MINNESOTA AGRICULTURAL AND ECONOMIC
                                DEVELOPMENT BOARD

                                       and

                               SPARTA FOODS, INC.


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

                                 LOAN AGREEMENT
                             -----------------------



                            Dated as of July 1, 1997




Relating to: Minnesota Energy and Economic  Development  Authority's*  Minnesota
     Small Business Development Loan Program.


-----------------------
*The Minnesota Agricultural and Economic Development Board is the
 statutory successor to the Minnesota Energy and Economic
 Development Authority.

<PAGE>
                                TABLE OF CONTENTS

ARTICLE I - DEFINITIONS

  Section I.1.       Definitions............................................  3

ARTICLE II - REPRESENTATIONS AND COVENANTS

  Section II.1.      Representations and Covenants of the Board............. 15
  Section II.2.      Representations and Covenants of the Borrower.......... 15
  Section II.3.      Tax Representations and Covenants of the Borrower...... 17
  Section II.4.      Covenant with Bondholders.............................. 20
  Section II.5.      General Guaranty Fund Right of Reimbursement........... 21
  Section II.6.      Board Right of Reimbursement........................... 21

ARTICLE III -       AGREEMENT TO ISSUE SINGLE LOT BONDS AND TO LOAN PROCEEDS
                    THEREOF; BORROWER'S CONTRIBUTION TO COSTS OF PROJECT

  Section III.1.     Issuance of Single Lot Bonds; Deposit of Bond Proceeds. 22
  Section III.2.     Agreement to Make Loan................................. 22
  Section III.3.     Need For Borrower's Contribution to Costs of Project... 22

ARTICLE IV -        DEVELOPMENT OF THE PROJECT; APPLICATION OF MONEYS
                    IN CONSTRUCTION ACCOUNT, COST OF ISSUANCE ACCOUNT
                    AND CAPITALIZED INTEREST ACCOUNT

  Section IV.1.      Prior Acquisition of Land.............................. 24
  Section IV.2.      Acquisition and Installation of the Project............ 24
  Section IV.3.      Application of Moneys in Construction Account.......... 25
  Section IV.4.      Certificate of Completion.............................. 27
  Section IV.5.      Completion by Borrower................................. 27
  Section IV.6.      Net Proceeds of Insurance.............................. 28
  Section IV.7.      Remedies to be Pursued Against Contractors and 
                     Subcontractors And their Sureties...................... 28
  Section IV.8.      Application of Moneys in Cost of Issuance Account...... 28
  Section 4.9.       Application of Moneys in Capitalized Interest Account.. 28

ARTICLE V - REPAYMENT PROVISIONS; SECURITY CLAUSES

  Section V.1.       Repayment of Loan...................................... 29
  Section V.2.       Other Amounts Payable.................................. 30
  Section V.3.       Obligations of Borrower Hereunder Unconditional........ 32
  Section V.4.       Security Clauses....................................... 32
  Section V.5.       Investment of Funds and Accounts; Consent to Elections. 33
<PAGE>
ARTICLE VI - MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE

  Section VI.1.      Maintenance of Property by Borrower.................... 34
  Section VI.2.      Installation of Additional Equipment................... 34
  Section VI.3.      Taxes, Assessments and Utility Charges................. 34
  Section VI.4.      Insurance Required..................................... 35
  Section VI.5.      Additional Provisions Respecting Insurance............. 36
  Section VI.6.      Application of Net Proceeds of Insurance............... 36
  Section VI.7.      Right of Board to Pay Taxes, Insurance Premiums and
                            Other Charges................................... 36
ARTICLE VII - DAMAGE, DESTRUCTION AND CONDEMNATION

  Section VII.1.     Damage or Destruction.................................. 37
  Section VII.2.     Condemnation........................................... 39
  Section VII.3.     Condemnation of Borrower-Owned Property Other Than
                            Security Property............................... 41
ARTICLE VIII - SPECIAL COVENANTS

  Section VIII.1.    Qualification in the State............................. 42
  Section VIII.2.    Hold Harmless Provisions............................... 42
  Section VIII.3.    Maintenance of Existence; Conditions Under Which
                     Exceptions Permitted................................... 42
  Section VIII.4.    Agreement to Provide Information....................... 43
  Section VIII.5.    Books of Record and Account; Financial Statements...... 43
  Section VIII.6.    Borrower to File Statements With Internal Revenue 
                            Service......................................... 44
  Section VIII.7.    Release of Equipment................................... 44
  Section VIII.8.    Certificate of No Default.............................. 46
  Section VIII.9.    Notice of Default...................................... 46
  Section VIII.10.   Assignment and Leasing................................. 46
  Section VIII.11.   Right to Inspect the Project and Security Property..... 48
  Section VIII.12.   Compliance With Orders, Ordinances, etc................ 48
  Section VIII.13.   Liens and Encumbrances................................. 48
  Section VIII.14.   Identification of Equipment............................ 49
  Section VIII.15.   Relocation of the Equipment............................ 49
  Section VIII.16.   Security Instruments Covenants......................... 49
  Section VIII.17.   Covenant Against Discrimination........................ 49
<PAGE>

  Section VIII.18.   Employment Records..................................... 50
  Section VIII.19.   Financial Covenants ................................... 51
  Section 8.20       Covenant Against Loans, Transfers, etc................. 51
  Section 8.21       Covenant Against Sale, Gift, Purchase or Redemption 
                          of Stock.......................................... 51
  Section 8.22       Vacant Positions....................................... 51
  Section 8.23       Prevailing Wages....................................... 51
  Section 8.24       Covenant Against Loans, Dividends, etc................. 52
  Section 8.25       Covenant Against Unreasonable Compensation............. 52
  Section 8.26       Job Creation........................................... 52

ARTICLE IX - PLEDGE OF CERTAIN INTERESTS

  Section IX.1.      Pledge of Certain Interests to Bondholders............. 53

ARTICLE X - EVENTS OF DEFAULT AND REMEDIES

  Section X.1.       Events of Default Defined.............................. 54
  Section X.2.       Remedies on Default.................................... 55
  Section X.3.       Remedies Cumulative.................................... 57
  Section X.4.       Agreement to Pay Attorneys' Fees and Expenses.......... 57
  Section X.5.       No Additional Waiver Implied by One Waiver............. 57

ARTICLE XI - EARLY TERMINATION OF AGREEMENT; PREPAYMENT OF LOAN

  Section XI.1.      Early Termination of Agreement......................... 58
  Section XI.2.      Conditions to Early Termination of Agreement........... 58
  Section XI.3.      Discharge of Lien...................................... 59
  Section XI.4.      Prepayment of Loan in Part............................. 59
  Section XI.5.      Refunding Consent...................................... 60

ARTICLE XII - MISCELLANEOUS

  Section XII.1.     Notices................................................ 61
  Section XII.2.     Binding Effect......................................... 61
  Section XII.3.     Severability........................................... 62
  Section XII.4.     Amendments, Changes and Modifications.................. 62
  Section XII.5.     Data Privacy Disclosure................................ 62
  Section XII.6.     Execution of Counterparts.............................. 63
  Section XII.7.     Applicable Law......................................... 63
  Section XII.8.     Recording and Filing................................... 63
<PAGE>

  Section XII.9.     Survival of Obligations................................ 63
  Section XII.10.    Table of Contents and Section Headings Not Controlling. 63
  Section XII.11.    Limited Liability...................................... 63

Schedule I - Promissory Note..............................................  I-1
Exhibit A - Legal Description of Land.....................................  A-1
Exhibit B - Description of Equipment......................................  B-1
Exhibit C - Draw Request    ..............................................  C-1


<PAGE>
     THIS LOAN AGREEMENT, dated as of July 1, 1997 (the "Agreement"),  is by and
between the Minnesota  Agricultural and Economic Development Board (as statutory
successor  to  the  Minnesota  Energy  and  Economic   Development   Authority),
constituted  as an  authority  to act on behalf of the  State of  Minnesota  and
created and existing by virtue of the laws of the State (together with any legal
successor thereto, herein referred to as the "Board"), and Sparta Foods, Inc., a
Minnesota corporation, which is engaged in the business of manufacturing food in
the State of Minnesota (as defined herein in more detail, the "Borrower").


                              W I T N E S S E T H :

     WHEREAS,  the Board (as the legal successor of the Minnesota Small Business
Finance  Agency)  was created by the Laws of 1980,  Chapter  547, as amended and
supplemented and Minnesota  Statutes,  1986 Chapter 116M and presently set forth
in Minnesota Statutes, Chapter 41A (the "Act"), to act on behalf of the State of
Minnesota  (the "State")  within the scope of powers granted to it in the Act to
implement loan programs and to provide  financial  assistance under the economic
development fund created under Minnesota  Statutes 1986,  Section 116M.06 of the
Act  (the  "Economic  Development  Fund")  by  which  the  Board,  alone  or  in
cooperation  with cities,  towns,  counties and private or public  lenders,  may
provide  adequate  funds  or  incentives  to  financing  such as  guarantees  or
insurance with respect  thereto on  sufficiently  favorable  terms to assist and
encourage the  establishment,  maintenance and growth of businesses and eligible
small  businesses and employment  opportunities  in the State and to reduce to a
manageable  level the cost of the  control of  pollution  and  disposal of waste
resulting from the operation of businesses and eligible small businesses; and

     WHEREAS,  to provide financial  assistance to businesses and eligible small
businesses  to  encourage  their  establishment,  maintenance  and growth and to
reduce the cost of the control of pollution and disposal of waste resulting from
the  operation  of  businesses  and  eligible  small  businesses,  the Board has
established  its  Minnesota  Small  Business   Development   Loan  Program  (the
"Program"); and

     WHEREAS,  in accordance  with the Program,  the Board on September 26, 1984
adopted its Minnesota  Small  Business  Development  Loan Program  Revenue Bonds
General  Bond  Resolution,  as  supplemented  and  amended  (the  "General  Bond
Resolution"),  pursuant to which General Bond Resolution (and lot resolutions to
be adopted from time to time by the Board as supplemented  resolutions thereto),
the Board intends to issue revenue bonds (the "Bonds"), and to loan the proceeds
thereof to "businesses" or "eligible small businesses" within the meaning of the
Act to finance capital facilities,  as described within Minnesota Statutes 1986,
Section  116M.03,  Subd.  11 or  Subd.  19 of the  Act  and  "pollution  control
facilities" as described within Minnesota Statutes 1986, Section 116M.03,  Subd.
14 of the Act,  for use by them in  connection  with their  business  operations
(such  "businesses"  and "eligible small  businesses"  collectively  referred to
herein as "Businesses"); and

<PAGE>

     WHEREAS,  such Bonds, as provided in the General Bond Resolution,  shall be
special  obligations of the Board, the principal or redemption price, if any, of
and  interest  on which  are  payable  solely  from and  secured  solely  by the
revenues,  funds and other  property  or  assets of the Board  described  in the
General Bond Resolution (and the lot resolutions) and pledged therefor; and

     WHEREAS, it is the further purpose of the Board with respect to its Program
to provide  additional  financial  assistance  to the  Businesses  participating
therein by creating an account within the Economic  Development Fund to be known
as the "General  Guaranty Fund",  transferring  certain moneys from the Economic
Development  Fund  and from  other  sources  to the  General  Guaranty  Fund and
pledging and  allocating  the moneys on deposit in the General  Guaranty Fund to
guarantee the payment of debt service payments and certain mandatory prepayments
payable on or with respect to the Bonds; and

     WHEREAS,  pursuant to a resolution  adopted by the Board on  September  26,
1984 (the "General Guaranty Fund Resolution"), the Board created and established
the General  Guaranty Fund as an account within and of the Economic  Development
Fund and pursuant to a General Guaranty Fund Pledge and Escrow Agreement,  dated
as of  September  26,  1984  (the  "General  Guaranty  Fund  Pledge  and  Escrow
Agreement") by and between the Board and First National Bank of Minneapolis,  as
escrow holder (together with First Bank National Association and its successors,
the  "Escrow   Holder")  the  Board   provided  for  the  holding,   investment,
application,  disposition of and use of moneys in the General  Guaranty Fund and
various  other  matters  related  thereto with respect to the  governance of the
General Guaranty Fund; and

     WHEREAS,  the Borrower  (referred to herein,  together  with its  permitted
successors  and  assigns,  as the  "Borrower")  has  applied  to the  Board  for
assistance  under the Program in  connection  with the financing of a project to
consist of the acquisition  and  installation of equipment (the "Project") to be
used primarily for the  manufacture of food in the City of New Brighton,  Ramsey
County, Minnesota; and

     WHEREAS,  by resolution adopted by the Board on May 15, 1997, the Board has
found that the Borrower is an "eligible  small  business" under the Act and that
the Project qualifies for financial  assistance under the Act and has determined
to provide  such  financial  assistance  by the  inclusion of the Project in the
Program; and

     WHEREAS,  to implement this determination the Board proposes (i) to issue a
lot of bonds within a series  issued under the General Bond  Resolution  and its
Single  Lot  Resolution  and (ii) to loan the  proceeds  of the sale of the said
Bonds to the Borrower to finance a portion of the cost of the Project,  upon the
terms and conditions hereinafter set forth in this Agreement;

     NOW,  THEREFORE,  for and in  consideration  of the premises and the mutual
covenants  hereinafter  contained,  the parties hereto hereby formally covenant,
agree and bind  themselves as follows,  and, as to the  Borrower,  Sparta Foods,
Inc., agrees and binds itself, to-wit:
<PAGE>
                                    ARTICLE I

                                   DEFINITIONS

     Section  1.1.  Definitions.  Capitalized  terms used herein but not defined
herein  shall have the  meaning  given  thereto in the General  Bond  Resolution
unless the context or use indicates another or different meaning or intent.  The
following  words and terms as used in this  Agreement  shall have the  following
meanings  unless the context or use  indicates  another or different  meaning or
intent:

     "Accountant"  means a firm of independent  public accountants of recognized
standing, selected by the Borrower.

     "Act" means the act of the  legislature of the State enacted as Chapter 547
of the Laws of  Minnesota  for 1980,  as amended and  supplemented  from time to
time, known as the "Minnesota Energy and Economic Development Authority Act" and
set forth  Minnesota  Statutes 1986,  Chapter 116M  (notwithstanding  the repeal
thereof and Minnesota Statutes, Chapter 41A).

     "Additional Guarantor" means any Person who becomes a guarantor pursuant to
Section 2.9 and 3.10 of the Guaranty.

     "Agreement"  means this Loan  Agreement,  dated as of July 1, 1997,  by and
between  the Board and the  Borrower,  as the same may be  amended  from time to
time.

     "Appraised Value" means the value  established by an independent  appraiser
acceptable to the Board.

     "Authorized Representative" means, in the case of the Board, the Chair, the
Administrator  or the  Executive  Director  of the  Board;  in the  case  of the
Borrower,  an officer;  and, in the case of both, such additional persons as, at
the time, are designated to act in behalf of the Board or Borrower,  as the case
may be,  by  written  certificate  furnished  to the  Trustee  and the  Board or
Borrower,  as the case may be,  containing  the specimen  signature of each such
person and signed on behalf of (i) the Board by the Chair, the  Administrator or
the Executive Director of the Board, and (ii) an officer of the Borrower.

     "Board" means the Minnesota  Agricultural and Economic  Development  Board,
constituted  as an  authority  to act on behalf of the State within the scope of
the powers  granted to it in the Act and  created by the Act,  or any  successor
thereto,  and  constituting  the legal  successor  of the  Minnesota  Energy and
Economic Development Authority and the Minnesota Small Business Finance Agency.

     "Board  Resolution"  means the General Bond  Resolution  and the Single Lot
Resolution.
<PAGE>

     "Bonds" means any of the Board's Minnesota Small Business  Development Loan
Program  Bonds  issued from time to time under the General Bond  Resolution  and
then outstanding.

     "Bond Counsel" means Lindquist & Vennum P.L.L.P.,  Minneapolis,  Minnesota,
or any  attorney or firm of  attorneys  of  recognized  standing in the field of
municipal  law, duly admitted to the practice of law before the highest court of
any state of the United  States of America,  appointed  from time to time by the
Attorney General of the State with respect to the Program.

     "Bond Payment  Date" means each date on which  interest or both a Principal
Installment  and interest shall be payable on the Single Lot Bonds in accordance
with its terms.

     "Bond  Proceeds"  means the amount,  including  accrued  interest,  if any,
received  by the  Board as the  purchase  price of the  Single  Lot  Bonds,  and
deposited  by the  Trustee  in  accordance  with  the  provisions  of the  Board
Resolution into certain funds and accounts created thereunder.

     "Bond Rate" means,  as of any date of  calculation  and with respect to any
period,  the  highest  rate of  interest  payable on any of the Single Lot Bonds
determined  as  of  such  date  with  respect  to  such  period  (including  any
fluctuations of rate, if any).

     "Bond Year" means,  for the Single Lot Bonds, the 12-month period beginning
on August 1 of any year and ending on July 31 of the succeeding year;  provided,
however,  that the initial Bond Year shall begin on the date in which such Bonds
are delivered and end on the next succeeding July 31.

     "Bondholder"  or "Holder" or "Holders of Bonds" or similar term,  when used
with  respect to a Bond or Bonds,  means any person who shall be the  registered
owner of any  outstanding  Bond  registered as to both principal and interest in
accordance with the provisions of the General Bond Resolution.

     "Borrower" means (i) Sparta Foods,  Inc., a Minnesota  corporation which is
engaged in the  business  of  operating  a  manufacturing  plant in the State of
Minnesota,  and its successors and assigns and (ii) any surviving,  resulting or
transferee as provided in Section 8.3 hereof.

     "Buildings"  means  all  those  buildings,   improvements,   structures  or
renovations to existing buildings,  improvements or structures and other related
facilities (i) affixed or attached,  or to be affixed or attached,  to the Land,
(ii) financed with the proceeds of the Single Lot Bonds or of any payment by the
Borrower  pursuant to Section  3.3 or Section 4.5 hereof,  and (iii) not part of
the Equipment, all as they may exist from time to time.
<PAGE>

     "Business Loan Reserve  Account"  means the Account so designated  which is
created and established by Section 4.1 of the Single Lot Resolution  pursuant to
the General Bond Resolution.  

     "Business  Loan  Reserve  Account  Requirement"  means,  as of any  date of
calculation, with respect to the Single Lot Bonds that sum which is equal to the
lesser of ten percent of the original  aggregate  principal amount of the Single
Lot Bonds or the maximum  aggregate  payments of principal  and interest for any
Bond Year over the period from the date of  calculation  to (and  including) the
final maturity date of such Single Lot Bonds.

     "Capitalized  Interest  Account"  means the Account so designated  which is
created and established by Section 4.1 of the Single Lot Resolution, pursuant to
the General Bond Resolution.

     "Capitalized Lease Obligations" means all lease obligations which have been
or should be, in  accordance  with  generally  accepted  accounting  principles,
capitalized on the books of the Lessee.

     "Closing Date" means the date of sale and delivery of the Single Lot Bonds.

     "Code"  means the Internal  Revenue  Code of 1986,  as amended from time to
time, and the  regulations,  proposed,  temporary or final, of the Department of
the  Treasury  promulgated  under the Prior  Code or under the Code from time to
time.

     "Completion  Date"  means  the  date  of  completion  of  the  acquisition,
construction  and  installation  of the  Project,  as  certified  to pursuant to
Section 4.4 of this Agreement.

     "Condemnation"  means the taking of title to, or the use of, Property under
the exercise of the power of eminent domain by any governmental  entity or other
Person acting under governmental authority.

     "Construction Account" means the Account so designated which is created and
established by Section 4.1 of the Single Lot Resolution, pursuant to the General
Bond Resolution.

     "Construction  Period" means,  with respect to the Project,  the period (a)
beginning  on the  earlier of (i) the date of  commencement  of  acquisition  or
construction  of such  Project,  or (ii) the  Closing  Date with  respect to the
Single Lot Bonds,  and (b) ending on the  Completion  Date with  respect to such
Project.
<PAGE>
     "Cost of  Issuance"  means all items of  expense  payable  or  reimbursable
directly or indirectly by the Board and related to the  authorization,  sale and
issuance of Bonds,  which items of expense  shall  include but not be limited to
printing  costs,  costs of  reproducing  documents,  filing and recording  fees,
initial  fees and charges of any  fiduciary  appointed  under the  General  Bond
Resolution,  initial  letter of credit  fees,  surety  obligation  fees or other
similar fees,  municipal  bond  insurance  premiums or the cost of providing any
other  credit  enhancement,  legal fees and charges,  professional  consultants'
fees,  costs of credit ratings,  fees and charges for execution,  transportation
and  safekeeping of Bonds,  underwriter  discount or placement  fees,  costs and
expenses of refunding and other costs,  charges and fees in connection  with the
original issuance of Bonds.

     "Continuing Disclosure Agreement" means the Continuing Disclosure Agreement
dated as of July 1, 1997  between  the Board and the  Trustee  allocable  to the
Single Lot Bonds

     "Cost of the  Project"  means all those  items of cost and  expenses as set
forth below:

          (i) The cost of preparing the Plans and Specifications for the Project
     (including any  preliminary  study or planning of the Project or any aspect
     thereof other than a financial feasibility study);

          (ii) Costs of acquiring,  constructing,  equipping and  installing the
     Project (including architectural, engineering and supervisory services with
     respect thereto);

          (iii) Any expenses of the Borrower in enforcing any remedy against any
     contractor,  subcontractor or equipment supplier in accordance with Section
     4.7 hereof;

          (iv) The cost of all premiums (A) for any title  insurance on the Land
     paid during the  Construction  Period and (B) for all insurance  maintained
     pursuant  to Section  6.4 hereof  during  the  Construction  Period for the
     Project;

          (v) Any taxes,  assessments and other charges specified in Section 6.3
     hereof during the Construction Period for the Project;

          (vi) Fees, taxes,  charges and other expenses for recording or filing,
     as the case may be,  this  Agreement,  any  other  agreements  contemplated
     hereby, the Security Instruments,  the Single Lot Resolution, any financing
     statements  and any other  documents that the Board or the Trustee may deem
     desirable in order to perfect or protect any security interest contemplated
     by this Agreement, the Security Instruments or the Single Lot Resolution;

          (vii)  Capitalized  interest  owing on the Single Lot Bonds during the
     Construction Period (pursuant to Section 5.1 of this Agreement); and

          (viii)  Reimbursement  to the Borrower for any of the above enumerated
     costs and expenses  paid by it,  whether paid from funds of the Borrower or
     from the proceeds of interim construction borrowings.
<PAGE>
     "Debt Service  Payment"  means,  with respect to any Bond Payment Date, (i)
the  interest  payable on the Single Lot Bonds on such Bond Payment  Date,  plus
(ii) the principal, if any, payable on the Single Lot Bonds on such Bond Payment
Date,  plus (iii) the premium,  if any,  payable on the Single Lot Bonds on such
Bond Payment Date.

