Name of Offeree:_______________                    Memorandum No.______________




                    CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

                          BLC FINANCIAL SERVICES, INC.

                   9% Convertible Subordinated Notes Due 2003



                    This Private Placement Memorandum (the "Memorandum") relates
to the  sale by BLC  Financial  Services,  Inc.,  a  Delaware  corporation  (the
"Company"),  of up to $5,000,000 principal amount of 9% Convertible Subordinated
Notes Due February 1, 2003 (the "Notes"), in the form attached hereto as Exhibit
A (the  "Offering").  Holders of the Notes (the  "Holder(s)"  will have  certain
rights and obligations  pursuant to a Holders'  Agreement among such Holders and
the Company. See "Description of Capital Stock - The Holders' Agreement."

                    Interest  on the Notes will accrue from the date of issuance
of such Notes (the  "Issue  Date") and will be payable  quarterly  beginning  on
April 15, 1999.

                    The Notes will be  convertible  at the option of the Holder,
unless previously  converted,  redeemed or repurchased,  in whole or in part, at
any time and from time to time, on 30 days' prior  written  notice by the Holder
to the Company, into shares of Common Stock, $.01 par value, of the Company (the
"Common  Stock")  following  the last  issuance  of the Notes until the close of
business on the Business Day  immediately  preceding  the  maturity  date,  at a
conversion price per share (the "Conversion  Price") equal to the greater of (i)
$3.50 or (ii) 130% of the  average  of the  Market  Price per share for the five
Business Days immediately  preceding the date the subscription for such Notes is
accepted by the Company  (the  "Conversion  Ratio"),  subject to  adjustment  in
certain  events.  The  Conversion  Price  with  respect  to any  Notes  will  be
determined by the Company as of the Business Day immediately  preceding the date
the subscription for such Notes is accepted by the Company. Notes with different
Conversion  Prices  will be issued  in  different  series.  Accrued  and  unpaid
interest  on the  Notes  converted  to the  date of  conversion  will be paid at
conversion.  See  "Description  of the Notes -  Optional  Conversion."  The last
reported sale price,  on January 29, 1999, of the Common Stock,  which is listed
on the American Stock Exchange under the symbol BCL, was $2.50 per share.

                    The Notes will be  redeemable  at the option of the Company,
unless previously  converted,  redeemed or repurchased,  in whole or in part, at
any time and from time to time, on 60 days' prior written  notice by the Company
to the Holders,  if for five or more days in any 20-Trading Days period (whether
or not  consecutive)  the Market Price per share of Common Stock is greater than
the  Conversion  Price,  at a  redemption  price equal to 105% of the  principal
amount of the Notes to be redeemed plus all accrued and unpaid interest  thereon
to the date of  redemption,  provided  that such notice of  redemption  shall be
delivered  no later than 10 days after the  expiration  of such  20-day  Trading


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<PAGE>

Period. In addition,  the Notes will be redeemable at the option of the Company,
unless previously  converted,  redeemed or repurchased,  in whole or in part, at
any time and from  time to time,  on 60 days'  prior  written  notice,  from the
proceeds of one or more Public Equity Offerings,  at a redemption price equal to
105% of the  principal  amount of the Notes being  redeemed plus all accrued and
unpaid interest  thereon to the date of redemption.  Upon delivery of any notice
of  redemption  by the  Company,  a Holder may elect to convert  the Notes to be
redeemed  at the  Conversion  Ratio.  If less  than all of the  Notes  are to be
redeemed,  the Notes will be chosen for  redemption by the Company on a pro rata
basis or by lot or by a method that complies with applicable legal requirements.
See "Description of the Notes - Optional Redemption."

                  The Notes are unsecured and are not entitled to the benefit of
any sinking fund. The Notes will be subordinate to all Senior  Indebtedness  (as
defined) of the Company and will rank pari passu with all  unsubordinated  trade
and other  indebtedness  of the Company.  On December  31,  1998,  approximately
$22,229,526.06  of Senior  Indebtedness,  secured  by  substantially  all of the
assets of the Company, and $8,328,000.00 (giving effect to the sale of the Notes
offered hereby) of unsecured pari passu indebtedness, was outstanding. See "Risk
Factors - Subordination" and "Description of the Notes."

                  The Notes  offered  hereby  are being  sold by the  Company to
investors who meet the suitability  standards set forth in this Memorandum.  See
"Suitability  Standards."  There is no public market for the Notes and no public
market is expected  to develop  following  the  Offering.  The Company  does not
intend  to apply for  listing  of the Notes on any  securities  exchange  or for
inclusion of the Notes on any automated quotation system.

                    INVESTMENT IN THE SECURITIES  OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK AND IS SUITABLE ONLY FOR PERSONS WHO ARE FINANCIALLY ABLE TO HOLD
THE  SECURITIES  FOR AN INDEFINITE  PERIOD OF TIME AND TO BEAR THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS."

                  THE NOTES AND THE COMMON STOCK ISSUABLE UPON THEIR  CONVERSION
OFFERED  HEREBY HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS, NOR HAS THE
UNITED  STATES  SECURITIES  AND  EXCHANGE  COMMISSION  OR ANY  STATE  REGULATORY
AUTHORITY  PASSED UPON THE ACCURACY OR ADEQUACY OF THIS  MEMORANDUM  OR ENDORSED
THE MERITS OF THE OFFERING MADE HEREBY.  ANY  REPRESENTATION  TO THE CONTRARY IS
UNLAWFUL.  THE SECURITIES ARE OFFERED PURSUANT TO EXEMPTIONS PROVIDED BY SECTION
4(2) OF THE SECURITIES ACT,  REGULATION D THEREUNDER,  CERTAIN STATE  SECURITIES
LAWS AND  CERTAIN  RULES  AND  REGULATIONS  PROMULGATED  PURSUANT  THERETO.  THE
SECURITIES MAY NOT BE  TRANSFERRED  IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE  STATE  SECURITIES LAWS OR
AN  OPINION OF COUNSEL  ACCEPTABLE  TO THE  COMPANY  AND ITS  COUNSEL  THAT SUCH
REGISTRATION IS NOT REQUIRED.




                          BLC FINANCIAL SERVICES, INC.
                               645 Madison Avenue
                            New York, New York 10022
                                 (212) 751-5626


                                February 1, 1999


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<PAGE>


                    THIS  MEMORANDUM  IS  CONFIDENTIAL  AND  PROPRIETARY  AND IS
SUBMITTED  TO  A  LIMITED  NUMBER  OF  "ACCREDITED  INVESTORS"  (AS  DEFINED  IN
REGULATIONS  PROMULGATED  UNDER THE SECURITIES ACT) SOLELY FOR USE IN CONNECTION
WITH THE  CONSIDERATION  OF THE PURCHASE OF THE  SECURITIES  OFFERED HEREBY IN A
PRIVATE OFFERING WITH THE EXPRESS  UNDERSTANDING THAT, WITHOUT THE PRIOR WRITTEN
PERMISSION  OF THE  COMPANY,  SUCH  PERSONS  WILL NOT RELEASE  THIS  DOCUMENT OR
DISCUSS THE INFORMATION  CONTAINED  HEREIN OR MAKE  REPRODUCTIONS OF OR USE THIS
MEMORANDUM FOR ANY PURPOSE OTHER THAN  EVALUATING A POTENTIAL  INVESTMENT IN THE
SECURITIES.  EACH  PURCHASER OF THE  SECURITIES  OFFERED HEREBY MUST ACQUIRE THE
SECURITIES FOR ITS OWN ACCOUNT.

                  IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR
OWN  EXAMINATION  OF THE COMPANY AND THE TERMS OF THE  OFFERING,  INCLUDING  THE
MERITS AND RISKS INVOLVED.  THIS MEMORANDUM DOES NOT PURPORT TO BE ALL-INCLUSIVE
OR TO CONTAIN ALL OF THE INFORMATION  THAT A PROSPECTIVE  INVESTOR MAY DESIRE IN
EVALUATING THE COMPANY.  ALL OF THE INFORMATION  PROVIDED HEREIN  CONCERNING THE
COMPANY HAS BEEN FURNISHED BY THE COMPANY. THIS INFORMATION SHOULD NOT BE RELIED
UPON AS ANY REPRESENTATION  WITH RESPECT TO FUTURE RESULTS TO BE OBTAINED BY THE
COMPANY OR THE VALUE OF THE SECURITIES OF THE COMPANY. PROSPECTIVE INVESTORS ARE
NOT TO  CONSTRUE  THIS  MEMORANDUM  OR ITS  CONTENTS  AS LEGAL,  BUSINESS OR TAX
ADVICE.  EACH  PROSPECTIVE  INVESTOR  SHOULD CONSULT ITS OWN ADVISORS  REGARDING
LEGAL, BUSINESS AND TAX MATTERS RELATED TO THIS OFFERING.

                  THE   OBLIGATIONS   OF  THE  PARTIES   WITH   RESPECT  TO  THE
TRANSACTIONS  CONTEMPLATED  HEREIN  ARE SET  FORTH  IN AND WILL BE  GOVERNED  BY
CERTAIN  DOCUMENTS  DESCRIBED  HEREIN.  ALL OF THE  STATEMENTS  AND  INFORMATION
CONTAINED HEREIN ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH DOCUMENTS.
NEITHER THE  DELIVERY OF THIS  MEMORANDUM,  NOR ANY SALE MADE  PURSUANT  HERETO,
SHALL IMPLY THAT INFORMATION  CONTAINED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT
TO THE DATE SET FORTH ON THE COVER.

                  THIS  MEMORANDUM DOES NOT CONSTITUTE AN OFFER OF SECURITIES TO
ANY PERSON UNLESS THE NAME OF SUCH PERSON AND AN IDENTIFICATION NUMBER APPEAR ON
THE FRONT COVER  HEREOF.  DELIVERY OF THIS  MEMORANDUM  TO ANYONE OTHER THAN THE
PERSON  WHOSE  NAME  APPEARS  ON  THE  FRONT  COVER  IS  UNAUTHORIZED   AND  ANY
REPRODUCTION OR CIRCULATION OF THIS MEMORANDUM, IN WHOLE OR IN PART, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMPANY, IS PROHIBITED.


                  NO OFFERING  LITERATURE OR ADVERTISING IN ANY FORM  WHATSOEVER
SHALL BE  EMPLOYED  IN THE  OFFERING  EXCEPT  FOR THIS  MEMORANDUM.  NO  DEALER,
SALESMAN OR ANY OTHER PERSON HAS BEEN  AUTHORIZED TO GIVE ANY  INFORMATION OR TO
MAKE ANY REPRESENTATION ON BEHALF OF THE COMPANY RELATING TO THIS OFFERING OTHER
THAN AS SET FORTH IN THIS MEMORANDUM.

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<PAGE>

                  THIS  OFFERING  IS  MADE  SUBJECT  TO  PRIOR  SALES,   AND  TO
WITHDRAWAL,  CANCELLATION OR  MODIFICATION  BY THE COMPANY  WITHOUT NOTICE.  THE
COMPANY MAY REJECT ANY SUBSCRIPTION, IN WHOLE OR IN PART.

                  NEITHER  THE  DELIVERY  OF THIS  MEMORANDUM  NOR ANY OFFERS OR
SALES MADE HEREUNDER,  SHALL UNDER ANY CIRCUMSTANCES  CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE MATTERS DISCUSSED HEREIN SINCE THE DATE HEREOF.

                  THE METHOD OF DELIVERY OF THE DOCUMENTS TO BE DELIVERED TO THE
COMPANY,  AND THE PAYMENT OF THE  PURCHASE  PRICE TO THE COMPANY  WILL BE AT THE
ELECTION AND RISK OF THE OFFEREE.  IF SENT BY MAIL, IT IS RECOMMENDED  THAT SUCH
DOCUMENTS AND SUCH PAYMENTS BE SENT BY REGISTERED MAIL,  PROPERLY INSURED,  WITH
RETURN  RECEIPT  REQUESTED,  AND THAT A SUFFICIENT  NUMBER OF DAYS BE ALLOWED TO
ENSURE  DELIVERY TO THE COMPANY AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW
YORK CITY TIME, ON THE DATE DESIGNATED FOR PAYMENT.


