in
shares of stock of the same  class,  and (ii) any and all funds,  cash and other
payments made in respect of the  redemption,  repurchase or  acquisition of such
stock,  unless such stock shall be redeemed or acquired  through the exchange of
such stock with stock of the same class.

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     "Due Diligence Fee" shall mean a  non-refundable  due diligence fee, in the
amount of Twelve  Thousand Five Hundred  Dollars  ($12,500),  previously paid by
Borrower to Lender to be applied to Lender's due diligence expenses.

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
amended, together with all rules and regulations issued pursuant thereto.

     "GAAP" shall mean United States generally  accepted  accounting  principles
applied on a  consistent  basis,  set forth in the  Opinions  of the  Accounting
Principles Board of the American  Institute of Certified  Public  Accountants or
the  Financial  Accounting  Standards  Board  or  their  successors,  which  are
applicable in the circumstances as of the date in question. The requirement that
such principles be applied on a consistent  basis shall mean that the accounting
principles  observed in a current period are comparable in all material respects
to those applied in a preceding period.

     "Governmental  Authority"  shall  mean  any  government  (or any  political
subdivision  or  jurisdiction   thereof),   court,   bureau,   agency  or  other
governmental  authority having jurisdiction over Borrower or a Subsidiary or any
of its or their businesses, operations or properties.

     "Guaranty"   of  any  Person   shall  mean  any   contract,   agreement  or
understanding of such Person pursuant to which such Person in effect  guarantees
the payment of any  Indebtedness of any other Person (the "Primary  Obligor") in
any manner,  whether  directly or  indirectly,  including,  without  limitation,
agreements:  (i) to purchase  such  Indebtedness  or any  property  constituting
security therefor;  (ii) to advance or supply funds primarily for the purpose of
assuring the holder of such  Indebtedness  of the ability of the Primary Obligor
to make payment;  or (iii) otherwise to assure the holder of the Indebtedness of
the Primary  Obligor  against loss in respect  thereof,  except that  "Guaranty"
shall not include the  endorsement  by Borrower or a Subsidiary  in the ordinary
course of  business  of  negotiable  instruments  or  documents  for  deposit or
collection.

     "Holder" shall mean the owner of Registrable Securities.

     "Indebtedness" shall mean, with respect to any Person, without duplication,
the following  indebtedness,  obligations  and  liabilities of such Person:  (i)
indebtedness for borrowed money;  (ii) all obligations of such Person in respect
of any Guaranty;  (iii) all obligations of such Person in respect of any Capital
Lease, (iv) all obligations, indebtedness and liabilities secured by any lien or
any security interest on any property or assets of such Person,  but only to the
extent so secured;  and (v) all preferred stock of such Person which is subject,
at  the  time  of  calculation  of  Indebtedness,   to  a  mandatory  redemption
requirement,  valued  at the  greater  of its  involuntary  redemption  price or
liquidation  preference plus accrued and unpaid  dividends,  and all extensions,
renewals, modifications and amendments thereto.

     "Interest Coverage Ratio" means for any period, the ratio of (a) Borrower's
consolidated net income after taxes for such period (excluding  Borrower's after
tax gains or losses on the sale of assets  (other than the sale of  Inventory in
the ordinary  course of business)  and excluding  other after tax  extraordinary
gains or losses), plus depreciation and amortization deducted in determining net
income for such period,  plus  interest  expense for such period to (b) interest
expense for such period, all as determined on a consolidated basis in accordance
with GAAP.

     "Investment" in any Person shall mean any  investment,  whether by means of
share purchase,  loan, advance, capital contribution or otherwise, in or to such
Person, the Guaranty of any Indebtedness of such Person, or the subordination of
any claim  against such Person to other  Indebtedness  of such Person;  provided
however,  that "Investment"  shall not include (i) any demand deposits in a duly

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chartered state or national bank or other cash equivalent investments,  (ii) any
loans  permitted by Section  6.12,  or (iii) any  acquisitions  of equity in any
other Person.

     "IRS Code"  shall  mean the  Internal  Revenue  Code of 1986,  as  amended,
together with all rules and regulations issued thereunder.

     "Lien" shall mean any lien, mortgage,  security interest, tax lien, pledge,
encumbrance,  conditional  sale or title  retention  arrangement,  or any  other
interest in property  designed to secure the repayment of Indebtedness,  whether
arising by agreement or under any statute or law, or otherwise.

     "Loan"  shall mean the money lent to Borrower  pursuant to this  Agreement,
along with any accrued, unpaid interest thereon.

     "Loan Closing" or "Loan Closing Date" shall mean the  disbursement  of Loan
funds,  which shall occur within ten (10) days of the  execution and delivery of
this Agreement.

     "Loan  Documents"  shall mean this Agreement,  the Debentures and any other
agreements  or  documents  required  to be  executed  or  delivered  by Borrower
pursuant  to the terms of this  Agreement  (and any  amendments  or  supplements
hereto or modifications hereof).

     "Lock-Up  Agreement" shall mean the "lock-up"  agreements to be executed by
certain  executive  officers and principal  shareholders of Borrower pursuant to
Section 5.19 of this Agreement.

     "Material  Adverse Effect" or "Material  Adverse Change" shall mean (i) any
change,  factor or event that shall (a) have a material  adverse effect upon the
validity or  enforceability  of any Loan Documents,  (b) have a material adverse
effect  upon  the  financial   condition,   results  of  operations,   business,
properties,  operations  or assets of  Borrower or its  Subsidiaries  taken as a
whole,  or (c) have a material  adverse  effect  upon the ability of Borrower to
fulfill its obligations under the Loan Documents,  or (ii) any event that causes
an Event of  Default  or  which,  with  notice  or lapse of time or both,  could
reasonably be expected to become an Event of Default.

     "Net Income" shall mean,  for any Person for any period,  consolidated  net
income of such Person and its  consolidated  Subsidiaries  for such period which
would be reflected in accordance  with GAAP,  but excluding (a) any gain or loss
arising from the sale of capital  assets,  (b) any gain or loss arising from any
write-up  or  write-down   of  assets,   (c)  income  or  loss  of  any  Person,
substantially  all of the assets of which have been  acquired  by such Person in
any  manner,  to the extent that such  earnings or losses were  realized by such
other  Person prior to the date of such  acquisition,  (d) income or loss of any
Person in which the Person has any ownership  interests (other than consolidated
subsidiaries  of such Person),  unless such earnings have actually been received
or paid by the  Person  or its  consolidated  Subsidiaries  in the  form of cash
distributions  or  additional  cash  calls,  (e) income or loss of any Person to
which  assets of the  Person or its  consolidated  subsidiaries  shall have been
sold, transferred or disposed of, or into which the Person shall have merged, to
the extent that such  earnings or losses of any other  Person arise prior to the
date of such  transaction,  (f) any gain or loss arising from the acquisition of
any securities of the Person or any of its  consolidated  subsidiaries,  and (g)
any  extraordinary  gain  or  loss  realized  by  such  Person  or  any  of  its
consolidated subsidiaries during such period.

     "Obligation"   shall  mean:  (i)  all  present  and  future   Indebtedness,
obligations and  liabilities of Borrower to the Lender arising  pursuant to this
Agreement, regardless of whether such Indebtedness,  obligations and liabilities
are direct, indirect,  fixed, contingent,  joint, several, or joint and several;
(ii) all  present  and  future  Indebtedness,  obligations  and  liabilities  of
Borrower to the Lender arising  pursuant to or represented by the Debentures and

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all interest  accruing thereon,  and reasonable  attorneys' fees incurred in the
enforcement or collection  thereof;  (iii) all present and future  Indebtedness,
obligations  and  liabilities  of Borrower  and any  Subsidiary  evidenced by or
arising  pursuant to any of the Loan  Documents;  (iv) all costs incurred by the
Lender or Agent including,  but not limited to,  reasonable  attorneys' fees and
legal expenses related to this transaction; and (v) all renewals, extensions and
modifications of the indebtedness  referred to in the foregoing clauses,  or any
part thereof.

     "Permits" shall have the meaning set forth in Section 4.16.

     "Permitted Indebtedness" shall mean Indebtedness outstanding as of the date
hereof or incurred in  compliance  with Section 6.01 and the other terms of this
Agreement  that  constitutes  (i) Senior  Obligations,  (ii)  obligations  under
Capital  Leases,  (iii) letters of credit,  (iv) debt  associated with Permitted
Liens,  (v)   Subordinated   Debt,  (vi)  purchase  money   Indebtedness,   (vi)
intercompany  Indebtedness,  (viii)  Indebtedness  under this  Agreement  or the
Debentures,  and (ix) any  refunding,  refinancing  or  extension  of any of the
above.

     "Permitted Liens" shall mean: (i) Liens (if any) granted for the benefit of
the Lender;  (ii) Liens to secure the Permitted  Indebtedness;  (iii) pledges or
deposits  made to secure  payment  of  worker's  compensation  insurance  (or to
participate  in any fund in connection  with worker's  compensation  insurance),
unemployment insurance, pensions or social security programs; (iv) Liens imposed
by mandatory provisions of law such as for carriers', landlord's, materialmen's,
mechanics',  warehousemen's,  vendors'  and  other  like  Liens  arising  in the
ordinary course of business,  securing Indebtedness whose payment is made within
30 days of the date such Lien arises,  or that are being contested in good faith
by appropriate  proceedings as to which adequate  reserves have been established
to  the  extent  required  by  GAAP;  (v)  Liens  for  taxes,   assessments  and
governmental  charges  or levies  imposed  upon a Person  or upon such  Person's
income or profits or property, if the same are not yet due and payable or if the
same are being  contested in good faith and as to which  adequate  cash reserves
have been  provided or if an extension is obtained  with respect  thereto;  (vi)
Liens arising from good faith deposits in connection with tenders,  leases, bids
or contracts (other than contracts involving the borrowing of money), pledges or
deposits to secure public or statutory obligations and deposits to secure (or in
lieu of)  surety,  stay,  appeal or  customs  bonds and  deposits  to secure the
payment of taxes,  assessments,  customs duties or other similar charges;  (vii)
encumbrances  consisting  of  zoning  restrictions,   easements,   reservations,
licenses,   covenants  and  other  minor   irregularities   of  title  or  other
restrictions  on the use of real property  (whether  owned or leased),  provided
that such items do not materially impair the intended use of such property,  and
none of which is violated by Borrower's  existing structures or land use; (viii)
mortgages, financing statements, equipment leases or other encumbrances incurred
in connection  with the  acquisition of property or equipment or the replacement
of existing property or equipment,  provided that such liens shall be limited to
the property or equipment  then being  acquired;  (ix) Liens which secure Senior
Obligations; and (x) Liens listed in Schedule 4.05.

     "Person" shall include an individual,  a  corporation,  a joint venture,  a
general or limited  partnership,  a trust, an  unincorporated  organization or a
government or any agency or political subdivision thereof.

     "Plan"  shall mean an employee  benefit  plan or other plan  maintained  by
Borrower for employees of Borrower and/or any  Subsidiaries and covered by Title
IV of ERISA,  or subject to the minimum  funding  standards under Section 412 of
the IRS Code.

                                       5
<PAGE>

     "Principal  Amount"  shall  mean,  as  of  any  time,  the  then  aggregate
outstanding  face amount of the Debentures  after any conversions or redemptions
and after giving effect to any installment payments received by the Lender.

     "Registrable  Securities"  shall mean (a) the Common  Stock  issuable  upon
Conversion of the  Debentures  and (b) any Common Stock issued upon the exercise
of any  warrant,  right or other  security  that is issued  with  respect to the
Common Stock by way of (i) a stock dividend;  (ii) any other  distribution  with
respect to, or in exchange for, or in replacement of Common Stock; (iii) a stock
split;  and (iv) in connection  with a combination of shares,  recapitalization,
merger or consolidation  excluding in all cases,  however, any Common Stock that
is not a Restricted Security and any Registrable  Securities sold or transferred
by a Person in a  transaction  in which the rights under this  Agreement are not
assigned.

     "Registrable  Securities  Then  Outstanding"  shall  mean  the  Registrable
Securities then outstanding.

     "Renaissance  III" shall  mean  Renaissance  III Growth & Income  Fund III,
Inc., a Texas corporation.

     "Renaissance  Group" shall mean  Renaissance  Capital Group,  Inc., a Texas
corporation.

     "Restricted  Security"  shall  mean  a  security  that  has  not  been  (i)
registered under the 1933 Act or (ii) distributed to the public pursuant to Rule
144 (or any similar provisions that are in force) under the 1933 Act.

     "RUSGIT"  shall  mean  Renaissance  US Growth & Income  Trust PLC, a public
limited company registered in England and Wales.

     "SEC"  shall mean the  Securities  and  Exchange  Commission,  or any other
federal agency at the time administering the 1933 Act and the 1934 Act.

     "1933 Act" shall refer to the  Securities  Act of 1933, as amended,  or any
similar federal statute and rules and regulations promulgated thereunder, all as
the same may be in effect from time to time.

     "1934 Act" shall refer to the Securities  Exchange Act of 1934, as amended,
or any similar federal statute and rules and regulations promulgated thereunder,
all as the same may be in effect from time to time.

     "1940 Act" shall refer to the  Investment  Company Act of 1940, as amended,
or any similar federal statute and rules and regulations promulgated thereunder,
all as the same may be in effect from time to time.

     "Senior  Documents"  shall mean all loan  documents  evidencing  the Senior
Obligations,  as each may now or hereafter be amended,  modified,  supplemented,
renewed or extended from time to time.

     "Senior  Obligations"  shall  mean  one  or  more  senior  debt  facilities
(including loans and other extensions of credit under the Senior Documents) with
banks or other institutional  lenders providing for revolving credit loans, term
loans,  asset-based  secured loans,  capital  expenditure  loans,  or letters of
credit,  or any  other  indebtedness  senior  to the Loan,  as now  existing  or
hereafter incurred, and, in each case, as amended,  restated,  modified, renewed
or extended from time to time.


                                       6
<PAGE>

     "Solvent" shall mean, with respect to any Person on a particular date, that
on such date:  (i) the fair value of the assets of such  Person is greater  than
the total amount of liabilities of such Person;  (ii) the estimated present fair
salable value, in the ordinary course of business,  of the assets of such Person
is not less than the amount that will be required to pay the probable  liability
of such  Person on its debts as they become  absolute  and  matured;  (iii) such
Person  is able  to  realize  upon  its  assets  and pay  its  debts  and  other
liabilities,  contingent obligations and other commitments as they mature in the
normal  course of  business;  (iv) such  Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities  mature; and (v) such Person is not engaged in
business  or a  transaction,  and  is not  about  to  engage  in  business  or a
transaction,  for which such Person's assets would constitute unreasonably small
capital  after  giving  due  consideration  to the  prevailing  practice  in the
industry in which such Person is engaged.  In computing the amount of contingent
liabilities at any time, it is intended that such  liabilities  will be computed
at the amount  which,  in light of all the facts and  circumstances  existing at
such time,  represents  the amount that can  reasonably be expected to become an
actual or matured liability.

     "Subordinated  Debt" shall mean any unsecured  indebtedness  of Borrower or
any Subsidiaries,  now existing or hereafter incurred, which indebtedness is, by
its terms, junior in right of repayment to the payment of the Debentures.

     "Subordination  and  Intercreditor  Agreement" shall mean the Subordination
and Intercreditor  Agreement,  dated as of the date hereof, among the Lender and
Bank One, N.A.

     "Subsidiary"  or  "Subsidiaries"  shall  mean  any or all  corporations  or
entities,  whether now  existing or  hereafter  acquired,  of which over 50% the
Voting  Shares or  equity  interests  are  owned,  directly  or  indirectly,  by
Borrower.

     "Subsidiary   Documents"   shall  mean  the   Subsidiaries'   Guaranty  and
Subsidiaries'  Security Agreement and any other agreements or documents required
to be  executed or  delivered  by any  Subsidiary  pursuant to the terms of this
Agreement (and any amendments or supplements hereto or modifications hereof).

     "Voting  Shares"  of any  corporation  shall  mean  shares  of any class or
classes (however designated) having ordinary voting power for the election of at
least a majority of the members of the Board of  Directors  (or other  governing
bodies) of such corporation,  other than shares having such power only by reason
of the happening of a contingency.

SECTION 1.02  OTHER DEFINITION PROVISIONS.

     (a) All  terms  defined  in this  Agreement  shall  have the  above-defined
meanings when used in the Debentures or any other Loan  Documents,  certificate,
report or other document made or delivered  pursuant to this  Agreement,  unless
the context therein shall otherwise require.

     (b) Defined  terms used herein in the singular  shall import the plural and
vice versa.

     (c) The words "hereof," "herein,"  "hereunder" and similar terms, when used
in this  Agreement,  shall  refer to this  Agreement  as a whole  and not to any
particular provision of this Agreement.

     (d) References to financial  statements and reports shall be deemed to be a
reference to such statements and reports prepared in accordance with GAAP.

                                       7
<PAGE>


     (e) Accounting terms not specifically defined above in this Agreement shall
be construed in accordance with GAAP.

                         ARTICLE II. - LOAN PROVISIONS

SECTION 2.01  THE LOAN.

     (a)  Subject  to the  terms  and  conditions  of  this  Agreement,  and the
compliance with such terms and conditions by all parties,  Lender agrees to lend
to Borrower,  and Borrower agrees to borrow from the Lender, the total Principal
Amount of Three Million Dollars ($3,000,000) as follows:

     Entity                                                       Amount
     ------                                                       ------

     Renaissance Capital Growth & Income Fund III, Inc.           $1,000,000
     Renaissance US Growth & Income Trust PLC                     $1,000,000
     BFSUS Special Opportunities Trust PLC                        $1,000,000

     (b) The Loan shall be disbursed at Loan Closing,  expected to occur on June
28, 2002, subject to the conditions provided  hereunder,  and shall be evidenced
by the Debentures, in the Principal Amount specified above. The Debentures shall
rank pari  passu  with all  Indebtedness  of  Borrower,  other  than the  Senior
Obligations and the Subordinated Debt.

     (c) Unless  otherwise  mutually  agreed,  the Loan Closing  shall be at the
offices of Renaissance  Group,  8080 N. Central  Expressway,  Suite 210, Dallas,
Texas.

     (d) If,  within 10 days of the date of this  Agreement,  (i)  Borrower  has
failed to comply with the conditions  precedent to the Loan Closing as specified
in Article III hereof  (unless  compliance  with such  conditions in whole or in
part has been waived or modified by the Lender in its sole  discretion)  or (ii)
the Loan Closing has not occurred (unless the date of such Loan Closing has been
mutually  extended),  other than as a result of any  failure of Lender to comply
with the terms of this Agreement,  then, in either such case, the obligations of
the  Lender  under this  Agreement  shall  terminate;  provided,  however,  that
Borrower  shall be obligated  for payment of the fees and  expenses  provided in
Section 2.07 due and payable as of such date of termination.

SECTION 2.02  USE OF PROCEEDS.

     (a) Borrower intends to use the Loan proceeds for working capital.

     (b) Borrower hereby  acknowledges  that the proceeds from the Loan shall be
of benefit to Borrower for the growth of its business by providing capital which
will provide additional opportunities for Borrower.

SECTION 2.03  INTEREST RATE AND INTEREST PAYMENTS.

     Interest on the Principal Amount outstanding from time to time shall accrue
at the rate of 7.50% per annum,  with the first  installment of accrued,  unpaid
interest  being due and  payable on August 1, 2002 and  subsequent  payments  of
accrued,  unpaid  interest  being due and payable on the first day of each month
thereafter. Overdue principal and interest on the Debentures shall bear interest
at the maximum  rate  permitted by  applicable  law.  Interest on the  Principal
Amount of the Debentures shall be calculated, from time to time, on the basis of
the actual days elapsed in a year consisting of 365 days.