     "Determination of Taxability" means the final administrative  determination
or  judicial  decision  that the  interest on any of the Single Lot Bonds is (or
was), for purposes of Federal income taxation  includible,  for any reason other
than a determination that interest received by a particular taxpayer (other than
a Substantial  User of the Project or a Related  Person)  constitutes an item of
tax preference for the purpose of calculating an alternative minimum tax or some
similar  tax,  in gross  income of the holder  thereof.  Such an  administrative
determination  shall not be deemed to be final for the purposes hereof until the
expiration of all periods for judicial review or appeal, as the case may be.

     "Equipment"  means all  machinery,  equipment and other  personal  property
which (a) is used in connection  with the Project,  (b) is (or will be) acquired
with the  proceeds  of the  Single Lot Bonds or of any  payment by the  Borrower
pursuant  to Section  3.3 or Section 4.5 hereof  (which  property  is  described
generally  in  Exhibit  B  annexed  to  this  Agreement),   together  with  such
replacements and substitutions therefor,  pursuant to Section 8.7 hereof, as may
exist from time to time in accordance  with the provisions of this Agreement but
excluding  additions  pursuant  to  Section  6.2  hereof  and (c) is used as the
Borrower's equity contribution as described in Section 4.3 hereof.

     "Escrow  Holder"  means First Bank  National  Association  (formerly  First
National Bank of  Minneapolis)  appointed as the escrow holder under the General
Guaranty Fund Pledge and Escrow Agreement, and its successor and successors, and
any other corporation or association which may at any time be substituted in its
place as Escrow Agent  pursuant to the General  Guaranty  Fund Pledge and Escrow
Agreement.

     "Funded Indebtedness" means, for any Person, all Indebtedness which matures
by its terms more than one year from the Closing Date or matures within one year
from such date but is unconditionally  renewable or extendible, at the option of
the debtor, by its terms or by the terms of any instrument or agreement relating
thereto, to a date more than one year from such date or arises under a revolving
credit or  similar  agreement  which  obligates  the lender or lenders to extend
credit  over a period of more than one year from such date or, if created  after
the  Closing  Date,  matures  by its  terms  more than one year from the date of
creation.

     "General Bond  Resolution"  means the Minnesota Small Business  Development
Loan Program  Revenue  Bonds,  General Bond  Resolution  adopted by the Board on
September 26, 1984, as the same may be amended or supplemented from time to time
by any supplemental resolution thereunder.
<PAGE>

     "General Guaranty Fund" means that account of the Economic Development Fund
that has been  created by the Board in  accordance  with the Act pursuant to the
General  Guaranty Fund Resolution of the Board and is governed by the provisions
of the General Guaranty Fund Pledge and Escrow Agreement.

     "General  Guaranty  Fund  Payments"  means any payments  made by the Escrow
Holder to the Trustee  for  deposit in  accordance  with the  provisions  of the
General Bond  Resolution  to discharge  the guaranty  obligation  of the General
Guaranty Fund with respect to the debt service  payments on or the prepayment of
the Bonds that  correspond to unpaid payments of principal and interest then due
on the loans to  businesses or exempt small  businesses  financed by such Bonds,
whether  due upon  scheduled  payment  dates or upon  acceleration  prior to the
occurrence of such scheduled payment dates.

     "General  Guaranty  Fund  Pledge and Escrow  Agreement"  means that  escrow
agreement  dated as of  September  26,  1984,  by and  between the Board and the
Escrow  Holder,  pursuant  to which  the  Board has  provided  for the  holding,
investment and application, disposition and use of the moneys transferred by the
Board into the General Guaranty Fund from the Economic Development Fund and from
other  sources,  and  pursuant  to which the Board has  provided  for such other
matters as may be provided for with respect to the General Guaranty Fund and the
moneys transferred thereto, all in accordance with the Act.

     "General  Guaranty  Fund  Reimbursement  Amount"  means,  as of any date of
calculation,  with respect to any Lot of Bonds, an amount equal to the aggregate
of all of the General Guaranty Fund Payments paid from the General Guaranty Fund
to discharge the guarantee  obligation of the General Guaranty Fund with respect
to said  Bonds less those  sums that have been  applied,  or are then  available
under the provisions of the General Bond Resolution to be applied,  to reimburse
the General  Guaranty Fund for the  aggregate of all such General  Guaranty Fund
Payments, plus, with respect to such unpaid General Guaranty Fund Payments, such
additional  amounts equal to the sum of interest  accruing on the amount of such
unpaid  General  Guaranty Fund Payments at the interest rate borne by said Bonds
for any period during which such General Guaranty Fund Payments are unpaid.

     "General Guaranty Fund Resolution" means that certain Resolution No. 84-205
of the Board adopted by the Board on September  26, 1984,  pursuant to which the
Board  created  the  General  Guaranty  Fund  as  an  account  of  the  Economic
Development Fund.

     "Guarantor"  means La Canasta of  Minnesota,  Inc. and its  successors  and
assigns.

     "Guaranty"  means the  agreement  by the  Guarantor  in favor of the Board,
dated as of the date of this Agreement, by which the Guarantor guarantees to the
Board the full and  prompt  payment,  when due,  of all  amounts  payable by the
Borrower  under this  Agreement  and the Note when and as the same  become  due,
whether by any acceleration or otherwise and the performance  obligations of the
Borrower thereunder.
<PAGE>

     "Holding  Account"  means the  Account so  designated  which is created and
established by Section 4.1 of the Single Lot Resolution, pursuant to the General
Bond Resolution.

     "Indebtedness"  means,  for any  Person,  (i)  all  indebtedness  or  other
obligations of such Person for borrowed money or for the deferred purchase price
of property or services (but not including  current  accounts  payable) (ii) all
indebtedness or other  obligations of any other person for borrowed money or for
the deferred purchase price of property or services the payment or collection of
which such Person has guaranteed (except by reason of endorsement for collection
in the  ordinary  course of  business)  or in respect  of which  such  Person is
liable, contingently or otherwise,  including, without limitation, liable by way
of agreement to purchase,  to provide  funds for payment,  to supply funds to or
otherwise  to invest in such other  persons,  or  otherwise to assure a creditor
against loss,  (iii) all  indebtedness or other  obligations of any other person
for borrowed  money or for the deferred  purchase  price of property or services
secured by (or for which the holder of such  indebtedness has an existing right,
contingent or otherwise,  to be secured by) any mortgage, deed of trust, pledge,
lien,  security  interest  or other  charge or  encumbrance  upon or in property
(including,  without  limitation,  accounts and contract  rights)  owned by such
Person,  whether or not such Person has assumed or become liable for the payment
of such  indebtedness or obligations and (iv) Capitalized  Lease  Obligations of
such Person.

     "Indemnified Parties" means the Board and its members, officers,  employees
and  agents  and the  Department  of  Trade  and  Economic  Development  and its
Commissioner, employees and agents.

     "Independent  Counsel"  means an attorney or  attorneys or firm or firms of
attorneys duly admitted to practice law before the highest court of any state of
the United  States of America or in the District of Columbia and not an employee
of the Board, the Borrower or the Trustee.

     "Land" (i) means the real estate  described in Exhibit A attached hereto on
which is located or is to be located the Buildings and the Equipment,  with such
additions thereto and  substitutions  therefor as may exist from time to time in
accordance with the provisions of this Agreement.

     "Lien"  means any  interest in Property  securing an  obligation  owed to a
Person,  whether such interest is based on the common law,  statute or contract,
and including but not limited to the security  interest arising from a mortgage,
encumbrance,  pledge,  conditional sale or trust receipt or a Uniform Commercial
Code security  interest,  lease,  consignment or bailment for security purposes.
The term "Lien" includes  reservations,  exceptions,  encroachments,  easements,
rights of way,  covenants,  conditions,  restrictions,  leases and other similar
title  exceptions  and  encumbrances,  including but not limited to  mechanics',
materialmen's,   warehousemen's,   carriers'  and  other  similar  encumbrances,
affecting real property.  For the purposes of this Agreement,  a Person shall be
deemed to be the owner of any Property which it has acquired or holds subject to
a conditional sale agreement or other arrangement pursuant to which title to the
Property  has been  retained  by or vested in some  other  Person  for  security
purposes.
<PAGE>

     "Loan" means the loan made by the Board to the Borrower pursuant to Section
3.2 of this Agreement and as evidenced by the Note.

     "Loan  Term"  means  the  period  commencing  with  the  Closing  Date  and
continuing until all the Single Lot Bonds and interest thereon have been paid in
full or provision  for such payment has been made  pursuant to Article XI of the
General Bond Resolution.

     "Lot Loan  Fiduciary  Payments"  means,  for any Bond Year (or any  ratable
portion  thereof),  the  reasonable  fees  and  expenses  of  the  Trustee  (and
Depositaries  and Paying Agents,  as defined in the General Bond Resolution) for
the Bond Year in  connection  with duties  performed by them with respect to the
Single Lot Resolution, this Agreement, the Security Instruments, the Project and
the Borrower and under the General Bond Resolution and the General Guaranty Fund
Pledge and Escrow Agreement with respect to the foregoing.

     "Net  Proceeds"  means so much of the gross  proceeds with respect to which
such term is used as  remain  after  payment  of all  expenses,  costs and taxes
(including attorneys' fees) incurred in obtaining such gross proceeds.

     "Net Worth" means, at any date, the Tangible Assets of a Person which would
be shown, in accordance with generally accepted  accounting  principles,  on its
balance sheet,  minus  liabilities  (other than capital stock and surplus or its
equivalent  but including  all reserves for  contingencies  and other  potential
liabilities)  which  would be  shown,  in  accordance  with  generally  accepted
accounting principles, on such balance sheet.

     "Note" means the  promissory  note of the Borrower  dated as of the date of
the Single Lot Bonds,  evidencing  the Borrower's  obligations  pursuant to this
Agreement, substantially in the form of Appendix I hereto.

     "Official Action  Resolution" means that resolution adopted by the Board on
May 15,  1997 with  respect to the  Borrower  and  entitled  "RESOLUTION  GIVING
PRELIMINARY  APPROVAL  TO  A  PROJECT  WITH  SPARTA  FOODS,  INC.,  A  MINNESOTA
CORPORATION AND GIVING PRELIMINARY APPROVAL,  WITH CONDITIONS,  FOR THE ISSUANCE
OF SMALL BUSINESS  DEVELOPMENT LOAN PROGRAM REVENUE BONDS TO FINANCE THE PROJECT
AND PROVIDING FOR OTHER MATTERS RELATED THERETO."

     "Optional  Redemption  Account"  means the Account so  designated  which is
created and established by Section 4.1 of the Single Lot Resolution, pursuant to
the General Bond Resolution.

     "Original Purchasers" means Dougherty Dawkins LLC and Piper Jaffray Inc.
<PAGE>

     "Permitted   Encumbrances"   means  (i)  this   Agreement,   the   Security
Instruments,  the Board Resolution and any security interest created  thereunder
and (ii) a loan in the amount not to exceed $250,000 from Ramsey County.

     "Person"  means  an   individual,   partnership,   corporation,   trust  or
unincorporated  organization  or a  government  or any agency,  instrumentality,
program, account, fund, political subdivision or corporation thereof.

     "Plans  and  Specifications"  means the plans  and  specifications  for the
Project,  including a schedule detailing the components of the Project and their
respective costs or proposed costs,  filed by the Borrower with the Trustee,  as
the same may be  implemented  and detailed from time to time and as the same may
be revised from time to time in accordance  with Section 4.2 of this  Agreement.
The Plans and Specifications  shall include a list of all the Equipment that the
Borrower will acquire with respect to the Project.

     "Pledge"  means the pledge by the Board of the rights and  interests of the
Board in and to this Agreement, the Note and the Security Instruments, including
all rights to receive  payment  thereunder,  such pledge by the Board being made
pursuant to Section 1.04 of the General Bond  Resolution  and Section 6.1 of the
Single Lot Resolution to the Trustee on behalf of Bondholders for the payment of
the  principal or  redemption  price of and interest on the Bonds in  accordance
with their terms.

     "Principal  Installment"  means an installment of principal  payable on the
Single Lot  Bonds,  whether  as the  maturity  date of serial or term bond or as
sinking fund installments payable with respect to such Bonds.

     "Principal  User" means any Person  constituting a "principal  user" within
the meaning of Section 144(a) of the Code.

     "Prior  Code" means the Internal  Revenue  Code of 1954,  as amended and in
effect on the day prior to the enactment of the Internal Revenue Code of 1986.

     "Program" means the Board's  program of acquiring  business loans under the
General  Bond  Resolution  with the  proceeds of Bonds,  the  repayment  of debt
service payments and certain  mandatory  redemptions which are guaranteed by the
General  Guaranty Fund in accordance with the provisions of the General Guaranty
Fund Pledge and Escrow Agreement, which program has been designated by the Board
as the "Minnesota Small Business Development Loan Program".

     "Program  Expense Fund" means the Fund so designated,  which is created and
established by Section 5.01 of the General Bond Resolution.
<PAGE>

     "Project" means the the Equipment to be used in connection with the Land in
the  Building,  and to be acquired and  installed by the Borrower  with the Bond
Proceeds or any payment by the Borrower  pursuant to either  Sections 3.3 or 4.5
hereof, with such additions thereto and substitutions therefor as may exist from
time to time in accordance with the provisions of this Agreement.

     "Project  Municipality"  means  the City of New  Brighton,  Ramsey  County,
Minnesota  within the  corporate  borders of which the  Project is, or is to be,
located.

     "Property"  means any  interest in any kind of  property or asset,  whether
real, personal or mixed, or tangible or intangible.

     "Rebate  Account"  means the  Account so  designated  which is created  and
established by Section 4.1 of the Single Lot Resolution, pursuant to the General
Bond Resolution.

     "Reconstruction  Account" means the Account so designated  which is created
and  established  by Section 4.1 of the Single Lot  Resolution,  pursuant to the
General Bond Resolution. "Redemption Price" means, when used with respect to the
Single Lot Bonds, the principal amount thereof plus the applicable  premium,  if
any,  payable  upon the prior  redemption  thereof  pursuant  to the  Single Lot
Resolution.

     "Reimbursement  Account"  means the Account so designated  which is created
and  established  by Section 4.1 of the Single Lot  Resolution,  pursuant to the
General  Bond  Resolution.  "Related  Person"  means any Person  constituting  a
"related person" within the meaning of Section 144(a)(3) of the Code.

     "Restoration" means the repair,  replacement,  restoration or rebuilding of
the Property or any part thereof following any taking,  damage to or destruction
of the same, as nearly as possible to its respective  size, floor area, type and
character  immediately prior to such taking,  damage or destruction,  within, in
the case of any restoration by the Borrower,  such alterations as may be made at
the  Borrower's  election,  together  with any  temporary  repairs and  property
protection pending completion of the work.

     "Restricted  Costs of Issuance" means all costs incurred in connection with
the authorization,  issuance,  sale and delivery of the Single Lot Bonds and the
authorization,  issuance and making of the Loan (collectively, the "Borrowing"),
including in general,  all costs that are treated as costs of issuance under the
Treasury Department  regulations;  examples of such Restricted Costs of Issuance
include (but are not limited to)--
<PAGE>

          (1) underwriters' spread (whether realized directly or derived through
     purchase  of the Single  Lot Bonds at a  discount  below the price at which
     they are expected to be sold to the public);

          (2) counsel  fees  (including  Bond  Counsel,  Underwriter's  counsel,
     Board's counsel,  Borrower's  counsel,  Trustee's  counsel,  as well as any
     other specialized counsel fees incurred in connection with the Borrowing);

          (3) financial advisor fees incurred in connection with the Borrowing;

          (4) rating agency fees;

          (5) Trustee fees incurred in connection with the Borrowing;

          (6) paying agent and certifying and authenticating  agent fees related
     to issuance of the Single Lot Bonds;

          (7) accountant fees (e.g. account verifications in the case of advance
     refundings) related to issuance of the Single Lot Bonds;

          (8) printing  costs (for the Single Lot Bonds and of  preliminary  and
     final offering materials);

          (9) costs  incurred in connection  with the required  public  approval
     process (e.g.,  publication costs for public notices generally and costs of
     the public hearing or voter referendum); and

          (10) costs of title  insurance,  engineering and  feasibility  studies
     necessary  to the  issuance  of the  Single  Lot Bonds (as  opposed to such
     studies  related  to  completion  of the  Project,  but not  related to the
     Borrowing).

     "Revenue  Account"  means the  Account so  designated  which is created and
established by Section 4.1 of the Single Lot Resolution, pursuant to the General
Bond Resolution.

     "Security  Agreement" means the Security Agreement dated as of July 1, 1997
from the Borrower to the Board.

     "Security Instruments" means the Security Agreement and the Guaranty.

     "Security  Property" means all Property subject to any mortgage or security
interest described in Section 5.4 of this Agreement.

     "Series 1997D Bonds" means the Bonds of the series  designated by the Board
as the  "Series  1997D  Bonds" in the  Single  Lot  Resolution  of the Board and
consisting  of the  Single  Lot Bonds  plus the  additional  lots  being  issued
pursuant to separate lot resolutions.
<PAGE>

     "Single Lot Bonds" means the Board's  Minnesota Small Business  Development
Loan Program  Revenue  Bonds,  Series 1997D,  Lot 1 in the  aggregate  principal
amount of $1,950,000 authorized to be issued by the Board Resolution.

     "Single Lot Resolution"  means the Single Lot Bonds resolution of the Board
authorizing  the  issuance of the Single Lot Bonds  adopted by the Board on June
11, 1997 pursuant to the General Bond Resolution.

     "Special  Redemption  Account"  means the  Account so  designated  which is
created and established by Section 4.1 of the Single Lot Resolution, pursuant to
the General Bond Resolution. 

     "State" means the State of Minnesota.

     "Subordinated   Indebtedness"  means,  with  respect  to  any  Person,  all
Indebtedness  which by its terms states that  payment of principal  and interest
thereof is  subordinate  to the payment of principal and interest of the Loan. A
payment of principal or interest on Subordinated  Indebtedness is subordinate to
payment of principal and interest on the Loan if by its terms such payment shall
not be made by the  Borrower  or  received  by or on behalf of the holder of the
Subordinated  Indebtedness  if and for so long as (a) the Borrower is delinquent
in the  payment of  principal,  premium,  if any, or interest on the Loan as and
when any such  payment  on the  Loan is due,  whether  by  reason  of  regularly
scheduled payments, maturity,  mandatory, special or extraordinary redemption or
acceleration,  (b) the Borrower is not in violation with the covenants contained
in Section 8.19 of the Loan  Agreement  for (i) the most recent fiscal year and,
(ii) if such  payment is made after the first 3 months of a fiscal  year for the
year-to-day  period through the most recently completed fiscal quarter or (c) an
event of default has occurred and is continuing under (i) this Agreement or (ii)
the Security Instruments.

     "Substantial  User"  means any Person  constituting  a  "substantial  user"
within the meaning of Section 147(a) of the Code.

     "Tangible  Assets" means total assets except:  (i) that portion of deferred
assets and prepaid  expenses  (other than  prepaid  insurance,  prepaid rent and
prepaid  taxes) which do not mature or, in accordance  with  generally  accepted
accounting  principles,  are not  amortizable  within  one year from the date of
calculation,  and (ii)  trademarks,  trade names,  good will,  and other similar
intangibles.

     "Trustee"  means First Bank National  Association  (formerly known as First
National Bank of Minneapolis), appointed by the Board as Trustee under the Board
Resolution,  and its  successor  or  successors  and any  other  corporation  or
association  at any time  substituted  in its place as trustee  pursuant  to the
General Bond Resolution.
<PAGE>
                                   ARTICLE II

                          REPRESENTATIONS AND COVENANTS

     Section 2.1.  Representations  and Covenants of the Board.  The Board makes
the following representations and covenants as the basis for the undertakings on
its part herein contained:

     (a) The Board is duly  established  and existing and is  constituted  as an
authority  to act on behalf of the State and created  and  existing by virtue of
the  laws  of the  State  and has the  power  to  enter  into  the  transactions
contemplated  by this  Agreement and the Security  Instruments  and to adopt the
Board Resolution, and to carry out its obligations hereunder and thereunder. The
Project is of a nature that qualifies under the Act for the financial assistance
provided  by the  Program.  By proper  official  action  the Board has been duly
authorized  to execute  and deliver or accept this  Agreement  and the  Security
Instruments and has duly adopted the Board Resolution.

     (b) Neither the execution and delivery or acceptance of this Agreement,  or
the  Security  Instruments  or  the  adoption  of  the  Board  Resolution,   the
consummation  of  the  transactions  contemplated  hereby  or  thereby  nor  the
fulfillment  of or  compliance  with the  provisions  of this  Agreement  or the
Security  Instruments and the Board Resolution will conflict with or result in a
breach  of any  of the  terms,  conditions  or  provisions  of the  Act,  or any
restriction,  agreement or  instrument to which the Board is a party or by which
it is bound,  or will  constitute a default under any of the foregoing,  or will
result in the creation or imposition of any Lien upon any of the Property of the
Board  under  the  terms of any such  instrument  or  agreement  (other  than as
contemplated  by  this  Agreement,   the  Security  Instruments  and  the  Board
Resolution).

     (c) The Board will lend to the Borrower the sum of  $1,950,000  pursuant to
this  Agreement  to  finance  (i) a  portion  of the  cost  of the  acquisition,
construction and  installation of the Project,  (ii) a deposit into the Business
Loan  Reserve  Account  required  under  the  provisions  of  the  General  Bond
Resolution,  (iii) certain Costs of Issuance with respect to the issuance of the
Single Lot Bonds, and (iv)  capitalized  interest with respect to the Single Lot
Bonds, all in furtherance of the purposes of the Act.