                       NOTICE TO NEW HAMPSHIRE RESIDENTS

                  NEITHER  THE  FACT  THAT  A   REGISTRATION   STATEMENT  OR  AN
APPLICATION  FOR A  LICENSE  HAS  BEEN  FILED  UNDER  CHAPTER  421-B  OF THE NEW
HAMPSHIRE  REVISED  STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS  EFFECTIVELY  REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE  CONSTITUTES  A FINDING BY THE  SECRETARY  OF STATE THAT ANY  DOCUMENT
FILED UNDER RSA 421-B IS TRUE,  COMPLETE  AND NOT  MISLEADING.  NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE  FOR A SECURITY OR
A  TRANSACTION  MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR  QUALIFICATIONS  OF, OR  RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY OR  TRANSACTION.  IT IS UNLAWFUL TO MAKE,  OR CAUSE TO BE MADE,  TO ANY
PROSPECTIVE PURCHASER,  CUSTOMER OR CLIENT ANY REPRESENTATION  INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.






                                       4
<PAGE>



                              AVAILABLE INFORMATION

                  The Company is subject to the  informational  requirements  of
the  Securities  Exchange Act of 1934, as amended (the "Exchange  Act"),  and in
accordance therewith files reports,  proxy statements and other information with
the Commission. The reports, proxy statements and other information filed by the
Company  with  the  Commission  in  accordance  with  the  Exchange  Act  may be
inspected,  without charge,  at the Public  Reference  Section of the Commission
located at 450 Fifth Street, N.W.,  Washington,  D.C. 20549, and at the Regional
Offices of the Commission  located at Seven World Trade Center,  13th Floor, New
York, New York 10048 and Citicorp Center,  500 West Madison Street,  Suite 1400,
Chicago,  Illinois 60601-2511.  Copies of all or any portion of the material may
be obtained from the Public Reference  Section of the Commission upon payment of
the prescribed fees.

                  The  Company  will  furnish the  Holders  with annual  reports
containing,  among other information,  audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
financial  information  for the first three  quarters of each fiscal  year.  The
Company  will also  furnish  such  Holders  with such  other  reports  as it may
determine or as may be required by law. The Commission maintains a web site that
contains  reports,  proxy  and  information  statements  and  other  information
regarding  reporting companies under the Exchange Act, including the Company, at
http://www.sec.gov.

                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

                  The  Company's  Annual Report on Form 10-K for the fiscal year
ended June 30,  1998 and  Quarterly  Report on Form 10-Q for the fiscal  quarter
ended September 30, 1998, copies of which have been furnished  herewith and have
been filed with the Commission  (File No.  1-8185),  are hereby  incorporated by
reference in this Memorandum.

                  All documents filed by the Company  pursuant to Section 13(a),
13(c),  14 or 15(d) of the  Exchange Act after the date of this  Memorandum  and
prior to the termination of the Offer contemplated  hereby shall be deemed to be
incorporated  by reference in this  Memorandum  and to be a part hereof from the
date  of  filing  of such  documents.  Any  statement  contained  in a  document
incorporated by reference or deemed to be incorporated by reference herein shall
be deemed to be modified or  superseded  for all purposes of this  Memorandum to
the  extent  that a  statement  contained  herein or in any  subsequently  filed
document which also is  incorporated  or deemed to be  incorporated by reference
herein modifies or supersedes such statement.  Any such statement so modified or
superseded  shall  not be  deemed,  except  as so  modified  or  superseded,  to
constitute a part of this Memorandum.

                  The Company will provide without charge to each person to whom
a copy of this Memorandum has been delivered, including any beneficial owner, on
the  written  or  oral  request  of  such  person,  a copy of any and all of the
documents  referred  to above  which  have been or may be  incorporated  in this
Memorandum by  reference,  other than  exhibits to such  documents,  unless such
exhibits are specifically  incorporated by reference therein.  Requests for such
copies should be directed to the Corporate  Secretary of BLC Financial Services,
Inc.  at its  principal  executive  offices,  which are  located at 645  Madison
Avenue, New York, New York 10022 (telephone number (212) 751-5626).




                                       5
<PAGE>



                                                  TABLE OF CONTENTS

                                                                         Page

SUMMARY...............................................................     7

RISK FACTORS..........................................................     13

USE OF PROCEEDS.......................................................     17

DIVIDEND POLICY.......................................................     17

CAPITALIZATION........................................................     18

SELECTED FINANCIAL INFORMATION........................................     20

THE COMPANY...........................................................     21

CERTAIN TRANSACTIONS..................................................     21

DESCRIPTION OF THE NOTES..............................................     21

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.............................     29

DESCRIPTION OF THE COMPANY'S CAPITAL STOCK............................     34

TERMS OF THE OFFERING.................................................     37

INVESTOR SUITABILITY REQUIREMENTS.....................................     38




                                       6
<PAGE>

                                     SUMMARY

                  The following summary information is qualified in its entirety
by, and should be read in conjunction  with, the more detailed  information  and
consolidated  financial  statements  (including  the  notes  thereto)  appearing
elsewhere in this Memorandum or incorporated herein by reference.

                  This Private  Placement  Memorandum  (this  "Memorandum")  and
documents  incorporated  herein by reference contain  statements that constitute
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform Act of 1995. When included in this Memorandum or in documents
incorporated herein by reference, the words "expects," "intends," "anticipates,"
"estimates"   and   analogous   expressions   are  intended  to  identify   such
forward-looking statements. Such statements,  which include statements contained
in  "Risk   Factors,"   inherently  are  subject  to  a  variety  of  risks  and
uncertainties  that could cause actual results to differ  materially  from those
projected.  Such risks and uncertainties include, among others, general economic
and business conditions, competition, regulatory initiatives and compliance with
governmental regulations and various other matters, many of which are beyond the
Company's control. These forward-looking statements speak only as of the date of
the document  containing such statements.  The Company  expressly  disclaims any
obligation or  undertaking  to release  publicly any updates or revisions to any
forward-looking  statement  contained  herein  or in any  document  incorporated
herein by reference  to reflect any change in the  Company's  expectations  with
regard thereto or any change in events, conditions or circumstances on which any
statement is based.

                                   The Company

                  BLC  Financial  Services,  Inc., a Delaware  corporation  (the
"Company"),  is  engaged,  through its wholly  owned  subsidiary  Business  Loan
Center, Inc., a Delaware corporation ("Business Loan Center"),  primarily in the
business  of  originating  and  servicing  loans to small  businesses  under the
Guaranteed  Loan  Program  (the  "Guaranteed  Loan  Program"  or the  "SBA  7(a)
Program")  sponsored by the United  States Small  Business  Administration  (the
"SBA").

                  The Company conducts its operations primarily through Business
Loan Center and the following wholly owned subsidiaries:  BLC Financial Network,
a Virginia  corporation;  BLC  Financial  Network of  Florida,  Inc.,  a Florida
corporation;   and  BLC  Financial  Network  of  Mid-America,   Inc.,  a  Kansas
corporation.




                                       7
<PAGE>

                                  The Offering

Securities Offered:      The  Company  is  offering  up to  $5,000,000
                         principal amount of 9% Convertible  Subordinated  Notes
                         Due February 1, 2003 (the "Notes") in the form attached
                         as Exhibit A (the  "Offering").  Issuer:  BLC Financial
                         Services, Inc.

Maturity                 Date: February 1, 2003 (the "Maturity Date").

Terms of the Offering:

                         The  Company  will sell the Notes on its own  behalf to
                         Holders (the  "Holders")  who will have certain  rights
                         and  obligations   pursuant  to  a  Holder's  Agreement
                         (defined below).  All persons desiring to subscribe for
                         the Notes must (i) meet the  standards  set forth under
                         the caption "Suitability Standards" in this Memorandum,
                         (ii)  complete and execute the  Subscription  Agreement
                         and the Holders' Agreement attached hereto as Exhibit B
                         and  Exhibit  C,   respectively   (iii)   deliver  such
                         documents  to  the  Company  and  (iv)  deliver  to the
                         Company,  a check  payable to the order of the Company,
                         in an amount equal to the principal amount of the Notes
                         purchased by such person.  The Company will not use the
                         proceeds  of any sale of Notes  until  delivery of such
                         Notes by the Company.  The Company  will deliver  Notes
                         within three days not including  saturdays,  sundays or
                         any day on which banks located in the state of New York
                         are authorized or obligated to close ("Business  Days")
                         of the deliveries  described  above,  provided that the
                         Company,  in its  sole  discretion,  has  accepted  the
                         subscription  for  such  Notes,  and  the  date of such
                         delivery  will be the "Issue Date" with respect to such
                         Notes.  The Offering will  terminate on March 31, 1999,
                         unless  extended  by the  Company.  There is no minimum
                         subscription  required in connection with the Offering,
                         and  the  Company  will  evaluate,   and  at  its  sole
                         election,  accept,  subscriptions for Notes as they are
                         received in accordance with this Memorandum. See "Terms
                         of the Offering.

Interest on the Notes:   Interest  on the Notes will  accrue from
                         the date of issuance  of such notes (the "Issue  Date")
                         at a rate of 9% per annum and will be payable quarterly
                         beginning on April 15, 1999.

                                       8
<PAGE>

Optional  Conversion:    The Notes will be convertible at the option
                         of the Holder, unless previously converted, redeemed or
                         repurchased,  in whole or in part, at any time and from
                         time to time, on 30 days' prior  written  notice by the
                         Holder to the Company,  following  the last issuance of
                         the Notes until the close of  business on the  Business
                         Day  immediately  preceding  the  Maturity  Date,  at a
                         conversion  price per  share  (the  Conversion  Price")
                         equal to the  greater  of (i) $3.50 or (ii) 130% of the
                         average  of the  Market  Price  per  share for the five
                         Business  Days  immediately   preceding  the  date  the
                         subscription  for such Notes is accepted by the Company
                         (the "Conversion  Ratio").  Accrued and unpaid interest
                         on the Notes  converted to the date of conversion  will
                         be  paid  at  conversion.  The  Conversion  Price  with
                         respect to any Notes will be  determined by the Company
                         as of the Business Day  immediately  preceding the date
                         the  subscription  for such  Notes is  accepted  by the
                         Company. Notes with different Conversion Prices will be
                         issued in different  series.  See  "Description  of the
                         Notes - Optional Conversion."

                         The last reported  sale price,  on January 29, 1999, of
                         the Common Stock, which is traded on the American Stock
                         Exchange  (the  "American  Stock  Exchange")  under the
                         symbol BCL, was $2.50 per share.  The Conversion  Ratio
                         will be subject to  adjustment  upon the  occurrence of
                         certain events affecting the Common Stock.

Optional Redemption:     The Notes will be redeemable at the option
                         of the Company,  unless previously converted,  redeemed
                         or  repurchased,  in whole or in part,  at any time and
                         from time to time, or 60 days' prior  writtennotice  by
                         the Company to the Holders, if for five or more days in
                         any  20-Trading  Day (as  hereinafter  defined)  period
                         (whether  or not  consecutive)  the  Market  Price  (as
                         hereinafter  defined)  per  share  of  Common  Stock is
                         greater than the  Conversion  Price  applicable to such
                         Notes,  at a  redemption  price  equal  to  105% of the
                         principal  amount of the Notes to be redeemed  plus all
                         accrued  and  unpaid  interest  thereon  to the date of


                                       9
<PAGE>

                         redemption,  provided  that such  notice of  redemption
                         shall be  delivered  no later  than 10 days  after  the
                         expiration of such 20-day Trading Period.  In addition,
                         the  Notes  will be  redeemable  at the  option  of the
                         Company,  unless  previously  converted,   redeemed  or
                         repurchased,  in whole or in part, at any time and from
                         time to time, on 60 days' prior  written  notice by the
                         Company to the  Holders,  from the  proceeds  of one or
                         more Public Equity Offerings (as hereinafter  defined),
                         at a  redemption  price equal to 105% of the  principal
                         amount of the Notes being redeemed plus all accrued and
                         unpaid interest thereon to the date of redemption.

                         Upon  delivery  of  any  notice  of  redemption  by the
                         Company,  a Holder may elect to convert the Notes to be
                         redeemed at the Conversion  Ratio.

                         If less than all of the Notes are to be  redeemed,  the
                         Notes will be chosen for redemption by the Company on a
                         pro rata basis or by lot or by a method  that  complies
                         with applicable legal requirements. See "Description of
                         the Notes - Optional Redemption."

