Document:

March 2, 2000

Via Federal Express

Mr. James J. Jones
2715 Laurel Lane
Oak Harbor, WA 98277

            Re:         MIM Corporation/MIMRx.com

Dear J.J.:

            MIM Corporation, a Delaware corporation ("MIM"), is pleased to offer
you employment as the President and Chief  Operating  Officer of its Continental
Managed Pharmacy Services, Inc., d/b/a MIMRx.com (the "Company") subsidiary,  on
the  terms  and  subject  to the  conditions  set  forth  below.  The  terms and
conditions of your  employment,  upon your execution and delivery of this letter
to us, would be as follows:

1.      POSITION AND DUTIES:
        -------------------

President   and  Chief   Operating   Officer  of  the   Company,   with  overall
responsibility   for  the  business  and  operations  of  the  Company  and  its
subsidiaries and affiliates including, but not limited to:

(i)  Overall  responsibility  for sales and marketing plans of the Company's and
     its subsidiaries' products and services;

(ii) Subject to MIM's senior  management,  responsibility for the conversion and
     implementation  of the conversion of the Company's  business and operations
     to MIMRx.com,  Inc. and the  relocation of the  Company's  operations  from
     Cleveland, Ohio to Columbus, Ohio; and

(iii)the hiring and termination of personnel in support of the Company,  subject
     to the  approval  of MIM's  Chief  Executive  Officer  and Chief  Operating
     Officer.

In such  capacity,  you shall report to, and shall have such  further  duties as
shall be assigned to you by, MIM's Chief Executive Officer, Richard H. Friedman.

2.      TERM:
        ----

Subject  to the  execution  and  delivery  of this  letter  and the  Restrictive
Covenants attached hereto as Exhibit A, your employment shall commence and shall
continue  until  terminated  by you or the  Company.  The  first  year  of  your
employment  shall  terminate on December 31, 2000.  Each year of your employment
thereafter shall coincide with the calendar year.

<PAGE>

Mr. James J. Jones
March 2, 2000
Page 2

3.      BASE COMPENSATION:
        -----------------

Your base salary shall be at the rate of $200,000.00 per calendar year,  payable
bi-weekly,  or at such other  times as other  employees  of the Company are paid
generally.  Your  performance  and  compensation  shall be reviewed  twelve (12)
months after the  commencement  of your  employment and every twelve (12) months
thereafter. However, any increase in your compensation shall be in the Company's
sole and absolute discretion.

4.      BONUS COMPENSATION:
        ------------------

During your  employment,  you shall be eligible  to receive  bonus  compensation
under the Company's  executive bonus program (the "Bonus  Program")  established
for the  benefit of senior  executives  of the MIM and its  subsidiaries  or any
subsequent  plan  established  generally  for senior  management of the Company.
During your first year of employment  ending December 31, 2000, you will only be
entitled to receive the cash  component of the Bonus Program  pro-rata  based on
the number of days you were  employed  by the  Company  during the first year of
your employment bears to a full calendar year.

Eligibility for the aforementioned bonuses will be premised upon your continuing
employment  through the end of the calendar  year to which the bonus in any year
of your employment  relates,  and will be subject to the terms and conditions of
the Bonus Program. The Bonus Program was created to provide senior executives of
the Company with cash and equity incentives upon reaching certain  predetermined
revenue,  earnings and share performance  goals. The terms and conditions of the
Bonus  Program shall be subject to the  completion  of definitive  documentation
with respect thereto and approval of MIM's  compensation  committee of its Board
of  Directors.  If  there  shall  exist  any  conflict  between  this  Agreement
(including  Exhibit  A) and the  definitive  documentation  governing  the Bonus
Program, the definitive documentation (and not this Agreement) shall control.

All base,  bonus or other  compensation  received shall be subject to applicable
federal, state and local withholding and other taxes.

<PAGE>

Mr. James J. Jones
March 2, 2000
Page 3

5.      TRANSPORTATION ALLOWANCE:
        -------------------------

During your employment, the Company will provide you with a monthly allowance of
$500 for the use of an automobile.

6.      RELOCATION ALLOWANCE:
        --------------------

The Company  will  provide  you with up to a $35,000  relocation  allowance  for
reimbursement of actual expenses incurred by you with respect to your relocation
to the  Company's  chief  executive  offices  located in Elmsford,  NY, You will
receive your relocation allowance upon the later to occur of the following:  (i)
the  completion of the move to your new primary  residence in the  Elmsford,  NY
vicinity,  and seven days from and after your first day of  employment  with the
Company. In either case, you would be required to present  appropriate  invoices
evidencing  payment  or  other  appropriate  documentation  in  support  of such
expenses.

You agree that you will repay to the Company all amounts  paid to you or on your
behalf under Section 6 hereof if you terminate your  employment with the Company
on or before November 1, 2001. In such event, all such amounts will be repaid by
you on or before the last day of your employment.

7.  CONDITIONS TO EMPLOYMENT:
    ------------------------

Your employment shall be conditioned upon completion by the Company of reference
checks with prior  employers and others,  satisfactory to the Company and MIM in
its sole  discretion.  You  agree  that the  Company  has the right to make such
inquiries  and you  acknowledge  and  agree  that  the  Company  may  make  such
inquiries.

8.  PARTICIPATION IN HEALTH
    -----------------------
     BENEFIT PLANS; VACATION:
     -----------------------

During your employment with the Company,  you shall be permitted,  if and to the
extent eligible, to participate in all employee health and other related benefit
plans, policies and practices now or hereafter maintained by or on behalf of the
Company,  commensurate  with your  position  with the  Company.  Nothing in this
agreement shall preclude the Company from terminating or amending any such plans
or coverage so as to eliminate,  reduce or otherwise  change any benefit payable
thereunder.  You will be entitled to four weeks of vacation.  All such  benefits
may be amended or modified from time to time or terminated by the Company in its
sole and absolute discretion.

<PAGE>

Mr. James J. Jones
March 2, 2000
Page 4

9.      EXPENSES:
        --------

Subject  to such  policies  as may  from  time to  time  be  established  by the
Company's  Board of  Directors,  the Company will pay or  reimburse  you for all
reasonable and necessary  expenses  actually  incurred or paid by you during the
term of your  employment in the performance of your duties under this agreement,
upon submission and approval of expense statements, vouchers or other reasonable
supporting  information in accordance  with the then customary  practices of the
Company.

10.     SEVERENCE; CHANGE OF CONTROL:
        -----------------------------

If, within the  three-month  period  following a "Change of Control" (as defined
below),  you are terminated by the Company or a successor entity or you elect to
terminate your employment after the Company or such successor entity  materially
reduces  your  duties and  responsibilities,  or assigns  you duties  materially
inconsistent with your position prior to such Change of Control,  then you shall
be  entitled  to receive  six (6) months  salary and other  benefits  earned and
accrued prior to the effective date of the  termination of your  employment (and
reimbursement for expenses incurred prior thereto).

In addition,  all outstanding unvested options held by you shall vest and become
immediately  exercisable  and shall  otherwise be exercisable in accordance with
their terms. In such event, you shall also become vested in any pension or other
deferred  compensation other than pension or deferred  compensation under a plan
intended to be qualified under Section 401(a) or 403(a) of the Internal  Revenue
Code of 1986,  as amended.  Thereafter  you shall have no further  rights to any
other  compensation  or  benefits  hereunder  on or  after  the  termination  of
employment or other triggering event, or any other rights hereunder.

For purposes of this Agreement,  "Change of Control" means the occurrence of one
of the following:

<PAGE>

Mr. James J. Jones
March 2, 2000
Page 5

(i)  a "person" or "group" within the meaning of sections 13(d) and 14(d) of the
     Securities  and  Exchange  Act of 1934 (the  "Exchange  Act")  becomes  the
     "beneficial  owner"  (within the  meaning of Rule 13d-3 under the  Exchange
     Act) of securities of the Company (including options,  warrants, rights and
     convertible and  exchangeable  securities)  representing 50% or more of the
     combined voting power of the Company's then  outstanding  securities in any
     one or more  transactions;  provided,  however,  that purchases by employee
     benefits plans of the Company and by the Company or its affiliates shall be
     disregarded; or

(ii) any sale, lease, exchange or other transfer (in one transaction or a series
     of  related  transactions)  of all or  substantially  all of the  operating
     assets of the Company; or

(iii)a  merger  or  consolidation,  or a  transaction  having a  similar  effect
     (unless  such  merger,  consolidation  or  similar  transaction  is  with a
     subsidiary  of the  Company or with  another  company,  a majority of whose
     outstanding  capital  stock is owned by the same persons or entities who at
     that time own a majority of the  Company's  outstanding  common  stock (the
     "Common Stock")),  where (A) the Company is not the surviving  corporation,
     (B) the  majority  of the Common  Stock of the Company is no longer held by
     the stockholders of the Company  immediately  prior to the transaction,  or
     (C) the Company's Common Stock is converted into cash,  securities or other
     property  (other than the common  stock of a company into which the Company
     is merged), and in each case, such merger,  consolidation or transaction is
     not approved by a 2/3 of the Board of Directors of the Company and the MIM.

11.     RESTRICTIVE COVENANTS:
        ---------------------

Contemporaneously  with the commencement of your  employment,  you shall execute
and deliver the Restrictive Covenants  substantially in the form attached hereto
as Exhibit A, whereby,  among other  things,  you will agree to not compete with
the  "Business" of the Company (as defined)  during the term of your  employment
and for a period of one year following such  termination  and to not disclose to
any third party any trade  secrets or  proprietary  information  relating to the
Company, now or hereafter acquired by you.

12.     ASSIGNABILITY; BINDING
        ----------------------
        NATURE:
        -------

This  agreement  is binding  upon,  and will inure to the benefit of the parties
hereto and their respective  successors,  heirs,  administrators,  executors and
assigns.  None of  your  rights  or  obligations  under  this  agreement  may be
transferred  by will or  operation  of law.  The  rights and  obligation  of the
Company under this  agreement may be assigned or transferred by operation of law
in the  event of a merger  or  consolidation  in which  the  Company  is not the
continuing entity, or the sale or liquidation of all or substantially all of the
assets of the Company.

<PAGE>

Mr. James J. Jones
March 2, 2000
Page 6

13.     ENTIRE AGREEMENT:
        ----------------

This agreement  supersedes all prior  agreements,  together with the Restrictive
Covenants  attached hereto as Exhibit A, contains the entire  agreement  between
the parties concerning the subject matter hereof.

14.     AMENDMENTS AND WAIVERS:
        ----------------------

This agreement may not be modified,  amended,  waived,  discharged or terminated
orally,  but only by an instrument  in writing  signed by the party against whom
enforcement of the change, waiver, discharge or termination is sought.

15.     NOTICES:
        -------

Any notice given  hereunder must be in writing and will be deemed  received when
delivered  personally  or by  courier,  or five (5)  days  after  being  mailed,
certified or registered mail, return receipt requested and duly addressed to the
party concerned at the address  indicated above or at such other address as such
party may subsequently provide in writing.

16.     GOVERNING LAW :
        --------------

The agreement  will be governed by, and construed and  interpreted in accordance
with the laws of the State of New York.

<PAGE>

Mr. James J. Jones
March 2, 2000
Page 7

            If you are in  agreement  with  the  terms  and  conditions  of your
employment  pursuant  to this  letter  agreement,  kindly  execute  this  letter
agreement in the space provided below and return it to the undersigned.

                                             Sincerely yours,

                                             MIM Corporation

                                             By: /s/ Richard H. Friedman
                                                ------------------------
                                                Name:
                                                Title:

AGREED TO AND ACCEPTED BY:

             /s/ James J. Jones
----------------------------------------
Name:       Mr. James J. Jones

<PAGE>

                                                                       Exhibit A

                              RESTRICTIVE COVENANTS

     Covenant Against Competition;  Other Covenants.  The Executive acknowledges
that (i) the principal business of the Company is the provision of a broad range
of mail order and internet  based sales of  pharmaceutical  products,  including
health  and beauty  aids,  prescription  drugs,  vitamins,  nutrients,  over the
counter  drugs and other goods and products  typically  found in drug stores and
other e-commerce  pharmacy web (such business,  and any and all other businesses
that  after the date  hereof,  and from  time to time  during  the Term,  become
material  with  respect to the  Company's  then-overall  business,  herein being
collectively  referred to as the "Business");  provided,  however, that Business
shall not include any areas of business  and/or services that the Company is not
engaged in at such time that the Company is sold,  merged,  consolidated  or any
other event that would constitute a "Change of Control" (as defined in Section 9
of the  Agreement),  regardless of whether the successor or acquiring  entity is
then engaged in such other areas of business and/or  services;  (ii) the Company
is  dependent  on the  efforts of a certain  limited  number of persons who have
developed,  or will be responsible for developing the Company's Business;  (iii)
the Company's  Business is national in scope;  (iv) the Executive's work for the
Company  has  given and will  continue  to give him  access to the  confidential
affairs and  proprietary  information  of the  Company;  (v) the  covenants  and
agreements  of the  Executive  contained  in  these  Restrictive  Covenants  are
essential to the  business  and  goodwill of the  Company;  and (vi) the Company
would  not have  entered  into the  Agreement  (as  defined  below)  but for the
covenants and agreements set forth herein. Accordingly,  the Executive covenants
and agrees that:

     (a) At any time during his employment  with the Company and ending one year
following  (i)  termination  of the  Executive's  employment  with  the  Company
(irrespective  of the  reason  for  such  termination)  or (ii)  payment  of any
severance,  whichever  occurs last, the Executive shall not engage,  directly or
indirectly (which includes,  without limitation,  owning,  managing,  operating,
controlling, being employed by, giving financial assistance to, participating in
or being  connected in any material way with any person or entity other than the
Company),  anywhere  in the  United  States  in (i) the  Business  and  (ii) any
material  component of the Business;  provided,  however,  that the  Executive's
ownership as a passive  investor of less than two percent (2%) of the issued and
outstanding  stock  of a  publicly  held  corporation  shall  not be  deemed  to
constitute competition.

     (b) During and after the period during which the Executive is employed, the
Executive  shall keep secret and retain in strictest  confidence,  and shall not
use for his  benefit or the  benefit of others,  except in  connection  with the
Business and affairs of the Company and its affiliates, all confidential matters
relating to the Company's Business and the business of any of its affiliates and
to the Company and any of its affiliates, learned by the Executive heretofore or
hereafter  directly or indirectly from the Company or any of its affiliates (the
"Confidential Company Information"),  including, without limitation, information
with respect to (i) the strategic plans, budgets, forecasts, intended expansions
of product,  service,  or geographic  markets of the Company and its affiliates,
(ii) sales figures, contracts, agreements, and undertakings with or with respect
to  customers,  (iii)  profit  or loss  figures,  and (iv)  customers,  clients,
suppliers,  sources of supply and customer  lists,  and shall not disclose  such
Confidential  Company  Information  to anyone outside of the Company except with
the  Company's  express  written  consent  and except for  Confidential  Company
Information which is at the time of receipt or thereafter becomes publicly known
through no wrongful act of the  Executive or is received  from a third party not
under an obligation to keep such information  confidential and without breach of
these  Restrictive  Covenants or the Agreement.  Notwithstanding  the foregoing,
this  section (b) shall not apply to the extent that the  Executive is acting to
the extent  necessary to comply with legal  process;  provided that in the event
that the  Executive is subpoenaed  to testify or to produce any  information  or
documents before any court,  administrative agency or other tribunal relating to
any aspect pertaining to the Company,  he shall  immediately  notify the Company
thereof.

                                       1
<PAGE>

     (c) During the period  commencing  on the date  hereof and ending two years
following the date upon which the Executive shall cease to be an employee of the
Company or its affiliates,  the Executive shall not, without the Company's prior
written consent,  directly or indirectly,  (i) solicit or encourage to leave the
employment  or  other  service  of the  Company  or any of its  affiliates,  any
employee or independent  contractor  thereof or hire (on behalf of the Executive
or any other person or entity) any employee or  independent  contractor  who has
left the  employment  or other  service of the Company or any of its  affiliates
within  one  year  of  the   termination  of  such   employee's  or  independent
contractor's employment or other service with the Company and its affiliates, or
(ii) solicit,  contact,  market to, work for, or assist others in soliciting any
customer or client of the Company  with whom the Company was in contact  with or
was providing goods and services to at the time of the  Executive's  termination
of employment  with the Company.  During such period,  the  Executive  will not,
whether  for his own  account  or for the  account  of any other  person,  firm,
corporation or other  business  organization,  intentionally  interfere with the
Company's or any of its  affiliates'  relationship  with,  or endeavor to entice
away from the Company or any of its  affiliates,  any person who during the Term
is or was a customer or client of the Company or any of its affiliates.