     (d) To finance a portion  of the Cost of the  Project  and the other  costs
described  in Section  2.1(c),  the Board will issue its Single Lot Bonds  which
will  mature,  bear  interest,  be  redeemable  and have  the  other  terms  and
conditions as set forth in the Board Resolution.

     Section 2.2.  Representations  and Covenants of the Borrower.  The Borrower
makes  the  following  representations  and  covenants  as  the  basis  for  the
undertakings of the Borrower as herein contained:
<PAGE>

     (a) The Borrower, which is a Minnesota corporation duly created and validly
existing  under the laws of the State,  is not in violation of any  provision of
its  articles of  incorporation,  as  amended,  has the power to enter into this
Agreement,  the Note and the Security  Instruments  and to borrow money pursuant
hereto and who has duly executed and delivered this Agreement,  the Note and the
Security Instruments. The Borrower constitute an "eligible small business" and a
"business"  as defined in the Act and are eligible for "special  assistance"  as
defined in the Act.

     (b) Neither the execution and delivery of this Agreement,  the Note and the
Security Instruments,  the consummation of the transactions  contemplated hereby
nor the fulfillment of or compliance with the provisions of this Agreement,  the
Note and the Security  Instruments  will  conflict  with or result in a material
breach of any of the terms,  conditions or provisions of any  restriction or any
agreement  or  instrument  to which  the  Borrower  is a party or by which it is
bound,  or will  constitute an event of default under any of the  foregoing,  or
result in the creation or  imposition  of any Lien of any nature upon any of the
Property of the Borrower  under the terms of any such  instrument  or agreement,
which conflict,  breach, default or Lien would have a material adverse effect on
the Loan,  Note, any Properties of the Borrower or its financial  condition.  No
event has occurred and no condition  exists  which,  upon the passage of time or
the giving of notice,  would  constitute such an event of default under any such
agreement or instrument.

     (c) There has been no material adverse change in the financial condition of
the Borrower since the last annual and interim financial  statements and reports
furnished by the Borrower to the Board in the Borrower's application dated April
28, 1997 and the information  contained in said  statements  fairly presents the
financial condition of the Borrower as of the dates of such financial statements
and reports.

     (d) The Borrower has all  requisite  power and  authority and all necessary
authorizations,   licenses  and  permits,   without   unusual   restrictions  or
limitations,  to own and operate their Properties and to carry on their business
as now conducted,  and are duly  authorized to do business in each  jurisdiction
where the character of their  Properties or the nature of their activities makes
such qualification  necessary or in which the failure to qualify will not have a
material  adverse  affect on the  Properties,  business,  prospects,  profits or
condition  (financial  or  otherwise)  of the  Borrower  or the  ability  of the
Borrower to perform their obligations under this Agreement.

     (e) The Borrower has no contingent  liabilities  other than those disclosed
in the financial statements described in Section 2.2(c) hereof.

     (f) No material  event of default has  occurred  and is  continuing  in any
agreement as to any outstanding  indebtedness of the Borrower for money borrowed
and no condition,  event or act exists  which,  with notice or lapse of time, or
both, would constitute such an event of default under any such agreement.
<PAGE>

     Section  2.3.  Tax  Representations  and  Covenants  of the  Borrower.  The
Borrower makes the following  representations and covenants as the basis for the
undertakings of the Borrower herein contained:

     (a) So long as any of the  Single  Lot  Bonds  shall  be  outstanding,  the
Borrower will not take any action, or fail to take any action, or cause,  suffer
or  permit  others  (other  than the Board or  Trustee)  to take or fail to take
action,  which would (i) cause the Project not to qualify  under the Act for the
financial  assistance  provided  by the Program (as such Act is in effect on the
Closing Date) or (ii)  adversely  affect the  tax-exempt  status of the interest
payable on any of the Single Lot Bonds then outstanding.

     (b) The "construction",  "reconstruction",  "improvement" and "acquisition"
of the Project did not  "commence"  prior to the date of adoption of the Board's
Official  Action  Resolution  within the meanings  ascribed to such quoted terms
under Section 144 of the Code.

     (c) No other bonds, notes or other obligations the interest on which is, or
is claimed to be,  exempt from federal  taxation by reason of Section 144 of the
Code or Section  103(b)(6)  of the Prior Code are  outstanding  the  proceeds of
which have been used to finance facilities  located, in whole or in part, in the
Project Municipality,  the Principal User of which is any of the Borrower or one
or more Related Persons thereof, except as set forth in Section 2.3(p).

     (d) To the extent financed with Bond Proceeds,  the Project  consists,  and
will at all times  consist,  entirely of property  owned for federal  income tax
purposes by the  Borrower and which is of a character  subject to the  allowance
for depreciation by the Borrower as provided in Section 167 of the Code.

     (e) In  addition  to payment of Costs of  Issuance,  substantially  all (at
least 95%) of the net  proceeds  of the Single  Lot Bonds  will be  expended  on
costs,  properly  capitalized  or to be  capitalized by the Borrower for Federal
income tax purposes (or which would be so capitalized but for (or with) a proper
election  by  the  Borrower),  incurred  with  respect  to the  acquisition  and
improvement  of  land  and  acquisition  and   construction  of  facilities  and
acquisition and  installation of Equipment owned for federal tax purposes by the
Borrower and  classified  as  depreciable  property  pursuant to the  applicable
provisions of the Code.

     (f) No part of the Project was  "placed in  service" by the  Borrower,  any
other  Principal  User or a Related Person to the Borrower or any Principal User
(determined in accordance  with the provisions of Sections  144(a) and 147(b) of
the Code) more than one year prior to the date of issue of the Single Lot Bonds.

     (g) The Project is located entirely within the Project Municipality,  which
is an "incorporated  municipality" within the meaning of Section 144(a)(2)(A) of
the Code.
<PAGE>

     (h) The  findings  and  determinations  made by the  Board in the  Official
Action Resolution  concerning the Borrower and the Project are true and correct.
In particular, the financing of the acquisition of the Project will not have the
effect of a transfer of jobs from one area of the State to another.

     (i) The  availability of the financial  assistance by the Board as provided
in this Agreement,  in the Board Resolution and the General Guaranty Fund Pledge
and Escrow Agreement and by the Program has been a substantial inducement to the
Borrower to undertake the Project and to locate the Project in the State.

     (j) To our  knowledge  (the Borrower is a publicly held company) no officer
or  official  of the  Board or the State  Departments  of  Finance  or Trade and
Economic  Development has any interest  (financial,  employment or other) in the
Borrower or, to the knowledge of the Borrower, the transactions  contemplated by
this Agreement.

     (k) No expense for supervision by the Borrower or any director,  officer or
employee  of the  Borrower  and no expense  for work done by any such  director,
officer or employee in connection with the Project is or will be included in the
Cost of the Project.

     (l) Except the Security Instruments,  the Borrower has not entered into any
lease or  assignment  with  respect to any  portion of the Project and no Person
other than the Borrower has any right to the use or possession thereof.

     (m) Neither the  Borrower nor any Related  Persons to the Borrower  operate
any facility in any county or  incorporated  municipality  which shares a common
border with the Project  Municipality,  which  facility is contiguous  with that
part of the  Project  described  in Exhibit A hereto and the  Principal  User of
which  is or  will  be the  same  person  or 2 or more  persons  (determined  in
accordance with Section 144(a)(4)(B) of the Code).

     (n) The Project as  designed  will  comply  with all  presently  applicable
environmental,  building,  zoning and subdivision  laws,  ordinances,  rules and
regulations.

     (o) The Borrower reasonably estimate that the aggregate Cost of the Project
will be at least  $2,625,100  which sum  includes (i) interest on the Single Lot
Bonds to be paid out of Bond  Proceeds  during  the  Construction  Period of the
Project in the  approximate  amount of $-0-, (ii) amounts derived from Bonds and
required to be deposited into the Business Loan Reserve  Account  ($195,000) and
(iii) amounts  required to pay Costs of Issuance with respect to the issuance of
the Single Lot Bonds (presently estimated as $90,100).
<PAGE>
     (p) The Borrower and all Related Persons thereto do not presently intend to
enter into any agreement or arrangement  which would be used to or would tend to
secure, in whole or in part, any "tax-exempt  facility-related bonds" within the
meaning of Section  144(a)(10) of the Code other than the Series 1997D Bonds. In
addition,  the Borrower and all Related Persons thereto do not presently  intend
to  occupy,  in whole or in  part,  any  facilities  which  facilities  would be
financed, in whole or in part, by "tax-exempt facility-related bonds" within the
meaning of Section  144(a)(10) of the Code other than the Series 1997D Bonds and
the obligations (if any) described in the next sentence.  The Borrower has never
entered  into a  transaction  pursuant  to which  were  issued  on behalf of the
Borrower  "tax-exempt  facility-related  bonds"  within  the  meaning of Section
144(a)(10) of the Code.

     (q) The "average  maturity" of the Series 1997D Bonds is 6.61389  years and
120% of the "average  reasonably  expected  economic  life" of the Project is 12
years (as such quoted terms are derived  pursuant to Section 147(b) of the Code,
calculating for the average reasonably  expected economic life of the facilities
being  financed  with the net  proceeds of the Single Lot Bonds from the date on
which the Single Lot Bonds are being issued).  The "average  reasonably expected
economic  life" of the  facilities  financed with the net proceeds of the Single
Lot Bonds as used in the  preceding  sentence was  established  consistent  with
Section  147(b)(2)  of the Code.  Accordingly,  120% of the  average  reasonably
expected economic life of the Project exceeds the average maturity of the Single
Lot Bonds.

     (r) None of the proceeds of the Single Lot Bonds shall be used  directly or
indirectly to provide  residential  real property for family units. In addition,
no more  than 25% of the  proceeds  of the  Single  Lot  Bonds  shall be used to
provide a Project the primary  purpose of which is one of the following:  retail
food and beverage  services,  automobile  sales or service,  or the provision of
recreation or entertainment within the meaning of Section 144(a)(8) of the Code.
In addition, no portion of the proceeds of the Single Lot Bonds shall be used to
provide any of the  following:  any private or commercial  golf course,  country
club, massage parlor,  tennis club, skating facility  (including  rollerskating,
skateboard and ice skating),  racquet sports facility (including any handball or
racquetball  court), hot tub facility,  sun tan facility or racetrack within the
meaning  of  Section  144(a)(8)  of the Code.  In  addition,  no  portion of the
proceeds of the Single Lot Bonds shall be used to provide any of the  following:
any airplane, skybox, or other private luxury box, any health club facility, any
facility  primarily  used for gambling,  or any store the principal  business of
which is the sale of alcoholic beverages for consumption off premises within the
meaning  of Section  147(e) of the Code.  In  addition,  no more than 25% of the
proceeds of the Single Lot Bonds will be used for the  acquisition  of "land" or
an interest  therein  within the  meaning of Section  147(c) of the Code and the
issuance of the Single Lot Bonds will not cause the aggregate  principal  amount
of small issue exemption  industrial  development revenue bonds, exempt pursuant
to  Section  103(a)  and  144(a)(4)  of the Code,  issued  with  respect  to any
building, an enclosed shopping mall, or a strip of offices, stores or warehouses
using  substantial  common  facilities to exceed  $10,000,000  without regard to
ownership or use of such building or other facilities or any portion thereof.

     (s) There is no action or  proceeding  pending or, to the  knowledge of the
Borrower  threatened,  against the  Borrower,  before any court,  administrative
agency or  arbitration  board  that may  materially  and  adversely  affect  the
Properties,  business,  prospects, profits or condition (financial or otherwise)
of the Borrower or the ability of the Borrower to perform their respective joint
and several  obligations under this Agreement or which, if determined  adversely
to the  Borrower,  would result in a  determination  that the Borrower  violated
environmental laws, rules or administrative orders.
<PAGE>

     (t) None of the proceeds of the Single Lot Bonds shall be used  directly or
indirectly for the  acquisition of land (or an interest  therein) to be used for
farming purposes within the meaning of Section 147(c) of the Code.

     (u) No person is a  "test-period  beneficiary"  with respect to the Project
within the meaning of Section 144(a)(10) of the Code, except the Borrower. As of
the date of  issuance  of the Single Lot Bonds,  the  Borrower,  and its Related
Persons do not have  "allocated" to them the face amount of the Single Lot Bonds
and all other outstanding tax-exempt  facility-related bonds "allocated" to such
"test-period  beneficiary"  and  Related  Persons  in an  amount  in  excess  of
$40,000,000  (all as such quoted terms are defined in Section  144(a)(10) of the
Code).

     (v) The only Principal Users of the Project are and will be the Borrower.

     (w) No more than two  percent of the  aggregate  face  amount of the Series
1997D  Bonds will be used  directly or  indirectly  to pay  Restricted  Costs of
Issuance.

     (x) No  more  than  3% of the  Bond  Proceeds  will be  used,  directly  or
indirectly,  as working capital or to finance  inventory or property of any kind
or character the first use of which, within the meaning of Section 147(d) of the
Code,  will be by some  person  other than the  Borrower  (that is,  among other
things,  all  property  acquired  with Bond  Proceeds  will be "new" rather than
"used" property).

     (y) At least  95% of the  proceeds  of the  Bonds  which  remain  after the
deposit to the Business  Loan Reserve  Account will be used to directly  finance
manufacturing  facilities  within the  meaning of Section  144(a)(12)(C)  of the
Code,  including  (i) at least 75% of such  proceeds  which shall be applied for
costs for "core" manufacturing  activities directly constituting the manufacture
or  production  of  tangible  personal  property  so as to result in a change in
condition  of such  property,  and (ii) the  remainder  of such  facilities  not
described in clause (i) shall  nonetheless be directly  related and ancillary to
the  facilities  described  in clause  (i) and shall (a) be  located on the same
site;  (b) not  require  advances  of more than 25% of the net  proceeds  of the
Bonds; and (c) be ancillary facilities which are subordinate and integral to the
manufacturing  activity.  All of such  facilities will be used for such intended
manufacturing  purposes  for the entire  period that the Single Lot Bonds remain
Outstanding.

     Section 2.4.  Covenant with  Bondholders.  The Board and the Borrower agree
that this  Agreement is executed in part to induce the purchase by others of the
Single Lot Bonds.  Accordingly,  subject to the  provisions  of Section  2.5 and
Section 2.6 of this  Agreement,  all covenants and agreements on the part of the
Board and the Borrower set forth in this Agreement are hereby declared to be for
the benefit of the holders from time to time of such Single Lot Bonds.
<PAGE>

     Section 2.5. General Guaranty Fund Right of Reimbursement.  In the event of
the  acceleration of the Loan hereunder,  if any General  Guaranty Fund Payments
are made from the General  Guaranty  Fund with  respect to the Single Lot Bonds,
there shall arise  hereunder a right of  reimbursement  against the Borrower and
accruing  to the  General  Guaranty  Fund  equal  to the sum of the  unsatisfied
General Guaranty Fund Reimbursement Amount with respect to the Single Lot Bonds.
Such right of  reimbursement in favor of the General Guaranty Fund shall require
payment of such sum by the Borrower to the Board  immediately  upon the creation
of such right and shall be secured as provided in Section 5.4 of this  Agreement
and enforced and reduced as provided in Section 10.2 of this  Agreement  and, in
each case, as may be provided in the General Bond Resolution; provided, however,
that such  right of  reimbursement  shall be  subordinate  to the  rights of the
Bondholders  described in Section 2.4 of this Agreement and as further  provided
in the General Bond Resolution.

     Section 2.6. Board Right of Reimbursement. In the event of the acceleration
of the Loan  hereunder,  if the Board  elects to redeem  the Single Lot Bonds in
whole or in part from any moneys  available  to the Board for such  purpose from
any source other than the General  Guaranty  Fund (and other than those  sources
pledged to pay Bonds  pursuant to Section 1.04 of the General Bond  Resolution),
there shall arise  hereunder a right of  reimbursement  against the Borrower and
accruing to the Board  equal to the amount so paid by the Board with  respect to
the Single Lot Bonds. Such right of reimbursement in favor of the Board requires
payment of such sum by the Borrower to the Board  immediately  upon the creation
of such right and shall be secured as provided in Section 5.4 of this  Agreement
and enforced and reduced as provided in Section 10.2 of this  Agreement  and, in
each case, as provided in the General Bond Resolution;  provided,  however, that
such right of  reimbursement  shall be  subordinate to the rights of Bondholders
described  in  Section  2.4 of this  Agreement  and as further  provided  in the
General Bond Resolution.



<PAGE>
                                   ARTICLE III

                 AGREEMENT TO ISSUE SINGLE LOT BONDS AND TO LOAN
          PROCEEDS THEREOF; BORROWER'S CONTRIBUTION TO COSTS OF PROJECT

     Section 3.1.  Issuance of Single Lot Bonds;  Deposit of Bond  Proceeds.  In
order to provide funds for (i) payment of the Cost of the Project, together with
other payments and incidental expenses in connection  therewith,  (ii) a deposit
into the Business  Loan Reserve  Account  required  under the  provisions of the
General Bond  Resolution,  (iii)  certain  Costs of Issuance with respect to the
issuance of the Single Lot Bonds and (iv)  capitalized  interest with respect to
the Single Lot Bonds,  the Board  agrees  that it will issue and sell the Single
Lot Bonds and cause the Bond Proceeds to be delivered to the Trustee.

     Section 3.2.  Agreement to Make Loan.  The Board agrees that,  upon (i) the
sale and delivery of the Single Lot Bonds and (ii) satisfaction of the terms and
conditions set forth in this Section,  it will and does hereby lend the Borrower
the sum of $1,950,000 in accordance with the provisions of this Agreement,  such
loan to be evidenced by the Note.  The obligation of the Board to make said loan
shall be discharged and the obligation of the Borrower hereunder and in the Note
shall arise and become effective,  when the following sums,  totaling $1,911,000
($1,950,000  less $39,000  discount) are  deposited in the  following  funds and
accounts   established  under  the  Board  Resolution  in  accordance  with  the
provisions  of the Board  Resolution,  or are  otherwise  directly  applied  for
certain purposes, in any case, in the following amounts:

          (a) To the Business Loan Reserve Account, $195,000;

          (b) To the Costs of Issuance  Account with respect to the Series 1997D
     Bonds as a  discount  from the par amount of the Series  1997D  Bonds,  the
     amount of  $39,000  (for a portion  of the  underwriters'  discount  on the
     Series 1997D Bonds);

          (c) To pay  interest  on  the  Single  Lot  Bonds  to the  Capitalized
     Interest Account the amount of $-0-; and

          (d) To the Construction Account,  $1,716,000 being the cash balance of
     the Bond Proceeds (other than amounts  representing accrued interest on the
     Single Lot Bonds), to pay the Cost of the Project.

     Section 3.3. Need For Borrower's Contribution to Costs of Project.

     (a) The Borrower  hereby  represents  that the amount of the Loan deposited
into the Construction Account ($1,716,000) to pay for the Cost of the Project is
less than the total Cost of the  Project  (other  than  interest  payable on the
Single Lot Bonds during the Construction Period of the Project)  ($2,340,000) by
an amount equal to  approximately  $624,000.  $39,000 of Bond  Proceeds  will be
applied to pay Cost of Issuance as provided  in Section  3.2(b)  above,  $-0- of
Bond Proceeds will be applied to pay  capitalized  interest from the Capitalized
<PAGE>

Interest  Account as  provided in Section  3.2(c)  above,  and  $195,000 of Bond
Proceeds will be deposited in the Business  Loan Reserve  Account as provided in
Section 3.2(a) above.  Pursuant to the loan criteria for its Program,  the Board
hereby  requires  the Borrower to make an equity  contribution  of not less than
$624,000 to pay for the remaining deficiency in the cost of the Equipment,  such
equity  contribution  to take the form of evidence  satisfactory to the Board of
payment  of not  less  than  $624,000  of  other  costs  of the  Equipment  from
Borrower's funds derived from a source other than the Single Lot Bonds. Prior to
the final disbursement from the Construction Account, the Borrower shall provide
the Trustee with  evidence of payment of not less than  $624,000 of costs of the
Equipment.

     (b) If the Cost of  Issuance  Account is  insufficient  to pay any claim or
cost  incurred  in  connection  with the  Single Lot Bonds for any  reason,  the
Borrower  shall  deposit  on demand by the  Board's  Executive  Director  or the
Trustee an amount sufficient to pay any remaining Costs of Issuance.



<PAGE>
                                   ARTICLE IV

                           DEVELOPMENT OF THE PROJECT;
                 APPLICATION OF MONEYS IN CONSTRUCTION ACCOUNT;
           COSTS OF ISSUANCE ACCOUNT AND CAPITALIZED INTEREST ACCOUNT

     Section 4.1. Prior Acquisition of Land. The Borrower  heretofore has leased
the Land and Building in order to permit the  installation  and operation of the
Project thereon.

     Section 4.2.  Acquisition  and  Installation  of the Project.  The Borrower
agrees to acquire  and  install  the Project or cause the Project to be acquired
and installed on the Land and in the Building.

     (b)  Attached  hereto as Exhibit B is a list of  Equipment  to be purchased
with the proceeds of the Bonds.  With the consent of the Board, the Borrower may
revise the  Exhibit B from time to time;  provided,  however,  that no  material
change  shall be made in the Exhibit B which would alter the proposed use of the
Project or materially  reduce the Cost of the Project,  unless the Trustee shall
be furnished with an unqualified  opinion of Bond Counsel that  construction  of
the Project in accordance with the revised  Exhibit B will not adversely  affect
the tax-exempt status of the interest payable on the Single Lot Bonds.

     (c) The cost of such  acquisition and  installation of the Project shall be
paid from the  Construction  Account in the manner and to the extent provided in
Section 4.3 hereof and the General Bond  Resolution.  The Borrower  shall not be
entitled  to any  moneys in the  Construction  Account,  nor shall the  Borrower
submit a  requisition,  for any item of property  which  constitutes  collateral
under another security  agreement,  or is otherwise subject to any other Lien or
encumbrance whatsoever, except for Permitted Encumbrances.