Ranking of the Notes:    The Notes will be unsecured  and are not
                         entitled to the benefit of any sinking fund.  The Notes
                         will be  subordinate  to all  Senior  Indebtedness  (as
                         hereinafter  defined) of the Company and will rank pari
                         passu   with  all   unsubordinated   trade   and  other
                         indebtedness.   On  December  31,  1998,  approximately
                         $22,229,526.06  of  Senior  Indebtedness,   secured  by
                         substantially  all of the  assets of the  Company,  and
                         $8,328,000.00  (giving  effect to the sale of the Notes
                         hereby)  of  unsecured  pari  passu   indebtedness  was
                         outstanding. See "Description of the Notes - Ranking."

Restrictive Covenants:   The Notes will contain covenants that limit,
                         subject  to  certain  exceptions,  the  ability  of the
                         Company to (i) conduct  affiliate  transactions or (ii)
                         cancel  any  claim  or  debt,   except   for   adequate
                         consideration   or  in  the  ordinary   course  of  its
                         business. See "Description of the Notes - Covenants."

                                       10
<PAGE>

Description of Common
Stock:                   The Company's total authorized capital
                         stock consists of 37,000,000 shares of Common Stock, of
                         which 19,918,449  shares were issued and outstanding at
                         September 30, 1998,  and 2,000,000  shares of preferred
                         stock, $.10 par value, of which none have been issued.

Holders'Agreement:       Each   purchaser   of  Notes   (each,   an
                         "Investor")  will be  required to enter into a holders'
                         agreement (the "Holders'  Agreement") among the Company
                         and such  purchasers.  The Holders'  Agreement will (i)
                         give the Company a right of first  refusal with respect
                         to any sales of the Notes by Investors and (ii) provide
                         certain "piggyback"  registration rights to the Holders
                         of  the  shares  of  Common  Stock  issuable  upon  the
                         conversion  of  the  Notes.  See  "Description  of  the
                         Company's Capital Stock - Holders' Agreement."

Restrictions on
Transferability:         Neither the Notes nor the shares of
                         Common Stock issuable upon their  conversion  have been
                         or  (except  as  otherwise  provided  in  the  Holders'
                         Agreement) will be registered  under the Securities Act
                         of  1933,  as  amended  (the  "Securities  Act") or the
                         securities laws of any state. Neither the Notes nor the
                         shares of Common Stock  issuable upon their  conversion
                         may be sold,  offered for sale,  transferred,  pledged,
                         hypothecated   or  otherwise   disposed  of  except  in
                         compliance with the Securities Act and other applicable
                         securities  laws.  Accordingly,  each  Investor must be
                         prepared  to  bear  the  economic  risk  of  his or her
                         investment for an indefinite period of time.

                         Investors  may be permitted  to transfer  Notes and the
                         shares of Common Stock issuable upon  conversion of the
                         Notes in compliance with the resale  provisions of Rule
                         144 under the  Securities  Act. In general,  under Rule
                         144 as currently in effect,  a person (or persons whose
                         shares are aggregated), including an affiliate, who has
                         beneficially  owned restricted  shares for at least one
                         year is entitled to sell, within any three-month period
                         commencing 90 days after the date of this Memorandum, a
                         number of shares  that does not exceed  the  greater of
                         (i) 1% of the then  outstanding  shares of Common Stock
                         or (ii) the average  weekly trading volume in the Stock


                                       11
<PAGE>

                         during the four  calendar  weeks  preceding  such sale,
                         subject  to the  filing of a Form 144 with  respect  to
                         such   sale   and   certain   other   limitations   and
                         restrictions.  In addition,  a person who is not deemed
                         to have been an  affiliate  of the  Company at any time
                         during  the 90  days  preceding  a  sale  and  who  has
                         beneficially  owned the shares  proposed to be sold for
                         at least two years,  is  entitled  to sell such  shares
                         under Rule 144(k)  without  regard to the  requirements
                         described  above.  The amount of time which an Investor
                         has held a Note  may be used to  satisfy  any  "holding
                         period" requirements of Rule 144 upon a transfer of the
                         shares  of  Comon  stock   underlying  such  Note.  See
                         "Description   of  the   Notes   --   Restrictions   on
                         Transferability."

Use of Proceeds:         The gross  proceeds to be received by the
                         Company from the Offering are  anticipated to aggregate
                         approximately   $5,000,000,    assuming   the   maximum
                         principal amount of Notes are sold by the Company.  See
                         "Terms of the  Offering."  The  Company  intends to use
                         such  proceeds  (less the expenses of the  Offering) to
                         repay  certain  unsecured  indebtedness,   for  working
                         capital,  capital  expenditures  and general  corporate
                         purposes.

Risk Factors:            Investment in the  securities  offered hereby
                         involves a high degree of risk and is suitable only for
                         persons who are financially able to hold the securities
                         for an  indefinite  period of time and to bear the loss
                         of their entire investment. For a discussion of certain
                         risk factors  affecting the Company and any  investment
                         therein, see "Risk Factors."



                                  RISK FACTORS

INVESTMENT  IN THE  SECURITIES  OFFERED  HEREBY  INVOLVES A HIGH DEGREE OF RISK,
INCLUDING,  BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS DESCRIBED BELOW. AN
INVESTMENT  IN THE  SECURITIES  IS NOT SUITABLE FOR PERSONS WHO CANNOT  AFFORD A
TOTAL LOSS OF THEIR  INVESTMENT.  EACH  PROSPECTIVE  INVESTOR  SHOULD  CAREFULLY
CONSIDER THE  FOLLOWING  RISK FACTORS  INHERENT IN AND AFFECTING THE BUSINESS OF
THE COMPANY AND THIS  OFFERING,  IN  ADDITION TO THE OTHER  INFORMATION  IN THIS
MEMORANDUM, BEFORE MAKING AN INVESTMENT DECISION.

Future Capital Needs; Uncertainty of Additional Financing

                  The Company is dependent  on, and intends to use a significant


                                       12
<PAGE>

portion of, the proceeds of this  Offering to continue to expand.  The Company's
ability to execute its growth strategy to expand depends to a significant degree
on its ability to obtain additional long-term debt and equity capital. There can
be no assurance  that  additional  financing will be available to the Company on
acceptable  terms,  or at all.  The  Company's  ability  to repay  indebtedness,
including  the Notes,  at  maturity  may depend on  refinancing,  which could be
adversely  affected if it does not have  access to the  capital  markets for the
sale  of  additional   long-term  debt  or  equity  securities  through  private
placements or public  offerings on terms  acceptable to it.  Factors which could
affect the Company's access to the capital markets, or the cost of such capital,
include  changes  in  interest  rates,  general  economic  conditions,  and  the
perception  in the  capital  markets of its  business,  results  of  operations,
leverage,  financial condition and business prospects.  Moreover, any additional
equity financing may be dilutive to the Company's shareholders, and the terms of
any additional debt financing could require it to comply with certain  financial
or other  restrictive  covenants  that may  limit  its  activities.  See "Use of
Proceeds."

Holding Company Structure; Subordination

                  The  Notes  will  be  general  unsecured  obligations  of  the
Company. The Notes will not be guaranteed by the Company's subsidiaries and will
not be secured by any assets of such subsidiaries.  Because the Company conducts
its  operations  through its operating  subsidiaries,  the Company's  ability to
service its debt  obligations,  including  its ability to pay the  principal and
interest on the Notes,  and its  ability to pay  dividends  on the Common  Stock
(including  shares of Common  Stock  issuable  upon  conversion  of  Notes),  is
strictly  dependent upon the earnings and cash flows of its subsidiaries and the
ability of these  subsidiaries  to make funds  available to the Company for such
purpose (whether in the form of intercompany loans, dividends or otherwise). See
"- Debt Restrictions."

                    As a consequence of the Company's holding company structure,
the Notes will  effectively rank junior in right of payment to the prior payment
in  full of all  obligations  and  liabilities  of the  Company's  subsidiaries.
Therefore,  the claims of  creditors  of the  Company's  subsidiaries  will,  in
respect of the assets of such  subsidiaries,  have  priority  over claims of the
Company's  creditors  (including  the Holders),  even though the  obligations to
creditors of the Company's  subsidiaries do not constitute Senior  Indebtedness.
The Notes will not restrict or limit the ability of the  Company's  subsidiaries
to incur,  assume or guarantee any  indebtedness.  Moreover,  the Notes will not
restrict  or limit the ability of the  Company or any of its  subsidiaries  from
creating liens and security  interests or otherwise  encumbering  its properties
and assets,  or from making payments and  distributions on account of its equity
securities.

                    The Notes  will be  subordinated  in right of payment to all
existing and future Senior  Indebtedness of the Company and will rank pari passu
with all existing and future  unsubordinated trade and other indebtedness of the
Company.   On  December  31,  1998,   approximately   $22,229,526.06  of  Senior
Indebtedness,  secured by  substantially  all of the assets of the Company,  and
$8,328,000.00  (giving  effect  to the  sale of the  Notes  offered  hereby)  of
unsecured pari passu indebtedness of the Company was outstanding. The Notes will
not prohibit the Company or any of its  subsidiaries  from incurring  additional
indebtedness.  Moreover,  the  Notes  will  provide  that  in the  event  of the
insolvency, bankruptcy,  liquidation,  reorganization or other winding up of the
Company,  the Senior  Indebtedness  of the  Company  must be paid in full before
holders of the Notes may be paid. See "Description of the Notes Ranking."

                                       13
<PAGE>

Debt Restrictions

                  The Company,  as a holding  company which conducts  operations
through its operating  subsidiaries,  is strictly  dependent on the earnings and
cash flow to these  subsidiaries  to  service  the  Company's  debt  obligations
(including the Notes) and expenses and to pay  dividends,  if any, on its Common
Stock. The terms of the Company's  revolving credit facilities with Transamerica
Business  Credit  Corporation  prohibit the Company's  subsidiaries  from making
funds  available  to the Company for the payment of  dividends  on the shares of
Common Stock  issuable  upon  conversion  of the Notes and prohibits the Company
from paying dividends on such shares of Common Stock.

                  The  Company and its  subsidiaries  are  currently  subject to
financial  and  operating   covenants  under  the  Company's   revolving  credit
facilities with Transamerica Business Credit Corporation.

Managing Growth

                  The  Company is  currently  undergoing  a period of growth and
expansion,  which is expected to place a significant strain on its personnel and
resources.  The  Company's  growth has  resulted  in an increase in the level of
responsibility for both existing and new management  personnel.  The Company has
sought to manage its current and  anticipated  growth through the recruitment of
additional  management  personnel and the implementation of internal systems and
controls.  However,  failure to manage growth  effectively could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

Dependence on Key Personnel; Need for Additional Personnel

                  The Company depends to a significant extent on the efforts and
abilities of its key executive officers, including the Company's Chief Executive
Officer,  Robert F.  Tannenhauser.  The Company's growth and future success will
depend in large  part on its  ability to  attract,  motivate  and retain  highly
qualified personnel.  There can be no assurance that the Company will be able to
retain its current  management  and other  employees,  or recruit new  qualified
personnel,  to support its existing and planned  operations.  The loss of key or
the inability to hire or retain  additional  qualified  personnel,  could have a
material  adverse  effect on its  business,  financial  condition and results of
operations.

Competition

                  The commercial  lending business is highly competitive and the
Company competes with many banks and other non-bank lending  institutions,  most
of which are substantially larger, and have greater financial resources and name
recognition.  There are currently 14 licensed  non-bank  lenders,  including The
Money Store Investment  Corp.,  AT&T Small Business  Lending  Corporation and GE
Capital  Small  Business  Lending  Finance  Company,  which  compete  within the
Guaranteed Loan Program lending market. Additionally, certain banks and non-bank
lending  institutions which participate in the Guaranteed Loan Program have been
designated as  "Preferred"  or "Certified  Lenders"  under the  Guaranteed  Loan


                                       14
<PAGE>

Program which may give them a competitive  advantage.  There can be no assurance
that the  Company  will be able to  compete  successfully  in the future or that
competition will not have a material  adverse effect on the Company's  business,
financial condition and results of operations.

Government Regulation

                  The level of SBA funding for the  Guaranteed  Loan  Program is
subject to the federal  budgeting  process for each fiscal year ending September
30 (each a "Federal Fiscal Year").  Accordingly,  the  availability of funds for
SBA  guarantees  could  increase or decrease each year.  The federal  budget for
Federal Fiscal Year 1998 appropriated funds to permit approximately $9.2 billion
under the Guaranteed Loan Program in which Business Loan Center  participates as
compared to $9.5 billion, $7.7 billion and $7.8 billion of actual usage of funds
for the Federal Fiscal Years ended 1997, 1996 and 1995, respectively.  There can
be no  assurance  that the federal  budget will  continue  to  appropriate  such
amounts in future  Fiscal  Years or that such  failure  will not have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

                  The qualification of a Small Business Lending Company, such as
Business Loan Center,  to participate in the Guaranteed  Loan Program is subject
to termination by the SBA based on objective criteria,  at its election,  on ten
days' notice.  Such  termination by the SBA would have a material adverse impact
on the Company's business, financial condition and results of operations.