     (d) All memoranda,  notes, lists, records,  property and any other tangible
product and documents (and all copies thereof) made, produced or compiled by the
Executive or made  available  to the  Executive  concerning  the Business of the
Company  and its  affiliates  shall  be the  Company's  property  and  shall  be
delivered to the Company at any time on request.

            Rights and Remedies upon Breach of Restrictive Covenants.
            --------------------------------------------------------

     (a) The Executive  acknowledges and agrees that any breach by him of any of
the provisions of sections (a) through (d) above (the  "Restrictive  Covenants")
would result in irreparable  injury and damage for which money damages would not
provide an adequate remedy.  Therefore,  if the Executive breaches, or threatens
to commit a breach of, any of the  Restrictive  Covenants,  the  Company and its
affiliates  shall have the following  rights and remedies,  each of which rights
and remedies shall be independent  of the other and severally  enforceable,  and
all of which  rights and  remedies  shall be in addition to, and not in lieu of,
any other rights and remedies  available to the Company and its affiliates under
law or in equity (including, without limitation, the recovery of damages):

                                       2

<PAGE>

         (i) The right and remedy to have the Restrictive Covenants specifically
enforced  (without  posting  bond and without the need to prove  damages) by any
court having equity jurisdiction, including, without limitation, the right to an
entry against the Executive of restraining orders and injunctions  (preliminary,
mandatory,  temporary and permanent) against  violations,  threatened or actual,
and whether or not then continuing, of such covenants.

         (ii) The right and remedy to require the  Executive  to account for and
pay over to the Company and its affiliates all  compensation,  profits,  monies,
accruals,  increments or other benefits  (collectively,  "Benefits")  derived or
received by him as the result of any  transactions  constituting a breach of the
Restrictive  Covenants,  and the  Executive  shall account for and pay over such
Benefits to the Company and, if applicable, its affected affiliates.

     (b) The Executive agrees that in any action seeking specific performance or
other equitable relief, he will not assert or contend that
any of the  provisions  of  these  Restrictive  Covenants  are  unreasonable  or
otherwise  unenforceable.  The  existence of any claim or cause of action by the
Executive,   whether  predicated  on  the  Agreement  or  otherwise,  shall  not
constitute a defense to the enforcement of the Restrictive Covenants.

Agreed to and accepted by:

 /s/ James J. Jones
-----------------------------

James J. Jones

                                       3

<PAGE>

ANNUAL CASH BONUS      Target:  Up to 40% of annual             $______
                       salary (At plan:1/2on
                       corporate financial results;
                       1/2 on individual results)

GRANTS OF LONG-TERM
INCENTIVES:            Deferred compensation                    _______ units
                       performance units
                       (Target value: $25 in 2002)

                       Performance shares                       _______ shares
                       (Target share price for early
                       vesting: $25-$30)

                       Subject   to   the   terms   and
                       conditions  200,000  shares of a
                       stock option  agreement  options
                       to  purchase  the common  stock,
                       par value  $0.0001  per share of
                       the Company,  subject,  however,
                       to   adjustment   prior  to  the
                       granting  thereof,  at the  good
                       faith    discretion    of    the
                       Company's     Chief    Executive
                       Officer,  based  on the  revised
                       capitalization  structure of the
                       Company    expected   to   occur
                       sometime  during  the next  four
                       month. The options shall vest in
                       three equal annual  installments
                       commencing    on    the    first
                       anniversary    date    of    the
                       Executive's  employment with the
                       Company,  at an  exercise  price
                       equal to the  average of the bid
                       and   asked   on  the  date  the
                       Executive  commences  employment
                       with the Company.
<PAGE>

May 9, 2000

By Hand Delivery

Mr. James J. Jones
2715 Laurel Lane
Oak Harbor, WA 98277

            Re:  MIM Corporation/MIMRx.com
                 -------------------------

Dear J.J.:

            MIM Corporation, a Delaware corporation ("MIM"), would like to amend
the letter of  employment  between  you and MIM,  dated as of March 2, 2000 (the
"March 2 Employment Letter"), as follows:

1.   Paragraph 3 of the March 2 Employment Letter is deleted and replaced in its
     entirety with the following:

"3.     BASE COMPENSATION:
        -----------------

Your base salary shall be at the rate of $225,000.00 per calendar year,  payable
bi-weekly,  or at such other  times as other  employees  of the Company are paid
generally.  Your  performance  and  compensation  shall be reviewed  twelve (12)
months after the  commencement  of your  employment and every twelve (12) months
thereafter. However, any increase in your compensation shall be in the Company's
sole and absolute discretion."

Such amendment shall be retroactive to your start date with the Company.

2.   A new  Paragraph 4 entitled  "Options to Purchase  Common  Stock"  shall be
     added as follows:

"4. OPTIONS TO PURCHASE
    -------------------
    COMMON STOCK:
    ------------

As further compensation hereunder, effective upon the later to occur of the date
you  commence  your  employment  with the  Company  and the date you execute the
Option Agreement,  the Company would grant to you 225,000 options ("Options") to
purchase Company common stock ("Common Stock"),  subject, however, to adjustment
prior to the granting  thereof,  at the good faith  discretion  of the Company's
Chief Executive Officer,  based on the revised  capitalization  structure of the
Company  expected to occur  sometime  during the next four  months.  In no event
would you  receive  less  Options  than other  employees  at your  level  (being
President of an MIM subsidiary).  Such Options shall vest in equal  installments
on the first,  second and third anniversary dates of your employment.  The grant
and vesting of your  options  would be subject to the terms and  conditions  set
forth in the form of Option Agreement. Such options shall be priced on the later
to occur of (i) first day of your employment with the Company, and (ii) the date
that the  Company's  Board of  Directors  authorizes  and  approves  the plan as
contemplated above."

<PAGE>

Mr. James. J. Jones
Page 2
April 6, 2000

3.   Paragraphs 4 - 16 of the March 2 Employment  Letter shall be  renumbered as
     appropriate.

4.   All  capitalized  terms not defined herein shall have the meaning  assigned
     thereto in the March 2 Employment Letter.

5.   This  amendment  will be governed  by, and  construed  and  interpreted  in
     accordance with the laws of the State of New York.

            If you are in  agreement  with  the  terms  and  conditions  of your
employment  pursuant  to this  letter  agreement,  kindly  execute  this  letter
agreement in the space provided below and return it to the undersigned.

                                               Sincerely yours,

                                               MIM Corporation

                                               By: /s/ Richard H. Friedman
                                                  ------------------------
                                                  Name:
                                                  Title:

AGREED TO AND ACCEPTED BY:

            /s/ James J. Jones
----------------------------------------
Name:       Mr. James J. JonesDIME
THE DIME SAVINGS BANK
OF NEW YORK, FSB

                                               1160 AVE. OF THE AMERICAS, 5TH FL
                                                             NEW YORK, N.Y 10036
                                                             BUS:(212)362-6345/6
                                                               FAX (212)362-6349

                                                 March 20, 2000

Polymer Research Corp. of America
2186 Mill Avenue Brooklyn, New York 11234
Re: Line of Credit Agreement

Gentlemen:

We are  pleased to advise you that we have  approved a line of credit of up to a
combined  aggregate  amount of $750,000  outstanding  at any one time,  with the
sublimits  described below (the "Line of Credit") for Polymer  Research Corp. of
America (the  "Borrower").  The Line of Credit shall include (a) Revolving Loans
on a  discretionary  and  demand  basis not to exceed  $250,000  at any one time
outstanding (the "Revolving Line of Credit") and (b) a Term Loan in the original
principal  amount of $500,000.  The terms "we",  "us",  "our",  "undersigned" or
"Bank" as used herein  shall mean The Dime  Savings Bank of New York FSB and its
successors and assigns.  All capitalized terms used in this Agreement shall have
the  meanings  given  such  terms in  Sections  I and II hereof or as  otherwise
defined  herein.  The following  general terms and conditions  will apply to the
Line of Credit:

I. TERMS AND PAYMENTS

Revolving Loans:

For the  period  commencing  on the date all of the  conditions  of this Line of
Credit  Agreement are complied with (the "Closing  Date") and ending on June 30,
2000 (the  "Termination  Date"),  the Bank, in its discretion may make Revolving
Loans to the

<PAGE>

Borrower pursuant to the Revolving Line of Credit.  Within the Revolving Line of
Credit and prior to the  Termination  Date,  the Borrower may borrow,  repay and
reborrow from time to time. Borrower's Revolving Loans shall be evidenced by the
Bank's standard form of Demand Grid Note signed by Borrower (the "Grid Note").

Term Loan:

On the date,  but not later than June 30, 2000 after the Closing Date,  that the
Borrower  notifies the Bank in writing (the  "Funding  Date"),  provided,  there
exists no Event of  Default,  the Bank shall make a Term Loan to Borrower in the
principal amount of $500,000  repayable in 60 equal monthly  principal  payments
commencing one (1) month after the Funding Date, each in the amount of $8,333.33
(except the last  payment  shall be in the then unpaid  principal  amount of the
Term Loan),  which Term Loan shall be evidenced by Borrower's  Term Note in that
amount (the "Term Note").

Purpose of Loans:

The Line of Credit  shall be used for working  capital  purposes and to repay an
existing  mortgage loan from Tama Realty Co. on the Borrower's place of business
(the "Premises") . Interest Rates:

a.   Revolving  Loans - Reference Rate (as defined in the Grid Note) plus 1% per
     annum.

b.   Term Loan - a Fixed Rate of 8.5% per annum, payable in arrears.

c.   Interest  shall  commence on the Closing Date and the Funding  Date, as the
     case may be, and be automatically charged monthly.

                                      -2-
<PAGE>

d.   Prepayment  - The Term Note may be prepaid in whole or in part  without any
     prepayment penalty.

Expenses:

The Borrower shall pay all of the Bank's  expenses,  including  attorney's fees,
plus out-of-pocket  disbursements,  incurred in connection with the preparation,
negotiation and closing of the Loan Documents.

Origination and Commitment Fees:

The Borrower shall pay the Bank prior to or at Closing an  origination  fee with
respect  to the Term Loan in the amount of $2,500.  The  Borrower  shall pay the
Bank  prior to or at  Closing  a  commitment  fee of $500  with  respect  to the
Revolving  Line of Credit and a fee of $500 on each  anniversary  of the Closing
Date thereafter. All fees shall be deemed earned as of the date hereof.

Collateral:

See attached  Exhibit A. In  addition,  Borrower  shall  execute and deliver and
cause such other parties as Bank shall  require,  security  agreements and other
documents as shall grant to the Bank a first and prior security  interest in and
lien on a certificate of deposit, money market account, securities or government
securities of a type and value satisfactory to the Bank with a market/collateral
value  of  not  less  than  $150,000  at  the  Closing  Date  (the   "Securities
Collateral").  The Bank on each anniversary date of the Closing Date,  provided,
that there exists no Event of Default,  shall  release to  Borrower,  Securities
Collateral  having a  market/collateral  value as of such date of  $30,000.  The
determination of the market/collateral value and the Securities Collateral to be
released shall be determined by the Bank in its sole discretion.

                                      -3-
<PAGE>

Loan Documents:

See Section VII below.  The Loan Documents  provide  requirements for covenants,
representations  and  warranties  and for the  granting  of liens  and  security
interests in the Collateral in our favor and for Events of Default.

II.DEFINITIONS

     1. "Financial  Statements"  means the financial  statements  required to be
delivered, from time to time, by Borrower pursuant to Section V hereof.

     2. "GAAP" means  generally  accepted  accounting  principles  in the United
States as in effect on the date hereof, applied on a basis consistent with those
used in the preparation of the Financial Statements.

     3. "Laws" shall have the meaning given such term in Section III hereof.

     4. "Licenses" shall have the meaning given such term in Section III hereof.

     5. "Tangible Net Worth" means, for any period,  the assets of the Borrower,
all as determined by GAAP and as reported in  Borrower's  Financial  Statements,
which assets shall exclude all goodwill,  all  intangible  assets and all loans,
advances, exchanges and other indebtedness owing to Borrower by any shareholder,
officer, employee or a relative thereof or any affiliate of Borrower, less Total
Liabilities.

     6. "Total  Liabilities"  means,  for any  period,  all  liabilities  of the
Borrower,  all as  determined  by GAAP and as reported in  Borrower's  Financial
Statements,  which  liabilities  shall include the Revolving  Loans and the Term
Loan then outstanding.

     7. "Debt" means (i)  indebtedness  or liability for borrowed  money, or for
the deferred purchase price of property or securities,  (ii) trade  obligations,
(iii) the principal  portion of  obligations  as lessee under capital leases and
(iv) all guarantees

                                      -4-
<PAGE>

or endorsements relating to the obligations or indebtedness of anyone other than
the Borrower.

     8. "Depreciation" means, for any period, the depreciation of the Borrower's
assets, all as determined in accordance with GAAP.

     9. "EBITDA" means, for any period, the Borrower's Net Income, plus Interest
Expenses, plus Taxes, plus Depreciation,  plus Principal  Amortization,  all for
such period.

     10. "Interest  Expense" means, for any period, all interest paid or prepaid
by Borrower on all of its Debt, including the Revolving Loans and the Term Loan,
during such period.

     11. "Net Income" means, for any period, the net income of the Borrower, all
as determined in accordance with GAAP.

     12. "Principal Amortization" means, for any period, all scheduled principal
payments (whether or not actually paid) of all Debt of Borrower.

     13. "Taxes" means,  for any period,  the income and franchise  taxes of the
Borrower, all as determined in accordance with GAAP.

III. OTHER TERMS OF LINE OF CREDIT

Under the Revolving Line of Credit, borrowings may be made from time to time and
shall be  repayable  on  demand,  but may be  prepaid  in whole or in part  with
accrued interest to the date of prepayment.

Upon the  occurrence of an Event of Default under the Grid Note or the Term Note
or any of the other Loan  Documents we shall have the right to demand payment of
all loans then outstanding under this Line of Credit and the other  indebtedness
of the Borrower to Bank then  outstanding,  together with all accrued and unpaid
interest thereon (the "Obligations").

     THE CONTINUING AVAILABILITY OF THE REVOLVING LINE OF CREDIT IS AT ALL TIMES
SUBJECT TO OUR  CONTINUING  SATISFACTION,  AS

                                      -5-
<PAGE>

DETERMINED  BY US IN OUR  SOLE  AND  ABSOLUTE  DISCRETION,  WITH  THE  FINANCIAL
CONDITION OF THE BORROWER AND ITS  COMPLIANCE  WITH THE TERMS AND  PROVISIONS OF
THIS AGREEMENT AND EACH OF THE LOAN DOCUMENTS REFERRED TO HEREIN.

     Borrower hereby agrees that we each shall at any time and from time to time
during each calendar year be permitted to make one or more field examinations of
Borrower's business, the Collateral and its locations,  which examinations prior
to an Event of Default  shall be made upon not less than  three (3) days  notice
and at reasonable  times and after an Event of Default at any time and from time
to time and without notice.

     ANYTHING IN THIS AGREEMENT,  THE GRID NOTE, THE TERM NOTE OR ANY OTHER LOAN
DOCUMENT  RELATING TO THE LINE OF CREDIT TO THE  CONTRARY  NOTWITHSTANDING,  THE
ENUMERATION IN THIS  AGREEMENT,  THE GRID NOTE OR THE TERM NOTE OR IN SUCH OTHER
LOAN DOCUMENT OF SPECIFIC OBLIGATIONS TO US, EVENTS OF DEFAULT AND/OR CONDITIONS
TO THE  AVAILABILITY OF THIS LINE OF CREDIT AND THE REVOLVING LOANS SHALL NOT BE
CONSTRUED TO QUALIFY,  DEFINE OR OTHERWISE LIMIT OUR RIGHT, POWER OR ABILITY, AT
ANY TIME,  UNDER  APPLICABLE  LAW,  TO MAKE  DEMAND  FOR  PAYMENT  OF THE ENTIRE
OUTSTANDING PRINCIPAL OF AND INTEREST DUE UNDER THE REVOLVING LINE OF CREDIT AND
THE GRID NOTE OR OUR RIGHT NOT TO MAKE ANY  EXTENSION  OF CREDIT UNDER THIS LINE
OF CREDIT FOR ANY REASON OR NO REASON AND BORROWER  AGREES THAT ITS BREACH OF OR
DEFAULT  UNDER ANY SUCH  ENUMERATED  OBLIGATIONS  OR  CONDITIONS IS NOT THE ONLY
BASIS  FOR  DEMAND TO BE MADE,  AS  BORROWER'S  OBLIGATION  TO MAKE  PAYMENT  OF
REVOLVING LOANS SHALL AT ALL TIMES REMAIN A DEMAND OBLIGATION,  OR FOR A REQUEST
FOR AN EXTENSION OF CREDIT TO BE DENIED.

