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                      GENERAL CREDIT AND SECURITY AGREEMENT

        THIS AGREEMENT, dated as of November 19, 1998, between SPECTRUM
Commercial Services, a division of Lyon Financial Services, Inc., a Minnesota
corporation, having its mailing address and principal place of business at 7900
International Drive, Suite 890, Bloomington, Minnesota 55425-1581 (herein called
"Lender"), and FieldWorks, Incorporated, a Minnesota corporation, having the
mailing address and principal place of business at 7631 Anagram Drive, Eden
Prairie, Minnesota 55344 (herein called "Borrower").


        1. Agreement. This Agreement states the terms and conditions under which
Borrower may obtain certain loans and/or other credit extensions from Lender.

        2. Certain Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:

                "Advance(s)" shall have the meaning provided in Paragraph 4(a).

                "Affiliate" shall include, with respect to any party, any Person
        which directly or indirectly controls, is controlled by, or is under
        common control with such party and, in addition, in the case of
        Borrower, each officer, director or shareholder of Borrower, and each
        joint venturer and partner of Borrower.

                "Borrower" shall have the meaning provided in the preamble
        hereto.

                "Borrowing Base" shall mean the sum of (i) Seventy Five percent
        (75%) of the net amount of Eligible Receivables or such greater or
        lesser percentage as Lender, in its sole discretion, shall deem
        appropriate, plus (ii) the lesser of (x) Six Hundred Thousand and
        No/100ths Dollars ($600,000.00) or (y) Thirty percent (30%) of the net
        amount of Eligible Inventory, or such greater or lesser dollars and/or
        percentage as Lender, in its sole discretion, shall deem appropriate.

                "Business Day" shall mean any day on which major commercial
        banks in Minneapolis, Minnesota are open for the transaction of business
        of the kind contemplated by this Agreement.

                "Chattel Paper" shall have the meaning ascribed to such term in
        Article 9 of the Commercial Code.

                "Closing Date" shall mean the day specified by Borrower on which
        all of the conditions precedent specified in Paragraph 21 shall have
        been satisfied.

                "Code" shall mean the Internal Revenue Code of 1986, as amended
        from time to time.

                "Commercial Code" shall mean the Uniform Commercial Code as
        enacted in the State of Minnesota, as amended from time to time.

                "Consolidated" shall, when used with reference to any financial
        information pertaining to (or when used as a part of any defined term or
        statement pertaining to the financial condition of) any Person, mean the
        accounts of such Person and its subsidiaries, determined on a
        consolidated basis, all determined as to principles of consolidation
        and, except as otherwise specifically required by the definition of such
        term or by such statement as to such accounts, in accordance with GAAP.

                "Contingent Obligations" shall mean, with respect to any Person,
        all of such Person's liabilities and obligations which are contingent
        upon and will not mature unless and until the occurrence of some event
        or circumstance and which are not included within the definition of
        Liabilities of such Person.

                "Customer(s)" shall have the meaning provided in Paragraph 7(a).

                "Default" shall mean any event which, with the giving of notice
        or passage of time, or both, would constitute an Event of Default.

                "Eligible Inventory" shall mean the dollar value of only that
        Inventory in which only Lender holds a senior security interest and as
        to which Lender, in its sole discretion, shall elect from time to time
        to constitute Eligible Inventory. Without limiting the discretion of
        Lender to consider any Inventory not to be Eligible Inventory, and by
        way of example of types of Inventory that Lender will consider not to be
        Eligible Inventory, Lender, notwithstanding any earlier classification
        of eligibility, may consider any Inventory not to be Eligible Inventory
        if: (i) such Inventory does not constitute finished goods or such
        Inventory does not constitute raw materials that are to be used or
        consumed in the normal course in the processing of such raw materials
        into finished goods which, upon completion, will constitute Eligible
        Inventory; (ii) such Inventory does not meet all standards imposed by
        any governmental agency having regulatory authority over such goods
        and/or their use, manufacture or sale; (iii) such Inventory has not been
        physically received by Borrower at Borrower's principal offices in Eden
        Prairie, Minnesota; (iv) such Inventory is not currently usable or
        currently salable in the normal course of Borrower's operations; (v)
        such Inventory is on consignment to or from any other Person or is
        subject to any bailment; (vi) such Inventory is subject to any lien,
        Security Interest or other encumbrance whatsoever, except for the
        security interest of Lender under this Agreement; (vii) such Inventory
        has been sold to any other person; or (viii) such Inventory is located
        in a place other than Borrower's warehouse/principal place of business
        in Eden Prairie, Minnesota, or (ix) such inventory is specialty, custom,
        or limited purpose software and hardware. The value of Eligible
        Inventory shall be the lower of the cost or market value

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        of the Eligible Inventory computed on a first-in, first-out basis in
        accordance with generally accepted accounting principles on the basis of
        the most recent inventory certificates delivered to Lender pursuant to
        Paragraph 17(a)(v).

                "Eligible Receivables" shall mean the dollar value of only such
        Receivables of Borrower arising from the sale and actual shipment of
        Inventory or the full and complete rendition of services in the ordinary
        course of business which has been fully performed by Borrower and in
        which only Lender holds a senior security interest and as to which
        Lender, in its sole discretion, shall from time to time determine to be
        Eligible Receivables. Without limiting the discretion of Lender to
        consider any Receivable not to be an Eligible Receivable, and by way of
        example only of types of Receivables that Lender will consider not to be
        Eligible Receivables, Lender, notwithstanding any earlier classification
        of eligibility may consider any Receivable not to be an Eligible
        Receivable if: (i) any warranty is breached as to the Receivable; (ii)
        the Receivable is not paid by the account debtor within the earlier of
        120 days from the date of the invoice relating to such Receivable or 60
        days from the due date of the invoice relating to such Receivable; (iii)
        the account debtor disputes liability or makes any claim with respect to
        the Receivable, provided that such Receivable shall only be ineligible
        up to the amount of such dispute or claim; (iv) a petition in bankruptcy
        or other application for relief under any insolvency law is filed with
        respect to the account debtor owing the Receivable; (v) the account
        debtor on the Receivable makes an assignment for the benefit of
        creditors, becomes insolvent, fails, suspends, or goes out of business;
        (vi) the Receivable arises from a sale to an account debtor outside the
        United States, unless the sale is backed by an acceptable letter of
        credit; (vii) the Receivable is owed by an account debtor who owes
        Receivables of which more than 10% are more than 90 days past the date
        of the invoices relating to such Receivables; (viii) the account debtor
        is an Affiliate or employee of Borrower; (ix) the account debtor is also
        a supplier or creditor of Borrower; (x) the account debtor is the United
        States of America, or any department or any agency of any thereof,
        unless Borrower has complied with the Assignment of Claims Act to
        Lender's satisfaction; or (xi) the Receivable is either a consignment
        Receivable or a bonded Receivable or a retainage.

                "Equipment" shall have the meaning provided in Paragraph 3.

                "ERISA" shall mean the Employee Retirement Income Security Act
        of 1974, as the same may from time to time be amended, and the rules and
        regulations promulgated thereunder by any governmental agency or
        authority, as from time to time in effect.

                "ERISA Affiliate" shall mean, with respect to any Person, any
        trade or business (whether or not incorporated) which is a member of a
        group of which such Person is a member and which is under common control
        within the meaning of Section 414 of the Code, as amended from time to
        time, and the regulations promulgated and rulings issued thereunder.

                "ERISA Event" shall mean: (a) a Reportable Event described in
        Section 4043 of ERISA and the regulations issued thereunder (other than
        a Reportable Event not subject to the provision for 30-day notice to the
        PBGC under such regulations); (b) the withdrawal of Borrower or any
        ERISA Affiliate from a Plan during a plan year in which it was a
        "substantial employer" as defined in Section 4001(a)(2) of ERISA; (c)
        the filing of a notice of intent to terminate a Plan or the treatment of
        a Plan amendment as a termination under Section 4041 of ERISA; (d) the
        institution of proceedings to terminate a Plan by the PBGC under Section
        4042 of ERISA; or (e) any other event or condition that might reasonably
        be expected to constitute grounds under Section 4042 of ERISA for the
        termination of, or the appointment of a trustee to administer, any Plan.

                "Event of Default" shall have the meaning provided in Paragraph
        20.

                "GAAP" shall mean generally accepted accounting principles
        consistently applied and maintained throughout the period indicated and
        consistent with the audited financial statements delivered to Lender
        pursuant to Paragraph 16(h). Whenever any accounting term is used herein
        which is not otherwise defined, it shall be interpreted in accordance
        with GAAP.

                "General Intangibles" shall have the meaning provided in
        Paragraph 3.

                "Guarantor" NONE.

                "Independent Public Accountants" shall mean Arthur Andersen, LLP
        or any other firm of independent public accountants which is acceptable
        to Lender.

                "Inventory" shall have the meaning provided in Paragraph 3.

                "Liabilities" of any Person shall mean those items which, in
        accordance with GAAP, appear as liabilities on a balance sheet.

                "Facility Fee" shall have the meaning provided in Paragraph 17.

                "Loan Administration Fee" shall have the meaning provided in
        Paragraph 17.

                "Loan Document(s)" shall mean individually or collectively, as
        the case may be, this Agreement, the Note, the Validity Guarantees, and
        any and all other documents executed, delivered or referred to herein or
        therein, as originally executed and as amended, modified or supplemented
        from time to time.

                "Material Adverse Occurrence" shall mean any occurrence of
        whatsoever nature (including, without limitation, any adverse
        determination in any litigation, arbitration or governmental
        investigation or proceeding) which Lender shall determine, in its sole
        discretion, could materially adversely affect the present or prospective
        financial condition or operations of Borrower or a Guarantor or impair
        the ability of Borrower or a Guarantor to perform its obligations under
        this Agreement or any other Loan Document.

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                "Maturity Date" shall mean November 18, 2000, provided, however,
        that Borrower shall have the option to extend the Maturity Date for
        subsequent twelve month periods, unless Lender (in its sole and absolute
        discretion) notifies Borrower at least sixty days prior to the then
        current Maturity Date that the extension shall not be available and in
        that event, no extension shall occur. In any event, the extension option
        shall not be available if, as of the then current Maturity Date (i) an
        Event of Default has occurred and is continuing (whether or not Lender
        has notified Borrower of such default), or (ii) this Agreement has
        previously terminated as provided in Paragraph 23, or (iii) Lender has,
        in its sole and absolute discretion, demanded payment of amounts owed
        hereunder. Should Borrower have the option to extend the Maturity Date
        and choose to do so, than Borrower shall notify Lender of its request
        for an extension at least 60 days before the then current Maturity Date
        and, prior to the then current Maturity Date, shall have executed a new
        or amended promissory note reflecting the extended Maturity Date and
        which contains substantially the same terms as the Note then in effect.