                  SBA  approval of loans is  dependent  in part,  upon the SBA's
determination   that  Business  Loan  Center's   facilities  and  personnel  can
adequately  support  the  servicing  of the loan.  Accordingly,  based  upon the
experience of its personnel and the present  staffing of Business Loan Center in
its regional  offices,  Business  Loan Center  reasonably  believes  that it can
satisfy this criteria in the areas in which it is currently operating.  However,
the failure to satisfy the SBA criteria could have a material  adverse impact on
the Company's business, financial condition and results of operations.

                  As a Small Business  Lending  Company,  Business Loan Center's
operations  are  subject  to  extensive  local,  state and  federal  regulations
including,  but not limited to, the following  federal  statutes and regulations
promulgated  thereunder:  the Small Business Act, the Small Business  Investment
Act of 1958, as amended,  Title 1 of the Consumer Credit Protection Act of 1968,
as  amended   (including  certain  provisions  thereof  commonly  known  as  the
Truth-in-Lending Act), the Equal Credit Opportunity Act of 1974, as amended, the
Fair Credit Reporting Act of 1970, as amended,  Title IV of the Higher Education
Act of 1965, as amended, the Fair Debt Collection Practices Act, as amended, and
the Real Estate Settlement Procedures Act. In addition,  Business Loan Center is
subject to state laws and regulations with respect to the amount of interest and
other charges which lenders can collect on loans (e.g., usury laws). At present,
Business Loan Center  believes it is in material  compliance with all such rules
and  regulations.  However,  a  failure  to  comply  with  all  such  rules  and
regulations  could have a material  adverse  impact on the  Company's  business,
financial condition and results of operations.

Control by Shareholder, Affiliates and Existing Management

                  Robert F.  Tannenhauser,  the  President  and Chief  Executive


                                       15
<PAGE>

Officer of the  Company,  and  certain  other  affiliates  of the  Company,  may
participate  in  the  Offering.  Prior  to  completion  of  this  Offering,  Mr.
Tannenhauser  owns  26.67%  of the  outstanding  shares  of  Common  Stock  on a
fully-diluted  basis,  without  giving  effect to  conversion  of the Notes.  In
addition,  officers  and  directors  of the  Company own 33.26% of the shares of
Common Stock on a fully diluted  basis,  without  giving effect to conversion of
the Notes.

                  Mr. Tannenhauser,  together with such affiliates, officers and
directors,  acting in  concert,  would be able to  significantly  influence  the
disposition of any matter  submitted to a vote of the Board of Directors.  There
can be no assurance that the interests of Mr.  Tannenhauser or such officers and
directors  will be the same as the interests of the Investors as  debtholders or
shareholders.

No Public Market for Notes; Illiquidity of Investment

                  There is no public  market for the Notes and none is  expected
to develop in the foreseeable future. In addition, the potential issuance of the
Notes in different series (reflecting different Conversion Prices) could further
limit the size of the market for Notes in a particular series. Neither the Notes
nor the shares of Common Stock  issuable upon  conversion of the Notes have been
or will be (except  pursuant  to the  Holders  Agreement)  registered  under the
Securities Act or applicable state securities laws. Consequently,  the Notes and
the  Common  Stock  may not be  resold  unless  they are  registered  under  the
Securities Act and applicable state  securities laws, or unless  exemptions from
such  registration  requirements are available.  As a result, an investor may be
unable to  liquidate an  investment  in the Notes and should be prepared to bear
the economic risk of holding the Notes and Common Stock for an indefinite period
of time.  In  addition,  a purchaser  of the Notes should be able to withstand a
total loss of such purchaser's investment.

Absence of Dividends

                    The Company has never declared or paid any cash dividends on
its shares of capital stock and does not anticipate paying any such dividends in
the foreseeable  future. See "Dividend Policy" and "Description of the Company's
Securities."


                                 USE OF PROCEEDS

                  The  gross  proceeds  to the  Company  from the  Offering  are
estimated to aggregate approximately $5,000,000,  assuming the maximum principal
amount  of Notes  are  sold by the  Company.  The  Company  intends  to use such
proceeds  (less the  expenses  of the  Offering)  for working  capital,  capital
expenditures and general corporate purposes.


                                 DIVIDEND POLICY

                  The  payment of  dividends  on the Common  Stock is within the
discretion of the Company's  Board of Directors.  The Board of Directors has not
previously declared or paid any cash dividends. The Board of Directors currently
intends to retain any future  earnings to fund growth and,  therefore,  does not
anticipate paying cash dividends on the Common Stock in the foreseeable  future.


                                       16
<PAGE>

Any future  decisions with respect to dividends will depend on future  earnings,
operations,  capital  requirements  and  resources,  restrictions  in  financing
arrangements, and other business and financial considerations.






                                       17
<PAGE>


                                 CAPITALIZATION

                  The  following  table sets  forth as of June 30,  1998 (i) the
actual  capitalization  of the Company  and (ii) the as adjusted  capitalization
giving  effect  to the  issuance  of  $5,000,000  principal  amount of the Notes
offered hereby.

<TABLE>
<CAPTION>

                                                         At June 30, 1998
                                                  -----------------------------
                                                  Actual          As Adjusted
                                                ----------      ---------------
<S>                                            <C>                 <C>
All Debt excluding Subordinated Debt           $  35,684,000       $ 35,684,000
Subordinated debt                                  3,328,000          8,328,000
      Shareholders' equity:
Common stock                                         197,000            197,000
Additional Paid in capital                        10,840,000         10,840,000
Retained Earnings                                  2,762,000          2,762,000
Unrealized gain on residual interests                470,000            470,000
                                                 ------------       -----------
 (net of income taxes of $341,000
  at June 30, 1998)
           Total Shareholder's equity             14,269,000         14,269,000
                                                ------------       -------------

                                                $ 53,281,000       $ 58,281,000
                                                ============       =============

</TABLE>


                                       18
<PAGE>


                  BLC FINANCIAL SERVICES, INC. AND SUBSIDIARIES

                      Consolidated Condensed Balance Sheet

                  The  following  sets forth as of June 30,  1998 (i) the actual
consolidated condensed balance sheet of the Company and (ii) as adjusted to give
effect to the issuance of $5,000,000 principal amount of Notes offered hereby.
<TABLE>
<CAPTION>

                                                                 At June 30, 1998
                                                            -------------------------
                                                            Actual               As Adjusted
                                                       ---------------        -----------------
<S>                                                    <C>                      <C>
   Loans receivable - net                              $22,040,000              $ 22,040,000
   Loans held for sale                                   7,160,000                 7,160,000
   Cash                                                  1,730,000                 6,730,000
   Restricted cash                                       1,768,000                 1,768,000
   Accounts receivable - loans sold                      8,252,000                 8,252,000
   Accounts and other receivables                        1,006,000                 1,006,000
   Prepaid expenses                                        302,000                   302,000
   Leasehold improvements, furniture and equipment,
      net of accumulated depreciation of $342,000 in
      1998; $211,000 in 1997                               742,000                   742,000
   Servicing assets                                      3,270,000                 3,270,000
   Residual interests                                    5,057,000                 5,057,000
   Deferred income taxes                                   991,000                   991,000
   Security deposits                                       131,000                   131,000
   Deferred financing costs, net of accumulated amor-
     tization of $415,000 in 1998; $47,000 in 1997         832,000                   832,000
                                                      --------------             -------------
                                                      $ 53,281,000              $ 58,281,000
                                                      ==============             =============
LIABILITIES
   Notes payable                                       $   32,541,000           $ 32,541,000
   Accrued expenses                                         1,163,000              1,163,000
   Due to participants                                        264,000                264,000
   Allowance for estimated future losses on loans
       sold                                                   466,000                466,000
   Due to affiliates
   Debentures                                               3,328,000              8,828,000
   Debt                                                        46,000                 46,000
   Customer deposits                                        1,204,000              1,204,000
                                                         --------------           -------------
           Total liabilities                               39,012,000             44,012,000
                                                         ==============           =============
Commitments and contingencies (Note 8)
SHAREHOLDERS' EQUITY Preferred stock, $.10 par value:
   Authorized - 2,000,000 shares, issued and
      outstanding - none
Common stock, $.01 par value:
   Authorized - 35,000,000 shares, issued and
      outstanding - 19,778,449 in 1998 and
      17,341,243 in 1997                                      197,000                197,000
Additional paid-in capital                                 10,840,000             10,840,000
Retained earnings                                           2,762,000              2,762,000
Unrealized gain on residual interests (net of
   income taxes of $341,000 in 1998; $10,000 in 1997)         470,000                470,000
                                                           -----------          -------------

      Total shareholders' equity                           14,269,000             14,269,000
                                                           -----------          -------------

                                                          $53,281,000            $58,281,000
                                                           ============         =============



</TABLE>

                                       19
<PAGE>


                         SELECTED FINANCIAL INFORMATION


      The following selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations"  and the  consolidated  financial  statements  and the notes thereto
included in the  Company's  Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 (the "Annual  Report") which is  incorporated  herein by reference
and a copy of which is furnished herewith.

<TABLE>
<CAPTION>


                                                       Year Ended June 30,
                                                  ------------------------------
                              1998             1997                1996(1)            1995(2)        1994
                              ----             ----                ----               ----           ----
<S>                       <C>              <C>                <C>              <C>               <C>

Summary of Operations:

Total revenues            $15,729,000       $7,168,000        $4,997,000       $2,536,000        $1,571,000

Income before
extraordinary item          3,226,000        1,702,000           533,000          142,000           150,000

Extraordinary item                  -          245,000            91,000                -            25,000

Net Income                  3,226,000        1,947,000           644,000          142,000           175,000

Income per share
before extraordinary item         .18              .10               .04              .01               .02

Income per share
from extraordinary item             -              .01               .01                -                 -

Net income per share              .18              .11               .05              .01               .02

As of June 30:

Total assets              $53,281,000      $20,086,000       $10,983,000      $10,535,000        $6,691,000

Total liabilities          39,012,000       12,896,000         5,657,000        7,274,000         4,277,000

Shareholders' equity       14,269,000        7,190,000         4,601,000        2,608,000         2,414,000

Shareholders' equity
per share                         .72              .41               .27              .23               .21

---------------
<FN>
1.   Restated.  See notes to "Consolidated Financial Statements" included in the
     Annual Report
</FN>
</TABLE>
                                       20
<PAGE>



                                   THE COMPANY

                  BLC  Financial  Services,  Inc., a Delaware  corporation  (the
"Company"),  is  engaged,  through its wholly  owned  subsidiary  Business  Loan
Center, Inc., a Delaware corporation ("Business Loan Center"),  primarily in the
business  of  originating  and  servicing  loans to small  businesses  under the
Guaranteed  Loan  Program  (the  "Guaranteed  Loan  Program"  or the  "SBA  7(a)
Program")  sponsored by the United  States Small  Business  Administration  (the
"SBA").

                  The Company conducts its operations primarily through Business
Loan Center and the following wholly owned subsidiaries:  BLC Financial Network,
a Virginia  corporation;  BLC  Financial  Network of  Florida,  Inc.,  a Florida
corporation;   and  BLC  Financial  Network  of  Mid-America,   Inc.,  a  Kansas
corporation.


                              CERTAIN TRANSACTIONS

Holders' Agreement

                    Each  Investor  will be required to enter into the  Holders'
Agreement.  The  Holders'  Agreement  will (i) give the Company a right of first
refusal  with  respect  to any  sales  of the  Notes  and (ii)  provide  certain
"piggyback"  registration  rights  with  respect to shares of the  Common  Stock
issuable upon conversion of the Notes. See "Description of the Company's Capital
Stock - Holders' Agreement."

Participation in Offering

                    Mr. Tannenhauser,  the President and Chief Executive Officer
of the Company,  and certain  affiliates of the Company,  may participate in the
Offering.  See "Risk Factors - Control by  Shareholder,  Affiliates and Existing
Management."

