EXHIBIT 10.1

                           CONVERTIBLE LOAN AGREEMENT

                          DATED AS OF FEBRUARY 27, 2004

                                  BY AND AMONG

                        DIGITAL LEARNING INSTITUTE, INC.

                                   AS BORROWER

                             FREEPCSQUOTE.COM, INC.
                                  TO BE RENAMED

                     DIGITAL LEARNING MANAGEMENT CORPORATION

                                  AS GUARANTOR

                                       AND

               RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

                                       AND

                   RENAISSANCE US GROWTH INVESTMENT TRUST PLC

                                       AND

                      BFSUS SPECIAL OPPORTUNITIES TRUST PLC

                                    AS LENDER

                                       AND

                            RENN CAPITAL GROUP, INC.

                             AS AGENT FOR THE LENDER


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                                TABLE OF CONTENTS
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ARTICLE I. - DEFINITION OF TERMS..................................................................................1

   SECTION 1.01       DEFINITIONS.................................................................................1
   SECTION 1.02       OTHER DEFINITION PROVISIONS.................................................................7

ARTICLE II. - LOAN PROVISIONS.....................................................................................7

   SECTION 2.01       THE LOAN....................................................................................7
   SECTION 2.02       USE OF PROCEEDS.............................................................................8
   SECTION 2.03       INTEREST RATE AND INTEREST PAYMENTS.........................................................8
   SECTION 2.04       MATURITY....................................................................................8
   SECTION 2.05       MANDATORY PRINCIPAL REPAYMENT...............................................................8
   SECTION 2.06       REDEMPTION..................................................................................8
   SECTION 2.07       CONVERSION..................................................................................9
   SECTION 2.08       FEES AND EXPENSES...........................................................................9
   SECTION 2.09       FINDER'S FEES...............................................................................9
   SECTION 2.10       TAXES.......................................................................................9
   SECTION 2.11       SECURITY AGREEMENT.........................................................................10

ARTICLE III. - CONDITIONS PRECEDENT..............................................................................10

   SECTION 3.01       PRE-CLOSING CONDITIONS.....................................................................10

ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BORROWER.........................................................11

   SECTION 4.01       ORGANIZATION AND GOOD STANDING.............................................................12
   SECTION 4.02       AUTHORIZATION AND POWER....................................................................12
   SECTION 4.03       NO CONFLICTS OR CONSENTS...................................................................12
   SECTION 4.04       ENFORCEABLE OBLIGATIONS....................................................................12
   SECTION 4.05       NO LIENS...................................................................................12
   SECTION 4.06       FINANCIAL CONDITION........................................................................12
   SECTION 4.07       NO DEFAULT.................................................................................13
   SECTION 4.08       MATERIAL AGREEMENTS........................................................................13
   SECTION 4.09       NO LITIGATION..............................................................................14
   SECTION 4.10       TAXES......................................................................................14
   SECTION 4.11       CAPITALIZATION.............................................................................14
   SECTION 4.12       USE OF PROCEEDS............................................................................15
   SECTION 4.13       EMPLOYEE MATTERS...........................................................................15
   SECTION 4.14       EMPLOYEE BENEFIT PLANS.....................................................................15
   SECTION 4.15       COMPLIANCE WITH LAWS.......................................................................16
   SECTION 4.16       LICENSES AND PERMITS.......................................................................16
   SECTION 4.17       CONTRACTS..................................................................................16
   SECTION 4.18       SHARES ISSUABLE UPON CONVERSION............................................................17
   SECTION 4.19       INSIDER....................................................................................17
   SECTION 4.20       SUBSIDIARIES...............................................................................17
   SECTION 4.21       CASUALTIES.................................................................................17
   SECTION 4.22       INVESTMENT COMPANY ACT.....................................................................17
   SECTION 4.23       SUFFICIENCY OF CAPITAL.....................................................................18
   SECTION 4.24       CORPORATE NAMES............................................................................18
   SECTION 4.25       INSURANCE..................................................................................18
   SECTION 4.26       INTELLECTUAL PROPERTY......................................................................18
   SECTION 4.27       REAL PROPERTY..............................................................................18
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   SECTION 4.28       ENVIRONMENTAL..............................................................................19
   SECTION 4.29       INTERNAL ACCOUNTING CONTROLS...............................................................21
   SECTION 4.30       TRANSACTIONS WITH AFFILIATES AND EMPLOYEES.................................................21
   SECTION 4.31       MERGER.....................................................................................21
   SECTION 4.32       "OFF-BALANCE SHEET ARRANGEMENTS."..........................................................21
   SECTION 4.33       SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................................................22
   SECTION 4.34       FULL DISCLOSURE............................................................................22

ARTICLE V. - AFFIRMATIVE COVENANTS OF BORROWER...................................................................22

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

ARTICLE VI. - NEGATIVE COVENANTS OF BORROWER.....................................................................29

   SECTION 6.01       LIMITATION ON INDEBTEDNESS.................................................................29
   SECTION 6.02       LIMITATION ON LIENS........................................................................29
   SECTION 6.03       LIMITATION ON INVESTMENTS..................................................................29
   SECTION 6.04       ALTERATION OF MATERIAL AGREEMENTS..........................................................29
   SECTION 6.05       TRANSACTIONS WITH AFFILIATES...............................................................29
   SECTION 6.06       LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS..........................................29
   SECTION 6.07       LIMITATION ON SALE OF PROPERTIES...........................................................30
   SECTION 6.08       FISCAL YEAR AND ACCOUNTING METHOD..........................................................30
   SECTION 6.09       LIQUIDATION................................................................................30
   SECTION 6.10       MATERIAL AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.................................30
   SECTION 6.11       EXECUTIVE COMPENSATION.....................................................................30
   SECTION 6.12       RESTRICTED PAYMENTS........................................................................30
   SECTION 6.13       CONSOLIDATION OR MERGER....................................................................31

ARTICLE VII. - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS...................................................31

   SECTION 7.01       FINANCIAL RATIOS...........................................................................31
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ARTICLE VIII. - EVENTS OF DEFAULT................................................................................31

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

ARTICLE IX. - REGISTRATION RIGHTS................................................................................33

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

ARTICLE X. - BOARD OF DIRECTORS..................................................................................40

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

ARTICLE XI. - AGENCY PROVISIONS..................................................................................40

   SECTION 11.01      THE LENDER'S REPRESENTATIONS AND WARRANTIES TO AGENT.......................................40
   SECTION 11.02      WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS................................41
   SECTION 11.03      AGENCY.....................................................................................41