     (d) The Borrower hereby  covenants and agrees to proceed with due diligence
to make,  execute,  acknowledge  and deliver any  contracts,  orders,  receipts,
writings and instructions  with any other persons,  firms or corporations and in
general do all things which may be requisite or proper,  all for  acquiring  and
installing  the  Project.  The  Borrower  agrees to acquire  and to install  the
Project with all reasonable  dispatch,  and to use  reasonable  efforts to cause
such  acquisition,  construction  and  installation  to be completed by March 1,
1998, or as soon thereafter as may be practicable and, in all events by no later
than July 2, 2000; but if for any reason such  acquisition and  installation are
not completed by either said date, there shall be no resulting  liability on the
part of the Board and no diminution in or postponement of the payments  required
in Section 5.1 hereof to be paid by the Borrower.

     (e) The Borrower  shall  obtain all  necessary  approvals  from any and all
governmental agencies requisite to the acquiring and installing the Project, and
the Project  shall be acquired  and  installed in  compliance  with all federal,
State and  local  laws,  ordinances  and  regulations  applicable  thereto.  The
Borrower  agrees  that the  Project  will not  violate  applicable  use or other
restrictions  contained in zoning ordinances or regulations.  Upon completion of
the Project,  the  Borrower  shall  obtain all  required  occupancy  permits and
authorizations from appropriate authorities, if any be required, authorizing the
occupancy and uses of the Project for the purpose contemplated hereby.
<PAGE>

     (f) THE BOARD  MAKES NO  WARRANTY,  EITHER  EXPRESS OR  IMPLIED,  AS TO THE
CONDITION,  TITLE, DESIGN, OPERATION,  MERCHANTABILITY OR FITNESS OF THE PROJECT
OR THAT IT IS OR WILL BE SUITABLE FOR ANY OF THE BORROWER'S PURPOSES OR NEEDS.

     Section 4.3. Application of Moneys in Construction Account.

     (a) Moneys in the Construction Account may be disbursed in order to pay, or
to  reimburse  the  Borrower for the payment of, any item of Cost of the Project
permitted by the Act which,  under  generally  accepted  accounting  principles,
constitutes  necessary  capital  expenditures in connection with the Project and
subject to the  limitations  in Section  2.3 hereof and  Section  5.02(b) of the
General Bond Resolution.

     Provided,  however,  no moneys in the  Construction  Account  shall be used
directly or  indirectly  to pay Costs of Issuance  except and only to the extent
that  such  moneys  are  directly  derived  from an equity  contribution  of the
Borrower (as provided in Section 4.3(c) herein).

     Notwithstanding anything contained herein to the contrary,

          (i) Except as permitted in Section 4.3(a)(ii) or Section 8.13(b),  the
     Trustee  shall make no advances  from the  Construction  Account (for other
     than Costs of Issuance or debt service on the Single Lot Bonds) while there
     is any Lien or encumbrance upon the Project,  nor will the Trustee make any
     advances from the Construction Account while there is any charge,  question
     or claim of any kind  whatsoever,  whether of record or not,  which, in the
     opinion of counsel  for  Trustee,  may have  priority  over the  Board's or
     Trustee's  interest  in the  Project or in any way  render  the  Board's or
     Trustee's position insecure;

          (ii) The Trustee shall make no advances from the Construction  Account
     with  respect to  particular  items to be acquired as  Equipment  hereunder
     until the Trustee  (A) is  satisfied  that the  specific  requisitions  for
     disbursements  from the  Construction  Account to pay for specific items of
     property  to be  acquired  as  Equipment  hereunder  correspond  in fact to
     specific  items of  Equipment  enumerated  in Exhibit B, (B) has received a
     UCC-1 filing has been made by the Borrower to the Board and assigned to the
     Trustee, (C) is presented with reasonable proof satisfactory to the Trustee
     that  all of the  items  to be  acquired  as  Equipment  for  that  advance
     hereunder have been  acquired,  installed and accepted and are all free and
     clear  of all  security  interests,  liens  and  encumbrances  of any  kind
     whatsoever,  the  Trustee may rely on the  Board's  determination  that the
     Board is satisfied with the above provisions,  provided, however an advance
     for the  tortilla  line  can be made  when it has been  delivered,  (D) has
<PAGE>

     received an opinion of counsel to the Borrower  that the  Equipment is free
     and clear of all liens except the lien of the Security  Instruments and the
     security  interest by the Board in the Equipment has been  perfected and is
     valid, provided,  however that (D) shall be required only when the Borrower
     has submitted requests in the aggregate amounts of $750,000, $1,500,000 and
     $1,716,000  in total  requests,  (E) has  received a UCC search  showing no
     existing interest in the Equipment and (F) has received proof  satisfactory
     to  the  Trustee  and  the  Board  that  the  Borrower  has  satisfied  the
     requirements  in this  Section  relating to their  equity  contribution  of
     $624,000  including  meeting  the  requirements  of (B),  (C),  (D) and (E)
     relating to their equity contribution;

          (iii) The Trustee shall make no advances out of Bond Proceeds from the
     Construction Account to reimburse the Borrower for any Costs of the Project
     paid from the cash  deposits paid or equity  contribution  made pursuant to
     Section 3.3(a) or Section 4.3(ii);

          (iv) The Trustee shall make no advances from the Construction  Account
     (for other than Costs of Issuance  or interest on Single Lot Bonds)  unless
     the Borrower shall deposit with the Trustee  reasonable proof  satisfactory
     to the Trustee  that 26.67% of the cost of Equipment  theretofore  acquired
     and  installed  has been paid  directly by or on behalf of the  Borrower as
     required by Section  3.3(a) hereof as Borrower's  equity so that such Costs
     of the Project constituting Borrower's equity have not been and will not be
     the subject of any requisition submitted pursuant to Section 4.3(a) of this
     Agreement.

     In  connection  with  Section  4.3(a)(i),   4.3(a)(ii),   4.3(a)(iii),  and
4.3(a)(iv)  above and the  preconditions  established  therein,  the Trustee may
request  that counsel to the  Borrower  certify to the Trustee the  existence of
such  preconditions in connection with making any advances from the Construction
Account  and the  Trustee  shall be  entitled  to  conclusively  rely  upon such
certification.  The Trustee may rely on an opinion of counsel to the Borrower to
the extent such certification  covers matters of law, including the validity and
perfection of any security interest contemplated by the Security Instruments. In
addition,  in making any such payment from the Construction  Account the Trustee
may rely on such requisitions and proof delivered to it and the Trustee shall be
relieved of all liability  with respect to making such payments if such payments
are made in accordance with the foregoing. The Borrower hereby agrees to pay all
reasonable  costs of filing or submitting such  requisitions and proof delivered
to the Trustee and to its counsel.

     The Trustee  shall keep and maintain  adequate  records  pertaining  to the
Construction Account and all disbursements  therefrom, and after the Project has
been  completed  and the  Borrower  has filed  with the Board a  certificate  of
completion of the Project as otherwise  provided,  the Trustee  thereafter shall
file  an  accounting   with  respect  to  the   Construction   Account  and  all
disbursements therefrom with the Board and with the Borrower.
<PAGE>

     (b) Upon the  earlier of (i)  completion  of the  Project as  certified  to
pursuant to Section 4.4 hereof;  (ii) the  acceleration  of the Loan pursuant to
Section  10.2(a)(i)  of  this  Agreement;   or  (iii)  failure  to  satisfy  the
requirements for disbursement of moneys from the Construction Account by July 2,
2000 (or  such  later  date as the  Board,  in its  unilateral  discretion,  may
designate); any moneys remaining in the Construction Account, except for amounts
to be paid pursuant to the draw made upon  completion or those retained  therein
for the payment of incurred and unpaid  items of the Cost of the Project,  shall
be applied in accordance with Section 5.02(b) of the General Bond Resolution.

     (c) Pursuant to Section 5.02(b) of the General Bond  Resolution,  moneys in
the  Construction   Account  which  are  derived  from  the  Borrower's   equity
contribution  required by Section  3.3(a)(i)  shall be paid by the Trustee to or
upon the order of the Board.  The Board may use such funds first,  to the extent
necessary to comply with requirements of the Program,  including satisfaction of
requirements  of the Code, the General Bond Resolution or the Act,  second,  any
amounts due under Section 10.4 hereof and third, to the Borrower.

     Section 4.4. Certificate of Completion.  Completion of the Project shall be
evidenced  by a  certificate  signed  by an  Authorized  Representative  of  the
Borrower  stating that (i) the acquisition  and  installation of the Project has
been completed in accordance with the Plans and Specifications therefor and (ii)
except for  amounts to be retained  in the  Construction  Account as provided in
Section  4.3(b)  hereof,  all costs and expenses of acquiring and installing the
Project  have been  paid or  provided  for and that  having  attached  thereto a
certificate of the Borrower or such other evidence  satisfactory to the Board to
the effect  there  exist no Liens or  encumbrances  with  respect to the Project
other than Permitted  Encumbrances or Liens and encumbrances which the Board has
waived.

     Section 4.5.  Completion by Borrower.  To the extent that the Bond Proceeds
that are deposited  into the  Construction  Account are not sufficient to pay in
full all costs of  acquiring,  constructing  and  installing  the  Project,  the
Borrower  agrees to pay all such sums as may be  necessary  to so  complete  the
Project.  At the Trustee's  request,  the Borrower will provide the Trustee with
evidence  satisfactory to the Trustee as to whether or not the remaining  moneys
in the Construction  Account  available to pay the Costs of the Project shall be
sufficient  to pay the  remaining  Costs of the  Project.  In the event that the
Trustee shall reasonably  determine at any time that the remaining moneys in the
Construction Account available for payment of the remaining Costs of the Project
shall not be sufficient to pay the costs thereof in full, the Trustee shall give
written  notice  thereof to the Borrower and the Borrower  shall promptly pay to
the Trustee for deposit into the Construction  Account moneys  sufficient to pay
the Costs of the Project as may be in excess of the moneys available therefor in
the  Construction   Account.   The  Trustee  shall  be  required  to  make  such
<PAGE>

determination  at any time  that the  Plans and  Specifications  are  materially
revised in accordance with Section 4.2 of this  Agreement.  The Trustee may rely
on the  Board's  determination.  No payment  by the  Borrower  pursuant  to this
Section 4.5 shall  entitle the  Borrower to any  diminution  or abatement of the
other amounts payable by the Borrower under this Agreement or the Note.  Section

     4.6. Net Proceeds of  Insurance.  The Net Proceeds from any  insurance,  if
received prior to the Completion Date of the Project,  shall be delivered to the
Trustee and deposited in the Construction  Account and, if received  thereafter,
shall be  delivered  to the Trustee  and  deposited  in the  Special  Redemption
Account.

     Section 4.7. Remedies to be Pursued Against  Contractors and Subcontractors
and their Sureties.  In the event of default of any contractor or  subcontractor
under any contract made by it in connection  with the Project or in the event of
a breach of warranty with respect to any materials,  workmanship, or performance
guaranty,  the  Borrower  shall  promptly  proceed,   either  separately  or  in
conjunction  with others,  to exhaust the  remedies of the Borrower  against the
contractor  or  subcontractor  so in default  and  against  each  surety for the
performance  of such  contract.  The Borrower  agrees to advise the Board of the
steps they intend to take in connection with any such default.  The Borrower may
prosecute or defend any action or proceeding or take any other action  involving
any such contractor, subcontractor or surety which the Borrower deems reasonably
necessary.  The Net Proceeds of any amounts  recovered  pursuant to this Section
4.7, if received prior to the Completion Date, shall be delivered to the Trustee
and deposited in the Construction Account and, if received thereafter,  shall be
(i)  delivered to the Trustee and deposited to the extent  attributable  to Bond
Proceeds, to the credit of the Special Redemption Account and (ii) to the extent
attributable  to the  Borrower's  equity  required by Section 3.3 or Section 4.5
hereof,  paid  over to the  Borrower  free and  clear of any  provision  of this
Agreement.

     Section 4.8.  Application  of Moneys in Cost of Issuance  Account.  $51,100
will be deposited by the Borrower in the Cost of Issuance Account on the Closing
Date.  $51,100 of the amount  deposited  by the Borrower in the Cost of Issuance
Account shall be used to pay Restricted  Costs of Issuance in excess of $39,000.
$9,750 will be paid to the  Underwriters  on the  Closing  Date for a portion of
their fee due under the Bond Purchase Agreement. If the Cost of Issuance Account
is  insufficient to pay any claim or cost incurred in connection with the Single
Lot Bonds for any reason, the Borrower shall deposit on demand by the Trustee an
amount sufficient to pay any remaining Costs of Issuance.

     Section 4.9. Application of Moneys in Capitalized Interest Account. $-0- of
Bond  Proceeds  will be deposited  in the  Capitalized  Interest  Account by the
Trustee on the Closing Date.


<PAGE>
                                    ARTICLE V

                     REPAYMENT PROVISIONS; SECURITY CLAUSES

     Section 5.1. Repayment of Loan.

     (a) Principal on the Loan shall be paid by the Borrower on the dates and in
the  amounts  provided in the Note.  Interest on the unpaid  balance of the Loan
shall be payable at the times  stated in the Note at the rates  provided  in the
Note.  All  such  amounts  to be so paid  shall be paid by the  Borrower  to the
Trustee on behalf of the Board.  It is the intention of the parties  hereto that
the Borrower shall be liable hereunder and under the Note.

     (b) The Note shall provide that interest thereon shall accrue from the date
thereof and shall be payable thereon on the first day of the following month and
thereafter on the first day of each month until the principal sum of the Loan is
discharged,  each such payment to include interest payable in advance due to and
including the first day of the next succeeding  month.  The principal  amount of
the Loan  shall be payable  thereon  at the same  times and manner as  interest.
Principal  and  interest   payments  on  the  Loan  shall  be  made  in  monthly
installments  through the date of final  maturity of the Note,  applied first to
the payment of interest then due on the unpaid principal amount of the Loan, and
the  remaining  balance  of each such  installment  applied to the  payment  and
reduction of the unpaid principal  amount of the Loan. The monthly  installments
to be paid on the Loan shall be an amount equal to (i) one-sixth of the interest
installment due on the Single Lot Bonds on the next succeeding Bond Payment Date
(taking into account  such  in-advance  payments)  and (ii)  one-twelfth  of the
Principal  Installment  due on the Single Lot Bonds on the next  succeeding Bond
Payment Date on which a Principal  Installment  is due (taking into account such
in-advance payments), such installments to be reduced such that on or before the
Bond  Payment Date on which a Principal  Installment  is due any amounts then on
deposit in the Holding Account plus the monthly  installment  then to be paid on
the Loan  shall  equal the Debt  Service  Payment on the Single Lot Bonds due on
such  Bond  Payment  Date.   Notwithstanding  the  foregoing,   amounts  in  the
Capitalized  Interest  Account shall reduce the monthly  installments  set forth
above.  Notwithstanding  the  foregoing,  the number and amount of  proportional
payments of the monthly installments to be paid on the Loan shall be adjusted in
accordance  with  the date of the Note  and the  dates of the  initial  interest
payment and initial  payment of the Principal  Installment due on the Single Lot
Bonds.  All payments on the Note by the Borrower shall be made to the Trustee at
the address set forth in Section 12.1 of this Agreement.

     At the request of the Borrower,  pending  disbursement  or  application  of
amounts in the  Construction  Account,  such amounts  shall be invested so as to
make interest  earnings  available  monthly to be applied as credits against the
required loan repayments.

     (c) If on any Bond  Payment Date of the Single Lot Bonds the amount then on
deposit in the Holding  Account  shall not be sufficient to pay the interest and
Principal  Installment due on the Single Lot Bonds as of such Bond Payment Date,
the Borrower shall  forthwith pay any such  deficiency  into the Revenue Account
for transfer into the Holding Account.
<PAGE>

     (d) The Borrower  shall have the option to make payments  designated as and
representing  advance  loan  payments  on the Note  under and  pursuant  to this
Agreement  (or Section 5.2 of this  Agreement) to the Trustee for deposit in the
Revenue  Account.  Such  payments  shall  not in any way  alter or  suspend  any
obligations  of the Borrower under the terms of this Agreement (i) except to the
extent  that  such  payment  shall  be  transferred  by the  Trustee  under  the
provisions of the Board  Resolution to the Holding Account and shall result in a
credit  against  payments  on the Note as  provided  in  Section  5.1(b) of this
Agreement  or the  retirement  of  principal  amounts  of the  Single Lot Bonds,
pursuant to these  provisions,  or (ii) except to the extent that such  payments
shall  otherwise be transferred by the Trustee in accordance with the provisions
of Section  5.06(a) of the General Bond  Resolution and shall result in a credit
against payments as provided in Section 5.2 of this Agreement;  and the Borrower
shall,  in  either  case,  continue  to  perform  and  be  responsible  for  the
performance of all the terms and provisions of this Agreement.

     (e) If at any time the amount held by the  Trustee in the  Holding  Account
and the Business Loan Reserve Account shall be sufficient to pay,  together with
any interest  earning to be realized,  at the times  required the  principal of,
premium,  if any, and interest on the Single Lot Bonds then unpaid, the Borrower
shall  not be  obligated  to make  any  further  payments  under  the  foregoing
provisions.

     (f) If the Borrower  should fail to make the payments of an amount required
under this Section 5.1, the amount so in default shall continue as an obligation
of the Borrower  until it shall have been fully paid, and the Borrower shall pay
the same with interest thereon at the Bond Rate until paid.

     (g) The Borrower agrees to make the  above-mentioned  payments  without any
further  notice,  in lawful money of the United States of America which,  at the
time of  payment,  shall be legal  tender for the  payment of public and private
debts.

     Section 5.2. Other Amounts Payable.

     (a) The Borrower shall pay to the Trustee for deposit by the Trustee in the
Revenue Account,  the following  amounts (in addition to those amounts described
in Section 5.1(b) of this Agreement) at the times set forth below:

          (i) On August 1 and February 1 of each year during the Loan Term,  the
     Lot Loan  Fiduciary  Payments due with respect to the Bond Year then ended;
     provided,  however,  that,  to the  extent  that on any  August 1 there are
     amounts in the  Revenue  Account in excess of the  amounts  required  to be
     deposited  therein  pursuant to Section  5.1,  Section  5.2(a)(i),  Section
     5.2(a)(ii) and Section  5.2(a)(iii) of this Agreement,  the amount required
     to be paid by the  Borrower  pursuant to this  Section  5.2(a)(i)  shall be
     reduced by the amount of such excess;
<PAGE>

          (ii) On each Bond  Payment  Date,  a sum  sufficient  to  satisfy  any
     outstanding General Guaranty Fund Reimbursement  Amount with respect to the
     Single Lot Bonds as provided in Section 2.5;

          (iii) On each Bond Payment Date, a sum sufficient so that amounts then
     on deposit in the Business Loan Reserve  Account shall not be less than the
     Business Loan Reserve  Account  Requirement  with respect to the Single Lot
     Bonds.

     (b)  Notwithstanding  anything contained in this Agreement to the contrary,
any amount payable as and for an outstanding General Guaranty Fund Reimbursement
Amount under Section  5.2(a)(ii) of this  Agreement  shall not be payable as and
for  unpaid  amounts  due  under  Section  5.1(b)  and  Section  5.1(f)  of this
Agreement.

     (c)  Notwithstanding  anything contained in this Agreement to the contrary,
any amount payable  pursuant to Section  5.2(a)(iii) of this Agreement shall not
be payable as and for unpaid amounts due under Section 5.1(b) and Section 5.1(f)
of this Agreement.

     (d) In addition to the  foregoing  payments,  the Borrower  shall make such
reports and shall pay during the Loan Term the annual fees  required to maintain
the  secondary  market  trading of the Single Lot Bonds in the State.  Such fees
shall be paid directly by the Borrower to Minnesota  State Treasurer by the time
required by law each year, with the Borrower to provide evidence satisfactory to
the Board that each such payment has been made.

     (e) In addition to the foregoing payments,  the Borrower shall pay any fees
of the Board under the Continuing Disclosure Agreement.

     (f) No later than the  fifteenth  day after the first day of any Bond Year,
or at such other times as the Board shall  indicate as necessary or  appropriate
pursuant  to  Section  148(f)(3)  of the Code,  the  Trustee  shall  cause to be
determined  (i) a sum  equal  to  such  amounts  as  are  described  in  Section
148(f)(2)(A)  and (B) of the Code with  respect  to all funds  and  Related  Lot
Accounts  pertaining to the Single Lot Bonds and (ii) determine the amounts then
actually on deposit in the Rebate Account (or that were previously paid therefor
to the United  States of America as rebate  payments) and notify the Borrower in
writing of the costs associated with such determination  (including the fees and
expenses  of any rebate  consultant,  Counsel or  Accountant  fees  incurred  in
connection  therewith) and the excess of amounts described in clause (i) of this
subsection over the amounts  described in clause (ii) of this  subsection.  Upon
receipt of such  notification,  the Borrower  shall within ten (10) days of such
receipt  pay an  amount  equal  to (A) all of the  costs  associated  with  such
determination  and (B) the excess of the  amounts  described  in such clause (i)
over the amounts described in such clause (ii). This covenant of the Borrower as
set  forth  in  this  Section  5.2(e),  5.2(f)  shall  survive  the  Loan  Term,
notwithstanding anything contained herein to the contrary.
<PAGE>

     Section  5.3.   Obligations  of  Borrower  Hereunder   Unconditional.   The
obligations of the Borrower to make the payments  required by this Agreement and
the Note and to  perform  and  observe  any and all of the other  covenants  and
agreements  on its part  contained  herein shall be general  obligations  of the
Borrower, shall be absolute and unconditional irrespective of any defense or any
rights of setoff,  recoupment or  counterclaim it may otherwise have against the
Board or the Trustee or any Holders of the Bonds.  The  Borrower  agrees that it
will  not (i)  suspend,  discontinue  or  abate  any  payment  required  by this
Agreement  and the Note or (ii) fail to observe  any of its other  covenants  or
agreements in this Agreement,  the Note or any Security Instruments,  (iii) seek
judicial or other relief from the obligation to make any payment required by, or
to perform  any  covenant  in,  this  Agreement  and the Note or (iv)  except as
provided  in  Section  11.1  hereof,  terminate  this  Agreement  for any  cause
whatsoever including,  without limiting the generality of the foregoing, failure
to  complete  the  Project,  failure  of the  Borrower  to use  the  Project  as
contemplated  in this Agreement or otherwise,  any defect in the title,  design,
operation,  merchantability,  fitness  or  condition  of the  Project  or in the
suitability  of the Project  for the  Borrower's  purposes or needs,  failure of
consideration,  destruction of or damage to the Project,  commercial frustration
of purpose,  or the taking by  Condemnation of title to or the use of all or any
part of the Project, any change in the tax or other laws of the United States of
America or of the State or any political  subdivision of either,  or any failure
of the Board to perform and observe any agreement, whether expressed or implied,
or any duty,  liability or obligation  arising out of or in connection with this
Agreement.  Nothing  contained in this Section 5.3 shall be construed to release
the Board from the performance of any of the agreements on its part contained in
this Agreement.