Payment of Unsecured Indebtedness

                  The  Company may use some of the  proceeds of the  Offering to
repay certain  unsecured  indebtedness  of the Company held by affiliates of the
Company.


                            DESCRIPTION OF THE NOTES

                  The  following is a summary of certain  terms of the Notes and
does not purport to be complete.  Reference  should be made to all provisions of
the Notes, including the definitions therein of certain terms.

Certain Definitions

                  "Market  Disruption  Event"  means any event that results in a
material  suspension  or  limitation of trading of the shares of Common Stock on
the AMEX, or if the shares of Common Stock are traded on The Nasdaq Small Market
Capitalization System, on such system.

                                       21
<PAGE>

                  "Business Day" means any day, excluding Saturdays, Sundays and
any day on which  banks  located  in the  state of New  York are  authorized  or
obligated to close.

                  "Indebtedness"  means,  with  respect to any  person,  (i) any
obligation of, or any obligation guaranteed by, such person for the repayment of
borrowed money,  whether or not evidenced by bonds,  debentures,  notes or other
written instruments, (ii) all obligations of the person with respect to interest
rate hedging  arrangements  to hedge interest rates relating to  Indebtedness of
such person,  (iii) any deferred  payment  obligation of, or any such obligation
guaranteed  by, such person for the payment of the purchase price of property or
assets evidenced by a note or similar  instrument and (iv) any obligation of, or
any such obligation  guaranteed by, such person for the payment of rent or other
amounts  under a lease of property or assets which  obligation is required to be
classified and accounted for as a capitalized lease on the balance sheet of such
person under generally accepted accounting principles.

                  "Market  Price"  means,  on any  date  of  determination,  the
closing  bid price of a share of  Common  Stock on such day as  reported  on the
AMEX,  or if the shares of Common  Stock are listed on The Nasdaq  Small  Market
Capitalization  System,  the closing price per share of Common Stock on such day
as reported by such system.

                  "Maturity Date" means February 1, 2003.

                  "Public Equity Offering" means an underwritten  primary public
offering of the Common  Stock  pursuant to an effective  registration  statement
under the Securities Act.

                  "Trading  Day" means any day on which  purchases  and sales of
securities listed on the AMEX are reported  thereon,  or if the shares of Common
Stock are traded on The Nasdaq Small Market Capitalization  System, are reported
on such system,  and, in either case,  on which no Market  Disruption  Event has
occurred.

                  "Senior  Indebtedness" means (i) the principal of, premium, if
any, and interest  on, rent under and any other  Indebtedness  of the Company to
any bank or institutional lender plus interest and expenses with respect to such
Senior Indebtedness and (ii) refinancings,  deferrals, refundings, replacements,
extensions  and renewals of or amendments,  modifications  or supplements to the
Senior Indebtedness or other obligations referred to in the foregoing clause.

General

                  The Notes will be unsecured  obligations of the Company,  will
mature on the Maturity Date and will be limited to an aggregate principal amount
of $5,000,000.  The Notes will be issued in denominations of $1,000.  Subject to
compliance with applicable securities laws and the Holders' Agreement, the Notes
are exchangeable and transfers thereof will require the prior written consent of
the Company.

                  The Notes will accrue  interest at a rate of 9% per annum from
the date of issuance  (the "Issue  Date"),  and unpaid  interest will be payable
quarterly  in arrears on January  15,  April 15,  July 15 and October 15 of each


                                       22
<PAGE>

year  beginning on April 15, 1999.  Interest will be paid to the person in whose
name the Note is  registered at the close of business on the January 1, April 1,
July 1 or October 1, as the case may be,  immediately  preceding  each  relevant
interest payment date.  Interest will be computed on the basis of a 360-day year
comprising twelve 30-day months.

                  At the Maturity Date, to the extent not previously  converted,
repurchased or redeemed,  all of the Notes will automatically be redeemed by the
Company at a redemption price equal to 100% of the principal amount of the Notes
plus all accrued and unpaid interest thereon to the date of redemption.

                  Principal of, premium,  if any, and interest on the Notes will
be  payable  (i) at the  office  or agency of the  Company  maintained  for such
purpose, (ii) at the option of either the Company or a Holder by check mailed to
Holders of the Notes at its  respective  address  set forth in the  register  of
Holders (or at such other address designated by such Holder in writing) or (iii)
at such  Holder's  option,  by wire  transfer to an account  designated  by such
holder in writing.  Until  otherwise  designated  by the Company,  the Company's
office or agency  maintained  for such purpose will be the  principal  executive
office of the Company, located at 645 Madison Avenue, New York, New York 10022.

Ranking

                  The Notes will be  unsecured  and will not be  entitled to the
benefit  of any  sinking  fund.  The Notes  will be  subordinate  to all  Senior
Indebtedness  of the  Company  and will rank pari passu with all  unsubordinated
trade and other indebtedness. On December 31, 1998, approximately $22,229,526.06
of  Senior  Indebtedness,  secured  by  substantially  all of the  assets of the
Company,  and  $8,328,000.00  of (giving effect to the sale of the Notes offered
hereby) pari passu indebtedness was outstanding. See "Risk Factors."

Optional Conversion

                  The Notes will be  convertible  at the  option of the  Holder,
unless previously  converted,  redeemed or repurchased,  in whole or in part, at
any time and from time to time, on 30 days' prior written notice, into shares of
Common Stock, $.01 par value, of the Company (the "Common Stock"), following the
last  issuance  of the Notes until the close of  business  on the  Business  Day
immediately preceding the Maturity Date, unless previously  converted,  redeemed
or repurchased,  at a conversion price per share (the "Conversion  Price") equal
to the greater of (i) $3.50 or (ii) 130% of the average of the Market  Price per
share for the five Business Days immediately preceding the date the subscription
for such Notes is accepted by the Company (the "Conversion Ratio").  Accrued and
unpaid interest on the Notes converted to the date of conversion will be paid at
conversion. The Conversion Price with respect to any Notes will be determined by
the  Company  as  of  the  Business  Day  immediately  preceding  the  date  the
subscription  for such Notes is accepted by the  Company.  Notes with  different
Conversion Prices will be issued in different series.

                  The  foregoing  Conversion  Ratio is subject to  adjustment as
described  below under "- Adjustment to Conversion  Ratio upon Certain  Events."
Except as described below, no adjustment will be made on conversion of any Notes
for interest accrued thereon.

                                       23
<PAGE>

                  In order to exercise the right of conversion  attaching to the
Notes, the Holder must (i) deliver to the Company a written  notification of the
Holder's  intent to convert  (the  "Notice of  Conversion")  all or a  specified
portion  of the  Notes  held by such  Holder,  at  least  30 days  prior  to the
conversion  date specified in the Notice of Conversion (the  "Conversion  Date")
and (ii) deliver the Note at the specified office of the Company, accompanied by
a duly signed and  completed  Notice of Conversion  on such  Conversion  Date. A
Holder delivering a Note for conversion will not be required to pay any taxes or
duties  payable  in respect  of the  issuance  or  delivery  of Common  Stock on
conversion,  but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the Common Stock in
a name  other  than that of the  Holder of the Note.  Certificates  representing
shares of Common  Stock  will not be issued or  delivered  unless  all taxes and
duties, if any, payable by the Holder have been paid.

Optional Redemption

                  The Notes  will be  redeemable  at the  option of the  Company
unless  previously  converted,  redeemed or  repurchased,  on written  notice as
described  below, in whole or in part, at any time and from time to time, if for
five or more days in any 20-Trading Day period (whether or not  consecutive) the
Market  Price per share of Common  Stock is greater  than the  Conversion  Price
applicable to such Notes,  at a redemption  price equal to 105% of the principal
amount of the Notes to be redeemed plus all accrued and unpaid interest  thereon
to the date of  redemption,  provided  that such notice of  redemption  shall be
delivered  no later than 10 days after the  expiration  of such  20-day  Trading
Period.  In addition,  the Notes will be redeemable at the option of the Company
unless  previously  converted,  redeemed or  repurchased,  on written  notice as
described  below,  in whole or in part, at any time and from time to time,  from
the proceeds of one or more Public Equity Offerings, at a redemption price equal
to 105% of the principal amount of the Notes being redeemed plus all accrued and
unpaid interest  thereon to the date of redemption.  Upon delivery of any notice
of redemption by the Company, a Holder may elect, in the manner specified below,
to convert the Notes to be redeemed at the Conversion Ratio.

                  If less than all of the Notes  are to be  redeemed,  the Notes
will be chosen for redemption by the Company on a pro rata basis or by lot or by
a method that complies with applicable legal requirements.

                  In order to exercise the right of redemption  attaching to the
Notes,  the Company  must deliver to each Holder a written  notification  of the
Company's  intent to redeem  (the  "Notice of  Redemption")  all or a  specified
portion  of the  Notes  held by such  Holder,  at  least  60 days  prior  to the
redemption date (the  "Redemption  Date") specified in the Notice of Redemption.
Such Notice of  Redemption  shall specify (i) the  Redemption  Date on which the
Holder must  deliver the Notes to be  redeemed  at the  specified  office of the
Company,  (ii) the  principal  amount of Notes of such Holder to be redeemed and
(iii) the redemption price to be paid by the Company in respect of such Notes.

                  For a period of 30 days  after  delivery  by the  Company of a
Notice of  Redemption,  the Holder shall retain its right of conversion  (at the
Conversion  Ratio)  attaching to the Notes specified in the Notice of Redemption
to be redeemed.  In order to exercise such right of conversion,  the Holder must
(i) deliver a Notice of Conversion with respect to all or a portion of the Notes

                                       24
<PAGE>

to be  redeemed  at least 30 days  prior to the  Redemption  Date  specifying  a
Conversion  Date no later than the Redemption  Date and (ii) deliver the Note at
the specified office of the Company,  accompanied by a duly signed and completed
Notice of Conversion on such Conversion Date.

                  If less  than all the Notes  are to be  redeemed  at any time,
selection  of Notes for  redemption  will be made by the  Company  on a pro rata
basis  or by  lot  or by  such  method  as  the  Company  shall  deem  fair  and
appropriate,  provided that no Notes of $1,000 or less will be redeemed in part.
Each Notice of Redemption will be mailed by first class mall at least 30 but not
more than 60 days before the specified  Redemption Date to each Holder of Notes.
If any Note is to be  redeemed  in part  only,  the  Notice of  Redemption  that
relates to such Note will state the portion of the principal  amount  thereof to
be redeemed.  A new Note in principal  amount  equal to the  unredeemed  portion
thereof will be issued in the name of the holder  thereof upon  cancellation  of
the original  Note.  On and after the  Redemption  Date,  interest will cease to
accrue on Notes or portions thereof called for redemption.

Adjustment to Conversion Ratio upon Certain Events

                  The Conversion  Ratio is subject to adjustment  (under formula
set forth in the  Notes) in the event the  Company  should at any time,  or from
time to time after the date of issuance of the Notes,  fix a record date for the
effectuation of a split or subdivision of the  outstanding  shares of the Common
Stock or the  determination of holders of the Common Stock entitled to receive a
dividend or other distribution  payable in additional shares of the Common Stock
or other securities or rights  convertible into, or entitling the holder thereof
to  receive  directly  or  indirectly  additional  shares  of the  Common  Stock
(hereinafter  referred to as the "Common Stock Equivalents")  without payment of
any  consideration by such holder for the additional  shares of the Common Stock
(or the Common Stock  Equivalents  issuable upon conversion or exercise thereof)
then, as of such record date (or the date of such dividend  distribution,  split
or  subdivision  if no record  date is fixed),  the  Conversion  Ratio  shall be
appropriately  decreased  so that the  number  of  shares  of the  Common  Stock
issuable  upon  conversion of this Note shall be increased in proportion to such
increase of outstanding shares.

                  If the number of shares of the Common Stock outstanding at any
time after the date hereof is  decreased  by a  combination  of the  outstanding
shares of the Common Stock, then, following the record date of such combination,
the  Conversion  Ratio shall be  appropriately  increased  so that the number of
shares of the Common Stock  issuable on conversion  hereof shall be decreased in
proportion to such decrease in outstanding shares.