ARTICLE XII. - MISCELLANEOUS.....................................................................................42

   SECTION 12.01      STRICT COMPLIANCE..........................................................................42
   SECTION 12.02      WAIVERS AND MODIFICATIONS..................................................................43
   SECTION 12.03      LIMITATION ON LIABILITY....................................................................43
   SECTION 12.04      CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION............................43
   SECTION 12.05      INVALID PROVISIONS.........................................................................43
   SECTION 12.06      MAXIMUM INTEREST RATE......................................................................44
   SECTION 12.07      PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES...........................................44
   SECTION 12.08      CONFIDENTIALITY............................................................................45
   SECTION 12.09      BINDING EFFECT.............................................................................45
   SECTION 12.10      NO THIRD PARTY BENEFICIARY.................................................................45
   SECTION 12.11      ENTIRETY...................................................................................45
   SECTION 12.12      HEADINGS...................................................................................45
   SECTION 12.13      SURVIVAL...................................................................................46
   SECTION 12.14      MULTIPLE COUNTERPARTS......................................................................46
   SECTION 12.15      KNOWLEDGE OF BORROWER......................................................................46
   SECTION 12.16      NOTICES....................................................................................46
   SECTION 12.17      GOVERNING LAW..............................................................................48

SCHEDULES TO CONVERTIBLE LOAN AGREEMENT..........................................................................51

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      THIS   AGREEMENT,   dated  as  of  February   27,   2004,   by  and  among
FREEPCSQUOTE.COM,  INC., a Nevada corporation (the "Company"),  DIGITAL LEARNING
INSTITUTE,  INC., a Delaware corporation  ("Borrower"),  and RENAISSANCE CAPITAL
GROWTH & INCOME FUND, III, INC., a Texas corporation  (individually  referred to
as "Renaissance  III") and RENAISSANCE US GROWTH  INVESTMENT TRUST PLC, a public
limited  company  registered in England and Wales  (individually  referred to as
"RUSGIT") and BFSUS SPECIAL  OPPORTUNITIES  TRUST PLC, a public limited  company
registered in England and Wales  ("BFSUS")  (Renaissance  III, RUSGIT and BFSUS,
together  with any permitted  assignees or successors in interest,  collectively
referred to as the "Lender") and RENN CAPITAL GROUP,  INC., a Texas corporation,
as agent for the Lender (the "Agent").  All references  herein to Borrower shall
include the Subsidiaries, unless the context otherwise requires.

                                   WITNESSETH:

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

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

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

                        ARTICLE I. - DEFINITION OF TERMS

SECTION 1.01      DEFINITIONS.

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

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

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

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

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

      "Cash Flow" for any period, shall mean the sum of (i) EBITDA and all other
non-cash  charges which were deducted in determining net income for such period,
minus (ii) (a)  scheduled  repayments  of the Loan to the extent  actually  paid
during the period,  and (b)  non-cash  credits  which were taken into account in
determining EBITDA for such period.


                                       1
<PAGE>

      "Closing Fee" shall mean that amount equal to 1.0% of the principal amount
of the Loan.

      "Closing  Expense Fee" shall mean  reasonable  legal  expenses  (including
attorneys'  fees)  incurred by the Lender and RENN in connection  with the Loan,
including document preparation and other reasonable closing costs.

      "Commitment  Fee" shall mean that  amount  equal to 1.0% of the  principal
amount of the Loan,  which shall be deposited  by Borrower in an escrow  account
established at a bank designated by RENN upon  notification that RENN intends to
present the investment proposal to the Boards of Directors of the Lender.

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

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

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

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

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

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

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

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

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


                                       2
<PAGE>

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

      "Due Diligence Fee" shall mean a non-refundable  due diligence fee, in the
amount of Five Thousand Two Hundred Fifty Dollars  ($5,250),  previously paid by
Borrower to Lender.

      "Earnings  Before Interest and Taxes" shall mean for any period the sum of
(i) net income (or loss) of Borrower  for such period  (excluding  extraordinary
gains and losses)  plus (ii) all  interest  expense of Borrower for such period,
plus (iii) all charges  against  income of Borrower for such period for federal,
state and local taxes actually paid. For any period during fiscal 2004 only, net
income (or loss) of Borrower for such period shall also exclude non-cash charges
relating to the issuance of the Loan and warrants.

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

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

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

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

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

      "Holder" shall mean the owner of Registrable Securities.

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


                                       3
<PAGE>

      "Interest Coverage Ratio" means for any period the ratio of (a) Borrower's
consolidated net income after taxes for such period (excluding  Borrower's after
tax gains or losses on the sale of assets  (other than the sale of  Inventory in
the ordinary  course of business)  and excluding  other after tax  extraordinary
gains or losses), plus depreciation and amortization deducted in determining net
income for such period,  plus  interest  expense for such period to (b) interest
expense for such period, all as determined on a consolidated basis in accordance
with GAAP.  For any period  during  fiscal 2004 only,  net income after taxes of
Borrower  for such period shall also exclude  non-cash  charges  relating to the
issuance of the Loan and warrants.

      "Investment" in any Person shall mean any investment,  whether by means of
share purchase,  loan, advance, capital contribution or otherwise, in or to such
Person, the guaranty of any Indebtedness of such Person, or the subordination of
any claim  against such Person to other  Indebtedness  of such Person;  provided
however,  that "Investment"  shall not include (i) any demand deposits in a duly
chartered state or national bank or other cash equivalent investments,  (ii) any
loans  permitted by Section  6.12,  or (iii) any  acquisitions  of equity in any
other Person.

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

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

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

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

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

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

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

      "Net Income" shall mean, for any Person for any period, net income of such
Person  and its  consolidated  Subsidiaries  for  such  period  which  would  be
reflected in accordance with GAAP.


                                       4
<PAGE>

      "Obligation"  shall  mean:  (i)  all  present  and  future   Indebtedness,
obligations and  liabilities of Borrower to the Lender arising  pursuant to this
Agreement, regardless of whether such Indebtedness,  obligations and liabilities
are direct, indirect,  fixed, contingent,  joint, several, or joint and several;
(ii) all  present  and  future  Indebtedness,  obligations  and  liabilities  of
Borrower to the Lender arising  pursuant to or represented by the Debentures and
all interest  accruing thereon,  and reasonable  attorneys' fees incurred in the
enforcement or collection  thereof;  (iii) all present and future  Indebtedness,
obligations  and  liabilities  of Borrower  and any  Subsidiary  evidenced by or
arising  pursuant to any of the Loan  Documents;  (iv) all costs incurred by the
Lender or Agent including,  but not limited to,  reasonable  attorneys' fees and
legal expenses related to this transaction; and (v) all renewals, extensions and
modifications of the indebtedness  referred to in the foregoing clauses,  or any
part thereof.

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

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

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

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

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

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


                                       5
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       6
<PAGE>

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

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

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

SECTION 1.02      OTHER DEFINITION PROVISIONS.

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

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

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

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

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

                         ARTICLE II. - LOAN PROVISIONS

SECTION 2.01      THE LOAN.

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


                                       7
<PAGE>


         ENTITY                                                  AMOUNT

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

      (b) The Loan shall be disbursed at Loan Closing, subject to the conditions
provided hereunder,  and shall be evidenced by the Debentures,  in the Principal
Amount  specified  above.  The Debentures shall be senior in right of payment to
all Indebtedness of the Company,  other than Senior Obligations  approved by the
Lender.