                                       8
<PAGE>


SECTION 2.04  MATURITY.

     If not sooner  redeemed or converted,  the Debentures  shall mature on June
28, 2009, at which time all the  remaining  unpaid  principal,  interest and any
other  charges then due under this  Agreement  shall be due and payable in full.
The Debentures  shall be prepaid pro rata with any prepayments of  Indebtedness,
other than Senior Obligations.

SECTION 2.05  MANDATORY PRINCIPAL REPAYMENT.

     The  Debentures  shall be  subject  to  mandatory  principal  repayment  as
provided in the Debentures.

SECTION 2.06  REDEMPTION.

     The  Debentures   shall  be  subject  to  redemption  as  provided  in  the
Debentures.

SECTION 2.07  CONVERSION.

     The  Debentures   shall  be  subject  to  conversion  as  provided  in  the
Debentures.

SECTION 2.08  FEES AND EXPENSES.

     Upon Loan Closing,  Borrower shall pay at Loan Closing to Agent,  or at its
direction,  a  Closing  Fee  equal to 1.0% of the Loan  proceeds  as well as any
unpaid portion of the Commitment Fee,  Closing Expense Fee and Due Diligence Fee
(which Due  Diligence  Fee has been paid prior to Closing),  all as set forth in
the  preliminary  terms letter,  dated April 30, 2002,  between the Borrower and
Renaissance Group.

SECTION 2.09  FINDER'S FEES.

     Borrower  represents  to the Lender  that,  except as set forth in Schedule
2.08, no placement fees,  commissions,  brokerage or finder's fees were incurred
by Borrower in connection with this Agreement or the Debentures.  Borrower shall
be  responsible  for  the  payment  of all  such  placement  fees,  commissions,
brokerage or finder's fees.

SECTION 2.10  TAXES.

     (a) The Debentures  shall be convertible into shares of Common Stock and on
such  terms as are  stated  in the  Debentures.  Such  conversion  shall be made
without  deduction  for  any  present  or  future  taxes,  duties,   charges  or
withholdings,  (excluding,  in the case of the Lender,  any foreign  taxes,  any
federal,  state or local income taxes and any  franchise  taxes or taxes imposed
upon it by the jurisdiction,  or any political subdivision thereof,  under which
the Lender is organized or are  qualified to do business),  and all  liabilities
with respect  thereto  (herein  "Taxes") shall be paid by Borrower.  If Borrower
shall be required by law to deduct any Taxes for which  Borrower is  responsible
under the preceding  sentence from any sum payable hereunder to the Lender:  (i)
the sum payable shall be increased so that after making all required deductions,
the Lender shall  receive an amount equal to the sum it would have  received had
no such  deductions  been made;  (ii) Borrower shall make such  deductions;  and
(iii)  Borrower  shall  pay the full  amount  deducted  to the  relevant  taxing
authority or other authority in accordance  with applicable law.  Borrower shall
be entitled to any refunds or returns from any such taxing authority.


                                       9
<PAGE>


     (b)  Except as  otherwise  set forth in this  Agreement  or the other  Loan
Documents,  Borrower shall pay any present or future stamp or documentary  taxes
or any other  excise or property  taxes,  charges or similar  levies which arise
from any  payment  made  hereunder  or  under  the  Loan  Documents  or from the
execution,  delivery or  registration  of, or  otherwise  with  respect to, this
Agreement  or the  other  Loan  Documents  (hereinafter  referred  to as  "Other
Taxes").

     (c) Borrower  shall  indemnify  the Lender for the full amount of Taxes and
Other  Taxes  reasonably  paid by the  Lender or any  liability  (including  any
penalties or interest assessed because of Borrower's defaults) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted.  This indemnification shall be made within thirty (30) days
from the date the  Lender  makes  written  demand  therefor.  The  Lender  shall
subrogate  any and all rights and claims  relating to such Taxes and Other Taxes
to Borrower upon payment of said indemnification.

     (d) Without  prejudice to the  survival of any other  agreement of Borrower
hereunder, the agreements and obligations of Borrower in this Section 2.09 shall
survive the payment in full of the Obligation.

     (e) Borrower shall have no liability or obligation with respect to taxes on
income recognized by the Lender with respect to the Debentures.

SECTION 2.11  SUBSIDIARY GUARANTY, SECURITY AGREEMENTS AND PLEDGE AGREEMENT.

     The due and prompt performance of the obligations of Borrower to the Lender
under the Loan  Agreement and the  Debentures  shall be guaranteed by Borrower's
only  Subsidiary and secured by all tangible and  intangible  assets of Borrower
and  Borrower's  only  Subsidiary  (exclusive of mortgages on real property) and
shall be  evidenced by Security  Agreements  executed by and between the Lender,
the Borrower and  Borrower's  only  Subsidiary.  Financing  statements  shall be
executed  in favor of the Lender by Borrower  and  Borrower's  only  Subsidiary.
Borrower  shall  enter into a Pledge  Agreement  with the  Lender,  whereby  the
Borrower  shall pledge all of the capital stock of Borrower's  only  Subsidiary.
There shall be no prior security  interests on any such U.S.  subsidiary capital
stock assets,  except to secure certain Senior  Obligations,  and all such prior
security  interests  shall be subject  to the  Subordination  and  Intercreditor
Agreement.

                      ARTICLE III. - CONDITIONS PRECEDENT

SECTION 3.01  PRE-CLOSING CONDITIONS.

     The  obligation  of the Lender to advance  funds at the Loan  Closing  Date
hereof is subject to the condition precedent that, on or before the date of such
advance, the Lender shall have received the following:

     (a) LOAN AGREEMENT.  Duly executed Loan Agreement from Borrower which shall
be in form  and  substance  satisfactory  to  Lender,Borrower  and each of their
counsel.

     (b) DEBENTURES. Three duly executed Debentures from Borrower evidencing the
Loan,  all of which shall be in form and substance  acceptable to the Lender and
its counsel.

     (c) PLEDGE  AGREEMENT  AND  BORROWER'S  SECURITY  AGREEMENT.  Duly executed
Pledge  Agreement and Security  Agreement from Borrower,  which shall be in form
and substance acceptable to the Lender and its counsel.


                                       10
<PAGE>


     (d)  SUBSIDIARY'S  GUARANTY  AND  SUBSIDIARY'S  SECURITY  AGREEMENT.   Duly
executed Subsidiary's Guaranty and Subsidiary's Security Agreement from the U.S.
Subsidiary of Borrower,  which shall be in form and substance  acceptable to the
Lender and its counsel.

     (e) SUBORDINATION AND INTERCREDITOR AGREEMENT.  Duly executed Subordination
and Intercreditor Agreement from the parties thereto, which shall be in form and
substance acceptable to the Lender and its counsel.

     (f) CEO'S CERTIFICATE.  A certificate signed by the chief executive officer
of  Borrower,  in his  capacity as such,  and dated as of the Loan  Closing Date
stating that, to the best knowledge and belief of such officer, after reasonable
and due  investigation  and review of matters pertinent to the subject matter of
such certificate:  (i) all of the  representations  and warranties  contained in
Article  IV hereof  and the other  Loan  Documents  are true and  correct in all
material  respects as of the Loan Closing  Date;  and (ii) no event has occurred
and is continuing,  or would result from the Loan,  which  constitutes,  or with
notice  or lapse of time or both  would  constitute,  a  Default  or an Event of
Default.

     (g)  SECRETARY'S  CERTIFICATES.  A signed  certificate  of the Secretary of
Borrower  which shall  certify (i) copies of the Articles of  Incorporation  (or
other  organizational  document) of Borrower and  Borrower's  Subsidiary and all
amendments  thereto,  certified  by the  Secretary  of  State  of the  state  of
incorporation  (or other  appropriate  authority) and dated within ten (10) days
prior  to Loan  Closing,  a copy of the  Articles  of  Incorporation  (or  other
organizational  document) of Borrower's  Subsidiary and all amendments  thereto,
certified  by the  Secretary  of Borrower as of the date of such  certification;
(ii) a copy  of the  Bylaws  of  Borrower  and  Borrower's  Subsidiary  and  all
amendments thereto certified by the Secretary of Borrower and such Subsidiary as
of the date of such  certification;  (iii) copies of resolutions,  as adopted by
Borrower's  and  Borrower's  Subsidiary's  Board  of  Directors,  approving  the
execution,  delivery and  performance,  as applicable,  of this  Agreement,  the
Debentures,   the  Guaranty  and  the  other  Loan   Documents,   including  the
transactions  contemplated herein,  stating that such resolutions have been duly
adopted, are true and correct, have not been altered or repealed and are in full
force  and  effect;  (iv)  certificates  of  good  standing  (or  other  similar
instrument)  for Borrower and Borrower's  Subsidiary  issued by the  appropriate
official of the state of incorporation of Borrower and Borrower's Subsidiary and
certificates  of  qualification  and good  standing for Borrower and  Borrower's
Subsidiary  issued by the  appropriate  official of each of the states for which
Borrower and Borrower's Subsidiary is required to be qualified to do business as
a foreign corporation, dated within ten (10) days prior to Loan Closing; and (v)
the names of the officers of Borrower and  Borrower's  Subsidiary  authorized to
sign the Loan  Documents to be executed by such officer,  together with the true
signatures of each such officer.  It is herewith  stipulated and agreed that the
Lender may thereafter rely conclusively on the validity of this certificate as a
representation  of the  officers  of Borrower  and  Borrower's  Subsidiary  duly
authorized  to act with  respect  to the Loan  Documents  until such time as the
Lender  shall  receive a  further  certificate  of the  Secretary  or  Assistant
Secretary of Borrower and Borrower's  Subsidiary canceling or amending the prior
certificate and submitting the signatures of the officers  thereupon  authorized
in such further certificate.

     (h) LEGAL  OPINIONS.  A legal opinion from counsel to Borrower and its U.S.
subsidiary  in form and  substance  reasonably  satisfactory  to Lender  and its
counsel.

     (i)  "LOCK-UP"  AGREEMENTS.  "Lock-Up"  Agreements,  in form and  substance
reasonably satisfactory to the Lender and its counsel.

     (j) FILINGS, REGISTRATIONS AND RECORDINGS. Each document including, without
limitation,  any Uniform  Commercial Code financing  statement  required by this


                                       11
<PAGE>


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 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  satisfactory
evidence of the payment of any necessary fee, tax or expense relating thereto.

     (k)  NO LITIGATION.

         (i)  No  litigation,  investigation  or  proceeding  before  or by  any
arbitrator  or  Governmental  Body shall be  continuing  or  threatened  against
Borrower or against the officers or directors of Borrower (A) in connection with
this  Agreement,  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;
and

         (ii) no  injunction,  writ,  restraining  order or  other  order of any
nature  materially  adverse  to  Borrower  or the  conduct  of its  business  or
inconsistent  with the due  consummation  of the  Transactions  shall  have been
issued by any Governmental Body.

     (l) FEES.  Agent shall have  received  the  Commitment  Fee,  Closing  Fee,
Closing  Expense Fee, Due  Diligence Fee and any other fees payable to Agent and
Lenders on or prior to the Closing Date  hereunder.

     (m) 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.

     (n) NO ADVERSE  MATERIAL  CHANGE.  Since December 31, 2001, there shall not
have  occurred  any  event,  condition  or state of  facts  at  Borrower  or its
Subsidiary  which could reasonably be expected to have a Material Adverse Effect
and, taken as a whole, no representations  made or information supplied to Agent
or Lenders shall have been proven to be inaccurate or misleading in any material
respect.

            ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BORROWER

     All references in this Article to Borrower shall include the  Subsidiaries,
unless the  context  otherwise  requires.  To induce the Lender to make the Loan
hereunder, Borrower represents and warrants to the Lender that:

SECTION 4.01  ORGANIZATION AND GOOD STANDING.

     Borrower is duly  organized and existing in good standing under the laws of
the state of its incorporation,  is duly qualified as a foreign  corporation and
in good standing in all states in which failure to qualify would have a Material
Adverse Effect,  and has the corporate power and authority to own its properties
and assets and to transact the business in which it is engaged and is or will be
qualified  in those  states  wherein it proposes to transact  material  business
operations  in the future if the  failure  to so  qualify  would have a Material
Adverse Effect.

                                       12
<PAGE>


SECTION 4.02  AUTHORIZATION AND POWER.

     Borrower  has the  corporate  power and  requisite  authority  to  execute,
deliver and perform the Loan  Documents to be executed by Borrower.  Borrower is
duly authorized to, and has taken all corporate  action  necessary to authorize,
execute,  deliver and perform the Loan Documents executed by Borrower.  Borrower
is and will  continue  to be duly  authorized  to  perform  the  Loan  Documents
executed by Borrower.

SECTION 4.03  NO CONFLICTS OR CONSENTS.

     Except as disclosed on Schedule 4.03, neither the execution and delivery of
the Loan  Documents,  nor the  consummation of any of the  transactions  therein
contemplated,  nor  compliance  with the  terms  and  provisions  thereof,  will
contravene or materially  conflict with any judgment,  license,  order or permit
applicable to Borrower,  or any indenture,  loan  agreement,  mortgage,  deed of
trust, or other agreement or instrument to which Borrower is a party or by which
Borrower is or may become bound,  or to which Borrower is or may become subject,
or violate  any  provision  of the  charter or bylaws of Borrower or trigger any
preemptive  rights or rights of first  refusal of any third  party.  No consent,
approval, authorization or order of any court or governmental authority or third
party is required in  connection  with the execution and delivery by Borrower of
the Loan  Documents or to consummate  the  transactions  contemplated  hereby or
thereby except those that have been obtained.

SECTION 4.04  ENFORCEABLE OBLIGATIONS.

     The Loan  Documents  have been duly  executed and delivered by Borrower and
are the  legal,  valid and  binding  obligations  of  Borrower,  enforceable  in
accordance with their respective terms.

SECTION 4.05  NO LIENS.

     Except for  Permitted  Liens,  all of the  properties  and assets  owned or
leased by Borrower are free and clear of all Liens and other  adverse  claims of
any nature,  and Borrower has good and marketable  title to such  properties and
assets.  A true and  complete  list of all known or recorded  liens for borrowed
money is disclosed on Schedule 4.05.

SECTION 4.06  FINANCIAL CONDITION.

     Borrower has  delivered  to the Lender the balance  sheet of Borrower as of
December 31, 2001, and the related statement of income, stockholders' equity and
statement  of cash  flow for the year then  ended,  audited  by its  independent
certified  public  accountant.  Borrower  has also  delivered  to the Lender the
unaudited  balance  sheet of  Borrower  as of  March  31,  2002 and the  related
unaudited statement of income,  stockholders'  equity and statement of cash flow
for the three (3) months then ended.  Such financial  statements  fairly present
the  financial  condition of Borrower as of such dates and have been prepared in
accordance  with GAAP (except that unaudited  financial  statements omit certain
footnotes); and as of the date hereof, there are no obligations,  liabilities or
Indebtedness  (including contingent and indirect liabilities and obligations) of
Borrower  which  are  (separately  or in the  aggregate)  material  and  are not
reflected in such financial  statements or otherwise  disclosed herein or in the
Schedules. Since the date of the above-referenced year end financial statements,
there have not been,  except as  disclosed  in Schedule  4.06:  (i) any Material
Adverse Change;  (ii) any Dividend  declared or paid or distribution made on the
capital stock of Borrower or any capital stock thereof  redeemed or repurchased;
(iii) any  incurrence of long-term debt by Borrower;  (iv) any salary,  bonus or

                                       13
<PAGE>


compensation  increases to any  officers,  key  employees or agents of Borrower,
other than in the ordinary course of business and consistent with past practice;
or (v) any other material  transaction  entered into by Borrower,  except in the
ordinary course of business and consistent with past practice.

SECTION 4.07  NO DEFAULT.

     No event has occurred and is continuing which constitutes,  or, with notice
or lapse of time or both,  would  constitute,  a Default  or an Event of Default
under this Agreement.

SECTION 4.08  MATERIAL AGREEMENTS.

     To the best of Borrower's  knowledge,  neither  Borrower nor any Subsidiary
nor any other party is in default,  and no event has occurred and is  continuing
which,  with notice or lapse of time or both, would constitute a default,  under
any contract, lease, loan agreement,  indenture,  mortgage,  security agreement,
license  agreement or other agreement or obligation to which it is a party or by
which any of its  properties  is subject  which could  reasonably be expected to
have a Material  Adverse  Effect,  except as described on Schedule  4.08. To the
best of Borrower's knowledge, it is not a party to, or bound by, any contract or
agreement,  the faithful  performance of which is so onerous so as to create, or
to likely  create,  a Material  Adverse  Effect on the  business,  operations or
financial condition of Borrower.

SECTION 4.09  NO LITIGATION.

     Except  as  disclosed  on  Schedule  4.09,  there  are no  actions,  suits,
investigations,  arbitrations or administrative  proceedings  pending or, to the
best knowledge of Borrower,  threatened, against Borrower, and there has been no
change in the status of any of the actions, suits, investigations, litigation or
proceedings disclosed to the Lender which could reasonably be expected to have a
Material Adverse Effect on Borrower or on any  transactions  contemplated by any
Loan  Document.  Borrower  has not received  any claim that  Borrower  currently
violates any federal, state or local law, ordinance,  rule or regulation,  which
could have an adverse  effect on its  business  and,  to the best of  Borrower's
knowledge, no such claim is or has been threatened;  and, except as disclosed on
Schedule 4.09, there have been no developments  adverse to Borrower with respect
to any pending or threatened claim, action or proceeding of an administrative or
judicial nature.

SECTION 4.10  TAXES.

     All tax returns required to be filed by Borrower in any  jurisdiction  have
been filed and all taxes (including mortgage recording taxes), assessments, fees
and other  governmental  charges  upon  Borrower or upon any of its  properties,
income or franchises now due have been paid, in each case, except where the same
are being  contested in good faith by appropriate  proceedings,  as disclosed on
Schedule 4.10.

     Except as disclosed on Schedule 4.10,  Borrower has not received any notice
of deficiency or other  adjustment from any taxing  authority that is unresolved
as of the Loan Closing. No audit or examination, claim or proposed assessment by
any  taxing  authority  is  pending  or,  to the  best  knowledge  of  Borrower,
threatened  against Borrower or any of its properties.  All ad valorem and other
property  taxes  imposed on  Borrower,  or that may become a lien on  Borrower's
assets  and that are due and  payable,  have  been  paid in full.  Borrower  has
withheld or collected  from each payment made to each of its U.S.  employees the
amount  of  all  taxes  (including  federal  income  taxes,   Federal  Insurance
Contributions Act ("FICA") taxes, and state and local income,  payroll, and wage
taxes, among others) required to be withheld or collected.


                                       14
<PAGE>


SECTION 4.11  CAPITALIZATION.