     The chief executive  office of Borrower and the address at which Borrower's
books  and  records  with  respect  to its  accounts  receivable  and the  other
Collateral  is  located  at 2186 Mill  Avenue,  Brooklyn,  New York  11234.

     The Borrower is and at all times will continue to be (a) in compliance with
the  requirements  of all material laws,  rules,  regulations  and orders of any
federal,  state  or  local  governmental  authority  relating  to its  business,
including,   the  handling  and  storage  of  hazardous   materials   and  other
environmental laws and the regulations  promulgated  thereunder ("Laws") and (b)
duly licensed,  to the extent required by Law by New York State and by any other

                                      -6-
<PAGE>

federal  or local  governmental  agency in any state in which  Borrower  does or
shall hereafter conduct business ("Licenses").

     The  Borrower  shall  promptly  notify  Bank in writing of any  existing or
future proceeding,  investigation or threatened proceeding or investigation with
respect to a violation  of any  material Law or the  suspension,  revocation  or
termination of any License.

     So  long  as  any  obligations  under  the  Line  of  Credit  shall  remain
outstanding  then the Borrower  shall not grant,  permit or cause any  mortgage,
lien or  encumbrance to be placed on or be recorded with respect to the Premises
or any part thereof, without the prior written consent of the Bank.

     The Borrower shall  maintain the Bank as its primary  depositor and banking
facility.

     Each  borrowing  by Borrower  under the Line of Credit  shall  constitute a
representation  that (a) each of the provisions of this Section III are true and
correct  as of the  date of such  borrowing  and (b)  there  exists  no Event of
Default  or  default  with the  giving of notice  and/or the lapse of time would
constitute an Event of Default.

                                  IV. PAYMENTS

     All payments of principal,  interest and fees payable by the Borrower under
the Line of Credit shall be made in immediately available funds at our office at
589 Fifth Avenue,  New York, New York 10017 and may be charged at our discretion
to the account of the Borrower maintained with us.

                             V. FINANCIAL REPORTING

     In addition,  the continuing  availability of the Line of Credit is subject
to the Borrower furnishing to us:

     a. Within one hundred  twenty  (120) days after the end of each fiscal year
the Borrower's  10-K Report filed with the  Securities  and Exchange  Commission
("SEC")  presenting  the annual

                                      -7-
<PAGE>

financial  statements  of Borrower  prepared by Borrower's  current  independent
certified  accountants or by another regular  independent  certified  accountant
acceptable  to Bank,  on an audited  basis as at the end of such  annual  fiscal
period,  including a balance  sheet and related  income,  surplus and cash flows
statements;

     b. Within ninety (90) days after the end of each  quarterly  period in each
fiscal year  Borrower's  10-Q Report filed with the SEC,  presenting  Borrower's
Financial Statements for each such period prepared by Borrower's accountants;

     c. Together with each Financial  Statement referred to in clause (a) above,
a  backlog  report  prepared  by  the  management  of  the  Borrower,   in  form
satisfactory to Bank; and

     d. Such other information,  as reasonably  requested by the Bank, from time
to time.  Borrower's  Financial  Statements and all other statements and reports
required  by this  Section  V or by any  Loan  Document  shall  be  prepared  in
accordance  with  GAAP and  shall be in form,  scope  and  substance  reasonably
satisfactory to the Bank.

                            VI. FINANCIAL COVENANTS

As a further condition to the extension of the Line of Credit and so long as any
obligation of the Borrower shall remain outstanding under the Line of Credit the
Borrower shall not:

     (a)  permit  Tangible Net Worth as at the end of the annual  fiscal  period
          December 31, 1999 to be less than  $3,200,000 and permit  Tangible Net
          Worth at the end of any quarterly fiscal period  thereafter to be less
          than $3,250,000; and

     (b)  permit  the  ratio  of  EBITDA  to  Interest  Expense  plus  Principal
          Amortization  relating to the loans then outstanding under the Line of
          Credit to be less than 2.5 to 1.0, as at the end of each fiscal  year,
          commencing with December 31, 2000, of the Borrower;  and

                                      -8-
<PAGE>

     (c)  incur net losses (as  determined in accordance  with GAAP and reported
          in its  Financial  Statements)  in any two (2)  consecutive  quarterly
          fiscal periods.

     The  provisions  of Sections  III, V and VI shall  survive the execution of
this Agreement and the making of the initial  Revolving  Loans under the Line of
Credit and the making of the Term Loan.

                              VII. LOAN DOCUMENTS

     The extension of the Line of Credit to the Borrower, on the terms set forth
herein,  is  further  subject  to our  receipt  in  form,  scope  and  substance
satisfactory to us of:

     a.   our standard form of banking  resolutions  and signature cards for the
          authorized signatories of Borrower and Automatic Debit Authorization;

     b.   the documents set forth in Exhibit B annexed hereto;

     c.   evidence of the satisfaction of the existing mortgage on the Premises,
          which shall be delivered on or after the Funding Date;

     d.   UCC-3 Termination  Statements of any secured party other than the Bank
          which shall be delivered after the Funding Date;

     e.   Letter  of  Instruction  of  Borrower  as to  payment  on or after the
          Funding  Date to Tama  Realty  Co.  to  satisfy  the  mortgage  on the
          Premises;

     f.   Letter of  Instruction  of Borrower  as to payments of Bank's  Closing
          expenses; and

     g.   such other documentation as we shall reasonably require.

                                      -9-
<PAGE>

                              VIII. MODIFICATIONS

     NO AMENDMENT,  MODIFICATION OR WAIVER OF ANY PROVISION OF THIS AGREEMENT OR
ANY LOAN  DOCUMENT,  NOR  CONSENT  TO ANY  DEPARTURE  BY US  THEREFROM  SHALL BE
EFFECTIVE,  IRRESPECTIVE  OF ANY COURSE OF DEALING,  UNLESS THE SAME SHALL BE IN
WRITING AND SIGNED BY US AND THEN SUCH WAIVER OR CONSENT SHALL BE EFFECTIVE ONLY
IN THE SPECIFIC INSTANCE AND FOR THE SPECIFIC PURPOSE FOR WHICH GIVEN.

                               IX. GOVERNING LAW

     This  Agreement  shall be governed by and construed in accordance  with the
internal  laws of the  State of New  York.  To the  extent  any of the  terms or
provisions of this  Agreement  conflict with those  contained in any of the Loan
Documents,  the terms and  provisions of such other Loan Document  shall govern.
This Agreement shall remain in effect so long as any Obligations of the Borrower
are outstanding under the Line of Credit, or otherwise.

                        X. ARBITRATION AND JURISDICTION

     BORROWER AND WE AGREE THAT ANY ACTION,  SUIT OR PROCEEDING IN RESPECT OF OR
ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT RELATING TO THE LINE OF
CREDIT,  MAY BE INITIATED AND PROSECUTED IN THE STATE OR FEDERAL COURTS,  AS THE
CASE MAY BE, LOCATED IN NEW YORK COUNTY, NEW YORK.

     BORROWER  FURTHER  AGREES THAT ANY ACTION,  DISPUTE,  PROCEEDING,  CLAIM OR
CONTROVERSY  BETWEEN OR AMONG ANY OF THEM AND US WHETHER  SOUNDING IN  CONTRACT,
TORT OR OTHERWISE  ("DISPUTE"  OR  "DISPUTES")  SHALL,  AT OUR  ELECTION,  WHICH
ELECTION  MAY BE  MADE AT ANY  TIME  PRIOR  TO THE  COMMENCEMENT  OF A  JUDICIAL
PROCEEDING BY US, OR IN THE EVENT OF A JUDICIAL PROCEEDING  INSTITUTED BY ANY OF
THEM AT ANY TIME  PRIOR TO THE LAST DAY TO ANSWER  AND/OR  RESPOND  TO A SUMMONS
AND/OR  COMPLAINT  MADE BY ANY OF THEM, BE RESOLVED BY  ARBITRATION IN NEW YORK,
NEW YORK IN ACCORDANCE  WITH THE PROVISIONS OF THIS SECTION X AND SHALL,  AT OUR
ELECTION,  INCLUDE ALL  DISPUTES-ARISING  OUT OF OR IN CONNECTION  WITH (A) THIS
AGREEMENT,

                                      -10-
<PAGE>

OR ANY OTHER LOAN DOCUMENT OR OTHER INSTRUMENT; (B) ALL PAST, PRESENT AND FUTURE
AGREEMENTS  INVOLVING THE PARTIES;  (C) ANY-TRANSACTION  CONTEMPLATED HEREBY AND
ALL PAST,  PRESENT  AND FUTURE  TRANSACTIONS  INVOLVING  THE PARTIES AND (D) ANY
ASPECT OF THE PAST, PRESENT OR FUTURE  RELATIONSHIP OF THE PARTIES. We may elect
to require  arbitration of any Dispute with us without thereby being required to
arbitrate all Disputes  between the parties.  Any such Dispute shall be resolved
by  binding  arbitration  in  accordance  with  Article 75 of the New York Civil
Practice  Law and Rules and the  Commercial  Arbitration  Rules of the  American
Arbitration  Association ("AAA"). In the event of any inconsistency between such
Rules and these  arbitration  provisions,  these provisions shall supersede such
Rules.  All statutes of limitations  which would  otherwise be applicable  shall
apply to any  arbitration  proceeding  under this Section X. In any  arbitration
proceeding subject to these provisions, the arbitration panel (the "arbitrator")
is specifically  empowered to decide (by documents  only, or with a hearing,  at
the arbitrator's  sole discretion)  pre-hearing  motions which are substantially
similar to prehearing  motions to dismiss and motions for summary  adjudication.
In any such arbitration  proceeding,  the arbitrator shall not have the power or
authority  to award  punitive  damages  to any  party.  Judgment  upon the award
rendered  may  be  entered  in  any  court  having  jurisdiction.   Whenever  an
arbitration  is required,  the parties  shall select an arbitrator in the manner
provided  in this  Section X. No  provision  of, nor the  exercise of any rights
under,  this  Section X shall  limit  the  right of any  party (i) to  foreclose
against any real or personal property  collateral through judicial  foreclosure,
by the  exercise  of a power of sale  under a deed of trust,  mortgage  or other
security  agreement or  instrument,  pursuant to  applicable  provisions  of the
Uniform  Commercial  Code,  or otherwise  pursuant to  applicable  law,  (ii) to
exercise   self  help   remedies   including  but  not  limited  to  setoff  and
repossession,  or (iii) to request and obtain from a court  having  jurisdiction
before,  during  or  after  the  pendency  of any  arbitration,  provisional  or
ancillary  remedies  and  relief  including  but not  limited to  injunctive  or
mandatory  relief  or  the  appointment  of  a  receiver.  The  institution  and
maintenance of an action or judicial  proceeding for, or pursuit of, provisional
or ancillary  remedies or exercise of self help remedies  shall not constitute a
waiver of our right,  even if we are the  plaintiff,  to submit  the  Dispute to
arbitration it we would otherwise have such right. We may require arbitration of
any concerning the lawfulness, unconscionableness,  propriety, or reasonableness
of any

                                      -11-
<PAGE>

exercise by us of our right to take or dispose of any collateral or our exercise
of any other right in connection with collateral including,  without limitation,
judicial  foreclosures,  exercising  a power  of sale  under a deed of  trust or
mortgage,  obtaining or executing a writ of  attachment,  taking or disposing of
property with or without  judicial  process pursuant to Article 9 of the Uniform
Commercial Code or otherwise as permitted by applicable law, notwithstanding any
such exercise by us.  Whenever an  arbitration is required under this Section X,
the  arbitrator  shall be selected,  except as  otherwise  herein  provided,  in
accordance with the Commercial Arbitration Rules of the AAA. A single arbitrator
shall  decide any claim of  $100,000  or less and he or she shall be an attorney
with at least five years' experience  representing  commercial banks.  Where the
claim of any party exceeds $100,000,  the Dispute shall be decided by a majority
vote of three arbitrators, at least two of whom shall be attorneys (at least one
of whom shall have not less than five years' experience  representing commercial
banks).  In the event of any  Dispute  governed  by this  Section X, each of the
parties shall, subject to the award of the arbitrator, pay an equal share of the
arbitrator's  fees. The arbitrator shall have the power to award recovery of all
costs and fees (including  attorneys' fees,  administrative  fees,  arbitrator's
fees,  and  court  costs)  to  the  prevailing   party.  In  the  event  of  any
inconsistency  between  the  provisions  contained  in  this  Section  X and any
provision in any Loan Document the provisions of this Section X shall govern.

                             XI. JURY WAIVER, ETC.

     BORROWER  AND WE HEREBY  WAIVE TRIAL BY JURY IN ANY ACTION,  PROCEEDING  OR
COUNTERCLAIM BROUGHT BY OR AGAINST IT ON ANY MATTERS WHATSOEVER,  IN CONTRACT OR
IN TORT,  ARISING OUT OF OR IN ANY WAY  CONNECTED  WITH THIS  AGREEMENT,  OR ANY
OTHER LOAN  DOCUMENT  RELATING TO THE LINE OF CREDIT OR THE TERM LOAN.  BORROWER
ALSO  HEREBY  WAIVES  THE  RIGHT TO  INTERPOSE  ANY  DEFENSE  OF ANY  NATURE  OR
DESCRIPTION,  WHETHER OR NOT BASED UPON ANY CLAIM OF LACHES, AND BORROWER HEREBY
WAIVES ANY SET-OFF OR COUNTERCLAIM,  ANY OBJECTION BASED ON FORUM NON CONVENIENS
OR VENUE AND ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.

                                      -12-
<PAGE>

     If this  Agreement is acceptable to the Borrower  please sign and return to
us one fully executed copy of this letter.

                  We look forward to a pleasant relationship.

