Document:

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                                                                    EXHIBIT 4.15

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                          REGIONS FINANCIAL CORPORATION

                                       AND

                              BANKERS TRUST COMPANY

                                   as Trustee

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

                          SECOND SUPPLEMENTAL INDENTURE

                            DATED AS OF MARCH 5, 2001

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

              Supplement to Indenture dated as of February 26, 2001
                         (Subordinated Debt Securities)

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                          SECOND SUPPLEMENTAL INDENTURE

         SECOND SUPPLEMENTAL INDENTURE, dated as of March 5, 2001 by and between
REGIONS FINANCIAL CORPORATION, a Delaware corporation (hereinafter called the
"Company"), and BANKERS TRUST COMPANY, a New York banking corporation (hereafter
called the "Trustee"), having a Corporate Trust Office at 4 Albany Street, 4th
Floor, New York, New York, 10006, as Trustee under the Indenture (as hereinafter
defined).

                                    RECITALS

         WHEREAS, the Company and the Trustee have entered into an Indenture
dated as of February 26, 2001 (hereinafter called the "Indenture"), providing
for the issuance by the Company from time to time of its subordinated debt
securities;

         WHEREAS, the Company desires to issue a series of subordinated debt
securities under the Indenture, and has duly authorized the creation and
issuance of such subordinated debt securities and the execution and delivery of
this Second Supplemental Indenture to modify the Indenture and provide certain
additional provisions as hereinafter described;

         WHEREAS, the Company and the Trustee deem it advisable to enter into
this Second Supplemental Indenture for the purposes of establishing the terms of
such subordinated debt securities and providing for the rights, obligations and
duties of the Trustee with respect to such debt securities;

         WHEREAS, the execution and delivery of this Second Supplemental
Indenture has been authorized by a resolution of the Board of Directors of the
Company;

         WHEREAS, concurrent with the execution hereof, the Company has
delivered an Officers' Certificate and has caused its counsel to deliver to the
Trustee an Opinion of Counsel; and

         WHEREAS, all conditions and requirements of the Indenture necessary to
make this Second Supplemental Indenture a valid, binding and legal instrument in
accordance with its terms have been performed and fulfilled by the parties
hereto and the execution and delivery thereof have been in all respects duly
authorized by the parties hereto.

         NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH:

         For and in consideration of the mutual premises and agreements herein
contained, the Company and the Trustee covenant and agree, for the equal and
proportionate benefit of all Holders of the Notes (as defined herein), as
follows:

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                                   ARTICLE ONE

                              CREATION OF THE NOTES

         SECTION 1.1.      DESIGNATION OF SERIES. Pursuant to the terms hereof
and Sections 201 and 301 of the Indenture, the Company hereby creates a series
of its subordinated debt securities designated as the "7.00% Subordinated Notes
due 2011" (the "Notes"), which Notes shall be deemed "Securities" for all
purposes under the Indenture.

         SECTION 1.2.      FORM AND DENOMINATION OF NOTES. The Notes shall be
substantially in the form set forth in Exhibit A attached hereto, which is
incorporated herein and made part hereof. The Notes shall bear interest, be
payable and have such other terms as are stated in the form of definitive Notes
or in the Indenture, as supplemented by this Second Supplemental Indenture. The
Stated Maturity of the Notes shall be March 1, 2011. The Notes shall be issued
in denominations of $1,000 and integral multiples thereof.

         SECTION 1.3.      LIMIT ON AMOUNT OF SERIES. The Notes shall not exceed
U.S.$500,000,000 in aggregate principal amount, and may, upon the execution and
delivery of this Second Supplemental Indenture or from time to time thereafter,
be executed by the Company and delivered to the Trustee for authentication, and
the Trustee shall thereupon authenticate and deliver said Notes to or upon the
delivery of a Company Order.

         SECTION 1.4.      NO REDEMPTION OR SINKING FUND. No sinking fund will
be provided with respect to the Notes. The Notes are not subject to redemption
prior to Stated Maturity.

         SECTION 1.5.      NOTES NOT CONVERTIBLE OR EXCHANGEABLE. The Notes will
not be convertible or exchangeable for other securities or property.

         SECTION 1.6.      ISSUANCE OF NOTES; SELECTION OF DEPOSITORY. The Notes
shall be issued as Registered Securities in permanent global form, without
coupons. The initial Depository for the Notes shall be DTC.

         SECTION 1.7.      DEFEASANCE NOT APPLICABLE TO NOTES. The covenants
relating to defeasance under Section 1402 of the Indenture and covenant
defeasance under Section 1403 of the Indenture shall not apply to the Notes.

                                   ARTICLE TWO

                    APPOINTMENT OF THE TRUSTEE FOR THE NOTES

         SECTION 2.1.      APPOINTMENT OF TRUSTEE. Pursuant and subject to the
Indenture, the Company and the Trustee hereby constitute the Trustee as trustee
to act on behalf of the Holders of the Notes, and as the principal Paying Agent
and Security Registrar for the Notes, effective upon execution and delivery of
this Second Supplemental Indenture. By execution,

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acknowledgment and delivery of this Second Supplemental Indenture, the Trustee
hereby accepts appointment as trustee, Paying Agent and Security Registrar with
respect to the Notes, and agrees to perform such trusts upon the terms and
conditions in the Indenture and in this Second Supplemental Indenture set forth.

         SECTION 2.2.      RIGHTS, POWERS, DUTIES AND OBLIGATIONS OF THE
TRUSTEE. Any rights, powers, duties and obligations by any provisions of the
Indenture conferred or imposed upon the Trustee shall, insofar as permitted by
law, be conferred or imposed upon and exercised or performed by the Trustee with
respect to the Notes.

         SECTION 2.3.      RIGHTS IN INDENTURE APPLICABLE TO TRUSTEE. Bankers
Trust Company, in its capacity as Trustee, shall be afforded all of the rights,
powers, immunities and indemnities of the Trustee as set forth in the Indenture
as if such rights, powers, immunities and indemnities were specifically set
forth herein.

                                  ARTICLE THREE

                                EVENTS OF DEFAULT

         Pursuant to Section 201, Section 301(15)(a) and Section 301(27) of the
Indenture and in substitution of the terms of Section 502 of the Indenture, so
long as any of the Notes are Outstanding, the following provisions shall be
applicable to the Notes:

         SECTION 3.1.      ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.

         If, and only if, an Event of Default specified in clause (6) or (7) of
Section 501 of the Indenture occurs with respect to the Company only, and is
continuing, then the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Notes may declare the principal of and
premium, if any, together with accrued interest (including any Additional
Interest) to the date of declaration, on, all the Notes to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by the Holders) and upon any such declaration such shall become immediately due
and payable. Notwithstanding anything in the Indenture to the contrary, the
Notes are not subject to acceleration upon any other Event of Default.

         At any time after such a declaration of acceleration with respect to
the Notes has been made and before a judgment or decree for payment of the money
due has been obtained by the Trustee as provided in Article Five of the
Indenture, the Holders of a majority in principal amount of the Outstanding
Notes, by written notice to the Company and the Trustee, may rescind and annul
such declaration and its consequences if:

         (1)      the Company has paid or deposited with the Trustee a sum
sufficient to pay in the Dollars:

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                  (A)      all overdue installments of interest on and any
         Additional Amounts payable in respect of all Outstanding Notes;

                  (B)      the principal of (and premium, if any, on) any
         Outstanding Notes which have become due otherwise than by such
         declaration of acceleration and interest thereon at the rate or rates
         borne by or provided for in such Notes;

                  (C)      to the extent that payment of such interest is
         lawful, interest upon overdue installments of interest (including any
         Additional Interest) and any Additional Amounts at the rate or rates
         borne by or provided for in the Notes; and

                  (D)      all sums paid or advanced by the Trustee hereunder
         and under the under the Indenture and the reasonable compensation,
         expenses, disbursements and advances of the Trustee, its agents and
         counsel; and

         (2)      all Events of Default with respect to the Notes, other than
the nonpayment of the principal of (or premium or Make-Whole Amount, if any) or
interest on the Notes which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513 of the
Indenture.

         No such rescission shall affect any subsequent default or impair any
right consequent thereon.

                                  ARTICLE FOUR

                               PRIORITY OF NOTES

         SECTION 4.1.      NOTES SENIOR TO JUNIOR SUBORDINATED DEBENTURES.
Notwithstanding anything to the contrary in the Indenture and subject to Section
5.2 hereof, the Notes shall rank senior to (a) any series of Securities issued
to a Regions Trust, including, without limitation, the Company's 8.00% Junior
Subordinated Deferrable Interest Debentures due 2031 issued pursuant to that
certain First Supplemental Indenture dated as of February 26, 2001 between the
Company and Bankers Trust Company, as Trustee, and (b) any guarantee issued by
the Company with respect to preferred securities issued by a Regions Trust,
including, without limitation, the Company's Trust Preferred Securities
Guarantee, dated as of February 26, 2001, between the Company and Bankers Trust
Company, as Guarantee Trustee.

         SECTION 4.2.      CERTAIN DEBT ISSUANCES NOT TO CONSTITUTE SENIOR DEBT
UNDER INDENTURE. Notwithstanding anything to the contrary contained in the
Indenture, the Company's 7.80% Subordinated Notes due 2002, 7.65% Subordinated
Notes due 2001 and 7.75% Subordinated Notes due 2024, in each case, issued under
that certain Indenture, dated as of December 1, 1992, between First Alabama
Bancshares, Inc. and Bankers Trust Company, shall not constitute Senior Debt
under the definition thereof contained in the Indenture and each such series
shall rank pari passu with the Notes.

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                                  ARTICLE FIVE

                                  MISCELLANEOUS

                  SECTION 5.1.      APPLICATION OF SECOND SUPPLEMENTAL
INDENTURE. Each and every term and condition contained in this Second
Supplemental Indenture that modifies, amends or supplements the terms and
conditions of the Indenture shall apply only to the Notes created hereby and not
to any future series of Notes established under the Indenture.

                  SECTION 5.2.      BENEFITS OF SECOND SUPPLEMENTAL INDENTURE.
Nothing contained in this Second Supplemental Indenture shall or shall be
construed to confer upon any person other than a Holder of the Notes, the
Company and the Trustee any right or interest to avail itself or himself, as the
case may be, of any benefit under any provision of the Indenture or this Second
Supplemental Indenture, except for Holders of Senior Debt as provided in Article
Seventeen of the Indenture.

                  SECTION 5.3.      DEFINED TERMS. All capitalized terms which
are used herein and not otherwise defined herein are defined in the Indenture
and are used herein with the same meanings as in the Indenture.

                  SECTION 5.4.      EFFECTIVE DATE. This Second Supplemental
Indenture shall be effective as of the date first above written and upon the
execution and delivery hereof by each of the parties hereto.

                  SECTION 5.5.      GOVERNING LAW. THIS SECOND SUPPLEMENTAL
INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.

                  SECTION 5.6.      COUNTERPARTS. This Second Supplemental
Indenture may be executed in any number of counterparts, each of which so
executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.

                  SECTION 5.7.      SATISFACTION AND DISCHARGE. This Second
Supplemental Indenture shall cease to be of further force and effect upon
compliance with such provisions of Article Fourteen of the Indenture as may be
applicable to the Notes pursuant to Article Three hereof with respect to the
Notes created hereby.

                             [SIGNATURES NEXT PAGE]

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         IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed by their respective officers hereunto
duly authorized, all as of the day and year first above written.