     The  authorized   capital  stock  of  Borrower   consists  of  Two  Million
(2,000,000)  shares of Preferred  Stock, of which zero (0) shares are issued and
outstanding  as of the date hereof,  and Eighty Million  (80,000,000)  shares of
Common Stock, $0.01 par value per share, of which Fifty-Four Million One Hundred
Sixty-Two Thousand Two Hundred Seventy-Three (54,162,273) shares of Common Stock
are issued and outstanding as of the date hereof. All of such outstanding shares
have been duly authorized and validly issued,  are fully paid and nonassessable,
and were not issued in  violation  of the  preemptive  rights or rights of first
refusal of any person.  Schedule  4.11 sets forth all stock  options,  warrants,
conversion  rights,  subscription  rights,  preemptive  rights,  rights of first
refusal and other rights or agreements to acquire securities of Borrower and any
shares held in treasury or reserved  for  issuance  upon  exercise of such stock
options, warrants or conversion rights,  subscription rights and other rights or
agreements  to acquire  securities,  including the date of  termination  of such
rights and the  consideration  therefor.  As of the Loan Closing Date,  Borrower
does not have a class of securities with respect to which a member of a national
securities exchange,  broker or dealer may extend or maintain credit to or for a
customer  pursuant to rules or regulations  adopted by the Board of Governors of
the Federal  Reserve  System under Section 7 of the 1934 Act.  Borrower has, and
will continue to have as long as the Debentures remains outstanding,  authorized
and reserved an adequate  number of shares of Common Stock to permit  Conversion
of the Debentures.

SECTION 4.12  USE OF PROCEEDS.

     Borrower intends to use proceeds from the Loan as disclosed in Section 2.02
hereof.

SECTION 4.13  EMPLOYEE MATTERS.

     (a) Except as set forth on  Schedule  4.13,  Borrower is not a party to any
collective  bargaining agreement and is not aware of any activities of any labor
union that is currently seeking to represent or organize its employees;

     (b) To the best knowledge of Borrower,  Borrower is in compliance  with all
federal,   state  and  municipal  laws  respecting   employment  and  employment
practices,  occupational  health and  safety,  and wages and  hours,  and is not
engaged in any unfair labor practice, and there are no arrears in the payment of
wages or social security taxes;

     (c) there is no unfair labor practice  complaint  against  Borrower pending
before the National Labor Relations Board or any state or local agency;

     (d) there is no  pending  labor  strike  or other  material  labor  trouble
affecting Borrower (including, without limitation, any organizational drive);

     (e) there is no material labor grievance pending against Borrower;

     (f) there is no pending representation question respecting the employees of
Borrower before any local, state or federal agency;

     (g) except as set forth on Schedule 4.13, there are no pending  proceedings
arising out of or under any collective bargaining agreement to which Borrower is
a party,  or to the best knowledge of Borrower,  any basis for which a claim may
be made under any collective  bargaining agreement to which Borrower is a party;
and


                                       15
<PAGE>


     (h)  there  are no  pending  proceedings  arising  out  of  any  employment
discrimination claim or any basis for which any such claim may be made.

SECTION 4.14  EMPLOYEE BENEFIT PLANS.

     Schedule  4.14 lists (i) any "employee  benefit  plans" as described in the
Employee  Retirement Income Security Act of 1974, as amended,  and the rules and
regulations  promulgated thereunder ("ERISA") (other than a defined contribution
pension plan not requiring any contribution by Borrower, paid time-off policy or
vacation/holiday/sick  leave  policy,  and employee  group life and health plans
that are  fully  funded  through  commercial  insurance);  and (ii) any  defined
benefit "employee pension benefit plans" (as defined in ERISA). Neither Borrower
nor,  to the best  knowledge  of  Borrower,  any other  person has  engaged in a
transaction  with respect to any employee  benefit plan listed or required to be
listed on  Schedule  4.14 which  could  subject  any such plan,  Borrower or the
Lender to a penalty  under  ERISA or a tax under the  Internal  Revenue  Code of
1986, as amended (the  "Code"),  except for those  transactions  which could not
reasonably be expected to have a Material  Adverse Effect.  Each of the employee
benefit  plans  listed,  or  required to be listed,  on  Schedule  4.14 has been
operated and administered in accordance with applicable law,  including  without
limitation  ERISA,  except for any such failure which would not subject Borrower
or the Lender to any penalty or other  liability and except for any such failure
which  would  not  have  an  adverse  effect  upon  the  applicable  plan or any
participant therein.  Borrower has not incurred, nor presently expects to incur,
any  liability  under Title IV of ERISA that could  result in  liability  to the
Lenders or Borrower.  Each employee benefit plan listed or required to be listed
on  Schedule  4.14 that is a group  health  plan  within the  meaning of Section
5000(b)(1) of the Code, is in compliance with the provisions of Section 4980B(f)
of the Code, except for any such non-compliance which would not subject Borrower
or the Lender to any penalty or liability  and except for any such failure which
would not have an adverse  effect upon the  applicable  plan or any  participant
therein.  There is not any  pending  or,  to the  best  knowledge  of  Borrower,
threatened  claim by or on behalf of any employee  benefit plan, by any employee
covered  under any such plan or otherwise  involving  any employee  benefit plan
(other than routine non-contested claims for benefits).

SECTION 4.15  COMPLIANCE WITH LAWS.

     Each of Borrower and the Subsidiaries has all requisite  licenses,  permits
and certificates  including without limitation,  drug,  environmental and health
and safety  permits  from  federal,  state and local  authorities  necessary  to
conduct  its  business  and  own  and  operate  its  assets  (collectively,  the
"Permits").  Except as set forth on  Schedule  4.15,  neither  Borrower  nor any
Subsidiary is in violation of any law,  regulation or ordinance  relating to its
business,  operations and properties  which,  individually  or in the aggregate,
could have a  Material  Adverse  Effect,  and the  business  and  operations  of
Borrower or any Subsidiary do not violate, in any material respect, any federal,
state,  local or foreign  laws,  regulations  or orders.  Except as set forth on
Schedule  4.15,  Borrower and the  Subsidiaries  have not received any notice or
communication  from  any  federal,  state,  local  or  foreign  governmental  or
regulatory  authority or agency including without limitation,  the U.S. Food and
Drug Administration of any such violation or noncompliance. To the best of their
knowledge,  Borrower and the  Subsidiaries  have not engaged in any practices in
violation of any antitrust law or  regulation  of any federal,  state,  local or
foreign Governmental Authority.

SECTION 4.16  LICENSES AND PERMITS.

     Borrower and the Subsidiaries have all licenses and franchises  relating to
the operation of their  respective  businesses as are necessary and required for


                                       16
<PAGE>


such ownership and operation,  all of which are in good standing and,  except as
expressly  set forth on Schedule  4.16,  are not subject to renewal  within less
than one (1) year.

SECTION 4.17  CONTRACTS.

     Schedule 4.17 lists all contracts to which Borrower or the Subsidiaries are
a  party  involving   obligations  in  respect  of  the  business  for  payment,
performance  of  services  or  delivery  of goods in excess of  $25,000 or which
require  Borrower to continue to perform for a period of longer than twelve (12)
months (the  "Scheduled  Contracts").  Borrower has delivered to the Lender true
and correct  copies of all the Scheduled  Contracts  (except that contracts from
Subsidiary shall be delivered within 5 business days after closing). All of such
Scheduled  Contracts  are valid  and  binding  obligations  of  Borrower  or the
Subsidiaries,  are in full  force and  effect,  and,  to the best  knowledge  of
Borrower or the  Subsidiaries,  are  enforceable  against the parties thereto in
accordance with their  respective  terms.  Neither Borrower nor the Subsidiaries
has received any notice that the other  parties to the  Scheduled  Contracts are
(i) in default under such Scheduled  Contracts,  or (ii) consider Borrower to be
in default  thereunder.  Except as expressly noted in Schedule 4.17, to the best
knowledge  of Borrower  or the  Subsidiaries,  no party to any of the  Scheduled
Contracts intends to terminate or adversely modify its agreement(s) with respect
thereto or adversely change the volume of business done thereunder.

SECTION 4.18  SHARES ISSUABLE UPON CONVERSION.

     The shares of Common  Stock of  Borrower  when  issued to the  Lender  upon
conversion of and in accordance  with the  Debentures,  will be duly and validly
issued,  fully paid and  nonassessable  and in  compliance  with all  applicable
securities laws. Such issuance will not give rise to preemptive  rights,  rights
of first refusal or similar rights by any other security holder of Borrower.

SECTION 4.19  INSIDER.

     (a) Neither  Borrower,  nor any Person  having  "control"  (as that term is
defined in the 1940 Act or in the regulations  promulgated  pursuant thereto) of
Borrower is an "executive officer,"  "director," or "principal  shareholder" (as
those terms are defined in the 1940 Act) of any Lender.

     (b)  Borrower's  SEC  reports  for the 12 months  prior to the date  hereof
disclose all material transactions required to be disclosed therein.

     (c) All agreements between Borrower and any of its officers,  directors and
principal  shareholders,  including employment agreements,  are disclosed in the
reports and filings made with the SEC or listed on Schedule 4.19.

SECTION 4.20  SUBSIDIARIES.

     (a) All of the Subsidiaries of Borrower are listed on Schedule 4.20. Except
as disclosed on Schedule  4.20,  Borrower  owns all of the  outstanding  capital
stock or other  equity  interests  of the  Subsidiaries,  free and  clear of all
adverse claims,  other than Liens securing the Senior  Obligations.  All of such
outstanding  capital  stock  of  each  Subsidiary  has  been  duly  and  validly
authorized and issued and is fully paid and nonassessable. All such Subsidiaries
are  duly  organized  and  existing  in  good  standing  under  the  laws of the
respective  jurisdictions  of  their  incorporation  or  organization,  are duly
qualified as foreign  corporations and in good standing in all  jurisdictions in
which  failure to qualify  would have a Material  Adverse  Effect,  and have the
corporate power and authority to own their respective  properties and assets and

                                       17
<PAGE>


to transact  the business in which they are engaged and are or will be qualified
in those  jurisdictions  wherein  they  propose to  transact  material  business
operations in the future.

     (b) Except as disclosed on Schedule 4.20,  Borrower does not own any equity
or  long-term  debt  interest  in any  other  Person,  or any right or option to
acquire any such interest in any such Person.

     (c) There are no  restrictions  on the payment of  dividends by or advances
from any Subsidiary to Borrower.

SECTION 4.21  CASUALTIES.

     Except  as  disclosed  on  Schedule  4.21,  neither  the  business  nor the
properties of Borrower is currently affected by any environmental  hazard, fire,
explosion,  accident,  strike, lockout or other labor dispute,  drought,  storm,
hail, earthquake,  embargo, act of God or other casualty (whether or not covered
by insurance).

SECTION 4.22  INVESTMENT COMPANY ACT.

     Borrower  is not an  "investment  company,"  as defined in Section 3 of the
1940 Act,  nor a company  that would be an  investment  company,  except for the
exclusions  from the definition of an investment  company in Section 3(C) of the
1940 Act, and Borrower is not controlled by such a company.

SECTION 4.23  SUFFICIENCY OF CAPITAL.

     Borrower is, and after  consummation of this Agreement and giving effect to
all Indebtedness  incurred and transactions  contemplated in connection herewith
will be, Solvent.

SECTION 4.24  CORPORATE NAMES.

     Borrower has not, during the preceding five (5) years,  done business under
or used any  assumed,  fictitious  or trade  names,  in its current  businesses,
except as disclosed on Schedule 4.24.

SECTION 4.25  INSURANCE.

     All of the  insurable  properties  of Borrower  are insured for its benefit
under  valid  and   enforceable   policies  issued  by  insurers  of  recognized
responsibility  in amounts and against  such risks and losses as is customary in
Borrower's  industry.  Schedule  4.25  sets  forth  all of  Borrower's  property
insurance policies.

SECTION 4.26  INTELLECTUAL PROPERTY.

     Borrower  owns,  or is licensed to use,  all material  trademarks,  service
marks,  trade  names,  patents  and  copyrights  presently  used to conduct  its
business,  except those for which the failure to obtain could not be  reasonably
expected  to have a  Material  Adverse  Effect.  To the  best of its  knowledge,
Borrower  has  the  right  to use  such  intellectual  property  rights  without
infringing  or  violating  the  rights of any third  parties.  No claim has been
asserted  by any person to the  ownership  of or right to use any such rights or
challenging or questioning the validity or  effectiveness of any such license or
agreement.  Borrower  is not in default of any such  license  agreements  in any
material respect, and no event has occurred and is continuing which, with notice
or lapse of time or both,  would  constitute  a material  default.  Each license
agreement is enforceable in accordance with its terms and has not been canceled,
abandoned or terminated,  nor has Borrower received notice thereof. There are no
claims for trademark or copyright  infringement  pending or  threatened  against

                                       18
<PAGE>


Borrower or the Subsidiaries or their respective officers or directors.  Neither
Borrower nor any Subsidiary is currently using copyrightable  material for which
Borrower or any  Subsidiary  needs,  but does not have, a license to conduct its
existing  business.  Neither  Borrower nor any Subsidiary is currently using any
trademarks  for which  Borrower or any  Subsidiary  needs,  but does not have, a
valid character or trademark license to conduct its existing business.

SECTION 4.27  REAL PROPERTY.

     (a) Set forth on Schedule 4.27 is a list of the addresses of each parcel of
real property owned by or leased to Borrower, as indicated on the Schedule.

     (b) Borrower has delivered to the Lender true and correct  copies of all of
its  leases  or  subleases   and  all  related   amendments,   supplements   and
modifications  and related  documents (the "Scheduled Lease  Documents"),  which
require  payments or contingent  payments by Borrower or any of the Subsidiaries
subsequent  to the  date  hereof  in  excess  of  Twenty-Five  Thousand  Dollars
($25,000). There are no other agreements,  written or oral, between Borrower and
any third parties  claiming an interest in Borrower's  interest in the Scheduled
Leases or otherwise  relating to Borrower's use and occupancy of any leased real
property.  All such  leases are valid and  binding  obligations  of the  parties
thereto,  are in full force and  effect  and  enforceable  against  the  parties
thereto in accordance with their terms; and no event has occurred including, but
not limited to, the executed, delivery and performance of this Agreement and the
consummation  of the  transactions  contemplated  hereby which  (whether with or
without notice, lapse of time or both) would constitute a default thereunder. No
property leased under any lease which the Lender has agreed to assume is subject
to any lien, encumbrance,  easement, right-of-way,  building or use restriction,
exception, variance, reservation or limitation as might in any respect interfere
with or impair the  present  and  continued  use thereof in the usual and normal
conduct of Borrower's business.

     (c) On the Loan Closing Date, Borrower will hold of record good, marketable
and insurable title to the property described in Schedule 4.27 free and clear of
all title defects,  liens, pledges,  claims,  charges,  rights of first refusal,
security  interests  or  other  encumbrances  and  not,  in the case of the real
property,   subject  to  any   rights-of-way,   building  or  use  restrictions,
exceptions,  variances,  reservations  or limitations of any nature  whatsoever,
except with  respect to all such  properties,  (i) matters set forth in Schedule
4.27,  and  (ii)  liens  for  current  taxes  and  assessments  not  in  default
(collectively,  the "Permitted  Encumbrances").  Notwithstanding  the foregoing,
Borrower's  representations and warranties  regarding title defects with respect
to the real  property  is  limited  to  defects  arising  by,  through  or under
Borrower,  but not otherwise.  Borrower and the Subsidiaries have adequate title
insurance  coverage for such properties.  All real property and structures owned
or leased by Borrower,  and all  equipment  owned or leased by Borrower,  are in
good operating  condition and repair  (ordinary wear and tear excepted),  taking
into account their  respective ages and consistent with their past uses, and are
adequate  for the uses to which  they are  being  put.  Except  as set  forth on
Schedule  4.27, to Borrower's  best  knowledge,  the buildings and  improvements
owned or leased by Borrower are  structurally  sound.  Borrower has not received
any notice of any violation of any building,  zoning or other law,  ordinance or
regulation  in respect of such  property or structures or their use by Borrower.
To Borrower's  best  knowledge,  there is no existing,  proposed or contemplated
plan to modify or realign  any street or highway or any  existing,  proposed  or
contemplated eminent domain proceeding that would result in the taking of all or
any part of the real  property  or that would  materially  adversely  affect the
current or planned use of the real property or any part thereof.  The facilities
consisting of owned  personal  property are subject to no liens or  encumbrances
except the  security  interests  of record  set forth on  Schedule  4.27,  which
Schedule is a copy of a Uniform  Commercial Code ("UCC") search duly obtained by
Borrower in the last thirty (30) days and which search shows security  interests
of record relating to such facilities in the State of Colorado.  Borrower agrees

                                       19
<PAGE>


to remove all security interests  reflected on such UCC search, if any, prior to
the Loan Closing  (except those approved by the Lender in writing) and to remove
any other security  interests filed with respect to such facilities  between the
date of such UCC search and the date of the Loan Closing.

SECTION 4.28  ENVIRONMENTAL.

     (a) Borrower is currently in  compliance  with all  Environmental  Laws (as
defined below) which compliance includes,  but is not limited to, the possession
by Borrower of all permits and other governmental  authorization  required under
applicable  Environmental Laws, and compliance in all material respects with the
terms and  conditions  thereof,  except in any case  where the  failure to be in
compliance would not have a Material Adverse Effect.

     (b) Except as set forth on Schedule 4.28, Borrower has not stored, disposed
of or  arranged  for  disposal of any  Materials  of  Environmental  Concern (as
defined below) on any of the real property, except in compliance with applicable
Environmental Laws.

     (c) Borrower has not received any communication  (written or oral), whether
from a  governmental  authority,  citizens  group,  employee or otherwise,  that
alleges that Borrower is not in full  compliance  with  Environmental  Laws, and
there  are no  circumstances  that may  prevent  or  interfere  with  such  full
compliance in the future.  There is no  Environmental  Claim (as defined  below)
pending or, to Borrower's best knowledge,  threatened against, or which has been
made known to, Borrower.

     (d) Except as set forth on Schedule 4.28,  during the period the facilities
have been held by Borrower, its affiliates or, to Borrower's best knowledge, its
predecessors in interest, there have been no actions, activities, circumstances,
conditions,  events or incidents including,  without limitation, the generation,
handling,  transportation,  treatment,  storage, release,  emission,  discharge,
presence or disposal of any Hazardous  Substance (as defined below),  that could
form  the  basis  of  any   Environmental   Claim  against  Borrower  under  any
Environmental Law in effect at, or at any time prior to, the Loan Closing.

     (e) Without in any way limiting the generality of the foregoing to the best
knowledge of Borrower, (i) there are no underground storage tanks located on the
property  owned or leased by  Borrower  or the  Subsidiaries,  (ii)  there is no
asbestos  contained  in or forming  part of any  building,  building  component,
structure or office space owned or leased by Borrower or the  Subsidiaries,  and
(iii) no  polychlorinated  biphenyls ("PCBs") are used or stored at any property
owned or leased by Borrower or the Subsidiaries.

     The following terms shall have the following meanings:

     "Environmental   Claim"   means  any  claim,   action,   cause  of  action,
investigation  or notice  (written  or oral) by any  person  or entity  alleging
potential  liability  (including,  without  limitation,  potential liability for
investigatory  costs,  cleanup  costs,   governmental  response  costs,  natural
resources damages, property damages, personal injuries or penalties) arising out
of,  based  on  or  resulting  from  (a)  the  presence,  or  release  into  the
environment,  of any Hazardous Substances at any location,  whether or not owned
or  operated  by  Borrower,  or  (b)  circumstances  forming  the  basis  of any
violation, or alleged violation, of any Environmental Law.

     "Environmental  Laws"  means the  federal,  state and local  environmental,
health or safety laws,  regulations,  ordinances,  rules and policies and common
law in effect on the date hereof and the Loan Closing Date  relating to the use,
refinement,  handling,  treatment,  removal, storage,  production,  manufacture,
transportation  or  disposal,  emissions,  discharges,  releases  or  threatened

                                       20
<PAGE>


releases  of  materials  of  environmental  concern,  or  otherwise  relating to
protection  of the  environment  (including,  without  limitation,  ambient air,
surface water, groundwater,  land surface or subsurface strata), as the same may
be amended or modified to the date hereof and the Loan Closing  Date  including,
without limitation, the statutes listed below:

          Federal Resources Conservation and Recovery Act of 1976, 42 U.S.C. ss.
          6901, et seq.