                               Very truly yours,

                     THE DIME SAVINGS BANK OF NEW YORK, FSB

                     By: /s/Priscilla DiLello
                        ------------------
                          Title: Vice President

AGREED:

POLYMER RESEARCH CORP OF AMERICA

By: /s/Carl Horowitz as President
    -----------------------------
      President

                                      -13-
<PAGE>

EXHIBIT A - Collateral Description

EXHIBIT B - Loan Documents

                                      -14-
<PAGE>

                                   EXHIBIT A

     a. All  accounts and accounts  receivable  related to or -arising  from the
sale or lease of  inventory  or  rendition  of  services  by the  Debtor  in the
ordinary  course of its  business  (collectively,  the  "Accounts")  or  however
otherwise  arising and all other accounts,  bank accounts,  contracts,  contract
rights,  general  intangibles  related to or arising  from any  account,  notes,
documents,  chattel paper,  instruments,  acceptances,  drafts or other forms of
obligations and receivables of the Debtor (collectively,  with the Accounts, the
"Receivables")  ,  whether  or  not  the  same  are  listed  on  any  schedules,
assignments  or reports  furnished to the Secured  Party from time to time,  and
whether such  Receivables are now existing or are created at any time hereafter,
together with all goods,  inventory and merchandise  returned by or reclaimed by
or possessed from customers  wherever such goods,  inventory and merchandise are
located,  and all proceeds thereto,  including without  limitation,  proceeds of
insurance thereon and all guaranties, securities, and liens which the Debtor may
hold for the payment of any such Receivables, including, without limitation, all
rights of stoppage in transit, replevin and reclamation and all other rights and
remedies  of an unpaid  vendor or lienor,  and any liens held by the Debtor as a
mechanic,  contractor,   subcontractor,   processor,   materialman,   machinist,
manufacturer, artisan, or otherwise;

     b. All documents,  instruments,  documents of title,  general  intangibles,
policies and certificates of insurance, guaranties,.  securities, chattel paper,
deposits,  tax refunds  proceeds of insurance,  proceeds of an eminent domain or
condemnation  award,  cash,  liens  or  other  property,  which  are  now or may
hereinafter be in the possession of the Debtor or as to which the Debtor may now
or hereafter control  possession by documents of title or otherwise,  including,
but not limited to, all  property  allocable  to  unshipped  orders  relating to
Accounts and Inventory (as defined below);

     c. All books, records,  customer lists, supplier lists, ledgers,  evidences
of shipping,  invoices,  purchase orders,  including without limitation,  export
orders,  sales orders and all other evidences of the Debtor's  business records,
including all cabinets,  drawers, etc. that may hold the same; computer records,
lists,  software,  programs,  wherever  located,  all  whether  now  existing or
hereafter arising acquired;

     d. All of the Debtor's inventory,  whether now owned or hereafter acquired,
including without limitation  (collectively herein called the "Inventory"):  (i)
all goods  manufactured or acquired for sale or lease,  and any piece goods, raw
materials,  work in process and  finished  merchandise,  findings  or  component
material,  and all supplies,  goods,  incidentals,  office  supplies,  packaging
materials,  and any and all items  including  machinery  and  equipment  used or
consumed in the  operation of the business of the

<PAGE>

Debtor or which contribute to the finished product or to the sale, promotion and
shipment  thereof,  in which the Debtor now or at any time hereafter may have an
interest,  whether or not such inventory is listed in any agreement with Secured
Party or on any  reports  furnished  to the  Secured  Party from time;  (ii) all
inventory whether or not the same is in transit or in the  constructive,  actual
or exclusive  occupancy or possession of the Debtor, or is held by the Debtor or
by others  for the  Debtor  with  respect  to the  Accounts,  including  without
limitation,  all goods covered by purchase  orders and contracts  with suppliers
and, all goods billed and held by suppliers;  (iii) all  inventory  which may be
located  on  premises  of the  Debtor  or of  any  carrier,  forwarding  agents,
truckers,  warehousemen,  vendors,  selling  agents or third  parties;  (iv) all
general  intangibles  relating to or arising out of inventory;  (v) all proceeds
and  products  of  the  foregoing  resulting  from  the  sale,  lease  or  other
disposition of inventory,  including cash; accounts  receivable,  other non-cash
proceeds and trade-ins;  and (vi) with respect to after-acquired  Inventory, the
security interest shall be deemed to be a purchase money security interest;

     e. All general  intangibles,  including  without  limitation,  tax refunds;
proceeds of insurance and eminent domain awards and condemnation  proceeds,  and
patents, copyrights, tradenames, trademarks, applications therefor, and licenses
to any patent, copyright,  trademark, or tradename that the Debtor now owns, has
the right to use or may hereafter own or acquire the right to use;

     f. All equipment,  machinery,  appliances,  and furniture and fixtures, now
existing or hereafter  arising,  wherever located,  and all contracts,  contract
rights and chattel paper arising out of any lease of any of the foregoing;

     g. All other  collateral  in which the  Debtor may  hereafter  grant to the
Secured Party a security interest; and

     h.  All  renewals,  substitutions,   replacements,  additions,  accessions,
proceeds, and products of any and all of the foregoing.

                                      -2-
<PAGE>

                                   EXHIBIT B

                                  CLOSING LIST
                               OF LOAN DOCUMENTS

Borrower:  Polymer Research Corp. of America

Mortgagee: Tama Realty Company

Bank: The Dime Savings Bank of New York, FSB

1.   Line of Credit Agreement between Borrower and Bank.

2.   $250,000 Demand Grid Note of Borrower.

3.   $500,000 Term Note of Borrower.

4.   General  Security   Agreement   executed  by  the  Borrower   covering  the
     Collateral,  together with signed copies of UCC-1  Financing  Statements of
     the Borrower for filing with (a) NYDOS and (b) Kings County.

     (a)  Certified copies of resolutions or other authorization of the Borrower
          authorizing  (i)  signatories  of  Borrower  and (ii)  the  execution,
          delivery,  and  performance  of all of the Loan  Documents  and  other
          related documentation and the transactions contemplated herein.

5.   Pledge and Security Agreement of Borrower.*

     (a)  Control Agreement among Borrower, Bank and

6.   Evidence of satisfaction of mortgage held by Mortgagee.*

7.   Letter of Direction  of Borrower to Bank to make payment (a) to  Mortgagee*
     and (b) of closing expenses of Bank, including the Bank's legal fees.

8.   UCC and Judgment searches as to Borrower.

9.   Evidence of the good standing of the Borrower.

10.  UCC-3 Termination  Statements  executed by Mortgagee* and any other secured
     party.

                                      -16-
<PAGE>

11.  Banking Resolutions and Automatic Debit Authorization of Borrower.

12.  Signature cards of Borrower.

13.  Certificate of Insurance naming Bank as loss payee.*

14.  Waiver of Counsel by Borrower.

15.  Post-closing letter as to items indicated by "*."

                                      -17-
<PAGE>

                                DEMAND GRID NOTE

                                                              New York, New York
$250,000.00

                                                            Date: March 20, 2000

     ON DEMAND,  the undersigned  ("Maker")  promises to pay to the order of THE
DIME  SAVINGS  BANK OF NEW YORK,  FSB  ("Bank")  at its  corporate  headquarters
located at 589 Fifth Avenue,  New York,  New York 10017 or at any of its banking
offices  in New York as Bank may  designate  by  written  notice to  Maker,  the
principal sum of TWO HUNDRED AND FIFTY THOUSAND ($250,000.00) DOLLARS or so much
thereof,  as shall be advanced by Bank to Maker,  in Bank's sole  discretion and
not repaid,  together with interest on the unpaid  principal  amount hereof from
time to time  outstanding from the date hereof until the date on which this Note
is paid in full at the rate set forth below.

     Interest on the unpaid  principal of this Note will be due and payable when
demand is made for payment of the principal of this Note and (indicate whichever
is applicable):

         [ ]   on the last day of each month.

         [X]   on the 15th day of each month

     Prior to the date that demand is made for payment of the principal  hereof,
this Note shall bear interest at a rate (the "Contract Rate") equal to (indicate
whichever is applicable):

         [ ]   a fixed rate of -% per annum

         [X]   a  fluctuating  rate of one  percent  (1%) per  annum  above  the
               Reference  Rate (as defined  below),  such rate to change without
               notice from time to time with each change in the Reference Rate.

After demand is made for payment of the principal of this Note,  interest  under
this Note shall be payable on demand and shall accrue at a fluctuating  rate per
annum equal to 2% per annum above (i) if the Contract Rate is a fixed rate,  the
Contract  Rate, or (ii) if the Contract Rate is a fluctuating  rate, the greater
from  time to time of (x) the  Contract  Rate in  effect  on the  date  that the
principal  became due and (y) the  Contract  Rate that would have been in effect
from  time to time if the  principal  had not  become  due.  Interest  shall  be
calculated on the basis of a 360-day year for actual days  elapsed.  In no event
shall the interest  rate  applicable at any time to this Note exceed the maximum
rate  permitted  by  law.  As used  herein,  "Reference  Rate"  means  the  rate
established  by Bank from time to time at its principal  domestic  office as its
reference  lending rate for domestic  commercial  loans.  Bank may make loans to
customers above, at or below the Reference Rate.

     This Note evidences loans made by Bank to Maker in Bank's sole  discretion,
from time to time,  pursuant to the terms of a Line of Credit  Agreement of even
date herewith.  The unpaid  principal  balance of this Note at any time shall be
the total amount advanced by Bank to Maker in Bank's sole  discretion,  less the
total amount of principal  payments made hereon by Maker. The date and amount of
each such loan and each payment on account of principal  thereof may be endorsed
by Bank on the  grid  attached  to and  made a part of this  Note,  and  when so
endorsed shall represent  evidence  thereof binding upon Maker in the absence of
manifest  error.  Any failure by Bank to so endorse  shall in no way mitigate or
discharge the obligation of Maker to repay any loans  actually  made.  Maker may
prepay this Note in whole at any time with all  accrued  interest to the date of
repayment.  So long as Maker is not in default under this Note, Maker may prepay
this Note in part at any time with accrued interest to the date of prepayment on
the principal amount prepaid.

     This note shall be payable in lawful money of the United  States of America
in immediately available funds. Except as otherwise provided herein with respect
to  prepayments,  all  payments  on this Note shall be applied to the payment of
accrued  interest  before being  applied to the payment of the  principal;.  Any
payment  which is required  to be made on a day which is not a banking

<PAGE>

business  day in the City of New York shall be  payable  on the next  succeeding
banking  business  day  and  such  additional  time  shall  be  included  in the
computation of interest.  In the event that any other Obligations are due at any
time that Bank receives a payment from Maker on account of this Note or any such
other  Obligations,  Bank may apply such payments to amounts due under this Note
or any such other Obligations in such manner as Bank, in its discretion, elects,
regardless of any instructions from Maker to the contrary.

     Maker  acknowledges  that this Note is an  obligation  which is  payable on
demand  and  that  notwithstanding   anything  to  the  contrary  in  any  other
instrument,  agreement or other  document to which Maker and/or Bank is a party,
the enumeration in any such document of specific  events of default,  conditions
and/or  covenants  relating to the loan  evidenced  by this Note or to any other
Obligation,  shall not be construed to qualify, define or otherwise limit in any
way Bank's right,  power or ability,  at any time, to make demand for payment of
the principal of and interest on this Note, and Maker agrees that the occurrence
of any event of  default  or breach of any  condition  or  covenant  in any such
document is not the only basis for demand to be made on this Note.

     To induce  Bank,  in its sole  discretion,  to make  loans to Maker,  Maker
represents,  warrants and covenants to Bank that (i) Maker is duly organized and
validly existing in good standing under the laws of its jurisdiction,  with full
power and authority to make,  deliver and perform this Note; (ii) the execution,
delivery and  performance by Maker of this Note have been duly authorized by all
necessary  legal  action and do not and will not  violate or  conflict  with its
organizational  documents or any law, rule, regulation or order binding on Maker
or any agreement or instrument to which Maker is a party or which may be binding
on  Maker;   (iii)  this  Note  has  been  fully   executed  by  an   authorized
representative of Maker and constitutes a legal, valid,  binding and enforceable
obligation  of  Maker;  (iv)  no  authorization,   consent,  approval,  license,
exemption  of or  filing  or  registration  with,  any  court or  government  or
governmental agency is or will be necessary to the valid execution,  delivery or
performance by Maker of this Note; (v) the loans  evidenced by this Note will be
used solely for the  purposes  set forth in the Line of Credit  Agreement;  (vi)
there are no pending or  threatened  actions,  suits or  proceedings  against or
affecting Maker by or before any court, commission, bureau or other governmental
agency or instrumentality, which individually or in the aggregate, if determined
adversely  to Maker,  would  have a  material  adverse  effect on the  business,
properties,  operations,  or condition,  financial or otherwise,  of Maker;  and
(vii) the most recent financial statements of Maker heretofore delivered to Bank
are complete  and correct and since the date thereof  there has not occurred any
material  adverse change in the financial  condition or operations of Maker from
that shown on said financial statements.

     Upon the occurrence of any of the following  (each,  an "Event of Default")
with respect to any Maker,  indorser or guarantor of the indebtedness  evidenced
by this Note: (i) default in payment of any amount due under this Note or in the
payment or performance of any other  Obligation or the Line of Credit  Agreement
or any other agreement of any nature or description to or with Bank; (ii) any of
them shall commence any case,  proceeding or other action under any law relating
to bankruptcy, insolvency,  reorganization or relief of debtors, seeking to have
an order  for  relief  entered  with  respect  to any of  them,  or  seeking  to
adjudicate  any of them a bankrupt  or  insolvent,  or  seeking  reorganization,
arrangement,  adjustment, winding-up, liquidation,  dissolution,  composition or
other  relief  with  respect  to any of them or any of their  debts,  or seeking
appointment of a receiver,  trustee, custodian or other similar official for any
of them or for all or any substantial  part of the assets of any of them, or any
of them shall make a general  assignment  for the benefit of its  creditors,  or
there  shall be  commenced  against  any of them any case,  proceeding  or other
action of a nature  referred to in this clause (ii), or there shall be commenced
against any of them any case,  proceeding or other action seeking  issuance of a
warrant of attachment,  execution,  distraint or similar  process against all or
any substantial  part of the assets of any of them which results in the entry of
an  order  for any  such  relief,  or any of  them  shall  take  any  action  in
furtherance of, or indicating its consent to,  approval of, or acquiescence  in,
any of the acts set forth in this clause  (ii),  or any of them shall  generally
not, or shall be unable to, or shall admit in writing its  inability to, pay its
debts as they become due;  (iii) entry of a judgment  against any of them;  (iv)
failure to pay or remit any tax when assessed or due; (v) death or  dissolution;
(vi) making a bulk transfer or sending notice of intent to do so; (vii) granting
any security interest (other than to Bank);  (viii) suspension or liquidation of
the usual  business;  (ix) failing to furnish Bank with any requested  financial
information  or failing to permit  inspection of books or records by Bank or any
of its agents,  attorneys or accountants;  (x) making any  misrepresentation  to
Bank  in  obtaining  credit  for  any of  them;  (xi)  impairment  of  financial
responsibility of any of them in Bank's good faith opinion;  (xii) Bank shall in
good faith deem  itself  insecure  at any time;  or (xiii) the  occurrence  of a
default or event of default under the Line of Credit  Agreement or any guarantee
or security agreement guaranteeing,  or securing any Obligations of Maker; then,
in the case of any Event of Default other than those  referred to in clause (ii)
of this sentence, Bank may declare by notice to Maker any and all Obligations of
Maker to be  immediately  due and  payable,  and in case of any Event of Default
referred  to in clause (ii) of this  sentence  all of the  Obligations  of Maker
shall automatically become due and payable immediately without notice or demand.

     Bank shall have a continuing lien and/or right of set-off on, and is hereby
granted a security  interest in, all deposits  (general and special) and credits
with Bank or any Bank Affiliate of any Maker and indorser,  and may apply all or
part of the same to any Obligations;  at any time or times, without notice. Bank
shall have a continuing  lien on, and is hereby granted a security  interest in,
all  property of every  Maker and  indorser  and the  proceeds  thereof  held or
received by or for Bank or any Bank  Affiliate  for any purpose,  whether or not
for the express purpose of serving as collateral  security for the  Obligations.
As used in this Note, the term "Obligations" means all amounts payable under

                                      -2-

<PAGE>

this Note and any and all other  indebtedness,  obligations  and  liabilities of
Maker to Bank, and all claims of Bank against  Maker,  now existing or hereafter
arising, direct or indirect (including participations or any interest of Bank in
indebtedness  of Maker  to  others),  acquired  outright,  conditionally,  or as
collateral  security from  another,  absolute or  contingent,  joint or several,
secured or unsecured,  matured or unmatured,  monetary or non-monetary,  arising
out of contract or tort, liquidated or unliquidated, arising by operation of law
or  otherwise,  and  all  extensions,  renewals,  refundings,  replacements  and
modifications of any of the foregoing.

In case of the occurrence of an Event of Default,  each Maker and indorser shall
be jointly and severally  liable for all costs of enforcement  and collection of
the Note  incurred by Bank or any other holder of this Note,  including  but not
limited to reasonable attorney's fees, disbursements and court costs.

Maker and each indorser hereby separately waive presentment, notice of dishonor,
protest and notice of protest,  and any or all other  notices or demands  (other
than  demand  for  payments)  in  connection  with  the  delivery,   acceptance,
performance,  default,  endorsement  or guarantee of this Note. The liability of
any Maker or indorser  hereunder shall be unconditional  and shall not be in any
manner  affected by any  indulgence  whatsoever  granted or  consented to by the
holder  hereof,  including  but not limited to any  extension of time,  renewal,
waiver or other  modification.  Any failure of the holder to exercise  any right
hereunder  shall not be  construed as a waiver of the right to exercise the same
or any  other  right at any time and from time to time  thereafter.  Bank or any
holder  may accept  late  payments,  or partial  payments,  even  though  marked
"payment in full" or  containing  words of similar  import or other  conditions,
without waiving any of its rights.  No amendment,  modification or waiver of any
provision of this Note nor consent to any departure by Maker  therefrom shall be
effective,  irrespective  of any course of dealing,  unless the same shall be in
writing and signed by Bank,  and then such waiver or consent  shall be effective
only in the specific instance and for the specific purpose for which given. This
Note cannot be changed or  terminated  orally or by estoppel or waiver or by any
alleged  oral  modification   regardless  of  any  claimed  partial  performance
referable thereto.

Any  notice  from  Bank to Maker or any  indorser  shall be  deemed  given  when
delivered  to Maker or such  indorser  by hand or when  deposited  in the United
States mail and addressed to Maker or such indorser at the last address of Maker
or such indorser appearing on Bank's records.