                             REGIONS FINANCIAL CORPORATION

                             By:            /s/ Richard D. Horsley
                                ------------------------------------------------
                                Name:  Richard D. Horsley
                                Title: Vice Chairman and Executive Financial
                                       Officer

Attest:       /s/ Samuel E. Upchurch, Jr.
       ----------------------------------------
       Name:  Samuel E. Upchurch, Jr.
       Title: Executive Vice President, General
              Counsel and Corporate Secretary

                          BANKERS TRUST COMPANY
                             as Trustee

                          By:                /s/ Eileen M. Hughes
                             ---------------------------------------------------
                             Name:  Eileen M. Hughes
                             Title: Vice President

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                   EXHIBIT A TO SECOND SUPPLEMENTAL INDENTURE

                                  FORM OF NOTE

[THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH GLOBAL SECURITY:

         THIS NOTE IS A SECURITY IN GLOBAL FORM ("GLOBAL SECURITY") WITHIN THE
MEANING OF THE SECTION 203 OF THE BASE INDENTURE HEREINAFTER REFERRED TO AND IS
REGISTERED IN THE NAME OF THE DEPOSITORY OR A NOMINEE OF THE DEPOSITORY, WHICH
MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY AGENT THEREOF AS OWNER AND
HOLDER OF THIS NOTE FOR ALL PURPOSES.

         UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

         UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED TO IN THE
INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY.]

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                          REGIONS FINANCIAL CORPORATION

                             7.00% SUBORDINATED NOTE
                                    DUE 2011

No. ________________                                 U.S.$ _______________

CUSIP NO. 758940 AF 7

         REGIONS FINANCIAL CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the "Company",
which term includes any successor Person under the Indenture referred to on the
reverse hereof), for value received, hereby promises to pay to
________________________, the principal sum of ________ United States Dollars
(U.S.$______ ) (which principal amount may from time to time be increased or
decreased to such other principal amounts (which, taken together with the
principal amounts of all other Outstanding Notes under this Series of Notes,
shall not exceed U.S.$500,000,000 in the aggregate at any time, all of which
shall be represented hereby) by adjustments made on the records of the Trustee
hereinafter referred to in accordance with the Indenture) on March 1, 2011 and
to pay interest thereon, from March 5, 2001, or from the most recent Interest
Payment Date (as defined below) to which interest has been paid or duly provided
for, semiannually in arrears on March 1 and September 1 in each year (each an
"Interest Payment Date"), commencing September 1, 2001, at the rate of 7.00% per
annum, computed for any full semiannual period on the basis of a 360-day year of
twelve 30-day months and computed for any partial semiannual period on the
actual days elapsed during such period, until the principal hereof is due, and
at the rate of 7.00% per annum on any overdue principal and premium, if any,
and, to the extent permitted by law, on any overdue interest. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in the Indenture, be paid to the Person in whose name this
Note (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, which shall be the
February 15 or August 15 (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date. Interest on the Outstanding
Notes payable at maturity will be payable to the persons to whom principal is
payable. Except as otherwise provided in the Indenture, any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Note (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Notes not less than 10 days prior to the Special Record Date, or be paid at any
time in any other lawful manner not inconsistent with the requirements of any
automated quotation system or securities exchange on which the Notes may be
quoted or listed, and upon such notice as may be required by such exchange, all
as more fully provided in the Indenture. Payments of principal shall be made
upon the surrender of this Note at the Corporate Trust Office of the Trustee, or
at such other office or agency of the Company as may be designated by the
Company for such purpose in the Borough of Manhattan, The City of New

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York or in the City of Birmingham, Alabama, in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts, by Dollar check drawn on, or transfer to, a
Dollar account. Payments of interest on this Note may be made by Dollar check,
drawn on a Dollar account, mailed to the address of the Person entitled thereto
as such address shall appear in the Security Register, or, upon written
application by the Holder to the Security Registrar setting forth wire
instructions not later than the relevant Record Date, by transfer to a Dollar
account.

         The indebtedness evidenced by this Note is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full in cash of all Senior Debt of the Company, and this
Note is issued subject to such provisions of the Indenture with respect thereto.
For purposes of this Note the Company's 7.80% Subordinated Notes due 2002, 7.65%
Subordinated Notes due 2001 or 7.75% Subordinated Notes due 2024, in each case,
issued under that certain Indenture, dated as of December 1, 1992, between First
Alabama Bancshares, Inc. and Bankers Trust Company, each shall rank pari passu
to the Notes. Each Holder of this Note, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to effectuate the
subordination so provided and (c) appoints the Trustee his attorney-in-fact for
any and all such purposes.

         Notwithstanding anything to the contrary in the Indenture and subject
to Section 5.2 of the Supplemental Indenture, this Note shall rank senior to (1)
any series of Securities issued to a Regions Trust, including, without
limitation, the Company's 8.00% Junior Subordinated Deferrable Interest
Debentures due 2031 issued pursuant to that certain First Supplemental
Indenture, dated as of February 26, 2001, between the Company and Bankers Trust
Company, as Trustee and (2) any guarantee issued by the Company with respect to
preferred securities issued by a Regions Trust, including, without limitation,
the Company's Trust Preferred Securities Guarantee, dated as of February 26,
2001, between the Company and Bankers Trust Company, as Guarantee Trustee.

         THIS NOTE IS NOT A SAVINGS ACCOUNT DEPOSIT OR OTHER OBLIGATION OF A
BANK OR NON-BANK SUBSIDIARY THEREOF, AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.

         Except as specifically provided herein and in the Indenture, the
Company shall not be required to make any payment with respect to any tax,
assessment or other governmental charge imposed by any government or any
political subdivision or taxing authority thereof or therein.

         Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

         Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof or an Authenticating Agent by the
manual signature of one of their

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respective authorized signatories, this Note shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any purpose.

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         IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed and delivered under its corporate seal.

                                 REGIONS FINANCIAL CORPORATION
[Corporate Seal]

                                 By:
                                    --------------------------------------------
                                    Name:
                                    Title:

                    (Trustee's Certificate of Authentication)

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

                                 BANKERS TRUST COMPANY, as Trustee

                                 By:
                                    --------------------------------------------
                                    Authorized Officer

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                                [FORM OF REVERSE]

         This Note is one of a duly authorized issue of securities of the
Company designated as its "7.00% Subordinated Notes due 2011" (herein called the
"Notes"), limited in aggregate principal amount to U.S. $500,000,000, issued and
to be issued under an Indenture, dated as of February 26, 2001 (herein called
the "Base Indenture"), between the Company and Bankers Trust Company, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Base Indenture), and a Second Supplemental Indenture, dated as of March 5,
2001 between the Company and the Trustee (the "Second Supplemental Indenture";
the Base Indenture, as supplemented by the Second Supplemental Indenture, the
"Indenture") to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee, the
holders of Senior Debt and the Holders of the Notes and of the terms upon which
the Notes are, and are to be, authenticated and delivered. As provided in the
Indenture and subject to certain limitations therein set forth, Notes are
exchangeable for a like aggregate principal amount of Notes of any authorized
denominations as requested by the Holder surrendering the same upon surrender of
the Note or Notes to be exchanged, at the Corporate Trust Office of the Trustee.
The Trustee upon such surrender by the Holder will issue the new Notes in the
requested denominations.

         No sinking fund is provided for the Notes. The Notes are not subject to
redemption prior to March 1, 2011.

         In any case where the due date for the payment of the principal of,
premium, if any, or interest on any Note at any Place of Payment as the case may
be, is not a Business Day, then payment of principal, premium, if any, or
interest (including any Additional Interest) need not be made on or by such date
at such place but may be made on or by the next succeeding Business Day, with
the same force and effect as if made on the date for such payment or the date
fixed for redemption, and no interest shall accrue on the amount so payable for
the period after such date.

         [The following paragraph shall appear in each Global Security:

         In the event of a deposit or withdrawal of an interest in this Note,
including an exchange or transfer of this Note in part only, the Trustee, as
custodian of the Depository, shall make an adjustment on its records to reflect
such deposit or withdrawal in accordance with the rules and procedures of The
Depository Trust Company applicable to, and as in effect at the time of, such
transaction.]

         If, and only if, an Event of Default described in Section 501(6) or
501(7) of the Indenture shall occur with respect to the Company only, and be
continuing, the principal of all the Notes, together with accrued interest
(including any Additional Interest) to the date of declaration, may be declared
due and payable in the manner and with the effect provided in the Indenture.
Upon payment (i) of the amount of principal so declared due and payable,
together with accrued interest to the date of declaration, and (ii) of interest
on any overdue principal and, to the extent permitted by applicable law, overdue
interest, all of the Company's obligations in

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respect of the payment of the principal of and interest on the Notes shall
terminate. Notwithstanding anything in the Indenture to the contrary, the Notes
are not subject to acceleration upon any other Event of Default.

         The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the written consent of the Holders of
not less than a majority in principal amount of the Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Notes at the time Outstanding,
on behalf of the Holders of all the Notes, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued in exchange herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this Note
or such other Note.

         As provided in and subject to the provisions of the Indenture, the
Holder of this Note shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default, the Holders of not less
than 25% in principal amount of the Outstanding Notes shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity and the Trustee
shall not have received from the Holders of a majority in principal amount of
the Outstanding Notes a direction inconsistent with such request, and shall have
failed to institute any such proceeding, for 60 days after receipt of such
notice, request and offer of indemnity.

         No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest (including any Additional Interest) on this Note at the times, places
and rate, and in the coin or currency, herein prescribed.

         As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registrable on the Security Register
upon surrender of this Note for registration of transfer at the Corporate Trust
Office of the Trustee or at such other office or agency of the Company as may be
designated by it for such purpose in the Borough of Manhattan, The City of New
York or the City of Birmingham, Alabama (which shall initially be an office or
agency of the Trustee), or at such other offices or agencies as the Company may
designate, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Security Registrar duly executed by,
the Holder thereof or his attorney duly authorized in writing, and thereupon one
or more new Notes, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees by
the Registrar. No service charge shall be made for any such

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<PAGE>   15

registration of transfer or exchange, but the Company may require payment of a
sum sufficient to recover any tax or other governmental charge payable in
connection therewith.

         Prior to due presentation of this Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Note is registered, as the owner thereof for all
purposes, whether or not such Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

         No recourse for the payment of the principal (and premium, if any) or
interest (including any Additional Interest) on this Note and no recourse under
or upon any obligation, covenant or agreement of the Company in the Indenture or
any indenture supplemental thereto or in any Note, or because of the creation of
any indebtedness represented thereby, shall be had against any incorporator,
stockholder, employee, agent, officer or director or subsidiary, as such, past,
present or future, of the Company or of any successor corporation, either
directly or through the Company or any successor corporation, whether by virtue
of any constitution, statute or rule of law or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of consideration for the issue hereof, expressly waived and
released.

         THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.

         All capitalized terms used in this Note which are defined in the
Indenture, and not otherwise defined herein, shall have the meanings assigned to
them in the Indenture.

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(1)

                               (2) ABBREVIATIONS

         The following abbreviations, when used in the inscription of the face
of this Note, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>               <C>               <C>      <C>
(3)               TEN COM           -        AS TENANTS IN COMMON

                  TEN ENT           -        as tenants by the entireties (Cust)
                  JT TEN            -        as joint tenants with right of     survivorship and not as tenants
                                             in common
                  UNIF GIFT MIN ACT -        -----------------------------------------
                                                               Custodian
                                                                (Minor)
                                                     under Uniform Gifts to Minors Act
                                                                                      -------------------
                                                                (State)
</TABLE>

         Additional abbreviations may also be used though not in the above list.

                                      -9-
<PAGE>   17

                             (b) FORM OF ASSIGNMENT

         For value received ________________ hereby sell(s), assign(s) and
transfer(s) unto ________________ (Please insert social security or other
identifying number of assignee) the within Note, and hereby irrevocably
constitutes and appoints ____________________ as attorney to transfer the said
Note on the books of the Company, with full power of substitution in the
premises.

