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                               SECURITY AGREEMENT

         THIS SECURITY AGREEMENT ("Agreement") is dated as of the _________ day
of June, 1998, by and between DIPLOMAT DIRECT MARKETING CORPORATION, a Delaware
corporation (the "Borrower"), and SIRROM CAPITAL CORPORATION d/b/a TANDEM
CAPITAL, a Tennessee corporation ("Purchaser").

                              W I T N E S S E T H:

         WHEREAS, Purchaser has purchased Subordinated Debentures in the
aggregate principal amount of $5,000,000 pursuant to a Debenture Purchase
Agreement dated June _______, 1998 between the Borrowers and Purchaser (the
"Debenture Purchase Agreement"); and

         WHEREAS, in connection with the purchase of the Debentures, Purchaser
desires to obtain from Borrower and Borrower desires to grant to Purchaser a
security interest in certain collateral more particularly described below; and

         WHEREAS, capitalized terms not defined herein shall have the meanings
assigned by the Debenture Purchase Agreement:

                                   AGREEMENT:

         NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

         1. Grant of Security Interest. As collateral security for the
obligations described in Section 2 below, Borrower hereby grants to Purchaser a
security interest in the following described property and any and all proceeds
and products thereof and accessions thereto (collectively the "Collateral"):

                  1.1 Equipment. All equipment owned by Borrower of any kind
and description, whether now owned or hereafter acquired and wherever located,
together with all parts, accessories and attachments and all replacements
thereof and additions thereto;

                  1.2 Inventory, Accounts, Contract Rights, Chattel Paper and
General Intangibles. All of Borrower's inventory and any agreements for lease
of same and rentals therefrom, and all of Borrower's accounts, accounts
receivable, contract rights, chattel paper and general intangibles and the
proceeds therefrom, whether now in existence or owned or hereafter arising or
acquired, entered into or created, and wherever located; and whether held for
lease or sale, or furnished or to be furnished under contracts of service;

                  1.3 Trademarks, Etc. All trademarks and service marks now
held or hereafter acquired by Borrower, both those that are registered with the
United States Patent and Trademark



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Office and any unregistered marks used by Borrower in the United States, and
trade dress, including logos and designs, in connection with which any such
marks are used, together with all registrations regarding such marks and the
rights to renewals thereof, and the goodwill of the business of Borrower
symbolized by such marks;

                  1.4 Copyrights. All copyrights now held or hereafter acquired
by Borrower and any applications for U.S. copyrights hereafter made by
Borrower; and

                  1.5 Proprietary Information, Computer Data, Etc. All
proprietary information and trade secrets of Borrower with respect to
Borrower's business and all of Borrower's computer programs and the information
contained therein and all intellectual property rights with respect thereto.

         2. Secured Indebtedness. The obligations secured hereby shall include
(i) loans to be made in connection with this Agreement and the Debenture
Purchase Agreement as evidenced by one or more Debentures payable to the order
of Purchaser that shall be due and payable as set forth in such Debentures, and
any renewals or extensions thereof, and (ii) all future advances made by
Purchaser for taxes, levies, insurance and preservation of the Collateral and
all reasonable attorney's fees, court costs and out-of-pocket expenses of
whatever kind incident to the collection of any of said indebtedness or other
obligations and the enforcement and protection of the security interest created
hereby.

         3. Representations, Warranties and Agreements of Borrower. Borrower
represents, warrants and agrees as follows:

                  3.1 Location. Borrower will promptly notify Purchaser, in
writing, of any new place or places of business and of any change in the
location of the Collateral (other than movement of the Collateral from one
place of business identified in Schedule 3.6 to another place of business
identified in Schedule 3.6) or any records pertaining thereto.

                  3.2 Permitted Encumbrances. Except as permitted pursuant to
Section 5.13 of the Debenture Purchase Agreement (the "Permitted
Encumbrances"), Borrower is the owner of the Collateral free and clear of any
liens and security interests. Borrower will defend the Collateral against the
claims and demands of all persons other than Permitted Encumbrances.

                  3.3 Payment and Performance. Borrower will pay to Purchaser
all amounts secured hereby as and when the same shall be due and payable,
whether at maturity, by acceleration or otherwise, and will promptly perform
all terms of said indebtedness and this or any other security or loan agreement
between Borrower and Purchaser, and will promptly discharge all said
liabilities.