     Section  5.4.  Security  Clauses.  In order to secure  the  payment of this
Agreement,  the Note and the Bonds  according to their tenor and effect,  and to
secure the right of  reimbursement  of the General Guaranty Fund provided for in
Section  2.5 of this  Agreement  and the  right of  reimbursement  of the  Board
provided for in Section 2.6 of this  Agreement and to secure the  performance by
the Borrower of all covenants expressed or implied in this Agreement,  as of the
Closing  Date,  the Borrower  shall grant and deliver (i) a security lien to the
Board in the  Equipment  purchased  with  proceeds of the Bonds and other equity
requirements,  which  Security  Instruments is to be pledged by the Board to the
Trustee  for the benefit of  Bondholders  pursuant  to the Board  Resolution  as
security  for the Bonds  and the  Single  Lot  Bonds.  Contemporaneous  with the
delivery of the Security Instruments, the Borrower shall cause to be delivered a
legal  opinion  on  behalf  of the  Borrower  as to the  due  authorization  and
execution of this Agreement,  the Note and any other Security Instruments and as
to the legality,  validity and  enforceability  of such instruments in such form
and  substance  satisfactory  to  the  Board  and  Bond  Counsel.  The  Security
Instruments shall be subject only to Permitted Encumbrances.

<PAGE>

     Section 5.5.  Investment of Funds and Accounts;  Consent to Elections.  (a)
Notwithstanding anything contained in this Agreement to the contrary, any moneys
at any time in the Business  Loan Reserve  Account,  the  Construction  Account,
Holding Account,  Optional  Redemption Account,  Rebate Account,  Reconstruction
Account, the Reimbursement  Account, the Revenue Account, the Special Redemption
Account  or any other fund or  account  created  under,  or  authorized  by, the
General  Bond  Resolution  or the  Single Lot  Resolution  may be  invested  and
reinvested  by the  Board  as  provided  in  Section  5.16 of the  General  Bond
Resolution  and any  letter of  instruction  issued by the Board to the  Trustee
thereunder,  to which such  investment  and  reinvestment,  the Borrower  hereby
consents.  Neither the Board nor its  members,  officers or  employees  shall be
liable for any rate of interest  achieved or not achieved on such  investment or
for any  depreciation  in the value of, or for any loss arising  from,  any such
investment.  Investment income earned from money deposited in any such funds and
accounts shall be applied by the Trustee in the manner provided for in the Board
Resolution.

     (b) The  Borrower  hereby  consents to the  elections  made by the Board in
Section 5.5 of the Single Lot Resolution with respect to the Series 1997D, Lot 1
Bonds.


<PAGE>
                                   ARTICLE VI

                 MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE

     Section 6.1.  Maintenance of Property by Borrower.  (a) The Borrower agrees
that during the Loan Term Borrower will, at Borrower's own expense, (i) keep the
Security  Property in as  reasonably  safe  condition  as its  operations  shall
permit;  (ii)  make all  necessary  repairs  and  replacements  to the  Security
Property  (whether  ordinary  or  extraordinary,  structural  or  nonstructural,
foreseen or unforeseen);  and (iii) operate the Security Property in a sound and
economic manner.

     (b) The Borrower from time to time may, at Borrower's own expense, make any
structural additions,  modifications or improvements to the Security Property or
any part thereof which it may deem  desirable.  All such  structural  additions,
modifications  or improvements so to the Security  Property made by the Borrower
shall become a part of the Security Property.  The Borrower agrees to deliver to
the Board all documents  which may be necessary or  appropriate to convey to the
Board a lien of the  priority  described  in Section 5.4 of this  Agreement,  or
other satisfactory security interest in, such Security Property.

     Section  6.2.  Installation  of  Additional   Equipment.   Subject  to  the
provisions of Section 5.4 of this Agreement, the Borrower from time to time may,
at Borrower's  own expense,  install  additional  machinery,  equipment or other
personal  property  in the  Project  (which  may be  attached  or affixed to the
Security  Property),  and such machinery,  equipment or other personal  property
shall not become, or be deemed to become, a part of the Security  Property.  The
Borrower shall keep appropriate  records of all of such machinery,  equipment or
other personal property constitutingthe Security Property sufficient to identify
the same.  The  Borrower  from time to time may remove or permit the  removal of
such machinery,  equipment and other personal property constituting the Security
Property  and may  create or permit to be  created  any Lien on such  machinery,
equipment or other  personal  property;  provided  that any such removal of such
machinery,  equipment or other personal  property shall not adversely affect the
structural  integrity of the Security  Property or impair the overall  operating
efficiency  of the  Security  Property for the purposes for which it is intended
and provided  further that if any damage is occasioned to the Security  Property
by such removal,  the Borrower  agrees to promptly repair such damage at its own
expense.

     Section 6.3. Taxes, Assessments and Utility Charges.

     (a) The Borrower  agrees to pay, as the same  respectively  become due, and
subject to Section 6.3(b),  (i) all taxes and  governmental  charges of any kind
whatsoever which may at any time be lawfully  assessed or levied against or with
respect to (1) the  Security  Property,  (2) any  machinery,  equipment or other
property  installed  or brought by the  Borrower  therein or thereon  (including
without limitation any sale or use taxes), (3) worker's  compensation taxes with
respect to the employees of the Borrower,  and (4) the income or revenues of the
Borrower  from the  Project,  (ii) all  utility  and  other  charges,  including
"service  charges",  incurred or imposed for the  operation,  maintenance,  use,
upkeep and improvement of the Security  Property,  and (iii) all assessments and
charges of any kind whatsoever lawfully made by any governmental body for public
improvements;  provided  that,  with  respect  to special  assessments  or other
governmental  charges that may lawfully be paid in installments over a period of
years,  the Borrower  shall be obligated  under this  Agreement to pay only such
installments as are required to be paid during the Loan Term.
<PAGE>

     (b) The Borrower may in good faith contest any such taxes,  assessments and
other  charges.  In the event of any such  contest,  the Borrower may permit the
taxes,  assessments  or other  charges so contested to remain  unpaid during the
period of such contest and any appeal  therefrom,  provided that a reserve in an
amount  satisfactory to the Board has been established with respect thereto with
the  Trustee.  If the Board or the Trustee  shall  notify the  Borrower  that by
nonpayment  of any such items as to any part of the  Security  Property  will be
materially  endangered  or the  Security  Property or any part  thereof  will be
subject to loss or forfeiture, however, such taxes, assessments or charges shall
be paid promptly or secured by posting a bond in form and substance satisfactory
to the Board and the Trustee.

     Section 6.4.  Insurance  Required.  At all times  throughout the Loan Term,
including  without  limitation during any period of acquisition and installation
of the Project, the Borrower shall, at its own expense,  maintain or cause to be
maintained  insurance against such risks and for such amounts as are customarily
insured  against by businesses of like size and type paying,  as the same become
due and payable, all premiums in respect thereto, including, but not necessarily
limited to:

     (a) Commercial general liability insurance, fire and special form insurance
coverage  insuring  the  Land,  the  Buildings  and the  Equipment,  boiler  and
machinery insurance, if appropriate,  including business interruption (including
rental  interruption  only if the  Building  is  subleased),  or  extra  expense
coverage for a period of not less than one year and such other insurance,  flood
insurance, if the Land is located in a HUD-designated special flood hazard area,
as the Board may reasonably  require from time to time. All such insurance shall
be obtained from such companies,  in such amounts (which shall be the amounts as
required  by this  Agreement)  and with  such  provisions  as the Board may deem
necessary or desirable to protect its  interests  and shall  contain a waiver of
subrogation clause (except worker's  compensation  insurance),  non-contributory
standard  mortgage  clauses  and 30-day  notice to the Board and the  Trustee of
cancellation  or  material  change  clause.  In the  event of loss in  excess of
$50,000 of  Equipment,  the Borrower will give  immediate  notice by mail to the
Board, and each insurance company concerned is hereby authorized and directed to
make  payment  for such loss with  respect  to  Security  Property  in excess of
$50,000  directly to the Board and the Trustee as their interests appear instead
of to the  Borrower  and the Board  jointly,  and  except as may be  hereinafter
provided,  the  application  of the  proceeds  of any  insurance  award shall be
governed by Article VII hereunder.
<PAGE>

     (b) Worker's compensation  insurance and each other form of insurance which
the Borrower is required by law to provide, covering loss resulting from injury,
sickness, disability or death of employees of the Borrower who are located at or
assigned to the Project.

     Section 6.5. Additional Provisions Respecting Insurance.  (a) All insurance
required by Section 6.4 hereof shall be procured and  maintained in  financially
sound and generally recognized  responsible  insurance companies selected by the
Borrower and authorized to write such insurance in the State. Such insurance may
be  written  with  deductible  amounts  acceptable  to the Board.  All  policies
evidencing  such  insurance  shall  provide for (i) payment of the losses to the
Borrower,  the Board and the Trustee as their  respective  interests may appear,
and (ii) at least thirty (30) days written  notice of the proposed  cancellation
thereof to the Borrower and the Trustee. The policies required by Section 6.4(a)
hereof shall contain standard loss payee clauses requiring that all Net Proceeds
of  insurance  resulting  from any claim in excess of $50,000 for loss or damage
covered thereby be paid to the Trustee.

     (b) All such policies of insurance, or a certificate or certificates of the
insurers that such insurance is in force and effect, shall be deposited with the
Trustee on or before the Closing  Date.  Prior to expiration of any such policy,
the Borrower shall within five (5) days of such  expiration  furnish the Trustee
evidence  that the policy has been renewed or replaced or is no longer  required
by this Agreement.

     Section 6.6. Application of Net Proceeds of Insurance.  The Net Proceeds of
the insurance  carried pursuant to (i) Section 6.4(a) hereof shall be applied as
provided in Section 7.1 hereof and (ii) Section  6.4(b)  hereof shall be applied
toward  extinguishment  or  satisfaction  of the liability with respect to which
such insurance proceeds may be paid.

     Section  6.7.  Right of Board to Pay Taxes,  Insurance  Premiums  and Other
Charges.  If the  Borrower  fails  (i) to pay  any  tax  prior  to  delinquency,
assessment  or other  governmental  charge  required  to be paid by Section  6.3
hereof or (ii) to maintain any  insurance  required to be  maintained by Section
6.4  hereof,  the Board or the  Trustee  may pay such tax,  assessment  or other
governmental  charge or the premium for such  insurance.  No such payment by the
Board or the Trustee  shall  affect or impair any rights of the Board under this
Agreement, the Note, and the Security Instruments or of the Board or the Trustee
under the Board  Resolution  arising  as a  consequence  of such  failure by the
Borrower. The Borrower shall reimburse the Board or the Trustee, as the case may
be,  for any  amount  so paid by the Board or the  Trustee,  as the case may be,
pursuant to this Section 6.7,  together with  interest  thereon from the date of
payment by the Board at the Bond Rate.


<PAGE>
                                   ARTICLE VII

                      DAMAGE, DESTRUCTION AND CONDEMNATION

     Section 7.1. Damage or Destruction.

     (a) If the Security  Property shall be damaged or destroyed (in whole or in
part) at any time during the Loan Term:

          (i) The Board shall have no obligation to replace,  repair, rebuild or
     restore the Security Property;

          (ii) There shall be no abatement  or reduction in the amounts  payable
     by the Borrower under this Agreement  (whether or not the Security Property
     is replaced, repaired, rebuilt or restored); and

          (iii) Except as  otherwise  provided in Section  7.1(b),  the Borrower
     shall promptly replace, repair, rebuild or restore the Security Property to
     substantially  the same  condition  and  value as an  operating  entity  as
     existed prior to such damage or destruction, with such changes, alterations
     and  modifications  as may be desired by the  Borrower,  provided that such
     changes,  alterations or  modifications  do not (A) so change the nature of
     the  Project  that it does  not  qualify  under  the Act for the  financial
     assistance  provided by the Program or (B) adversely  affect the tax-exempt
     status of the interest payable on the Bonds.

     Except as otherwise provided in Section 7.1(b), the Borrower shall apply to
the replacement, repair, rebuilding or restoration of the Project so much as may
be necessary of any Net  Proceeds of  insurance  resulting  from claims for such
losses.

     If the claim for loss  resulting  from such damage or  destruction  exceeds
$50,000,  all Net Proceeds of insurance shall be paid to and held by the Trustee
in the Reconstruction Account. All Net Proceeds so deposited shall be applied as
provided below.

     If the Borrower  determines  that the Security  Property shall be repaired,
replaced or  restored  in whole,  the Board  hereby  authorizes  and directs the
Trustee,  subject to the conditions set forth herein,  to make payments from the
Reconstruction  Account for such purposes or to reimburse the Borrower for costs
paid  by  it  in  connection  therewith  by  disbursements  in  accordance  with
commercially reasonable procedures for payment of costs upon incurrence thereof.
In addition,  the final  disbursement of moneys in such  Reconstruction  Account
shall be withheld  until a final  certificate  of completion is delivered to the
Board and the Trustee.
<PAGE>

     The Trustee may not make any payments  from the  Reconstruction  Account to
repair,  restore,  replace,  modify or improve the Security Property pursuant to
this  Section  7.1 unless the  Borrower  has (i) first,  obtained a fixed  price
construction   contract   or  purchase   order  for  the  repair,   restoration,
replacement,  modification or improvement of the Security Property, specifying a
Completion  Date  therefore,  and (ii) caused the deposit to the  Reconstruction
Account an amount  which,  together with the Net Proceeds and all interest to be
earned thereon through the Completion Date established in clause (i) above, will
be  sufficient  to pay  all  costs  of  repair,  restoration,  modification  and
improvement of the Security Property.  Thereafter the Trustee, upon receipt of a
certificate  of an Authorized  Representative  of the Borrower that payments are
required  for such  purpose,  shall apply so much as may be necessary of the Net
Proceeds  of such  insurance  to the  payment of the costs of such  replacement,
repair,  rebuilding  or  restoration,  such  moneys  to  be  applied  either  on
completion thereof or as the work progresses, at the option of the Board.

     In the event the Borrower has elected to rebuild or restore, and amounts in
the  Reconstruction  Account are not sufficient to pay in full the costs of such
replacement,  repair,  rebuilding or restoration,  the Trustee shall request the
Borrower to pay into the Reconstruction  Account an amount which,  together with
Net Proceeds  available for such  purposes,  shall be sufficient to pay all such
costs, and, upon receipt of such request,  the Borrower shall forthwith pay such
amount to the  Trustee.  In the event  that the  Borrower  fails to pay any such
amounts  into the  Reconstruction  Account,  then the Single Lot Bonds  shall be
prepaid in accordance with Section 7.1(b) of this Agreement.

     All such replacements,  repairs, rebuilding or restoration made pursuant to
this Section 7.1,  whether or not requiring the  expenditure  of the  Borrower's
contribution,  shall automatically  become a part of the Security Property as if
the same were specifically described herein.

     Any balance of such Net Proceeds  remaining  after payment of all the costs
of such replacement, repair, rebuilding or restoration shall be deposited in the
Special  Redemption  Account  held by the  Trustee  and used only to prepay  the
Single Lot Bonds as provided in Section 5.11(a) of the General Bond Resolution.

     (b) In the event  that the  Borrower  shall  fail or elect not to  replace,
repair or restore the Security Property, or if an Event of Default under Section
10.1 hereof shall have occurred and be continuing  and the Single Lot Bonds have
been  accelerated,  then at the  direction  of the Board the Net Proceeds of the
insurance shall be transferred  from the  Reconstruction  Account to the Special
Redemption Account or otherwise paid to the Trustee for deposit into the Special
Redemption Account. To the extent that such Net Proceeds so transferred into the
Special  Redemption  Account are not  sufficient  to pay the Single Lot Bonds in
whole pursuant to Section 2.8 of the Single Lot  Resolution,  the Borrower shall
forthwith  pay the sum of such  deficiency  to the Trustee for deposit  into the
Special Redemption Account.
<PAGE>

     (c) The  Borrower  shall not be obligated  to replace,  repair,  rebuild or
restore the Project, and all such Net Proceeds shall be paid to the Borrower for
its  purposes,  if the Single Lot Bonds and  interest  thereon have been paid in
full and all  other  amounts  due and  owing  hereunder,  under the Note and the
Security Instruments have been paid in full.

     (d) The  Borrower  may adjust all claims  under any  policies of  insurance
required by Section 6.4(a) hereof;  provided,  however,  that no such claim with
respect to an insured  event as to which the Board or the  Trustee  may be or is
alleged to be liable may be adjusted  without the prior  written  consent of the
Board or the Trustee, as the case may be.

     Section 7.2. Condemnation.

     (a) If at any time  during the Loan Term the whole or any part of title to,
or the use of, the Security  Property shall be taken by Condemnation,  the Board
shall have no obligation  to restore or replace the Security  Property and there
shall be no abatement or reduction in the amounts  payable by the Borrower under
this Agreement (whether or not the Security Property is restored or replaced).

     Except as otherwise  provided in this Section  7.2(b),  the Borrower  shall
promptly:

          (i)  Restore  the  Security  Property  (excluding  any  Land  taken by
     Condemnation) to substantially the same condition and value as an operating
     entity as existed prior to such Condemnation; or

          (ii) Upon receipt by the  Borrower of written  approval of the Trustee
     and the  Board as to the  location  thereof  (which  approval  shall not be
     unreasonably withheld),  acquire, by construction or otherwise,  facilities
     of  substantially  the same nature and value as an operating  entity as the
     Security  Property   (hereinafter  referred  to  in  this  Section  7.2  as
     "Substitute  Facilities").  Such Substitute Facilities shall (A) be of such
     nature so as to qualify under the Act for the financial assistance provided
     by the  Program,  (B) not  adversely  affect the  tax-exempt  status of the
     interest  payable on the  Single Lot Bonds or any of the Bonds,  and (C) be
     subject  to no Liens  prior to the  Security  Instruments  or the  security
     interest created by Sections 5.4(b) and 5.4(c) of this Agreement other than
     Permitted Encumbrances.

     The Borrower shall cause all Net Proceeds of any award in any  Condemnation
proceeding  to be paid to the  Trustee  which  shall  hold  such  moneys  in the
Reconstruction  Account.  All Net  Proceeds  so  deposited  shall be  applied as
provided below:

     If the Borrower  determines  that the Security  Property shall be repaired,
replaced or restored in whole or Substitute  Facilities are to be acquired,  the
Board hereby  authorizes and directs the Trustee,  subject to the conditions set
forth herein, to make payments from the Reconstruction Account for such purposes
or to reimburse  the Borrower  for costs paid by it in  connection  therewith by
disbursements  through a title insurance  company with  commercially  reasonable
procedures for payment of costs upon  incurrence  thereof to the extent approved
<PAGE>
by an  inspecting  architect and subject to issuance of insurance of the absence
of mechanics or materialman  liens affecting the Security Property or Substitute
Facilities,  as  applicable  (all at no cost to the  Board or the  Trustee).  In
addition,  the final disbursement of moneys in such Reconstruction Account shall
be withheld until a final certificate of occupancy is delivered to the Board and
the Trustee.

     The Trustee may not make any payments  from the  Reconstruction  Account to
repair, restore, replace, modify or improve the Security Property or acquire the
Substitute  Facilities,  as applicable,  pursuant to this Section 7.2 unless the
Borrower has (i) first, obtained a fixed price construction contract or purchase
order for the repair,  restoration,  replacement  modification or improvement of
the  Security  Property  or  the  acquisition  of  Substitute   Facilities,   as
applicable,  specifying a Completion Date therefore, and (ii) caused the deposit
to the  Reconstruction  Account an amount which,  together with the Net Proceeds
and all interest to be earned thereon through the Completion Date established in
clause (i) above,  will be sufficient  to pay all costs of repair,  restoration,
modification  and  improvement  of the Security  Property or the  acquisition of
Substitute Facilities, as applicable. Thereafter, the Trustee, upon receipt of a
certificate  of an Authorized  Representative  of the Borrower that payments are
required for such  purpose,  shall apply so much as may be necessary of such Net
Proceeds to the payment of the costs of the restoration of the Security Property
or the acquisition of Substitute Facilities at the option of the Borrower,  such
moneys to be  applied  either on  completion  thereof or as the  restoration  or
acquisition progresses, at the option of the Board.

     In the event amounts in the  Reconstruction  Account are not  sufficient to
pay in full the  costs of such  restoration  of the  Security  Property  or such
acquisition of Substitute Facilities,  the Trustee shall request the Borrower to
pay into the Reconstruction  Account an amount sufficient to pay all such costs,
and, upon receipt of such request,  the Borrower shall forthwith pay such amount
to the  Trustee.  In the event that the  Borrower  fails to pay any such amounts
into the Reconstruction  Account,  then the Single Lot Bonds shall be prepaid in
accordance with Section 7.2(b) of this Agreement.

     The  Security  Property,  as so  restored,  or the  Substitute  Facilities,
whether or not requiring the expenditure of the Borrower's  contribution,  shall
automatically  become  part  of  the  Security  Property  as if  the  same  were
specifically described herein.