Dated:

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

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

                                    Signature(s)

                                    Signature(s) must be guaranteed by an
                                    Eligible Guarantor Institution with
                                    membership in an approved signature
                                    guarantee program pursuant to Rule 17Ad-15
                                    under the Securities Exchange Act of 1934.Exhibit 10.1

                           PURCHASE AND SALE AGREEMENT

                                     BETWEEN

                           THE TESSERACT GROUP, INC.,
                             AN ARIZONA CORPORATION

                                       AND

                          GAN YELADEEM LEARNING CENTER,
                        AN ARIZONA NON-PROFIT CORPORATION

                                FEBRUARY 6, 2001
<PAGE>
                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

ARTICLE I - DEFINITIONS....................................................    1
   1.1 BUSINESS............................................................    1
   1.2 CHARTER OF SELLER...................................................    2
   1.3 CLAIM...............................................................    2
   1.4 CLOSING.............................................................    2
   1.5 CLOSING DATE........................................................    2
   1.6 COURT...............................................................    2
   1.7 LANDLORD............................................................    2
   1.8 EQUIPMENT...........................................................    2
   1.9 LEASE...............................................................    2
   1.10 PURCHASED ASSETS...................................................    2
   1.11 REAL PROPERTY PURCHASE AGREEMENT...................................    2
   1.12 REAL PROPERTY......................................................    2
   1.13 SECTION 363 ORDER..................................................    2
   1.14 SECTION 365 ORDER..................................................    3
   1.15 SHORT TERM LEASE...................................................    3
   1.16 SNOWFLAKE..........................................................

ARTICLE II - PURCHASE AND SALE.............................................    3
   2.1 ASSETS TO BE SOLD...................................................    3
     2.1.1 THE PURCHASED ASSETS............................................    3
     2.1.2 RECORDS, FILES AND RELATED MATERIALS............................    3
     2.1.3 TELEPHONE AND FACSIMILE NUMBERS.................................    3
   2.2 EXCLUDED ASSETS.....................................................    3
     2.2.1 CONSIDERATION...................................................    3
     2.2.2 CASH, CASH EQUIVALENTS AND ACCOUNTS RECEIVABLE..................    3
     2.2.3 CORPORATE FRANCHISE.............................................    3
     2.2.4 LICENSES; PERMITS...............................................    4
     2.2.5 THE LEASE.......................................................    4
   2.3 SELLER'S BUSINESS...................................................    4

ARTICLE III - ASSUMPTION OF LIABILITIES....................................    4

ARTICLE IV - TERMS OF PAYMENT..............................................    4
   4.1 PAYMENT DUE AT CLOSING..............................................    4
   4.2 DEPOSIT.............................................................    4
   4.3 DETERMINATION.......................................................    5

ARTICLE V - REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER...........    5
   5.1 CORPORATE STATUS....................................................    5
   5.2 CORPORATE AUTHORITY.................................................    5
   5.3 TITLE TO PURCHASED ASSETS...........................................    5
   5.4 DEPOSITS............................................................    5

ARTICLE VI - REPRESENTATIONS, WARRANTIES, AND COVENANTS OF BUYER...........    6
   6.1 ORGANIZATION........................................................    6
   6.2 AUTHORITY...........................................................    6

                                       i
<PAGE>
   6.3 THE LEASE...........................................................    6
   6.4 CONDITION OF ASSETS.................................................    6

ARTICLE VII - POST-CLOSING COVENANTS.......................................    6
   7.1 THE LEASE...........................................................    6
   7.2 TRANSITION..........................................................    6
   7.3 DEFINITION..........................................................    6
   7.4 EMPLOYEE SOLICITATIONS..............................................    7
   7.5 WORKERS' COMPENSATION...............................................    7
   7.6 CERTIFICATE OF OCCUPANCY............................................    7

ARTICLE VIII - INDEMNITIES.................................................    7
   8.1 SELLER..............................................................    7
   8.2 BUYER...............................................................    7

ARTICLE IX - CLOSING.......................................................    7
   9.1 CLOSING.............................................................    7
   9.2 TIME IS OF THE ESSENCE..............................................    8

ARTICLE X - PRORATIONS.....................................................    8

ARTICLE XI - CONDITIONS PRECEDENT TO BUYER'S DUTY TO CLOSE.................    8
   11.1 CONTINUED TRUTH OF WARRANTIES......................................    8
   11.2 PERFORMANCE OF OBLIGATIONS.........................................    8
   11.3 DELIVERY OF CLOSING DOCUMENTS......................................    8
   11.4 LITIGATION.........................................................    8
   11.5 COURT ORDERS.......................................................    9

ARTICLE XII - CONDITIONS PRECEDENT TO SELLER'S DUTY TO CLOSE...............    9
   12.1 CONTINUED TRUTH OF WARRANTIES......................................    9
   12.2 PERFORMANCE OF OBLIGATIONS.........................................    9
   12.3 DELIVERY OF CLOSING DOCUMENTS......................................    9
   12.4 LITIGATION.........................................................    9
   12.5 COURT ORDERS.......................................................    9

ARTICLE XIII - ITEMS TO BE DELIVERED AT CLOSING BY SELLER..................    9
   13.1 BILL OF SALE.......................................................    9
   13.2 CERTIFIED RESOLUTION...............................................    9
   13.3 REPRESENTATIONS AND WARRANTIES.....................................    9
   13.4 THE SHORT TERM LEASE...............................................    9

ARTICLE XIV - ITEMS TO BE DELIVERED AT CLOSING BY BUYER....................   10
   14.1 CERTIFIED RESOLUTION...............................................   10
   14.2 REPRESENTATIONS AND WARRANTIES.....................................   10
   14.3 THE PURCHASE PRICE.................................................   10
   14.4 THE NOTE...........................................................   10
   14.5 THE SECURITY AGREEMENT.............................................   10
   14.6 THE SHORT TERM LEASE...............................................   10

ARTICLE XV - MISCELLANEOUS.................................................   10
   15.1 FURTHER ASSURANCES.................................................   10
   15.2 NO OTHER AGREEMENTS................................................   10
   15.3 WAIVER.............................................................   10

                                       ii
<PAGE>
   15.4 TERMINATION OF CONFIDENTIALITY AGREEMENT...........................   10
   15.5 ACCESS TO REAL PROPERTY............................................   11
   15.6 NOTICES............................................................   11
   15.7 BROKER AND FINDERS.................................................   11
   15.8 BOOKS AND RECORDS..................................................   11
   15.9 RISK OF LOSS.......................................................   12
   15.10 THIRD PARTY BENEFICIARY...........................................   12
   15.11 RELATIONSHIP OF PARTIES...........................................   12
   15.12 CHOICE OF LAW.....................................................   12
   15.13 PARAGRAPH HEADINGS................................................   12
   15.14 RULES OF INTERPRETATION...........................................   12
   15.15 TIME IS OF THE ESSENCE............................................   13
   15.16 ATTORNEY FEES.....................................................   13
   15.17 COUNTERPARTS; FACSIMILE SIGNATURES................................   13

LIST OF EXHIBITS AND SCHEDULES

Exhibit A             Form of Promissory Note
Exhibit B             Form of Security Agreement
Exhibit C             Form of Short Term Lease
Schedule 1.9          Equipment

                                      iii
<PAGE>
                           PURCHASE AND SALE AGREEMENT
                             (PARADISE LANE SCHOOL)

     This PURCHASE AND SALE  AGREEMENT (the  "Agreement")  is entered into as of
the ____ day of February,  2001,  by and between THE  TESSERACT  GROUP,  INC., a
Minnesota  corporation,  in its corporate capacity and in its capacity as debtor
and  debtor-in-possession  in its Chapter 11 case  pending in the United  States
Bankruptcy  Court for the  District  of  Arizona  ("Seller"),  and GAN  YELADEEM
LEARNING CENTER, an Arizona non-profit corporation ("Buyer").

                                    RECITALS

     A. Seller operates that certain charter school ("School") commonly known as
the "Paradise Lane School" located at 3916 East Paradise Lane, Phoenix, Arizona.

     B. Seller has filed a voluntary petition for Chapter 11 relief ("Chapter 11
Case") under Title 11 of the United States Code ("Bankruptcy Code"). The Chapter
11 Case is pending before the United States Bankruptcy Court for the District of
Arizona ("Bankruptcy Court").

     C. Seller desires, subject to the approval by the Bankruptcy Court, to sell
and Buyer desires to purchase  certain assets and assume certain  liabilities of
Seller in  connection  with  Seller's  operations of the School on the terms and
conditions  set forth in this  Agreement and in accordance  with Section 363 and
Section 365 of the Bankruptcy Code.

     D.  Buyer has  completed  its due  diligence  of the  School  and all other
matters addressed in this Agreement.

     E.  The  parties  hereto   acknowledge  that:  (i)  they  intend  that  the
transaction  contemplated  under this  Agreement be an asset  purchase and not a
sale of the stock of Seller; and (ii) Buyer is not buying the Business of Seller
as defined in this Agreement.

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto agree as follows:

                                   ARTICLE I.

                                   DEFINITIONS

     For purposes of this Agreement,  the following capitalized terms, when used
in this Agreement, shall have the meanings assigned to them as follows:

     1.1 BUSINESS.  The term "Business" shall mean Seller's operations conducted
under the names  "TesseracT" or "The TesseracT  Group,  Inc.," or the trade name
"TesseracT  Charter School PPTO," at the School and at any other location within
or outside the State of Arizona.

                                       1
<PAGE>
     1.2 CHARTER OF SELLER. The term "Charter of Seller" shall mean that certain
Charter Contract between Preschool Services,  Inc. dba Sunray Charter School and
the Snowflake Unified School District No. 5 of Navajo County, Arizona dated June
24, 1997.

     1.3 CLAIM.  The term  "Claim"  shall mean the term "claim" as it is defined
under 11 U.S.C.ss.101(5).

     1.4 CLOSING.  The term "Closing" shall mean the completed  exchange of: (i)
Closing  documents  set forth in Articles  XIV and XV below,  together  with the
simultaneous  conveyance  by Seller to Buyer of the Purchased  Assets;  (ii) the
payment  by Buyer to  Seller of the  Purchase  Price due under the terms of this
Agreement;  and (iii) the  assumption by Buyer of the  obligations  which it has
expressly agreed to assume hereunder.

     1.5 CLOSING DATE.  The term "Closing Date" shall mean the date on which the
Closing occurs which shall not be later than March 15, 2001, unless such date is
extended as mutually agreed upon in writing signed by both parties.

     1.6 COURT.  The term "Court" shall mean the United States  Bankruptcy Court
for the District of Arizona, which is the Court before which Seller presently is
a Chapter 11 debtor.

     1.7 LANDLORD.  The term "Landlord" shall mean Education Property Investors,
Inc., a Nevada corporation.

     1.8 EQUIPMENT.  The term  "Equipment"  shall mean all furniture,  fixtures,
office  equipment,  office  supplies,  computers,  printers,  and other tangible
personal  property  owned by Seller as  specifically  set forth on SCHEDULE  1.9
attached hereto.

     1.9 LEASE.  The term "Lease"  shall mean that certain  Amended and Restated
Lease dated June 9, 1998 by and between Seller, as lessee, and Landlord.

     1.10  PURCHASED  ASSETS.   The  term  "Purchased  Assets"  shall  mean  the
Equipment.

     1.11 REAL PROPERTY  PURCHASE  AGREEMENT.  The term "Real Property  Purchase
Agreement"  shall mean the  Agreement to Purchase and Sale dated August 2, 2000,
by and between Buyer and Landlord (as amended).

     1.12 REAL PROPERTY.  The term "Real  Property" shall mean the real property
that is the subject of the Real Property  Purchase  Agreement  which also is the
real property on which the Seller operates the School.