                "Maximum Principal Amount" shall mean, at any date, Three
        Million and No/100ths Dollars ($3,000,000.00).

                "Monthly Payment Date" shall mean the first day of each month.

                "Multi-employer Plan" shall mean a "multiemployer plan" as
        defined in Section 4001(a)(3) of ERISA to which Borrower is making or
        accruing an obligation to make contributions, or has within any of the
        preceding three plan years made or accrued an obligation to make
        contributions.

                "Net Profit" or "Net Loss" for any period shall mean net income
        or loss for such period, determined in accordance with GAAP excluding,
        however, (i) extraordinary gains (including but not limited to the
        conversion of debt to equity, the forgiveness of debt and the like), and
        (ii) gains (whether or not extraordinary) from sales or other
        dispositions of assets other than the sale of Inventory in the ordinary
        course of Borrower's business.

                "Note" shall mean Borrower's revolving or promissory note of
        even date payable to the order of Lender to evidence the Advances,
        including any replacements, substitutions or amendments thereof.

                "Obligations" shall have the meaning provided in Paragraph 3.

                "Participant" shall mean each Person who purchases a
        participation interest from Lender in the obligations.

                "PBGC" shall mean the Pension Benefit Guaranty Corporation or
        any successor board, authority, agency, officer or official of the
        United States administering the principal functions assigned on the date
        hereof to the Pension Benefit Guaranty Corporation under ERISA.

                "Person" shall mean any natural person, corporation, firm,
        partnership, association, government, governmental agency or any other
        entity, whether acting in an individual, fiduciary or other capacity.

                "Plan" shall mean each employee benefit plan or other class of
        benefits covered by Title IV of ERISA, in either case whether now in
        existence or hereafter instituted, of Borrower or any of its
        Subsidiaries.

                "Prime Rate" shall mean the publicly announced base rate (or
        other publicly announced reference rate) charged by Norwest Bank
        Minnesota, National Association; Borrower acknowledges that the Prime
        Rate may not be the lowest rate made available by Lender to its
        customers and that Lender may lend to its customers at rates that are
        at, above or below the Prime Rate.

                "Receivables" shall have the meaning provided in Paragraph 3(a).

                "Reportable Event" shall have the meaning given to that term in
        Title IV of ERISA.

                "Security Interest" shall mean any lien, pledge, mortgage,
        encumbrance, charge or security interest of any kind whatsoever
        (including, without limitation, the lien or retained security title of a
        conditional vendor) whether arising under a security instrument or as a
        matter of law, judicial process or otherwise or the agreement by
        Borrower to grant any lien, security interest or pledge, mortgage or
        encumber any asset.

                "Subordinated Debt" shall mean indebtedness of Borrower for
        borrowed money which is subordinated to the Obligations on terms
        satisfactory to Lender in its sole discretion.

                "Subsidiary" of any Person shall mean any other corporation of
        which more than 50% of the outstanding shares of capital stock having
        ordinary voting power for the election of directors is owned directly or
        indirectly by such Person, by such Person and one or more Subsidiaries,
        or by one or more other Subsidiaries.

                "Termination Date" shall mean the earliest of (i) the Maturity
        Date or (ii) the date upon which Lender's obligation to make Advances is
        terminated pursuant to Paragraph 20, or (iii) the date upon which the
        obligations are declared to be due and payable (or automatically become
        due and payable) upon the occurrence of an Event of Default as provided
        in Paragraph 20 or otherwise, or (iv) the date upon which this Agreement
        terminates as provided in Paragraph 23, or (v) upon demand by Lender in
        its sole and absolute discretion.

                "Withdrawal Liability" shall have the meaning given to that term
        in Title IV of ERISA.

                "Working Capital" at any date shall mean Current Assets at such
        date minus Current Liabilities at such date.

        3. Security. As security for all present and future sums loaned or
advanced by Lender to Borrower and for

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all other obligations now or hereafter chargeable to Borrower's loan account
hereunder, and all other obligations and liabilities of any and every kind of
Borrower to Lender, due or to become due, direct or indirect, absolute or
contingent, joint or several, howsoever created, arising or evidenced, now
existing or hereafter at any time created, arising or incurred (herein called
"Obligations'), Borrower hereby grants to Lender a security interest in and to
the following property:

                (a) All Receivables of Borrower now owned or hereafter acquired
        or arising, together with all customer lists, original books and
        records, ledger and account cards, computer tapes, discs, printouts and
        records, whether now in existence or hereafter created. "Receivables"
        means all rights of Borrower to the payment of money, whether or not
        earned and howsoever evidenced or arising, including (without
        limitation) all present and future "Accounts", accounts receivable,
        "Chattel Paper", "Instruments", and rights to payment which are "General
        Intangibles" (as those terms are used in the Commercial Code), all
        security therefor and all of Borrower's rights as an unpaid seller of
        goods (including rescission, replevin, reclamation and stopping in
        transit) and all of Borrower's rights to any goods represented by any of
        the foregoing including returned or repossessed goods;

                (b) All Inventory of Borrower, whether now owned or hereafter
        acquired and wherever located. "Inventory" includes all Goods (as
        defined in Article 9 of the Commercial Code) intended for sale or lease
        or to be furnished under contracts of service, all raw materials and
        work in process therefor, all finished goods thereof, all materials and
        supplies of every nature used or usable or consumed or consumable in
        connection with the manufacture, packing, shipping, advertising,
        selling, leasing or furnishing of such Goods, and all accessories
        thereto and all documents of title therefor evidencing the same;

                (c) All Equipment of Borrower, whether now owned or hereafter
        acquired and wherever located. "Equipment" includes all of Borrower's
        Goods other than Inventory, all replacements and substitutions therefor
        and all accessions thereto, and specifically includes, without
        limitation, all present and future machinery, equipment, vehicles,
        manufacturing equipment, shop equipment, office and record keeping
        equipment, furniture, fixtures, parts, tools and all other Goods (except
        Inventory) used or acquired for use by Borrower for any business or
        enterprise;

                (d) All General Intangibles and Deposit Accounts (as defined in
        Article 9 of the Commercial Code) of Borrower, whether now owned or
        hereafter acquired, including (without limitation) all present and
        future domestic and foreign patents, patent applications, trademarks,
        trademark applications, copyrights, trade names, trade secrets, patent
        and trademark licenses (whether Borrower is licensor or licensee), shop
        drawings, engineering drawings, blueprints, specifications, parts lists,
        manuals, operating instructions, customer and supplier lists, licenses,
        permits, franchises, the right to use Borrower's corporate name and the
        goodwill of Borrower's business; and

                (e) All Investment Property (as defined in the Commercial Code)
        including but not limited to stock and other securities evidencing
        ownership of any other organization, company or entity as well as all
        amendments, extensions, renewals and replacements of the above, together
        with all certificates, other instruments, options, rights, interest, and
        other distributions issued as an addition to, in substitution or in
        exchange for, or on account of, the same, all whether now existing or
        hereafter arising and whether now owned or hereafter acquired; and

                (f) All products and proceeds of any and all of the foregoing
        and all products and proceeds of any other Collateral (as hereinafter
        defined) including the proceeds of any insurance covering any of the
        Collateral, as well as all Deposit Accounts (as defined in the
        Commercial Code), money, cash, and the like.

All such Receivables, Inventory, Equipment, General Intangibles, Investment
Property, Deposit Accounts, products and proceeds, together with all other
assets and properties of Borrower in or on which Lender is now or hereafter
granted a security interest, mortgage, lien or encumbrance pursuant to this
Agreement or otherwise, are hereinafter sometimes referred to as "Collateral".

        4. Advances.

                (a) At the request of Borrower, Lender agrees, subject to the
        terms and conditions hereinafter set forth, to make loans (each such
        loan being herein sometimes called individually an "Advance" and
        collectively the "Advances") to Borrower from time to time on any
        Business Day during the period from the date hereof and ending on the
        Termination Date; provided, however, that Lender shall not be required
        to make any ------------------ Advance if, after giving effect to such
        Advance, the aggregate unpaid principal amount of Advances outstanding
        would exceed the lesser of the Borrowing Base or the Maximum Principal
        Amount. The amount of each such Advance shall be charged to Borrower's
        loan account. Borrower acknowledges that Lender may, but shall not be
        obligated to, make an Advance at any time in an amount equal to any
        overdraft in any account of Borrower maintained with Lender or any
        Participant even if the aggregate unpaid principal amount of Advances
        exceeds or would exceed the Borrowing Base or the Maximum Principal
        Amount.

                (b) In order to obtain an Advance, Borrower shall give written
        or telephonic notice to Lender, by not later than 11:00 a.m.
        (Minneapolis time) on the day before the requested Advance is to be

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<PAGE>
 
        made. Lender, shall make such Advance by transferring the amount thereof
        in immediately available funds for credit to Borrower's account (other
        than a payroll account), as specified in such notice. At the request of
        Lender, Borrower shall confirm in writing any telephonic notice.

                (c) The obligation of Lender to make Advances shall terminate on
        the Termination Date.

                (d) If at any time the sum of the aggregate outstanding
        principal balance of the Advances exceeds the lesser of (i) the Maximum
        Principal Amount or (ii) the Borrowing Base, then Borrower agrees to
        make, on demand, a principal repayment on the Advances in an amount
        equal to such excess together with accrued interest on the amount repaid
        to the date of repayment. Borrower agrees that, on the Termination Date
        (or earlier upon demand), it will repay the entire outstanding principal
        balance of the Advances together with accrued interest thereon and all
        accrued fees without presentment or demand for payment, notice of
        dishonor, protest or notice of protest, all of which are hereby waived.

                (e) The Advances shall be evidenced by the Note made by Borrower
        payable to the order of Lender in a principal amount equal to the
        Maximum Principal Amount; subject, however, to the provisions of the
        Note to the effect that the principal amount payable thereunder at any
        time shall not exceed the then unpaid principal amount of all Advances
        made by Lender. Borrower hereby irrevocably authorizes Lender to make or
        cause to be made, at or about the time of each Advance made by Lender,
        an appropriate notation on the records of Lender, reflecting the
        principal amount of such Advance, and Lender shall make or cause to be
        made, on or about the time of receipt of payment of any principal of the
        Note, an appropriate notation on its records reflecting such payment.
        The aggregate amount of all Advances set forth on the records of Lender
        shall be rebuttable presumptive evidence of the principal amount owing
        and unpaid on the Note.