This Note shall be governed by and construed in accordance  with the laws of the
State of New York  applicable  to  instruments  made and to be performed  wholly
within  that  state.  If any  provision  of this Note is held to be  illegal  or
unenforceable  for any reason  whatsoever,  such illegality or  unenforceability
shall not affect the validity of any other provision hereof.

MAKER AND EACH INDORSER  AGREE THAT ANY ACTION,  DISPUTE,  PROCEEDING,  CLAIM OR
CONTROVERSY  BETWEEN  MAKER OR SUCH  INDORSER  AND  BANK,  WHETHER  SOUNDING  IN
CONTRACT, TORT OR OTHERWISE ("DISPUTE" OR "DISPUTES") SHALL, AT BANK'S ELECTION,
WHICH ELECTION MAY BE MADE AT ANY TIME PRIOR TO THE  COMMENCEMENT  OF A JUDICIAL
PROCEEDING BY BANK, OR IN THE EVENT OF A JUDICIAL PROCEEDING INSTITUTED BY MAKER
OR SUCH INDORSER AT ANYTIME PRIOR TO THE LAST DAY TO ANSWER AND/OR  RESPOND TO A
SUMMONS  AND/OR  COMPLAINT  MADE BY  MAKER  OR SUCH  INDORSER,  BE  RESOLVED  BY
ARBITRATION IN ACCORDANCE  WITH THE  PROVISIONS OF THIS PARAGRAPH AND SHALL,  AT
THE ELECTION OF BANK,  INCLUDE ALL DISPUTES ARISING OUT OF OR IN CONNECTION WITH
(1) THIS NOTE OR ANY RELATED  AGREEMENTS OR INSTRUMENTS,  (2) ALL PAST,  PRESENT
AND  FUTURE  AGREEMENTS  INVOLVING  MAKER OR SUCH  INDORSER  AND  BANK,  (3) ANY
TRANSACTION  RELATED TO THIS NOTE AND ALL PAST, PRESENT AND FUTURE  TRANSACTIONS
INVOLVING  MAKER OR SUCH  INDORSER  AND  BANK,  AND (4) ANY  ASPECT OF THE PAST,
PRESENT OR FUTURE  RELATIONSHIP  OF MAKER OR SUCH  INDORSER  AND BANK.  Bank may
elect to require  arbitration of any Dispute with Maker or any indorser  without
thereby being required to arbitrate all Disputes  between Bank and Maker or such
indorser.  Any  such  Dispute  shall  be  resolved  by  binding  arbitration  in
accordance  with Article 75 of the New York Civil Practice Law and Rules and the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"). In
the  event  of any  inconsistency  between  such  Rules  and  these  arbitration
provisions,  these  provisions  shall  supersede  such  Rules.  All  statutes of
limitations  which would otherwise be applicable  shall apply to any arbitration
proceeding under this paragraph.  In any arbitration  proceeding subject to this
paragraph, the arbitration panel (the "arbitrator") is specifically empowered to
decide  (by  documents  only,  or  with  a  hearing,  at the  arbitrator's  sole
discretion)  pre-hearing motions which are substantially  similar to pre-hearing
motions to dismiss and motions for summary adjudication. In any such arbitration
proceeding,  the  arbitrator  shall  not have the  power or  authority  to award
punitive  damages to any party.  Judgment upon the award rendered may be entered
in any court having  jurisdiction.  Whenever an  arbitration  is  required,  the
parties shall select an arbitrator in the manner provided in this paragraph.  No
provision of, nor the exercise of any rights under,  this paragraph  shall limit
the  right of Bank  (1) to  foreclose  against  any  real or  personal  property
collateral  through judicial  foreclosure,  by the exercise of the power of sale
under a deed of trust,  mortgage  or other  security  agreement  or  instrument,
pursuant to applicable  provisions of the Uniform  Commercial Code, or otherwise
herein pursuant to applicable law, (2) to exercise  self-help remedies including
but not limited to set-off and repossession, or (3) to request and obtain from a
court  having  jurisdiction  before,   during  or  after  the  pendency  of  any
arbitration,  provisional  or ancillary  remedies and relief  including  but not
limited to injunctive or mandatory relief or the appointment of a receiver.  The
institution and maintenance of an action or judicial  proceeding for, or pursuit
of,  provisional or ancillary  remedies or exercise of self-help  remedies shall
not constitute a waiver of the right of Bank, even if Bank is the plaintiff,  to
submit the  Dispute to  arbitration  if Bank would  otherwise  have such  right.
Whenever an arbitration is required under this paragraph,  the arbitrator  shall
be selected,  except as  otherwise  herein  provided,  -in  accordance  with the
Commercial  Arbitration  Rules of the AAA. A single  arbitrator shall decide any
claim of $100,000 or less and he or she shall be an attorney  with at least five
years'  experience.  Where the claim of any party exceeds $100,000,  the Dispute
shall be decided

                                      -3-
<PAGE>

by a majority of three arbitrators,  at least two of whom shall be attorneys (at
least one of whom shall have not less than five years'  experience  representing
commercial  banks). The arbitrator shall have the power to award recovery of all
costs and fees (including  attorneys' fees,  administrative  fees,  arbitrator's
fees,  and court  costs) to the  prevailing  party.  In the event of any Dispute
governed by this paragraph,  each of the parties shall,  subject to the award of
the arbitrator, pay an equal share of the arbitrator's fees.

MAKER AND EACH INDORSER AGREE THAT ANY ACTION,  SUIT OR PROCEEDING IN RESPECT OF
OR ARISING  OUT OF THIS NOTE MAY BE  INITIATED  AND  PROSECUTED  IN THE STATE OR
FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN NEW YORK COUNTY, NEW YORK AND ANY
ARBITRATION PROCEEDING PURSUANT HERETO SHALL BE CONDUCTED IN NEW YORK, NEW YORK.
MAKER AND EACH  INDORSER  CONSENT TO AND SUBMIT TO THE EXERCISE OF  JURISDICTION
OVER ITS PERSON BY ANY SUCH COURT HAVING  JURISDICTION  OVER THE SUBJECT MATTER,
WAIVE PERSONAL  SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENT THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO MAKER OR SUCH INDORSER
AT ITS ADDRESS  SET FORTH BELOW OR TO ANY OTHER  ADDRESS AS MAY APPEAR IN BANK'S
RECORDS AS THE ADDRESS OF MAKER OR SUCH INDORSER.

IN ANY  ACTION,  SUIT OR  PROCEEDING  IN RESPECT OF OR ARISING OUT OF THIS NOTE,
BANK,  MAKER AND EACH INDORSER  WAIVE TRIAL BY JURY, AND MAKER AND EACH INDORSER
ALSO  WAIVE (I) THE RIGHT TO  INTERPOSE  ANY  DEFENSE  BASED  UPON ANY CLAIMS OR
LACHES OR  SET-OFF  OR  COUNTERCLAIM'  OF ANY  NATURE OR  DESCRIPTION,  (II) ANY
OBJECTION  BASED ON FORUM  NON  CONVENIENS  OR  VENUE,  AND  (III) ANY CLAIM FOR
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.

Bank is  authorized  to fill in any blank spaces and to otherwise  complete this
Note and correct any patent errors herein.

                                               POLYMER RESEARCH CORP. OF AMERICA

                                               By: /s/ Carl Horowitz
                                                  ------------------
                                               Signature of Authorized Signatory

                                               Carl Horowitz      President
                                               -------------
                                               Print Name and Title
                                                                               '
                                               Address for Notices:
                                               2186 Mill Avenue
                                               Brooklyn, New York 11234

The Maker signing above is a:

              [ ]   partnership organized under the laws of

              [ ]   limited partnership organized under the laws of

              [ ]   not-for-profit corporation organized under the laws of_____

              [ ]   limited liability company organized under the laws of

              [X]   corporation organized under the laws of New York

                                      -4-
<PAGE>

                        LOANS AND PAYMENTS OF PRINCIPAL

                                         Amount of      Unpaid
           Loan       Amount of        Principal       Principal       Notation
Date       No.          Loan             Paid           Balance         Made By

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

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

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

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

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

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

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

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

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

                                      -5-

<PAGE>

                     CONTINUING GENERAL SECURITY AGREEMENT

                                                           Dated: March 20, 2000

As used in this Agreement:

"Collateral"  means all right,  title and  interest of the Obligor in and to any
and all of the following property, whether now or hereafter existing or acquired
and wherever  located,  all products and Proceeds  (including but not limited to
insurance proceeds) of such property, wherever located and in whatever form, and
all books and records  pertaining to such property and all other property of the
Obligor in which Bank now or hereafter is granted a security  interest  pursuant
to this Agreement or otherwise:

[mark or initial the applicable boxes]

Accounts, General Intangibles, Chattel Paper and Instruments

[ ] All Accounts  (including,  without  limitation,  all  accounts  receivable),
General  Intangibles  (including,  without  limitation,  contract rights and tax
refunds) and all returned or repossessed  Goods,  all Chattel Paper  (including,
without limitation, leases) and Instruments, and all interests of the Obligor in
all guarantees,  security  agreements and other property securing the payment or
performance of obligations under any of the foregoing.

Imported Inventory and Documents

[ ] All Imported Inventory,  and all Documents  (including,  without limitation,
all documents of title, transport or otherwise) relating to such Inventory.

Inventory and Documents

[ ] All Inventory of every description (including, without limitation,  Imported
Inventory, raw materials, work in process and finished Goods), and all Documents
(including,  without limitation, all documents of title, transport or otherwise)
relating to such Inventory.

Equipment

[ ] All Equipment of every description and all Accessions thereto.

Fixtures

[ ] All Fixtures of every description and all Accessions  thereto located at the
Collateral Location or at _________________________.

Specific Property

[  ]  All of the following property:

All Property

[X] All  property  of every  description  (including,  without  limitation,  all
Accounts, General Intangibles, Chattel Paper, Instruments, Inventory, Documents,
Equipment, Fixtures, Goods and all Accessions to any of the foregoing).

* If no box is marked, Collateral shall mean All Property.

"Collateral  Location"  means the  following  address(es)  where all  Collateral
consisting  of  Inventory,  Equipment,  Fixtures or other  tangible  property is
located: 2186 Mill Avenue, Brooklyn, New York 11234.

"Obligor"  means Polymer  Research  Corp.  of America,  and its  successors  and
assigns,  and if more than one Person is named as Obligor,  "Obligor" shall mean
each, any or all of them, and their liabilities and obligations  hereunder shall
be joint and several. Obligor is/are:

[ ]  individual(s).

[X]  a corporation organized under the laws of New York

[ ]  a partnership organized under the laws of______

[ ]  a limited partnership organized under the laws of____

[ ]  a limited liability company organized under the laws of_____

[ ]  other (specify)___________

     In   consideration   of  any   extension  of  credit  or  other   financial
accommodation heretofore, now or hereafter made by Bank to or for the account of
the  Obligor,  or to or for the account of any other  Person made by Bank at the
request  of the  Obligor  or with  respect  to which  the  Obligor's  agreements
hereunder have been required by Bank, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the Obligor, the
Obligor agrees as follows:

1.   Security  Interest:  Right of  Set-Off.  As  security  for the  prompt  and
     unconditional  payment of any and all Obligations,  the Obligor does hereby
     grant to Bank a  continuing  lien upon and  security  interest in, and does
     hereby pledge, assign and transfer to Bank, all of the Collateral, together
     with the cash and non-cash Proceeds thereof. In order to secure further the
     payment of the Obligations, Bank is hereby given a continuing lien upon and
     is granted a security  interest in any and all monies,  securities  and any
     and all other  property  of the Obligor and the  proceeds  thereof,  now or
     hereafter  actually or constructively  held or received by or in transit in
     any manner to or from Bank,  its  correspondents  or agents from or for the
     Obligor, whether for safekeeping, custody, pledge, transmission, collection
     or for any other

<PAGE>

     purpose  (whether or not for the  express  purpose of being used by Bank as
     collateral  security),  or  coming  into  the  possession  of  Bank  or its
     correspondents  or agents in any way,  or  placed in any safe  deposit  box
     leased by Bank to the Obligor,  and all such monies,  securities  and other
     property shall also  constitute  "Collateral"  and shall be held subject to
     all the terms of this  Agreement as collateral  security for the prompt and
     unconditional  payment of any and all  Obligations.  Obligor hereby assigns
     and grants Bank a security interest in, and Bank is also given a continuing
     lien on and/or  right of  set-off  for the amount of the  Obligations  with
     respect to, any and all  deposits  (general or special)  and credits of the
     Obligor with, any and all claims of the Obligor  against,  Bank at any time
     existing, and Bank is hereby authorized at any time or times, without prior
     notice,  to apply such  deposit or  credits,  or any part  thereof,  to the
     Obligations in such amounts as Bank may elect, although the Obligations may
     be contingent or unmatured, and whether the collateral security therefor is
     deemed adequate or not.

2.   Representations  of Obligor.  The Obligor  represents  and warrants to Bank
     that  (a)  no  financing  statement  or  other  filing  listing  any of the
     Collateral  as  collateral  is on file in any  jurisdiction  other than any
     financing  statement  filed on behalf of Bank,  as secured party and as set
     forth in  Schedule  A annexed  hereto  ("Permitted  Liens");  (b) the chief
     executive  office of the  Obligor,  if any,  is located at the  address set
     forth in the space provided therefor in this Agreement; (c) all Collateral,
     other than  intangible  property and property which is in the possession of
     Bank or its  agents,  is  located  at the  Collateral  Location(s)  and the
     Obligor  has no place of  business  other than the chief  executive  office
     specified herein, if any, and the Collateral  Location(s);  (d) the Obligor
     has not created and is not aware of any Lien on or affecting any Collateral
     other  than the Lien  created  by this  Agreement  in favor of Bank and the
     Permitted Liens; (e) if the Obligor is not a natural person, the execution,
     delivery and performance of this Agreement have been duly authorized by all
     required corporate, partnership or other applicable actions of the Obligor;
     (f) this  Agreement and the Line Letter each  constitutes a valid,  binding
     and enforceable obligation of the Obligor; (g) the execution,  delivery and
     performance  of this  Agreement and the Line Letter each do not violate any
     law or any agreement or  undertaking  to which the Obligor is a party or by
     which the Obligor may be bound and do not result in the  imposition  of any
     Lien upon any  Collateral  other than the Lien in favor of Bank  created by
     this Agreement; (h) all consents,  approvals,  authorizations,  permits and
     licenses  necessary  for the Obligor to enter and  perform its  obligations
     under  this  Agreement,  the Line  Letter,  and the  Obligations  and/or to
     conduct its business  have been  obtained;  (i) the Obligor did not have or
     conduct  business under any name or trade name in any  jurisdiction  during
     the past six years other than its name and trade  names,  if any, set forth
     on the signature page of this Agreement, and the Obligor is entitled to use
     such name and trade names;  and (j) the Obligor is the legal and beneficial
     owner of all Collateral specifically identified on page 1 of this Agreement
     (alongside  the box  designated  "Specific  Property")  and any  Collateral
     specifically   identified  in  any  rider,  schedule  or  exhibit  to  this
     Agreement.