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

SECTION 2.02      USE OF PROCEEDS.

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

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

SECTION 2.03      INTEREST RATE AND INTEREST PAYMENTS.

      Interest  on the  Principal  Amount  outstanding  from time to time  shall
accrue at the rate of 7.00% per annum,  with the first  installment  of accrued,
unpaid  interest being due and payable on April 1, 2004 and subsequent  payments
of accrued, unpaid interest being due and payable on the first day of each month
thereafter. Overdue principal and interest on the Debentures shall bear interest
at the maximum  rate  permitted by  applicable  law.  Interest on the  Principal
Amount of the Debentures shall be calculated, from time to time, on the basis of
the actual days elapsed in a year consisting of 365 days.

SECTION 2.04      MATURITY.

      If not sooner  redeemed  or  converted,  the  Debentures  shall  mature on
February 27, 2011, at which time all the remaining  unpaid  principal,  interest
and any other charges then due under this Agreement  shall be due and payable in
full.  The  Debentures  shall be  prepaid  pro  rata  with  any  prepayments  of
Indebtedness, other than Senior Obligations.

SECTION 2.05      MANDATORY PRINCIPAL REPAYMENT.

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

SECTION 2.06      REDEMPTION.

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


                                       8
<PAGE>


SECTION 2.07      CONVERSION.

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

SECTION 2.08      FEES AND EXPENSES.

      Upon Loan Closing,  Borrower shall pay at Loan Closing to Agent, or at its
direction,  the Closing Fee and  Closing  Expense Fee and shall have  previously
paid  the  Commitment  Fee  and  Due  Diligence  Fee,  all as set  forth  in the
preliminary terms letter between the Borrower and RENN Group.

SECTION 2.09      FINDER'S FEES.

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

SECTION 2.10      TAXES.

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

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

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

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

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


                                       9
<PAGE>


SECTION 2.11      SECURITY AGREEMENT.

      The due and prompt  performance  of the  obligations  of  Borrower  to the
Lender  under the Loan  Agreement  and the  Debentures  shall be  secured by all
tangible and intangible  assets of Borrower and shall be evidenced by a Security
Agreement  executed among the Lender and the Agent of the Borrower.  A financing
statement shall be executed in favor of the Lender and Agent by Borrower.

                      ARTICLE III. - CONDITIONS PRECEDENT

SECTION 3.01      PRE-CLOSING CONDITIONS.

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

      (f) Loan  Agreement.  Duly executed Loan  Agreement  from Borrower and the
Company,  which shall be in form and  substance  satisfactory  to Lender and its
counsel.

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

      (h) Security  Agreements.  Duly executed Security Agreements from Borrower
and the Company,  which shall be in form and substance  acceptable to the Lender
and its counsel.

      (i) Guaranty Agreement. Duly executed Guaranty Agreement from the Company,
which shall be in form and substance acceptable to the Lender and its counsel.

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

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


                                       10
<PAGE>


      (l) Legal  Opinions.  A legal opinion from counsel to Borrower in form and
substance  satisfactory  to Lender and its counsel.

      (m)  "Lock-Up"  Agreements.  "Lock-Up"  Agreements,  in form and substance
satisfactory to the Lender and its counsel.

      (n) No Litigation.

            (i) No  litigation,  investigation  or  proceeding  before or by any
arbitrator  or  Governmental  Body shall be  continuing  or  threatened  against
Borrower or against the officers or directors of Borrower (A) in connection with
this  Agreement,  the Other  Documents or any of the  transactions  contemplated
thereby and which, in the reasonable opinion of Agent, is deemed material or (B)
which could, in the reasonable opinion of Agent, have a Material Adverse Effect;
and

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

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

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

      (q) No Adverse Material  Change.  Since December 31, 2003, there shall not
have  occurred any event,  condition  or state of facts at Borrower  which could
reasonably be expected to have a Material  Adverse Effect and, taken as a whole,
no representations  made or information  supplied to Agent or Lenders shall have
been proven to be inaccurate or misleading in any material respect.

      (r) Other  Conditions  Precedent.  Disbursement  shall  only be made after
Agent  completes  due  diligence  in a manner  satisfactory  to it,  obtains the
approval  of each  Independent  Board of  Directors  for every  Investment  Fund
comprising  the Lender and  receives  confirmation  that the Borrower has become
eligible for public trading of its stock.

            ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BORROWER

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


                                       11
<PAGE>


SECTION 4.01      ORGANIZATION AND GOOD STANDING.

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

SECTION 4.02      AUTHORIZATION AND POWER.

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

SECTION 4.03      NO CONFLICTS OR CONSENTS.

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

SECTION 4.04      ENFORCEABLE OBLIGATIONS.

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

SECTION 4.05      NO LIENS.

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

SECTION 4.06      FINANCIAL CONDITION.

      (a) Borrower has  delivered to the Lender the balance sheet of Borrower as
of December 31, 2002, and the related statement of income,  stockholders' equity
and statement of cash flow for the year then ended,  audited by its  independent
certified  public  accountant.  Borrower  has also  delivered  to the Lender the
unaudited  balance  sheet of Borrower as of  September  30, 2003 and the related
unaudited statement of income,  stockholders'  equity and statement of cash flow
for the nine (9) months then ended. Such financial statements fairly present the
financial  condition  of  Borrower  as of such dates and have been  prepared  in
accordance  with  GAAP;  and as of the date  hereof,  there are no  obligations,
liabilities or Indebtedness  (including  contingent and indirect liabilities and
obligations) of Borrower which are (separately or in the aggregate) material and
are not reflected in such financial  statements or otherwise disclosed herein or
in the Schedules.  Except as set forth in Schedule 4.06(a),  there are no Senior
Obligations.   Since  the  date  of  the  above-referenced   year-end  financial
statements,  there have not been, except as disclosed in Schedule  4.06(a):  (i)
any Material Adverse Change;  (ii) any Dividend declared or paid or distribution
made on the capital stock of Borrower or any capital  stock thereof  redeemed or
repurchased;  (iii)  any  incurrence  of any  Senior  Obligations  or any  other
long-term debt by Borrower;  (iv) any salary, bonus or compensation increases to
any officers,  key  employees or agents of Borrower,  other than in the ordinary
course of business and consistent with past practice;  or (v) any other material
transaction entered into by Borrower,  except in the ordinary course of business
and consistent  with past practice.