        4A. Demand Facility. All interest, principal, Advances, and any other
amounts owing hereunder are due ON DEMAND and Lender specifically reserves the
absolute right to demand payment of all such amounts at any time, with or
without advance notice, for any reason or no reason whatsoever. Lender's right
to make such demand is not exclusive and Lender may coincidentally or separately
from such demand make further demand for payment pursuant to Paragraph 20 or
otherwise hereunder and, further, amounts may become due hereunder (pursuant to
Paragraph 20 or otherwise) without a demand by Lender, as provided in this
agreement.

        5. Interest. Borrower agrees to pay interest on the outstanding
principal amount of the Note, at the close of each day at a fluctuating rate per
annum (computed on the basis of actual number of days elapsed and a year of 360
days) which is at all times equal to Three Percent (3%) in excess of the Prime
Rate; each change in such fluctuating rate caused by a change in the Prime Rate
to occur simultaneously with the change in the Prime Rate (the "Initial Rate");
provided, however, that (i) in no event shall the Initial Rate or the Adjusted
Rate in effect hereunder at any time be less than 9% per annum; and (ii)
interest payable hereunder with respect to each calendar month shall not be less
than $5,950.00 regardless of the amount of loans, Advances or other credit
extensions that actually may have been outstanding during the month. Interest
accrued through the last day of each month will be due and payable to Lender on
the next Monthly Payment Date. Interest shall also be payable on the Maturity
Date or on any earlier Termination Date. Interest accrued after the Maturity
Date or earlier Termination Date shall be payable on Demand. Interest may be
charged to Borrower's loan account as an Advance at Lender's option, whether or
not Borrower then has the right to obtain an Advance pursuant to the terms of
this Agreement.

In the event Borrower earns "Net Profit" for the 12 months ending October 31,
1999 of at least One Million Dollars ($1,000,000) and evidences such profit by
delivering to Lender a financial statement prepared according to GAAP that
reflects the required Net Profit, and provided no Event of Default exists, then
upon Borrower's written request, the Initial Rate shall be reduced to Two and
One Half percent (2 1/2%) in excess of the Prime Rate (the "Adjusted Rate")
commencing with the next scheduled Monthly Payment Date following Lender's
receipt of Borrower's written request.

Notwithstanding the foregoing, after an Event of Default occurs and during its
continuance, the Note shall bear interest until paid at 3% per annum in excess
of the rate otherwise then in effect, which rate shall continue to vary based on
further changes in the Prime Rate; provided, however, that after an Event of
Default, (i) in no event shall the interest rate in effect under the Note at any
time be less than 14% per annum; and (ii) interest payable under the Note with
respect to each calendar month shall not be less than $8,660 regardless of the
amount of loans, Advances or other credit extensions that actually may have been
outstanding during the month.. The undersigned shall also pay a late fee equal
to 10% of any payment under the Note that is more than 10 days past due.

        6. Set-Off; etc. Upon the occurrence and during the existence of a
Default or an Event of Default, Lender is hereby authorized at any time and from
time to time, without notice to Borrower (any such notice being expressly waived
by Borrower), to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by Lender or any Participant to or for the credit or the account
of Borrower, including specifically any amounts held in any account maintained
at Lender or any Participant, against any and all amounts which may be owed to
Lender or any Participant by Borrower whether in connection with this Agreement
or otherwise and irrespective of whether Borrower shall have made any requests
under this Agreement.

        7. Reports and Collections.

                (a) Borrower agrees to furnish to Lender, at least weekly,
        schedules describing

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        Receivables created or acquired by Borrower (including confirmatory
        written assignments thereof), including copies of all invoices to
        account debtors and other obligors (all herein referred to as
        "Customers") and original shipping or delivery receipts for all goods
        sold, but if Borrower fails to do so the rights of Lender as a secured
        party will not be impaired. At any time that an Event of Default exists,
        Lender may notify Customers at any time that Receivables have been
        assigned to Lender and collect them directly in Lender's own name but
        unless and until Lender does so or gives Borrower other instructions,
        Borrower shall make collection for Lender at Borrower's sole cost and
        expense. Borrower shall advise Lender promptly of any goods which are
        returned by Customers or otherwise recovered involving an amount in
        excess of $5,000.00. Borrower shall also advise Lender promptly of all
        disputes and claims by Customers involving an amount in excess of
        $5,000.00 and settle or adjust them at no expense to Lender. At any time
        after the occurrence and during the continuance of an Event of Default,
        Lender may at all times settle or adjust such disputes and claims
        directly with the Customers for amounts and upon terms which Lender
        considers advisable. If Lender so directs at any time while an Event of
        Default exists, no discount, credit or allowance shall be granted by
        Borrower to any Customer and no return of goods shall be accepted by
        Borrower without Lender's written consent.

                (b) Borrower agrees to furnish to Lender Inventory
        certifications in accordance with Paragraph 17(a)(v) and a physical
        listing of all Inventory, wherever located, at least once every twelve
        months or, in either case, as more frequently requested by Lender.

                (c) All full and partial payments and any other cash collections
        from whatever source whatsoever, whether or not arising from the sale,
        collection or other disposition of Collateral (whether or not in the
        ordinary course of business), including but not limited to the
        collection of accounts receivable in the ordinary course of business and
        the ordinary sales of inventory or services for cash, shall immediately
        be delivered by Borrower to Lender in their original form (except for
        endorsement where necessary) and uncashed (in the case of checks or
        other documents). Upon Lender's request, Borrower shall direct all
        customers and other remitters of payments to mail payments to Lender's
        post office box or other lockbox. Until such payments are so delivered
        to Lender (or Lender's lockbox), such payments shall be held in trust by
        Borrower for and as Lender's property and shall not be commingled with
        any funds of Borrower. The net amount received by Lender as proceeds
        arising from the sale or other disposition of Collateral will be
        credited by Lender to Borrower's loan account (subject to final
        collection thereof) promptly upon receipt.

        8. Warranty as to Collateral. Borrower warrants that:

                (a) all Receivables listed in or reported on Borrower's
        schedules will, when Borrower delivers the schedules to Lender, be bona
        fide existing obligations created by the sale and actual delivery of
        goods or the rendition of services to Customers in the ordinary course
        of business, not subject to return, evaluation or other condition, and
        which Borrower then owns free of any Security Interest except for the
        Security Interest in favor of Lender created by this Agreement or
        Security Interests permitted under Paragraph 18(d), and which are then
        unconditionally owing to Borrower without defense, offset or
        counterclaim; and that all shipping or delivery receipts, invoice copies
        and other documents furnished to Lender in connection therewith will be
        genuine; and

                (b) all Inventory and Equipment is and shall be owned by
        Borrower, free of any Security Interest except for the Security Interest
        of Lender created by this Agreement or Security Interests permitted by
        Paragraph 18(d).

Lender's rights to and security interest in the Collateral will not be impaired
by the ineligibility of any such Collateral for Advances and will continue to be
effective until all obligations chargeable to Borrower's loan account have been
fully satisfied.

        9. Power of Attorney. Borrower authorizes and appoints Lender, or any of
Lender's officers, employees or agents whom Lender may from time to time
designate, as Borrower's attorney with power to: (a) to endorse Borrower's name
on any checks, notes, acceptances, drafts or other forms of payment or security
that may come into Lender's possession; (b) to sign Borrower's name on any
invoice or bill of lading relating to any Receivables, on drafts against
Customers, on schedules and confirmatory assignments of Receivables, on notices
of assignment, financing statements and amendments under the Commercial Code and
other public records, on verifications of accounts and on notices to Customers;
(c) to notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender; (d) to receive, open and
dispose of all mail addressed to Borrower; (e) to send requests for verification
of accounts to Customers; (f) to obtain information from any bank, creditor,
customer or other Person regarding Borrower's relationship, account, history
etc.; (g) to sign lien waivers and other releases or satisfactions of claims or
rights by Borrower in exchange for payment or other consideration which Lender
in its sole discretion believes is appropriate under the circumstances; (h) to
directly verify and/or confirm the existence, authenticity, accuracy or terms of
any Receivable (both in Lender's own name or in Borrower's name) without
previously notifying Borrower of its intention to do so and Borrower grants its
consent to Lender for Lender's employees and agents to represent themselves as
employees or agents of Borrower for these purposes; and (i) to do all things
necessary to carry out this Agreement; provided however, that the powers
specified in clauses (c) and (d) above may be exercised only after the
occurrence of an Event of Default. Borrower ratifies and approves all acts of
the attorney other than

                                      -6-
<PAGE>
 
those arising from the willful misconduct of Lender or such attorney. Neither
Lender nor the attorney will be liable for any acts of commission or omission
nor for any error in judgment or mistake of fact or law. This power, being
coupled with an interest, is irrevocable so long as any Receivable in which
Lender has a security interest or any Obligation remains unpaid. Borrower waives
presentment and protest of all instruments and notice thereof, notice of default
and dishonor and all other notices to which Borrower may otherwise be entitled.

        10. Location of Collateral. Borrower warrants that its chief executive
office is at the address stated in the opening paragraph of this Agreement and
that its books and records concerning Receivables are located there. Borrower's
Inventory, Equipment and other goods are at the location or locations as
designated on Schedule A annexed hereto. Borrower shall immediately notify
Lender if any additional locations for Collateral are subsequently established.
Borrower shall not change the location of its chief executive office, the place
where it keeps its books and records, or the location of any Collateral (except
for sales of Inventory in the ordinary course of business) until Borrower has
obtained the written consent of Lender and all necessary filings have been made
and other actions taken to continue the perfection of Lender's Security Interest
in such new location. Lender's Security Interest attaches to all the Collateral
wherever located, and the failure of Borrower to inform Lender of the location
of any item or items of Collateral shall not impair Lender's Security Interest
therein.