                  In the  case  of (i) any  reclassification  or  change  of the
Common  Stock or (ii) a  consolidation,  merger  or  combination  involving  the
Company or a sale or  conveyance  to another  corporation  of the  property  and
assets of the Company as an entirety or  substantially  as an entirety,  in each
case as a result of which  holders of Common  Stock shall be entitled to receive
stock, other securities,  other property or assets (including cash) with respect
to or in  exchange  for  such  Common  Stock,  the  holders  of the  Notes  then
outstanding will be entitled  thereafter to convert such Notes into the kind and
amount of shares of stock,  other securities or other property or assets of such
reorganized,  consolidated or merged Company which they would have owned or been
entitled to receive upon such reclassification,  change, consolidation,  merger,


                                       25
<PAGE>

combination,  sale or conveyance had such Notes been converted into Common Stock
immediately  prior  to such  reclassification,  change,  consolidation,  merger,
combination,  sale or  conveyance  (assuming,  in a case in which the  Company's
stockholders  may exercise rights of election,  that a holder of Notes would not
have exercised any rights of election as to the stock, other securities or other
property or assets  receivable in  connection  therewith and would have received
per share the kind and amount  received per share by a plurality of non-electing
shares).

                    In the event of a taxable  distribution to holders of Common
Stock (or other  transaction)  that results in any  adjustment of the Conversion
Ratio,  the  holders of Notes may, in certain  circumstances,  be deemed to have
received a  distribution  subject to United States income tax as a dividend;  in
certain other  circumstances,  the absence of such an adjustment may result in a
taxable dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."

                  No adjustment in the Conversion  Ratio will be required unless
such  adjustment  would require a change of at least 1% of the Conversion  Ratio
then in effect; provided that any adjustment that would otherwise be required to
be made  shall be carried  forward  and taken  into  account  in any  subsequent
adjustment.  Except as stated above,  the Conversion  Ratio will not be adjusted
for  the  issuance  of  Common  Stock  or any  securities  convertible  into  or
exchangeable  for Common  Stock or  carrying  the right to  purchase  any of the
foregoing.

Covenants

                  The Notes will provide,  among other things,  that the Company
will not,  except with the prior  written  consent of holders of Notes holding a
majority of the aggregate principal amount thereof:

                  (1) Conduct any  transaction  with any affiliate,  or with any
shareholder of the Company or any affiliate of such  shareholder,  other than on
an arms-length basis and except as otherwise  specifically permitted pursuant to
the Note; or

                  (2) Cancel any claim or debt in excess of $500,000, except for
adequate  consideration,  as determined  in the sole  discretion of the Board of
Directors of the Company, or in the ordinary course of its business.

Merger and Sale of Assets, Etc.

                  The Company may not consolidate with or merge with or into any
other person or sell, assign,  convey,  transfer,  lease or otherwise dispose of
all or substantially all of its properties and assets to any persons or group of
affiliated persons unless at the time and after giving effect thereto (i) either
(a) the Company shall be the continuing corporation, or (b) the person or entity
(if other than the Company) formed by such  consolidation or merger, or to which
such sale,  assignment,  transfer,  lease,  conveyance or disposition shall have
been made (the "Surviving  Entity") is a corporation  duly organized and validly
existing  under the laws of the United  States of America,  any state thereof or
the  District  of  Columbia  and shall,  in either  case,  expressly  assume all
obligations  of the Company  under the Notes and the Notes shall  remain in full
force and effect;  (ii)  immediately  prior to such  transaction and immediately
after giving  effect to such  transaction  on a pro forma  basis,  no Default or


                                       26
<PAGE>

Event of Default shall have occurred and be continuing;  and (iii) giving effect
to such  transaction  on a pro forma basis,  the  consolidated  net worth of the
Company  (or the  Surviving  Entity) is at least equal to the  consolidated  net
worth of the Company immediately before such transaction.

                  Upon any  consolidation  or merger or any  transfer  of all or
substantially all of the assets of the Company, the successor corporation formed
by such  consolidation  or into  which the  Company  is merged or to which  such
transfer is made shall  succeed to, and be  substituted  for,  and may  exercise
every right and power of, the Company under the Notes with the same effect as if
such successor corporation had been named as the Company therein.

                  In the event of any transaction (other than a lease) described
in and  complying  with  the  conditions  listed  in the  immediately  preceding
paragraphs in which the Company is not the continuing  corporation,  the Company
would be discharged from all obligations and covenants under the Notes.

Events of Default and Remedies

                  An Event of  Default  is  defined  in the  Notes as one of the
following events occurring:  (1) the Company defaults in the payment of interest
on any Note when the same becomes due and payable and the default  continues for
a period of 10 days; (2) the Company defaults in the payment of the principal or
premium,  if any, of any Note when the same becomes due and payable at maturity,
upon  redemption or  otherwise;  (3) the Company fails to comply with any of its
other  agreements or covenants in, or provisions of, the Notes,  and the default
continues  for  the  period  and  after  the  notice  specified  below;  or  any
representation  or warranty  made in any  document  executed  and  delivered  in
connection  with the Notes was false in any  material  respect on the date as of
which made or deemed made and the default continues for the period and after the
notice  specified  below;  (4) a default  occurs under any mortgage,  indenture,
instrument or agreement under which there may be issued or by which there may be
secured or evidenced any indebtedness of the Company,  whether such indebtedness
now exists or shall be created  hereafter,  if the holder or holders of at least
$1,000,000 in principal  amount of such  indebtedness  cause such $1,000,000 (or
more) in principal amount of indebtedness to become due and payable prior to its
stated  maturity;  (5) a final  judgment or final  judgments  for the payment of
money are  entered by a court or courts of  competent  jurisdiction  against the
Company and such judgment or judgments remain  undischarged for a period (during
which execution shall not be effectively  stayed) of 60 days,  provided that the
aggregate of all such  judgments  that are not covered by insurance  under which
the Company is a beneficiary exceeds $1,000,000;  (6) the Company pursuant to or
within the meaning of any  bankruptcy  law: (a) commences a voluntary  case; (b)
consents to the entry of an order for relief against it in an involuntary  case;
(c) consents to the appointment of a custodian of it or for all or substantially
all of its  property;  (d) makes a general  assignment  for the  benefit  of its
creditors;  or (e) admits in writing its inability generally to pay its debts as
the same become due;  (7) a court of competent  jurisdiction  enters an order or
decree under any  bankruptcy  law that: (a) is for relief against the Company in
an  involuntary  case;  (b)  appoints a  custodian  of the Company or for all or
substantially all of the property of the Company;  or (c) orders the liquidation
of any of the Company and the order or decree remains unstayed and in effect for
60  days;  or (8) a court of  competent  jurisdiction  enters  a final  judgment
holding  any of the  documents  delivered  in  connection  with the  Notes to be
invalid or unenforceable and such judgment remains unstayed and is in effect for
a period of 60 consecutive days; or if the Company shall assert, in any pleading


                                       27
<PAGE>

filed in such a court,  that any of the documents  delivered in connection  with
the Notes are invalid or unenforceable.

                  If an  Event  of  Default  (other  than an  Event  of  Default
specified in clause (6) or (7) above with respect to the Company)  occurs and is
continuing,  then and in every such case, the  respective  holders of at least a
majority in principal  amount of the then  outstanding  Notes,  by notice to the
Company,  may declare the unpaid principal of, premium,  if any, and any accrued
interest  on all the Notes to be due and  payable.  Upon such  declaration,  the
principal,  premium, if any, and interest shall be due and payable  immediately.
If an Event of Default  specified in clause (6) or (7) above occurs with respect
to the Company,  such an amount shall ipso facto become and be  immediately  due
and payable without any declaration or other act on the part of any Holder.

                  The Holders of a majority in aggregate principal amount of the
Notes then outstanding may, on behalf of the Holders of all the Notes, waive any
past  Default or Event of Default and its  consequences,  except  Default in the
payment of principal,  of premium,  if any, or interest on the Notes (other than
the nonpayment of principal,  of premium, if any, and interest on the Notes that
has become due solely by virtue of an acceleration  that has been duly rescinded
as provided  above) or in respect of a covenant or  provision  of the Notes that
cannot be modified or amended without the consent of all Holders.

Amendment, Supplement and Waiver

                  No provision of the Notes may be amended or waived  unless the
Company  shall have  obtained the written  agreement of Holders of a majority of
the aggregate principal amount of the Notes then outstanding.

Restrictions on Transferability

                  Neither the Notes nor the shares of Common Stock issuable upon
their  conversion  have been,  or (except as otherwise  provided in the Holders'
Agreement) will be registered under the Securities Act or the securities laws of
any state.  Neither the Notes nor the shares of Common Stock issuable upon their
conversion may be sold, offered for sale, transferred,  pledged, hypothecated or
otherwise  disposed of except in compliance  with the  Securities  Act and other
applicable securities laws. Accordingly,  each Investor must be prepared to bear
the economic risk of his or her investment for an indefinite period of time.

                  Investors may be permitted to transfer Notes and the shares of
Common Stock issuable upon conversion of the Notes in compliance with the resale
provisions of Rule 144 under the Securities  Act. In general,  under Rule 144 as
currently  in  effect,  a person  (or  persons  whose  shares  are  aggregated),
including an affiliate,  who has  beneficially  owned  restricted  shares for at
least one year is entitled to sell, within any three-month  period commencing 90
days after the date of this Memorandum,  a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock or (ii) the
average  weekly  trading  volume in the Stock  during  the four  calendar  weeks
preceding  such sale,  subject to the filing of a Form 144 with  respect to such
sale and certain other limitations and restrictions.  In addition,  a person who
is not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale and who has  beneficially  owned the shares proposed to be
sold for at least two years,  is entitled to sell such shares  under Rule 144(k)


                                       28
<PAGE>

without regard to the  requirements  described  above.  The amount of time which
such  Investor  has  held a Note may be used to  satisfy  any  "holding  period"
requirements  of  Rule  144  upon a  transfer  of the  shares  of  Common  Stock
underlying such Note.

Governing Law

                  The Notes will be governed  by, and  construed  in  accordance
with the laws of the  State of New York  without  giving  effect  to  applicable
principles of conflicts of law.

Transfer and Exchange

                  A Holder may transfer or exchange Notes in accordance with the
terms of the Notes and the Holders' Agreement. The Company may require a Holder,
among other things, to furnish appropriate  endorsements and transfer documents,
including  appropriate evidence that such transfer is permitted under applicable
securities  laws, and the Company may require a Holder to pay any taxes and fees
required by law.  The Company is not  required to transfer or exchange  any Note
selected for  redemption or  repurchase or for which a Notice of Conversion  has
been tendered.

                  The  registered  Holder of a Note will be treated as the owner
of it for all purposes.


                    CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

                  The following is a summary of certain of the principal  United
States  federal  income  tax   consequences  of  the  purchase,   ownership  and
disposition  of the Notes to a holder  that is (i) a citizen or  resident of the
United  States,  (ii) a corporation  created or organized  under the laws of the
United States or any state thereof or the District of Columbia, (iii) an estate,
the  income  of which is  subject  to  United  States  federal  income  taxation
regardless  of source,  or (iv) a trust with respect to which a court within the
United States is able to exercise primary  supervision  over its  administration
and one or more United States  fiduciaries  have the authority to control all of
its substantial  decisions (a "U.S. Holder").  This summary does not address the
United States federal income tax consequences to persons other than U.S. Holders
who purchase Notes upon their initial issuance.

                  This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"),  Treasury  regulations  promulgated or proposed thereunder
and administrative  rulings and judicial decisions,  in each case now in effect,
all of which are  subject to  change,  possibly  on a  retroactive  basis.  This
summary does not address the tax  consequences  applicable to investors that may
be subject to special tax rules such as banks,  thrifts,  real estate investment
trusts,  regulated  investment  companies,   insurance  companies,   dealers  in
securities  or  currencies,  tax-exempt  investors or persons that will hold the
Notes as a  position  in a  "straddle,"  as part of a  "synthetic  security"  or
"hedge,"  "conversion  transaction" or other  integrated  investment or as other
than a capital  asset as defined in section 1221 of the Code.  This summary also
does not address the tax consequences to persons that have a functional currency
other than the U.S. dollar or the tax consequences to shareholders,  partners or
beneficiaries of a holder of Notes. Further, it does not include any description
of any  alternative  minimum  tax  consequences  or the tax laws of any state or
local  government  or of any foreign  government  that may be  applicable to the
Notes.

                                       29
<PAGE>

                  PROSPECTIVE  INVESTORS  ARE ADVISED TO CONSULT  WITH THEIR OWN
TAX ADVISORS IN LIGHT OF THEIR OWN  PARTICULAR  CIRCUMSTANCES  AS TO THE FEDERAL
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES, AS WELL AS
THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.