                                       12
<PAGE>


      (b) The  Company  has  delivered  to the Lender the  balance  sheet of the
Company  as  of  December  31,  2002,  and  the  related  statement  of  income,
stockholders' equity and statement of cash flow for the year then ended, audited
by its independent  certified public accountant.  The Company has also delivered
to the Lender the  unaudited  balance  sheet of the Company as of September  30,
2003 and the related  unaudited  statement of income,  stockholders'  equity and
statement  of cash  flow for the nine (9)  months  then  ended.  Such  financial
statements  fairly  present the  financial  condition  of the Company as of such
dates and have been prepared in accordance with GAAP; and as of the date hereof,
there are no obligations,  liabilities or Indebtedness (including contingent and
indirect liabilities and obligations) of the Company which are (separately or in
the aggregate)  material and are not reflected in such  financial  statements or
otherwise disclosed herein or in the Schedules.  Except as set forth in Schedule
4.06(b), there are no Senior Obligations. Since the date of the above-referenced
year-end  financial  statements,  there have not been,  except as  disclosed  in
Schedule 4.06(b): (i) any Material Adverse Change; (ii) any Dividend declared or
paid or  distribution  made on the  capital  stock of the Company or any capital
stock  thereof  redeemed  or  repurchased;  (iii) any  incurrence  of any Senior
Obligations or any other long-term debt by the Company;  (iv) any salary,  bonus
or  compensation  increases  to any  officers,  key  employees  or agents of the
Company,  other than in the ordinary course of business and consistent with past
practice;  or (v) any other  material  transaction  entered into by the Company,
except in the ordinary course of business and consistent with past practice.


SECTION 4.07      NO DEFAULT.

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

SECTION 4.08      MATERIAL AGREEMENTS.

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


                                       13
<PAGE>


SECTION 4.09      NO LITIGATION.

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

SECTION 4.10      TAXES.

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

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

SECTION 4.11      CAPITALIZATION.

      (a) The  authorized  capital  stock of  Borrower  consists of no shares of
Preferred  Stock and 75,000 shares of Common Stock,  no par value per share,  of
which 1,000  shares of Common  Stock are issued and  outstanding  as of the date
hereof.  All of such  outstanding  shares have been duly  authorized and validly
issued,  are fully paid and  nonassessable,  and were not issued in violation of
the preemptive rights or rights of first refusal of any person. Schedule 4.11(a)
sets forth all stock options, warrants,  conversion rights, subscription rights,
preemptive  rights,  rights of first  refusal and other rights or  agreements to
acquire  securities  of Borrower and any shares held in treasury or reserved for
issuance upon  exercise of such stock  options,  warrants or conversion  rights,
subscription  rights  and other  rights or  agreements  to  acquire  securities,
including the date of termination of such rights and the consideration therefor.

      (b) The  authorized  capital  stock of the Company  consists of  5,000,000
shares of Preferred  Stock,  of which none are issued or  outstanding  as of the
date hereof,  and 20,000,000 shares of Common Stock,  $.001 par value per share,
of which  2,478,891  shares of Common Stock are issued and outstanding as of the
date  hereof.  All of such  outstanding  shares  have been duly  authorized  and
validly  issued,  are  fully  paid and  non-assessable,  and were not  issued in
violation  of the  preemptive  rights or rights of first  refusal of any person.
Schedule  4.11(b) sets forth all stock  options,  warrants,  conversion  rights,
subscription rights, preemptive rights, rights of first refusal and other rights
or  agreements  to acquire  securities  of the  Company  and any shares  held in
treasury or reserved for issuance upon exercise of such stock options,  warrants
or  conversion  rights,  subscription  rights and other rights or  agreements to
acquire  securities,  including the date of  termination  of such rights and the
consideration therefor. As of the Loan Closing Date, the Company does not have a
class of  securities  with  respect to which a member of a  national  securities
exchange,  broker or dealer may extend or  maintain  credit to or for a customer
pursuant  to rules or  regulations  adopted  by the  Board of  Governors  of the
Federal  Reserve System under Section 7 of the 1934 Act.  Schedule  4.11(b) sets
forth all stock  options,  warrants,  conversion  rights,  subscription  rights,
preemptive  rights,  rights of first  refusal and other rights or  agreements to
acquire  securities  of Borrower and any shares held in treasury or reserved for
issuance upon  exercise of such stock  options,  warrants or conversion  rights,
subscription  rights  and other  rights or  agreements  to  acquire  securities,
including the date of termination of such rights and the consideration therefor.


                                       14
<PAGE>


SECTION 4.12      USE OF PROCEEDS.

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

SECTION 4.13      EMPLOYEE MATTERS.

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

      (b) Borrower is in compliance  with all federal,  state and municipal laws
respecting employment and employment practices,  occupational health and safety,
and wages and hours, and is not engaged in any unfair labor practice,  and there
are no arrears in the payment of wages or social security taxes, except in those
instances in which failure to comply would not have a Material Adverse Effect;

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

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

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

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

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

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

SECTION 4.14      EMPLOYEE BENEFIT PLANS.

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


                                       15
<PAGE>


SECTION 4.15      COMPLIANCE WITH LAWS.

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

SECTION 4.16      LICENSES AND PERMITS.

      Borrower and the Subsidiaries have all licenses and franchises relating to
the operation of their  respective  businesses as are necessary and required for
such ownership and operation,  all of which are in good standing and,  except as
expressly  set forth on Schedule  4.16,  are not subject to renewal  within less
than one (1) year.

SECTION 4.17      CONTRACTS.

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


                                       16
<PAGE>


SECTION 4.18      SHARES ISSUABLE UPON CONVERSION.

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

SECTION 4.19      INSIDER.

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

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

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

SECTION 4.20      SUBSIDIARIES.

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

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

SECTION 4.21      CASUALTIES.

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

SECTION 4.22      INVESTMENT COMPANY ACT.

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


                                       17
<PAGE>


SECTION 4.23      SUFFICIENCY OF CAPITAL.

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

SECTION 4.24      CORPORATE NAMES.

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

SECTION 4.25      INSURANCE.

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

SECTION 4.26      INTELLECTUAL PROPERTY.

      Borrower  owns,  or is licensed to use, all material  trademarks,  service
marks,  trade  names,  patents  and  copyrights  presently  used to conduct  its
business,  except those for which the failure to obtain could not be  reasonably
expected to have a Material  Adverse Effect.  Borrower has the right to use such
intellectual  property rights without  infringing or violating the rights of any
third  parties.  No claim has been asserted by any person to the ownership of or
right to use any such  rights or  challenging  or  questioning  the  validity or
effectiveness  of any such license or  agreement.  Borrower is not in default of
any such license  agreements in any material respect,  and no event has occurred
and is continuing  which, with notice or lapse of time or both, would constitute
a material default. Each license agreement is enforceable in accordance with its
terms and has not been  canceled,  abandoned  or  terminated,  nor has  Borrower
received  notice  thereof.  There  are no  claims  for  trademark  or  copyright
infringement  pending  or, to the  knowledge  of  Borrower,  threatened  against
Borrower or the Subsidiaries or their respective officers or directors.  Neither
Borrower nor any Subsidiary is currently using copyrightable  material for which
Borrower or any  Subsidiary  needs,  but does not have, a license to conduct its
existing  business.  Neither  Borrower nor any Subsidiary is currently using any
trademarks  for which  Borrower or any  Subsidiary  needs,  but does not have, a
valid character or trademark license to conduct its existing business.

SECTION 4.27      REAL PROPERTY.