        11. Ownership and Protection of Collateral. Borrower warrants,
represents and covenants to Lender that the Collateral is now and, so long as
Borrower is obligated to Lender, will be owned by Borrower free and clear of all
Security Interests except for the Security Interest in favor of Lender created
by this Agreement and except the Security Interests, if any, permitted by
Paragraph 18(d), and that said Collateral, including the Receivables and
proceeds resulting from the collection, sale or other disposition thereof, will
remain free and clear of any and all Security Interests except for the Security
Interest in favor of Lender created by this Agreement and except the Security
Interests, if any, permitted under Paragraph 18(d). Borrower will not sell,
lease or otherwise dispose of the Collateral, or attempt to do so (except for
sales of Inventory in the ordinary course of business and sales of obsolete and
worn equipment not in excess of $25,000 in the aggregate in any calendar year)
without the prior written consent of Lender and unless the proceeds of any such
sale are paid to Lender for application on Borrower's Obligations. While a
Default or an Event of Default exists, Lender will at all times have the right
to take physical possession of any Inventory and Equipment constituting
Collateral and to maintain such possession on Borrower's premises or to remove
the same or any part thereof to such other places as Lender may wish. If Lender
exercises Lender's right to take possession of such Collateral, Borrower shall
on Lender's demand, assemble the same and make it available to Lender at a place
reasonably convenient to Lender. Borrower shall at all times keep the Equipment
constituting Collateral in good condition and repair (reasonable wear and tear
excepted). All expenses of protecting, storing, warehousing, insuring, handling
and shipping of the Collateral, all costs of keeping the Collateral free of any
Security Interests prohibited by this Agreement and of removing the same if they
should arise, and any and all excise, property, sales and use taxes imposed by
any state, federal or local authority on any of the Collateral or in respect of
the sale thereof, shall be borne and paid by Borrower and if Borrower fails to
promptly pay any thereof when due, Lender may, at its option, but shall not be
required to, pay the same and charge Borrower's loan account therefor. Borrower
agrees to renew all insurance required by this Paragraph 11 or Paragraph 13 at
least 10 days prior to its expiration. Borrower agrees that, with respect to any
Inventory maintained in a public warehouse, (i) Borrower will ensure that any
warehouse receipts issued are not in a negotiable form, (ii) Borrower will, upon
request from Lender, deliver all warehouse receipts to Lender, and (iii)
Borrower will cause the public warehouseman to execute an agreement similar to
those delivered pursuant to Paragraph 21 and in form and substance satisfactory
to Lender.

        12. Perfection of Security Interest. Borrower agrees to execute such
financing statements together with any and all other instruments or documents
and take such other action, including delivery, as may be required to create,
evidence, perfect and maintain Lender's Security Interest in the Collateral and
Borrower shall not in any manner do any act or omit to do any act which would in
any manner impair or invalidate Lender's Security Interest in the Collateral or
the perfection thereof.

        13. Insurance. Borrower shall maintain insurance coverage on any
Collateral other than Receivables with such companies, against such hazards, and
in such amounts as may from time to time be acceptable to Lender and shall
deliver such policies or copies thereof to Lender with satisfactory lender's
loss payable endorsements naming Lender. Each policy of insurance shall contain
a clause requiring the insurer to give not less than 30 days prior written
notice to Lender in the event of any anticipated cancellation of the policy for
any reason and a clause that the interest of Lender shall not be impaired or
invalidated by any act or neglect of Borrower nor by the occupation of the
premises wherein such Collateral is located for purposes more hazardous than are
permitted by said policy. Borrower will maintain, with financially sound and
reputable insurers, insurance with respect to its properties and business
against such casualties and contingencies of such types (which may include,
without limitation, public and product liability, larceny, embezzlement, or
other criminal misappropriation insurance) and in such amounts as may from time
to time be required by Lender.

        14. Borrower's Account. Lender may charge to Borrower's loan account at
any time the amounts of all Obligations (and interest, if any, thereon) owing by
Borrower to Lender, including (without limitation) loans, Advances, debts,
liabilities, obligations acquired by purchase, assignment or participation and
all other obligations, whenever arising, whether absolute or contingent and
whether due or to become due; also the amount of all costs and expenses and all
reasonable attorneys' fees and legal expenses incurred in connection with
efforts made to enforce payment of such obligations, or to obtain payment of any
Receivables, or the foreclosure of any Collateral or in the prosecution or
defense of any actions or proceedings relating in any way to this Agreement
(including but not limited to bankruptcy or

                                      -7-
<PAGE>
 
insolvency proceedings) whether or not suit is commenced, including reasonable
attorneys' fees and legal expenses incurred in connection with any appeal of a
lower court's order or judgment; and also the amounts of all unpaid taxes and
the like, owing by Borrower to any governmental authority or required to be
deposited by Borrower, which Lender pays or deposits for Borrower's account. All
of Borrower's borrowings hereunder and (unless otherwise specified) all other
obligations which are chargeable to Borrower's loan account shall be payable ON
DEMAND; recourse to security will not be required at any time. All sums at any
time standing to Borrower's credit on Lender's books and all of Borrower's
property at any time in Lender's possession or upon or in which Lender has a
Security Interest, may be held by Lender as security for all obligations which
are chargeable to Borrower's loan account. Subject to the foregoing, Lender, at
Borrower's request, will remit to Borrower any net balance standing to
Borrower's credit on Lender's books. Lender will account to Borrower monthly, in
writing, and each monthly accounting will be fully binding on Borrower, unless,
within thirty days thereafter, Borrower gives Lender specific written notice of
exceptions. All debit balances in Borrower's loan account will bear interest as
provided in Paragraph 5 of this Agreement. If Lender so requests at any time,
Borrower will immediately execute and deliver to Lender a promissory note in
negotiable form payable on demand to Lender's order in a principal amount equal
to the amount of the debit balance in Borrower's loan account, with interest as
provided in Paragraph 5 of this Agreement. In any event, Borrower covenants to
pay all Advances, debts, accounts and interest when due.

        15. Participations. If any Person shall acquire a participation in
Advances made to Borrower hereunder, Borrower hereby grants to Lender as well as
any such Person holding a participation, and Lender and such Person shall have
and are hereby given a continuing Security Interest in any money, securities and
other property of Borrower in the custody or possession of such Participant,
including the right of set-off as fully as if such Participant had lent directly
to Borrower the amount of such participation. Borrower hereby grants to Lender
its continuing authority and consent to release any and all financial and other
information related to Borrower's financial condition, performance, its
business, operations or any other matter whatsoever to any of Borrower's
creditors (both secured and unsecured), to any Participant, or to any other
Person for their consideration of a possible participation in Advances by that
Person.

        16. General Representations and Warranties. To induce Lender to make
Advances hereunder, Borrower makes the following representations and warranties,
all of which shall survive the initial Advance:

                (a) Borrower is a corporation duly organized, existing, and in
        good standing under the laws of the State of Minnesota, has corporate
        power to own its property and to carry on its business as now conducted,
        and is duly qualified to do business in all states in which the nature
        of its business requires such qualification. During the past five years,
        Borrower has done business solely under the names listed on Schedule B
        attached hereto. Borrower does not own any capital stock of any
        corporation, except as set forth on Schedule C attached hereto.

                (b) The execution and delivery of this Agreement and the other
        Loan Documents and the performance by Borrower of its obligations
        hereunder and thereunder do not and will not conflict with any provision
        of law, or of the charter or bylaws of Borrower, or of any agreement
        binding upon Borrower.

                (c) The execution and delivery of this Agreement and the other
        Loan Documents have been duly authorized by all necessary corporate
        action by directors and shareholders of Borrower; and this Agreement and
        the other Loan Documents have in fact been duly executed and delivered
        by Borrower and constitute its lawful and binding obligations, legally
        enforceable against it in accordance with their respective terms.

                (d) Except as disclosed to Lender on Schedule D attached hereto,
        there is no action, suit or proceeding at law or equity, or before or by
        any federal, state, local or other governmental department, commission,
        board, bureau, agency or instrumentality, domestic or foreign, pending
        or, to the knowledge of Borrower, threatened against Borrower or any
        Guarantor or the property of Borrower or any Guarantor which, if
        determined adversely, would be a Material Adverse Occurrence, and
        neither Borrower nor any Guarantor is in default with respect to any
        final judgment, writ, injunction, decree, rule or regulation of any
        court or federal, state, local or other governmental department,
        commission, board, bureau, agency or instrumentality, domestic or
        foreign, where the effect of such default would be a Material Adverse
        Occurrence.

                (e) The authorization, execution and delivery of this Agreement,
        and the payment of the loans and interest hereon, is not, and will not
        be, subject to the jurisdiction, approval or consent of any federal,
        state or local regulatory body or administrative agency.

                (f) All of the assets of Borrower are free and clear of Security
        Interests except those listed on Schedule E attached hereto.

                (g) Borrower has filed all federal, state and local tax returns
        which, to the knowledge of Borrower, are required to be filed, and
        Borrower has paid all taxes shown on such returns and all assessments
        which are due. Borrower has made all required withholding deposits.
        Federal income tax returns of Borrower have been examined and approved
        or adjusted by the applicable taxing authorities or closed by applicable
        statutes for all fiscal years prior to and including the fiscal year
        ended on January 4, 1998. Borrower does not have knowledge of any
        objections to or claims for additional taxes by federal, state or

                                      -8-
<PAGE>
 
        local taxing authorities for subsequent years which would be a Material
        Adverse Occurrence.

                (h) Borrower has furnished to Lender the financial statements
        listed on Schedule G attached hereto. These statements were prepared in
        accordance with GAAP and present fairly the financial condition of
        Borrower and its Consolidated Subsidiaries. There has been no material
        adverse change in the condition of Borrower and its Consolidated
        Subsidiaries, financial or otherwise, since the date of the most recent
        of such financial statements.

                (i) The value of the assets and properties of Borrower at a fair
        valuation and at their then present fair salable value is and, after
        giving effect to any pending Advance and the application of the amount
        advanced, will be materially greater than its total liabilities,
        including Contingent Obligations, and Borrower has (and has no reason to
        believe that it will not have) capital sufficient to pay its
        liabilities, including Contingent Obligations, as they become due.

                (j) Borrower is in compliance with all requirements of law
        relating to pollution control and environmental regulations in the
        respective jurisdictions where Borrower is presently doing business or
        conducting operations.

                (k) All amounts obtained pursuant to Advances will be used for
        Borrower's working capital purposes.

                (l) Except for the trademarks, patents, copyrights and franchise
        rights listed on Schedule F attached hereto, Borrower is not the owner
        of any patent, trademark, copyright or franchise rights.