Stated Interest

                  The stated interest on a Note will be taxable to a U.S. Holder
as  ordinary  interest  income  either  at the time it  accrues  or is  received
depending  upon such U.S.  Holder's  method of accounting for federal income tax
purposes.

Tax Basis

                    A U.S. Holder's initial tax basis in a Note will be equal to
the purchase price paid by such U.S. Holder for such Note.

Sale or Redemption

                  Unless a nonrecognition provision applies, the sale, exchange,
redemption  (including pursuant to an offer by the Company) or other disposition
of a Note will be a taxable event to a U.S.  Holder of a Note for federal income
tax purposes.  In such event, a U.S. Holder will recognize gain or loss equal to
the difference  between (i) the amount of cash plus the fair market value of any
property  received  upon  such  sale,  exchange,  redemption  or  other  taxable
disposition  (other than in respect of accrued and unpaid interest  thereon) and
(ii) the U.S.  holder's  adjusted  tax basis  therein  (other than any tax basis
attributable to accrued and unpaid  interest).  Subject to the discussion  below
under the caption "Market Discount," such gain or loss should be capital gain or
loss and will be  short-term  or  long-term  capital  gain or loss  depending on
whether the Note had been held by the U.S.  Holder for more than one year at the
time of such sale, exchange, redemption or other disposition.

Conversion of Note into Common Stock

                  No gain or loss will be  recognized  for  federal  income  tax
purposes on conversion of Notes solely into shares of Common Stock,  except with
respect to any cash  received in lieu of a  fractional  share or, in the case of
both cash and accrual  basis  taxpayers,  any accrued  interest  not  previously
included in income.  To the extent the conversion is not treated as resulting in
the payment of interest,  the tax basis for the shares of Common Stock  received
upon  conversion  will be equal to the tax  basis of the  Notes  converted  into
Common Stock, and the holding period of such shares of Common Stock will include
the holding period of the Notes so converted.  Any accrued  market  discount not
previously  included in income as of the date of the conversion of the Notes and
not recognized upon the conversion  (e.g., as a result of the receipt of cash in
lieu of a  fractional  interest in a Note) should carry over to the Common Stock
received on  conversion  and be treated as ordinary  income upon the  subsequent
disposition of such Common Stock.

                                       30
<PAGE>
Adjustment of Conversion Price

                  Section 305 of the Code treats as a distribution  taxable as a
dividend  (to the extent of the  issuing  corporation's  current or  accumulated
earnings and profits) certain actual or constructive distributions of stock with
respect to stock or  convertible  securities.  Under  Treasury  regulations,  an
adjustment in the conversion  price,  or the failure to make such an adjustment,
may, under certain  circumstances  be treated as a constructive  dividend to the
holder  of a Note.  Generally,  a U.S.  Holder's  tax  basis  in a Note  will be
increased by the amount of any such constructive dividend.

Market Discount

                  Gain recognized on the disposition (including a redemption) by
a  subsequent  purchaser  of a Note that has  accrued  market  discount  will be
treated as ordinary  income,  and not capital gain, to the extent of the accrued
market  discount,  provided  that  the  amount  of  market  discount  exceeds  a
statutorily  defined  de minimis  amount.  "Market  discount"  is defined as the
excess, if any, of (i) the stated redemption price at maturity over (ii) the tax
basis of the debt  obligation in the hands of the holder  immediately  after its
acquisition.

                  Under the de minimis exception, there is no market discount if
the excess of the stated redemption price at maturity of the obligation over the
holder's tax basis in the obligation is less than 0.25% of the stated redemption
price  at  maturity  multiplied  by the  number  of  complete  years  after  the
acquisition  date to the  Note's  date  of  maturity.  Unless  a  holder  elects
otherwise,  the  accrued  market  discount  would be the  amount  calculated  by
multiplying  the market  discount by a fraction,  the  numerator of which is the
number of days the obligation  has been held by a holder and the  denominator of
which is the number of days after the holder's  acquisition of the obligation up
to and including its maturity date.

                  If a  U.S.  Holder  of a  Note  acquired  at  market  discount
disposes  of such  Note  in any  transaction  other  than a  sale,  exchange  or
involuntary  conversion,  even though otherwise non-taxable (e.g., a gift), such
U.S.  Holder will be deemed to have  realized an amount equal to the fair market
value of the Note and would be required  to  recognize  as  ordinary  income any
accrued  market  discount to the extent of the deemed gain.  A U.S.  Holder of a
Note  acquired at a market  discount also may be required to defer the deduction
of all or a portion of the interest on any  indebtedness  incurred or maintained
to carry the Note until it is disposed of in a taxable transaction.

                  A U.S.  Holder of a Note acquired at market discount may elect
to include  the market  discount in income as it accrues.  This  election  would
apply to all market discount obligations acquired by the electing U.S. Holder on
or after the first day of the first taxable year to which the election  applies.
The election may be revoked only with the consent of the U.S.  Internal  Revenue
Service (the "Service").  If a U.S. Holder of a Note so elects to include market
discount in income currently, the above-discussed rules with respect to ordinary
income   recognition   resulting  from  sales  and  certain  other   disposition
transactions and to deferral of interest deductions would not apply.

                                       31
<PAGE>

Bond Premium

                  If a U.S. Holder  purchases a Note at a cost that is in excess
of the amount  payable on maturity  (which will be determined by reference to an
earlier  call date if the call price  would  reduce  the amount of the  premium)
(such excess being the "bond  premium"),  a U.S.  Holder may elect under Section
171 of the Code to amortize such bond premium on a constant yield basis over the
period  from the  acquisition  date to the  maturity  date of such Note (or,  in
certain  circumstances,  until an earlier  call  date) and offset the  qualified
stated interest allocable to an accrual period and included in income in respect
of the Note by the amount of amortizable bond premium  allocable to such accrual
period.  A U.S.  Holder who elects to  amortize  bond  premium  must  reduce its
adjusted  basis in the Note by the  amount of such  allowable  amortization.  An
election to amortize bond premium would apply to all amortizable bond premium on
all taxable bonds held at or acquired  after the beginning of the U.S.  Holder's
taxable year as to which the election is made,  and may be revoked only with the
consent of the Service. No amortization is allowed for any premium  attributable
to the conversion feature of a Note.

                  If an election to amortize  bond  premium is not made,  a U.S.
Holder  must  include  the full  amount of each  interest  payment  in income in
accordance  with its regular method of accounting  and will generally  receive a
tax benefit from the bond premium only upon  computing its gain or loss upon the
sale or other disposition or payment of the principal amount of the Note.

Back-Up Withholding

                  A U.S.  Holder of Notes or  Common  Stock  may be  subject  to
"back-up  withholding"  at a rate of 31% with  respect  to  certain  "reportable
payments,"  including  interest  payments,  dividend payments and, under certain
circumstances,  principal payments on the Notes or proceeds from the disposition
of Common Stock. These back-up withholding rules apply if the U.S. Holder, among
other things,  (i) fails to furnish a social  security  number or other taxpayer
identification  number  ("TIN")  certified  under  penalties of perjury within a
reasonable  time after the request  therefor,  (ii)  furnishes an incorrect TIN,
(iii) fails to report  properly  interest or  dividends,  or (iv) under  certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury,  that the TIN  furnished is the correct  number and that such holder is
not  subject to back-up  withholding.  A U.S.  Holder who does not  provide  the
Company  with its  correct TIN also may be subject to  penalties  imposed by the
Service.  Any amount  withheld from a payment to a U.S. Holder under the back-up
withholding  rules is creditable  against the U.S.  Holder's  federal income tax
liability,  provided  the  required  information  is  furnished  to the Service.
Back-up  withholding will not apply,  however,  with respect to payments made to
certain holders,  including corporations and tax-exempt organizations,  provided
their exemption from back-up withholding is properly established.

                  The  Company  will  report  to the U.S.  Holders  of Notes and
Common Stock and to the Service the amount of any "reportable payments" for each
calendar  year and the  amount of tax  withheld,  if any,  with  respect to such
payments.

                  THE  PRECEDING  DISCUSSION OF CERTAIN  UNITED  STATES  FEDERAL
INCOME TAX  CONSEQUENCES IS FOR GENERAL  INFORMATION ONLY AND IS NOT TAX ADVICE.
ACCORDINGLY,  EACH INVESTOR  SHOULD CONSULT ITS OWN TAX ADVISER AS TO PARTICULAR
TAX CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND THE
COMMON  STOCK OF THE  COMPANY,  INCLUDING  THE  APPLICABILITY  AND EFFECT OF ANY


                                       32
<PAGE>

STATE,  LOCAL OR FOREIGN TAX LAWS,  AND OF ANY  PROPOSED  CHANGES IN  APPLICABLE
LAWS.


                                       33
<PAGE>


                   DESCRIPTION OF THE COMPANY'S CAPITAL STOCK

General

                  The  Company's  total  authorized  capital  stock  consists of
37,000,000  shares of Common Stock,  $.01 par value, of which 19,918,449  shares
were issued and  outstanding  at September  30, 1998,  and  2,000,000  shares of
preferred  stock,  par value $10 per share, of which none have been issued.  The
Company has authorized the issuance of 1,400,000 shares of Common Stock upon the
conversion of the Notes.

Common Stock

                  Subject to the prior rights of the holders of preferred stock,
holders of Common Stock are entitled to share ratably in  dividends,  if, as and
when declared by the Company's Board of Directors out of funds legally available
therefor.  In the event of  liquidation  or  distribution  of the  assets of the
Company,  holders of Common Stock are  entitled to share  ratably in such assets
remaining  after  payment  of  liabilities  and  payment of  preferences  to the
holders,  if any, of preferred stock.  See "Dividend  Policy." Holders of Common
Stock  are  entitled  to cast one vote for each  share of Common  Stock  held of
record on all matters  presented  to  stockholders.  Holders of shares of Common
Stock are entitled to cumulative voting. Common stockholders have no conversion,
preemptive or other subscription  rights, and there are no redemptive or sinking
fund  provisions with respect to such stock.  The  outstanding  shares of Common
Stock of the Company  are,  and upon  issuance  the share  offered  through this
prospectus will be, validly issued, fully paid and nonassessable.

Preferred Stock

                  The  Amended  and  Restated   Certificate   of   Incorporation
expressly  authorizes  the Board of Directors  of the Company  (the  "Board") to
issue up to two million  (2,000,000) shares of Preferred Stock from time to time
in one or more series and for such consideration as the Board may determine and,
subject to certain restrictions, with such designations, preferences and rights,
and such qualifications, limitations or restrictions, as the Board may determine
with respect thereto by duly adopted resolution or resolutions.  The issuance of
Preferred  Stock may delay,  defer or prevent a change in control of the Company
without further action by the  stockholders  and may adversely affect the voting
and other  rights of holders of Common  Stock.  To date,  no shares of Preferred
Stock have been issued.

Holders' Agreement

                  Each  Investor  will be  required  to enter into the  Holders'
Agreement.  As described below, the Holders' Agreement will (i) give the Company
a right of first refusal with respect to any sales of the Notes and (ii) provide
certain  "piggyback"  registration  rights with  respect to the shares of Common
Stock issuable upon conversion of the Notes.

         Right of First Refusal

                  No Investor  may  transfer any Note (other than to a Permitted


                                       34
<PAGE>

Transferee)  except as  described  below.  "Permitted  Transferee"  means,  with
respect to a person,  (a) the spouse or child of such person,  (b) such person's
heirs, executors or legal representatives,  (c) trustees of an inter vivos trust
or  testamentary  trust for the benefit of such person or persons  identified in
clause (a) of this definition,  or (d) another person  controlled by such person
or by any person identified in clauses (a) through (c) of this definition.

                  If any Investor (the  "Offering  Holder")  desires to transfer
all or any part of its Notes to a third party,  such Investor  shall give a sale
notice  ("Sale  Notice") to the Company at least 20 days prior to such  proposed
transfer.  Such  Sale  Notice  shall  include  (i)  the  name  of  the  proposed
transferee,  (ii)  the  aggregate  principal  amount  of  Notes  desired  to  be
transferred (the "Offered  Notes"),  (iii) the sale price for such Notes and all
other  material  terms  and  conditions  of the  offer  and (iv) the  Investor's
irrevocable offer to sell such shares to the Company. The Company shall have the
right to purchase  all or a portion of the Offered  Notes on the terms set forth
in the Sale Notice. The Company shall give written notice to the Offering Holder
of whether it desires to purchase  the  Offered  Notes on the terms set forth in
the Sale Notice within 20 days after delivery of the Sale Notice to the Company.