     1.13 SECTION 363 ORDER.  The term  "Section 363 Order" shall mean the order
entered by the Court pursuant to Bankruptcy Code ss.363 approving  Seller's sale
of the Purchased  Assets to Buyer free and clear of any and all liens,  security
interests,  and adverse interests of any kind, the form of which shall be agreed
to by the parties hereto.

                                       2
<PAGE>
     1.14 SECTION 365 ORDER.  The term  "Section 365 Order" shall mean the Order
entered by the Court pursuant to Bankruptcy  Code ss.365(a)  approving  Seller's
decision to reject the Lease as it relates to the Real Property  effective as of
when Buyer is the owner of the Real Property.

     1.15  SHORT TERM  LEASE.  The "Short  Term  Lease"  shall mean the Lease as
modified by First Amendment to Lease,  dated the date of Closing and in the form
and  substance  attached  hereto as EXHIBIT C, that leases the Real Property and
the Purchased Assets to Seller until May 31, 2001.

                                   ARTICLE II.

                                PURCHASE AND SALE

     2.1  ASSETS  TO BE  SOLD.  Subject  to the  terms  and  conditions  of this
Agreement,  on the Closing  Date,  Seller agrees to sell,  assign,  transfer and
convey the following assets to Buyer:

         2.1.1 THE PURCHASED ASSETS. The Purchased Assets.

         2.1.2  RECORDS,  FILES  AND  RELATED  MATERIALS.  All  records,  files,
invoices,  student lists, accounting records,  business records, student records
(including,  but  not  limited,  special  education  student  records),  teacher
records, operating data and other data of Seller relating solely to the School.

         2.1.3  TELEPHONE  AND  FACSIMILE  NUMBERS.  All telephone and facsimile
numbers  currently used at the Real Property to the extent such are transferable
at no additional cost to Seller.

     2.2 EXCLUDED ASSETS.  Notwithstanding  Section 2.1 above,  Seller shall not
sell, transfer,  assign,  convey or deliver to Buyer, any asset not specifically
addressed  in Section  2.1 above,  including  but not  limited to the  following
assets (collectively the "Excluded Assets"):

         2.2.1  CONSIDERATION.  The  consideration  delivered by Buyer to Seller
pursuant to this Agreement.

         2.2.2 CASH, CASH  EQUIVALENTS AND ACCOUNTS  RECEIVABLE.  All cash, cash
equivalents,  and  obligations by any third party to make payment to Buyer as of
the Closing Date.

         2.2.3 CORPORATE FRANCHISE.  Seller's franchise to be a corporation, its
certificate of  incorporation,  corporate  seal,  stock books,  minute books and
other corporate records having exclusively to do with the corporate organization
and capitalization of Seller, the Charter.

         2.2.4 LICENSES;  PERMITS. All licenses, permits and approvals of Seller
relating in any way to the School or the Business including, without limitation,
the Charter.

                                       3
<PAGE>
         2.2.5 THE LEASE. The Lease relating to the Real Property.

     2.3 SELLER'S  BUSINESS.  The parties  expressly  acknowledge and agree that
this  Agreement  is not entered  into for the sale of the stock of Seller or the
sale of Seller's Business.  The Agreement addresses only those assets located on
the School's  premises,  or used by Seller solely in connection with the School,
and which are defined herein as the Purchased Assets.

                                  ARTICLE III.

                            ASSUMPTION OF LIABILITIES

     Except as  expressly  set forth in this  Agreement,  Buyer does not by this
Agreement,  and will not be obligated  to, assume any  obligation,  liability or
duty of Seller  whether  incurred in connection  with the Purchased  Assets,  or
otherwise.

                                   ARTICLE IV.

                                TERMS OF PAYMENT

     4.1 PAYMENT DUE AT CLOSING. At Closing, Buyer shall pay to Seller an amount
equal to Two Hundred and Fifty Thousand  Dollars  ($250,000)  LESS the amount of
the Deposit  delivered by Buyer to Seller in accordance  with Section 4.2 below,
in the following manner:

          (a)  Buyer shall pay Seller an amount equal to One Hundred Twenty-Five
               Thousand  and  No/100   Dollars   ($125,000.00)   in  immediately
               available funds at Closing.

          (b)  The balance of the  Purchase  Price shall be  evidenced  by Buyer
               delivering to Seller Buyer's  promissory  note (the "Note") dated
               the date of the Closing,  in the principal  amount of One Hundred
               Thousand  and  No/100   Dollars   ($100,000.00)   and  conforming
               substantially  in  content  with  the  form  of  promissory  note
               attached hereto as EXHIBIT A.

          (c)  The Note shall be secured by a first priority  security  interest
               pursuant  to the terms of a  security  agreement  (the  "Security
               Agreement") on all of the Purchased Assets. At the Closing, Buyer
               shall deliver to Seller the Security Agreement, dated the date of
               the Closing and substantially conforming in content with the form
               of security agreement attached hereto as EXHIBIT B.

     4.2 DEPOSIT.  Contemporaneously with the execution of this Agreement, Buyer
shall  deliver  and the  Seller  shall  accept a cash  deposit  in the amount of
Twenty-Five  Thousand and No/100 Dollars  ($25,000.00)  (the  "Deposit"),  which
shall not be refundable to Buyer unless:  (i) the  transactions  contemplated in
this  Agreement  do not  close  due  to  Seller's  failure  to  meet  all of the
conditions precedent set forth in Article XIV of this Agreement; (ii) if Buyer's
transaction  with Landlord to purchase the Real Property does not close,  unless
such  failure  to close is the  result  of a  default  by Buyer  under  the Real
Property  Purchase  Agreement;  or (iii) Seller  otherwise  refuses to close the

                                       4
<PAGE>
transactions contemplated in this Agreement. If the Closing does not occur on or
before March 15, 2001, due to any event described in the  immediately  preceding
(i), (ii) and (iii), and provided that Buyer has satisfied all of the conditions
set forth in Article XV of this  Agreement  on or before  March 15,  2001,  then
Seller shall immediately transfer the Deposit to Buyer.

     4.3 DETERMINATION. At or prior to thirty (30) days after the Closing, Buyer
and Seller shall mutually agree to an allocation of the Purchase Price among the
Purchased  Assets in a  reasonable  manner,  and each  party  agrees to file all
federal, state and local tax returns in conformity with such allocation.

                                   ARTICLE V.

              REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER

     Seller hereby represents,  warrants, and covenants to Buyer as follows, and
the  warranties,  representations,  and  covenants  contained in this Article or
elsewhere in this Agreement shall be deemed to be made as of the Closing:

     5.1 CORPORATE  STATUS.  Seller is a  corporation  duly  organized,  validly
existing and in good  standing  under the laws of the State of Minnesota  and is
qualified to do business in the State of Arizona.

     5.2 CORPORATE AUTHORITY.  Subject only to approval of the Court, Seller has
full power and authority to execute and perform this Agreement and all corporate
action  necessary to confirm such  authority  has been duly and lawfully  taken.
Upon  execution  hereof,  this  Agreement  shall  be a  valid,  legally  binding
obligation  of  Seller,  enforceable  in  accordance  with its terms  subject to
approval by the Court.

     5.3 TITLE TO PURCHASED ASSETS.  Seller has good and marketable title to the
Purchased  Assets,  and has full power and  authority to transfer  such title to
Buyer subject only to approval by the Court.

     5.4  DEPOSITS.  Seller has no  liability  to parents of its students at the
School for any prepaid tuition or deposit obligations.

                                   ARTICLE VI.

               REPRESENTATIONS, WARRANTIES, AND COVENANTS OF BUYER

     Buyer  hereby  represents  and  warrants  to  Seller  as  follows  and  the
warranties  and  representations  contained in this Article or elsewhere in this
Agreement shall be deemed to be made as of Closing:

     6.1 ORGANIZATION. Buyer is a non-profit corporation duly organized, validly
existing and in good standing under the laws of the State of Arizona.

                                       5
<PAGE>
     6.2  AUTHORITY.  Buyer has full power and  authority to execute and perform
this Agreement and all action  necessary to confirm such authority has been duly
and lawfully  taken.  Upon execution  hereof,  this shall be a valid and legally
binding  obligation of Buyer,  enforceable  against Buyer in accordance with its
terms.

     6.3 THE LEASE.  Other than the Real  Property  Purchase  Agreement  whereby
Buyer shall acquire fee title to the Real  Property,  Buyer has not entered into
any  agreement,  written or  otherwise,  with  Landlord  relating  to the Lease,
including,  but not limited to, any  agreement to acquire any Claims which might
presently exist, or arise in the future under the Lease.

     6.4 CONDITION OF ASSETS. Buyer has fully examined the physical condition of
the Purchased Assets,  and hereby agrees to accept such property AS IS AND WHERE
IS. NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, IS MADE
WITH RESPECT TO THE PURCHASED ASSETS.

                                  ARTICLE VII.

                             POST-CLOSING COVENANTS

     7.1 THE LEASE.  Buyer shall not be entitled to, and shall not receive,  any
of the  contractual  rights  provided  to  Landlord  or Seller  under the Lease,
including,  but not  limited  to, any right to assert any Claims  that may arise
under or relate to the Lease,  irrespective  of which person or entity  contends
that it has the right to asserts such Claims.

     7.2 TRANSITION.  Buyer and Seller will mutually  cooperate with one another
to provide for an orderly surrender of the Purchased Assets and Real Property by
Seller to Buyer on May 31, 2001 (the  "Transition  Date") in accordance with the
Short Term Lease.

     7.3  DEFINITION.  On or before the  Transition  Date,  Seller shall provide
Buyer  with a  complete  list of all  persons  regularly  employed  on  either a
part-time or full-time  basis by Seller in connection  with the School within 10
days of receipt of Buyer's  request.  For  purposes  of this  Article,  the term
"Employees"  shall mean all persons on such list including  those listed who may
be curtailed and disabled employees and employees on leave of absence.

     7.4 EMPLOYEE SOLICITATIONS. Buyer shall be entitled to reasonable access to
all  employees  related  to  the  School  for  purposes  of  interviewing  these
individuals;  provided,  however,  that all  such  access  shall be  coordinated
through the Chief Executive Officer of Seller.

     7.5 WORKERS'  COMPENSATION.  Seller agrees to assume all responsibility for
liability  arising  from  workers'   compensation   claims,   both  medical  and
disability, which have been filed at or prior to the time of the Transition Date
or which arose out of incidents  that  occurred  prior to the  Transition  Date.
Buyer shall be responsible for all claims which arise out of, or are based upon,
incidents which occur subsequent to the Transition Date.

     7.6  CERTIFICATE  OF  OCCUPANCY.   Buyer   acknowledges  that  a  type  E-1
certificate  of  occupancy  has not been  obtained  for the building on the Real
Property commonly referred to as Building #3 (the "Certificate").  Seller hereby

                                       6
<PAGE>
agrees to use its best efforts to obtain,  prior to Closing,  a third-party  bid
setting  forth  its  good  faith  estimate  of the  total  cost  to  obtain  the
Certificate.  If Buyer elects after  Closing to obtain the  Certificate,  Seller
agrees to pay  one-half  of the cost of  obtaining  the  Certificate;  provided,
however,  the total cost to Seller shall not exceed  Thirty  Thousand and No/100
Dollars ($30,000.00). Any amounts in excess of Sixty Thousand and No/100 Dollars
($60,000.00) shall be paid entirely by Buyer.

                                  ARTICLE VIII.

                                   INDEMNITIES

     8.1 SELLER. Seller agrees to hold harmless, indemnify and defend Buyer from
and against any and all loss, claim, damage, liability or expense arising out of
or  occurring  as the  result of any  breach by Seller of any of its  covenants,
representations or warranties hereunder.  Such indemnification shall include any
claims  pertaining to events or actions  occurring prior to the date of Closing.
In no event shall the liability of Seller under this Section collectively exceed
$10,000.