                (m) (i) Each Plan is in compliance in all material respects with
        all applicable provisions of ERISA and the Code; (ii) the aggregate
        present value of all accrued vested benefits under all Plans (calculated
        on the basis of the actuarial assumptions specified in the most recent
        actuarial valuation for such Plans) did not exceed as of the date of the
        most recent actuarial valuation for such Plans the fair market value of
        the assets of such Plans allocable to such benefits; (iii) Borrower is
        not aware of any information since the date of such valuations which
        would materially affect the information contained therein; (iv) no Plan
        which is subject to Part 3 of Subtitle B of Title I of ERISA or Section
        412 of the Code has incurred an accumulated funding deficiency, as that
        term is defined in Section 302 of ERISA or Section 412 of the Code
        (whether or not waived); (v) no liability to the PBGC (other than
        required premiums which have become due and payable, all of which have
        been paid) has been incurred with respect to any Plan, and there has not
        been any Reportable Event which presents a material risk of termination
        of any Plan by the PBGC; and (vi) Borrower has not engaged in a
        transaction which would subject it to tax, penalty or liability for
        prohibited transactions imposed by ERISA or the Code. Borrower does not
        contribute to any Multiemployer Plan.

                (n) No part of any Advance shall be used at any time by Borrower
        to purchase or carry margin stock (within the meaning of Regulation U
        promulgated by the Board of Governors of the Federal Reserve System) or
        to extend credit to others for the purpose of purchasing or carrying any
        margin stock. Borrower is not engaged principally, or as one of its
        important activities, in the business of extending credit for the
        purposes of purchasing or carrying any such margin stock. No part of the
        proceeds of any Advance will be used by Borrower for any purpose which
        violates, or which is inconsistent with, any regulations promulgated by
        the Board of Governors of the Federal Reserve System.

                (o) Borrower is not an "investment company", or an "affiliated
        person" of, or a "promoter" or "principal underwriter" for, an
        "investment company", as such terms are defined in the Investment
        Company Act of 1940, as amended. The making of the Advances, the
        application of the proceeds and repayment thereof by Borrower and the
        performance of the transactions contemplated by this Agreement will not
        violate any provision of said Act, or any rule, regulation or order
        issued by the Securities and Exchange Commission thereunder.

                (p) The number of shares and classes of the capital stock of
        Borrower and the ownership thereof are accurately set forth on Schedule
        H attached hereto. Borrower has not: (i) issued any unregistered
        securities in violation of the registration requirements of Section 5 of
        the Securities Act of 1933, as amended, or any other law; or (ii)
        violated any rule, regulation or requirement under the Securities Act of
        1933, as amended, or the Securities Exchange Act of 1934, as amended, in
        either case where the effect of such violation would be a Material
        Adverse Occurrence. No proceeds of the Advances will be used to acquire
        any security in any transaction which is subject to Section 13(d) or
        14(d) of the Securities Exchange Act of 1934, as amended.

                (q) Except for Contingent Obligations shown on Schedule I
        attached hereto, Borrower does not have any Contingent Obligations.

                (r) All factual information heretofore or herewith furnished by
        or on behalf of Borrower to Lender for purposes of or in connection with
        this Agreement or any transaction contemplated hereby is, and all other
        such factual information hereafter furnished by or on behalf of Borrower
        to Lender will be, true and accurate in every material respect on the
        date as of which such information is dated or certified and no such
        information contains any material misstatement of fact or omits to state
        a material fact or

                                      -9-
<PAGE>
 
        any fact necessary to make the statements contained therein not
        misleading.

                (s) Each representation and warranty shall be deemed to be
        restated and reaffirmed to Lender on and as of the date of each Advance
        under this Agreement except that any reference to the financial
        statements referred to in Paragraph 16(h) shall be deemed to refer to
        the financial statements then most recently delivered to Lender pursuant
        to Paragraphs 17(a)(i) and (ii).

        17. Affirmative Covenants. Borrower agrees that it will:

                (a) Furnish to Lender in form satisfactory to Lender:

                        (i) Within 90 days after the end of each fiscal year of
                Borrower, a complete audited financial report prepared and
                certified without qualification or explanatory language by
                Independent Public Accountants on a Consolidated and
                consolidating basis for Borrower and any Consolidated
                Subsidiaries of Borrower; together with a copy of the management
                letter or memorandum, if any, delivered by such independent
                certified public accountant to Borrower and Borrower's response
                thereto. If Borrower shall fail to supply the report within such
                time limit, Lender shall have the right (but not the duty) to
                employ certified public accountants acceptable to Lender to
                prepare such report at Borrower's expense;

                        (ii) Within 30 days after the end of each month, a
                balance sheet with operating figures as to that month, certified
                as correct by the chief financial officer or treasurer of
                Borrower but subject to adjustments as to inventories or other
                items to which an officer of Borrower directs attention in
                writing, together with a reconciliation of any variances between
                the information provided on such balance sheet and the
                information for that day previously delivered to Lender pursuant
                to Paragraph 17(a)(v);

                        (iii) With the financial statements described in
                Paragraph 17(a)(i) and (ii), a compliance certificate in the
                form attached as Exhibit A certified as true and accurate by the
                chief financial officer or treasurer of Borrower;

                        (iv) Within 10 days after the end of each month, an
                aging of accounts receivable together with a reconciliation in a
                form satisfactory to Lender and an aging of accounts payable in
                form acceptable to Lender, both certified as true and accurate
                by an officer of Borrower;

                        (v) Within 10 days after the end of each month, an
                inventory certification report for all Inventory at all
                locations and in form acceptable to Lender and certified as true
                and accurate by an officer of Borrower; and

                        (vi) From time to time, at Lender's request, any and all
                other material, reports, information, tax returns and/or figures
                reasonably required by Lender.

                (b) Permit Lender and its representatives access to, and the
        right to make copies of, the books, records, and properties of Borrower
        at all reasonable times; and permit Lender and its representatives to
        discuss Borrower's financial matters with officers of Borrower and with
        its Independent Public Accountant (and, by this provision, Borrower
        authorizes its Independent Public Accountant to participate in such
        discussions).

                (c) Pay when due all taxes, assessments, and other liabilities
        against it or its properties except those which are being contested in
        good faith and for which an adequate reserve has been established;
        Borrower shall make all withholding payments when due.

                (d) Promptly notify Lender in writing of any substantial change
        in present management or present business, of its intention to enter
        into a new business or industry, or of its intention to wind down,
        liquidate or close substantially all of its business;

                (e) Pay when due all amounts necessary to fund in accordance
        with its terms any Plan;

                (f) Comply in all material respects with all laws, acts, rules,
        regulations and orders of any legislative, administrative or judicial
        body or official applicable to Borrower's business operation or
        Collateral or any part thereof; provided, however, that Borrower may
        contest any such law, act, rule, regulation or order in good faith by
        appropriate proceedings so long as (i) Borrower first notifies Lender of
        such contest, and (ii) such contest does not, in Lender's sole
        discretion, adversely affect Lender's right or priority in the
        Collateral or impair Borrower's ability to pay the Obligations when due;

                (g) Permit Lender and its representatives, at any time, to
        examine and inspect any Collateral, and to examine, inspect and copy the
        Debtor's records pertaining to the Collateral and the Debtor's financial
        condition, business and property.

                                      -10-
<PAGE>
 
                (h) Loan Administration Fee. Pay Lender for the period
        commencing on the date of this Agreement and continuing through the date
        of full payment of all Obligations, a reasonable administration fee
        (herein called the "Loan Administration Fee"), which shall be equal to
        the sum of $7,500 per calendar quarter (or any partial quarter),
        commencing as of the date hereof and pro-rated for the balance of the
        current calendar quarter, plus all out-of-pocket expenses incurred by
        Lender in conducting examinations. The Loan Administration Fee shall be
        non-refundable, shall be deemed earned when paid, and shall be payable
        to Lender as of the date hereof (for the balance of the current calendar
        quarter), and thereafter on January 1, 1999 and on the first day of each
        subsequent 3 month period/quarter. The existence or payment of the Loan
        Administration Fee, Facility Fee or any other fee or charge, shall in no
        way alter or diminish the obligation to pay interest, Lender's costs of
        collection and attorneys' fees, or any other fees or charges imposed
        under this agreement or any other agreement between Lender and Borrower
        or any Guarantor;

                (i) Facility Fee. Pay Lender, for the period commencing on the
        date of this Agreement and continuing through the Termination Date, a
        non-refundable annual facility fee (the "Facility Fee") of Thirty
        Thousand Dollars per year (less the $15,000 survey fee which has already
        been paid and which is credited against the first year's Facility Fee).
        Each payment of the Facility Fee shall be nonrefundable and shall be
        deemed to have been earned in full when charged to Borrower.

                Notwithstanding the above subparagraph, in the event Borrower
        earns Net Profit for the 12 months ending October 31, 1999 of at least
        One Dollar ($1.00) and evidences such profit by delivering to Lender a
        financial statement prepared according to GAAP that reflects the
        required Net Profit, and provided no Event of Default exists, then upon
        Borrower's written request, the Facility Fee for the second year of this
        Agreement shall be reduced to Fifteen Thousand Dollars .

                Notwithstanding the above subparagraph, in the event Borrower
        earns Net Profit for the 12 months ending October 31, 1999 of at least
        One Million Dollars ($1,000,000.00) and evidences such profit by
        delivering to Lender a financial statement prepared according to GAAP
        that reflects the required Net Profit, and provided no Event of Default
        exists, then upon Borrower's written request, the Facility Fee for the
        second year of this Agreement shall be eliminated.

                (j) Promptly notify Lender in writing of (x) any litigation
        which (i) involves an amount in dispute in excess of $10,000.00 (ii)
        relates to the matters which are the subject of this Agreement, or (iii)
        if determined adversely to Borrower would be a Material Adverse
        Occurrence; and (y) any adverse development in any litigation described
        in clause (x).

                (k) Promptly notify Lender of any Default or Event of Default.

                (l) As of the calendar quarter ending December 31, 1998,
        Borrower shall achieve Net Loss of $500,000 or less before income tax;

                (m) As of the calendar quarter ending 3/31/99, and as of the end
        of each subsequent calendar quarter, Borrower shall achieve a Net Profit
        of at least $1.00 on a year-to-date basis and before income tax

        18. Negative Covenants. Borrower agrees that, absent Lender's written
consent (which it may or may grant, in its sole discretion), it will not:

                (a) Expend or contract to expend an aggregate in excess of
        $750,000 for fixed assets in any fiscal year, whether by way of
        purchase, lease or otherwise, and whether payable currently or in the
        future.