                  3.4 Insurance. Borrower will at all times keep the Collateral
insured in accordance with the applicable requirements of the Debenture
Purchase Agreement. Such insurance shall be in such companies as may be
reasonably acceptable to Purchaser, with provisions reasonably
satisfactory to Purchaser for payment of all losses thereunder to Purchaser as
its interests may 


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appear. If reasonably required by Purchaser, Borrower shall deposit copies of
the policies with Purchaser. Any money received by Purchaser under said
policies may be applied to the payment of any indebtedness secured hereby,
whether or not due and payable, or at Borrower's option shall be delivered by
Purchaser to Borrower for the purpose of replacing, repairing or restoring the
Collateral. Borrower assigns to Purchaser all right to receive proceeds of
insurance not exceeding the amounts secured hereby, directs any insurer to pay
all proceeds directly to Purchaser, and, if an Event of Default shall be
continuing, appoints Purchaser Borrower's attorney in fact to endorse any draft
or check made payable to Borrower in order to collect the benefits of such
insurance. If Borrower fails to keep the Collateral insured as required by
Purchaser, Purchaser shall have the right to obtain such insurance at
Borrower's expense and add the cost thereof to the other amounts secured
hereby.

                  3.5 Expenses. Borrower will pay all costs of filing of
financing, continuation and termination statements with respect to the security
interests created hereby, and Purchaser is authorized to do all things that it
deems necessary to perfect and continue perfection of the security interests
created hereby and to protect the Collateral.

                  3.6 Address. The address set forth after Borrower's signature
on this Agreement is Borrower's principal place of business and the place where
the records concerning all Collateral are kept and/or maintained. Schedule 3.6
contains the address of each location where Collateral is located. The Borrower
shall notify Purchaser of any additions, deletions, or changes in its principal
place of business or to such Schedule 3.6 as promptly as possible following the
occurrence of such changes in order to maintain Schedule 3.6 accurate and
complete in all material respects.

         4. Default. Borrower shall be in default upon failure to observe or
perform any of Borrower's agreements herein contained which is not cured within
thirty days after written notice thereof to Borrower, or upon the occurrence of
an Event of Default under the Debenture Purchase Agreement that has not been
cured during the applicable grace period, or if any warranty or statement by
Borrower herein or furnished in connection herewith is false or misleading in
any material respect.

         5. Remedies Upon Default. During the continuance of a default as
defined in Section 4 above, all sums secured hereby shall immediately become
due and payable at Purchaser's option without notice to Borrower, and Purchaser
may proceed to enforce payment of same and to exercise any and all rights and
remedies provided by the Uniform Commercial Code or other applicable law, as
well as all other rights and remedies possessed by Purchaser, all of which
shall be cumulative. Whenever Borrower is in default hereunder, and upon demand
by Purchaser, Borrower shall assemble the Collateral and make it available to
Purchaser at a place reasonably convenient to Purchaser and Borrower. Any
notice of sale, lease or other intended disposition of the Collateral by
Purchaser sent to Borrower at the address hereinafter set forth, or at such
other address of Borrower as may be shown on Purchaser's records, at least ten
days prior to such action, shall constitute reasonable notice to Borrower.
Purchaser may waive any default before or after the same has been
declared without impairing its right to declare a subsequent default hereunder,
this right being a continuing one.


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         6. Severability. If any provision of this Agreement is held invalid,
such invalidity shall not affect the validity or enforceability of the
remaining provisions of this Agreement.

         7. Binding Effect. This Agreement shall inure to the benefit of
Purchaser's successors and assigns and shall bind Borrower's successors and
assigns.

         8. Termination Statements. Borrower agrees that, notwithstanding the
payment in full of all indebtedness secured hereby and whether or not there is
any outstanding obligation of Purchaser to make future advances, Purchaser
shall not be required to send Borrower a termination statement with respect to
any financing statement filed pursuant hereto unless and until Borrower shall
have made written demand therefor.

         9. Protection of Collateral. Borrower will not permit any liens or
security interests other than those created by this Agreement and the Permitted
Encumbrances to attach to any of the Collateral, nor permit any of the
Collateral to be levied upon under any legal process, nor permit anything to be
done that may impair the security intended to be afforded by this Agreement,
without the prior written consent of Purchaser.

         10. Special Agreements With Respect to Certain Tangible Collateral.
Borrower additionally agrees and warrants as follows:

                  10.1 Movement of Collateral. Borrower will not permit any of
the Collateral to be removed from the locations specified in Schedule 3.6
(other than movement of the Collateral from one place of business identified in
Schedule 3.6 to another place of business identified in Schedule 3.6), except
for temporary periods in the normal and customary use thereof, without the
prior written consent of Purchaser, and will permit Purchaser to inspect the
Collateral at any reasonable time upon reasonable prior notice and without
undue disruption of Borrower's business.

                  10.2     [Reserved].

                  10.3 Sale. Borrower will not sell, exchange, lease or
otherwise dispose of any of the Collateral or any interest therein (except in
the ordinary course of business) without the prior written consent of
Purchaser, or as otherwise permitted by the holder of indebtedness which is
secured by a priority lien on the subject Collateral.

                  10.4 Condition. Borrower will keep the Collateral in good
condition and repair (reasonable wear and tear excepted) and will pay and
discharge all taxes, levies and other impositions levied thereon as well as the
cost of repairs to or maintenance of same. If Borrower fails to pay such sums,
Purchaser may do so for Borrower's account and add the amount thereof to the
other amounts secured hereby.