     8.2 BUYER. Buyer agrees to hold harmless,  indemnify and defend Seller from
and against any and all loss, claim, damage, liability or expense arising out of
or occurring  in  connection  with any breach by Buyer of any of its  covenants,
representations or warranties hereunder.  Such indemnification shall include any
claims pertaining to events or actions occurring after the Transition Date.

                                   ARTICLE IX.

                                     CLOSING

     9.1  CLOSING.  Closing  shall occur at the law offices of Bryan Cave LLP in
Phoenix,  Arizona, on a date that is not later than ten (10) business days after
the Court  enters the Section  363 Order and the  Section  365 Order;  provided,
however,  that the  Closing  must  occur  concurrently  with the  closing of the
transaction  pursuant  to which  Buyer is  purchasing  the  Real  Property  from
Landlord and by no later than March 15, 2001.

     9.2 TIME IS OF THE ESSENCE.  Time is of the essence for the Closing of this
transaction  and if such  Closing  does not occur as  provided  in Section  10.1
above, a new Closing Date may be set if, and only if,  mutually agreed upon in a
writing  signed  by both  parties.  If a new  Closing  Date is not so set,  then
neither Seller nor Buyer shall have any further obligation under this Agreement.

                                   ARTICLE X.

                                   PRORATIONS

     The  following  revenues,  costs and  expenses  shall be prorated as of the
Transition Date:

                                       7
<PAGE>
     10.1  Personal  property  taxes and any other  assessments  related  to the
Purchased Assets;

     10.2  Charges  for  utilities  servicing  the  School,  including,  without
limitation,  charges or gas,  electricity,  water, sewer, cable television,  and
telephone services; and

     10.3 Any other reasonable expenses approved in writing by Buyer and prepaid
by Seller related to the operation of the School.

     The amount of any prorations shall be computed by Buyer with the assistance
of Seller. On or before the Transition Date, Buyer shall pay to Seller or Seller
shall pay to Buyer,  as the case may be, an amount equal to the net proration so
determined.

                                   ARTICLE XI.

                  CONDITIONS PRECEDENT TO BUYER'S DUTY TO CLOSE

     Buyer  shall have no duty to close,  shall be  entitled  to a refund of the
Deposit, and shall have no obligation hereunder, unless and until each and every
one of the  following  conditions  precedent  have  been  fully  and  completely
satisfied:

     11.1  CONTINUED  TRUTH  OF  WARRANTIES.  All  of  the  representations  and
warranties of Seller  contained  herein shall continue to be true and correct at
Closing.

     11.2  PERFORMANCE  OF  OBLIGATIONS.  Seller  shall have fully  performed or
tendered performance of each and every one of its obligations hereunder which by
its terms is capable of performance before Closing.

     11.3 DELIVERY OF CLOSING DOCUMENTS.  Seller shall have tendered delivery to
Buyer of all the documents,  in form and substance  reasonably  satisfactory  to
Buyer, required to be delivered to Buyer by Seller on or before Closing pursuant
to this Agreement.

     11.4  LITIGATION.  No lawsuit,  administrative  proceedings  or other legal
action shall have been filed  against  Seller as of the Closing Date which seeks
to restrain or enjoin Buyer's acquisition of the Purchased Assets.

     11.5 COURT  ORDERS.  The Court shall have entered the Section 363 Order and
the Section 365 Order.

                                  ARTICLE XII.

                 CONDITIONS PRECEDENT TO SELLER'S DUTY TO CLOSE

     Seller shall have no duty to close this  transaction  unless and until each
and  every  one of the  following  conditions  precedent  have  been  fully  and
completely satisfied:

                                       8
<PAGE>
     12.1  CONTINUED  TRUTH  OF  WARRANTIES.  All  of  the  representations  and
warranties of Buyer  contained  herein shall  continue to be true and correct at
Closing.

     12.2  PERFORMANCE  OF  OBLIGATIONS.  Buyer  shall have fully  performed  or
tendered  substantial  performance  of each  and  every  one of its  obligations
hereunder which by its terms is capable of performance before Closing.

     12.3 DELIVERY OF CLOSING  DOCUMENTS.  Buyer shall have tendered delivery to
Seller of all the documents,  in form and substance  reasonably  satisfactory to
Buyer, required to be delivered to Seller by Buyer on or before Closing pursuant
to this Agreement.

     12.4  LITIGATION.  No lawsuit,  administrative  proceedings or legal action
other than the Chapter 11 Case shall have been filed by or against  Seller as of
the  Closing  Date  which  seeks to  restrain  or  enjoin  Seller's  sale of the
Purchased Assets.

     12.5 COURT  ORDERS.  The Court shall have entered the Section 363 Order and
the Section 365 Order.

                                  ARTICLE XIII.

                   ITEMS TO BE DELIVERED AT CLOSING BY SELLER

     At Closing,  Seller shall,  unless  waived in writing by Buyer,  deliver to
Buyer the following items, each in form and substance  reasonably  acceptable to
Buyer and Buyer's counsel:

     13.1  BILL  OF  SALE.  A duly  executed  warranty  bill  of  sale  selling,
assigning, transferring, and conveying the Purchased Assets.

     13.2  CERTIFIED  RESOLUTION.  A copy  of the  resolution  of the  Board  of
Directors of Seller,  certified  by the  Secretary  of Seller,  authorizing  the
execution and performance of this Agreement.

     13.3 REPRESENTATIONS AND WARRANTIES. A certificate signed by an appropriate
representative  of  Seller  to the  effect  that  all  the  representations  and
warranties of Seller contained herein are true and correct as of Closing.

     13.4 THE SHORT TERM LEASE. The Short Term Lease as defined in Section 1.17.

                                  ARTICLE XIV.

                    ITEMS TO BE DELIVERED AT CLOSING BY BUYER

     At Closing,  Buyer shall,  unless waived in writing by Seller,  deliver the
following items, each in form and substance reasonably  acceptable to Seller and
Seller's counsel, to Seller:

     14.1  CERTIFIED  RESOLUTION.  A copy of the  resolutions  of the  Executive
Director  of  Buyer  or  other  appropriate  representative(s)  authorizing  the
execution and performance of this Agreement.

                                       9
<PAGE>
     14.2 REPRESENTATIONS AND WARRANTIES. A certificate signed by an appropriate
representative  of  Buyer  to  the  effect  that  all  the  representations  and
warranties of Buyer contained herein are true and correct as of Closing.

     14.3 THE PURCHASE PRICE. The Purchase Price pursuant to Section 4.1.

     14.4 THE NOTE. The Note pursuant to Section 4.1.

     14.5 THE SECURITY  AGREEMENT.  The Security  Agreement  pursuant to Section
4.1.

     14.6 THE SHORT TERM LEASE. The Short Term Lease as defined in Section 1.17.

                                   ARTICLE XV.

                                  MISCELLANEOUS

     15.1  FURTHER  ASSURANCES.  Each party  shall,  at any time after  Closing,
execute  and  deliver  to the other  party all such  additional  instruments  of
conveyance and assignments,  certificates or similar documents and take all such
further actions as such other party may reasonably request.

     15.2 NO OTHER AGREEMENTS.  This Agreement,  and all agreements delivered as
part of the Closing contemplated herein, constitute the entire agreement between
the parties with respect to its subject  matter.  All prior and  contemporaneous
negotiations,  proposals and agreements between the parties,  including, but not
limited to the Letter of Intent between the parties dated November 27, 2000, are
superseded by this Agreement. Any changes to this Agreement must be agreed to in
writing signed by both parties.

     15.3 WAIVER.  Either party may waive the performance of any obligation owed
to it by the  other  party  hereunder  for  the  satisfaction  of any  condition
precedent to the waiving party's duty to perform any of its covenants, including
its obligations to Close.  Any such waiver shall be valid only if contained in a
writing signed by the waiving party.

     15.4  TERMINATION  OF  CONFIDENTIALITY  AGREEMENT.  Upon  execution of this
Agreement by the parties, the Confidentiality Agreement dated September 8, 2000,
by and between Buyer and Seller shall be terminated;  provided that, through the
Transition  Date,  Buyer shall obtain  Seller's  prior  written  consent,  which
consent shall not be unreasonably  withheld, as to all Buyer activities relating
to the  recruiting  and/or  contact of Seller's  employees  or students and such
activities shall not interfere with Seller's operation of the School.

     15.5  ACCESS TO REAL  PROPERTY.  Provided  Buyer  does not  interfere  with
Seller's  operation of the School and, to the extent  required by Section  15.5,
Seller's  prior consent is obtained,  Buyer may, upon  reasonable  prior notice,
have access to the Real Property for purposes of constructing  improvements  and
conducting meetings and student sign-up fairs.

                                       10
<PAGE>
     15.6 NOTICES.  Any notices  required or allowed in this Agreement  shall be
effectively given if placed in a sealed envelope, postage prepaid, and deposited
in the United States mail, registered or certified, addressed as follows:

                  To Seller: Lucian Spataro, Ph.D.
                             The TesseracT Group, Inc.
                             East Muirwood Drive
                             Phoenix, Arizona  85048

                  Copy To:   Robert J. Miller, Esq.
                             Bryan Cave LLP
                             Two North Central Avenue, Suite 2200
                             Phoenix, Arizona  85004

                  To Buyer:  Susan K. Heller, Ph.D.
                             Gan Yeladeem Learning Center
                             15030 North 64th Street
                             Scottsdale, Arizona  85254

                  Copy To:   Timothy A. Smith, Esq.
                             Kutak Rock LLP
                             North Scottsdale Rd., Suite 300
                             Scottsdale, Arizona 85253

     15.7 BROKER AND FINDERS. Each of the parties hereto represents and warrants
to the  other  that it has not  employed  or  retained  any  broker or finder in
connection with the  transactions  contemplated by this Agreement nor has it had
any  dealings  with  any  person  which  may  entitle  such  person  to a fee or
commission  from any party hereto.  Each of the parties shall indemnify and hold
the other harmless for, from and against any claim,  demand or damage whatsoever
by virtue of any arrangement or commitment made by it with or to any person that
may entitle  such person to any fee or  commission  from the other party to this
Agreement.

     15.8 BOOKS AND RECORDS.  Copies of all  customer,  employee and  accounting
records for the School and all records with respect to the Purchased Assets will
be provided by Seller to Buyer on or before the Transition Date.

     15.9  RISK OF  LOSS.  The  risk of  loss,  damage,  or  destruction  of the
Purchased  Assets shall be borne by Seller  until the  Transition  Date.  In the
event any  material  loss or damage  to or taking of any such  Purchased  Assets
occurs before Closing,  Seller shall immediately  notify Buyer of the nature and
extent of such loss,  damage or  taking,  and Buyer  shall,  at its  option,  by
written  notice to Seller,  either  terminate  this  Agreement  without  further
liability or obligation to Seller, or Buyer may proceed with this transaction on
the terms and  conditions  mutually  agreeable  to the  parties,  including  any
adjustment in the Purchase Price.

                                       11
<PAGE>
     15.10  THIRD-PARTY  BENEFICIARY.  Nothing  contained herein shall create or
give rise to any third-party  beneficiary rights for any individual or entity as
a result of the terms and provisions of this Agreement.

     15.11  RELATIONSHIP OF PARTIES.  The relationship of Seller and Buyer shall
be that of  independent  entities and neither shall be deemed to be the agent of
the other.

     15.12 CHOICE OF LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Arizona and, as applicable, title 11 of
the United States Code.

     15.13  PARAGRAPH  HEADINGS.  The Section,  Article and  paragraph  headings
contained herein are for convenience only and shall have no substantive  bearing
on the interpretation of this Agreement.