          Federal  Comprehensive   Environmental   Response,   Compensation  and
          Liability Act of 1980, 42 U.S.C.ss. 9601, et seq.

          Federal Clean Air Act, 42 U.S.C.ss. 7401, et seq.

          Federal Water Pollution  Control Act, Federal Clean Water Act of 1977,
          33 U.S.C. ss. 1251, et seq.

          Federal Insecticide,  Fungicide and Rodenticide Act, Federal Pesticide
          Act of 1978, 7 U.S.C. ss. 136, et seq.

          Federal Hazardous Materials  Transportation Act, 48 U.S.C.ss. 1801, et
          seq.

          Federal Toxic Substances Control Act, 15 U.S.C.ss. 2601, et seq.

          Federal Safe Drinking Water Act, 42 U.S.C.ss. 300f, et seq.

     "Hazardous  Substances"  means any toxic or hazardous waste,  pollutants or
substances including, without limitation, asbestos, PCBs, petroleum products and
byproducts,  substances  defined  or listed  as  "hazardous  substance,"  "toxic
substance," "toxic pollutant" or similarly  identified  substance or mixture, in
or pursuant to any Environmental Law.

SECTION 4.29  SURVIVAL OF REPRESENTATIONS AND WARRANTIES.

     All  representations  and  warranties of Borrower  herein shall survive the
Loan Closing and the delivery of the Debentures,  and any  investigation  at any
time made by or on behalf of the Lender shall not diminish the Lender's right to
rely on Borrower's representations and warranties as herein set forth.

SECTION 4.30  FULL DISCLOSURE.

     Neither the  representations  or warranties  of Borrower,  the schedules to
this Agreement, the financial statements referenced in Section 4.06, nor any SEC
registration  statement,  report or proxy statement filed by the Borrower within
the past 12 months contains or will contain, as of the date thereon,  any untrue
statement of a material  fact or omits or will omit to state any  material  fact
necessary  to keep  the  statements  contained  herein  or  therein  from  being
misleading in any material respect.

                 ARTICLE V. - AFFIRMATIVE COVENANTS OF BORROWER

     So long as any  part  of the  Debentures  remains  unpaid  or has not  been
redeemed  or  converted  hereunder,  and  until  such  payment,   redemption  or
conversion  in full,  unless  the Lender  shall  otherwise  consent in  writing,
Borrower agrees that:

                                       21
<PAGE>


SECTION 5.01  FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS.

     (a) Borrower shall  accurately and fairly  maintain its books of account in
accordance  with  GAAP,  retain  Hein &  Associates  LLP,  or other such firm of
independent  certified public accountants  requested by Borrower and approved by
the Lender,  to make annual audits of its accounts in accordance  with generally
accepted auditing standards.

     (b) Borrower shall provide the following reports and information to Lender:

         (ii) As soon as  available,  and in any event  within  ninety (90) days
after the close of each fiscal  year,  Borrower's  annual  report on Form 10-KSB
with exhibits for said period.

         (iii) Each fiscal quarter, concurrent with the periodic report required
above, a certificate  executed by the Chief Financial Officer or Chief Executive
Officer of Borrower  (A)  stating  that a review of the  activities  of Borrower
during such fiscal period has been made under his  supervision and that Borrower
has observed,  performed and fulfilled  each and every  obligation  and covenant
contained  herein  and is not in  Default  under any of the same or, if any such
Default shall have occurred,  specifying the nature and status thereof,  and (B)
stating that  Borrower and the  Subsidiaries  are in compliance as of the end of
such fiscal quarter with the agreed minimum  financial  ratios and standards set
forth in Schedule 7.01 to this Agreement.

         (iv)  Promptly  (but in any event within ten (10)  business  days) upon
becoming  aware of the existence of any  condition or event which  constitutes a
Default or which,  with  notice or the  passage  of time or both would  become a
Default or an Event of Default,  written notice specifying the nature and period
of existence thereof and the action which Borrower is taking or proposes to take
with respect thereto.

         (v) Promptly (but in any event within ten (10) business  days) upon the
receipt thereof by Borrower or the Board of Directors of Borrower, copies of all
reports,  all  management  letters and other detailed  information  submitted to
Borrower or the Board by independent  accountants in connection with each annual
or interim  audit or review of the accounts or affairs of Borrower  made by such
accountants.

         (vi) Promptly (but in any event within ten (10)  business  days),  such
other information relating to the finances,  budgets,  properties,  business and
affairs  of  Borrower  and each  Subsidiary,  as the  Lender  or the  Agent  may
reasonably request from time to time.

         (vii) Promptly upon its becoming available,  one copy of each financial
statement,  report, press release, notice or proxy statement sent by Borrower to
stockholders  generally,  and of each regular or periodic  report,  registration
statement or prospectus  filed by Borrower with any  securities  exchange or the
SEC or  any  successor  agency,  and of any  order  issued  by any  Governmental
Authority in any proceeding to which Borrower is a party.

         (viii) As soon as available,  and in any event within fifteen (15) days
after the close of each fiscal  quarter,  a report  setting  forth the number of
stock options, and their respective prices and terms, issued during such quarter
and cumulatively.

                                       22
<PAGE>


SECTION 5.02  ANNUAL FINANCIAL STATEMENTS.

     Furnish  Agent  within one  hundred  fifty (150) days after the end of each
fiscal year of Borrower, audited financial statements of Borrower 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
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 Hein & Associates  LLP or an
independent   certified   public   accounting  firm  selected  by  Borrower  and
satisfactory to Agent (the  "Accountants").  The report of the Accountants shall
be accompanied by a statement of the  Accountants  certifying that (i) they have
caused this 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  Borrower's  compliance with the
requirements or  restrictions  imposed by Article VII hereof.  In addition,  the
reports shall be  accompanied  by a certificate  of 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 Borrower
with respect to such event,  and such  certificate  shall have appended  thereto
calculations  which set forth  Borrower's  compliance  with the  requirements or
restrictions imposed by Article VII.

SECTION 5.03  QUARTERLY FINANCIAL STATEMENTS.

     Furnish  Agent  within  forty-five  (45) days after the end of each  fiscal
quarter,  an unaudited  balance  sheet of Borrower and  unaudited  statements of
income and stockholders'  equity and cash flow of Borrower 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 and recurring
year end adjustments that  individually and in the aggregate are not material to
Borrower's business. The reports shall be accompanied by a certificate signed by
the Chief  Financial  Officer of 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  Borrower  with  respect to such  default  and,  such
certificate shall have appended thereto  calculations which set forth Borrower's
compliance with the requirements or restrictions imposed by Article VII.

SECTION 5.04  MONTHLY FINANCIAL STATEMENTS.

     Furnish  Agent  within  thirty  (30) days after the end of each  month,  an
unaudited  balance  sheet of Borrower  and  unaudited  statements  of income and
stockholders'  equity and cash flow of Borrower 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  and  recurring  year end
adjustments  that  individually  and  in  the  aggregate  are  not  material  to
Borrower's  business.  The reports  shall be  accompanied  by a  certificate  of
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

                                       23
<PAGE>


the  steps  being  taken by  Borrower  with  respect  to such  event  and,  such
certificate shall have appended thereto  calculations which set forth Borrower's
compliance with the requirements or restrictions imposed by Article VII.

SECTION 5.05  PREPARATION OF BUDGETS.

     (a) Prior to the  beginning of Borrower's  fiscal year  Borrower  agrees to
prepare  and submit to the Board and  furnish to Lender a copy of an annual plan
for such year which shall include,  without limitation,  plans for expansion, if
any, plans for  incurrences of  Indebtedness  and  projections  regarding  other
sources of funds,  quarterly  projected  capital and operating  expense budgets,
cash flow statements,  profit and loss statements and balance sheet projections,
itemized in such detail as the Board may request.

     (b)  Borrower  shall  furnish  to the  Lender  monthly  financial  reports,
including  budgets (as currently  used by management in the conduct of business)
within 30 days of the end of each month thereafter.

     (c) Borrower  agrees that it will review its  operations  with Agent.  Such
operations  reviews  will be in such depth and detail as Agent shall  reasonably
request  and  will be held as  reasonably  necessary,  generally  once a  fiscal
quarter.

SECTION 5.06  PAYMENT OF TAXES AND OTHER INDEBTEDNESS.

     Borrower shall,  and shall cause its Subsidiaries to, pay and discharge (i)
all taxes,  assessments  and  governmental  charges or levies imposed upon it or
upon its  income  or  profits,  or upon any  property  belonging  to it,  before
delinquent,  (ii) all lawful claims (including  claims for labor,  materials and
supplies)  which, if unpaid,  will give rise to a Lien upon any of its property,
other  than a  Permitted  Lien,  and  (iii)  all of its  other  Indebtedness  in
accordance  with  their  respective  terms,  except  as  prohibited   hereunder;
provided,  however,  that Borrower and its  Subsidiaries,  if any,  shall not be
required to pay any such tax, assessment,  charge, levy or other claim if and so
long as the  amount,  applicability  or  validity  thereof  shall  currently  be
contested in good faith by appropriate  proceedings and appropriate accruals and
reserves therefor have been established in accordance with GAAP.

SECTION 5.07  MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS.

     Subject to Section  6.13,  Borrower  shall,  and shall cause its  operating
Subsidiaries to, preserve and maintain their respective  corporate existence and
all of their respective  material rights and privileges  necessary in the normal
conduct  of  their  respective  businesses,  and  to  conduct  their  respective
businesses  in an orderly and  efficient  manner  consistent  with good business
practices  and in  accordance  with all  valid  regulations  and  orders  of any
Governmental  Authority.  Borrower  shall keep its  principal  place of business
within the United States.

SECTION 5.08  SEC FILINGS.

     So long as  Borrower  has a class  of  securities  registered  pursuant  to
Section 12 of the 1934 Act,  Borrower shall duly file, when due, all reports and
proxy  statements  required of a company whose  securities  are  registered  for
public trading under and pursuant to the 1934 Act and any rules and  regulations
issued thereunder.

                                       24
<PAGE>


SECTION 5.09  NOTICE.

     Borrower  shall  promptly  notify  the Lender of (i) any  Material  Adverse
Change, (ii) any default under any Senior Obligations, other Indebtedness having
an  aggregate  principal  amount  in  excess  of  Twenty-Five  Thousand  Dollars
($25,000),  material  agreement,  contract or other  instrument to which it is a
party or by which any of its properties are bound,  or any  acceleration  of the
maturity of any Indebtedness  having an aggregate  principal amount in excess of
Twenty-Five Thousand Dollars ($25,000), if any, (iii) any material adverse claim
against  or  affecting  Borrower  or its  Subsidiaries,  if  any,  or any of its
properties, and (iv) the commencement of, and any determination in, any material
litigation  with any  third  party or any  proceeding  before  any  Governmental
Authority.

SECTION 5.10  COMPLIANCE WITH LOAN DOCUMENTS.

     Borrower shall,  and shall cause its  Subsidiaries to, promptly comply with
any and all covenants and provisions of the Loan Documents.

SECTION 5.11  COMPLIANCE WITH MATERIAL AGREEMENTS.

     Borrower shall,  and shall cause each of its Subsidiaries to, comply in all
material respects with all Senior Documents,  material  agreements,  indentures,
mortgages or documents binding on it or affecting its properties or business.

SECTION 5.12  SENIOR CREDITOR AGREEMENT.

     In the  event  that  Bank One does not  enter  into the  Subordination  and
Intercreditor  Agreement  pursuant  to  Section  3.01(e),  within  5 days  after
closing,  Borrower  shall pay the  entire  amount  owed to Bank One  under  that
certain  Promissory  Note,  dated April 18, 2002, and promptly secure release of
Bank One's security interest granted under the related credit agreement.

SECTION 5.13  OPERATIONS AND PROPERTIES.

     Borrower shall,  and shall cause each of its Subsidiaries to, act prudently
and in accordance with customary industry standards in managing or operating its
assets,  properties,  business and investments.  Borrower shall, and shall cause
each of its Subsidiaries to, keep in good working order and condition,  ordinary
wear and tear excepted,  all of its assets and properties which are necessary to
the conduct of its business.

SECTION 5.14  BOOKS AND RECORDS; ACCESS.

     Borrower  shall,  and shall  cause each of its  Subsidiaries  to,  maintain
complete and accurate books and records of its  transactions  in accordance with
good   accounting   practices.   Borrower   shall  give  each  duly   authorized
representative  of the Lender  access  during all normal  business  hours,  upon
reasonable notice, to, and shall permit such representative to examine,  copy or
make excerpts from,  any and all books,  records and documents in the possession
of Borrower and its Subsidiaries and relating to its affairs, and to inspect any
of the  properties  of Borrower and its  Subsidiaries;  provided that the Lender
agrees that any such  inspection  will be performed so as not to interfere  with
Borrower's  normal  business  operations.  Borrower  shall  make a copy  of this
Agreement,  along  with any  waivers,  consents,  modifications  or  amendments,
available  for  review at its  principal  office by the  Lender or the  Lender's
representatives.

                                       25
<PAGE>


SECTION 5.15  COMPLIANCE WITH LAW.

     Borrower shall,  and shall cause each of its Subsidiaries to, comply in all
material respects with all applicable laws, rules,  regulations,  ordinances and
all orders and decrees of any Governmental  Authority applicable to it or any of
its properties, businesses or operations.

SECTION 5.16  INSURANCE.

     Borrower shall,  and shall cause each of its Subsidiaries to, maintain such
worker's  compensation  insurance,  liability  insurance  and  insurance  on its
properties,  assets and business, now owned or hereafter acquired,  against such
casualties,  risks and  contingencies,  and in such  types and  amounts,  as are
consistent  with  customary  practices  and  standards of  companies  engaged in
similar businesses.

SECTION 5.17  AUTHORIZATIONS AND APPROVALS.

     Borrower  shall,  and shall  cause each of its  Subsidiaries  to,  promptly
obtain,  from  time  to time  and at its  own  expense,  all  such  governmental
licenses, authorizations,  consents, permits and approvals as may be required to
enable it to comply  with its  obligations  hereunder  and under the other  Loan
Documents.

SECTION 5.18  ERISA COMPLIANCE.

     Borrower shall,  at all times,(i) make prompt payment of all  contributions
required under all Plans, if any, and shall meet the minimum  funding  standards
set forth in ERISA with  respect to its Plans  subject  to ERISA,  if any,  (ii)
notify the Lender  immediately of any fact in connection  with any of its Plans,
which might  constitute  grounds for termination  thereof by the Pension Benefit
Guaranty  Corporation or for the appointment,  by the appropriate  United States
District Court, of a trustee to administer such Plan, together with a statement,
if requested by the Lender,  as to the reason  therefor and the action,  if any,
proposed to be taken with respect thereto, and (iii) furnish to the Lender, upon
its request, such additional  information  concerning any of its Plans as may be
reasonably requested.

SECTION 5.19  FURTHER ASSURANCES.

     Borrower shall, and shall cause each of its Subsidiaries to, make,  execute
or endorse,  and  acknowledge  and deliver or file or cause the same to be done,
all  such  notices,  certifications  and  additional  agreements,  undertakings,
transfers,  assignments  or other  assurances,  and take any and all such  other
action as the Lender may, from time to time, deem reasonably necessary or proper
in connection with any of the Loan Documents,  or the obligations of Borrower or
its Subsidiaries,  if any, thereunder, which the Lender may request from time to
time.

SECTION 5.20  INDEMNITY BY BORROWER.

     Borrower  shall  indemnify,  save  and hold  harmless  the  Lender  and its
directors,  officers,  lenders,  attorneys and employees (the "Indemnitee") from
and against (i) any and all  claims,  demands,  actions or causes of action that
are asserted  against any  Indemnitee if the claim,  demand,  action or cause of
action,  directly or  indirectly,  relates to this  Agreement and the other Loan
Documents,  the Loan,  the use of  proceeds of the Loan or the  relationship  of
Borrower and the Lender under this  Agreement  or any  transaction  contemplated
pursuant to this Agreement,  (ii) any administrative or investigative proceeding
by any  Governmental  Authority,  directly  or  indirectly,  related to a claim,

                                       26
<PAGE>


demand,  action or cause of action  described in clause (i) above, and (iii) any
and all liabilities,  losses, costs or expenses (including reasonable attorneys'
fees and disbursements) that any Indemnitee suffers or incurs as a result of any
of the  foregoing;  provided,  however,  that Borrower  shall have no obligation
under this  Section  5.16 to the  Lender  with  respect to any of the  foregoing
arising out of the gross  negligence or willful  misconduct of the Lender or its
assignees  or the breach by Lender or its  assignees  of this  Agreement  or any
other Loan Document or other  document  executed in  connection  with any of the
aforesaid,  the breach by the Lender or its  assignees of any  intercreditor  or
participation  agreement or  commitment  with other  parties,  the  violation or
alleged violation of any law, rule or regulation by the Lender or its assignees,
or from the  transfer  or  disposition  by the Lender of any  Debentures  or the
Common Stock issued upon  conversion of the  Debentures.  If any claim,  demand,
action or cause of action is asserted  against any  Indemnitee,  such Indemnitee
shall promptly notify  Borrower,  but the failure to so promptly notify Borrower
shall not affect  Borrower's  obligations under this Section unless such failure
materially  prejudices Borrower's right or ability to participate in the contest
of such claim, demand,  action or cause of action, as hereinafter  provided.  In
the event that such Indemnitee's  failure to properly notify Borrower materially
prejudices  Borrower's  right or ability to  participate  in the contest of such
claim,  demand  action or cause of action,  then said  Indemnitee  shall have no
right  to  receive,   and  Borrower   shall  have  no  obligation  to  pay,  any
indemnification amounts hereunder.  Borrower may elect to defend any such claim,
demand,  action or cause of action (at its own  expense)  asserted  against said
Indemnitee and, if requested by Borrower in writing and so long as no Default or
Event of Default  shall have occurred and be  continuing,  such  Indemnitee  (at
Borrower's  expense) shall, in good faith,  contest the validity,  applicability
and amount of such  claim,  demand,  action or cause of action and shall  permit
Borrower to participate in such contest.  Any Indemnitee that proposes to settle
or compromise  any claim or  proceeding  for which  Borrower may be liable,  for
payment to or on behalf of an Indemnitee hereunder,  shall give Borrower written
notice of the terms of such  proposed  settlement  or  compromise  reasonably in
advance of settling or  compromising  such claim or proceeding  and shall obtain
Borrower's written concurrence  thereto. In the event that said Indemnitee fails
to obtain Borrower's prior written consent to any such settlement or compromise,
said  Indemnitee  shall have no right to  receive,  and  Borrower  shall have no
obligation to pay, any  indemnification  amounts hereunder.  Each Indemnitee may
employ  counsel,  which counsel shall be reasonably  acceptable to Borrower,  in
enforcing  its rights  hereunder  and in  defending  against any claim,  demand,
action or cause of action covered by this Section 5.16; provided,  however, that
each  Indemnitee  shall  endeavor in connection  with any matter covered by this
Section 5.16 which also involves any other Indemnitee, use reasonable efforts to
avoid  unnecessary  duplication  of  effort  by  counsel  for  all  Indemnitees,
including allowing Borrower to select one lawyer for all parties, such selection
to be subject to the  approval  of such  parties,  which  approval  shall not be
unreasonably withheld. Any obligation or liability of Borrower to any Indemnitee
under this Section 5.16 shall  survive the  expiration  or  termination  of this
Agreement and the repayment of the Debentures.