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

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


                                       18
<PAGE>


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

      (d)  The  personal  property  of  Borrower  are  subject  to no  liens  or
encumbrances except the security interests of record set forth on Schedule 4.27,
which  Schedule  is a copy of a Uniform  Commercial  Code  ("UCC")  search  duly
obtained  by  Borrower  in the last  thirty  (30)  days and which  search  shows
security  interests  of  record  relating  to such  facilities  in the  State of
California.  Borrower agrees to remove all security interests  reflected on such
UCC search,  if any,  prior to the Loan Closing  (except  those  approved by the
Lender in writing) and to remove any other security interests filed with respect
to such facilities  between the date of such UCC search and the date of the Loan
Closing.

SECTION 4.28      ENVIRONMENTAL.

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

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

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


                                       19
<PAGE>


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

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

      The following terms shall have the following meanings:

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

            "Environmental   Laws"   means   the   federal,   state   and  local
environmental,  health  or  safety  laws,  regulations,  ordinances,  rules  and
policies  and common law in effect on the date hereof and the Loan  Closing Date
relating  to  the  use,  refinement,   handling,  treatment,  removal,  storage,
production,  manufacture,  transportation  or disposal,  emissions,  discharges,
releases or  threatened  releases of  materials  of  environmental  concern,  or
otherwise  relating  to  protection  of  the  environment  (including,   without
limitation,  ambient air, surface water, groundwater, land surface or subsurface
strata),  as the same may be amended or modified to the date hereof and the Loan
Closing Date including, without limitation, the statutes listed below:

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

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

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

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

            Federal   Insecticide,   Fungicide  and  Rodenticide   Act,  Federal
Pesticide  Act of 1978, 7 U.S.C.ss.  136, et seq.  Federal  Hazardous  Materials
Transportation Act, 48 U.S.C.ss. 1801, et seq.

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


                                       20
<PAGE>


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

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

SECTION 4.29      INTERNAL ACCOUNTING CONTROLS.

      The Company maintains a system of internal  accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in accordance
with  management's  general or specific  authorizations,  (ii)  transactions are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
conformity with generally accepted accounting  principles  consistently  applied
and to maintain asset  accountability,  (iii) access to assets is permitted only
in accordance with management's general or specific authorization,  and (iv) the
recorded  accountability  for assets is  compared  with the  existing  assets at
reasonable  intervals  and  appropriate  action  is taken  with  respect  to any
differences.

SECTION 4.30      TRANSACTIONS WITH AFFILIATES AND EMPLOYEES.

      Except as set forth on Schedule 4.30, none of the officers or directors of
the Company and, to the  knowledge of the Company,  none of the employees of the
Company are presently a party to any  transaction  with the Company  (other than
for services as  employees,  officers and  directors),  including  any contract,
agreement or other  arrangement  providing for the  furnishing of services to or
by,  providing for rental of real or personal  property to or from, or otherwise
requiring payments to or from any officer,  director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee  has a  substantial  interest  or is an officer,  director,  trustee or
partner.  Since January 1, 2003,  the Company has not (i) extended or maintained
credit, arranged for the extension of credit, or renewed an extension of credit,
in the form of a personal  loan to or for any director or executive  officer (or
equivalent  thereof) of the Company, or (ii) materially modified any term of any
such extension or maintenance  of credit.  Schedule 5.25  identifies any loan or
extension of credit  maintained  by the Company to which the second  sentence of
Section 13(k)(1) of the Securities Exchange Act of 1934, as amended, applies.

SECTION 4.31      MERGER.

      The merger of Borrower  with a subsidiary of the Company has been lawfully
effected,  and no  shareholder  of  Borrower or the  Company  may  exercise  any
dissenter's  rights of  appraisal.  The  Company has timely  filed all  required
reports  and  proxy  statements  pursuant  to the  1934  Act and the  rules  and
regulations  thereunder  and  shall  timely  file an  amendment  to its Form 8-K
containing the required financial information of the Borrower.  All such filings
contain no material misstatements or omissions.

SECTION 4.32      "OFF-BALANCE SHEET ARRANGEMENTS."

      The  Company  does not  have any  "off-balance  sheet  arrangements."  For
purposes of the preceding  sentence,  "off-balance sheet arrangement" means with
respect to any Person, any  securitization  transaction to which it is party and
any other  transaction,  agreement or other contractual  arrangement to which an
entity  unconsolidated  with that Person is a party,  under which it, whether or
not a  party  to the  arrangement,  has,  or in the  future  may  have:  (a) any
obligation under a direct or indirect  guarantee or similar  arrangement;  (b) a
retained or  contingent  interest  in assets  transferred  to an  unconsolidated
entity or similar arrangement; (c) derivatives to the extent that the fair value
thereof  is not  fully  reflected  as a  liability  or  asset  in the  financial
statements;  or  (d)  any  obligation  or  liability,   including  a  contingent
obligation  or  liability,  to the extent that it is not fully  reflected in the
financial  statements  (excluding  the  footnotes  thereto)  (for this  purpose,
obligations  or  liabilities  that  are not  fully  reflected  in the  financial
statements  (excluding the footnotes thereto) include,  without limitation:  (i)
obligations  that are not  classified  as a  liability  according  to  generally
accepted accounting  principles;  (ii) contingent liabilities as to which, as of
the date of the  financial  statements,  it is not probable that a loss has been
incurred or, if probable, is not reasonably  estimable;  or (iii) liabilities as
to which the amount  recognized  in the  financial  statements  is less than the
reasonably possible maximum exposure to loss under the obligation as of the date
of the financial statements,  but exclude contingent  liabilities arising out of
litigation,   arbitration  or  regulatory  actions  (not  otherwise  related  to
off-balance  sheet  arrangements)).  Schedule 4.30  identifies  all  outstanding
guarantees,  letters of  credit,  performance  bonds,  assurance  bonds,  surety
agreements,  indemnity  agreements  and  any  other  legally  binding  forms  of
assurance or guaranty in connection with the business of the Company.


                                       21
<PAGE>


SECTION 4.33      SURVIVAL OF REPRESENTATIONS AND WARRANTIES.

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

SECTION 4.34      FULL DISCLOSURE.

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

                 ARTICLE V. - AFFIRMATIVE COVENANTS OF BORROWER

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

SECTION 5.01      FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS.

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

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

            (i) As soon as  available,  and in any  event  within  ten (10) days
after the due date for filing the  Company's  annual  report on Form 10-KSB with
exhibits for each period.


                                       22
<PAGE>


            (ii) As soon as  available,  and in any event  within  ten (10) days
after the due date for filing the Company's quarterly report on Form 10-QSB with
exhibits for each period.

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

            (iv) Promptly (but in any event within five (5) business  days) upon
becoming  aware of the existence of any  condition or event which  constitutes a
Default or which,  with  notice or the  passage  of time or both would  become a
Default or an Event of Default,  written notice specifying the nature and period
of  existence  thereof and the action which the Company is taking or proposes to
take with respect thereto.