     Any balance of such Net Proceeds of any Condemnation  award remaining after
payment of all costs of such  restoration or  acquisition  shall be deposited in
the Special  Redemption  Account held by the Trustee and used only to prepay the
Single Lot Bonds as provided in Section 5.11(a) of the General Bond Resolution.
<PAGE>

     (b) In the event  that the  Borrower  shall  fail or elect not to  replace,
repair or restore the Security Property or to acquire Substitute Facilities,  or
if an Event of Default  under  Section  10.1 hereof  shall have  occurred and be
continuing and the Single Lot Bonds have been accelerated, then at the direction
of the Board the Net  Proceeds of the  Condemnation  Award shall be  transferred
from the  Reconstruction  Account to the Special Redemption Account or otherwise
paid to the Trustee for deposit  into the  Special  Redemption  Account.  To the
extent that such Net Proceeds so transferred into the Special Redemption Account
are not  sufficient to pay the Single Lot Bonds in whole pursuant to Section 2.8
of the Single Lot  Resolution,  the Borrower shall forthwith pay the sum of such
deficiency to the Trustee for deposit into the Special Redemption Account.

     (c) The  Borrower  shall not be  obligated  to  restore  the  Project or to
acquire  Substitute  Facilities,  and all such Net Proceeds shall be paid to the
Borrower,  if the Single Lot Bonds and  interest  thereon have been paid in full
and all other  amounts  due and  owing  hereunder,  under the Note and  Security
Instruments have been paid in full.

     (d) The Board shall  cooperate  fully with the Borrower in the handling and
conduct of any Condemnation proceeding with respect to the Security Property.

     Section 7.3.  Condemnation  of Borrower  Owned Property Other Than Security
Property.  The Borrower  shall be entitled to the  proceeds of any  Condemnation
award or portion  thereof made for damage to or taking of any Property which, at
the time of such  damage or taking,  is not part of the  Security  Property  and
which is owned by the Borrower.


<PAGE>
                                  ARTICLE VIII

                                SPECIAL COVENANTS

     Section 8.1.  Qualification  in the State.  Throughout  the Loan Term,  the
Borrower shall continue to be duly authorized to do business in the State.

     Section 8.2. Hold  Harmless  Provisions.  (a) The Borrower  during the Loan
Term hereby releases the Indemnified  Parties from,  agrees that the Indemnified
Parties shall not be liable for and agrees to indemnify and hold the Indemnified
Parties harmless from and against any and all liability  arising from or expense
incurred  by the  Board's  making  the  loan to the  Borrower  pursuant  to this
Agreement,  including  without  limiting the  generality of the  foregoing,  all
causes of action and reasonable  attorneys' fees and any other expenses incurred
in defending any suits or actions which may arise as a result thereof,  provided
that any  such  liabilities  or  expenses  of the  Indemnified  Parties  are not
incurred or do not result from the gross negligence,  the intentional or willful
wrongdoing  of the  Indemnified  Parties  or any of  their  members,  agents  or
employees.

     (b) Notwithstanding any provision of this Agreement or the Board Resolution
to the  contrary,  the  Borrower  shall  be  liable  for,  and  shall  hold  the
Indemnified  Parties  harmless  against,  any  liability  for any failure by any
Person to comply with the  requirements  of Section 103 and Sections 140 through
150, inclusive of the Code, including,  without limitation,  the failure to make
rebate  payments due to the United  States of America  under  Section 148 of the
Code with respect to the Single Lot Bonds.  Further,  the Borrower  specifically
agrees  that  Indemnified  Parties  shall  not be  held  liable,  or in any  way
responsible,  for any investment of any Fund or Account or the General  Guaranty
Fund or other "gross proceeds" (as defined in Section 148 of the Code) under the
control or custody of the Board or the  Trustee or the Escrow  Holder or for any
mistake or error in the  filing of any  rebate  payments  required  pursuant  to
Section  148 of the Code or the  determination  of any  amount due to the United
States of America or for any  consequences  resulting  from any such  mistake or
error.

     Section 8.3.  Maintenance of Existence;  Conditions  Under Which Exceptions
Permitted.   The  Borrower  covenants  and  agrees  to  maintain  its  corporate
existence, will not dissolve or otherwise dispose of all or substantially all of
its assets,  and will not consolidate with or merge into another  corporation or
permit one or more  corporations to consolidate with or merge into it; provided,
however,  that any mortgages and security interests in personal property entered
into by the Borrower in the ordinary  course of business  with respect to any of
its  Property  shall not be deemed to  constitute  a  disposition  of assets for
purposes of this Section 8.3 and provided  further  that, if no Event of Default
under this  Agreement  shall have occurred and is  continuing,  the Borrower may
consolidate  with or merge  into  another  domestic  corporation  organized  and
existing under the laws of one of the states of the United States of America, or
permit one or more such domestic  corporations to consolidate with or merge into
it, or sell or otherwise  transfer to another such domestic  corporation  all or
substantially all of its assets as an entirety and thereafter dissolve, provided
that: 
<PAGE>

     (a) the surviving,  resulting, or transferee  corporation,  as the case may
be, is  incorporated  under the laws of the State or qualifies to do business in
the State;

     (b) the surviving, resulting or transferee corporation, as the case may be,
assumes in writing all of the  obligations of and  restrictions  on the Borrower
hereunder and any other  agreement  securing the  Borrower's  performance of its
obligations hereunder;

     (c) the  consummation  of the  transaction  will not  adversely  affect the
tax-exempt  status of the interest payable on the Single Lot Bonds or any of the
Bonds then outstanding;

     (d) immediately after the consummation of the transaction, and after giving
effect thereto, the surviving,  resulting or transferee corporation, as the case
may be, complies with the financial  covenants of Section  8.19(a),  8.19(b) and
8.19(c); and

     (e) as of the date of such  consolidation,  merger,  sale or transfer,  the
Board and Trustee shall be furnished with (i) an opinion of Independent  Counsel
opining as to the compliance with Sections 8.3(a) and 8.3(b), (ii) an opinion of
Bond Counsel opining as to the compliance with Section 8.3(c),  (iii) an opinion
of an Accountant  opining as to the  compliance  with Section  8.3(d) and (iv) a
certificate,  dated the effective date of such  consolidation,  merger,  sale of
transfer,  signed by the chief executive officer and the chief financial officer
of the Borrower and of the surviving,  resulting of transferee  corporation,  as
the case may be, to the effect that  immediately  after the  consummation of the
transaction,  and after giving effect thereto,  no event of default exists under
this  Agreement (as set forth in Section 10.1 hereof) and no event exists which,
with notice or lapse of time or both,  would become such an Event of Default and
that the provisions of Section 8.3(d) hereof are and will be satisfied.

     Section  8.4.  Agreement  to  Provide  Information.  The  Borrower  agrees,
whenever  requested by the Trustee or the Board, to provide and certify or cause
to be provided and certified  such  information  concerning  the  Borrower,  its
finances,  and such other  topics as the  Trustee or the Board from time to time
reasonably  considers  necessary or appropriate,  including,  but not limited to
such  information  as may be  necessary  to enable the Board to make any reports
required by the Act, any other law or  governmental  regulation or to enable the
Board to issue  additional  lots of Bonds under the General Bond  Resolution and
publicly or privately market the same.
<PAGE>

     Section 8.5. Books of Record and Account; Financial Statements.

     (a) The Borrower agrees to maintain proper  accounts,  records and books in
which full and correct  entries  shall be made,  in  accordance  with  generally
accepted  accounting  principles,  of business and affairs of the Borrower.  The
Board,  the Legislative  Auditor and the Trustee or their  designated  agents or
representatives shall have the right to inspect such accounts, records and books
upon reasonable advance notice during normal business hours. 

     (b) Within 120 days after the close of each  fiscal  year of the  Borrower,
during the Loan Term, the Borrower shall furnish to the Board and the Trustee, a
consolidated  balance  sheet,  a  consolidated  statement of income and retained
earnings,  and a consolidated  statement of changes in financial position of the
Borrower,  for the immediately  preceding fiscal year, all in reasonable  detail
including footnotes to such financial  statements,  such financial statements to
be audited and  accompanied by the report of an  Accountant.  In addition to the
foregoing,  such  financial  statements  shall  be  accompanied  by (i) a report
containing all of the calculations required by Section 8.19 to determine whether
or not the Borrower is in compliance with the requirements of Section 8.19, such
calculations  to be  prepared by an  Accountant  from the  then-current  audited
financial  statements  of the  Borrower  and (ii) a report to be  prepared by an
Accountant  as to  whether  any  payments  on  Subordinated  Debt have been made
contrary to the provisions of this Agreement or the Loan Agreement.

     Section 8.6. Borrower to File Statements With Internal Revenue Service. The
Borrower  agrees to file,  and to cause all  Principal  Users to file,  with the
Internal  Revenue Service of the United States Treasury  Department or any other
authorized governmental agency any and all statements or other instruments which
may be required by Section 103 and Sections 140 to 150 of the Code, at the times
required therein.

     Section 8.7. Release of Equipment.

     (a) The  Borrower  shall have the right at any time or from time to time to
sell or otherwise dispose of all or any part of the Equipment subject,  however,
to all of the following terms and conditions:

          (i) The Borrower shall, prior to or simultaneously, with any such sale
     or other  disposition  of any Equipment,  cause to be substituted  therefor
     equipment  which is determined  by the Board to have a value  substantially
     equal to the value of the item of Equipment  so sold or otherwise  disposed
     of at the time said item of Equipment  was sold or disposed by the Borrower
     pursuant to the terms hereof,  but which  equipment may,  however,  be of a
     different kind or type or have a different function or purpose;

          (ii)  The  security   interest   granted   pursuant  to  the  Security
     Instruments   shall  attach  to  the  equipment  so  substituted  upon  its
     acquisition by the Borrower and its  installation  on the Land and prior to
     the sale or other disposition of the Equipment  originally  subject to such
     security interest;
<PAGE>
          (iii) The Borrower shall execute any and all  documents,  instruments,
     agreements or other  writings  (including,  but not limited to, one or more
     Uniform Commercial Code financing statements) and otherwise do all acts and
     things  which the Board shall  reasonably  deem  necessary  or advisable to
     perfect or continue  perfection of a security  interest in the equipment so
     substituted;

          (iv)  The  Borrower  shall  pay  any  and  all   reasonable   expenses
     (including, but not limited to, any applicable filing fees) incurred by the
     Board or the Trustee in connection  with the perfection or  continuation of
     such security interest; and

          (v) The  Borrower  shall,  not less  than  fifteen  days  prior to the
     consummation  of any such sale or  disposition,  furnish  the Board  with a
     certificate signed by the Authorized Representative of the Borrower setting
     forth  (1) a  description  of the  item of  Equipment  which  the  Borrower
     proposes  to sell or  otherwise  dispose  of,  which  description  has been
     previously  set  forth in the copy of  Exhibit B hereto  maintained  by the
     Trustee in accordance with Section 8.4 of the Single Lot Resolution,  (2) a
     description of the equipment to be proposed to be substituted  for the item
     of Equipment  sold or otherwise  disposed  of, which  description  shall be
     sufficient for the creation and  perfection of a security  interest in said
     equipment under the Uniform  Commercial Code of the State,  (3) a statement
     to the effect that the equipment proposed to be so substituted is now owned
     by the Borrower and in the possession of the Borrower and is free and clear
     of all security  interests,  liens, and encumbrances of any kind whatsoever
     (other than  Permitted  Encumbrances),  and (4) a submission  of reasonable
     proof  satisfactory  to  the  Board  that  such  equipment  proposed  to be
     substituted  is now owned by the Borrower and in possession of the Borrower
     and is free and clear of all security  interest,  liens and encumbrances of
     any kind whatsoever (other than Permitted Encumbrances).

     The  description  of substituted  equipment  provided for in Section 8.7(a)
above shall, when furnished to the Board,  constitute an amendment or supplement
to Exhibit B hereof. Items of Equipment replaced and substituted pursuant to the
terms of this Section 8.7(a) shall be deleted from Exhibit B by the Board.

     The Borrower shall not substitute or replace any item of Equipment pursuant
to this  Section  8.7(a)  for any  property  which is not free and  clear of all
security  interests,  liens and encumbrances of any kind whatsoever  (other than
Permitted Encumbrances).

     (b) The Borrower  will from time to time,  upon the written  request of the
Board or the  Trustee,  file with the Board and the Trustee a list of  Equipment
currently on the Land and in the  Building,  which list shall  further  identify
said items of equipment  substituted  pursuant to Section  8.7(a) hereof and the
date and reason for substitution. The Borrower shall have sixty days in which to
respond to each such request,  but shall be obligated to respond to such request
no more than twice each calendar  year. 
<PAGE>

     (c)  Notwithstanding  the  provisions  set forth in Section  8.7(a) of this
Agreement, the Borrower shall have the right at any time or from time to time to
sell or otherwise  dispose of all or any part of the Equipment free and clear of
the  security  interest  created  by the  Security  Instruments,  without  being
obligated to substitute new equipment therefor, if:

          (i) All of the items of Equipment  so disposed  during the term of the
     Loan have an aggregate  Appraised  Value at the time of disposition of less
     than $50,000 (the Borrower is to furnish to the Board  written  evidence of
     such Appraised Value for each item of Equipment so disposed); or

          (ii) The ratio of the outstanding  principal amount of the Loan to the
     Appraised Value of the Security Property  (excluding the items of Equipment
     to be so  disposed)  at the time of proposed  disposition  shall not exceed
     seventy  five  percent  (75%)  (the  Borrower  are to  furnish to the Board
     written evidence of such Appraised Value of the Security Property); or

          (iii) The amount of the  Appraised  Value of the items of Equipment to
     be  disposed  of, to the extent  such  Appraised  Value  exceeds the amount
     described in clause (i), is deposited in the Special Redemption Account.

     Section 8.8.  Certificate  of No Default.  The Borrower agree to deliver to
the Trustee and to the Board within 120 days after the close of each fiscal year
of the Borrower,  a certificate of an Authorized  Representative of the Borrower
(a) to the effect that the Borrower is not aware of any condition,  event or act
which   constitutes  an  Event  of  Default  hereunder  or  under  the  Security
Instruments, and no condition, event or act which, with notice of lapse of time,
or both,  would  constitute such an Event of Default,  or if any such condition,
event  or acts  exists,  specifying  the  same,  and (b) to the  effect  that an
Authorized  Representative  of the  Borrower  is not aware of any failure in the
payment  of any  part  of  the  principal  of or  interest  on  any  outstanding
indebtedness of the Borrower for money borrowed and as the same shall become due
and payable,  whether at the stated  maturity of such  indebtedness or at a date
fixed for redemption or otherwise,  or the  acceleration  of the maturity of any
such  indebtedness  following  a default  under the  terms of any  agreement  or
instrument relating to any such indebtedness.

     Section 8.9.  Notice of Default.  The  Borrower  will  forthwith,  upon the
occurrence of an Event of Default hereunder or under the Security Instruments or
upon the occurrence of a condition,  event or act which, with notice or lapse of
time, or both, would constitute such an Event of Default,  notify in writing the
Trustee and the Board of the occurrence of such Event of Default.
<PAGE>

     Section 8.10. Assignment and Leasing.

     (a) This  Agreement may be assigned in whole or in part and the Project may
be sold or  leased  as a whole or in part by the  Borrower  only  with the prior
written consent of the Board and provided further that:

          (i) No assignment  (other than pursuant to Section 8.3 hereof) or sale
     or lease shall relieve the Borrower  from primary  liability for any of its
     obligations hereunder;

          (ii) The assignee,  transferee or lessee shall assume the  obligations
     of  the  Borrower  hereunder  to  the  extent  of  the  interest  assigned,
     transferred or leased,  except no such assumption  shall be required if the
     subject lease is a true lease for federal tax purposes;

          (iii) The  Borrower  shall,  within ten (10) days  after the  delivery
     thereof, furnish or cause to be furnished to the Board and to the Trustee a
     true and complete copy of each such  assignment,  instrument of transfer or
     lease,  as the  case  may  be,  and the  instrument  of  assumption  (where
     required);

          (iv)  The  tax-exempt  status  of  the  interest  on  the  Bonds  then
     outstanding shall not be adversely affected thereby;

          (v) The assignment, transfer or lease shall be subject and subordinate
     to the Lien of this Agreement, the Security Instruments and the Pledge; and

          (vi) Neither the validity nor the  enforceability  of this  Agreement,
     the Security  Instruments or any security interest created thereunder shall
     be adversely affected thereby.

     (b) As of the purported effective date of any assignment, transfer or lease
pursuant to Section  8.10(a),  the  Borrower  shall  furnish the Trustee with an
opinion,  in form and substance  satisfactory to the Board,  (i) of Bond Counsel
opining  that the  tax-exempt  status of the  interest  on the Bonds will not be
adversely  affected  thereby,  (ii) if  required  by the Board,  of  Independent
Counsel that the assignment, transfer or lease is subject and subordinate to the
Lien of the Security  Instruments and the Pledge,  (iii) of Independent  Counsel
that neither the validity nor the enforceability of this Agreement, the Note and
the  Security  Instruments  will  be  adversely  affected  thereby  and  (iv) of
Independent  Counsel  opining that the assumption of obligations of the Borrower
by any Person pursuant to Section 8.10(a)(ii) hereof will constitute a valid and
legally enforceable assumption by such Person.

     (c) Any  reassignment,  transfer  or  sublease  in turn of any  assignment,
transfer or lease entered into pursuant to Section 8.10(a) shall comply with and
be subject to all the provisions of Sections  8.10(a) and 8.10(b).  Any sublease
in turn of a lease entered into pursuant to Section 8.10(a) shall be subject and
subordinate to such original lease or sublease.
<PAGE>

     Section  8.11.  Right to Inspect  the Project and  Security  Property.  The
Board,  the Trustee and the duly authorized  agents of either of them shall have
the right at all reasonable times and upon reasonable advance notice, to inspect
the Project and the Security Property.

     Section 8.12. Compliance With Orders, Ordinances, etc.

     (a) The Borrower  agrees  throughout the Loan Term to promptly  comply with
all  statutes,  codes,  laws,  acts,  ordinances,  orders,  judgments,  decrees,
injunctions, rules, regulations, permits, licenses,  authorizations,  directions
and requirements of all federal, state, county, municipal and other governments,
departments,   commissions,  boards,  companies  or  associations  insuring  the
premises, courts,  authorities,  officials and officers, foreseen or unforeseen,
ordinary or extraordinary,  which now or at any time hereafter may be applicable
to the Security  Property or any part thereof,  or to any use,  manner of use or
condition of the Security Property or any part thereof.

     (b) Notwithstanding the provisions of Section 8.12(a),  the Borrower may in
good faith contest the validity or the  applicability  of any requirement of the
nature referred to in such subsection (a). In such event,  the Borrower may fail
to comply with the requirement or requirements so contested during the period of
such  contest and any appeal  therefrom,  unless the Board or the Trustee  shall
notify  the  Borrower  that by  failure  to  comply  with  such  requirement  or
requirements  the Lien of the  Security  Instruments  or the  security  interest
created by Section  5.4(a)  and 5.4(b) of this  Agreement  as to any part of the
Security  Property may be materially  endangered or the Security Property or any
part thereof may be subject to loss or  forfeiture,  in which event the Borrower
shall promptly take such action with respect thereto as shall be satisfactory to
the Trustee.

     Section 8.13. Liens and Encumbrances.

     (a) During the Loan Term and  subject to the  provisions  of Section 5.4 of
this  Agreement,  the  Borrower  shall  not  permit  or  create  or suffer to be
permitted  or created  any Lien,  except for  Permitted  Encumbrances,  upon the
Security  Property or any part  thereof,  nor may the Borrower  assign,  sell or
otherwise  dispose of the  Security  Property or any part  thereof,  without the
prior written consent of the Board,  which shall not be  unreasonably  withheld.
Any such Lien, if nonetheless  created or permitted,  shall be discharged by the
Borrower forthwith.

     (b) Notwithstanding the provisions of Section 8.13(a),  the Borrower may in
good faith  contest any Lien upon the  Security  Property or any part thereof by
reason of any labor, services or materials rendered or supplied or claimed to be
rendered or supplied  with respect to the Project or any part  thereof.  In such
event, the Borrower may permit the items so contested to remain undischarged and
unsatisfied  during the period of such contest and any appeal therefrom,  unless
the Board shall notify the Borrower that by nonpayment of any such item or items
the Lien of the Security Instruments or the security interest created by Section
5.4(a) and 5.4(b) of this Agreement may be materially endangered or the Security
Property  or any part  thereof  may be subject to loss or  forfeiture,  in which
event the Borrower  shall  promptly  secure  payment of all such unpaid items by
filing a bond,  in form and  substance  and in such amount  satisfactory  to the
Trustee, thereby causing a Lien to be removed.
<PAGE>

     (c) Upon the  request  of the  Board or the  Trustee,  the  Borrower  shall
provide the Board and the Trustee,  within sixty (60) days of such request, with
proof  satisfactory to the Trustee that all items of Security  Property continue
to be free and clear of all Liens (other than Permitted Encumbrances).

     Section 8.14.  Identification of Equipment. All Equipment shall be properly
identified  by the  Borrower  by  appropriate  records,  including  computerized
records.

     Section  8.15.  Relocation  of the  Equipment.  The Borrower  covenants and
agrees  that  during the Loan Term it will not remove the  Equipment  (except in
accordance with the terms of Section 8.7 hereof) from the Land to a new location
either  within or outside of the State,  without  first  obtaining  the  express
written consent of the Board with respect to such removal and relocation.

     Section 8.16. Security  Instruments  Covenants.  The Borrower covenants and
agrees to perform all of the obligations and covenants  imposed upon it pursuant
to the Security  Instruments and the Borrower agrees that any failure to perform
such covenants  shall,  after the lapse of any applicable  cure periods  therein
expressly provided, constitute a default for purposes of this Agreement.

     Section 8.17. Covenant Against  Discrimination.  The Borrower covenants and
agrees  that  in the  performance  of  this  Agreement  the  Borrower  will  not
discriminate or permit discrimination  against any person or group of persons on
the  grounds  of race,  color,  religion,  national  origin or sex in any manner
prohibited by the laws of the United States of America or of the State.