                (b) Purchase or redeem any shares of Borrower's capital stock;
        or declare or pay any dividends (other than dividends payable in capital
        stock); or make any distribution to stockholders of any assets of
        Borrower; (provided, however, that so long as no Default or Event of
        Default exists or would result from such distributions, Borrower may
        make Acceptable Distributions to be used by Borrower's shareholders
        solely to make required income tax payments.

                (c) Incur or permit to exist any indebtedness, secured or
        unsecured, for money borrowed, except: (i) borrowings under this
        Agreement; (ii) borrowings, if any, which are existing on the date of
        this Agreement and which are disclosed on Schedule J attached hereto; or
        (iii) indebtedness, not exceeding $150,000.00 at any one time in the
        aggregate outstanding, which was incurred to acquire fixed assets, but
        only to the extent that such fixed asset acquisition is permitted by
        Paragraph 18(a).

                (d) Create or permit to exist any Security Interest on any
        assets now owned or hereafter acquired except: (i) those created in
        Lender's favor and held by Lender; (ii) liens of current taxes not
        delinquent or taxes which are being contested in good faith for which an
        adequate reserve has been established; (iii) purchase money security
        interests securing indebtedness permitted by Paragraph 18(c)(iii);
        provided, however, that such Security Interest extends only to the fixed
        assets acquired with the proceeds of such indebtedness; and (iv)
        Security Interests disclosed on Schedule E attached hereto, securing
        only debt outstanding on the date of this Agreement and disclosed on
        Schedule J.

                                      -11-
<PAGE>
 
                (e) Effect any recapitalization; or be a party to any merger or
        consolidation; or, except in the normal course of business, sell,
        transfer, convey or lease all or any substantial part of its property;
        or sell or assign (except to Lender), with or without recourse, any
        Receivables or General Intangibles.

                (f) Enter into a new business or purchase or otherwise acquire
        any business enterprise or any substantial assets of any person or
        entity; or make any loans to any person or entity; or purchase any
        shares of stock of, or similar interest in, or make any capital
        contribution to or investment in, any entity.

                (g) Permit more than $150,000.00 to be owing at any one time to
        Borrower by all of Borrower's employees, officers, directors, or
        shareholders, or members of their families, as a result of any
        borrowings, purchases, travel advances or other transactions or events;

                (h) Become a guarantor or surety or pledge its credit or its
        assets on any undertaking of another, except for the Contingent
        Obligations shown on Schedule I attached hereto;

                (i) In any fiscal year pay excessive or unreasonable salaries,
        bonuses, fees, commissions, fringe benefits or other forms of
        compensation (such salaries, bonuses, fees, commissions, fringe benefits
        or other forms of compensation being "Compensation") to any of its
        officers or directors or any Guarantor; or increase the Compensation of
        any officers or Guarantor by more than ten percent (10%) or pay any such
        increases in Compensation of officers or Guarantors other than from
        profits earned in the year of such payment; provided however, that in
        the next fiscal year after the date hereof Compensation to David
        Malmberg may not exceed $175,000 and to Robert Heller, $150,000, with an
        increase of no more than 10% in subsequent fiscal years.

                (j) Permit any default to occur under the terms of any Loan
        Document, note, loan agreement, lease, mortgage, contract for deed,
        security agreement, or other contractual obligation binding upon
        Borrower;

                (k) Make any substantial change in present ownership, management
        or present business, enter into a new business or industry, or take
        actions to wind down, liquidate or close substantially all of its
        business;

                (l) Enter into any agreement providing for the leasing by
        Borrower of property which has been or is to be sold or transferred by
        Borrower to the lessor thereof, or which is substantially similar in
        purpose to the property so sold or transferred;

                (m) Change its terms of trade with respect to the due date of
        any Receivable;

                (n) Change its fiscal year;

                (o) (i) Permit or suffer any Plan maintained for employees of
        Borrower or any commonly controlled entity to engage in any transaction
        which results in a liability of Borrower under Section 409 or 502(i) of
        ERISA or Section 4975 of the Code; (ii) permit or suffer any such Plan
        to incur any "accumulated funding deficiency" (within the meaning of
        Section 302 of ERISA and Section 412 of the Code), whether or not
        waived; (iii) terminate, or suffer to be terminated, any Plan covered by
        Title IV of ERISA maintained by Borrower or any commonly controlled
        entity or permit or suffer to exist a condition under which PBGC may
        terminate any such Plan; or (iv) permit to exist the occurrence of any
        Reportable Event (as defined in Title IV of ERISA) which represents
        termination by the PBGC of any Plan;

                (p) Enter into any transaction with any Affiliate of Borrower
        upon terms and conditions less favorable to Borrower than the terms and
        conditions which would apply in a similar transaction with an unrelated
        third party;

                (q) Enter into any agreement containing any provision which
        would be violated or breached by Borrower under any Loan Document or by
        the performance by Borrower of its obligations under any Loan Document;

                (r) Amend or modify the provisions of any Subordinated Debt; or

                (s) Maintain any Inventory at a warehouse which issues
        negotiable warehouse receipts with respect to such inventory.

        19. Availability of Collateral. Lender may from time to time, for its
convenience, segregate or apportion the Collateral for purposes of determining
the amounts and maximum amounts of Advances which may be made hereunder.
Nevertheless, Lender's security interest in all such Collateral, and any other
collateral rights, interests and properties which may now or hereafter be
available to Lender, shall secure and may be applied to the payment of any and
all loans, Advances and other Obligations secured by Lender's security interest,
in any order or manner of application and without regard to the method by which
Lender determines to make Advances hereunder.

        20. Default and Remedies. It shall be an Event of Default under this
Agreement if:
                (a) Borrower fails to make any payment required under this
        Agreement or any present or future supplements hereto or under any other
        agreement between Borrower and Lender when due, or if payable upon
        demand, upon demand; or

                (b) Borrower fails to perform or observe any covenant, condition
        or agreement

                                      -12-
<PAGE>
 
        contained in this Agreement or in any other Loan Document; or

                (c) Any warranty, representation or statement made or furnished
        to Lender by or on behalf of Borrower or any Guarantor proves to have
        been false, incorrect or misleading in a material respect when made; or

                (d) A proceeding seeking an order for relief under the
        Bankruptcy Code is commenced by or against Borrower or any Guarantor,
        provided however, that if such a proceeding is commenced against
        Borrower or any Guarantor on an involuntary basis, then only if such
        action is not dismissed within 60 days of first being filed; or

                (e) Borrower or any Guarantor becomes insolvent or generally
        fails to pay, or admit in writing its or his inability to pay, its or
        his debts as they become due; or

                (f) Borrower or any Guarantor applies for, consents to, or
        acquiesces in, the appointment of a trustee, receiver or other custodian
        for it or him or for any of its or his property, or makes a general
        assignment for the benefit of creditors; or, in the absence of such
        application, consent or acquiescence, a trustee, receiver or other
        custodian is appointed for Borrower or for Guarantor or for a
        substantial part of Borrower's or any Guarantor's property; or

                (g) Any other reorganization, debt arrangement, or other case or
        proceeding under any bankruptcy or insolvency law, or any dissolution or
        liquidation proceeding is commenced in respect of Borrower or any
        Guarantor, provided however, that if such a proceeding is commenced
        against any Guarantor on an involuntary basis, then only if such action
        is not dismissed within 60 days of first being filed; or

                (h) Borrower or any Guarantor takes any action to authorize, or
        in furtherance of, any of the events described in the foregoing clauses
        (d) through (g); or

                (i) All or a substantial part of the assets of Borrower or any
        Guarantor are sold, leased, or otherwise disposed of (whether in one
        transaction or in a series of transactions) to one or more Persons;

                (j) Any judgments, writs or warrants of attachment, executions
        or similar process (not covered by insurance) in the aggregate amount
        that exceeds $10,000.00 is issued or levied against Borrower, any
        Guarantor or any of its or his assets and is not released, vacated or
        fully bonded prior to any sale and in any event within five days after
        its issue or levy; or

                (k) The issuance or levy of any garnishment, summons, writ of
        attachment, writ, warrant, attachment, tax lien or tax levy, execution
        or other process against any property of Borrower or any Guarantor; or

                (l) The attachment of any tax lien to any property of Borrower
        or any Guarantor which is other than for taxes or assessments not yet
        due and payable; or

                (m) Any Guarantor dies or attempts to revoke his or its
        guaranty; or

                (n) A Material Adverse Occurrence takes place.

Upon the occurrence of any Event of Default described in Paragraphs 20(d), (e),
(f), (g) or (h), all Obligations shall be and become immediately due and payable
without any declaration, notice, presentment, protest, demand or dishonor of any
kind (all of which are hereby waived by Borrower) and Borrower's ability to
obtain any additional credit extensions or Advances under this Agreement shall
be immediately and automatically terminated. Upon the occurrence of any other
Event of Default, Lender, without notice to Borrower, may terminate Borrower's
ability to obtain any additional credit extensions or Advances under this
Agreement and may declare all or any portion of the Obligations to be due and
payable, without notice, presentment, protest or demand or dishonor of any kind
(all of which are hereby waived), whereupon the full unpaid amount of the
obligations which shall be so declared due and payable shall be and become
immediately due and payable. Upon the occurrence of an Event of Default, Lender
shall have all the rights and remedies of a secured party under the Commercial
Code and may require Borrower to assemble the Collateral and make it available
to Lender at a place designated by Lender, and Lender shall have the right to
take immediate possession of the Collateral and may enter any of the premises of
Borrower or wherever the Collateral is located with or without process of law
and to keep and store the same on said premises until sold (and if said premises
be the property of Borrower, Borrower agrees not to charge Lender or a purchaser
from Lender for storage thereof for a period of at least 90 days). Upon the
occurrence of an Event of Default, Lender, without further demand, at any time
or times, may sell and deliver any or all of the Collateral at public or private
sale, for cash, upon credit or otherwise, at such prices and upon such terms as
Lender deems advisable, at its sole discretion. Any requirement under the
Commercial Code or other applicable law of reasonable notice will be met if such
notice is mailed to Borrower at its address set forth in the opening paragraph
of this Agreement at least ten days before the date of sale. Lender may be the
purchaser at any such sale, if it is public. The proceeds of sale will be
applied first to all expenses of retaking, holding, preparing for sale, selling
and the like, including attorneys' fees and legal expenses (whether or not suit
is commenced) including, without limitation, reasonable attorneys' fees and
legal expenses incurred in connection with any appeal of a lower court's order
or judgment, and second to the payment (in whatever order Lender elects) of all
other obligations chargeable to Borrower's loan account hereunder. Subject to
the provisions of the Commercial Code, Lender will return any excess to Borrower
and Borrower shall remain liable to Lender for any deficiency. Borrower agrees
to give Lender

                                      -13-
<PAGE>
 
immediate notice of the existence of any Default or Event of Default.