SECTION 5.21  RESERVATION OF SHARES.

     Borrower  shall,  at all  times,  reserve  and  keep  available  sufficient
authorized  and unissued  shares of Common Stock to effect the conversion of the
Debentures. The Borrower has obtained any necessary approval of its shareholders
to issue to the Lender upon  conversion of the  Debentures  all of the shares of
Common Stock to which it is then entitled.

SECTION 5.22  OWNERSHIP OF SUBSIDIARIES.

     Borrower  shall own, at all times,  all of the  capital  stock of, or other
equity interests in, the Subsidiaries, except as disclosed on Schedule 5.18.

                                       27
<PAGE>


SECTION 5.23  RETENTION OF STOCK OWNERSHIP.

     (a) Borrower  shall not offer,  sell or otherwise  dispose of any shares of
Common Stock or  securities  exercisable  or  convertible  into shares of Common
Stock for a period of twelve (12) months  following the Loan Closing without the
written  approval of the  Lender,  other than (i) Common  Stock  issued upon the
conversion of any of the Debentures;  and (ii) Common Stock issued upon exercise
of any  presently  outstanding  employee  stock  options or warrants or employee
stock options or warrants granted in the ordinary course of business  consistent
with past practices.

     (b) Douglas M. Mitchell  ("Mitchell)  and Tom  Linnenbrink  ("Linnenbrink")
will execute and deliver  Lock-Up  Agreements  at the Loan  Closing  which shall
provide  that they will not offer,  sell or  otherwise  dispose of the shares of
Common Stock  beneficially  owned or controlled by them (including  subsequently
acquired  shares or securities  exercisable  or  convertible  into shares) for a
period of twelve (12) months following the Loan Closing, except for intra-family
transfers  or estate  planning  purposes,  without  the  consent of the  Lender.
Nothing  therein  shall  restrict  or  otherwise  limit the  ability or right of
Mitchell  and  Linnenbrink  to pledge to a bank or margin  any  shares of Common
Stock  otherwise  subject to the terms of the Lock-Up  Letter  provided that the
pledgee  delivers  a lock-up  letter in a form  satisfactory  to Lender  for the
remaining  period  covered  hereby prior to its  acquisition of any such shares.
Thereafter,  each such person shall only sell such shares  pursuant to Rule 144,
without the consent of the Lender,  until the Debentures have been paid in full.
Notwithstanding the foregoing, each such person may sell such shares at any time
at a price in excess of $.90 per share.

SECTION 5.24  SUBSEQUENTLY FORMED U.S. SUBSIDIARIES.

     Borrower shall cause all subsequently formed U.S. Subsidiaries to execute a
Subsidiaries'  Guaranty and Security Agreement referenced in Section 3.01(c) and
shall pledge all their capital stock to the Lender and Agent.

                  ARTICLE VI. - NEGATIVE COVENANTS OF BORROWER

     So long as any part of the  Debentures  has not been  redeemed or converted
hereunder,  and until such  redemption or conversion in full,  unless the Lender
shall otherwise consent in writing, Borrower agrees that:

SECTION 6.01  LIMITATION ON INDEBTEDNESS.

     At  Loan  Closing,  Borrower  and  its  Subsidiaries  shall  not  have  any
outstanding Indebtedness,  except Indebtedness arising under this Agreement, the
Debentures,  the  Guaranties,  or  Permitted  Indebtedness  or as set  forth  in
Schedule  6.01.  Borrower and its  Subsidiaries  will not incur or guarantee any
Indebtedness senior to or pari passu with the Debentures, without the consent of
the Lender, except for asset based loans for Borrower's  operations,  and Senior
Obligations.

SECTION 6.02  LIMITATION ON LIENS.

     Borrower  shall  not,  and shall not permit its  Subsidiaries  to,  create,
cause,  incur,  permit or suffer to exist any Lien upon any of its properties or
assets, other than Permitted Liens.

                                       28
<PAGE>


SECTION 6.03  LIMITATION ON INVESTMENTS.

     Borrower shall not, and shall not permit its  Subsidiaries to, make or have
outstanding  any  Investments  in  any  Person,  except  for  Borrower's  or any
Subsidiary's  acquisition or ownership of stock of or other equity  interests in
Subsidiaries (including Persons that will be Subsidiaries after giving effect to
such  Investments),  loans  and  other  transactions  between  Borrower  and any
Subsidiaries,    short   term   bank   deposits,   money   market   investments,
investment-grade  commercial paper,  government  securities and such other "cash
equivalent"  investments  as the Lender  may,  from time to time,  approve,  and
customer  obligations and receivables arising out of sales or leases made or the
rendering of services in the ordinary course of business.

SECTION 6.04  ALTERATION OF MATERIAL AGREEMENTS.

     Borrower shall not, and shall not permit its Subsidiaries to, consent to or
permit any alteration, amendment,  modification,  release, waiver or termination
of any Senior  Documentation or material agreement to which it is a party, other
than in the ordinary course of business.

SECTION 6.05  TRANSACTIONS WITH AFFILIATES.

     Except as disclosed  in Schedule  6.05,  Borrower  shall not, and shall not
permit its  Subsidiaries  to,  enter into any  transaction  not in the  ordinary
course of business  with, or pay any management  fees to, any Affiliate,  except
for  intercompany  transactions,  without the consent of the Lender,  unless the
terms  thereof (i) are no less  favorable  to Borrower or such  Subsidiary  than
those that could be obtained  at the time of such  transaction  in  arm's-length
dealings  with a Person  who is not an  Affiliate,  or (ii) if such  transaction
involves an amount less than Fifty Thousand Dollars ($50,000),  are set forth in
writing  and have been  approved  by a majority  of the  members of the Board of
Directors  having no  personal  stake in the  transaction.  Notwithstanding  the
foregoing,  Borrower  may grant  options to  employees or directors if otherwise
permitted under this Agreement.

SECTION 6.06  LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS.

     Borrower shall not, and shall not permit its Subsidiaries to, engage in any
line of business,  or acquire any new product lines or business,  or acquire any
companies  unless  such new  product  line or  business  acquired  is  primarily
involved in, or substantially similar or related to, Borrower's current lines of
business or extensions thereof.

SECTION 6.07  LIMITATION ON SALE OF PROPERTIES.

     Borrower  shall not,  and shall not permit its  Subsidiaries  to, (i) sell,
assign, convey,  exchange,  lease or otherwise dispose of any of its properties,
rights,  assets  or  business  (including  the  capital  stock of its  operating
Subsidiaries),  whether now owned or hereafter acquired,  without the consent of
the Lender,  except in the ordinary course of business,  or (ii) sell, assign or
discount any  accounts  receivable,  except in the  ordinary  course of business
(which  shall  include  receivable  financing or  securitization),  in each case
without the consent of the Lender; provided, however, that Borrower may sell its
securities to unaffiliated  third parties at the current trading price,  but not
less than the conversion  price and to employees under its existing stock option
plan.

                                       29
<PAGE>


SECTION 6.08  FISCAL YEAR AND ACCOUNTING METHOD.

     Borrower  shall not, and shall not permit its  Subsidiaries  to, change its
fiscal year or method of accounting, except as permitted by GAAP.

SECTION 6.09  LIQUIDATION.

     Borrower shall not, and shall not permit its  Subsidiaries to, (i) dissolve
or liquidate (except for dissolution or liquidation of inactive  Subsidiaries in
the ordinary course of business),  or (ii) enter into any other transaction that
has a similar effect.

SECTION 6.10  MATERIAL AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.

     Borrower  shall not,  and shall not permit its  Subsidiaries  to, amend its
Certificate or Articles of Incorporation  (or other charter  document) or bylaws
in any material respect, without the consent of the Lender.

SECTION 6.11  EXECUTIVE COMPENSATION.

     (a) Borrower  will not increase the salary,  bonus,  or other  compensation
programs (whether in cash, securities or other property,  and whether payment is
deferred or current) of its chief executive officer and chief financial officer,
unless  such  compensation  increase is approved by a majority of the Board or a
Compensation  Committee  of the Board,  a majority of whom shall be  nonemployee
Directors.  Compensation to other senior executive officers,  including division
managers, shall be consistent with the policies of the Compensation Committee.

     (b)  Borrower  shall not  implement  any  bonus,  profit  sharing  or other
incentive  plans,  until such plans are formally  adopted by the majority of the
Board or a  Compensation  Committee  of the Board,  a majority  of whom shall be
nonemployee  Directors.  Borrower's  executive  compensation shall be consistent
with the general compensation policies adopted by the Compensation  Committee of
the Board.

SECTION 6.12  RESTRICTED PAYMENTS.

     Borrower  shall not (i) without  the consent of the Lender,  declare or pay
any Dividend (other than stock dividends) or make any other cash distribution on
(a)  any  Common  Stock,  (b)  any  Preferred  Stock,  if at the  time  of  such
declaration  or payment,  Borrower is in Default with respect to the Loan,  (ii)
purchase,  redeem or otherwise  acquire any shares of Common Stock or any shares
of Preferred Stock,  without the consent of the Lender,  (iii) make any payments
of  Indebtedness  (other  than  Senior  Obligations)  which  are  pari  passu or
subordinated to the Debentures,  if at the time of such payment,  Borrower is in
Default with respect to the Loan, or (iv) make any  prepayments of  Indebtedness
(other  than Senior  Obligations)  which are pari passu or  subordinated  to the
Debentures,  unless the  Debentures is prepaid on a pro rata basis,  without the
consent of the Lender.  Borrower shall not permit its Subsidiaries to enter into
any agreements  restricting  the payment of dividends from the  Subsidiaries  to
Borrower, without the consent of the Lender.

SECTION 6.13  CONSOLIDATION OR MERGER.

     Borrower shall not  consolidate  with or merge into any other  corporation,
unless the surviving corporation,  after such merger or consolidation,  will not

                                       30
<PAGE>


be in Default and the surviving  corporation  becomes a party to this Agreement.
Subsidiaries  shall  only  consolidate  with or merge into  Borrower  or another
Subsidiary;  provided,  however, that a Subsidiary may merge or consolidate with
any other entity as long as such Subsidiary is the surviving corporation of such
merger or consolidation, and Borrower is not in Default.

         ARTICLE VII. - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS

SECTION 7.01  FINANCIAL RATIOS.

     So long  as any of the  Debentures  has  not  been  redeemed  or  converted
hereunder,  and until such  redemption or  conversion  has been made in full, or
unless  the  Lender  shall  otherwise  consent  in  writing,   Borrower,   on  a
consolidated  basis,  shall be in compliance  with the agreed minimum  financial
ratios and  standards  provided in Schedule  7.01,  as of the end of each fiscal
quarter of  Borrower  and as set forth in its most recent  quarterly  compliance
certificates delivered pursuant to Section 5.01.

ARTICLE VIII. - EVENTS OF DEFAULT

SECTION 8.01  EVENTS OF DEFAULT.

     An  "Event  of  Default"  shall  exist if any one or more of the  following
events  (herein  collectively  called  "Events of  Default")  shall occur and be
continuing:

     (a)  Borrower  shall  fail to pay when due (or shall  state in  writing  an
intention not to pay or its inability to pay) any  installment of interest on or
principal  of, any  Debentures  or any fee,  expense or other  payment  required
hereunder;

     (b) Any representation or warranty made under this Agreement, or any of the
other Loan Documents,  or in any  certificate or statement  furnished or made to
Agent pursuant hereto or in connection herewith or with the Loans hereunder,  or
in any  Subsidiary  Document  shall  prove to be  untrue  or  inaccurate  in any
material  respect as of the date on which such  representation  or warranty  was
made;

     (c)  Default  shall occur in the  performance  of any of the  covenants  or
agreements of Borrower or of its Subsidiaries contained herein, or in any of the
other Loan Documents or in any Subsidiary  Document and the Company shall remain
in default for a period of thirty (30) days;

     (d) Provided that Borrower enters into the  Subordination and Intercreditor
Agreement in accordance with Section 5.12, an event of default,  default,  or an
event  which,  with the  passage of time,  would  result in a default  under any
Senior  Documents,  including,  without  limitation,  any of  Borrower's  credit
agreements with Bank One, N.A.

     (e) Default shall occur in the payment of any Senior Obligations  (provided
that  Borrower  enters into the  Subordination  and  Intercreditor  Agreement in
accordance with Section 5.12) or in the payment of any other Indebtedness having
an  aggregate  principal  amount  in  excess  of  Twenty-Five  Thousand  Dollars
($25,000),  or  nonmonetary  default  shall  occur in respect of any note,  loan
agreement or credit agreement  relating to any Indebtedness  having an aggregate
principal amount in excess of Twenty-Five  Thousand Dollars ($25,000),  and such
default  continues for more than the period of grace, if any,  specified therein
or  any  Indebtedness   having  an  aggregate  principal  amount  in  excess  of
Twenty-Five  Thousand  Dollars  ($25,000),  shall  become  due before its stated

                                       31
<PAGE>


maturity  by  acceleration  of the  maturity,  or  any  indebtedness  having  an
aggregate principal amount in excess of Twenty-Five  Thousand Dollars ($25,000),
shall become due by its terms and shall not be promptly paid or extended;

     (f) Any of the Loan  Documents  shall cease to be legal,  valid and binding
agreements enforceable against Borrower in accordance with the respective terms,
or shall,  in any way, be terminated or become or be declared by any court or by
Borrower  or any  Subsidiary  in  any  legal  proceeding  to be  ineffective  or
inoperative,  or  shall  in any way  whatsoever  cease  to give or  provide  the
respective  rights,  titles,  interests,  remedies,  powers or privileges stated
therein to be created thereby;

     (g)  Borrower  or its  Subsidiaries  shall (i) apply for or  consent to the
appointment  of a receiver,  trustee,  custodian,  intervenor  or  liquidator of
itself,  or of all or  substantially  all of such Person's  assets,  (ii) file a
voluntary petition in bankruptcy, admit in writing that such Person is unable to
pay such  Person's  debts as they become due or generally  not pay such Person's
debts as they become  due,  (iii) make a general  assignment  for the benefit of
creditors,  (iv)  file  a  petition  or  answer  seeking  reorganization  or  an
arrangement  with creditors or to take advantage of any bankruptcy or insolvency
laws, (v) file an answer  admitting the material  allegations of, or consent to,
or default in answering, a petition filed against such Person in any bankruptcy,
reorganization or insolvency  proceeding,  or (vi) take corporate action for the
purpose of effecting any of the foregoing;

     (h) An involuntary petition or complaint shall be filed against Borrower or
any of its Subsidiaries  seeking  bankruptcy or reorganization of such Person or
the appointment of a receiver,  custodian,  trustee, intervenor or liquidator of
such Person,  or all or  substantially  all of such  Person's  assets,  and such
petition or complaint  shall not have been  dismissed  within sixty (60) days of
the filing  thereof or an order,  order for relief,  judgment or decree shall be
entered by any court of  competent  jurisdiction  or other  competent  authority
approving  a petition or  complaint  seeking  reorganization  of Borrower or its
subsidiary  or  appointing  a  receiver,   custodian,   trustee,  intervenor  or
liquidator  of such  Person,  or of all or  substantially  all of such  Person's
assets;

     (i) Any final  judgment(s) for the payment of money in excess of the sum of
One Hundred  Thousand  Dollars  ($100,000)  in the  aggregate  shall be rendered
against  Borrower or any Subsidiary and such judgment or judgments  shall not be
satisfied  or  discharged  prior to the date on which any of its assets could be
lawfully sold to satisfy such judgment; or

     (j)  Borrower  shall fail to issue and  deliver  shares of Common  Stock as
provided herein upon conversion of the Debentures.

SECTION 8.02  REMEDIES UPON EVENT OF DEFAULT.

     (a) If an Event of Default shall have occurred and be continuing,  then the
Lender may exercise any one or more of the following  rights and  remedies,  and
any other remedies  provided in any of the Loan Documents,  as the Lender in its
sole discretion may deem necessary or appropriate:

         (i) declare  the unpaid  Principal  Amount  (after  application  of any
payments or  installments  received by the  Lender)  of, and all  interest  then
accrued but unpaid on, the Debentures and any other liabilities  hereunder to be
forthwith  due and payable,  whereupon the same shall  forthwith  become due and
payable  without  presentment,  demand,  protest,  notice of default,  notice of
acceleration  or of intention to accelerate or other notice of any kind,  all of
which Borrower hereby  expressly  waives,  anything  contained  herein or in the
Debentures to the contrary notwithstanding;

         (ii) reduce any claim to judgment; and

                                       32
<PAGE>


         (iii)  without  notice of default or demand,  pursue and enforce any of
the Lender's  rights and remedies  under the Loan  Documents and the  Subsidiary
Documents,  or otherwise  provided  under or pursuant to any  applicable  law or
agreement, all of which rights may be specifically enforced.

     (b) In the event of a violation by Borrower of the negative  covenants  set
forth in  Article  VI,  the  Lender  may,  in its  sole  discretion,  (i)  waive
compliance with the covenants,  provided  Borrower is in compliance with Section
7.01 hereof;  or (ii) require Borrower to redeem the Debentures at the higher of
market value or the unpaid principal amount of the Debentures,  together with an
amount  equal  to an 18%  annual  yield  on the  principal  amount  through  the
Redemption Date, whichever is greater.

SECTION 8.03  PERFORMANCE BY THE LENDER.

     Should  Borrower or any  Subsidiary  fail to perform any covenant,  duty or
agreement  contained  herein or in any of the  other  Loan  Documents  or in any
Subsidiary  Document,  Lender or Agent may  perform or  attempt to perform  such
covenant,  duty or  agreement  on behalf of  Borrower.  In such event,  Borrower
shall,  at the request of Lender or Agent,  promptly  pay any amount  reasonably
expended by Lender or Agent in such  performance  or  attempted  performance  to
Lender or Agent at its principal office,  together with interest thereon, at the
interest rate  specified in the  Debentures,  from the date of such  expenditure
until paid.  Notwithstanding  the  foregoing,  it is expressly  understood  that
Lender or Agent assumes no liability or  responsibility  for the  performance of
any duties of Borrower  or any  Subsidiary  hereunder  or under any of the other
Loan Documents or under any Subsidiary Document.

SECTION 8.04  PAYMENT OF EXPENSES INCURRED BY THE LENDER.

     Upon the occurrence of a Default or an Event of Default,  which  occurrence
is not cured within the notice  provisions,  if any,  provided herein,  Borrower
agrees  to pay and  shall  pay all  costs  and  expenses  (including  reasonable
attorneys' fees and expenses) incurred by Lender or Agent in connection with the
preservation  and enforcement of the Lender's  rights under this Agreement,  the
Debentures or any other Loan Document.

                       ARTICLE IX. - REGISTRATION RIGHTS

SECTION 9.01  "PIGGY-BACK" REGISTRATION.