     15.14 RULES OF INTERPRETATION.  The following rules of interpretation shall
apply to this Agreement,  the Schedules hereto and any certificates,  reports or
other  documents or instruments  made or delivered  pursuant to or in connection
with this Agreement,  unless otherwise  expressly provided herein or therein and
unless the context hereof or thereof clearly requires otherwise:

         15.14.1 A reference  to any document or  agreement  shall  include such
document or agreement as amended,  modified or supplemented from time to time in
accordance with its terms, and if a term is said to have the meaning assigned to
such term in another document or agreement and the meaning of such terms therein
is amended, modified or supplemented, then the meaning of such term herein shall
be deemed automatically amended, modified or supplemented in a like manner.

         15.14.2 References to the plural include the singular, the singular the
plural and the part the whole.

         15.14.3  The  words  "include,"  "includes,"  and  "including"  are not
limiting.

         15.14.4 A reference to any law includes any  amendment or  modification
to such law which is in effect on the relevant date.

         15.14.5 A reference to any person or entity  includes  its  successors,
heirs and permitted assigns.

         15.14.6 The words "hereof," "herein," "hereunder," and similar terms in
this  Agreement  refer to this  Agreement  as a whole and not to any  particular
provision of this Agreement.

         15.14.7 All Schedules to this  Agreement  constitute  material terms of
this Agreement and are incorporated fully into the terms of this Agreement.

     15.15 TIME IS OF THE ESSENCE. Time is of the essence in the performance and
observance of all obligations and duties under this Agreement.

                                       12
<PAGE>
     15.16  ATTORNEY  FEES.  Each party  shall bear its own legal fees and costs
incurred in the negotiation and closing of this  transaction.  In the event of a
dispute arising between the parties under this Agreement,  the prevailing  party
shall be  entitled  to  reasonable  attorneys'  fees and  costs of suit from the
non-prevailing party.

     15.17 COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed in
any number of counterparts,  each of which shall be an original, but all of such
counterparts shall together constitute but one and the same instrument. Delivery
of an executed  counterpart of this Agreement by telefacsimile  shall be equally
as effective as delivery of a manually  executed  counterpart of this Agreement.
Any party delivering an executed  counterpart of this Agreement by telefacsimile
also shall deliver a manually  executed  counterpart  of this  Agreement but the
failure  to  deliver  a  manually  executed  counterpart  shall not  affect  the
validity, enforceability, and binding effect of this Agreement.

     IN WITNESS  WHEREOF,  the parties hereto have set their hands effective the
date set forth above.

                              THE TESSERACT GROUP, INC., a Minnesota corporation

                              By
                                ------------------------------------------------
                              Name
                                  ----------------------------------------------
                              Its
                                 -----------------------------------------------

                              GAN YELADEEM LEARNING CENTER,
                              a Arizona non-profit corporation

                              By
                                ------------------------------------------------
                              Name
                                  ----------------------------------------------
                              Its
                                  ----------------------------------------------

                                       13
<PAGE>
                                    EXHIBIT A

                                 PROMISSORY NOTE

U.S. $100,000.00                                                 _________, 2001
                                                                Phoenix, Arizona

     FOR VALUE RECEIVED,  GAN YELADEEM  LEARNING CENTER,  an Arizona  non-profit
corporation  ("BORROWER"),  hereby promises to pay to the order of THE TESSERACT
GROUP, INC., a Minnesota corporation ("LENDER"), at the office of Lender located
at 4515 East Muirwood Drive,  Phoenix Arizona 85048, the principal amount of One
Hundred Thousand and No/100 Dollars ($100,000.00),  together with, to the extent
applicable,  the Default  Interest Rate specified  below, in accordance with the
following terms and conditions:

     1.  DEFAULT  INTEREST  RATE.  The Default  Interest  Rate shall be equal to
twelve percent (12%) per annum. The principal balance outstanding hereunder from
time to time shall bear  interest at the Default  Interest Rate from the date of
the occurrence of an Event of Default (as hereinafter  defined)  hereunder until
the  earlier  of:  (a) the  date on  which  the  principal  balance  outstanding
hereunder,  together  with  all  accrued  interest  and  other  amounts  payable
hereunder,  are paid in full;  or (b) the date on which such Event of Default is
timely  cured  in a  manner  satisfactory  to  Lender  in  the  exercise  of its
reasonable  judgment,  (i) if Borrower is  specifically  granted a right to cure
such Event of Default in any of the Loan Documents (as  hereinafter  defined) or
(ii) if no such right to cure is specifically  granted, then Lender, in its sole
and absolute discretion, permits such Event of Default to be cured.

     2. LATE  CHARGE.  If Lender has not received the full amount of any payment
by the end of five (5)  calendar  days after the date it is due under this Note,
Borrower  will pay a late charge to Lender in the amount of five percent (5%) of
the overdue  payment.  Borrower  will pay this late charge only once on any late
payment.

     3. PAYMENTS. This Note shall be payable as follows:

          (i)  Commencing on  ____________________,  and continuing on the first
     day of each month  thereafter,  equal monthly  installments of principal in
     the amount of Twenty-Five Thousand and No/100 Dollars ($25,000.00) shall be
     due and payable,  together with any accrued and unpaid  interest at, to the
     extent applicable, the Default Interest Rate; provided,  however, that such
     payments  shall be subject to offset by Borrower in an amount  equal to the
     monthly rental  payable by Lender to Borrower  pursuant to the terms of the
     Short  Term  Lease  of even  date  herewith  by and  between  Borrower,  as
     landlord, and Lender, as tenant.

          (ii) The entire  outstanding  principal sum and all accrued and unpaid
     interest,  less the amount of any rental  offsets  as  provided  in Section
     4.(i) above, shall be due and payable on or before May 25, 2001 (the "FINAL
     PAYMENT DATE").

                                       1
<PAGE>
     4.  APPLICATION  AND PLACE OF  PAYMENTS.  Payments  received by Lender with
respect to the indebtedness  evidenced hereby shall be applied in such order and
manner as Lender in its sole and absolute discretion may elect. Unless otherwise
elected by Lender,  all such payments  shall first be applied to any accrued and
unpaid  costs  or  added  charges  provided  for  herein  or in any of the  Loan
Documents, next to accrued and unpaid interest at, to the extent applicable, the
Default  Interest  Rate,  and  the  remainder  to  the  principal  balance  then
outstanding  hereunder.  Payments  hereunder  shall be made at the  address  for
Lender first set forth above,  or at such other address as Lender may specify to
Borrower in writing.

     5.  PREPAYMENTS.  Payments of principal  hereof may be made at any time, or
from time to time, in whole or in part, without penalty, provided that all other
charges accrued to the date of prepayment are also paid in full. Notwithstanding
any partial  prepayment of principal hereof,  there will be no change in the due
date or amount of scheduled  payments due hereunder  unless Lender,  in its sole
and  absolute  discretion,  agrees in writing to such  change.  At the option of
Lender, partial prepayments shall be applied in the inverse order of maturity.

     6. EVENTS OF DEFAULT;  ACCELERATION.  The  occurrence of any one or more of
the following events shall constitute an "Event of Default" hereunder,  and upon
such Event of  Default,  the entire  principal  balance  outstanding  hereunder,
together with all accrued interest and other amounts payable  hereunder,  at the
election of Lender, shall become immediately due and payable, without any notice
to Borrower:

          (i) The failure of Borrower to pay any  installment  of  principal  or
     other amounts due hereunder when due and the  continuation  of such failure
     for five (5) days after written notice thereof from Lender to Borrower;

          (ii) The failure of Borrower  to comply  with any other  provision  of
     this Note not provided for in subparagraph  (i) above and  subparagraph (v)
     below  where such  failure  continues  for thirty  (30) days after  written
     notice  thereof by Lender to Borrower,  provided that if the nature of such
     breach is such that although curable, the breach cannot reasonably be cured
     within a thirty  (30) day  period,  an Event of Default  shall not exist if
     Borrower shall  commence to cure such breach and  thereafter  rectifies and
     cures such  breach  with due  diligence,  but in no event later than ninety
     (90) days after written notice thereof;

          (iii) The  failure of Borrower  to comply  with any  provision  of any
     document,   instrument  or  agreement   executed  in  connection  with  the
     indebtedness evidenced hereby including,  without limitation,  the Security
     Agreement of even date  herewith by and between  Borrower and Lender or any
     other   security   document   executed   in   connection   with  this  Note
     (collectively, the "LOAN DOCUMENTS");

          (iv) The  dissolution,  winding-up or  termination of the existence of
     Borrower  or any  other  person  or  entity  who is or  may  become  liable
     hereunder;

          (v) The calling of a meeting of the creditors of Borrower or any other
     person or entity who is or may become liable hereunder;

                                       2
<PAGE>
          (vi) The making by  Borrower  or any other  person or entity who is or
     may  become  liable  hereunder  of an  assignment  for the  benefit  of its
     creditors; or

          (vii)  The  appointment  of  (or  application  for  appointment  of) a
     receiver  of  Borrower  or any other  person or entity who is or may become
     liable  hereunder  which is not  dismissed  in  thirty  (30)  days,  or the
     involuntary  filing against  Borrower  which is not dismissed  within forty
     five (45) days or  voluntary  filing by  Borrower,  or any other  person or
     entity who is or may become liable hereunder,  of a petition or application
     for relief under  federal  bankruptcy  law or any similar  state or federal
     law, or the issuance of any writ of  garnishment,  execution or  attachment
     for service  with respect to Borrower or any person or entity who is or may
     become  liable  hereunder,  or any  property of Borrower or property of any
     person or entity who is or may become liable hereunder.

     7.  COLLATERAL.  Borrower's  obligations  under this Note are  additionally
secured by the property  described in Security  Agreement of even date  herewith
(the  "PROPERTY"),  between Borrower,  as debtor,  and Lender, as secured party.

     8. WAIVERS.  Except as set forth in this Note or the Loan Documents, to the
extent  permitted by  applicable  law,  Borrower,  and each person who is or may
become  liable  hereunder,  severally  waive and agree  not to  assert:  (a) any
homestead or exemption rights;  (b) demand,  diligence,  grace,  presentment for
payment,  protest, notice of nonpayment,  nonperformance,  extension,  dishonor,
maturity,  protest and  default;  and (c)  recourse  to  guaranty or  suretyship
defenses  (including,  without  limitation,  the right to require  the Lender to
bring an action on this  Note).  Lender may  extend  the time for  payment of or
renew this Note, release  collateral as security for the indebtedness  evidenced
hereby or release any party from liability  hereunder,  and any such  extension,
renewal,  release or other  indulgence shall not alter or diminish the liability
of  Borrower or any other  person or entity who is or may become  liable on this
Note  except  to the  extent  expressly  set forth in a  writing  evidencing  or
constituting such extension, renewal, release or other indulgence.

     9. COSTS OF  COLLECTION.  Borrower  agrees to pay all  reasonable  costs of
collection,  including, without limitation, attorneys' fees, whether or not suit
is filed,  and all costs of suit and  preparation  for suit (whether at trial or
appellate  level),  in the event any payment of principal or other amount is not
paid when due, or in case it becomes  necessary to protect the collateral  which
is security  for the  indebtedness  evidenced  hereby,  or to exercise any other
right or remedy  hereunder or in the Loan  Documents,  or in the event Lender is
made  party to any  litigation  because  of the  existence  of the  indebtedness
evidenced  hereby,  or if at any time Lender should incur any attorneys' fees in
any proceeding under any federal bankruptcy law (or any similar state or federal
law) in connection with the indebtedness  evidenced  hereby. In the event of any
court proceeding,  attorneys' fees shall be set by the court and not by the jury
and shall be included in any judgment obtained by Lender.