     Section 8.18. Employment Records. Within sixty (60) days after the close of
each calendar  year, the Borrower shall furnish a written report to the Board of
the total number of employees at the Project, and shall separately indicate: (a)
the  number of  permanent  new jobs  which was  estimated  to be  created by the
Project on the Borrower's  application to the Board,  with job  descriptions and
annual salaries; (b) which of these permanent new jobs are currently filled; and
(c) the average  number of  full-time,  part-time  or seasonal  employees at the
Project  within  the  three  (3)  categories  of (i)  professional,  managerial,
technical,  (ii) skilled,  and (iii)  semi-skilled  or unskilled for the current
reporting  period.  In addition,  such report  shall  contain  information  with
respect to  employment  at the Project  that is  specified by the Board as being
required to be  contained  in the  employment  reports  described  in  Minnesota
Statutes, Section 469.154, Subd. 7.

<PAGE>
     Section 8.19. Certain Financial Covenants.

     (a) For the fiscal year of the Borrower  beginning  September  30, 1997 and
thereafter,  during  the Loan  Term and as of the date of any  calculation,  the
Borrower  shall maintain a ratio of (i) earnings  before paying  interest on all
Indebtedness, taxes and making allowances for depreciation and amortization (all
in accordance with generally  accepted  accounting  principles) plus capitalized
interest on the Bonds to (ii)  regularly  scheduled  payments of  principal  and
interest on all Funded  Indebtedness of the Borrower averaged for the last three
(3) full fiscal years for the Borrower of at least 1.5 to 1.0; provided that the
year ending  September 30, 1995 shall not be included in the  calculations.  The
outstanding  principal  amount of all Series 1997D, Lot 1 Bonds shall constitute
Funded Indebtedness of the Borrower for purposes of this Section.

     (b) During the Loan Term,  the Borrower  shall maintain at all times during
each fiscal month in each period set forth below  (calculated at the end of each
fiscal  month  during each period set forth below) its Net Worth at or above the
level set forth below opposite each such period:

        October 1, 1996, through
         August 31, 1997                                     $1,500,000

        September 1, 1997, through
         August 31, 1998                                     $1,600,000

        September 1, 1998, through
         August 31, 1999                                     $2,100,000

        September 1, 1999 and
        thereafter                                           $2,400,000

     (c) During the Loan Term,  the Borrower  shall maintain at all times during
each fiscal month in each period set forth below  (calculated at the end of each
fiscal month during each period set forth below) its  Indebtedness  to Net Worth
ratio at or below the level set forth below opposite each such period:

        October 1, 1996, through
         August 31, 1997                                     2.00 to 1.00

        September 1, 1997, through
         August 31, 1998                                     2.25 to 1.00

        September 1, 1998 and
         thereafter                                          1.75 to 1.00

<PAGE>
     (b) Notwithstanding  anything contained herein to the contrary, the failure
by the Borrower to comply with the provisions of either Section 8.19(a),  (b) or
(c) of this  Agreement  shall not constitute an Event of Default under this Loan
Agreement, but shall result in the following requirements of the Borrower during
the continuance of such failure:

          (i) The Borrower shall not,  without the prior written  consent of the
     Board, incur any Funded  Indebtedness other than Subordinated  Indebtedness
     and other than purchase money  indebtedness  for real or personal  property
     usable in the business of the Borrower.

          (ii) The Borrower shall not,  without the prior written consent of the
     Board, pay any annual increases in total compensation (excluding insurance,
     health,  dental and pension  benefits) to the  shareholders,  directors and
     officers  of the  Borrower,  or any  person  who is  related  by  blood  or
     marriage, any of such shareholders,  directors and officers in excess of 7%
     per annum.

     (c)  Failure  to comply  with the  provisions  of  Sections  8.19(d)  shall
constitute an Event of Default hereunder.

     (d) The  calculations  required by this  Section 8.19 shall be prepared and
certified by an Accountant  and submitted to the Board and the Trustee  annually
pursuant to Section 8.5.

     Section  8.20.  Covenant  Against  Loans,  Transfers,   etc.  The  Borrower
covenants and agrees that it will not,  without the prior written consent of the
Board,  make any loans or  transfer  title to any of its assets to any  officer,
member or stockholder of the Borrower  unless the loan or transfer is determined
to be the same as if it were at arm's length,  between unrelated parties,  in an
amount or at fair  market  value in the  aggregate  in excess of  $10,000 in any
single fiscal year of the Borrower.

     Section 8.21. Covenant Against Sale, Gift, Purchase or Redemption of Stock.
The Borrower  covenants  and agrees that it will not,  without the prior written
consent of the Board,  gift,  purchase,  sell or redeem any capital stock of the
Borrower or purchase any treasury stock of the Borrower, if, after giving effect
to such  transaction,  (a) the Borrower would not be in compliance  with Section
8.19(a), (b) or (c) of this Loan Agreement.

     Section 8.22. Vacant Positions.  The Borrower agrees to list any vacant new
positions  with the job services of the  Commissioner  of Jobs and Training or a
local service units as required by Minnesota Statutes Section 268.66.
<PAGE>

     Section 8.23. Prevailing Wages. The Board hereby notifies the Borrower that
the Loan made pursuant to the Loan Agreement constitutes  "financial assistance"
from a "state  agency"  within the meaning of Article  10,  Section 7 of Chapter
604, Minnesota Laws (1990) and,  therefore,  the requirements of subdivision (2)
and the penalties of  subdivision  (3) of such statute apply to Borrower and the
Project except as and to the extent that it is determined that the exception set
forth in  subdivision  (5) of such  statute is  applicable.  The Board  makes no
representation  as to the  applicability  or meaning of such  exception  and the
Borrower  hereby  agrees to comply  with such  statute  to the extent and in the
manner provided by law.

     Section 8.24.  Covenant Against Dividends,  etc. The Borrower covenants and
agrees that it will not,  without the prior written consent of the Board, pay or
declare  any  dividends  on any class of its  capital  stock to any  officer  or
stockholder  of the  Borrower,  in an  amount  or at fair  market  value  in the
aggregate in excess of $-0- in any single fiscal year of the Borrower.

     Section 8.25.  Covenant  Against  Unreasonable  Compensation.  The Borrower
covenants and agrees that it will not pay directors'  and officers'  salaries or
provide any form of compensation to its directors and officers in excess of that
reasonable for services rendered.

     Section 8.26. Job Creation.  The Borrower will create 15 new jobs which pay
more than  mminimum  wage  exclusive  of all benefits and taxes from the Closing
Date to January 15, 2000.


<PAGE>
                                   ARTICLE IX

                           PLEDGE OF CERTAIN INTERESTS

     Section  9.1.  Pledge of Certain  Interests to  Bondholders.  (a) The Board
under Section 1.04 of the General Bond  Resolution  and under Section 6.1 of the
Single  Lot  Resolution  has  Pledged  all of its rights  and  interest  and all
provisions  of this  Agreement  and the Note  (except  pursuant  to Section  8.2
hereof),  and the  Security  Instruments  as  security  for the  payment  of the
principal  of,  premium,  if any,  and  interest on the Bonds and the Single Lot
Bonds.  Such Pledge  shall in no way impair or diminish  any  obligation  of the
Borrower  under this  Agreement,  the Note and the  Security  Instrumentsor  the
Guarantor and the Guaranty.  The Borrower  hereby  consent to such Pledge by the
Board.

     (b)  Except  as  provided  in this  Section  9.1 and in  Article  X of this
Agreement and except as otherwise expressly provided in this Agreement, the Note
and the Security Instruments, the Board shall not sell, assign, transfer, convey
or otherwise dispose of its interest in or its rights under this Agreement,  the
Note and the  Security  Instruments,  without the prior  written  consent of the
Borrower.



<PAGE>

                                    ARTICLE X

                         EVENTS OF DEFAULT AND REMEDIES

     Section 10.1. Events of Default Defined.

     (a) The following shall be "Events of Default" under this Agreement and the
terms "Event of Default" or "Default" shall mean, whenever they are used in this
Agreement, any one or more of the following events:

          (i) The failure by the Borrower to pay or cause to be paid,  when due,
     the amounts specified to be paid pursuant to Section 5.1, Section 5.2(a) or
     Section 11.1(a) hereof and the Note; or

          (ii) The failure by the  Borrower to observe and perform any  covenant
     contained in Section 8.3 hereof; or

          (iii) The failure by the Borrower to observe and perform any covenant,
     condition or agreement  hereunder or the Security  Agreement on its part to
     be  observed  or  performed  (except  obligations  referred  to in Sections
     10.1(a)(i), 10.1(a)(ii), 10.1(a)(iv), 10.1(a)(v) and 10.1(a)(vi) hereof) on
     the earlier of (A) written  notice thereof  specifying  such failure in the
     event  that  the  failure  is not of the type or  nature  which  the  Board
     reasonably  believes  can be  remedied  within  thirty (30) days or (B) the
     thirty-first  (31st) day after written notice,  specifying such failure and
     requesting  that it be remedied,  given to the Borrower by the Board or the
     Trustee; or

          (iv) The  dissolution  or  liquidation of the Borrower or Guarantor or
     the  filing  by the  Borrower  or  Guarantor  of a  voluntary  petition  in
     bankruptcy,  or the failure by the Borrower or Guarantor  within sixty (60)
     days to lift any execution,  garnishment or attachment of such  consequence
     as will  impair such  Person's  ability to carry on its  operations  at the
     Project,  or the  commission  by the  Borrower or  Guarantor  of any act of
     bankruptcy, or the adjudication of the Borrower or Guarantor as a bankrupt,
     or the assignment of assets by the Borrower or Guarantor for the benefit of
     its creditors,  or the entry by the Borrower or Guarantor into an agreement
     of composition with such Person's creditors,  or the approval by a court of
     competent  jurisdiction  of  a  petition  applicable  to  the  Borrower  or
     Guarantor in any proceeding  for its  reorganization  instituted  under the
     provisions  of  any  state  or  Federal   bankruptcy  or  similar  law,  or
     appointment  by final  order,  judgment  or decree of a court of  competent
     jurisdiction  of a receiver  of the whole or a  substantial  portion of the
     Properties of the Borrower or Guarantor (unless such receiver is removed or
     discharged  within sixty (60) days of the date of his  qualification).  The
     term  "dissolution or liquidation" of the Borrower or the Guarantor as used
     in this  subsection  shall not be  construed  to  include  any  transaction
     permitted  by Section 8.3 hereof;  or 
<PAGE>

          (v) The  failure  in the  payment of any part of the  principal  of or
     interest  on any  Indebtedness  of the  Borrower  or  Guarantor  for  money
     borrowed having an outstanding  principal  amount of $100,000 or more, when
     and as the  same  shall  become  due and  payable,  whether  at the  stated
     maturity  of  such  Indebtedness  or at a  date  fixed  for  redemption  or
     otherwise, which failure results in the acceleration of the maturity of any
     such  indebtedness  following a default under the terms of any agreement or
     instrument relating to any such indebtedness; or

          (vi) The occurrence and continuance of an "event of default" under the
     Security Instruments; or

          (vii) The  failure of  Borrower  to comply  with the  requirements  of
     Section 4.2 or Section 5.4 hereof as and when applicable; or

     (b)  Notwithstanding  the  provisions of Section  10.1(a),  if by reason of
force  majeure  either party hereto shall be unable in whole or in part to carry
out its obligations under this Agreement and if such party shall give notice and
full  particulars of such force majeure in writing to the other party and to the
Trustee  within a  reasonable  time after the  occurrence  of the event or cause
relied  upon,  the  obligations  under this  Agreement  of the party giving such
notice,  so far as they are affected by such force  majeure,  shall be suspended
during the  continuance of the inability,  which shall include a reasonable time
for the removal of the effect  thereof.  The suspension of such  obligations for
such  period  pursuant  to this  subsection  (b) shall not be deemed an Event of
Default  under this Section  10.1.  Notwithstanding  anything to the contrary in
this subsection (b), an event of force majeure shall not excuse, delay or in any
way diminish the  obligations  of the Borrower to make the payments  required by
Section 5.1,  Section 5.2 and Section 11.1(a) hereof,  to obtain and continue in
full force and effect the  insurance  required  by Section  4.6 and  Section 6.4
hereof,  to provide the  indemnity  required by Section 8.2 hereof and to comply
with the provisions of Sections 2.3(a),  2.3(d), 2.3(e), 2.3(p), 2.3(q), 2.3(r),
2.3(t),  2.3(w),  2.3(x),  2.3(y), 4.3, 5.2(e), 5.2(f), 5.3, 6.3, 6.5, 6.6, 6.7,
8.3, 8.4, 8.5, 8.6, 8.7, 8.8, 8.9, 8.10,  8.11,  8.12,  8.13,  8.15, 8.16, 8.17,
8.18, 8.19, 8.20, 8.21, 8.22, 8.23, 8.24, 8.25 and 8.26 hereof.  The term "force
majeure" as used herein shall include, without limitation, acts of God, strikes,
lockouts or other industrial disturbances, acts of public enemies, orders of any
kind of the government of the United States of America or of the State or any of
their departments,  agencies,  governmental  subdivisions,  or officials, or any
civil  or  military  authority,  insurrections,  riots,  epidemics,  landslides,
lightning,  earthquakes,  fire, hurricanes,  storms, floods, washouts, droughts,
arrests,  restraint of government and people,  civil  disturbances,  explosions,
breakage or  accident to  machinery,  transmission  pipes or canals,  partial or
entire failure of utilities,  or any other cause or event not reasonably  within
the control of the party claiming such inability.
<PAGE>

     Section 10.2. Remedies on Default.

     (a) Whenever  any Event of Default  shall have  occurred,  the Board or the
Trustee may take any one or more of the following remedial steps:

          (i) Declare, by written notice to the Borrower,  to be immediately due
     and payable,  whereupon the same shall become  immediately  due and payable
     and so accelerated:  (A) all unpaid amounts payable pursuant to Section 5.1
     hereof,  and pursuant to the Note  (constituting  principal on the Loan and
     accrued but unpaid  interest  thereon) and (B) all other payments due under
     this  Agreement  and  pursuant  to the Note  (whether  or not  constituting
     principal on the Loan and accrued but unpaid interest thereon);

          (ii)  Terminate  the  disbursement  of any moneys in the  Construction
     Account in accordance with Section 4.3 hereof and, upon acceleration of the
     Loan pursuant to Section 10.2(a)(i) of this Agreement, transfer such moneys
     to the Special Redemption Account;

          (iii) Foreclose and otherwise enforce the Security Instruments on, and
     any security interest in and the Equipment;

          (iv) As provided in the Security  Instruments,  take possession of the
     Equipment  and for that purpose the  Borrower  agrees that (a) the Borrower
     will, when so requested by the Board or the Trustee  assemble the Equipment
     and make it  available to the Board or the Trustee on the premises on which
     it is located and (b) the Board and the Trustee,  their  employees,  agents
     and  representatives  shall  have the right to  peacefully  enter  upon any
     premises in the  possession  of the Borrower  wherein the  Equipment or any
     part  thereof  may be  located  and  take  possession  of and  remove  such
     Equipment  without  interference  or  hindrance  from  the  Borrower,   the
     officers, agents or employees or any person associated therewith;

          (v) Upon fifteen (15) calendar days' notice to the Borrower (which the
     Borrower hereby agree is commercially  reasonable) the Board or Trustee may
     proceed to sell or otherwise  dispose of the  Equipment or any part thereof
     by  public or  private  sale in any  commercially  reasonable  manner  (and
     without  intending to limit the generality of the  foregoing,  the Borrower
     hereby agrees that the sale of such property at a public auction  conducted
     by a reputable  auctioneer in the manner in which such auctions are usually
     conducted is commercially reasonable); and

          (vi) Take any  other  action  at law or in  equity  which  may  appear
     necessary or desirable to collect the payments  then due or  thereafter  to
     become due and to enforce the  obligations,  agreements or covenants of the
     Borrower  under  this  Agreement  and the Note or the  Guarantor  under the
     Guaranty.
<PAGE>

     (b) Any sums  realized as a  consequence  of any action  taken  pursuant to
Section  10.2(a)  shall  be paid to the  Trustee  and  shall be  applied  by the
Trustee,  subject  to  the  provisions  of  Section  7.04  of the  General  Bond
Resolution,  in accordance with the provisions of Section 6.06(d) of the General
Bond Resolution, to which such application the Borrower hereby consents.

     Section  10.3.  Remedies  Cumulative.  No remedy herein  conferred  upon or
reserved to the Board is intended to be exclusive of any other available remedy,
but each and every such  remedy  shall be  cumulative  and in  addition to every
other remedy given under this  Agreement or now or hereafter  existing at law or
in equity. No delay or omission to exercise any right or power accruing upon any
default  shall  impair  any such  right or power or shall be  construed  to be a
waiver thereof,  but any such right and power may be exercised from time to time
and as often as may be  deemed  expedient.  In order  to  entitle  the  Board to
exercise any remedy  reserved to it in this Article X, it shall not be necessary
to give any notice,  other than such notice as may be herein expressly  required
in this Agreement and the Note or required by law.

     Section 10.4.  Agreement to Pay Attorneys' Fees and Expenses.  In the event
the Board or the Trustee  should  employ  attorneys  or incur other  expenses in
response to any request of the Borrower or for the collection of amounts payable
hereunder or the  implementation  or enforcement of performance or observance of
any  obligations  or  agreements on the part of the Borrower  herein  contained,
including without limitation  obligations and agreements under this Section, the
Borrower  shall,  on  demand  therefor,  pay to the  Board  or the  Trustee  the
reasonable  fees of such  attorneys  (determined  at their  usual and  customary
rates) and such other expenses so incurred. Commencement of a lawsuit to recover
any amount payable under this Agreement or the Note shall be deemed a demand for
payment  of all  expenses  incurred  in the  course of such  lawsuit,  including
without limitation attorneys' fees incurred in connection with such lawsuit.

     Section 10.5. No Additional  Waiver Implied by One Waiver. In the event any
agreement  contained  herein  should be breached by either party and  thereafter
waived by the other party, such waiver shall be limited to the particular breach
so waived and shall not be deemed to waive any other breach hereunder  including
without  limitation  a  subsequent  breach or  subsequent  breaches  of the same
provision of this Agreement.


<PAGE>
                                   ARTICLE XI

                         EARLY TERMINATION OF AGREEMENT;
                               PREPAYMENT OF LOAN

     Section 11.1. Early Termination of Agreement.

     (a) The Borrower  shall  terminate this Agreement and shall comply with the
requirements  set  forth  in  Section  11.2  hereof  within  150  days  after  a
Determination  of Taxability.  The obligation of the Borrower to comply with the
requirements of this Section 11.1(a) shall be absolute and  unconditional to the
same extent as provided in Sections 5.1 and 5.3 of this Agreement.  Section 12.9
shall apply to any such termination.

     (b) The Borrower  shall have an option to  terminate  this  Agreement  upon
filing  with the Board and the  Trustee a  certificate  signed by an  Authorized
Representative of the Borrower stating the Borrower's  intention to do so on the
next succeeding Bond Payment Date pursuant to this Section 11.1(b) and complying
with the requirements of Section 3.02(b) of the General Bond Resolution and upon
further compliance with the requirements set forth in Section 11.2 hereof.

     Section 11.2.  Conditions to Early  Termination of Agreement.  In the event
the Borrower  exercises its right or is required to terminate  this Agreement in
accordance with any provision of Section 11.1 hereof,  the Borrower shall comply
with the requirements set forth in the following three subsections:

     (a) The following payments shall be made:

          (i) To the Trustee for the account of the Board:  at least thirty days
     prior to the Bond Payment Date, an amount  certified by the Trustee  which,
     when added to the total  amount on deposit with the Trustee for the account
     of the Board and the  Borrower  and  available  for such  purpose,  will be
     sufficient (A) to pay, for deposit into the Special Redemption Account, the
     amount  required  by Section  2.8(a) of the Single  Lot  Resolution  as the
     Redemption Price for the Single Lot Bonds in connection with the redemption
     in whole of such Bonds, if such  termination is pursuant to Section 11.1(a)
     hereof,  or (B) to pay, for deposit into the Optional  Redemption  Account,
     the  Redemption  Price  of the  Single  Lot  Bonds in  connection  with the
     redemption in whole of such Bonds,  in accordance with the terms of Section
     2.7(a) of the Single Lot  Resolution,  together  with all  interest on such
     Single Lot Bonds which will accrue to the date of  prepayment  (which shall
     be the next  succeeding  Bond  Payment  Date for which the Trustee may give
     notice  pursuant  to Section  3.03 and  Section  3.04 of the  General  Bond
     Resolution), if such termination is pursuant to Section 11.1(b) hereof;
<PAGE>

          (ii) To the Board: an amount  certified by the Board sufficient to pay
     all unpaid fees and expenses of the Board incurred under this Agreement and
     the Board Resolution; and

          (iii) To the appropriate Person: an amount sufficient to pay all other
     fees,  expenses  or charges,  if any,  due and payable or to become due and
     payable  under this  Agreement and the Board  Resolution  and not otherwise
     paid or provided for.

     (b) The certificate required to be filed pursuant to Section 11.1(b), shall
specify the date upon which the payments  pursuant to Section  11.2(a)  shall be
made,  which date shall not be less than  ninety  (90) nor more than one hundred
twenty (120) days from the date such certificate is filed with the Board and the
Trustee.

     Section 11.3.  Discharge of Lien. If the Borrower  shall pay or cause to be
paid, or there shall otherwise be paid, to the Holders of all outstanding Single
Lot Bonds or to the Trustee with respect  thereto,  the  principal or Redemption
Price, if applicable,  and interest due or to become due at the times and in the
manner  stipulated  therein,  then the rights in the  Security  Property  hereby
granted and all  covenants,  agreements  and other  obligations  of the Borrower
hereunder to the Board and the Trustee  shall  thereupon  cease,  terminate  and
become void and be discharged  and satisfied.  In such event,  the Board and the
Trustee shall cancel and discharge the Lien of the Security  Instruments and the
security  interest in the  Equipment  created by the  Security  Instruments  and
execute and deliver to the Borrower all such  instruments  as may be appropriate
to evidence such discharge and satisfaction of such liens. After payment in full
of the Single Lot Bonds and the  interest  thereon  and the payment of all fees,
charges,  expenses and other amounts  required to be paid under this  Agreement,
the Note and the Single Lot Resolution,  all amounts on deposit with the Trustee
for the account of the Board and the Borrower under this Agreement, the Note and
the Single Lot Resolution, if any, shall be applied by the Trustee in accordance
with the provisions of Section 5.21 of the General Bond Resolution.

     Section 11.4. Prepayment of Loan in Part.