     If Borrower  proposes to register  any of its capital  stock under the 1933
Act in  connection  with the  public  offering  of such  securities  for its own
account  or for the  account of its  security  holders,  other  than  Holders of
Registrable Securities pursuant hereto (a "Piggy-Back Registration  Statement"),
except  for (i) a  registration  relating  solely to the sale of  securities  to
participants in Borrower's stock or stock option plans or employee benefit plans
or (ii) a registration  relating  solely to a transaction for which Form S-4 may
be used, then:

     (a) Borrower shall give written notice of such determination to each Holder
of Registrable Securities, and each such Holder shall have the right to request,
by written notice given to Borrower within 15 days of the date that such written
notice  was  mailed  by  Borrower  to such  Holder,  that a  specific  number of
Registrable  Securities  held by  such  Holder  be  included  in the  Piggy-Back
Registration  Statement  (and  related  underwritten  offering,  if any) and the
states in which such Registrable Securities are to be sold;

                                       33
<PAGE>

     (b) If the Piggy-Back  Registration  Statement  relates to an  underwritten
offering, the notice given to each Holder shall specify the name or names of the
managing underwriter or underwriters for such offering. In addition, such notice
shall also specify the number of securities to be registered  for the account of
Borrower  and for the  account of its  shareholders  (other  than the Holders of
Registrable Securities), if any;

     (c) If the Piggy-Back  Registration  Statement  relates to an  underwritten
offering,  each Holder of  Registrable  Securities  to be included  therein must
agree (i) to sell such  Holder's  Registrable  Securities  on the same  basis as
provided  in the  underwriting  arrangement  approved by  Borrower,  and (ii) to
timely complete and execute all questionnaires, powers of attorney, indemnities,
hold-back  agreements,  lock-up  agreements,  underwriting  agreements and other
documents  required under the terms of such underwriting  arrangements or by the
SEC or by any state securities regulatory body;

     (d) If the  managing  underwriter  or  underwriters  for  the  underwritten
offering under the Piggy-Back  Registration  Statement determines that inclusion
of all or any  portion of the  Registrable  Securities  in such  offering  would
materially adversely affect the ability of the underwriters for such offering to
sell all of the securities requested to be included for sale in such offering at
the  best  price  obtainable  therefor,  the  aggregate  number  of  Registrable
Securities  that may be sold by the  Holders  shall be limited to such number of
Registrable  Securities,  if any, that the managing  underwriter or underwriters
determine may be included therein without such adverse effect as provided below.
If the number of securities  proposed to be sold in such  underwritten  offering
exceeds the number of securities that may be sold in such offering,  there shall
be included in the offering, first, up to the maximum number of securities to be
sold by Borrower  for its own account and for the account of other  stockholders
(other  than  Holders  of  Registrable  Securities),  as they  may  agree  among
themselves,  and  second,  as to the  balance,  if any,  Registrable  Securities
requested  to be included  therein by the Holders  thereof  (pro rata as between
such Holders based upon the number of Registrable  Securities initially proposed
to be  registered  by  each),  or in  such  other  proportions  as the  managing
underwriter or  underwriters  for the offering may require;  provided,  however,
that in the event  that the  number of  securities  proposed  to be sold in such
underwritten  offering exceeds the number of securities that may be sold in such
offering pursuant to the terms and conditions set forth above and the Piggy-Back
Registration  Statement  is a result  of  public  offering  by  Borrower  of its
securities for its own account, there shall be included in the offering,  first,
up to the  maximum  number  of  securities  to be sold by  Borrower  for its own
account and second,  as to the balance,  if any,  securities  to be sold for the
account of Borrower's  stockholders (both the Holders of Registrable  Securities
requested  and such other  stockholders  of  Borrower  requested  to be included
therein) on a pro rata basis;

     (e)  Holders of  Registrable  Securities  shall have the right to  withdraw
their Registrable Securities from the Piggy-Back Registration Statement,  but if
the same  relates to an  underwritten  offering,  they may only do so during the
time  period  and on the  terms  agreed  upon  among the  underwriters  for such
underwritten offering and the Holders of Registrable Securities;

     (f) The exercise of the registration  rights of the Holders with respect to
any  specific  underwritten  offering  shall be subject to a 90-day delay at the
request of the managing underwriter;

     (g) All piggyback  registration  rights of the Holders shall terminate when
all of the Registrable  Securities Then Outstanding may be sold pursuant to Rule
144(k).

                                       34
<PAGE>


SECTION 9.02  SHELF REGISTRATION.

     Borrower  shall file a  registration  statement on Form SB-2 under the 1933
Act (the "Shelf Registration") covering all of the Registrable Securities within
180 days of the date of the Debentures,  and Borrower shall use its best efforts
to cause the Shelf  Registration to be declared  effective and to keep the Shelf
Registration  continuously  effective  until all of the  Registrable  Securities
registered  therein cease to be Registrable  Securities.  The  securities  shall
cease to be Registrable  Securities (a) when the Shelf  Registration  shall have
become effective under the 1933 Act and such securities shall have been disposed
of pursuant to a registration  statement, or (b) such securities shall have been
sold as  permitted  by Rule 144  under  the  1933  Act or the date on which  the
Registrable  Securities  may be sold  pursuant to Rule 144(k),  whichever is the
first to occur. Borrower agrees, if necessary,  to supplement or amend the Shelf
Registration,  as required by the  registration  form utilized by Borrower or by
the instructions  applicable to such  registration  form or by the 1933 Act, and
Borrower agrees to furnish to the holders of the Registrable  Securities  copies
of any such supplement or amendment prior to its being used.

SECTION 9.03  OBLIGATIONS OF BORROWER.

     Whenever required to effect the registration of any Registrable  Securities
pursuant to this  Agreement,  Borrower  shall,  as  expeditiously  as reasonably
possible:

     (a) Prepare and file with the SEC a registration  statement with respect to
such  Registrable  Securities  and use all  reasonable  efforts  to  cause  such
registration  statement  to become  effective,  subject  to the  receipt  of all
required  information  from the Holders,  and keep such  registration  statement
effective  until  the  sooner of all such  Registrable  Securities  having  been
distributed,  or until 120 days have elapsed since such  registration  statement
became effective (subject to an extension of this period as provided below);

     (b) Prepare and file with the SEC such  amendments and  supplements to such
registration   statement  and  the  prospectus  used  in  connection  with  such
registration  statement as may be necessary to comply with the provisions of the
1933 Act with  respect  to the  disposition  of all  securities  covered by such
registration  statement,  or 120  days  have  elapsed  since  such  registration
statement became effective  (subject to the extension of this period as provided
below);

     (c)  Furnish  to the  Holders  such  numbers  of  copies  of a  prospectus,
including a preliminary  prospectus,  in conformity with the requirements of the
1933 Act, and such other  documents as they may  reasonably  request in order to
facilitate the disposition of Registrable Securities owned by them;

     (d) Use all  reasonable  efforts to register  and  qualify  the  securities
covered by such  registration  statement under such other securities or Blue Sky
laws of such  jurisdictions  as shall be  reasonably  requested  by the Holders,
provided that Borrower  shall not be required,  in connection  therewith or as a
condition thereto,  to qualify as a broker-dealer in any states or jurisdictions
or to do business or to file a general consent to service of process in any such
states or jurisdictions;

     (e) In the  event  of any  underwritten  public  offering,  enter  into and
perform  its  obligations  under an  underwriting  agreement  with the  managing
underwriter   of  such  offering,   in  usual  and  customary  form   reasonably
satisfactory  to  Borrower  and the  Holders  of a majority  of the  Registrable
Securities to be included in such offering.  Each Holder  participating  in such
underwriting  shall also enter into and  perform its  obligations  under such an
agreement;

                                       35
<PAGE>

     (f)  Notify  each  Holder  of  Registrable   Securities   covered  by  such
registration  statement,  at any time when a  prospectus  relating  thereto  and
covered by such  registration  statement is required to be  delivered  under the
1933 Act,  of the  happening  of any  event as a result of which the  prospectus
included in such registration  statement,  as then in effect, includes an untrue
statement of a material  fact or omits to state a material  fact  required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing; and

     (g) In the event of the notification provided for in Section 9.03(f) above,
Borrower  shall use its best  efforts to  prepare  and file with the SEC (and to
provide copies thereof to the Holders) as soon as reasonably possible an amended
prospectus  complying  with  the 1933  Act,  and the  period  during  which  the
prospectus  referred  to in the notice  provided  for in Section  9.03(f)  above
cannot be used and the time period  prior to the use of the  amended  prospectus
referred to in this Section  9.03(g)  shall not be counted in the 120 day period
of this Section 9.03.

SECTION 9.04  FURNISH INFORMATION.

     (a) It shall be a condition  precedent  to the  obligations  of Borrower to
take any action  pursuant  to this  Article IX that the  selling  Holders  shall
furnish to Borrower any and all  information  reasonably  requested by Borrower,
its officers,  directors,  employees,  counsel,  agents or representatives,  the
underwriter  or  underwriters,  if any,  and the SEC or any  other  Governmental
Authority,  including,  but not  limited  to:  (i)  such  information  regarding
themselves,  the Registrable Securities held by them, and the intended method of
disposition of such securities,  as shall be required to effect the registration
of their Registrable Securities; and (ii) the identity of and compensation to be
paid to any proposed  underwriter or  broker-dealer to be employed in connection
therewith.

     (b) In  connection  with the  preparation  and filing of each  registration
statement registering  Registrable Securities under the 1933 Act, Borrower shall
give the Holders of  Registrable  Securities  on whose  behalf such  Registrable
Securities  are to be  registered  and  their  underwriters,  if any,  and their
respective  counsel  and  accountants,  at such  Holders'  sole cost and expense
(except as  otherwise  set forth  herein),  such access to copies of  Borrower's
records and documents and such opportunities to discuss the business of Borrower
with its officers and the independent  public accountants who have certified its
financial  statements  as shall be  reasonably  necessary in the opinion of such
Holders  and such  underwriters  or  their  respective  counsel,  to  conduct  a
reasonable investigation within the meaning of the 1933 Act.

SECTION 9.05  EXPENSES OF REGISTRATION.

     All expenses,  other than underwriting discounts and commissions applicable
to the Registrable  Securities sold by selling  Holders,  incurred in connection
with the  registration of the Registrable  Securities  pursuant to this Article,
including, without limitation, all registration,  filing and qualification fees,
printer's  expenses,  and  accounting  and legal fees and  expenses of Borrower,
shall  be  borne  by  Borrower;  provided,  however,  selling  Holders  shall be
responsible  for all costs of their due  diligence  and legal  counsel and other
advisors in connection with a registration of Registrable Securities.

SECTION 9.06  INDEMNIFICATION REGARDING REGISTRATION RIGHTS.

     If any  Registrable  Securities  are included in a  registration  statement
under this Article:

     (a) To the  extent  permitted  by law,  Borrower  will  indemnify  and hold
harmless each Holder, the officers and directors of each Holder, any underwriter

                                       36
<PAGE>


(as  defined  in the 1933 Act) for such  Holder  and each  person,  if any,  who
controls  such Holder or  underwriter  within the meaning of the 1933 Act or the
1934 Act, against any losses, claims, damages, liabilities (joint or several) or
any legal or other costs and expenses  reasonably incurred by them in connection
with  investigating  or defending  any such loss,  claim,  damage,  liability or
action to which  they may  become  subject  under the 1933 Act,  the 1934 Act or
state  law,  insofar  as  such  losses,  claims,  damages,  costs,  expenses  or
liabilities  (or actions in respect  thereof) arise out of or are based upon any
of the following statements,  omissions or violations (each a "Violation"):  (i)
any untrue statement or alleged untrue statement of a material fact with respect
to  Borrower  or  its  securities  contained  in  such  registration  statement,
including any preliminary  prospectus or final prospectus  contained  therein or
any amendments or supplements therein;  (ii) the omission or alleged omission to
state  therein a  material  fact with  respect  to  Borrower  or its  securities
required to be stated  therein or necessary to make the  statements  therein not
misleading;  or (iii) any violation or alleged violation by Borrower of the 1933
Act,  the  1934  Act,  any  state  securities  law or  any  rule  or  regulation
promulgated  under  the 1933  Act,  the 1934 Act or any  state  securities  law.
Notwithstanding the foregoing, the indemnity agreement contained in this Section
9.06(a)  shall not apply and  Borrower  shall not be liable (i) in any such case
for any such loss, claim, damage,  costs,  expenses,  liability or action to the
extent  that it  arises  out of or is based  upon a  Violation  which  occurs in
reliance upon, and in conformity with, written  information  furnished expressly
for  use in  connection  with  such  registration  by  any  such  Holder  or its
authorized agent, underwriter or controlling person, or (ii) for amounts paid in
settlement  of any  such  loss,  claim,  damage,  liability  or  action  if such
settlement  is effected  without the prior  written  consent of Borrower,  which
consent shall not be unreasonably withheld.

     (b) To the extent  permitted  by law,  each  Holder who  participates  in a
registration  pursuant  to the  terms and  conditions  of this  Agreement  shall
indemnify  and hold  harmless  Borrower,  each of its directors and officers who
have signed the  registration  statement,  each  Person,  if any,  who  controls
Borrower within the meaning of the 1933 Act, the 1934 Act, any state  securities
law or any rule or  regulation  promulgated  under the 1933 Act, the 1934 Act or
any state  securities  law, each of Borrower's  employees,  agents,  counsel and
representatives, any underwriter and any other Holder selling securities in such
registration  statement,  or any of its directors or officers, or any person who
controls such Holder,  against any losses, claims,  damages,  costs, expenses or
liabilities (joint or several) to which Borrower or any such director,  officer,
controlling person, employee, agent,  representative,  underwriter or other such
Holder, or director,  officer or controlling person thereof, may become subject,
under the 1933 Act, the 1934 Act or other  federal or state law, only insofar as
such losses,  claims,  damages,  costs,  expenses or  liabilities  or actions in
respect  thereto arise out of or are based upon any  Violation,  in each case to
the extent, and only to the extent,  that such Violation occurs in reliance upon
and in conformity with written  information  furnished by such Holder  expressly
for use in connection  with such  Registration.  Each such Holder will indemnify
any  legal  or  other  expenses  reasonably  incurred  by  Borrower  or any such
director,   officer,  employee,  agent,   representative,   controlling  person,
underwriter  or other Holder,  or officer,  director or any  controlling  person
thereof,  in connection with  investigating  or defending any such loss,  claim,
damage,  liability or action;  provided,  however,  that the indemnity agreement
contained in this Section  9.06(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage,  costs,  expenses,  liability or action if such
settlement is effected  without the prior written  consent of the Holder,  which
consent shall not be unreasonably withheld.

     (c) Promptly after receipt by an indemnified  party under this Section 9.06
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any  indemnifying  party under this Section  9.06,  deliver to the  indemnifying
party a written notice of the commencement  thereof and the  indemnifying  party
shall have the right to  participate  in,  and,  to the extent the  indemnifying
party so desires,  jointly with any other  indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided,  however, that an indemnified party shall have the right to retain its

                                       37
<PAGE>


own counsel, with the reasonable fees and expenses of such counsel to be paid by
the  indemnifying  party, if  representation  of such  indemnified  party by the
counsel retained by the indemnifying  party would be inappropriate due to actual
or potential  conflict of interests between such indemnified party and any other
party  represented  by such counsel in such  proceeding.  The failure to deliver
written  notice  to the  indemnifying  party  within  a  reasonable  time of the
commencement of any such action shall not relieve the indemnifying  party of its
obligations  under this  Section  9.06,  except to the extent  that the  failure
results  in a  failure  of  actual  notice  to the  indemnifying  party and such
indemnifying party is materially prejudiced in its ability to defend such action
solely as a result of the failure to give such notice.

     (d) If the indemnification provided for in this Section 9.06 is unavailable
to an  indemnified  party under this  Section in respect of any losses,  claims,
damages,  costs, expenses,  liabilities or actions referred to herein, then each
indemnifying  party,  in lieu of  indemnifying  such  indemnified  party,  shall
contribute to the amount paid or payable by such  indemnified  party as a result
of such losses, claims, damages, costs, expenses, liabilities or actions in such
proportion as is appropriate  to reflect the relative fault of Borrower,  on the
one hand and of the Holder,  on the other, in connection with the Violation that
resulted in such  losses,  claims,  damages,  costs,  expenses,  liabilities  or
actions. The relative fault of Borrower,  on the one hand, and of the Holder, on
the other, shall be determined by reference to, among other things,  whether the
untrue or alleged untrue statement of the material fact or the omission to state
a material  fact relates to  information  supplied by Borrower or by the Holder,
and  the  parties'  relative  intent,  knowledge,   access  to  information  and
opportunity to correct or prevent such statement or omission.

     (e) Borrower, on the one hand, and the Holders, on the other, agree that it
would not be just and  equitable if  contribution  pursuant to this Section 9.06
were  determined  by a pro rata  allocation or by any other method of allocation
which does not take account of the equitable  considerations  referred to in the
immediately  preceding  paragraph.  The amount paid or payable by an indemnified
party as a result of losses, claims, damages,  costs, expenses,  liabilities and
actions  referred to in the immediately  preceding  paragraph shall be deemed to
include,  subject to the  limitations set forth above,  any reasonable  legal or
other expenses  incurred by such indemnified  party in connection with defending
any such action or claim.  Notwithstanding  the provisions of this Section 9.06,
neither  Borrower nor the Holders shall be required to contribute  any amount in
excess  of the  amount by which the  total  price at which the  securities  were
offered to the public  exceeds the amount of any damages which  Borrower or each
such Holder has otherwise been required to pay by reason of such  Violation.  No
person  guilty of fraudulent  misrepresentations  (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution  from any person who is
not guilty of such fraudulent misrepresentation.

SECTION 9.07  REPORTS UNDER THE 1934 ACT.

     So long as  Borrower  has a class  of  securities  registered  pursuant  to
Section 12 of the 1934 Act,  with a view to making  available to the Holders the
benefits of Rule 144  promulgated  under the 1933 Act ("Rule 144") and any other
rule or  regulation  of the SEC  that may at any  time  permit a Holder  to sell
securities  of  Borrower  to the public  without  registration  or pursuant to a
registration  on Form S-3, if applicable,  Borrower agrees to use its reasonable
efforts to:

     (a)  Make  and keep  public  information  available,  as  those  terms  are
understood and defined in Rule 144, at all times;

     (b) File with the SEC, in a timely manner,  all reports and other documents
required of Borrower under the 1933 Act and the 1934 Act;


                                       38
<PAGE>


     (c) Use its best  efforts  to  include  all  Common  Stock  covered by such
registration  statement  on NASDAQ if the Common Stock is then quoted on NASDAQ;
or list  all  Common  Stock  covered  by  such  registration  statement  on such
securities  exchange or bulletin  board on which any of the Common Stock is then
listed;  or, if the Common  Stock is not then  quoted on NASDAQ or listed on any
national  securities  exchange or bulletin  board,  use its best efforts to have
such Common Stock covered by such registration statement quoted on NASDAQ or, at
the option of  Borrower,  listed on a national  securities  exchange or bulletin
board if eligible for listing; and

     (d)  Furnish  to any  Holder,  so long as the Holder  owns any  Registrable
Securities,  (i)  forthwith  upon  request,  a copy of the most recent annual or
quarterly  report of Borrower and such other SEC reports and  documents so filed
by Borrower, and (ii) such other information (but not any opinion of counsel) as
may be reasonably  requested by any Holder  seeking to avail himself of any rule
or  regulation  of the SEC which  permits  the  selling  of any such  securities
without registration or pursuant to such form.

SECTION 9.08  ASSIGNMENT OF REGISTRATION RIGHTS.