                  10.5 Possession. Except during the continuance of an Event of
Default, Borrower shall be entitled to possession of the Collateral and to use
the same in any lawful manner, provided that such use does not violate the
terms of any policy of insurance thereon.

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                  10.6 No Attachment. Borrower will not take any action to
cause the Collateral to be attached to real estate in such manner as to become
a fixture or a part of any real estate.

         11. Special Agreements With Respect to Intangible and Certain Tangible
Collateral. Borrower additionally warrants and agrees as follows:

                  11.1 Inventory and Documents. Except during the continuance
of an Event of Default, Borrower shall have the right to process and sell
Borrower's inventory in the regular course of business. Purchaser's security
interest hereunder shall attach to all proceeds of all sales or other
dispositions of the Collateral. If at any time any such proceeds shall be
represented by any instruments, chattel paper or documents of title, then such
instruments, chattel paper or documents of title shall, subject to the rights
of senior lienholders thereon, be promptly delivered to Purchaser and subject
to the security interest granted hereby. If at any time any of Borrower's
inventory is represented by any document of title, such document of title will,
subject to the rights of senior lienholders thereon, be delivered promptly to
Purchaser and subject to the security interest granted hereby.

                  11.2 Performance by Purchaser. By the execution of this
Agreement, Purchaser shall not be obligated to do or perform any of the acts or
things provided in any contracts covered hereby that are to be done or
performed by Borrower, but if there is a default by Borrower in the payment of
any amount due in respect of any indebtedness secured hereby, then Purchaser
may, at its election, perform some or all of the obligations provided in said
contracts to be performed by Borrower, and if Purchaser incurs any liability or
expenses by reason thereof, the same shall be payable by Borrower upon demand
and shall also be secured by this Agreement.

                  11.3 Receivables. During the continuance of an Event of
Default, Purchaser shall have the right to notify the account debtors obligated
on any or all of Borrower's accounts receivable to make payment thereof
directly to Purchaser, and to take control of all proceeds of any such accounts
receivable. Until such time as Purchaser elects to exercise such right by
mailing to Borrower written notice thereof, Borrower is authorized, to collect
and enforce said accounts receivable.

         12. Power of Attorney. Borrower hereby constitutes the Purchaser or
its designee, as Borrower's attorney-in-fact with power, upon the occurrence
and during the continuance of an Event of Default, (a) to endorse Borrower's
name upon any notes, acceptances, checks, drafts, money orders, or other
evidences of payment for Collateral that may come into either its or the
Purchaser's possession; (b) to sign the name of Borrower on any invoice or bill
of lading relating to any of the accounts receivable, drafts against customers,
assignments and verifications of accounts receivable and notices to customers;
(c) to send verifications of accounts receivable; (d) to notify the Post Office
authorities to change the address for delivery of mail addressed to Borrower to
such address as the Purchaser may designate; (e) to execute any of the
documents referred to in Section 3.5 hereof in order to perfect and/or maintain
the security interests and liens granted herein by Borrower to the Purchaser;
and (f) to do all other acts and things necessary to carry out this Security
Agreement. All acts of said attorney or designee are hereby ratified and
approved, and said attorney or designee shall 



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not be liable for any acts of commission or omission (other than acts of
gross negligence or willful misconduct), nor for any error of judgment or
mistake of fact or law; this power being coupled with an interest is
irrevocable until all of the obligations secured hereby are paid in full.

         13. Governing Law and Amendments. This Agreement and all of the
Operative Documents shall be construed and enforced under the laws of the State
of New York applicable to contracts to be wholly performed in such State. No
amendment or modification hereof shall be effective except in a writing
executed by each of the parties hereto.

         14. Survival of Representations and Warranties. All representations
and warranties contained herein or made by or furnished on behalf of the
Borrower in connection herewith shall survive the execution and delivery of
this Agreement.

         15. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.

         16. Construction and Interpretation. Should any provision of this
Security Agreement require judicial interpretation, the parties hereto agree
that the court interpreting or construing the same shall not apply a
presumption that the terms hereof shall be more strictly construed against one
party by reason of the rule of construction that a document is to be more
strictly construed against the party that itself or through its agent prepared
the same, it being agreed that the Borrower, Purchaser and their respective
agents have participated in the preparation hereof.



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         IN WITNESS WHEREOF, Borrower and Purchaser have executed this Security
Agreement, or have caused this Agreement to be executed as of the date first
above written.

                               Borrower:

                               DIPLOMAT DIRECT MARKETING CORPORATION


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

                                     Title:
                                           -----------------------------------

                                     Address: 
                                              --------------------------------

                               Purchaser:

                               SIRROM CAPITAL CORPORATION
                                    d/b/a TANDEM CAPITAL



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

                                     Title:
                                           -----------------------------------



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                                  SCHEDULE 3.6

                              Collateral Locations













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