     (a) The  Borrower  shall  have the  Option to prepay  the Loan in part upon
filing  with the  Board  and  Trustee  a  certificate  signed  by an  Authorized
Representative  stating  the  Borrower's  intention  to do so  pursuant  to this
Section and complying with the  requirements of Section 2.7(a) of the Single Lot
Resolution and Section 3.02(b) of the General Bond Resolution.  Such certificate
shall  specify the date (which shall be a Bond  Payment  Date) and amount of the
partial  prepayment  of the Loan,  which date shall not be more than one hundred
twenty (120) days nor less than ninety (90) days after such notice.

     (b) Upon the  filing of such  certificate,  the  Borrower  shall pay to the
Trustee for the account of the Board a sum  sufficient  to pay, for deposit into
the  Optional  Redemption  Account,  the  Redemption  Price of the amount of the
Single Lot Bonds to be  redeemed  (from the amounts to be prepaid on the Loan as
certified in Section  11.4(b) of this Agreement) in accordance with the terms of
Section 2.7(a) of the Single Lot Resolution,  together with all interest on such
Single Lot Bonds which will accrue to the date of prepayment.
<PAGE>

     Section  11.5.  Refunding  Consent.  If after  August  1,  1997  the  Board
certifies to the Borrower that it wishes to refund the Single Lot Bonds in order
to permit the Board to amend the  provisions  of the General Bond  Resolution or
the General Guaranty Fund Pledge and Escrow  Agreement  without the necessity of
obtaining  Bondholder consent, the Borrower hereby consents to the issuance of a
Lot of  refunding  Bonds to refund the  Single Lot Bonds at the then  prevailing
rates of interest  (provided that the interest  payable on such refunding  Bonds
shall continue the tax-exempt status of the Single Lot Bonds, if any), provided,
however,  that  Borrower will continue to make the same payments due on the Note
as established in the Single Lot Resolution as of the Date of Issuance and under
this Agreement and that any increase or decrease in payments shall be paid to or
received by the Board.  In  connection  with any such  refunding,  the  Borrower
hereby  covenants  to  amend  or  supplement  this  Agreement  and the  Security
Instruments  (and shall  cause the  Guarantor  to amend the  Guaranty),  to such
extent, or to provide substitute  documents  therefor,  as in the opinion of the
Board shall be necessary to effect such refunding, including the payment of debt
service on such refunding  Bonds when and as due and at the rate of interest set
forth therein. The Borrower hereby consents,  in connection with such refunding,
to any  deposit by the Board of all or part of the  proceeds  of such  refunding
Bonds (i) into the Special  Redemption Account to prepay in whole the Single Lot
Bonds or (ii) to be held by the  Trustee  to  defease  the  Single  Lot Bonds in
accordance with the provisions of Section 11.02 and Section 11.03 of the General
Bond Resolution.



<PAGE>

                                   ARTICLE XII

                                  MISCELLANEOUS

     Section 12.1.  Notices.  All notices,  other than interest billing notices,
certificates or other communications  hereunder shall be in writing and shall be
sufficiently given and shall be deemed given when delivered and, if delivered by
mail,  shall be sent by certified or registered mail,  postage  prepaid,  return
receipt requested, addressed as follows:

    To the Board:             Minnesota Agricultural and
                                    Economic Development Board
                                  500 Metro Square
                                  121 7th Place East
                                  Saint Paul, Minnesota 55101
                                  Attention:  Financial Management Division
                                  (Department of Trade and Economic Development)

    To the Borrower:          Sparta Foods, Inc.
                                   2570 Kasota Avenue
                                   St. Paul, Minnesota 55108
                                   Attention: Merrill Ayers

    To the Trustee:           First Bank National Association
                                   c/o First Trust National Association
                                   180 East Fifth Street
                                   St. Paul, Minnesota 55101
                                   Attention: Corporate Trust Administration

A duplicate  copy of each  notice,  certificate  and other  communication  given
hereunder  by either the Board or the  Borrower to the other shall also be given
to the  Trustee.  The Board,  the  Borrower and the Trustee may, by notice given
hereunder,  designate  any further or different  addresses  to which  subsequent
notices, certificates and other communications shall be sent.

     Section 12.2. Binding Effect.  This Agreement shall inure to the benefit of
and shall be binding upon the Board, the Borrower and their respective  personal
representatives,  heirs,  devisees,  successors and assigns (as  applicable) and
shall create no rights in any other parties  except as may be  specifically  set
forth elsewhere in this Agreement.

     Section 12.3.  Severability.  In the event any provision of this  Agreement
shall be held invalid or unenforceable  by any court of competent  jurisdiction,
such holding shall not invalidate or render  unenforceable  any other  provision
hereof.
<PAGE>

     Section 12.4. Amendments,  Changes and Modifications.  This Agreement,  the
Security Instruments and the Note may not be amended, changed, modified, altered
or terminated without the concurring written consent of the Bondholders,  except
as provided in Section 6.08 of the General Bond Resolution. Wherever the consent
or approval of the Board or the  Trustee is  required  or  permitted  under this
Agreement, the Note or the Security Instruments,  such consent or approval shall
not be unreasonably  withheld (based upon the standards set forth in the General
Bond  Resolution)  and shall be promptly given (but this provision  shall not be
deemed to require any special meetings by the Board).

     Section 12.5. Data Privacy  Disclosure.  The Borrower  understands that the
data which the Borrower provides pursuant to the Agreement,  including,  but not
limited to,  information  required under Section 8.3,  Section 8.4, Section 8.5,
Section 8.6, Section 8.8 and Section 8.19 will be used by the Board to:

          (a) Assess Borrower's financial status;

          (b) Make any reports  required by the Act, any other law or government
     regulation in accordance with Minnesota Statutes Section 13.77;

          (c) Provide such information to the public, including, but not limited
     to, potential  purchasers of its Bonds,  Bondholders,  Bond Counsel and the
     Board's  underwriters and placement agents, as is needed in connection with
     the sale, issuance and payments of Bonds;

          (d)  Enforce  this  agreement  and  any  mortgage  or  other  security
     instrument between the Borrower and the Board; and

          (e) Operate and evaluate its Program.

The Borrower further understands that there is a possibility that the data might
constitute a public  record and may be examined by anyone.  The Borrower  hereby
consents  to the  use  of  such  data  as  described  above  and  to its  public
disclosure.  Failure to provide the  required  data may  constitute  an Event of
Default  under  Section  10.1.  In the event a Person  other  than the  Trustee,
investment  bankers  representing  the Board or any agent  thereof  requests the
information  described  in  Sections  8.4,  8.5,  8.18 or 8.19,  the Board shall
exercise  its best  efforts  to  provide  the  Borrower  advance  notice  of its
intention to provide such information to such Person.
<PAGE>

     Section 12.6. Execution of Counterparts.  This Agreement may be executed in
several counterparts,  each of which shall be an original and all of which shall
constitute but one and the same instrument.

     Section 12.7.  Applicable Law. This Agreement shall be governed exclusively
by the applicable laws of the State.

     Section 12.8. Recording and Filing. (a) The financing statements perfecting
the security interests created by the Security  Instruments or by this Agreement
in all amounts payable hereunder shall be recorded or filed, as the case may be,
in such  office or offices as may at the time be  provided  by law as the proper
place for the recordation or filing  thereof.  The Borrower shall be responsible
for such  recording and filing and shall bear the expense  associated  therewith
and in connection with the continued validity and perfection thereof.

     (b) The Board and the Borrower  shall  execute and deliver all  instruments
and shall furnish all information necessary or appropriate to perfect or protect
any security  interest  created or contemplated by this Agreement,  the Security
Instruments or the Board Resolution.

     Section 12.9.  Survival of  Obligations.  This Agreement and the Note shall
remain in full force and effect until the Series 1997D Bonds,  together with all
interest  thereon,  and all amounts payable under this  Agreement,  the Security
Instruments and the Note and the Board  Resolution shall have been paid in full.
However,  the  obligations  of the  Borrower  to make the  payments  required by
Section 5.1 and  Section  5.2 hereof and  Article XI hereof,  and to provide the
indemnity  required by Section 8.2 hereof and payment of attorney  fees required
by Section 10.4 hereof,  shall survive the termination of this Agreement and the
full payment of the Single Lot Bonds.

     Section 12.10. Table of Contents and Section Headings Not Controlling.  The
Table of Contents  and the  headings of the several  Sections in this  Agreement
have been  prepared for  convenience  of  reference  only and shall not control,
affect the meaning of or be taken as an  interpretation of any provision of this
Agreement.

     Section 12.11. Limited Liability. The Act prescribes and the parties intend
that by reason of making this Agreement, by reason of the issuance of the Single
Lot Bonds, by reason of the performance of any act required of the Board by this
Agreement,  or by reason of the performance of any act requested of the Board by
the Borrower,  no  indebtedness  or charge  against the general credit or taxing
powers,  if any,  of the Board  within  the  meaning  of any  constitutional  or
statutory limitation shall occur.
<PAGE>

     IN  WITNESS  WHEREOF,  the Board and the  Borrower  have  caused  this Loan
Agreement to be executed in their respective names as of July 1, 1997.

                                    MINNESOTA AGRICULTURAL AND
                                    ECONOMIC DEVELOPMENT BOARD



                                    By ________________________________
                                       Its Chair

ATTEST:


By  ____________________________
    Its Executive Director


                                   SPARTA FOODS, INC.


                                   By _________________________________
                                      Its______________________________


<PAGE>
                                                                   Schedule I

                               SPARTA FOODS, INC.

                                 PROMISSORY NOTE

No. 1                                                                $1,950,000

     Sparta Foods, Inc., a Minnesota  corporation,  acknowledges itself indebted
and for value  received  hereby  promises  to pay to the order of the  Minnesota
Agricultural and Economic  Development  Board as the statutory  successor to the
Minnesota  Energy and  Economic  Development  Authority  (the  "Board")  and its
successors and assigns,  the principal sum of ONE MILLION NINE HUNDRED  THOUSAND
DOLLARS  ($1,950,000)  together with interest on the unpaid principal balance of
this Note until the  Borrower's  obligation  with respect to the payment of such
sum shall be discharged  at a rate of interest  identical to the stated rates of
interest on the Series  1997D Bonds  referred to below  (taking into account the
different rates for the different maturities and principal amounts of the Series
1997D  Bonds) but  payable  not as  provided  in the Series  1997D  Bonds but as
provided below and in the Loan Agreement referred to below.

     This Note is issued to evidence the obligation of Sparta Foods,  Inc. under
and pursuant to, and shall be governed by and construed in  accordance  with the
terms and conditions of, the Loan Agreement  dated as of July 1, 1997 (the "Loan
Agreement")  between the Board and Sparta Foods,  Inc., for the repayment of the
loan made by the Board to Sparta Foods,  Inc.,  thereunder  from the proceeds of
the Board's $1,950,000  principal amount of Minnesota Small Business Development
Loan Program Revenue Bonds, Series 1997D, Lot 1 (the "Bonds") and the payment of
interest  thereon,  including  provision for  prepayment of said loan in certain
cases,  and for the  satisfaction  of a certain  right of  reimbursement  of the
General   Guaranty  Fund  as  provided  in  the  Loan  Agreement  under  certain
circumstances  and for the  satisfaction of a certain right of  reimbursement of
the Board as provided in the Loan Agreement  under certain  circumstances.  This
Note is  secured  by the  Security  Agreement,  dated  as of July 1,  1997  (the
"Security  Agreement")  made by  Sparta  Foods,  Inc.  to the  payee in  certain
property,  as provided in the Loan  Agreement  and the  Security  Agreement  and
granted  by the  maker to the  payee as  provided  in the Loan  Agreement  and a
Guaranty dated as of July 1, 1997 by La Canasta of Minnesota, Inc. to the Board.
The Loan  Agreement  (together  with this Note) and the Security  Agreement have
been  pledged to the  Holders of the Bonds  from time to time  issued  under the
Minnesota  Small  Business  Development  Loan Program  Revenue Bond General Bond
Resolution (the "General Bond Resolution") adopted by the Board on September 26,
1984 and  thereafter  amended  and  restated  from time to time  pursuant to its
terms.
<PAGE>

     As provided in the Loan  Agreement and subject to the  provisions  thereof,
payments  hereon are to be made in lawful money of the United  States of America
at the  place and in the  manner  provided  in the Loan  Agreement,  in  monthly
installments of principal and interest,  commencing  August 1, 1997, and payable
thereafter on the first day of each month, such installments to be applied first
to the  payment of interest  then due on this Note,  and the  remaining  balance
thereof  to  reduce  the  unpaid  principal  amount  of  this  Note,  with  each
installment  payable as interest to include  interest  payable in advance due to
and including the first day of the next succeeding month from the month in which
the installment is payable and with each installment  payable as principal to be
similarly  paid in  advance.  The monthly  installments  to be paid on this Note
shall be an amount equal to for the period  commencing  on August 1, 1997 and on
the first day of each month thereafter (1) one-sixth of the interest installment
due on the Bonds on the next  succeeding  bond payment date thereof (taking into
account  such  in-advance   payments)  and  (2)  one-twelfth  of  the  principal
installment due on the Bonds on the next succeeding bond payment date on which a
principal  installment  thereon is due  (taking  into  account  such  in-advance
payments),  such  installments to be reduced by that sum or sums such that on or
before the bond payment date on which a principal installment is due thereon any
amounts then on deposit in the Holding Account created with respect to the Bonds
pursuant to the  provisions  of the  General  Bond  Resolution  plus the monthly
installment then to be paid on this Note shall equal the debt service payment on
the Bonds due on such bond payment date.

     This  Note  may be  prepaid  in  whole  or in part in  accordance  with the
provisions  of the  Loan  Agreement.  In  addition,  upon  the  occurrence  of a
"Determination  of  Taxability"  (as defined in the Loan  Agreement),  this Note
shall  be  mandatorily  prepaid  at the  price  and time  specified  in the Loan
Agreement and the Loan  Agreement  shall be  terminated  in accordance  with the
provisions  of  Article XI of the Loan  Agreement  (and in  particular,  Section
11.1(a) and Section 11.2(a)(i)(A) thereof).

     Sparta  Foods,  Inc.  agrees to make the payments on this Note on the dates
and in the amounts  specified  herein and in the Loan  Agreement and in addition
agrees to make such other payments at such times and upon such conditions as are
required pursuant to the Loan Agreement.  In the "Event of Default",  as defined
in the  Loan  Agreement,  the  principal  of and  interest  on this  Note may be
declared  immediately  due and payable as provided in the Loan  Agreement.  This
Note  may be  cancelled,  amended  or  supplemented  as  provided  in  the  Loan
Agreement.

     Presentment for payment, notice of dishonor,  protest and notice of protest
are hereby waived by the makers hereof.
<PAGE>

     IN WITNESS WHEREOF,  Sparta Foods, Inc. has caused this Note to be executed
in its  respective  name  and on its  behalf  by  the  manual  signature  of its
President, all as of July 1, 1997.

                               SPARTA FOODS, INC.


                               By ____________________________________
                                 Its Chief Financial Officer

<PAGE>

                                  EXHIBIT A TO
                                 LOAN AGREEMENT

                            LEGAL DESCRIPTION OF LAND

Tract A, Registered Land Survey No. 405, Files of Registrar of Titles, County of
Ramsey.

Being registered land as is evidence by Certificate of Title No. 320168

AND

The  Northerly  107.21 feet of the Westerly  406.3 feet of the South Half of the
Northwest Quarter of Section 21, Township 30 North, Range 23 West.

AND

The  Northerly  150 feet of that part of the  Northwest  Quarter of Section  21,
Township 30 North,  Range 23 West,  lying Westerly of the Westerly  right-of-way
line of Interstate  Highway No. 35 W, and  Southerly of the following  described
line:

Beginning at a point on the  Westerly  line of said Section 21 a distance of 975
feet  Northerly  of the  Southwest  corner  of said  Northwest  Quarter;  thence
Easterly parallel to the Northerly line of said Section, to the Easterly line of
said Northwest  Quarter and there  terminating,  subject to Cleveland Avenue and
State Trunk Highway No. 8-63.

Certificate of Title No. 283343





<PAGE>

                                  EXHIBIT B TO
                                 LOAN AGREEMENT

                            DESCRIPTION OF EQUIPMENT

                                                           Total Cost
                                                           ----------
Lawrence Equipment Mega Line
----------------------------
         Production Line                                    1,193,848
         UBE Bagger                                            80,286
         Box Taper                                              2,950
         Conveyors                                             20,650
         Doboy B450 Packager                                   31,430
         Safeline Metal Detector                               22,563
                                                               ------
Sub Total                                                   1,351,727

Opal Line Proofer Chain                                        24,727
Opal Line Kwik Lok Bag Clipper                                 15,054
Opal Line TechPack Conveyor                                     7,479
Flour Dept Safeline Metal Detector                             22,638
Floor Scale                                                     6,330
Flour Dept Stretch Wrapper                                     13,520
Bulk Flour Storage System                                     198,043
Boiler   70,725
Hot Water & Softening System                                   28,240
Plant Racking                                                  44,275
Freezer Racking                                               121,500
Clark HWD 30 Rider Pallet Truck                                11,921
Sauce Temperatur Recorders                                      9,475
Mixer Water Meters (4)                                         12,570
Corn Dept Mixer                                                31,300
Corn Dept Safeline Metal Detector                              22,638
Dynequip Corn Transfer System                                  41,143
Dynequip Corn Storage System                                   50,924
Voice/data cabling, paging system                              13,078
Telephone system upgrade                                        7,389
Fork lift Truck                                                30,652
Computer Hardware                                               5,077
HVAC     108,948
         -------
         Total                                              2,249,371


<PAGE>

                                    EXHIBIT C

                                   $1,950,000
              Minnesota Agricultural and Economic Development Board
               Minnesota Small Business Loan Program Revenue Bonds
                               Series 1997D, Lot 1

                 DISBURSEMENT REQUEST NO. ____ FOR DISBURSEMENT
                     OF FUNDS FROM THE CONSTRUCTION ACCOUNT


TO:              First Bank National Association
                 Corporate Trust Administration
                 180 East Fifth Street
                 St. Paul, Minnesota 55101


     I, a duly authorized  representative of Sparta Foods, Inc. (the "Borrower")
and the  obligor  under a Loan  Agreement,  dated as of July 1, 1997 (the  "Loan
Agreement),  between the Minnesota  Agricultural and Economic  Development Board
(the  "Board")  and the  Borrower,  hereby  certify  on behalf  of the  Borrower
pursuant to Section 4.3 thereof as follows:

     1. I have  reviewed  appropriate  records  and  documents  of the  Borrower
relating to the matters covered by this Request.  All capitalized  terms used in
this Request shall have the meaning given them in the Loan Agreement.

     2. This certificate  accompanies the Borrower's request number for advances
under the Loan Agreement  dated July 1, 1997 between  Borrower and the Minnesota
Agricultural and Economic Development Board (the "Board"). Prior to this request
for advance the Borrower has received advances of $ of Bond Proceeds and $-0- of
Borrower's  equity  contribution (to the extent such equity was deposited in the
Construction Account pursuant to Section 3.3 of the Loan Agreement).

     3. The presently pending request for advance seeks $ (73.33% of the cost of
the  Equipment)  in Bond  Proceeds  from the  Construction  Account  and $-0- in
Borrower's equity contribution.

     4.  As of  this  date,  the  Equipment  acquired  or to  be  acquired  with
Borrower's  equity  contribution  deposited in the  Construction  Fund have been
and/or will be applied as follows:
<PAGE>

     5. The Trustee may rely upon the foregoing  certifications in approving any
advance requested by Borrower.

     6. Each item for which payment or reimbursement is hereby requested (a) has
been paid or incurred or is now due and payable and (b) is or was  necessary  in
connection with the acquisition and installation of the Project.

     7. No item hereby  requested to be paid or reimbursed  has been included in
any Request  previously filed by the Borrower with the Trustee under Section 4.3
of the Loan Agreement.

     8. No  default  by the  Borrower  under  the  Loan  Agreement  or  Security
Agreement has occurred which has not been cured.

     9. The amount  remaining in the  Construction  Account  (together  with any
anticipated investment income to be credited thereto) will, after payment of the
amount  requested by this Request,  be sufficient to pay the remaining  costs of
the Project.

     10. Payment of the amounts  requested herein will not result in a violation
by the  Borrower  of  any  of its  representations  as  set  forth  in the  Loan
Agreement.

     11. Attached  hereto is a UCC-1 filing relating to the Equipment  listed on
Schedule A hereto which has been recorded with the Secretary of State.

     12. The Equipment listed on Schedule A hereto has been acquired,  installed
and  accepted  and is free  and  clear  of all  security  interests,  liens  and
encumbrances of any kind whatsoever.

     13.  Attached  hereto is a UCC search  showing no existing  interest in the
Equipment.

     14.  Attached  hereto is an opinion of  counsel  to the  Borrower  that the
Equipment  is free  and  clear of all  liens  except  the  lien of the  Security
Instruments  and the security  interest of the Board in the  Equipment  has been
perfected and is valid.*

     You are hereby  requested  to advance and  disburse  from the  Construction
Account seventy three and one-third percent (73.33%) of the amounts set forth in
Section 4 hereof and to reimburse the Borrower for such costs of the  Equipment.

------------------- 
     *For the  Disbursement  Requests for which the Borrower  reaches  $750,000,
$1,500,000 and $1,716,000 in total amounts disbursed from the Construction Fund.

<PAGE>


             WITNESS my hand this ___ day of ___________, 199_.

                                  SPARTA FOODS, INC.


                                  By___________________________________
                                      Its_________________________________


Approved:

Minnesota Agricultural and Economic
   Development Board


By______________________________
     Its Executive Director


<PAGE>
                                   Schedule A


     The  Borrower  has  incurred  the  following  costs  in  constructing   and
equipping, or in supplying materials, labor or services for, the Project:

General Nature of Item          Amount Incurred          Contractor of Supplier
----------------------          ---------------          ----------------------

<PAGE>


                                   Schedule B



Nature of                    Name and Address of                   Amount to
   Item                       Supplier of Item                      Be Paid
---------                    -------------------                  ----------


<PAGE>


                                  Attachment A

              Opinion of Company Counsel required for Draw Request