     Subject to the terms and conditions of this Agreement,  and the Debentures,
the right to cause Borrower to register Registrable  Securities pursuant to this
Agreement  may be  assigned  by Holder to any  transferee  or  assignee  of such
securities;  provided  that (i) such  transferee  or assignee is a transferee or
assignee of at least ten percent (10%) of the Registrable Securities,  (ii) such
transferee or assignee is not a Person who is a direct,  material  competitor of
Borrower,  (iii)  Borrower  is,  within a reasonable  time after such  transfer,
furnished  with  written  notice of the name and address of such  transferee  or
assignee and the securities with respect to which such  registration  rights are
being  assigned;   and,  (iv)  such  assignment  shall  be  effective  only  if,
immediately following such transfer,  the further disposition of such securities
by the  transferee  or assignee is  restricted  under the 1933 Act; it being the
intention  that, so long as Holder holds any Registrable  Securities  hereunder,
either Holder or its transferee or assignee of at least ten percent may exercise
the piggy-back registration rights hereunder. Other than as set forth above, the
parties hereto hereby agree that the registration  rights hereunder shall not be
transferable  or  assigned  and  any  contemplated  transfer  or  assignment  in
contravention  of this Agreement  shall be deemed null and void and of no effect
whatsoever.

SECTION 9.09  OTHER MATTERS.

     (a) Each Holder of Registrable  Securities  hereby agrees by acquisition of
such  Registrable  Securities  that,  with  respect  to  each  offering  of  the
Registrable  Securities,  whether  each  Holder  is  offering  such  Registrable
Securities in an  underwritten  or  nonunderwritten  offering,  such Holder will
comply with  Regulation M or such other or  additional  anti-manipulation  rules
then in effect  until such  offering has been  completed,  and in respect of any
nonunderwritten offering, in writing will inform Borrower, any other Holders who
are selling  shareholders,  and any national  securities exchange upon which the
securities of Borrower are listed,  that the  Registrable  Securities  have been
sold and will, upon Borrower's  request,  furnish the  distribution  list of the
Registrable  Securities.  In addition, upon the request of Borrower, each Holder
will supply  Borrower  with such  documents  and  information  as  Borrower  may
reasonably request with respect to the subject matter set forth and described in
this Section 9.09.

     (b) Each Holder of Registrable  Securities  hereby agrees by acquisition of
such  Registrable  Securities  that, upon receipt of any notice from Borrower of
the  happening of any event which makes any statement  made in the  registration
statement,  the  prospectus or any document  incorporated  therein by reference,
untrue in any  material  respect or which  requires the making of any changes in
the registration statement,  the prospectus or any document incorporated therein
by  reference,  in order to make the  statements  therein not  misleading in any
material  respect,  such  Holder  will  forthwith  discontinue   disposition  of

                                       39
<PAGE>


Registrable   Securities   under  the  prospectus   related  to  the  applicable
registration  statement  until  such  Holder's  receipt  of  the  copies  of the
supplemented  or  amended  prospectus,  or until it is  advised  in  writing  by
Borrower that the use of the prospectus may be resumed,  and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus.

                        ARTICLE X. - BOARD OF DIRECTORS

SECTION 10.01 BOARD REPRESENTATION OR ATTENDANCE BY OBSERVER.

     (a) Borrower  herewith agrees that Agent shall have the right, from time to
time,  to  designate a nominee to serve as a member of the Board of Directors of
Borrower.  In the event of a monetary  Default  under  Section 8.01 hereof,  the
Agent shall have the right to designate one (1) additional nominee to serve as a
member of the Board of Directors of Borrower. Borrower will nominate and use its
best  efforts to secure the  election  of such  designee(s)  as  Director(s)  of
Borrower.  During such time as Agent has not  exercised  such rights,  the Agent
shall have the right to designate  an observer,  who shall be entitled to attend
and participate  (but not vote) in all meetings of the Board of Directors and to
receive all notices,  reports,  information,  correspondence  and communications
sent by Borrower to members of the Board of  Directors.  All costs and  expenses
incurred by any such designated  Director or observer,  or by Agent on behalf of
such Director or observer, shall be promptly reimbursed by Borrower.

     (b) Any such  Director or observer  shall,  if requested  to do so,  absent
himself  or  herself  from the  meeting  in the  event of,  and so long as,  the
Directors  are  considering  and acting on matters  pertaining  to any rights or
obligations of Borrower or the Lender under this Agreement, the Debentures,  the
other Loan Documents or the Subsidiary Documents.

SECTION  10.02  LIMITATION  OF  AUTHORITY  OF PERSONS  DESIGNATED  AS A DIRECTOR
                NOMINEE.

     It is provided  and agreed that the actions and advice of any person  while
serving  pursuant  to Section  10.01 as a Director or an observer at meetings of
the Board of  Directors  shall be construed to be the actions and advice of that
person  alone and not be  construed as actions of the Lender as to any notice of
requirements or rights of Lender under this Agreement, the Debentures, the other
Loan  Documents  or the  Subsidiary  Documents  nor as  actions of the Lender to
approve  modifications,  consents,  amendments or waivers thereof;  and all such
actions or notices  shall be deemed  actions or notices of the Lender  only when
duly  provided in writing and given in  accordance  with the  provisions of this
Agreement.

SECTION 10.03 NONLIABILITY OF THE LENDER.

     The relationship between Borrower and the Lender is, and shall at all times
remain,  solely that of borrower and lender.  The Lender neither  undertakes nor
assumes any  responsibility or duty to Borrower to review,  inspect,  supervise,
pass judgment upon or inform Borrower of any matter in connection with any phase
of  Borrower's  business,  operations  or  condition,  financial  or  otherwise.
Borrower shall rely entirely upon its own judgment with respect to such matters,
and any review,  inspection,  supervision,  exercise of judgment or  information
supplied  to  Borrower  by the  Lender,  or any  representative  or agent of the
Lender,  in connection with any such matter is for the protection of the Lender,
and neither Borrower nor any third party is entitled to rely thereon.


                                       40
<PAGE>


                        ARTICLE XI. - AGENCY PROVISIONS


SECTION 11.01 THE LENDER'S REPRESENTATIONS AND WARRANTIES TO AGENT.

     Lender represents and warrants to the Agent:

     (a) It is legal  for it to make  the  Loan,  and the  making  of such  Loan
complies with laws applicable to it;

     (b)  It has  made,  its  own  independent  review  (including  any  desired
investigations and inspections) of, and it accepts and approves,  the Loan, this
Agreement and the  associated  documents  and all other matters and  information
which it deems  pertinent.  It  acknowledges  that  the Loan  Documents  and the
Subsidiary  Documents  are  a  complete  statement  of  all  understandings  and
respective rights and obligations between and among the Lender, Subsidiaries and
Borrower regarding the Loan;

     (c) Lender has not made any express or implied  representation  or warranty
to any other lender with respect to this transaction;

     (d) It will,  independently and without reliance upon any other lender, and
based upon such documents and  information  as it shall deem  appropriate at the
time,  continue to make its own credit  analysis,  appraisals  and  decisions in
taking  or  not  taking  action  under  this  Agreement,   and  will  make  such
investigation  as it deems  necessary to inform itself as to the Loan,  the Loan
Documents,  the Subsidiary  Documents,  Borrower and any  collateral;  provided,
however,  nothing  contained in this Section shall limit  Agent's  obligation to
provide  the  Lender  with the  information  and  documents  Agent is  expressly
required to deliver under this Agreement;

     (f) The Loan  Documents  executed  by the  Lender  are  valid  and  binding
obligations of the Lender.

SECTION 11.02 WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS.

     A waiver of an interest or principal payment, a declaration of a Default or
any amendment,  modification  or waiver of this Agreement or the Debentures will
require the consent of the Lender.

SECTION 11.03 AGENCY.

     (a) Lender hereby  designates and appoints  Renaissance  Group as its Agent
under this  Agreement and authorizes the Agent to take such action on its behalf
under the  provisions  of this  Agreement  and the other Loan  Documents and the
Subsidiary  Documents  and to exercise  such  powers as are set forth  herein or
therein,  together with such other powers as are reasonably  incidental thereto.
In performing its functions and duties under this Agreement, the Agent shall act
solely as agent of the  Lender and does not  assume,  and shall not be deemed to
have assumed,  any obligation  toward or relationship of agency or trust with or
for Borrower.  The Agent may perform any of its duties under this Agreement,  or
under the other Loan  Documents or the Subsidiary  Documents,  by or through its
agents or employees.

     (b) The  Agent  shall  have no  duties  or  responsibilities  except  those
expressly  set forth in this  Agreement,  in the other Loan  Documents or in the
Subsidiary  Documents.  Except as expressly  provided herein,  the duties of the

                                       41
<PAGE>


Agent shall be mechanical and  administrative  in nature.  The Agent shall have,
and may use, its sole  discretion  with respect to exercising or refraining from
taking any actions which the Agent is expressly entitled to take or assert under
this Agreement, the other Loan Documents and the Subsidiary Documents. The Agent
shall not have,  by reason of this  Agreement,  a  fiduciary  relationship  with
respect  to the  Lender.  Nothing  in  this  Agreement,  any of the  other  Loan
Documents or any of the Subsidiary Documents, express or implied, is intended to
or shall be  construed  to impose upon the Agent any  obligations  in respect of
this  Agreement,  any of  the  other  Loan  Documents  or any of the  Subsidiary
Documents  except as expressly  set forth herein or therein.  If the Agent seeks
the consent or approval  of the Lender to the taking or  refraining  from taking
any action  hereunder,  the Agent shall send notice  thereof to the Lender.  The
Agent  may  employ  agents,  co-agents  and  attorneys-in-fact  and shall not be
responsible to the Lender or Borrower, except as to money or securities received
by it or its  authorized  agents,  for the  negligence or misconduct of any such
agents or attorneys-in-fact selected by it with reasonable care.

     (c)  Neither the Agent nor any of its  officers,  directors,  employees  or
agents  shall be liable to the Lender  for any action  taken or omitted by it or
any of them under this Agreement,  any of the other Loan Documents or any of the
Subsidiary  Documents,  or in connection  herewith or therewith,  except that no
Person shall be relieved of any liability  imposed by law,  intentional  tort or
gross  negligence.  The Agent  shall not be  responsible  to the  Lender for any
recitals, statements,  representations or warranties contained in this Agreement
or for the  execution,  effectiveness,  genuineness,  validity,  enforceability,
collectability or sufficiency of this Agreement, any of the other Loan Documents
or any of  the  Subsidiary  Documents  or any of the  transactions  contemplated
thereby,  or for the financial  condition of Borrower or the  Subsidiaries.  The
Agent  shall  not  be  required  to  make  any  inquiry  concerning  either  the
performance or observance of any of the terms,  provisions or conditions of this
Agreement, any of the other Loan Documents or any of the Subsidiary Documents or
the financial  condition of Borrower,  or the existence or possible existence of
any  Default or Event of  Default.  Agent  shall  give the Lender  notice of any
Default or Event of Default of which Agent has actual notice.  The Agent may, at
any time,  request  instructions  from the Lender with respect to any actions or
approvals  which,  by the  terms of this  Agreement,  of any of the  other  Loan
Documents  or of any of the  Subsidiary  Documents,  the Agent is  permitted  or
required to take or to grant, and if such  instructions are promptly  requested,
the Agent shall be  absolutely  entitled to refrain from taking any action or to
withhold  any approval and shall not be under any  liability  whatsoever  to any
Person for refraining  from any action or withholding  any approval under any of
the Loan  Documents  or any of the  Subsidiary  Documents  until  it shall  have
received such instructions from the Lender. Without limiting the foregoing,  the
Lender  shall  not have any right of action  whatsoever  against  the Agent as a
result of the Agent acting or refraining from acting under this  Agreement,  any
of the other Loan  Documents or any of the  Subsidiary  Documents in  accordance
with the instructions of the Lender.

     (d)  The  Agent  shall  be  entitled  to rely  upon  any  written  notices,
statements,  certificates,  orders or other  documents or any telephone  message
believed  by it, in good  faith,  to be  genuine  and  correct  and to have been
signed,  sent or made by the proper  Person,  and with  respect  to all  matters
pertaining  to this  Agreement,  any of the other Loan  Documents  or any of the
Subsidiary  Documents  and its duties  hereunder or  thereunder,  upon advice of
counsel selected by it.

     (e) To the  extent  that the Agent is not  reimbursed  and  indemnified  by
Borrower,  the Lender will reimburse and indemnify the Agent for and against any
and  all  liabilities,   obligations,   losses,  damages,  penalties,   actions,
judgments,  suits,  costs,  expenses,  advances or  disbursements of any kind or
nature  whatsoever  which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this Agreement,  any of the other
Loan  Documents,  or any of the  Subsidiary  Documents  or any  action  taken or
omitted by the Agent under this  Agreement,  any of the other Loan  Documents or

                                       42
<PAGE>


any of the  Subsidiary  Documents.  The  obligations  of the  Lender  under this
indemnification provision shall survive the payment in full of the Loans and the
termination of this Agreement.

ARTICLE XII. - MISCELLANEOUS


SECTION 12.01 STRICT COMPLIANCE.

     Any  waiver by the Lender of any  breach or any term or  condition  of this
Agreement,  the other Loan  Documents or the Subsidiary  Documents  shall not be
deemed a waiver  of any other  breach,  nor shall any  failure  to  enforce  any
provision  of  this  Agreement,  the  other  Loan  Documents  or the  Subsidiary
Documents  operate as a waiver of such provision or of any other provision,  nor
constitute  nor be deemed a waiver or release of Borrower for  anything  arising
out of, connected with or based upon this Agreement, the other Loan Documents or
the Subsidiary Documents.

SECTION 12.02  WAIVERS AND MODIFICATIONS.

     All  modifications,  consents,  amendments or waivers (herein "Waivers") of
any provision of this Agreement, the Debentures, any other Loan Documents or any
Subsidiary Documents, and any consent to departure therefrom, shall be effective
only if the same shall be in  writing by the Lender and then shall be  effective
only in the specific  instance and for the purpose for which given. No notice or
demand given, in any case,  shall constitute a waiver of the right to take other
action in the same, similar or other instances without such notice or demand. No
failure to exercise, and no delay in exercising, on the part of Agent or Lender,
any right hereunder  shall operate as a waiver thereof,  nor shall any single or
partial  exercise  thereof preclude any other or further exercise thereof or the
exercise of any other  right.  The rights of Lender  hereunder,  under the other
Loan  Documents and under the Subsidiary  Documents  shall be in addition to all
other rights provided by law.

SECTION 12.03  LIMITATION ON LIABILITY.

     The  duties,  warranties,  covenants  and  promises  arising  from the Loan
Documents and the  Subsidiary  Documents of Lender or Agent to Borrower shall be
several and not joint,  and Borrower  shall have no legal or equitable  cause of
action  against  Lender  or Agent  (or  their  successors  or  assigns)  for any
liability of the other (or its successors or assigns).

SECTION 12.04  CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION.

     Any suit,  action or  proceeding  against  Borrower  with  respect  to this
Agreement  or the  Debentures  or any  judgment  entered by any court in respect
thereof,  may be brought in the courts of the State of Texas,  County of Dallas,
or in the United States federal courts located in the State of Texas,  as Lender
or Agent, in its sole discretion,  may elect, and Borrower hereby submits to the
nonexclusive  jurisdiction  of such  courts  for the  purpose  of any such suit,
action or proceeding.  Borrower hereby agrees that service of all writs, process
and  summonses in any such suit,  action or  proceeding  brought in the State of
Texas  may be  brought  upon,  and  Borrower  hereby  irrevocably  appoints,  CT
Corporation System,  Dallas,  Texas, as its true and lawful  attorney-in-fact in
the name, place and stead of Borrower to accept such service of any and all such
writs, process and summonses.  Borrower hereby irrevocably waives any objections
which it may now or hereafter have to the laying of venue of any suit, action or
proceeding  arising  out of or  relating  to this  Agreement  or any  Debentures

                                       43
<PAGE>


brought in such courts, and hereby further irrevocably waives any claim that any
such suit,  action or  proceeding  brought in any such court has been brought in
any inconvenient forum.

SECTION 12.05  INVALID PROVISIONS.

     If any  provision  of any Loan  Document is held to be illegal,  invalid or
unenforceable  under  present or future laws during the term of this  Agreement,
such provision shall be fully  severable;  such Loan Document shall be construed
and enforced as if such illegal,  invalid or  unenforceable  provision had never
comprised a part of such Loan  Document;  and the  remaining  provisions of such
Loan Document shall remain in full force and effect and shall not be affected by
the illegal,  invalid or  unenforceable  provision or by its severance from such
Loan  Document.   Furthermore,   in  lieu  of  each  such  illegal,  invalid  or
unenforceable provision shall be added as part of such Loan Document a provision
mutually  agreeable to Borrower and Lender as similar in terms to such  illegal,
invalid or  unenforceable  provision as may be possible and be legal,  valid and
enforceable.  In the event  Borrower  and  Lender  are  unable  to agree  upon a
provision to be added to the Loan Document  within a period of ten (10) business
days after a provision  of the Loan  Document is held to be illegal,  invalid or
unenforceable,  then a provision acceptable to independent arbitrators,  such to
be  selected in  accordance  with the  provisions  of the  American  Arbitration
Association,  as  similar  in terms to the  illegal,  invalid  or  unenforceable
provision  as is possible  and be legal,  valid and  enforceable  shall be added
automatically  to such Loan Document.  In either case, the effective date of the
added  provision shall be the date upon which the prior provision was held to be
illegal, invalid or unenforceable.

SECTION 12.06  MAXIMUM INTEREST RATE.

     (a)  Regardless  of any provision  contained in any of the Loan  Documents,
Lender  shall never be entitled to receive,  collect or apply as interest on the
Debentures any amount in excess of interest calculated at the Maximum Rate, and,
in the event that Lender ever receives, collects or applies as interest any such
excess,  the amount  which would be excessive  interest  shall be deemed to be a
partial  prepayment  of principal  and treated  hereunder  as such;  and, if the
principal  amount of the Obligation is paid in full, any remaining  excess shall
forthwith be paid to Borrower.  In determining  whether or not the interest paid
or payable under any specific  contingency  exceeds  interest  calculated at the
Maximum Rate,  Borrower and Lender shall, to the maximum extent  permitted under
applicable law, (i) characterize any nonprincipal  payment as an expense, fee or
premium  rather than as interest,  (ii) exclude  voluntary  prepayments  and the
effects thereof,  and (iii) amortize,  pro rate,  allocate and spread,  in equal
parts, the total amount of interest  throughout the entire  contemplated term of
the  Debentures;  provided that, if the Debentures is paid and performed in full
prior to the end of the full  contemplated  term  thereof,  and if the  interest
received for the actual period of existence thereof exceeds interest  calculated
at the Maximum  Rate,  Lender shall refund to Borrower the amount of such excess
or  credit  the  amount  of such  excess  against  the  principal  amount of the
Debentures  and, in such  event,  Lender  shall not be subject to any  penalties
provided  by any  laws for  contracting  for,  charging,  taking,  reserving  or
receiving interest in excess of interest calculated at the Maximum Rate.

     (b) "Maximum Rate" shall mean, on any day, the highest  nonusurious rate of
interest  permitted by applicable law on such day that, at any time or from time
to time,  may be contracted  for,  taken,  reserved,  charged or received on the
Indebtedness  evidenced by the Debentures  under the laws which are presently in
effect of the United  States of America  and the laws of any other  jurisdiction
which  are  or may be  applicable  to the  holder  of the  Debentures  and  such
Indebtedness  or, to the extent  permitted by law, under such applicable laws of
the United States of America and the laws of any other jurisdiction which are or
may be applicable to the holder of the  Debentures and which may hereafter be in
effect  and  which  allow  a  higher  maximum  nonusurious  interest  rate  than
applicable laws now allow.


                                       44
<PAGE>


SECTION 12.07  PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES.