     10. NO WAIVER BY LENDER.  No delay or failure of Lender in  exercising  any
right  hereunder  shall  affect  such  right,  nor shall any  single or  partial
exercise of any right preclude further exercise thereof.

                                       3
<PAGE>
     11.  GOVERNING  LAW.  This Note shall be construed in  accordance  with and
governed by the laws of the State of Arizona.

     12. TIME OF ESSENCE. Time is of the essence of this Note and each and every
provision hereof.

     13. AMENDMENTS.  No amendment,  modification,  change,  waiver,  release or
discharge  hereof  and  hereunder  shall be  effective  unless  evidenced  by an
instrument  in  writing  and signed by the party  against  whom  enforcement  is
sought.

     14. SEVERABILITY. If any provision hereof is invalid or unenforceable,  the
other  provisions  hereof  shall  remain in full  force and  effect and shall be
liberally  construed  in  favor of  Lender  in order  to  effectuate  the  other
provisions hereof.

     15.  BINDING  NATURE.  The  provisions  of this Note shall be binding  upon
Borrower  and the heirs,  personal  representatives,  successors  and assigns of
Borrower,  and shall inure to the benefit of Lender and any subsequent holder of
all or any portion of this Note,  and their  respective  successors and assigns.
Lender may from time to time  transfer  all or any part of its  interest in this
Note and the Loan Documents, without notice to Borrower.

     16.  NOTICE.  Any notice or other  communication  with respect to this Note
shall: (a) be in writing;  (b) be effective on the day of hand-delivery  thereof
to the party to whom directed, one day following the day of deposit thereof with
delivery charges prepaid,  with a national  overnight  delivery service,  or two
days following the day of deposit thereof with postage prepaid,  with the United
States Postal Service, by regular first class, certified or registered mail; (c)
if directed  to Lender,  be  addressed  to Lender at 4515 East  Muirwood  Drive,
Phoenix,  Arizona 85048, or to such other address as Lender shall have specified
to Borrower by like  notice;  and (d) if directed to  Borrower,  be addressed to
Borrower at the address for Borrower set forth below Borrower's name, or to such
other address as Borrower shall have specified by like notice.

     17. SECTION  HEADINGS.  The section headings set forth in this Note are for
convenience only and shall not have substantive  meaning  hereunder or be deemed
part of this Note.

     18.  CONSTRUCTION.  This Note shall be construed as a whole,  in accordance
with its fair  meaning,  and  without  regard  to or  taking  into  account  any
presumption  or other  rule of law  requiring  construction  against  the  party
preparing this Note.

                                       4
<PAGE>
     IN WITNESS  WHEREOF,  Borrower has executed  this Note as of the date first
set forth above. "BORROWER"

                                  GAN YALEDEEM LEARNING CENTER, an
                                  Arizona non-profit corporation

                                  By:
                                     -------------------------------------------
                                  Name:
                                       -----------------------------------------
                                  Its:
                                       -----------------------------------------

                                  Address of Borrower:

                                  15030 North 64th Street
                                  Scottsdale, Arizona  85254

                                       5
<PAGE>
                                    EXHIBIT B

                               SECURITY AGREEMENT

     This SECURITY  AGREEMENT (this  "AGREEMENT") is made and entered into as of
the ____ day of January,  2001, by and between GAN YELADEEM  LEARNING CENTER, an
Arizona non-profit corporation ("DEBTOR"),  whose mailing address is 15030 North
64th  Street,  Scottsdale,  Arizona  85254,  and THE  TESSERACT  GROUP,  INC., a
Minnesota  corporation  ("SECURED  PARTY"),  whose mailing  address is 4515 East
Muirwood Drive, Phoenix Arizona 85048.

     1. DEFINITIONS.  The following words shall have the following meanings when
used in this Agreement:

         (a) COLLATERAL.  The word  "Collateral"  means the following  described
property  and  interests  in such  property  of  Debtor,  whether  now  owned or
hereafter  acquired by Debtor,  whether now existing or hereafter  arising,  and
wherever  located:  all of Debtor's right,  title,  and interest,  in and to the
furniture,  fixtures,  and  equipment  described  on EXHIBIT A attached  hereto,
including, without limitation, the following:

              (1) all attachments,  accessions,  parts, and additions to and all
replacements  of and  substitutions  for any of the  property  described in this
Collateral section.

              (2)  all  products  of any  of  the  property  described  in  this
Collateral section.

              (3) all accounts, contract rights, general intangibles, and monies
arising  out of a sale,  lease,  contract  of sale,  service or lease,  or other
disposition of any of the property described herein as Collateral.

              (4) all  proceeds  (including  insurance  proceeds)  of any of the
property described in this Collateral section.

              (5) all records relating to any of the property  described in this
Collateral section, whether in the form of a writing, microfilm,  microfiche, or
electronic media.

         (b)   INDEBTEDNESS.   Indebtedness   includes  all   indebtedness   and
liabilities of Debtor to Secured Party, due or to become due, whether or not now
existing or hereafter contracted for or arising, including, but not limited to:

              (1) the  indebtedness  for  principal  of Debtor to Secured  Party
evidenced by a Promissory Note of even date herewith executed by Debtor in favor
of Secured  Party,  in the original  principal  sum of One Hundred  Thousand and
No/100 Dollars ($100,000.00), and any and all extensions, renewals, refinancing,
and other amounts owing thereon (the "Note");

                                       1
<PAGE>
              (2) any and all present and future  advances made or to be made by
Secured  Party to Debtor under this  Agreement,  or any other  agreement  now or
hereafter executed between Debtor and Secured Party, whether or not evidenced by
any  promissory   note  or  other   instrument,   and  all  other   obligations,
indebtedness,  or liabilities of Debtor to Secured Party,  due or to become due,
joint or several,  absolute or contingent,  now existing or hereafter created or
arising  out of this  Agreement,  or any  other  agreement  or  guaranty  now or
hereafter  executed  between  Debtor  and  Secured  Party,  including,   without
limitation, all interest, service charges,  collection and attorneys' fees which
are  payable by Debtor to  Secured  Party,  including  any debt,  liability,  or
obligation  owing at any time from Debtor to others which Secured Party may have
obtained by assignment or otherwise;

              (3) all expenses  incurred by Secured  Party in the  perfection of
its security  interest in the Collateral and in the  preservation and collection
of any of the  Collateral,  including,  but not limited to, all sums advanced by
Secured Party to preserve the Collateral; and

              (4) in the event of any  proceeding  to enforce the  collection of
any of the Indebtedness, the reasonable expenses of retaking, holding, preparing
for  sale,  or  otherwise  disposing  of any or all of the  Collateral  upon any
exercise  by Secured  Party of its rights  under this  Security  Agreement,  and
attorneys'  fees,  court  costs,  and other  expenses in  connection  therewith,
including, without limitation, the matters set forth in PARAGRAPH 12 hereof.

         (c) RELATED  DOCUMENTS.  The words "Related  Documents"  shall mean and
include  the Note,  the Lease as  modified  by the Short Term Lease of even date
herewith between Debtor and Secured Party,  and all other documents  executed in
connection  with this  Agreement or the  Indebtedness,  whether now or hereafter
existing.

     2. GRANT OF SECURITY INTEREST.  For valuable  consideration,  Debtor hereby
grants to Secured  Party a continuing  security  interest in the  Collateral  to
secure the  Indebtedness  and agrees  that  Secured  Party shall have the rights
stated in this  Agreement  with  respect to the  Collateral,  in addition to all
other rights which Secured  Party may have  pursuant to Related  Documents or by
law.

     3. RIGHT OF  SETOFF.  In the event of a default  pursuant  to  PARAGRAPH  7
hereof,  Debtor authorizes  Secured Party, to the extent permitted by applicable
law, to charge or setoff all Indebtedness against any and all accounts of Debtor
now existing or hereafter established with Secured Party.

     4.  OBLIGATIONS  OF DEBTOR.  Debtor  warrants to and covenants with Secured
Party as follows:

         (a) PERFECTION OF SECURITY INTEREST. Debtor agrees to execute financing
statements  and to take whatever other actions are requested by Secured Party to
perfect and  continue  Secured  Party's  security  interest  in the  Collateral.
Secured Party may at any time, and without  further  authorization  from Debtor,
file a copy of this Agreement as a financing statement.

                                       2
<PAGE>
         (b) REMOVAL OF COLLATERAL. Except as otherwise provided in the Lease as
modified by the Short Term Lease,  Debtor  will keep the  Collateral  (or to the
extent the  Collateral  consists of intangible  property  such as accounts,  the
records concerning the Collateral) at 3916 East Paradise Lane, Phoenix, Arizona.
Debtor shall not remove the Collateral  from its existing  location  without the
prior written consent of Secured Party.

         (c) TRANSACTIONS INVOLVING COLLATERAL.  Except as otherwise provided in
the Lease as modified by the Short Term Lease,  Debtor shall not sell,  offer to
sell,  lease or  offer  to  lease,  or  otherwise  transfer  or  dispose  of the
Collateral. Debtor shall not pledge, mortgage, encumber, or otherwise permit the
Collateral to be subject to any lien, security interest, encumbrance, or charge,
whether or not  subordinate  or junior to the lien  evidenced  by this  Security
Agreement,  other than the security  interest  provided  for in this  Agreement,
without the prior  written  consent of Secured  Party.  Unless waived by Secured
Party,  all proceeds from any  disposition  of the  Collateral  shall be held in
trust for  Secured  Party,  and shall not be  commingled  with any other  funds;
provided, however, that this requirement shall not constitute consent by Secured
Party to any sale or other  disposition of any of the Collateral.  Upon receipt,
Debtor shall immediately deliver any such proceeds to Secured Party.

         (d) DEBTOR'S NAME. Debtor has not, during the preceding six years, been
known as or used any other  corporate or  fictitious  name,  except as otherwise
disclosed  in  writing  to Secured  Party,  and  Debtor  shall not use any other
corporate or fictitious name, except upon prior written notice to Secured Party.

         (e)  VERIFICATION  OF  ACCOUNT,  INSPECTION,  AUDIT.  Upon an  Event of
Default,  Secured  Party or any of its employees or agents shall have the right,
at any time  hereafter,  upon  reasonable  notice to Debtor,  in Secured Party's
name, or in the name of Debtor, to discuss Debtor's affairs and finances and the
Collateral with any attorney, accountant, account debtor or creditor of Debtor.

     5. DEBTOR'S RIGHT TO POSSESSION.  Except as otherwise provided in the Lease
as modified by the Short Term Lease,  until default,  Debtor may have possession
of the tangible  personal  property and  beneficial use of all of the Collateral
and may use it in any lawful manner not inconsistent  with this Agreement or the
Related Documents.

     6. EXPENDITURES BY SECURED PARTY.  Except to the extent already required to
be  discharged or paid by Secured Party under the Lease as modified by the Short
Term Lease, if not discharged or paid when due, Secured Party, at its option but
without  obligation,  may discharge taxes, liens,  security interests,  or other
encumbrances  at any  time  levied  or  placed  on the  Collateral,  may pay for
insurance  with  respect  to the  Collateral,  and may pay for  maintenance  and
preservation  of the  Collateral.  To the  extent  not  already  required  to be
discharged  or paid by Secured  Party  under the Lease as  modified by the Short
Term Lease,  any and all such payments  shall become a part of the  Indebtedness
and shall be payable on demand,  with  interest at the default rate as set forth
in the Note  from date of  expenditure  until  repaid.  Such  right  shall be in
addition to any other rights or remedies to which  Secured Party may be entitled
on account of default.

                                       3
<PAGE>
     7.  EVENTS OF  DEFAULT.  The  following  are events of  default  under this
Agreement ("Event of Default"):

         (a) DEFAULT ON INDEBTEDNESS.  Debtor fails to make any payment when due
on the  Indebtedness,  subject  to any grace  period  provided  in the  document
evidencing such indebtedness.