            (v) Promptly  (but in any event within five (5) business  days) upon
the receipt  thereof by the Company or the Board of  Directors  of the  Company,
copies of all reports,  all management  letters and other  detailed  information
submitted to the Company or the Board by  independent  accountants in connection
with each  annual or interim  audit or review of the  accounts or affairs of the
Company made by such accountants.

            (vi) Promptly (but in any event within five (5) business days), such
other information relating to the finances,  budgets,  properties,  business and
affairs  of the  Company  and each  Subsidiary,  as the  Lender or the Agent may
reasonably request from time to time.

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

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

SECTION 5.02      ANNUAL FINANCIAL STATEMENTS.

      Solely for the purpose of monitoring the Loan, furnish Agent within ninety
(90) days  after the end of each  fiscal  year of  Borrower,  audited  financial
statements of Borrower  including,  but not limited to, statements of income and
stockholders' equity and cash flow from the beginning of the current fiscal year
to the end of such  fiscal  year  and the  balance  sheet  as at the end of such
fiscal year, all prepared in accordance with GAAP applied on a basis  consistent
with prior  practices,  and in  reasonable  detail  and  reported  upon  without
qualification  by an independent  certified  public  accounting firm selected by
Borrower  and  satisfactory  to Agent  (the  "Accountants").  The  report of the
Accountants  shall be accompanied by a statement of the  Accountants  certifying
that (i) they have  caused this  Agreement  to be  reviewed,  (ii) in making the
examination upon which such report was based either no information came to their
attention which to their knowledge  constituted an Event of Default or a Default
under this Agreement or any related  agreement or, if such  information  came to
their  attention,  specifying any such Default or Event of Default,  its nature,
when it occurred and whether it is continuing,  and such report shall contain or
have appended thereto  calculations  which set forth Borrower's  compliance with
the requirements or restrictions imposed by Article VII hereof. In addition, the
reports shall be  accompanied  by a certificate  of Borrower's  Chief  Financial
Officer which shall state that, based on an examination sufficient to permit him
to make an informed  statement,  no Default or Event of Default  exists,  or, if
such is not the case,  specifying such Default or Event of Default,  its nature,
when it occurred, whether it is continuing and the steps being taken by Borrower
with respect to such event,  and such  certificate  shall have appended  thereto
calculations  which set forth  Borrower's  compliance  with the  requirements or
restrictions imposed by Article VII.


                                       23
<PAGE>


SECTION 5.03      QUARTERLY FINANCIAL STATEMENTS.

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

SECTION 5.04      MONTHLY FINANCIAL STATEMENTS.

      Solely for the purpose of  monitoring  the Loan,  for so long as Agent has
the right to  designate a nominee to serve as a member of the Board of Directors
of the  Borrower,  furnish  Agent within  thirty (30) days after the end of each
month, an unaudited balance sheet of Borrower and unaudited statements of income
and  stockholders'  equity  and cash  flow of  Borrower  reflecting  results  of
operations  from the  beginning  of the fiscal year to the end of such month and
for such month, prepared on a basis consistent with prior practices and complete
and correct in all material  respects,  subject to normal and recurring year end
adjustments  that  individually  and  in  the  aggregate  are  not  material  to
Borrower's  business.  The reports  shall be  accompanied  by a  certificate  of
Borrower's  Chief  Financial  Officer,  which  shall  state  that,  based  on an
examination  sufficient to permit him to make an informed statement,  no Default
or Event of Default exists, or, if such is not the case, specifying such Default
or Event of Default, its nature, when it occurred,  whether it is continuing and
the  steps  being  taken by  Borrower  with  respect  to such  event  and,  such
certificate shall have appended thereto  calculations which set forth Borrower's
compliance with the requirements or restrictions imposed by Article VII.

SECTION 5.05      PREPARATION OF BUDGETS.

      Solely for the purpose of monitoring the Loan,

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


                                       24
<PAGE>


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

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

SECTION 5.06      PAYMENT OF TAXES AND OTHER INDEBTEDNESS.

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

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

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

SECTION 5.08      SEC FILINGS.

      The Company has a class of securities registered pursuant to Section 12(g)
of the 1934  Act and  shall  timely  file,  when  due,  all  reports  and  proxy
statements  required of a company whose  securities  are  registered  for public
trading under and pursuant to the 1934 Act and the rules and regulations  issued
thereunder.

SECTION 5.09      NOTICE.

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

SECTION 5.10      COMPLIANCE WITH LOAN DOCUMENTS.

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


                                       25
<PAGE>


SECTION 5.11      COMPLIANCE WITH MATERIAL AGREEMENTS.

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

SECTION 5.12      OPERATIONS AND PROPERTIES.

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

SECTION 5.13      BOOKS AND RECORDS; ACCESS.

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

SECTION 5.14      COMPLIANCE WITH LAW.

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

SECTION 5.15      INSURANCE.

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

SECTION 5.16      AUTHORIZATIONS AND APPROVALS.

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


                                       26
<PAGE>


SECTION 5.17      ERISA COMPLIANCE.

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

SECTION 5.18      FURTHER ASSURANCES.

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

SECTION 5.19      INDEMNITY BY BORROWER.

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


                                       27
<PAGE>


SECTION 5.20      RESERVATION OF SHARES.

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

SECTION 5.21      OWNERSHIP OF SUBSIDIARIES.

      The Company and the Borrower  shall own, at all times,  all of the capital
stock of all of the Subsidiaries, including DLI, and shall not pledge or grant a
security interest in the capital stock of DLI or the Subsidiaries.

SECTION 5.22      RETENTION OF STOCK OWNERSHIP.

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

      (b)  Aurangzeb  Bhatti and Umesh Patel will  execute  and deliver  Lock-Up
Agreements  at the Loan  Closing  which shall  provide that they will not offer,
sell or otherwise  dispose of the shares of Common Stock  beneficially  owned or
controlled  by  them  (including  subsequently  acquired  shares  or  securities
exercisable  or  convertible  into  shares)  for a period of twelve  (12) months
following the Loan Closing, except for intra-family transfers or estate planning
purposes, without the consent of the Lender. Thereafter,  each such person shall
only sell such shares  pursuant to Rule 144,  without the consent of the Lender,
until the Debentures have been paid in full.

SECTION 5.23      SUBSEQUENTLY FORMED SUBSIDIARIES.

      Borrower  (including  the  Company)  shall cause all  subsequently  formed
Subsidiaries  to  execute  a  Subsidiaries'   Guaranty  and  Security  Agreement
referenced in Section 3.01(c)


                                       28
<PAGE>


                  ARTICLE VI. - NEGATIVE COVENANTS OF BORROWER

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

SECTION 6.01      LIMITATION ON INDEBTEDNESS.

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

SECTION 6.02      LIMITATION ON LIENS.

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

SECTION 6.03      LIMITATION ON INVESTMENTS.

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

SECTION 6.04      ALTERATION OF MATERIAL AGREEMENTS.

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

SECTION 6.05      TRANSACTIONS WITH AFFILIATES.