     (a) Lender and the Agent shall have the right to enter into a participation
agreement with any other party or its Affiliates with respect to the Debentures,
or to sell  all or any part of the  Debentures,  but any  participation  or sale
shall not  affect  the  rights  and  duties  of  Lender  or the Agent  hereunder
vis-a-vis Borrower. In the event that all or any portion of the Loan shall be at
any time,  assigned,  transferred  or  conveyed  to other  parties,  any action,
consent or waiver (except for compromise or extension of maturity),  to be given
or taken by Lender  or the  Agent  hereunder  (herein  "Action"),  shall be such
action as taken by the holder of a majority in amount of the Principal Amount of
the  Debentures  then  outstanding,  as such holder are recorded on the books of
Borrower and represented by the Agent as described in subsection (b) below.

     (b) Assignment or sale of the Debentures shall be effective on the books of
Borrower only upon (i)  endorsement of the Debentures,  or part thereof,  to the
proposed new holder,  along with a current notation of the amount of payments or
installments  received  and net  Principal  Amount yet  unfunded or unpaid,  and
presentment  of  such   Debentures  to  Borrower  for  issue  of  a  replacement
Debentures,  in the name of the new holder;  and (ii)  delivery of an opinion of
counsel,  reasonably  satisfactory to Borrower,  that transfer shall not require
registration or qualification under applicable state or federal securities laws.

     (c) The Debentures may be sold,  transferred or assigned only to Affiliates
of Lender or permitted  transferees in multiples of One Hundred Thousand Dollars
($100,000).

SECTION 12.08  CONFIDENTIALITY.

     (a) All financial  reports or  information  that are furnished to Lender or
Holders,  or their  respective  director  designees  or  other  representatives,
pursuant  to this  Agreement  or  pursuant  to the  Debentures,  the other  Loan
Documents or the Subsidiary  Documents shall be treated as  confidential  unless
and to the  extent  that  such  information  has  been  otherwise  disclosed  by
Borrower,  but nothing  herein  contained  shall limit or impair the Lender's or
Holders'  right  to  disclose  such  reports  to  any  appropriate  Governmental
Authority,  or to use such  information to the extent pertinent to an evaluation
of the  Obligation,  or to enforce  compliance  with the terms and conditions of
this  Agreement,  or to take any lawful  action which the Lender or Holders deem
necessary to protect their respective interests under this Agreement.

     (b) Lender and the Agent shall use their reasonable  efforts to protect and
preserve the confidentiality of such information,  except for such disclosure as
shall be required for compliance by Lender or its respective  director designees
with SEC reporting  requirements or any administrative or judicial proceeding or
otherwise as a matter of law. The  provisions  of Section 5.01  notwithstanding,
Borrower may refuse to provide  information as required  pursuant  thereto to an
assignee or successor in interest to Lender,  unless and until such  assignee or
successor  shall have executed an agreement to maintain the  confidentiality  of
the information as provided herein.

SECTION 12.09  BINDING EFFECT.

     The Loan  Documents  shall be  binding  upon and  inure to the  benefit  of
Borrower  and  Lender  and  their  respective  successors,   assigns  and  legal
representatives;  provided,  however,  that Borrower may not,  without the prior
written  consent of Lender,  assign any rights,  powers,  duties or  obligations
thereunder.


                                       45
<PAGE>


SECTION 12.10  NO THIRD PARTY BENEFICIARY.

     The parties do not intend the  benefits of this  Agreement  to inure to any
third party,  nor shall this  Agreement  be  construed to make or render  Lender
liable to any materialman,  supplier,  contractor,  subcontractor,  purchaser or
lessee of any property owned by Borrower, or for debts or claims accruing to any
such persons against Borrower. Notwithstanding anything contained herein, in the
Debentures, in any other Loan Document or in any Subsidiary Document, no conduct
by any or all of the parties hereto, before or after signing this Agreement, any
other Loan Document nor any Subsidiary Document,  shall be construed as creating
any right,  claim or cause of action  against  Lender,  or any of its respective
officers, directors, agents or employees, in favor of any materialman, supplier,
contractor,  subcontractor,  purchaser  or  lessee  of  any  property  owned  by
Borrower, nor to any other person or entity other than Borrower.

SECTION 12.11  ENTIRETY.

     This Agreement and the Debentures, the other Loan Documents, the Subsidiary
Documents and any other documents or instruments issued or entered into pursuant
hereto and  thereto  contain  the  entire  agreement  between  the  parties  and
supersede all prior  agreements  and  understandings,  written or oral (if any),
relating to the subject matter hereof and thereof.

SECTION 12.12  HEADINGS.

     Section  headings are for  convenience of reference  only and,  except as a
means of identification of reference,  shall in no way affect the interpretation
of this Agreement.

SECTION 12.13  SURVIVAL.

     All  representations  and warranties  made by Borrower herein shall survive
delivery of the Debentures and the making of the Loans.

SECTION 12.14  MULTIPLE COUNTERPARTS.

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

SECTION 12.15  KNOWLEDGE OF BORROWER.

     As used herein or in any of the other Loan  Documents,  all  references  to
"Borrower's  best  knowledge"  or "to the  knowledge  of  Borrower"  or words or
phrases of similar  import  (whether or not modified by any  additional  phrase)
shall in each case mean the  knowledge of Borrower,  the  Subsidiaries  or their
respective executive officers, directors and principal shareholders.

SECTION 12.16  NOTICES.

     Any notices or other  communications  required or  permitted to be given by
this Agreement or any other documents and instruments referred to herein must be
(i) given in writing and personally  delivered,  mailed by prepaid  certified or
registered  mail or sent by overnight  service,  such as FedEx,  or (ii) made by
telex or facsimile  transmission  delivered or  transmitted to the party to whom

                                       46
<PAGE>


such notice or communication is directed,  with confirmation  thereupon given in
writing and  personally  delivered or mailed by prepaid  certified or registered
mail.

     If to Borrower:         Simtek Corporation
                             4250 Buckingham Dr., Suite 100
                             Colorado Springs, CO 80907
                             Attn:    Douglas M. Mitchell
                             Telephone:        (719) 531-9444
                             Telecopier:       (719) 531-9481

     with a copy to:         Holme Roberts & Owen LLP
                             1700 Lincoln, Suite 4100
                             Denver, CO 80203
                             Attn:    Garth B. Jensen
                             Telephone:        (303) 861-7000
                             Telecopier:       (303) 866-0200

     If to Lender:           Renaissance Capital Growth & Income Fund III, Inc.
                             c/o Renaissance Capital Group, Inc.
                             8080 N. Central Expressway, Suite 210-LB59
                             Dallas, TX 75206
                             Attn:    Russell Cleveland
                                      President and CEO
                             Telephone:      (214) 891-8294
                             Telecopier:     (214) 891-8291

                             Renaissance US Growth & Income Trust PLC
                             c/o Renaissance Capital Group, Inc.
                             8080 N. Central Expressway, Suite 210-LB59
                             Dallas, TX 75206
                             Attn:    Russell Cleveland
                                      President and CEO
                             Telephone:      (214) 891-8294
                             Telecopier:     (214) 891-8291

                             BFSUS Special Opportunities Trust PLC
                             c/o Renaissance Capital Group, Inc.
                             8080 N. Central Expressway, Suite 210-LB59
                             Dallas, TX 75206
                             Attn:    Russell Cleveland
                                      President and CEO
                             Telephone:      (214) 891-8294
                             Telecopier:     (214) 891-8291

                                       48
<PAGE>


    with a copy to:          Kirkpatrick & Lockhart LLP
                             2828 N. Harwood, Suite 1800
                             Dallas, TX 75201
                             Attn:    Norman R. Miller
                             Telephone:      (214) 939-4906
                             Telecopier:     (214) 939-4949

     If to Agent:            Renaissance Capital Group, Inc.
                             8080 N. Central Expressway, Suite 210-LB59
                             Dallas, TX 75206
                             Attn:    Russell Cleveland
                                      President and CEO
                             Telephone:      (214) 891-8294
                             Telecopier:     (214) 891-8291

     with a copy to:         Kirkpatrick & Lockhart LLP
                             2828 N. Harwood, Suite 1800
                             Dallas, TX 75201
                             Attn:    Norman R. Miller
                             Telephone:      (214) 939-4906
                             Telecopier:     (214) 939-4949


     Any notice  delivered  personally  in the manner  provided  herein  will be
deemed  given to the  party to whom it is  directed  upon  the  party's  (or its
agent's) actual receipt.  Any notice addressed and mailed in the manner provided
herein will be deemed given to the party to whom it is addressed at the close of
business,  local time of the recipient, on the fourth business day after the day
it is placed in the mail, or, if earlier, the time of actual receipt.

SECTION 12.17  GOVERNING LAW.

     THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED AND DELIVERED, AND
IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS,  AND THE SUBSTANTIVE  LAWS OF
SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA SHALL
GOVERN THE VALIDITY,  CONSTRUCTION,  ENFORCEMENT AND INTERPRETATION OF THIS LOAN
AGREEMENT.



                            [Signature page follows.]





                                       49
<PAGE>



     IN WITNESS  WHEREOF,  this  Agreement has been duly executed as of the date
and year written above.

                               BORROWER:

                               SIMTEK CORPORATION


                               By:  /s/Douglas Mitchell
                                  ----------------------------------------------
                                    Chief Executive Officer and President


                               LENDER:

                               BFSUS SPECIAL OPPORTUNITIES TRUST PLC


                               By:  /s/Russell Cleveland
                                  ----------------------------------------------
                                    Russell Cleveland, Director

                               RENAISSANCE US GROWTH & INCOME TRUST PLC


                               By:  /s/Russell Cleveland
                                  ----------------------------------------------
                                    Russell Cleveland, Director


                              RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

                              By: Renaissance Capital Group, Inc.,
                                     Investment Adviser


                                  By:  /s/Russell Cleveland
                                     -------------------------------------------
                                       Russell Cleveland
                                       President and CEO


                              AGENT:

                              RENAISSANCE CAPITAL GROUP, INC.


                              By:  /s/Russell Cleveland
                                 -----------------------------------------------
                                   Russell Cleveland
                                   President and CEO

                                       50
<PAGE>



                     SCHEDULES TO CONVERTIBLE LOAN AGREEMENT

Schedule 2.08              Fees and Expenses

Schedule 2.09              Finder's Fees

Schedule 4.05              Permitted Liens

Schedule 4.06              Financial Condition

Schedule 4.08              Material Agreements

Schedule 4.09              Litigation

Schedule 4.10              Taxes

Schedule 4.11              Capitalization

Schedule 4.13              Employee Matters

Schedule 4.14              Employee Benefit Plans

Schedule 4.15              Permits

Schedule 4.16              Licenses and Permits

Schedule 4.17              Contracts

Schedule 4.19              Insider Agreements not listed on SEC Filings

Schedule 4.20              Subsidiaries

Schedule 4.21              Casualties

Schedule 4.24              Corporate Names

Schedule 4.25              Insurance

Schedule 4.27              Real Property

Schedule 4.28              Environmental Matters

Schedule 5.18              Ownership of Subsidiaries

Schedule 6.05              Transactions with Affiliates

Schedule 7.01              Financial Ratios


<PAGE>


                             SCHEDULE 2.08 - BROKERS


None




<PAGE>


                     SCHEDULE 4.03 - NO CONFLICTS OR CONSENT


Q-DOT,  Inc.,  the  Borrower's  sole  Subsidiary,  has entered  into,  and/or is
performing  services pursuant to, various  government  contracts in the ordinary
course of its business.  Such contracts impose various  restrictions on Borrower
and such  Subsidiary,  including in some cases  requiring  security  clearances,
confidential  treatment of certain information and restrictions on who may serve
as management of such  Subsidiary.  It is anticipated  that such Subsidiary will
continue to enter into  similar  agreements  and  continue to be subject to such
restrictions.  Notwithstanding  anything  to the  contrary  in  any of the  Loan
Documents,  Borrower and Subsidiary  express no representation or warranty as to
Lender's or Agent's rights relating to any such contracts.



<PAGE>


                              SCHEDULE 4.05 - LIENS


4.05(a)   IBM Credit Corp Acct # QLO 736697--Software Lease (previously provided
          to Lender)

4.05(b)   GE Capital Acct # 355371001  (Originally  Fidelity  Capital)--Software
          Lease (previously provided to Lender)

4.05(c)   Avaya  Financial  Services Acct # X862120  (Originally  Lucent Product
          Finance--Equipment Lease (previously provided to Lender)

4.05(d)   Cadence   Design   Systems  Acct  #   SLA-02SIMT0327--Software   Lease
          (previously provided to Lender)

4.05(e)   Bank One Acct #  5758668455--Line  of Credit  (previously  provided to
          Lender)




<PAGE>


                       SCHEDULE 4.06 - FINANCIAL CONDITION

Since December 31, 2001,  there have not been (i) any Material  Adverse  Change;
(ii) any Dividend  declared or paid or distribution made on the capital stock of
Borrower  or any  capital  stock  thereof  redeemed  or  repurchased;  (iii) any
incurrence of long-term debt by Borrower; (iv) any salary, bonus or compensation
increases to any officers,  key  employees or agents of Borrower,  other than in
the ordinary  course of business and consistent  with past practice;  or (v) any
other  material  transaction  entered into by  Borrower,  except in the ordinary
course of business and consistent with past practice.




<PAGE>


                       SCHEDULE 4.08 - MATERIAL AGREEMENTS


None



<PAGE>


                           SCHEDULE 4.09 - LITIGATION

None


<PAGE>


                              SCHEDULE 4.10 - TAXES

None




<PAGE>


                         SCHEDULE 4.11 - CAPITALIZATION

4.11(a)   Statement of Shareholders' Equity (previously provided to Lender)

4.11(b)   Simtek  1994  Non-Qualified  Stock  Option  Table  and  related  share
          reservations and option issuances (previously provided to Lender)

4.11(c)   Q-DOT  Stock  Option  Plan   Adopted  by  Simtek  and  related   share
          reservations and option issuances (previously provided to Lender)

4.11(d)   3,095,000  shares of common stock  reserved  for issuance  pursuant to
          exercise of non-qualified stock options which have not yet been issued


<PAGE>


                           SCHEDULE 4.13 - EMPLOYMENT


None



<PAGE>


                     SCHEDULE 4.14 - EMPLOYEE BENEFIT PLANS

None



<PAGE>


                      SCHEDULE 4.15 - COMPLIANCE WITH LAWS

None



<PAGE>


                       SCHEDULE 4.16 - LICENSE AND PERMITS


4.16(a)  Colorado Springs Sales Tax Permit - Simtek

4.16(b)  Colorado Springs Sales Tax Permit - Q-DOT

4.16(c)  State of Colo/El Paso County Sales Tax Permit - Simtek

4.16(d)  State of Colo/El Paso County Sales Tax Permit - Q-DOT



<PAGE>


                            SCHEDULE 4.17 - CONTRACTS


4.17(a)  Zentrum Mikroelektronik Dresden, GmbH--Active

4.17(b)  Baja Properties--Active

4.17(c)  Q-DOT Office Lease--Active

4.17(d)  Amkor Technology; Technology Development, License and Product Agreement
         --Active

4.17(e)  Amkor Technology Manufacturing Services Agreement--Active

4.17(f)  GEC Plessey License Agreement--Inactive since 1992

4.17(g)  Nippon Steel License Agreement--Inactive since 1992

4.17(h)  The following contracts of Q-DOT, Inc.:

<TABLE>
<CAPTION>

      ID#                     Title                                     Date signed             Contractor
      ---                     -----                                     -----------             ----------
      <S>        <C>                                                    <C>            <C>
      5117       Bandpass Delta-Sigma ADC                                9/29/1999     US  Army &  Missile  Aviation
                                                                                       Command

      5119       Superdance & CC SiGe                                     3/1/2020     USC/ISI

      5120       Low Phase Noise Miniature Oscillator (MINO)             9/13/2000     US  Army &  Missile  Aviation
                                                                                       Command

      5122       SiGe Direct Digital Synthesizer System                   6/6/2001     US Army Research Lab

      5123       SiGe MODFET Circuit Applications                        1/28/2002     SPAWAR Systems Center

      5124       Multi-Channel, Wideband, 4-40GHz Tuner                   2/6/2002     US  Army  CECOM   Acquisition
                                                                                       Center

      5125       High Speed Sub-sampler development                      3/18/2002     INSYTE

      5126       Miniaturized Low Jitter Clock for Digital Receivers     4/22/2002     RF Monolithics

      5127       Flight  Test  Receiver  and  Decoder  for  Universal    5/10/2002     Air Force Research Lab
                 Flight Termination System

      5128       Bandpass  Delta-Sigma  Analog to  Digital  Converter    5/20/2002     Naval Surface Warfare Center
                 for Advanced Digital Array Radar (DAR)

</TABLE>



<PAGE>


          SCHEDULE 4.19 - INSIDER AGREEMENTS NOT LISTED ON SEC FILINGS

None


<PAGE>


                          SCHEDULE 4.20 - SUBSIDIARIES

Borrower owns 100% of the issued and  outstanding  stock of Q-DOT,  Inc. of 1069
Elkton Dr., Colorado Springs, CO 80907.

Borrower also owns a 1% membership interest in QD Acoustics,  LLC and views such
membership interest as immaterial to Borrower's operations.


<PAGE>


                           SCHEDULE 4.21 - CASUALTIES

None



<PAGE>


                         SCHEDULE 4.24 - CORPORATE NAMES

None


<PAGE>


                            SCHEDULE 4.25 - INSURANCE

Copies of all responsive  insurance  polices were provided to Lender by Borrower
on or about ____, 2002.

Certificate of Workers Compensation Insurance

Certificate  of  Property,  General  Liability,   Automobile  Liability,  Excess
Liability for all Domestic Locations

Certificate  of  Property,  General  Liability,   Automobile  Liability,  Excess
Liability for all Foreign locations

Endorsement showing Marine Cargo Insurance

Policy # NY02DOL858466NC for Directors and Officers Liability Insurance




<PAGE>


                          SCHEDULE 4.27 - REAL PROPERTY

Neither  Borrower  nor its  Subsidiary  owns  any fee  simple  interest  in real
property;  both, however,  are lessees of real property as described in Schedule
4.17.



<PAGE>


                          SCHEDULE 4.28 - ENVIRONMENTAL

None




<PAGE>


                    SCHEDULE 5.18 - OWNERSHIP OF SUBSIDIARIES

Borrower owns 100% of the issued and  outstanding  stock of Q-DOT,  Inc. of 1069
Elkton Dr., Colorado Springs, CO 80907.

Borrower  also owns a 1% membership  interest in QD Acoustics,  LLC and does not
expect that such membership interest will be material to Borrower's business.




<PAGE>


             SCHEDULE 6.01 - SCHEDULE OF LIMITATION ON INDEBTEDNESS





<PAGE>


                  SCHEDULE 6.05 - TRANSACTIONS WITH AFFILIATES

None



<PAGE>


                         SCHEDULE 7.01 FINANCIAL RATIOS


(a) Current  Ratio.  The Borrower  will not permit its Current  Ratio to be less
than 1:1 as of the end of each fiscal quarter.

(b) Interest  Coverage Ratio. The Borrower will not permit its Interest Coverage
Ratio to be less  than 2:1,  with such  ratio to be  calculated  quarterly  on a
cumulative  basis for the initial four (4) fiscal quarters of Borrower after the
date hereof and  thereafter to be  calculated  quarterly for the four (4) fiscal
quarters of Borrower immediately preceding the date of determination.

(c) Total Debt to Equity  Ratio.  The Borrower  will not permit the ratio of its
total Indebtedness to stockholders'  equity to be less than 1:1 as of the end of
each fiscal quarter.