        21. Conditions Precedent to Initial Advance. The obligation of Lender to
make the initial Advance is subject to the condition precedent that Lender shall
have received on or before the date of the initial Advance copies of all of the
following, unless waived by Lender:

                (a) A favorable opinion of counsel to Borrower and the
        Guarantors in form and substance satisfactory to Lender;

                (b) UCC-1 Financing Statements in a form acceptable to Lender
        appropriately completed and duly executed by Borrower;

                (c) Acceptable recent UCC, tax lien, judgment, and bankruptcy
        searches from the filing offices in all states required by Lender;

                (d) The Validity Guaranties, in form and substance satisfactory
        to Lender in its sole and absolute discretion, appropriately completed
        and duly executed by Karen Engebretson and David Malmberg;

                (e) Subordination Agreements relating to all notes payable under
        which Borrower is obligated;

                (f) A certified copy of all documents evidencing any necessary
        consent or governmental approvals (if any) with respect to the Loan
        Documents or any other documents provided for in this Agreement;

                (g) A certificate by the Secretary or any Assistant Secretary of
        Borrower certifying as to: (i) attached resolutions of Borrower's Board
        of Directors authorizing or ratifying the execution, delivery and
        performance of the Loan Documents to which Borrower is a party and any
        other documents provided for by this Agreement, (ii) the names of the
        officers of Borrower authorized to sign the Loan Documents together with
        a sample of the true signature of such officers, and (iii) attached
        bylaws of Borrower;

                (h) Certificates of Good Standing for Borrower issued by its
        state of incorporation and by those states requested by Lender;

                (i) A copy of the articles of incorporation of each Guarantor
        that is a corporation certified by the Secretary of State;

                (j) Evidence of insurance for all insurance required by the Loan
        Documents;

                (k) An officer certificate, in form and substance satisfactory
        to Lender, executed by the President of Borrower;

                (l) The Note, in form and substance satisfactory to Lender in
        its sole and absolute discretion, appropriately completed and duly
        executed by the Borrower;

                (m) Appropriate collateral account agreements executed by
        Borrower and the other parties thereto;

                (n) Such landlord lien waivers and mortgagee consents as Lender,
        in its sole discretion, may require, in form and substance satisfactory
        to Lender in its sole discretion, appropriately completed and duly
        executed;

                (o) Such other approvals, opinions or documents as Lender may
        require.

        22. Conditions Precedent to All Advances. The obligation of Lender to
make any Advance (including the initial Advance) shall be subject to the
satisfaction of each of the following conditions, unless waived in writing by
Lender:

                (a) The representations and warranties of Borrower set forth in
        this Agreement are true and correct on the date of the Advance (and
        after giving effect to the Advance then being made);

                (b) No Default, no Event of Default and no Material Adverse
        Occurrence shall then have occurred and be continuing on the date of the
        Advance or result from the making of the Advance; and

                (c) No litigation, arbitration or governmental investigation or
        proceeding shall be pending or, to the knowledge of Borrower or any
        Guarantor, threatened against Borrower or any Guarantor or affecting its
        business or operations or its ability to perform its obligations
        hereunder which, if adversely determined to Borrower or any Guarantor,
        would constitute a Material Adverse Occurrence.

        23. Termination. Subject to automatic termination of Borrower's ability
to obtain additional Advances or credit extensions under this Agreement upon the
occurrence of any Event of Default specified in Paragraphs 20(d), (e), (f), (g)
or (h) and to Lender's right to terminate Borrower's ability to obtain
additional credit extensions and Advances under this Agreement upon the
occurrence of any other Event of Default or upon demand, this Agreement shall
have a term ending on the Termination Date provided, however, that Borrower may
terminate this Agreement at any earlier time upon sixty days prior written
notice; provided further, however, that if Borrower terminates this Agreement at
any time prior to December 1, 1999, then Borrower shall pay to Lender a
prepayment charge equal to the product arrived at by multiplying $5,950.00 times
the number of calendar months (whole and fractional) from the Termination Date
to and including the then current Maturity Date (the "Prepayment Charge"), and
if Borrower terminates this Agreement on or after December 1, 1999 and before
June 1, 2000, then Borrower shall pay to Lender Seventy Five percent (75%) of
the Prepayment Charge, and if Borrower terminates

                                      -14-
<PAGE>
 
this Agreement on or after June 1, 2000 and before the then current Maturity
Date, then Borrower shall pay to Lender a prepayment charge equal to Fifty
percent (50%) of the Prepayment Charge, provided further, that if all amounts
owing hereunder are paid completely from funds borrowed from Riverside Bank (and
not from any other source of funds), then no Prepayment Charge shall be due. On
the Termination Date, all obligations arising under this Agreement shall become
immediately due and payable without further notice or demand. Lender's rights
with respect to outstanding Obligations owing on or prior to the Termination
Date will not be affected by termination and all of said rights including
(without limitation) Lender's Security Interest in the Collateral existing on
such Termination Date or acquired by Borrower thereafter, and the requirements
of this Agreement that Borrower furnish schedules and confirmatory assignments
of Receivables and Inventory and turn over to Lender all full and partial
payments thereof shall continue to be operative until all such Obligations have
been duly satisfied.

        24. Grant of License to Use Patents and Trademarks Collateral. For the
purpose of enabling Lender to exercise rights and remedies under this Agreement,
Borrower hereby grants to Lender an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to Borrower) to
use, license or sublicense any patent or trademark now owned or hereafter
acquired by Borrower and wherever the same may be located, and including in such
license reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof.

        25. Miscellaneous.

                (a) The performance or observance of any affirmative or negative
        covenant or other provision of this Agreement and any supplement hereto
        may be waived by Lender in a writing signed by Lender but not otherwise.
        No delay on the part of Lender in the exercise of any remedy, power or
        right shall operate as a waiver thereof, nor shall any single or partial
        exercise of any remedy, power or right preclude other or further
        exercise thereof or the exercise of any other remedy, power or right.
        Each of the rights and remedies of Lender under this Agreement will be
        cumulative and not exclusive of any other right or remedy which Lender
        may have hereunder or as allowed by law.

                (b) Any notice, demand or consent authorized by this Agreement
        to be given to Borrower shall be deemed to be given when transmitted by
        telex or telecopier (provided a confirmation copy thereof is sent by
        U.S. mail, first class, within 24 hours of transmission) or personally
        delivered, or three days after being deposited in the U.S. mail, postage
        prepaid, or one day after delivery to Federal Express or other overnight
        courier service, in each case addressed to Borrower at its address shown
        in the opening paragraph of this Agreement, or at such other address as
        Borrower may, by written notice received by Lender, designate as
        Borrower's address for purposes of notice hereunder. Any notice or
        request authorized by this Agreement to be given to Lender shall be
        deemed to be given when personally delivered, or three business days
        after being deposited in the U.S. mail, certified, return receipt
        requested, postage prepaid, or one business day after delivery to and
        receipt by Federal Express or other overnight courier, in each case
        addressed to Lender at its address shown in the opening paragraph of
        this Agreement, or at such other address as Lender may, by written
        notice received by Borrower, designate as Lender's address for purposes
        of notice hereunder; provided, however, that any notice to Lender given
        pursuant to Paragraph 4(b) shall not be deemed given until received.

                (c) This Agreement, including exhibits and schedules and other
        agreements referred to herein, is the entire agreement between the
        parties, supersedes and rescinds all prior agreements relating to the
        subject matter herein, cannot be changed, terminated or amended orally,
        and shall be deemed effective as of the date it is accepted by Lender.

                (d) Borrower agrees to pay and will reimburse Lender on demand
        for all expenses incurred by Lender arising out of the origination of,
        or during the duration of, this transaction including without limitation
        filing and recording fees and attorneys' fees and legal expenses,
        including costs of in-house counsel (whether or not suit is commenced),
        whether incurred in the negotiation and preparation of this Agreement,
        in the operation of cash management, delivery/courier or other services
        including Lender's then current charges for the operation of a lockbox
        and wire transfer or advance fees, in the protection and perfection of
        Lender's security interest in the Collateral, in the enforcement of any
        of the provisions of this Agreement or of Lender's rights and remedies
        hereunder and against the Collateral, in the defense of any claim or
        claims made or threatened against Lender arising out of this
        transaction, or otherwise including, without limitation, in each
        instance, all reasonable attorneys' fees and legal expenses incurred in
        connection with any appeal of a lower court's order or judgment. Lender
        may also impose other miscellaneous charges for additional products or
        services provided to Borrower based on the cost agreed to by Borrower
        from time to time. Lender is authorized to deduct any such expenses from
        any amount due Borrower and/or to add such expenses to Borrower's loan
        account hereunder.

                Borrower acknowledges that Lender has certain responsibilities
        in connection with the making of Advances and the administration of this
        Agreement. Consequently, Borrower hereby indemnifies, exonerates and
        holds Lender, and its officers, directors, employees and agents (the
        "Indemnified Parties") free and harmless from and against any and all
        actions, causes of action, suits, losses, liabilities and damages, and
        expenses in connection therewith

                                      -15-
<PAGE>
 
        including, without limitation, reasonable attorneys' fees and
        disbursements (the 'Indemnified Liabilities"), incurred by the
        Indemnified Parties or any of them as a result of, or arising out of, or
        relating to:

                        (i) any transaction financed or to be financed in whole
                or in part directly or indirectly with proceeds of any Advance,
                or

                        (ii) the execution, delivery, performance or enforcement
                of this Agreement or any document executed pursuant hereto by
                any of the Indemnified Parties, except for any such Indemnified
                Liabilities arising on account of any Indemnified Party's gross
                negligence or willful misconduct.

        If and to the extent that the foregoing undertaking may be unenforceable
        for any reason, Borrower hereby agrees to make the maximum contribution
        to the payment and satisfaction of each of the Indemnified Liabilities
        which is permissible under applicable law. The provisions of this
        Paragraph shall survive termination of this Agreement.