3.   Covenants.  Unless and until all of the Obligations have been  indefeasibly
     paid in full and all  commitments  of Bank to  extend  credit  which,  once
     extended, would give rise to Obligations,  have expired or been terminated,
     the Obligor shall:  (a) keep the  Collateral  free and clear of any Lien of
     any kind other than the lien created by this  Agreement  and the  Permitted
     Liens; (b) promptly pay, when due, all taxes and  transportation,  storage,
     warehousing  and other  charges  and fees  affecting  or arising out of the
     Collateral and defend the Collateral  against all claims and demands of all
     Persons at any time claiming any interest therein adverse to or the same as
     that of Bank; (c) at all times keep all insurable Collateral insured at the
     expense of the Obligor to Bank's  satisfaction  against loss by fire, theft
     and any other risks to which the Collateral  may be subject,  and cause all
     such  policies  to be  endorsed  in favor of Bank and to name  Bank as loss
     payee and as an additional insured,  and, if Bank so requests,  deposit the
     same with Bank,  and cause all such  policies to provide  that each insurer
     will  give  Bank not  less  than 30 days  notice  in  writing  prior to the
     exercise  of any right of  cancellation;  (d) keep the  Collateral  in good
     condition  at all times  (normal wear and tear  excepted)  and provide Bank
     with such information as Bank may from time to time request with respect to
     the location of the  Collateral and the Obligor's  places of business;  (e)
     give  Bank at least 30 days'  prior  written  notice  before  changing  the
     Obligor's  name or chief  executive  office or  changing  the  location  or
     disposing of any Collateral  (other than in connection with the sale of any
     Inventory in the ordinary  course of  business);  (f) not sell or otherwise
     dispose of any Collateral  except on commercially  reasonable  terms and in
     the  ordinary  course of  business;  (g) permit  Bank,  by its officers and
     agents to have  access to,  examine  and copy at all  reasonable  times the
     Collateral,  properties,  minute books and other  corporate or  partnership
     records, books of accounts, and financial and other business records of the
     Obligor (including,  without limitation,  all books, records, ledger cards,
     computer  programs,  tapes  and  computer  disks  and  diskettes  and other
     property recording, evidencing or relating to any Collateral); (h) promptly
     notify  Bank  upon the  occurrence  of any  Event of  Default  of which the
     Obligor has knowledge;  (i) maintain,  with financially sound and reputable
     insurers,  with  companies  and in form  satisfactory  to the  Bank,  fire,
     hazard,  vandalism,  malicious  mischief,  business  interruption,   public
     liability,  flood and other insurance, all in coverage and amounts and upon
     other terms customary for companies engaged in the same or similar business
     and  similarly  situated to the  Borrower as the Bank may from time to time
     require,  and deliver to the Bank  certificates  of all such  insurance  in
     effect,  provided, that the amount of such insurance in effect from time to
     time shall in no event be less than One Million  ($1,000,000)  Dollars,  in
     the  aggregate  or such  other  amount as the Bank  shall from time to time
     approve.  Each  such  insurance  policy  shall  (aa)  name the Bank and its
     successors and assigns as their interests may appear, as additional insured
     and as sole loss payee,  as the case may be, (bb) insure the  interests  of
     the Bank and its  successors  and  assigns  regardless  of any breach of or
     violation by the Borrower of any representations,  warranties or conditions
     contained  therein,  and (cc)  provide that no  cancellation,  reduction in
     amount or change in  coverage  thereof  shall be  effective  until at least
     thirty (30) days after receipt by the Bank of written notice  thereof.  The
     Borrower  shall  deliver to the Bank copies of  renewals of each  insurance
     policy  maintained by the Borrower not later than thirty (30) days prior to
     the  expiration  date of  such  insurance  policy.  Regarding  proceeds  of
     insurance, the Bank may at its options apply such proceeds to the repayment
     of any of the Obligor's outstanding obligations to the Bank; (j) deliver to
     the Bank financial statements and reports required by the Line Letter.

4.   Events of Default.  The  occurrence  of any of the  following  events shall
     constitute an Event of Default:  (a) the failure of the Obligor to pay when
     due any of the  Obligations;  (b) any  representation  or  warranty  of the
     Obligor to Bank in

                                      -2-
<PAGE>

     this Agreement,  the Line Letter or any other  instrument or agreement with
     or in favor of Bank shall prove to be inaccurate or untrue;  (c) the breach
     by the Obligor of any covenant in this Agreement, or the Line Letter, or in
     any other  instrument or agreement with or in favor of Bank; (d) Bank shall
     in good  faith  deem  itself  insecure  at any  time  with  respect  to the
     Obligor's  financial  condition or ability to pay the  Obligations;  or (e)
     Bank shall have  determined in good faith that the value of the  Collateral
     has materially  decreased after the date of this Agreement.  The occurrence
     of any  of the  following  events  with  respect  to  any  Obligor,  maker,
     endorser,  acceptor,  surety or  guarantor  of, or any other  party to, the
     Obligations  or the Collateral  shall also  constitute an Event of Default:
     (aa) a default in respect of any  liabilities,  obligations  or agreements,
     present or future, absolute or contingent, secured or unsecured, matured or
     unmatured,   several  or  joint,  original  or  acquired,  of  any  of  the
     Responsible  Parties to or with Bank; (bb) death (in the case of any of the
     Responsible  Parties who is an individual)  or dissolution  (in the case of
     any of the  Responsible  Parties which is not a natural  person);  (cc) any
     default (after the lapse of any cure period ) which constitutes an Event of
     Default  under any Loan  document  (as  defined in the Line  Letter);  (dd)
     making, or sending a notice of, an intended bulk transfer;  (ee) granting a
     security  interest  (other than the  Permitted  Liens) to anyone other than
     Bank in the  Collateral;  (ff)  suspension  of  payment;  (gg) the whole or
     partial  suspension or  liquidation  of its usual  business;  (hh) failing,
     after  demand,  to furnish to Bank any financial  information  or to permit
     inspection   of  books  and   records   of   account;   (ii)   making   any
     misrepresentation  to Bank  for  the  purpose  of  obtaining  credit  or an
     extension  of credit;  (jj) failing to pay any tax, or failing to withhold,
     collect  or remit any tax or tax  deficiency  when  assessed  or due;  (kk)
     failing to pay when due any  obligations,  whether or not in writing;  (ll)
     making of any tax  assessment  by the United States or any state or foreign
     country;  (mm) entry of a judgment or issuance of an order of attachment or
     an  injunction  against,  or  against  any of the  property  of, any of the
     Responsible  Parties;  (nn)  commencement  against  any of the  Responsible
     Parties of any proceeding for enforcement of a money judgment under Article
     52 of the New York Civil Practice Law and Rules or amendments thereto; (oo)
     if  any of  the  Responsible  Parties  or if  any  of  the  Obligations  or
     Collateral  at any time fails to comply  with  Regulation  U of the Federal
     Reserve Board or any amendments thereto;  (pp) the issuance of any warrant,
     process or order of attachment, garnishment or lien, and/or the filing of a
     Lien as a result thereof against any of the property of the Obligor whether
     or not  Collateral;  (qq)  any of the  Responsible  Parties  challenges  or
     institutes  any  proceeding,  or  any  proceedings  are  instituted,  which
     challenge the validity, binding effect or enforceability of this Agreement;
     (rr) any of the Responsible Parties makes,  receives or retains any payment
     on account of indebtedness  subordinated to the Obligations in violation of
     the terms of such subordination; (ss) any of the Responsible Parties or any
     partnership of which any of the Responsible Parties is a member is expelled
     from or suspended by any stock or  securities  exchange or other  exchange;
     (tt)  any of the  Responsible  Parties  shall  make an  assignment  for the
     benefit of creditors or a composition  with  creditors,  shall be unable or
     admit in writing an inability to pay its  respective  debts as they mature,
     shall file a petition in bankruptcy,  shall become insolvent  (however such
     insolvency may be evidenced),  shall be adjudicated  insolvent or bankrupt,
     shall  petition  or  apply  to any  tribunal  for  the  appointment  of any
     receiver, liquidator or trustee of or for any of the Responsible Parties or
     any  substantial  part of the property of assets of any of the  Responsible
     Parties,   shall  commence  any  proceedings   relating  to  it  under  any
     bankruptcy,    reorganization,    arrangement,    readjustment   of   debt,
     receivership,   dissolution   or   liquidation   law  or   statute  of  any
     jurisdiction,  whether  now or  hereafter  in  effect,  or  there  shall be
     commenced  against any of the Responsible  Parties any such proceeding,  or
     any order, judgment or decree approving the petition in any such proceeding
     shall be entered,  or any of the  Responsible  Parties  shall by any act or
     failure to act indicate its consent to,, approval of or acquiescence in any
     such  proceeding  or in the  appointment  of any  receiver,  liquidator  or
     trustee of or for any of the Responsible Parties or any substantial part of
     the property or assets of any of the Responsible  Parties,  or shall suffer
     any such  appointment,  or any of the  Responsible  Parties  shall take any
     action for the purpose of effecting any of the  foregoing,  or any court of
     competent  jurisdiction shall assume  jurisdiction with respect to any such
     proceeding or a receiver or trustee or other officer or  representative  of
     the court or of creditors,  or any court,  governmental  officer or agency,
     shall  under  color of legal  authority,  take and hold  possession  of any
     substantial  part of the Collateral or the property or assets of any of the
     Responsible  Parties; or (uu) Bank shall in good faith deem itself insecure
     with respect to the financial condition of any of the Responsible Parties.

5.   Remedies of Bank.

     (a)  After  the  occurrence  of an Event of  Default,  Bank  shall  have no
          obligation  to make  further  loans,  extensions  of  credit  or other
          financial  accommodations to or on behalf of the Obligor,  anything in
          any other agreement to the contrary notwithstanding.

     (b)  After the  occurrence  of an Event of Default,  other than an Event of
          Default  referred to in clause (it) of the second  sentence of Section
          4, Bank may declare by notice to the Obligor,  any and all Obligations
          to be  immediately  due and  payable  and in the case of any  Event of
          Default referred to in clause (tt) of the second sentence of Section 4
          all of the  Obligations  shall  automatically  be and  become  due and
          payable in either case without presentment,  demand, protest or notice
          of any kind,  all of which are hereby waived by the Obligor,  anything
          in any other agreement to the contrary notwithstanding.

     (c)  After the occurrence of an Event of Default,  Bank may, without notice
          to or demand  (other than any notice  required  by law,  the giving of
          which is not  waivable),  upon the  Obligor  (all of which are  hereby
          waived  by the  Obligor),  without  releasing  the  Obligor  from  any
          obligation under this Agreement or any other instruments or agreements
          with Bank and without  waiving  any rights Bank may have or  impairing
          any  declaration  of default or election to cause the Collateral to be
          sold or any sale  proceeding  predicated  on they  same;  (i)  demand,
          collect or receive upon all or any part of the Collateral and assemble
          or require the Obligor,  at the Obligor's expense,  to assemble all or
          any part of the Collateral and, if Bank so requests, the Obligor shall
          assemble the Collateral and make it available to Bank at a place to be
          designated by Bank; (ii) without  notice,  demand or other process and
          without charge enter any of the Obligor's  premises and without breach
          of peace until Bank  completes  the  enforcement  of its rights in the
          Collateral,  take  possession of such premises or place  custodians in
          exclusive  control  thereof,  remain on such premises and use the same
          and any

                                      -3-
<PAGE>

          of  the  Obligor's   equipment  for  the  purpose  of  completing  any
          work-in-process,   preparing  any  Collateral  for   disposition   and
          disposing  of or  collecting  any  Collateral,  and in exercise of its
          rights under this  Agreement,  without  payment of compensation of any
          kind, use any and all trademarks,  trade styles, trade names, patents,
          patent applications,  licenses,  franchises and the like to the extent
          of the  Obligor's  rights  therein  and the  Obligor  hereby  grants a
          license and the right to grant sublicenses for that purpose;  (iii) in
          such manner and to such extent as Bank may deem  necessary  to protect
          the  Collateral or the  interests,  rights,  powers or duties of Bank,
          enter  into and upon any  premises  of the  Obligor  and take and hold
          possession of all or any part of the  Collateral  (the Obligor  hereby
          waiving and releasing any claim for damages in respect of such taking)
          and exclude the Obligor  and all other  Persons  from the  Collateral,
          operate and manage the Collateral and rent and lease the same, perform
          such  reasonable  acts of repair or  protection  as may be  reasonably
          necessary or proper to conserve the value of the  Collateral,  collect
          any and all  income,  rents,  issues,  profits and  proceeds  from the
          Collateral,  the same being hereby  assigned and  transferred to Bank,
          and from time to time apply or accumulate such income,  rents, issues,
          profits  and  proceeds  in such order and manner as Bank,  in its sole
          discretion, shall instruct, it being understood that the collection or
          receipt  of  income,  rents,  issues,  profits  or  proceeds  from the
          Collateral  after  declaration  of default  and  election to cause the
          Collateral  to be  sold  under  and  pursuant  to the  terms  of  this
          Agreement  shall  not  affect  or  impair  any  event  of  default  or
          declaration  of default under any agreement or instrument  between the
          Obligor and Bank or election to cause any Collateral to be sold or any
          sale  proceedings  predicated on the same, but such proceedings may be
          conducted and sale effected  notwithstanding the collection or receipt
          of any such income,  rents,  issues,  profits and proceeds;  (iv) take
          control of any and all of the  Accounts,  contractual  or other rights
          that are included in the Collateral and Proceeds arising from any such
          Accounts or contractual or other rights, enforce collection, either in
          the name of Bank or in the name of the  Obligor,  of any or all of the
          Accounts,  release or exchange all or any part of such  Collateral  or
          compromise,  settle,  extend or renew  (whether or not longer than the
          original period) any indebtedness under such Collateral;  (v) sell all
          or any part of the  Collateral at public or private sale at such place
          or places  and at such time or times and in such  manner and upon such
          terms,  whether for cash or credit,  a Bank in its sole discretion may
          determine; (vi) endorse in the name of Obligor any Instrument, however
          received by Bank,  representing  Collateral  or Proceeds of any of the
          Collateral;  (vii)  require the Obligor to turn over,  or instruct the
          financial  institutions  holding the same to turn over, all monies and
          investments in any of Obligor's  accounts to Bank; and (viii) exercise
          all the rights and remedies  granted to a secured  party under the New
          York Uniform  Commercial  Code and all other rights and remedies given
          to Bank under this  Agreement or any other  instrument or agreement or
          otherwise  available  at law or in  equity.  Bank  shall  be  under no
          obligation  to make any of the payments or do any of the acts referred
          to in this  Section 5 or elsewhere  in this  Agreement  and any of the
          actions  referred to in this Section 5 or elsewhere in this  Agreement
          may be taken  regardless  of whether any notice of default or election
          to sell has been given under this Agreement (provided,  however,  that
          all notices  required  by law,  the giving of which may not be waived,
          shall be given in  accordance  with  such law)  without  regard to the
          adequacy of the security for the Obligations.

     (d)  The Obligor hereby waives notice of the sale of any Collateral by Bank
          pursuant  to  any  provision  of  this  Agreement  or  any  applicable
          provisions of the Uniform  Commercial Code or other applicable law. In
          the event that  notice of the sale of  Collateral  cannot be waived or
          Bank  gives  notice  of such sale to the  Obligor,  Bank will give the
          Obligor  notice  of the  time  and  place  of any  public  sale of the
          Collateral  or of the time after which any  private  sale or any other
          intended  disposition  thereto  is to be made by  sending  notice,  as
          provided  below,  at least  five days  before  the time of the sale or
          disposition,  which  provisions  for notice the Obligor and Bank agree
          are  reasonable.  No such notice need be given by Bank with respect to
          Collateral  which is  perishable  or threatens to decline  speedily in
          value or is of a type customarily sold on a recognized market.

     (e)  Bank  may  apply  the  net  proceeds  of  any  sale,  lease  or  other
          disposition of Collateral,  after  deducting all costs and expenses of
          every kind incurred  thereon or  incidental to the retaking,  holding,
          preparing for sale, selling, leasing, or the like of the Collateral or
          in any  way  relating  to the  rights  of Bank  thereunder,  including
          attorneys' fees and expenses hereinafter provided for, to the payment,
          in whole or in part,  in such order as Bank may elect,  of one or more
          of the  Obligations,  whether due or not due,  absolute or contingent,
          making  proper  rebate for interest or discount on items not then due,
          and only after so applying  such net proceeds and after the payment by
          Bank of any other amounts required by any existing or future provision
          of law (including  Section  9-504(1)(c) of the Uniform Commercial Code
          of any  jurisdiction in which any of the Collateral may at the time be
          located) need Bank account for the surplus,  if any. The Obligor shall
          remain liable to Bank for the payment of any deficiency, with interest
          at  the  default  rate  provided  for  in  the  instruments,  if  any,
          evidencing the  Obligations,  but if there is no such  instrument with
          respect to any Obligation or no default rate is specified therein,  at
          a variable  rate equal to 4% above the Bank's  reference  lending rate
          applicable to domestic  commercial  loans as  established by Bank from
          time to time,  but in no event shall such rate exceed the maximum rate
          allowed by law.  Bank may make  loans to its  customers  above,  at or
          below its reference rate.

     (f)  Whether or not an Event of Default shall have occurred,  Bank may sell
          all or any part of the  Collateral,  although the  Obligations  may be
          contingent or unmatured,  whenever in its  discretion  Bank  considers
          such  sale  necessary  for its  protection.  Any such sale may be made
          without  prior  demand for  payment on account,  margin or  additional
          margin or any other demands whatsoever, the making of any such demands
          shall not establish a course of conduct nor constitute a waiver of the
          right of Bank to sell the  Collateral  as  herein  provided  or of the
          right of Bank to accelerate the maturity of the  Obligations as herein
          provided.