      Borrower shall not, and shall not permit its  Subsidiaries  to, enter into
any  transaction  not in the  ordinary  course  of  business  with,  or pay  any
management fees to, any Affiliate, except for intercompany transactions, without
the consent of the Lender.  Notwithstanding  the  foregoing,  Borrower may grant
options to employees or directors if otherwise permitted under this Agreement.

SECTION 6.06      LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS.

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


                                       29
<PAGE>


SECTION 6.07      LIMITATION ON SALE OF PROPERTIES.

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

SECTION 6.08      FISCAL YEAR AND ACCOUNTING METHOD.

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

SECTION 6.09      LIQUIDATION.

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

SECTION 6.10      MATERIAL AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.

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

SECTION 6.11      EXECUTIVE COMPENSATION.

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

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

SECTION 6.12      RESTRICTED PAYMENTS.

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


                                       30
<PAGE>


SECTION 6.13      CONSOLIDATION OR MERGER.

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

         ARTICLE VII. - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS

SECTION 7.01      FINANCIAL RATIOS.

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

                       ARTICLE VIII. - EVENTS OF DEFAULT

SECTION 8.01      EVENTS OF DEFAULT.

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

      (a)  Borrower  shall  fail to pay when due (or shall  state in  writing an
intention not to pay or its inability to pay) any  installment of interest on or
principal  of, any  Debentures  or any fee,  expense or other  payment  required
hereunder and such failure is not cured within three business days;

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

      (c) Default  shall  occur in the  performance  of any of the  non-monetary
covenants or agreements of Borrower or of its Subsidiaries  contained herein, or
in any of the other Loan Documents or in any Subsidiary Document and the Company
shall remain in default for a period of ten (10) days;

      (d) An event of default,  default,  or an event which, with the passage of
time,  would result in a default under any Senior Documents or in the payment of
any Senior Obligations;

      (e) Default shall occur in the payment of any other Indebtedness having an
aggregate  principal  amount in  excess of Ten  Thousand  Dollars  ($10,000)  or
nonmonetary default shall occur in respect of any note, loan agreement or credit
agreement relating to any Indebtedness  having an aggregate  principal amount in
excess of Ten Thousand Dollars  ($10,000),  and such default  continues for more
than the period of grace, if any,  specified therein (or, no longer than 90 days
in the  case  of  vendor  payables)  or any  Indebtedness  having  an  aggregate
principal amount in excess of Ten Thousand Dollars  ($10,000),  shall become due
before its stated maturity by acceleration of the maturity,  or any indebtedness
having  an  aggregate  principal  amount  in  excess  of  Ten  Thousand  Dollars
($10,000),  shall  become  due by its terms and  shall not be  promptly  paid or
extended, unless the payment of such Indebtedness is contested in good faith and
is fully reserved against by the Borrower;


                                       31
<PAGE>


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

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

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

      (i) Any final judgment(s) for the payment of money in excess of the sum of
Fifteen  Thousand  Dollars  ($15,000) in the aggregate shall be rendered against
Borrower or any Subsidiary and such judgment or judgments shall not be satisfied
or  discharged  prior to the date on which any of its assets  could be  lawfully
sold to satisfy such judgment; or

      (j) The Company shall fail to issue and deliver  shares of Common Stock as
provided herein upon conversion of the Debentures; or

      (k) The  Company  shall have failed to redeem the  Debentures  pursuant to
Section 5(b) thereof after having given notice to Holders.

SECTION 8.02      REMEDIES UPON EVENT OF DEFAULT.

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

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


                                       32
<PAGE>


            (ii) reduce any claim to judgment; and

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

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

SECTION 8.03      PERFORMANCE BY THE LENDER.

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

SECTION 8.04      PAYMENT OF EXPENSES INCURRED BY THE LENDER.

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

                       ARTICLE IX. - REGISTRATION RIGHTS

SECTION 9.01       "PIGGY-BACK" REGISTRATION.

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

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


                                       33
<PAGE>


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

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

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

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

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

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


                                       34
<PAGE>


      The  Holders  shall  pay all  underwriting  fees  and  discounts  on their
Registrable Securities, as well as the fees and expenses of their counsel.

SECTION 9.02      SHELF REGISTRATION.

      The Company shall, at its expense,  file a registration  statement on Form
S-3  under  the  1933  Act  (the  "Shelf  Registration")  covering  all  of  the
Registrable  Securities  within one hundred eighty (180) days of the date of the
Debentures  or sixty  (60) days  after the date the the  Company  first  becomes
eligible  to file the Shelf  Registration,  and the  Company  shall use its best
efforts to cause the Shelf Registration to be declared effective and to keep the
Shelf  Registration   continuously   effective  until  all  of  the  Registrable
Securities registered therein cease to be Registrable Securities. The securities
shall cease to be Registrable  Securities (a) when the Shelf  Registration shall
have become  effective  under the 1933 Act and such  securities  shall have been
disposed of pursuant to a registration  statement,  or (b) such securities shall
have been sold as  permitted by Rule 144 under the 1933 Act or the date on which
the Registrable Securities may be sold pursuant to Rule 144(k), whichever is the
first to occur.  The Company  agrees,  if necessary,  to supplement or amend the
Shelf Registration, as required by the registration form utilized by the Company
or by the instructions  applicable to such registration form or by the 1933 Act,
and the Company agrees to furnish to the holders of the  Registrable  Securities
copies of any prospectus, supplement or amendment prior to its being used.

SECTION 9.03      OBLIGATIONS OF THE COMPANY.

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

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

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

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

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

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


                                       35
<PAGE>


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

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

SECTION 9.04      FURNISH INFORMATION.

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

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

SECTION 9.05      EXPENSES OF REGISTRATION.

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


                                       36
<PAGE>


SECTION 9.06      INDEMNIFICATION REGARDING REGISTRATION RIGHTS.

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

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

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


                                       37
<PAGE>


      (c) Promptly after receipt by an indemnified party under this Section 9.06
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any  indemnifying  party under this Section  9.06,  deliver to the  indemnifying
party a written notice of the commencement  thereof and the  indemnifying  party
shall have the right to  participate  in,  and,  to the extent the  indemnifying
party so desires,  jointly with any other  indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided,  however, that an indemnified party shall have the right to retain its
own counsel, with the reasonable fees and expenses of such counsel to be paid by
the  indemnifying  party, if  representation  of such  indemnified  party by the
counsel retained by the indemnifying  party would be inappropriate due to actual
or potential  conflict of interests between such indemnified party and any other
party  represented  by such counsel in such  proceeding.  The failure to deliver
written  notice  to the  indemnifying  party  within  a  reasonable  time of the
commencement of any such action shall not relieve the indemnifying  party of its
obligations  under this  Section  9.06,  except to the extent  that the  failure
results  in a  failure  of  actual  notice  to the  indemnifying  party and such
indemnifying party is materially prejudiced in its ability to defend such action
solely as a result of the failure to give such notice.

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

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

SECTION 9.07      REPORTS UNDER THE 1934 ACT.