        With regard to Borrower's obligation to indemnify Lender, Lender will
        notify Borrower of any event requiring indemnification within ten
        business days (or as soon thereafter as reasonably possible) following
        Lender's receipt of notice of commencement of any action or proceeding,
        or after it learns that a claim against it is likely, and which gives
        rise to a claim for indemnification. Borrower will be entitled (but not
        obligated) to assume the defense or settlement of any such action or
        proceeding or to participate in any negotiations to settle or otherwise
        resolve any claim using counsel of its choice; provided that such
        counsel is reasonably satisfactory to Lender. If Borrower elects to
        assume the defense or settlement of any such action or proceeding,
        Lender (and its counsel) may continue to participate at its own expense
        in such action or proceeding.

                (e) This Agreement is made under and shall be governed by and
        interpreted in accordance with the internal laws of the state of
        Minnesota, except to the extent that the perfection of the Security
        Interest hereunder, or the enforcement of any remedies hereunder with
        respect to any particular Collateral, shall be governed by the laws of a
        jurisdiction other than the State of Minnesota. Captions herein are for
        convenience only and shall not be deemed part of this Agreement.

                (f) This Agreement shall be binding upon Borrower and Lender and
        their respective successors, assigns, heirs, and personal
        representatives and shall inure to the benefit of Borrower, Lender and
        the successors and assigns of Lender, except that Borrower may not
        assign or transfer its rights hereunder without the prior written
        consent of Lender, and any assignment or transfer in violation of this
        provision shall be null and void. In connection with the actual or
        prospective sale by Lender of any interest or participation in the
        obligations, Borrower authorizes Lender to furnish any information in
        its possession, however acquired, concerning Borrower or any of its
        Affiliates to any person or entity.

                (g) Borrower hereby irrevocably consents and submits to the
        personal jurisdiction of any Minnesota state court or federal court over
        any action or proceeding arising out of or relating to the Agreement,
        and Borrower hereby irrevocably agrees that all claims in respect of
        such action or proceeding shall be venued (at the sole option of Lender)
        in either the District Court of Dakota or Hennepin County, Minnesota, or
        the United States District Court, District of Minnesota. Borrower hereby
        irrevocably waives, to the fullest extent it may effectively do so, the
        defense of an inconvenient forum to the maintenance of such action or
        proceeding. Borrower irrevocably consents to the service of copies of
        the summons and complaint and any other process which may be served in
        any such action or proceeding by the mailing by United States certified
        mail, return receipt requested, of copies of such process to Borrower's
        address stated in the preamble hereto. Borrower agrees that judgment
        final by appeal, or expiration of time to appeal without an appeal being
        taken, in any such action or proceeding shall be conclusive and may be
        enforced in any other jurisdictions by suit on the judgment or in any
        other manner provided by law. Nothing in this Paragraph shall affect the
        right of Lender to serve legal process in any other manner permitted by
        law or affect the right of Lender to bring any action or proceeding
        against Borrower or its property in the courts of any other
        jurisdiction. Borrower agrees that, if it brings any action or
        proceeding arising out of or relating to this Agreement, it shall bring
        such action or proceeding in the District Court of Hennepin County,
        Minnesota.

                (h) The provisions of this Agreement are severable, and in any
        action or proceeding involving any State corporate law, or any State or
        Federal bankruptcy, insolvency, reorganization or other law affecting
        the rights of creditors generally, if the obligations of the Borrower
        hereunder would otherwise be held or determined to be void, invalid, or
        unenforceable on account of the grant of a security interest hereunder
        to secure Borrower's contingent obligations, then, notwithstanding any
        other provision of this Agreement to the contrary, the amount of such
        liability shall, without any further action by Borrower, Lender or any
        other person, be automatically limited and reduced to the highest amount
        which is valid and enforceable as determined in such action or
        proceeding.

                (i) A photocopy or other reproduction hereof may be filed as a
        financing statement.

                                      -16-
<PAGE>
 
                (j) Lender agrees to exercise due care to maintain the
        confidentiality of all information relating to Borrower which has been
        provided to Lender, and neither Lender nor any of its affiliates shall
        use any such information for any purpose in any manner other than
        pursuant to the terms contemplated by the Loan Documents, except to the
        extent such information (i) was or becomes generally available to the
        public, other than as a result of a disclosure by Lender, or (ii) was or
        becomes available on a non-confidential basis from a source other than
        Borrower, provided that such source is not bound by a confidentiality
        agreement with Borrower which is known to Lender; provided further,
        however, that Lender may disclose such information (a) at the request of
        or pursuant to any requirement of any governmental authority to which
        Lender is subject or in connection with the examination of Lender by any
        such authority, (b) pursuant to a subpoena or other court process, (c)
        when required to do so in accordance with the provisions of any
        applicable law, (d) to Lender's independent auditors, lenders or other
        professional advisors, and (e) to any person or entity and in any
        proceeding necessary in Lender's reasonable judgement to protect
        Lender's interest in connection with any claim or dispute involving
        Lender. Borrower authorizes Lender to disclose to any prospective
        transferee or loan participant such financial and other information in
        Lender's possession concerning Borrower which has been delivered to
        Lender in connection with the Loan Documents; provided that, unless
        otherwise agreed y Borrower, the transferee has agreed in writing to
        keep such information confidential to the same extent required of Lender
        under this paragraph.



        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

               LENDER:   SPECTRUM COMMERCIAL SERVICES


                         By    Steven I. Lowenthal
                               ----------------------------------

                          Its  Senior Vice President
                               ----------------------------------


               BORROWER: FIELDWORKS, INC.


                         By    /s/ David C. Malmberg
                               ----------------------------------

                          Its  Chief Executive Officer
                               ----------------------------------

                          Fed. Tax ID #: 41-1731723
                                        -----------------

                                      -17-
<PAGE>
 
                                List of Exhibits
                                ----------------


    Exhibit A           Compliance Certificate


                        List of Schedules
                        -----------------

Schedule A     Locations of Inventory and Equipment
                      (Paragraph 10)

Schedule B     Names Under Which Borrower Has Done Business (Paragraph 16(a))

Schedule C     Capital Stock of Corporations Owned by Borrower (Paragraph 16(a))

Schedule D     Litigation (Paragraph 16(d))

Schedule E     Security Interests (Paragraphs 16(f) and 18(d))

Schedule F     Patents, Trademarks, Copyrights and Franchise Rights
                (Paragraph 16(l))

Schedule G     Financial Statements (Paragraph 16(h))

Schedule H     Stock and Stock Ownership of Borrower (Paragraph 16(p))

Schedule I     Contingent Obligations (Paragraph 16(q))

Schedule J     Permitted Existing Indebtedness (Paragraphs 18(c) and (d))

                                      -18-
<PAGE>
 
Exhibit A
---------


                            FIELDWORKS, INCORPORATED


                             COMPLIANCE CERTIFICATE
                             ----------------------




Enclosed are the month end financial statements, including: Balance Sheet,
Income Statement, Detailed Accounts Receivable Aging, and Accounts Payable
Aging. The financial data was reviewed by myself and I certify all of the data
to be true and accurate and there has not been (except as otherwise indicated
below or attached hereto) any material change since the computation date(s)
specified therein .


--------------------------------------------------------------------------------
For end of Quarter Statements:

Quarterly Profit Covenant:     Quarter to date Net Income $

Quarterly Profit Covenant:     Year to date Net Income $

Does this comply with the agreed upon covenant?  _______  Yes   _______ No

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



FIELDWORKS INCORPORATED


By:     /s/ Karen L. Engebretson            Date Signed:  November 19, 1998
    ----------------------------------                   ----------------------

  Its:  Chief Financial Officer/ VP Finance 
       -------------------------------------

                                      -19-
<PAGE>
 
Schedule A
----------

OFFSITE VENDORS/MANUFACTURERS:
------------------------------

Balcon, 15532 Nowthen Blvd., Ramsey, MN
Battery Network, 955 Borra Place, Escondido, CA
Benchmark Electronics, 4065 Theurer Blvd, Winona, MN
Cirris Systems Corp., 1991 Parkway Blvd., Salt Lake City, UT
Control Products, 1724 Lake Drive W., Chanhassen, MN
Del-Mar Die Casting, 12901 South Western Ave., Gardena, CA
Dynapro Thin Film, 7025 West Marcia Road, Milwaukee, WI
Engel Diversified, 1060 Quacker Ave. No., Jordan, MN
Flexor Products, 200 Fil-Mor Drive, Morton, MN
J&E Manufacturing, 7925 215th Street W., Lakeville, MN
Juno Tool & Plastic, 106 Donovan Dr., Alexandria, MN
Lunt Manufacturing, 601-605 Lunt Ave., Schaumburg, IL
Metro Molded, 11610 Jay St., Coon Rapids, MN
Modern Plastics, 12535 316th Ave., Princeton, MN
Orion International, 1225 Chestnut Ave., Minneapolis, MN
Profile Plastics, 18672 Lake Dr. East, Chanhassen, MN
Rubber Development, 701 Technology Place, Waverly, IA
Swanson Tool & Die, 11755 Justen Circle, Maple Grove, MN
TorqMaster, 200 Harvard Ave., Stanford, CT
Ultra-X, 1765 Scott Blvd., Suite 101, Santa Clara, CA
Vanguard Products, 87 Newton road, Danbury, CT
Xetel Corp., 2105 Gracy Farms Lane, Austin, TX

Schedule B
----------

FieldWorks, Incorporated

Schedule C
----------

None.

Schedule D
----------

Mike Rejsa v FieldWorks
-----------------------
Judgement was entered in favor of the Company including award for attorney fees
in the Rejsa v. FieldWorks case (Court file # MC 98-6881). However, there is the
possibility for appeal.

Schedule E
----------

Premier Funding Group, Inc.         3 Pro-E Workstations, Pro-E Modules & Server
286 South Main Street, Suite 300
Alpharetta, Georgia  30201

Schedule F
----------

TRADEMARK:

FieldWorks, Inc.                      Registered 9/16/97
Technology Module                     Registered 12/2/97
Field Workstation                     Registered 12/16/97
Field Mousepad                        Registered 12/23/97

Schedule G
----------

The third quarter financials statements are incorporated by reference to the
Company's Report on Form 10-Q filed with the SEC for the fiscal quarter ended
October 4, 1998.

Schedule H
----------

Series A, convertible preferred stock, $.001 par value, 5,000,000 shares
authorized, 0 issued and outstanding.

Common stock, $.001 par value, 30,000,000 share authorized, 8,820,926 issued and
outstanding.

Schedule I
----------

None.

Schedule J
----------

3 Pro-E Workstations, Pro-E Modules & Server leased through Premier Funding
Group as per Schedule E. $99,800

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