6.   Additional Rights of Bank and Duties of Obligor  Regarding  Obligations and
     Collateral.

                                      -4-
<PAGE>

     (a)  If the Obligor,  as registered holder of any Collateral,  shall become
          entitled to receive or does receive any stock  certificate,  option or
          right,  whether as an addition to, in substitution  of, or in exchange
          for, such Collateral,  or otherwise, the Obligor agrees to accept same
          as Bank's  agent and to hold same in trust for Bank,  and to forthwith
          deliver  the  same  to Bank  in the  exact  form  received,  with  the
          Obligor's  endorsement when necessary or requested by Bank, to be held
          by Bank as Collateral.

     (b)  The Obligor waives protest,  demand for payment,  notice of default or
          nonpayment to the Obligor or any other party liable for or upon any of
          said Obligations or Collateral.

     (c)  The Obligor  consents that the  obligation of any party upon or of any
          guarantor,  surety or indemnitor for any Obligations or any Collateral
          may,  from time to time,  in whole or in part,  be renewed,  extended,
          modified, accelerated,  compromised,  settled or released and that any
          Collateral  or Liens for any  Obligations  may,  from time to time, in
          whole or in part,  be exchanged,  sold,  released or  surrendered,  by
          Bank,  all  without  any  notice  to,  or  further  assent  by, or any
          reservation of rights against, the Obligor, and all without in any way
          affecting  or releasing  the  liability of the Obligor with respect to
          such Obligations or any security interest hereby created.

     (d)  Bank  shall not be liable for  failure to collect or realize  upon the
          Obligations or upon the  Collateral,  or any part thereof,  or for any
          delay in so doing,  nor shall Bank be under any obligation to take any
          action whatsoever with regard thereto.  Bank shall use reasonable care
          in the custody and  preservation  of the  Collateral in its possession
          but need not take any steps to preserve  rights  against prior parties
          or to keep the Collateral identifiable.  Bank shall have no obligation
          to comply with any recording,  re-recording, filing, refiling or other
          legal  requirements  necessary to establish or maintain the  validity,
          priority  or  enforceability  of,  or  Bank's  right  in  and  to  the
          Collateral  or any part  thereof.  Bank may  exercise any right of the
          Obligor  with  respect to any  Collateral.  Bank shall have no duty to
          exercise  any of the  aforesaid  rights,  privileges  or options  with
          respect to any Collateral and shall not be responsible for any failure
          to do so or delay in so doing.

     (e)  In any statutory or non-statutory  proceeding affecting the Obligor or
          any  Collateral,  Bank or its nominee may,  whether or not an Event of
          Default  shall  have  occurred  and  regardless  of the  amount of the
          Obligations,  file a  proof  of  claim  for  the  full  amount  of any
          Collateral  and vote such Claim for the full amount thereof (i) for or
          against any proposal or resolution;  (ii) for a trustee or trustees or
          for a committee  of  creditors;  and/or  (iii) for the  acceptance  or
          rejection of any proposed  arrangement,  plan of reorganization,  wage
          earners' plan,  composition or extension;  and Bank or its nominee may
          receive any payment or distribution and give acquittance  therefor and
          may exchange or release any Collateral.

     (f)  Whether or not an Event of  Default  shall  have  occurred,  Bank may,
          without notice to or demand upon the Obligor, (i) commence,  appear in
          or defend any  action or  proceeding  purporting  to affect all or any
          part of the Collateral or the interests,  rights,  powers or duties of
          Bank,  whether brought by or against the Obligor or Bank;  and/or (ii)
          pay, purchase,  contest or compromise any claim, debt, lien, charge or
          encumbrance  which in the  judgement  of Bank may  affect or appear to
          affect the  Collateral or the interests,  rights,  powers or duties of
          Bank.

     (g)  Any  and  all  stocks,  bonds  or  other  securities  held  by Bank as
          Collateral hereunder may, without notice (and whether or not a default
          exists),  be  registered  in the name of Bank or its  nominee  without
          disclosing  that Bank is a  pledgee.  Bank  (whether  or not a default
          exists and regardless of the amount of the Obligations) or its nominee
          may,  without notice,  exercise all voting and corporate rights at any
          meeting  of any  corporation  issuing  such  stocks,  bonds  or  other
          securities,  and exercise any and all rights of conversion,  exchange,
          subscription or any other rights,  privileges or options pertaining to
          such  stocks,  bonds  or other  securities  as if the  absolute  owner
          thereof, including,  without limitation, the right to exchange, at its
          discretion,  any and all of such stocks, bonds or other securities for
          other stocks, bonds, securities or any other property upon the merger,
          consolidation, reorganization,  recapitalization or other readjustment
          of any  corporation  issuing  the  same or upon  the  exercise  by the
          issuing  corporation  or  Bank  of  any  right,  privilege  or  option
          pertaining  to  such  stocks,  bonds  or  other  securities,   and  in
          connection  therewith,  to  deposit  and  deliver  any and all of such
          stocks,  bonds or other  securities  with any  committee,  depositary,
          transfer agent,  registrar or other designated  agency upon such terms
          and conditions as it may determine,  all without  liability  except to
          account for property  actually received by it. Bank shall have no duty
          to exercise any of the  aforesaid  rights,  privileges  or options and
          shall not be responsible  for any failure to do so or for any delay in
          so doing.

7.   Sale of Collateral  Consisting of Securities.  The Obligor  recognizes that
     Bank may be  unable  to effect a public  sale of any  securities  which may
     constitute a portion of the  Collateral  by reason of certain  prohibitions
     contained in the  Securities Act of 1933 and  applicable  state  securities
     laws and instead may resort to one or more private sales of such Collateral
     to a restricted  group of purchasers  who would be obliged to agree,  among
     other  things,  to.  acquire  such  securities  for their own  account  for
     investment and not with a view to the  distribution or resale thereof.  The
     Obligor recognizes and agrees that,  because of this restriction,  sales of
     securities  may result in prices  and other  terms  less  favorable  to the
     seller  than if the  disposition  were made  pursuant to a public sale and,
     notwithstanding such circumstances, agrees that any such private or limited
     sale or  sales  shall  be  deemed  to  have  been  made  in a  commercially
     reasonable manner. Bank shall be under no obligation to delay a sale of any
     of any of the securities constituting part of the Collateral for the period
     of time necessary to permit the issuer of such  securities to register them
     for public sale under the Securities Act of 1933 or under  applicable state
     securities law.

                                      -5-
<PAGE>

8.   Collection Rights of Bank. The Obligor agrees that at any time,  whether or
     not an Event of Default shall have  occurred,  Bank shall have the right to
     notify an account  debtor (with  respect to any  Collateral  consisting  of
     Accounts),  or the obligor on any Instrument or other right or claim of the
     Obligor to any payment  which is  Collateral,  to make payment  directly to
     Bank,  whether or not Event of Default  shall have  occurred and whether or
     not the Obligor was theretofore making collections on such Collateral,  and
     also to take  control of any  Proceeds  Bank is entitled  to under  Section
     9-306 of the New York Uniform  Commercial Code. If any Collateral  consists
     of  Accounts,  Instruments  or other rights or claims of the Obligor to any
     payment,  then at Bank's request,  the Obligor shall promptly  notify,  (in
     manner,  form and substance  satisfactory to Bank) all Persons obligated to
     the Obligor under any such Accounts,  Instruments or other rights or claims
     of the Obligor to any payment  that Bank  possesses a security  interest in
     such Accounts,  Instruments or other rights or claims of the Obligor to any
     payment and that all payments in respect of such Accounts,  Instruments, or
     other  rights  or  claims  of the  Obligor  to any  payment  are to be made
     directly to Bank.  The Obligor  shall not settle,  compromise or adjust any
     disputed  amount,  or allow any credit,  rebate or discount with respect to
     any  Account,  Instrument  or other  right or claim of the  Obligor  to any
     payment  which  constitutes  Collateral.  After  Bank  shall have given any
     notice of the type  specified in the first  sentence of this Section 8, any
     and all amounts  received by the Obligor  from the account  debtor or other
     obligor  so  notified  shall be  promptly  remitted  to Bank,  and until so
     remitted shall be segregated by the Obligor and held in trust for Bank.

9.   Additional  Security.  If Bank  shall at any  time  hold  security  for any
     Obligations  in addition to the  Collateral,  Bank may enforce the terms of
     this  Agreement or otherwise  realize upon the  Collateral,  at its option,
     either  before or  concurrently  with the  exercise  of remedies as to such
     other  security  or,  after a sale is made of such other  security,  it may
     apply the proceeds upon the Obligations  without affecting the status of or
     waiving  any right to  exhaust  all or any other  security,  including  the
     Collateral, and without waiving any breach or default or any right or power
     whether  exercised  under this Agreement,  contained in this Agreement,  or
     provided for in respect of any such security.

10.  Preservation and Protection of Security  Interest:  Power of Attorney.  The
     Obligor will  faithfully  preserve  and protect the Lien in the  Collateral
     created by this Agreement and will, at its own cost and expense, cause such
     Lien to be  perfected  and  continue to be  perfected  and to be and remain
     prior to all other Liens, so long as all or any part of the Obligations are
     outstanding and unpaid,  and for such purpose the Obligor will from time to
     time at the request of Bank (i) make notations of the security  interest in
     certificates  of title  of  Collateral,  a  security  interest  in which is
     perfected  by such  notation,  and deliver the same to Bank,  (ii)  deliver
     possession  of  Collateral   (concurrent   with  the  acquisition  of  such
     Collateral)  to Bank,  a security  interest  in which is  perfected  by the
     taking of  possession,  and (iii) file or  record,  or cause to be filed or
     recorded,  such  instruments,  documents and notices,  including  financing
     statements  and  continuation  statements,  as  Bank  may  reasonably  deem
     necessary or  advisable  from time to time in order to perfect and continue
     to perfect such Liens and to maintain  their priority over all other Liens.
     The  Obligor  will do all such other acts and things and will  execute  and
     deliver  all  such  other  instruments  and  documents,  including  further
     security agreements, pledges, endorsements, assignments and notices as Bank
     may  reasonably  deem  necessary or advisable from time to time in order to
     perfect  and  preserve  the  priority  of the  Liens in the  Collateral  as
     contemplated  by  this  Agreement.   Bank,  acting  through  its  officers,
     employees  and  authorized  agents,  is hereby  irrevocably  appointed  the
     attorney-in-fact  of the Obligor to do, at the Obligor's expense,  all acts
     and  things  which Bank may  reasonably  deem  necessary  or  advisable  to
     preserve, perfect, continue to perfect and/or maintain the priority of such
     Liens in the Collateral,  including the signing of financing,  continuation
     or other similar statements and notices on behalf of the Obligor, and which
     the Obligor is required  to do by the terms of the  Agreement.  The Obligor
     hereby  authorizes Bank to sign and file financing  statements with respect
     to the Collateral  without the signature of the Obligor.  The Obligor shall
     pay  all  filing  fees  for  financing   statements  with  respect  to  the
     Collateral.

11.  Risk of Loss:  Insurance.  Risk of loss,  damage to or  destruction  of the
     Collateral  is and shall remain upon the Obligor.  If the Obligor  fails to
     obtain and keep in force  insurance  covering the Collateral as required by
     Section 3 of this Agreement, or fails to pay the premiums on such insurance
     when due,  Bank may,  but is not  obligated to do so for the account of the
     Obligor and the cost of so doing shall thereupon become an Obligation. Such
     amounts  shall  be  payable  by the  Obligor  upon  demand  by the Bank and
     following  demand shall bear  interest at a variable rate equal to 4% above
     the Bank's reference  lending rate applicable to domestic  commercial loans
     as  established  by Bank from time to time, but in no event shall such rate
     exceed the maximum rate allowed by law. Bank,  acting through its officers,
     employees  and  authorized  agents,  is hereby  irrevocably  appointed  the
     attorney-in-fact  of the  Obligor to endorse any draft or check that may be
     payable to the Obligor in order to collect the  proceeds of such  insurance
     or any return or unearned premiums.

12.  Change  of  Law.  In the  event  of the  passage,  after  the  date of this
     Agreement,  of any law which has the effect of changing in any way the laws
     now in force for the taxation of security  documents such as this Agreement
     or debts secured by such security documents or the manner of the collection
     of any such taxes so as in any case to affect this  Agreement  or to impose
     payment  of the whole or any  portion of any  taxes,  assessments  or other
     similar charges  against the Collateral  upon Bank, the  Obligations  shall
     immediately  become due and payable at the option of Bank and upon 30 days'
     notice to the Obligor.

13.  Expenses. The Obligor hereby agrees to pay any and all expenses incurred by
     Bank in enforcing  any rights under this  Agreement or in defending  any of
     its  rights  to  any  amounts  received  hereunder.  Without  limiting  the
     foregoing, the Obligor agrees that whenever any attorney is used by Bank to
     obtain payment hereunder,  to advise it as to its rights, to adjudicate the
     rights of the parties  hereunder or for the defense of any of its rights to
     amounts  secured,  received  or to be  received  hereunder,  Bank  shall be
     entitled to recover all reasonable attorneys' fees and distributions, court
     costs and all other expenses attributable thereto.

                                      -6-
<PAGE>

14.  Notices. Each notice or other communication  hereunder shall be in writing,
     shall be sent by messenger, by registered or certified mail or by facsimile
     transmitter or tested telex, and shall be effective when sent, and shall be
     sent as follows:

     If to the  Obligor,  to the address set forth below its  signature  or such
     other  address as it may  designate,  by  written  notice to Bank as herein
     provided  or to any other  address as may appear in the  records of Bank as
     Obligor's address.

     If to Bank, The Dime Savings Bank of New York,  FSB, 589 Fifth Avenue,  New
     York, New York 10017,  Attention:  Gary Olson,  or such other address as it
     may designate, by written notice to the Obligor as herein provided.

15.  Additional  Definitions.  The following  terms have the  following  meaning
     unless otherwise specified herein:

     "Accessions,"   "Account,"   "Chattel  Paper,"   "Document,"   "Equipment,"
     "Fixtures," "General  Intangibles,"  "Goods,"  "Instrument" and "Inventory"
     have  the  meanings  assigned  to  those  terms  by the  New  York  Uniform
     Commercial Code, as amended.

     "Agreement" means this Continuing General Security Agreement.

     "Bank" means The Dime Savings Bank of New York, FSB, a federally  chartered
     savings bank, its successors and assigns, and any Person acting as agent or
     nominee for The Dime Savings Bank of New York, FSB and any  corporation the
     stock of which is owned or  controlled  directly  or  indirectly  by, or is
     under common control with, The Dime Savings Bank of New York, FSB.

     "Claims" means each "claim" as that term is defined under Section 101(4) of
     the United States  Bankruptcy  Code, and any amendments  thereto (Title 11,
     United States Code).

     "Event of Default"  means any of the events  described in Section 4 of this
     Agreement.

     "Imported   Inventory"   means  all  Inventory  of  the  Obligor  of  every
     description (including,  without limitation, raw materials, work in process
     and finished Goods)  imported from outside of the United States,  including
     but not limited to Inventory  consisting of parts or components produced in
     whole or in part in the United States and sent outside of the United States
     for assembly, completion or packaging.

     "Lien"  means  any  lien,   security   interest,   pledge,   hypothecation,
     encumbrance or other claim in or with respect to any property.

     "Line  Letter"  means the Line of Credit  Agreement  of even date  herewith
     among the Bank, the Obligor and others, as amended from time to time.

     "Term  Note"  means  the  term  note of Maker in the  principal  amount  of
     $500,000 and any renewal or replacements thereof.

     "Demand  Grid Note"  means the demand  grid note of Maker in the  principal
     amount of $250,000 of even date  herewith  and any renewal or  replacements
     thereof.

     "Obligations"  means  the Term  Note,  Demand  Grid  Note,  and any and all
     indebtedness, obligations and liabilities of the Obligor to Bank, including
     but not  limited to (i) those  arising  from the payment of checks or other
     orders  for the  payment  of monies  drawn on  accounts  maintained  by the
     Obligor with the Bank in excess of the  collected  funds on deposit in such
     accounts, (ii) those arising from or related to letters of credit issued on
     behalf  of the  Obligor  through  the Bank,  and  (iii) all  Claims of Bank
     against the Obligor, now existing or hereafter arising,  direct or indirect
     (including  participations  or any interest of Bank in  indebtedness of the
     Obligor to others),  acquired  outright,  conditionally,  or as  collateral
     security from another, absolute or contingent, joint or several, secured or
     unsecured, matured or unmatured,  monetary or non-monetary,  arising out of
     contract or tort,  liquidated or unliquidated,  arising by operation of law
     or otherwise, and all extensions,  renewals,  refundings,  replacements and
     modifications of any of the foregoing.