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

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

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


                                       38
<PAGE>


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

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

SECTION 9.08      ASSIGNMENT OF REGISTRATION RIGHTS.

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

SECTION 9.09      OTHER MATTERS.

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

      (b) Each Holder of Registrable  Securities hereby agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company of
the  happening of any event which makes any statement  made in the  registration
statement,  the  prospectus or any document  incorporated  therein by reference,
untrue in any  material  respect or which  requires the making of any changes in
the registration statement,  the prospectus or any document incorporated therein
by  reference,  in order to make the  statements  therein not  misleading in any
material  respect,  such  Holder  will  forthwith  discontinue   disposition  of
Registrable   Securities   under  the  prospectus   related  to  the  applicable
registration  statement  until  such  Holder's  receipt  of  the  copies  of the
supplemented  or  amended  prospectus,  or until it is advised in writing by the
Company that the use of the prospectus may be resumed,  and has received  copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus.


                                       39
<PAGE>


                        ARTICLE X. - BOARD OF DIRECTORS

SECTION 10.01     BOARD REPRESENTATION OR ATTENDANCE BY OBSERVER.

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

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

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

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

SECTION 10.03     NONLIABILITY OF THE LENDER.

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

                        ARTICLE XI. - AGENCY PROVISIONS

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

      Lender represents and warrants to the Agent:


                                       40
<PAGE>


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

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

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

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

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

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

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

SECTION 11.03     AGENCY.

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

      (b) The  Agent  shall  have no  duties or  responsibilities  except  those
expressly set forth in this Agreement or in the other Loan Documents.  Except as
expressly  provided  herein,  the duties of the Agent  shall be  mechanical  and
administrative in nature. The Agent shall have, and may use, its sole discretion
with respect to exercising or refraining from taking any actions which the Agent
is expressly  entitled to take or assert under this  Agreement or the other Loan
Documents.  The Agent shall not have, by reason of this  Agreement,  a fiduciary
relationship with respect to the Lender. Nothing in this Agreement, or in any of
the other  Loan  Documents,  express  or  implied,  is  intended  to or shall be
construed to impose upon the Agent any  obligations in respect of this Agreement
or in any of the other Loan  Documents  except as expressly  set forth herein or
therein.  If the Agent seeks the consent or approval of the Lender to the taking
or  refraining  from  taking any action  hereunder,  the Agent shall send notice
thereof  to  the   Lender.   The  Agent  may  employ   agents,   co-agents   and
attorneys-in-fact and shall not be responsible to the Lender or Borrower, except
as to money or  securities  received  by it or its  authorized  agents,  for the
negligence or misconduct of any such agents or attorneys-in-fact  selected by it
with reasonable care.


                                       41
<PAGE>


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

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

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

                          ARTICLE XII. - MISCELLANEOUS

SECTION 12.01     STRICT COMPLIANCE.

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


                                       42
<PAGE>


SECTION 12.02     WAIVERS AND MODIFICATIONS.

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

SECTION 12.03     LIMITATION ON LIABILITY.

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

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

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

SECTION 12.05     INVALID PROVISIONS.

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


                                       43
<PAGE>


SECTION 12.06     MAXIMUM INTEREST RATE.

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

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

SECTION 12.07     PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES.

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

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


                                       44
<PAGE>


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

SECTION 12.08     CONFIDENTIALITY.

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

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

SECTION 12.09     BINDING EFFECT.

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

SECTION 12.10     NO THIRD PARTY BENEFICIARY.

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

SECTION 12.11     ENTIRETY.

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

SECTION 12.12     HEADINGS.

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


                                       45
<PAGE>


SECTION 12.13     SURVIVAL.

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

SECTION 12.14     MULTIPLE COUNTERPARTS.

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

SECTION 12.15     KNOWLEDGE OF BORROWER.

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

SECTION 12.16     NOTICES.

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

          If to Borrower:                Digital Learning Institute, Inc.
                                         19950 Mariner Avenue
                                         Torrance, CA  90503

          with a copy to:
                                         Jinnah & Jinnah
                                         627 North Juanita Avenue
                                         Redondo Beach, CA  90277
                                         Attn:    Al Jinnah, Esq.
                                         Telephone:  (310) 937-8375
                                         Telecopier: (310) 937-8395

          If to the Company:             FreePCSQuote.Com, Inc.
                                         19950 Mariner Avenue
                                         Torrance, CA  90503

          with a copy to:
                                         Jinnah & Jinnah
                                         627 North Juanita Avenue
                                         Redondo Beach, CA  90277
                                         Attn:    Al Jinnah, Esq.
                                         Telephone:        (310) 937-8375
                                         Telecopier:       (310) 937-8395


                                       46
<PAGE>


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

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

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

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

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


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


                                       47
<PAGE>


SECTION 12.17     GOVERNING LAW.

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


                            [Signature page follows.]



                                       48
<PAGE>



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


                                   BORROWER:

                                   DIGITAL LEARNING INSTITUTE, INC.


                                   By:
                                      --------------------------------------

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


                                   COMPANY:

                                   FREEPCSQUOTE.COM, INC.

                                   By:
                                      --------------------------------------

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


                                   LENDER:

                                   BFSUS SPECIAL OPPORTUNITIES TRUST PLC


                                   By:
                                      --------------------------------------
                                         Russell Cleveland, Director

                                   RENAISSANCE US GROWTH INVESTMENT TRUST PLC


                                   By:
                                      --------------------------------------
                                         Russell Cleveland, Director

                                   RENAISSANCE CAPITAL GROWTH & INCOME
                                     FUND III, INC.

                                   By: RENN Capital Group, Inc.,
                                       Investment Adviser

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


<PAGE>

                                   AGENT:

                                   RENN CAPITAL GROUP, INC.

                                   By:
                                        Russell Cleveland
                                        President and CEO


<PAGE>


                     SCHEDULES TO CONVERTIBLE LOAN AGREEMENT


Schedule 2.09                           Finder's Fees

Schedule 4.03                           Conflicts and Consents

Schedule 4.05                           Permitted Liens

Schedule 4.06(a) and (b)                Financial Condition

Schedule 4.08                           Material Agreements

Schedule 4.09                           Litigation

Schedule 4.10                           Taxes

Schedule 4.11(a) and (b)                Capitalization

Schedule 4.13                           Employee Matters

Schedule 4.14                           Employee Benefit Plans

Schedule 4.15                           Permits

Schedule 4.16                           Licenses and Permits

Schedule 4.17                           Contracts

Schedule 4.19                           Insider Agreements not listed on
                                        SEC Filings

Schedule 4.20                           Subsidiaries

Schedule 4.21                           Casualties

Schedule 4.24                           Corporate Names

Schedule 4.25                           Insurance

Schedule 4.27                           Real Property

Schedule 4.28                           Environmental Matters

Schedule 4.30                           Transactions with Affiliates

Schedule 4.32                           Off-Balance Sheet Arrangements

Schedule 6.01                           Limitation on Indebtedness

Schedule 7.01                           Financial Ratios