                  If Offered  Notes are elected to be  purchased  in  accordance
with the above  provisions of this Section 4, the Company shall pay the purchase
price,  against  delivery of the  certificate or certificates  representing  the
Offered Notes being purchased, properly endorsed for transfer, in the manner and
within 20 days after the date of the Sale Notice.

                  If the Company  declines to purchase the Offered  Notes,  then
and only then may the  Offering  Holder  transfer  the Offered  Notes to a third
party (which shall be the proposed transferee named in the Sale Notice), subject
to compliance with all applicable state and federal securities laws, at any time
within 60 days from the date the Sale  Notice was given,  but only to such third
party at a price and on other terms no more  favorable  to such third party than
the price and the other terms specified in the Sale Notice.

         Registration Rights

                  If at any time the  Company  proposes  to file a  registration
statement under the Securities Act  ("Registration  Statement")  with respect to
the Common Stock (other than  Registration  Statements  filed in connection with
mergers,  acquisitions,  stock option or other employee benefit plans,  exchange
offers  or   offerings  of   securities   solely  to  the   Company's   existing
shareholders),  the Company shall give written  notice at each such time to each
Investor  of its  intention  at least 20 Business  Days  before the  anticipated
filing date  specifying  the date of the  anticipated  filing.  Upon the written
request of any such Investor together with a notice of conversion,  with respect
to Notes  held by such  Investor,  as  applicable,  given  not less than 10 days
before the anticipated filing date (stating the amount of shares of Common Stock
(including  shares to be issued upon  conversion  of Notes) to be disposed of by
such Investor), the Company shall include the shares of Common Stock intended to
be disposed of in a  Registration  Statement  under the  Securities Act so as to


                                       35
<PAGE>

permit  the  disposition  by such  Investors  of the  shares of Common  Stock so
registered;  provided that the managing  underwriter or underwriters (if any) in
connection with the offering  contemplated by such Registration  Statement shall
have  advised  the  Company  that the  inclusion  of the shares of Common  Stock
proposed  to be  disposed of by such  Investors  pursuant  to such  Registration
Statement  will not adversely  affect the offering  price per share or otherwise
adversely affect the success of such offering.

                  Notwithstanding  anything to the contrary, if the Registration
Statement for which the Company gives notice is for an underwritten offering and
the  managing  underwriters  determine  in good faith  that the total  amount of
shares of Common  Stock  proposed to be included in such  offering is such as to
adversely affect the offering price per share or otherwise  adversely affect the
success of such offering,  then (without reducing the amount of shares of Common
Stock to be  included  in such  Registration  Statement  for the  account of the
Company or any holder of Common Stock exercising "demand"  registration  rights)
the  amount  of  shares  of Common  Stock to be  included  in such  Registration
Statement for the account of the Investors  shall be (i) reduced (pro rata among
the Investors (to the extent they each shall have requested,  in accordance with
the foregoing,  inclusion in such offering) on the basis of the relative  number
of shares of Common  Stock so  requested  by them to be  included) to the extent
necessary  to reduce  the total  amount of  Common  Stock of the  Company  to be
included in such offering to the amount recommended by such managing underwriter
or  (ii)  excluded  in  their  entirety  if  so  recommended  by  such  managing
underwriter.

                  All customary, reasonable and necessary expenses in connection
with the preparation of any registration  statement and related  prospectus with
respect to which the Investors have been granted registration rights pursuant to
the Holders Agreement,  including,  without limitation,  (i) any accounting fees
incurred by the Company  (including,  without  limitation,  the  expenses of any
audit and/or "comfort" letter) and filing fees (including,  without  limitation,
expenses  associated  with filings  required to be made with the  Securities and
Exchange  Commission),  (ii)  "blue  sky"  fees and  expenses,  (iii)  printing,
engraving  and  duplicating  expenses of the Company,  (iv)  transfer  agent and
listing fees and (v) the reasonable  fees and expenses of not more than one firm
of  counsel   representing   all  Investors  shall  be  borne  by  the  Company.
Notwithstanding  the  foregoing,   in  no  event  shall  the  Company  bear  any
underwriting  discounts,  commissions or fees attributable to the sale of shares
of Common Stock held by the Investors.




                                       36
<PAGE>


                              TERMS OF THE OFFERING

General

                  The  Company  is  hereby  offering  for sale up to  $5,000,000
principal amount of the Company 9% Convertible  Subordinated Notes due 2003. The
Company will sell the Notes on its own behalf.  The Offering  will  terminate on
March 31, 1999,  unless extended by the Company.  The Company reserves the right
to reject any subscription for any reason or for no reason.  Subscriptions  will
be accepted by the Company only from investors determined by the Company, in its
sole   discretion,   to  be  suitable   investors  (see  "Investor   Suitability
Requirements").

                  There is no minimum  subscription  required in connection with
the Offering.

Subscription Procedures and Payments

                  Persons who desire to  subscribe  for Notes should send to the
Company at 645 Madison Avenue,  New York, New York 10022,  Attention:  Robert F.
Tannenhauser, the following documents:

            (a)      two executed copies of the Subscription Agreement;

            (b)      one executed copy of the Holders' Agreement; and

            (c)  a  check  in  the  principal   amount  of  Notes
     subscribed for, payable to the order of the Company.

The Company will deliver the Notes within three  business days of the deliveries
described above, provided that the Company, in its sole discretion, has accepted
the subscription for the Notes, and the date of such delivery will be the "Issue
Date" with respect to such Notes.

Depositing of Funds

                  All payments made relating to subscriptions shall be deposited
as soon as practicable and held by the Company until the earlier to occur of (i)
the acceptance of such  subscriptions  by the Company or (ii) the termination of
the Offering.

                  Funds  deposited may be withdrawn until the acceptance of such
subscriptions  by the Company.  Following a termination of the Offering,  or the
rejection  of a  subscription  by the Company in its sole  discretion,  all such
funds will be returned  to the  investors  without  interest.  The Company  will
evaluate, and at its sole election, accept,  subscriptions for Notes as they are
received  in  accordance  with  this  Memorandum.   Upon  the  acceptance  of  a
subscription by the Company,  all of the funds  pertaining to that  subscription
will be paid to the Company.

Restrictions on Transfer

                  There is no public  market for the Notes and none is  expected
to develop in the  foreseeable  future.  Neither the Notes nor the Common  Stock


                                       37
<PAGE>

(except  pursuant  to the  Holder's  Agreement)  will be  registered  under  the
Securities Act or applicable state securities laws. Consequently,  the Notes and
the  Common  Stock  may not be  resold  unless  they are  registered  under  the
Securities Act and applicable state  securities laws, or unless  exemptions from
such registration requirements are available. In addition, Investors should note
that all transfers  will be subject to the approval of the Board of Directors of
the Company  pursuant to the  Stockholders'  Agreement,  which  approval  may be
withheld in the sole  discretion of the Board of Directors.  See "Risk Factors -
No Public Market the Notes; Illiquidity of Investment."


                        INVESTOR SUITABILITY REQUIREMENTS

General

                  Investment  in the  Notes  involves  significant  risk  and is
suitable  only for  persons  of  adequate  financial  means who have no need for
liquidity with respect to this  investment and who can bear the economic risk of
a  complete  loss of their  investment.  The  Offering  made  hereby  relies  on
exemptions  from  the  registration  requirements  of  the  Securities  Act  and
applicable state securities laws and regulations.

                  The suitability  standards  discussed below represent  minimum
suitability  standards  for  prospective  investors.  The  satisfaction  of such
standards by a prospective investor does not necessarily mean that the Notes are
a suitable investment for such prospective  investor.  Prospective investors are
encouraged to consult their personal  financial advisors to determine whether an
investment in the Notes is appropriate. The Company may reject subscriptions, in
whole or in part, in its sole discretion.

                  The Company will require each investor to represent in writing
that,  among other  things,  by reason of the  investor's  business or financial
experience  or that of the  investor's  professional  advisor,  the  investor is
capable of evaluating  the merits and risks of an investment in the Notes and of
protecting its own interests in connection with the transaction; the investor is
acquiring the Notes for its own account, for investment only and not with a view
toward the resale or distribution  thereof, the investor is aware that the Notes
have not been registered  under the Securities Act or any state  securities laws
and that transfer thereof is restricted by the Securities Act,  applicable state
securities  laws  and  the  stock  purchase  agreement  to be  entered  into  in
connection  with the  purchase of the Notes;  the investor is aware of the stock
purchase  agreement;  the  investor  is aware of the absence of a market for the
Notes; and such investor meets the suitability requirements set forth below.

Suitability

                  Subscriptions  will  be  accepted  only  from  investors  that
qualify as  "accredited  investors",  as defined in Rule 501(a) of  Regulation D
under the Securities  Act. Each accredited  investor must  demonstrate the basis
for such  qualification.  To be an  accredited  investor,  an investor must fall
within any of the following  categories at the time of the sale of Notes to that
investor:

                  (1)      a  bank  as  defined   in  Section   3(a)(2)  of  the


                                       38
<PAGE>

                           Securities Act, or a savings and loan  association or
                           other institution as defined in Section 3(a)(5)(A) of
                           the Securities Act,  whether acting in its individual
                           or fiduciary capacity;  a broker or dealer registered
                           pursuant to Section 15 of the Securities Exchange Act
                           of 1934;  an insurance  company as defined in Section
                           2(13) of the  Securities  Act; an investment  company
                           registered  under the Investment  Company Act of 1940
                           or a  business  development  company  as  defined  in
                           Section  2(a)(48)  of  that  Act;  a  Small  Business
                           Investment  Company  licensed  by the  United  States
                           Small Business Administration under Section 301(c) or
                           (d) of the Small  Business  Investment Act of 1953; a
                           plan  established  and  maintained  by a  state,  its
                           political    subdivisions,    or   any    agency   or
                           instrumentality   of  a   state   or  its   political
                           subdivisions,  for the benefit of its  employees,  if
                           such plan has total  assets in excess of $5  million;
                           an  employee  benefit  plan within the meaning of the
                           Employee  Retirement  Income Security Act of 1974, if
                           the investment  decision is made by a plan fiduciary,
                           as  defined in  Section  3(21) of that Act,  which is
                           either  a  bank,   savings   and  loan   association,
                           insurance company, or registered  investment adviser,
                           or if the  employee  benefit plan has total assets in
                           excess of $5  million  or, if a  self-directed  plan,
                           with the investment  decisions made solely by persons
                           that are accredited investors;

                  (2)      a private business  development  company as defined
                           in Section 202(a)(22) of the Investment  Advisers Act
                           of 1940;

                  (3)      an organization described in Section 501(c)(3) of the
                           Internal  Revenue  Code of  1986,  as  amended,  or a
                           corporation, Massachusetts or similar business trust,
                           or partnership,  not formed for the specific  purpose
                           of  acquiring  shares of  Common  Stock,  with  total
                           assets in excess of $5,000,000;

                  (4)      a director or executive officer of the Company;

                  (5)      a natural  person  whose net worth,  individually  or
                           together with that person's spouse, currently exceeds
                           $1,000,000;

                  (6)      a natural  person who had an  individual  income (not
                           including such person's spouse's income) in excess of
                           $200,000 in 1997 and 1998,  or joint income with such
                           person's  spouse  in excess  of  $300,000  in each of
                           those years, and who reasonably  expects to reach the
                           same income level in 1999;

                  (7)      a trust with total assets in excess of $5,000,000 not
                           formed for the specific  purpose of acquiring  shares
                           of Common  Stock,  whose  purchase  is  directed by a
                           person  having  such   knowledge  and  experience  in
                           financial  and  business  matters  that  he or she is
                           capable of evaluating  the merits and risks  entailed
                           in the purchase of shares of Common Stock; or

                  (8)      an entity in which all of the equity owners are
                           Accredited Investors.

                                       39
<PAGE>

                  Each investor may be required to make certain  representations
in a Subscription Agreement (Exhibit B hereto) in order to assist the Company in
determining whether or not the investor is an Accredited Investor.  In addition,
the Company may require investors to supply additional  information with respect
to  the  suitability  of the  investment  for  such  investor.  No  Subscription
Agreement will be accepted by the Company  unless the Company  believes that the
investor is an Accredited Investor. The Company reserves the right to reject any
subscription  in whole or in part,  in each case in the sole  discretion  of the
Company.