     "Person"  means  any  natural  person,  corporation,   partnership,  trust,
     government or other association or legal entity.

     "Proceeds"  has the meaning  assigned  to the term by the New York  Uniform
     Commercial  Code, as amended,  and also means all  "proceeds,"  "products,"
     "offspring," "rents" or "profits" of any property, as such quoted terms are
     used in the United  States  Bankruptcy  Code,  and any  amendments  thereto
     (Title 11, United States Code).

     "Responsible  Parties"  includes all  Obligors  and all makers,  endorsors,
     acceptors,  sureties  and  guarantors  of,  and all other  parties,  to the
     Obligations or the Collateral.

16.  Miscellaneous.  This  Agreement  shall  remain in full force and effect and
     shall  be  binding  upon  the  Obligor,  its  successors  and  assigns,  in
     accordance with its terms, notwithstanding any increase, decrease or change
     in the  partners  of the  Obligor,  if it should be a  partnership,  or the
     merger,  consolidation,  or  reorganization  of  the  Obligor,  if  it be a
     corporation,  or  any  other  change  concerning  the  form,  structure  or
     substance  of any such entity or any other legal  entity.  If there is more
     than one Person named as an Obligor in this Agreement, this Agreement shall
     be binding upon each of the Obligors who execute and deliver this Agreement
     to Bank even if this  Agreement  is not  executed  by any  other  Person or
     Persons also named as an Obligor  herein.  Bank may assign all or a portion
     of its rights under this

                                      -7-
<PAGE>

     Agreement  and may  deliver the  Collateral,  or any part  thereof,  to any
     assignee  and such  assignee  shall  thereupon  become  vested with all the
     powers  and  rights  given  to Bank in  respect  thereof;  and  Bank  shall
     thereafter  be  forever  relieved  and  discharged  from any  liability  or
     responsibility  in the matter but with  respect  to any  Collateral  not so
     delivered or assigned,  Bank shall retain all powers and rights given to it
     hereby.  The execution  and delivery  hereafter to Bank by the Obligor of a
     new  security  agreement  shall not  terminate,  supersede  or cancel  this
     Agreement,  unless expressly provided therein, and this Agreement shall not
     terminate,  supersede or cancel any security agreement previously delivered
     to Bank by the Obligor,  and all rights and  remedies of Bank  hereunder or
     under any security agreement hereafter or heretofore executed and delivered
     to Bank by the Obligor shall be cumulative  and may be exercised  singly or
     concurrently.  This Agreement may not be changed or terminated  orally, but
     only by a writing executed by the Obligor and a duly authorized  officer of
     Bank.  Unless  Bank,  in its  discretion,  otherwise  agrees,  the security
     interests  granted in this Agreement  shall not terminate  until all of the
     Obligations have been indefeasibly paid in full and all commitments of Bank
     to extend credit which, once extended, would give right to Obligations have
     expired or been terminated.  No delay on the part of Bank in exercising any
     of its options,  powers or rights,  or partial or single exercise  thereof,
     shall  constitute  a waiver  thereof.  No  modification  or  waiver of this
     Agreement or any provision  hereof or of any other  agreement or instrument
     made or issued in connection  herewith or contemplated  hereby, nor consent
     to any departure by the Obligor therefrom, shall in any event be effective,
     irrespective of any course of dealing between the parties,  unless the same
     shall be in a writing  executed by a duly  authorized  officer of Bank, and
     then  such  waiver  or  consent  shall be  effective  only in the  specific
     instance  and for the  specific  purpose  of which  given.  No notice to or
     demand on the Obligor in any case shall thereby  entitle the Obligor to any
     other  or  further  notice  or  demand  in  the  same,   similar  or  other
     circumstances.   The  remedies  herein  provided  are  cumulative  and  not
     exclusive of any other  remedies  provided at equity or by law and all such
     remedies may be exercised singly or concurrently. If any one or more of the
     provisions  contained  in  this  Agreement  or  any  document  executed  in
     connection  herewith  shall be  invalid,  illegal or  unenforceable  in any
     respect under any applicable law, the validity, legality and enforceability
     of the remaining  provisions contained herein shall not (to the full extent
     permitted  by law) in any way be  affected  or  impaired.  The  descriptive
     headings used in this Agreement are for  convenience  only and shall not be
     deemed to affect the meaning or construction of any provision  hereof.  The
     word  "including"  shall be deemed  to be  followed  by the words  "without
     limitation."  The Obligor  waives any and all notice of the  acceptance  of
     this Agreement by Bank, or of the creation, accrual or maturity (whether by
     declaration or otherwise) of any and all Obligations, or of any renewals or
     extensions  thereof  from  time to  time,  or of  Bank's  reliance  on this
     Agreement.

17.  Governing Law: Consent to Jurisdiction'  Service of Process. This Agreement
     shall be governed by and construed in accordance with the laws of the State
     of New York applicable to contracts made and to be performed  wholly within
     that state.  The Obligor hereby consents to the  jurisdiction of the courts
     of the State of New York and the courts of the United States of America for
     the  Southern  District  of New  York  and  consents  that  any  action  or
     proceeding  hereunder  may be  brought  in  such  courts,  and  waives  any
     objection that it may now or hereafter have to the venue of any such action
     or  proceeding  in any such  court or that such  action or  proceeding  was
     brought in an inconvenient court and agrees not to plead or claim the same;
     and  authorizes  the  service of process on the  Obligor by  registered  or
     certified  mail sent to any address  authorized in Section 14 as an address
     for the sending of notices.

18.  RIGHT OF BANK TO ARBITRATE DISPUTES.

     (a)  THE  OBLIGOR  AGREES THAT ANY ACTION,  DISPUTE,  PROCEEDING,  CLAIM OR
          CONTROVERSY BETWEEN OR AMONG THE PARTIES WHETHER SOUNDING IN CONTRACT,
          TORT OR OTHERWISE ("DISPUTE" OR "DISPUTES") SHALL, AT BANK'S ELECTION,
          WHICH ELECTION MAY BE MADE AT ANY TIME PRIOR TO THE  COMMENCEMENT OF A
          JUDICIAL  PROCEEDING BY BANK, OR IN THE EVENT OF A JUDICIAL PROCEEDING
          INSTITUTED  BY THE OBLIGOR AT ANY TIME PRIOR TO THE LAST DAY TO ANSWER
          AND/OR RESPOND TO A SUMMONS AND/OR  COMPLAINT MADE BY THE OBLIGOR,  BE
          RESOLVED BY ARBITRATION  IN NEW YORK, NEW YORK IN ACCORDANCE  WITH THE
          PROVISIONS  OF THIS  SECTION 18 AND SHALL,  AT THE  ELECTION  OF BANK,
          INCLUDE ALL  DISPUTES  ARISING OUT OF OR IN  CONNECTION  WITH (I) THIS
          AGREEMENT OR ANY RELATED  AGREEMENTS  OR  INSTRUMENTS,  (II) ALL PAST,
          PRESENT  AND  FUTURE  AGREEMENTS  INVOLVING  THE  PARTIES,  (III)  ANY
          TRANSACTION  CONTEMPLATED  HEREBY  AND ALL PAST,  PRESENT  AND  FUTURE
          TRANSACTIONS  INVOLVING  THE  PARTIES AND (IV) ANY ASPECT OF THE PAST,
          PRESENT  OR  FUTURE  RELATIONSHIP  OF THE  PARTIES.  Bank may elect to
          require  arbitration of any Dispute with the Obligor  without  thereby
          being required to arbitrate all Disputes between Bank and the Obligor.
          Any  such  Dispute  shall  be  resolved  by  binding   arbitration  in
          accordance  with  Article  75 of the New York Civil  Practice  Law and
          Rules and the Commercial Arbitration Rules of the American Arbitration
          Association  ("AAA").  In the event of any inconsistency  between such
          Rules  and  these  arbitration  provisions,   these  provisions  shall
          supersede  such  Rules.  All  statutes  of  limitations   which  would
          otherwise  be  applicable  shall apply to any  arbitration  proceeding
          under this subsection 18(a). In any arbitration  proceeding subject to
          these  provisions,   the  arbitration  panel  (the   "arbitrator")  is
          specifically  empowered  to  decide  (by  documents  only,  or  with a
          hearing,  at the  arbitrator's  sole discretion)  pre-hearing  motions
          which are substantially  similar to pre-hearing motions to dismiss and
          motions for summary adjudication.  In any such arbitration proceeding,
          the arbitrator shall not have the power or authority to award punitive
          damages to any party.  Judgment upon the award rendered may be entered
          in any court having jurisdiction. Whenever an arbitration is required,
          the  parties  shall  select an  arbitrator  in the manner  provided in
          subsection 18(d).

     (b)  No  provision  of, nor the  exercise of any rights  under,  subsection
          18(a) shall limit the right of any party (i) to foreclose  against any
          real or personal property collateral through judicial foreclosure,  by
          the  exercise  of a power of sale under a deed of trust,  mortgage  or
          other  security  agreement  or  instrument,   pursuant  to  applicable
          provisions of the Uniform  Commercial  Code, or otherwise  pursuant to
          applicable law, (ii) to

                                      -8-
<PAGE>

          exercise  self help  remedies  including but not limited to setoff and
          repossession,  or (iii) to  request  and  obtain  from a court  having
          jurisdiction before,  during or after the pendency of any arbitration,
          provisional or ancillary remedies and relief including but not limited
          to injunctive or mandatory  relief or the  appointment  of a receiver.
          The institution  and  maintenance of an action or judicial  proceeding
          for, or pursuit of,  provisional or ancillary  remedies or exercise of
          self help remedies shall not constitute a waiver of the right of Bank,
          even if Bank is the plaintiff, to submit the Dispute to arbitration if
          Bank would otherwise have such right.

     (c)  Bank  may  require  arbitration  of  any  Dispute(s)   concerning  the
          lawfulness,  unconscionableness,  propriety,  or reasonableness of any
          exercise of Bank of its right to take or dispose of any  Collateral or
          its  exercise  of  any  other  right  in  connection  with  Collateral
          including,  without  limitation,  judicial  foreclosure,  exercising a
          power  of  sale  under a deed  of  trust  or  mortgage,  obtaining  or
          executing a writ of  attachment,  taking or disposing of property with
          or without  judicial  process  pursuant  to  Article 9 of the  Uniform
          Commercial   Code  or  otherwise  as  permitted  by  applicable   law,
          notwithstanding any such exercise by Bank.

     (d)  Whenever  an  arbitration  is required  under  subsection  18(a),  the
          arbitrator shall be selected,  except as otherwise herein provided, in
          accordance with the Commercial  Arbitration Rules of the AAA. A single
          arbitrator  shall  decide any claim of  $100,000 or less and he or she
          shall be an attorney with at lease five years'  experience.  Where the
          claim of any party exceeds $100,000, the Dispute shall be decided by a
          majority  vote of three  arbitrators,  at least  two of whom  shall be
          attorneys  (at least one of whom shall have not less than five  years'
          experience representing commercial banks).

     (e)  In the event of any Dispute  governed by this  Section 18, each of the
          parties shall,  subject to the award of the  arbitrator,  pay an equal
          share of the arbitrator's fees. The arbitrator shall have the power to
          award  recovery  of all costs  and fees  (including  attorneys'  fees,
          administrative  fees,  arbitrator's  fees,  and  court  costs)  to the
          prevailing party.

19.  WAIVER OF TRIAL BY JURY.  EACH OF BANK AND THE OBLIGOR  HEREBY WAIVES TRIAL
     BY JURY IN ANY ACTION,  PROCEEDING OR COUNTERCLAIM BROUGHT BY OR AGAINST IT
     ON ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR IN ANY
     WAY CONNECTED WITH THIS AGREEMENT OR THE OBLIGATIONS.

20.  WAIVER OF CERTAIN  OTHER  RIGHTS.  THE OBLIGOR  HEREBY  WAIVES THE RIGHT TO
     INTERPOSE  ANY  DEFENSE  BASED  UPON ANY  CLAIMS OR LACHES  OR  SET-OFF  OR
     COUNTERCLAIM OF ANY NATURE OR DESCRIPTION, ANY OBJECTION BASED ON FORUM NON
     CONVENIENS OR VENUE, AND ANY CLAIM FOR  CONSEQUENTIAL,  PUNITIVE OR SPECIAL
     DAMAGES.  IN  WITNESS  WHEREOF,   the  Obligor(s)  has/have  executed  this
     Continuing General Security Agreement.

Chief Executive Office:                     POLYMER RESEARCH CO P. OF AMERICA
2186 Mill Avenue
Brooklyn, New York, 11234 By.
                                            By: /s/Carl Horowitz
                                               --------------------
                                                   Carl Horowitz

                                            Title: President

[CORPORATE SEAL]

                                      -9-
<PAGE>

STATE OF NEW YORK )
                 ss:
COUNTY OF KINGS  )

     On this 20th day of March 2000,  before me personally came Carl Horowitz to
me known who,  being duly sworn,  deposed and said that he is the  President  of
POLYMER  RESEARCH  CORP.  OF AMERICA,  the  corporation  described  in and which
executed the above instrument;  that he knows the seal of the corporation;  that
the seal  affixed to said  instrument  is such  corporate  seal;  that it was so
affixed by order of the Board of Directors of said corporation and he signed his
name by like order.

                                      -10-
<PAGE>

CERTIFICATE

I, Anna Dichter do hereby certify as follows:

1.   I am the duly elected,  qualified and acting  Secretary of POLYMER RESEARCH
     CORP. OF AMERICA, a New York corporation (the "Company"), and as such, have
     the care and custody of the books and records of the Company, have personal
     knowledge of the matters set forth herein,  and have authority to make this
     Certificate for and on behalf of the Company.

2.   At a special  meeting of the Board of Directors  of the Company,  called in
     accordance  with the  provisions  of the  organizational  documents  of the
     Company and held on ___________, ____, or pursuant to the unanimous written
     consent of the Directors of the Company dated March 17, 2000, as authorized
     by the organizational  documents of the Company, the following  resolutions
     were adopted by unanimous vote or consent:

          WHEREAS,  the Company  desires The Dime Savings Bank of New York,  FSB
          (hereinafter  referred to as the "Bank") hereafter to extend credit or
          other  financial  accommodations  to the  Company  upon such terms and
          conditions as may be required by the Bank.

          IT IS, THEREFORE, RESOLVED, that pursuant to a demand grid note in the
          amount of  $250,000  and a term note in the  amount of  $500,000,  the
          Company  borrow  from the Bank and shall  grant to the Bank a security
          interest in property of the Company  designated by any duly authorized
          representative of the Company to secure any and all obligations of the
          Company to the Bank, whether now existing or hereafter incurred; and

          FURTHER  RESOLVED,  that any  duly  authorized  representative  of the
          Company be, and each of them  hereby is,  authorized  and  directed to
          execute,  and the  President  or  Secretary  of the  Company is hereby
          authorized  and  directed  to  attest  to and to affix the seal of the
          Company to, any security agreements and other instruments or documents
          related thereto, in the form required by the Bank; and

          FURTHER   RESOLVED,   that  the  Company  shall  agree  to  submit  to
          arbitration  and to waive the right of trial by jury with  respect  to
          any  dispute  arising  under such  security  agreement  or any related
          document.

3.   I further certify that the foregoing  resolutions  remain in full force and
     effect and have not been rescinded or modified in any manner whatsoever and
     neither  their  adoption nor their  implementation  violates the  Company's
     organizational  documents or  constitutes  a default under any agreement or
     indenture to which the Company is a party or by which it is bound.

IN WITNESS WHEREOF, I have set my hand and the seal of the Company this 2oth day
of March 2000.

[SEAL]                                  POLYMER RESEARCH CORP. OF AMERICA

                                        By: /s/ Anne Dichter
                                           -----------------
                                        Title: Secretary

                                      -11-
<PAGE>

Schedule A

Permitted Liens

Name of Secured Party             Description of Collateral
---------------------             -------------------------

(a) Clarklift of New York, Inc.   Clark Forklift Truck, Forks, Battery & Charger

(b) Liens in favor of Tama Realty Co. or its successor or assigns, which are to
                    (Name of Mortgagor)
be terminated after payment  from the  proceeds  of the,  Term Loan to be made
 pursuant to the Line Letter.

                                      -12-

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