         (b) OTHER  BREACHES.  Failure to comply  with or to  perform  any other
term,  obligation,  covenant or condition  contained in this Agreement or in the
Related Documents; provided, however (except as to a default in payment referred
to in PARAGRAPH  7(A) above),  that if such a failure is with respect to a term,
obligation,  or  condition  contained  in this  Agreement  and such  failure  is
curable, and if Debtor has not been given a prior notice of a breach of the same
provision of this  Agreement,  such default may be cured by Debtor (and no event
of default will have occurred) if Debtor,  after  receiving  written notice from
Secured  Party  demanding  cure of such  failure:  (a) cures the failure  within
thirty (30) days;  or (b) if the cure  requires  more than thirty (30) days,  if
Debtor immediately initiates steps sufficient to cure the failure and thereafter
continues and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.

         (c)  FALSE  STATEMENTS.   Any  material  warranty,   representation  or
statement  made or  furnished  to Secured  Party by or on behalf of Debtor under
this  Agreement  or any of the  Related  Documents,  is or at the  time  made or
furnished was, false in any material respect.

         (d)  INSOLVENCY.   Dissolution  of  Debtor,   termination  of  Debtor's
existence as a going business,  cessation of Debtor's operations,  insolvency by
Debtor,  appointment  of a  receiver  for any  part of  Debtor's  property,  any
assignment for the benefit of creditors by Debtor,  or the  commencement  of any
proceeding under any bankruptcy or insolvency laws by or against Debtor.

         (e)  CREDITOR  PROCEEDINGS.  Commencement  of  foreclosure,  whether by
judicial  proceeding,  self-help,  repossession  or  any  other  method,  by any
creditor of Debtor  against any of the  property of Debtor,  including,  without
limitation,  the Collateral.  However,  this  subsection  shall not apply in the
event of a good faith dispute by Debtor as to the validity or  reasonableness of
the claim which is the basis of the foreclosure suit, provided that Debtor gives
Secured Party written  notice of such claim and furnishes  adequate  reserves or
security for the claim, as determined by Secured Party.

     8. RIGHTS OF SECURED PARTY. Upon any Event of Default,  Secured Party shall
have all the rights of a secured  party  under the  Arizona  Uniform  Commercial
Code. In addition and without limitation,  Secured Party may exercise any one or
more of the following rights and remedies:

         (a) ACCELERATE  INDEBTEDNESS.  Secured Party,  may, at its option,  and
without  demand,  notice  or legal  process  of any  kind,  declare  the  entire
Indebtedness  immediately  due and  payable.  Anything  herein  contained to the
contrary  notwithstanding,  in the event of a default  referred to in PARAGRAPHS
7(E) OR (F) above, the Indebtedness,  without demand, notice or legal process of

                                       4
<PAGE>
any kind (all of which are  hereby  waived by  Debtor),  automatically  shall be
deemed to be declared immediately due and payable.

         (b) ASSEMBLE COLLATERAL. To the extent the Collateral is not already in
Secured Party's  possesion and control  pursuant to the Lease as modified by the
Short Term Lease,  Secured Party may require  Debtor to deliver to Secured Party
all or any portion of the Collateral and any and all  certificates  of title and
other documents relating to the Collateral.  Secured Party may require Debtor to
assemble the  Collateral  and make it  available to Secured  Party at a place or
places to be designated by Secured Party which is reasonably  convenient to both
parties.  Secured Party also shall have full power to enter upon the property of
Debtor to take  possession  of and  remove  the  Collateral.  If the  Collateral
contains other goods not covered by this Agreement at the time of  repossession,
Debtor  agrees  Secured  Party may take such other goods,  provided that Secured
Party makes reasonable efforts to return them to Debtor after repossession.

         (c) SELL THE  COLLATERAL.  Secured Party shall have full power to sell,
lease,  transfer,  and otherwise deal with the Collateral or proceeds thereof in
its own name or that of Debtor.  Secured Party may sell the Collateral at public
auction or private sale.  Unless the Collateral  threatens to decline rapidly in
value or is of a type  customarily  sold on a recognized  market,  Secured Party
will give Debtor  reasonable  notice of the time after which any private sale or
any other intended disposition of the Collateral is to be made. The requirements
of reasonable notice shall be met if such notice is given at least ten (10) days
before  the  time of the  sale or  disposition.  All  expenses  relating  to the
disposition  of the  Collateral,  including  without  limitation the expenses of
retaking,  holding, preparing for sale and selling the Collateral shall become a
part of the  Indebtedness  secured  by this  Agreement,  and shall be payable on
demand,  with  interest  at the default  rate  provided in the Note from date of
expenditure until repaid.

         (d)  APPOINTMENT  OF  RECEIVER.  Secured  Party  may  have  a  receiver
appointed as a matter of right. The receiver may be an employee of Secured Party
and may serve without bond.  All fees of the receiver and his attorney  shall be
secured by this Agreement.

         (e)  COLLECT  REVENUES.  Secured  Party may  revoke  Debtor's  right to
collect any rents and revenues from the  Collateral,  and may,  either itself or
through a receiver,  collect any rents and revenues.  To facilitate  collection,
Secured Party may notify Debtor's account debtors and obligors on any instrument
to make  payments  directly to Secured  Party.  Debtor  irrevocably  designates,
makes,  constitutes  and appoints  Secured Party (and all persons  designated by
Secured  Party) as Debtor's true and lawful  attorney in fact and Secured Party,
or Secured  Party's agent,  may,  without notice to Debtor:  (i) at such time or
times  hereafter  as Secured  Party or its agent,  in its sole  discretion,  may
determine,  in Debtor's or Secured  Party's name,  endorse  Debtor's name on any
checks,  notes,  drafts or other  payments  relating  to and/or  proceeds of the
Collateral  which come into the  possession  of Secured  Party or under  Secured
Party's  control;   and  (ii)  sign  the  name  of  Debtor  on  any  agreements,
instruments,  documents,  financing  statements,  warehouse  receipts,  bills of
lading,  notices of assignment of accounts,  schedules and other written  matter
necessary or required by Secured Party to perfect and maintain perfected Secured
Party's security interest in the Collateral (the  "Supplemental  Documentation")
and to deliver any of the  foregoing to such person or entity as Secured  Party,
in its sole discretion, may elect.

                                       5
<PAGE>
         (f) OBTAIN  DEFICIENCY.  Secured  Party may  obtain a judgment  for any
deficiency  remaining on the Indebtedness due to Secured Party after application
of all  amounts  received  from the  exercise  of the  rights  provided  in this
Agreement.  Debtor  shall be  liable  for a  deficiency  even if the  underlying
transaction is a sale of accounts or chattel paper.

         (g) OTHER RIGHTS AND REMEDIES.  In addition to Secured  Party's  rights
and remedies as a secured  creditor under the provisions of the Arizona  Uniform
Commercial  Code,  Secured  Party shall have and may  exercise any or all of the
rights and remedies it may have available at law, in equity, or otherwise.

         (h) APPLY ACCOUNTS.  Secured Party may hold all of Debtor's  Collateral
consisting of accounts with Secured Party, and Secured Party may apply the funds
in these accounts to pay all or part of the Indebtedness.

     9. CUMULATIVE REMEDIES. All of Secured Party's rights and remedies, whether
evidenced by this Agreement or by any other writing, shall be cumulative and may
be exercised singularly or concurrently. Election by Secured Party to pursue any
remedy shall not exclude  pursuit of any other  remedy,  and an election to make
expenditures  or to take action to perform an  obligation  of Debtor  under this
Agreement,  after Debtor's failure to perform,  shall not affect Secured Party's
right to declare a default and to exercise its remedies.

     10.  WAIVER.  Secured  Party  shall not be deemed to have waived any rights
under this Agreement (or under the Related  Documents)  unless such waiver is in
writing and signed by Secured Party. No delay or omission on the part of Secured
Party in  exercising  any right  shall  operate as a waiver of such right or any
other right.  A waiver by any party of a provision of this  Agreement  shall not
constitute a waiver of or prejudice the party's right otherwise to demand strict
compliance with that provision or any other provision.  No prior waiver, nor any
course of dealing between Secured Party and Debtor, shall constitute a waiver of
any  of  Secured  Party's  rights  or  Debtor's  obligations  as to  any  future
transactions.  Whenever  consent by Secured Party is required in this Agreement,
the  granting  of such  consent  by  Secured  Party in any  instance  shall  not
constitute  continuing  consent to  subsequent  instances  where such consent is
required.

     11. NOTICES.  All notices required to be given by either party to the other
under this  Agreement  shall be in writing and shall be effective  when actually
delivered or three (3) days after deposit with the United States Postal  Service
mail, first class postage  prepaid,  addressed to the other party at the address
shown above or to such other  addresses  as either  party may  designate  to the
other in writing which change of address shall be effective upon receipt. Debtor
agrees not to change  its name or  operate  under any  fictitious  name  without
giving  Secured Party at least ten (10) days prior written notice of such change
and agrees, for notice purposes,  to keep Secured Party informed at all times of
Debtor's current address.

     12.  EXPENSES,  COSTS AND ATTORNEYS' FEES.  Debtor shall reimburse  Secured
Party on demand for all its expenses (including,  but not limited to, reasonable
attorneys'  fees) of, or incidental to: (a) any  litigation,  contest,  dispute,
suit,  proceeding or action (whether  instituted by Secured Party, Debtor or any
other person or entity) in any way relating to the  Collateral,  this Agreement,
the  Related  Documents  or Debtor's  affairs,  including,  without  limitation,

                                       6
<PAGE>
bankruptcy  proceedings  and efforts to modify or vacate any  automatic  stay or
injunction  except as may relate to an actual breach of this Security  Agreement
by Secured Party,  in which event Secured Party shall  reimburse  Debtor for its
expenses;  (b) any attempt to enforce any rights of Secured Party against Debtor
or any other person or entity which may be obligated to Secured  Party by virtue
of this Agreement or the Related Documents,  including,  without limitation, any
account  debtor and whether or not a lawsuit or proceeding is filed;  and/or (c)
any attempt to inspect,  verify, protect,  collect, sell, liquidate or otherwise
dispose of the Collateral. All such sums and expenses shall constitute a portion
of the Indebtedness hereunder secured by the Collateral.

     13. INTERPRETATION.  Caption headings in this Agreement are for convenience
purposes  only and are not to be used to interpret or define the  provisions  of
this  Agreement.  If any  provision  of this  Agreement  is held to be  invalid,
illegal or unenforceable by any court for any reason,  the remaining  provisions
of this Agreement  shall  nevertheless  be binding,  and this Agreement shall be
enforceable as if the void or unenforceable provision or provisions had not been
included in this Agreement. Any terms used in this Agreement, including, without
limitation,   "account",   "account   debtor",   "chattel  paper",   "document",
"equipment",  "instrument",  "general  intangible",  which are not  specifically
defined in this Agreement but are  specifically  defined in the Arizona  Uniform
Commercial  Code,  shall  have the  meanings  ascribed  in the  Arizona  Uniform
Commercial Code.

     14. APPLICABLE LAW. This Agreement is accepted in the State of Arizona.  In
addition,  this Agreement  shall be governed by and construed in accordance with
the laws of the State of Arizona.  Secured  Party and Debtor agree that if there
is a lawsuit,  Secured Party and Debtor will submit to the  jurisdiction  of the
courts in Maricopa County,  State of Arizona,  and at Secured Party's option, to
the jurisdiction of the courts in any county where any Collateral is located.

     15. ASSIGNMENT;  MODIFICATION. This Agreement and the Related Documents may
not be modified, altered or amended, except by an agreement in writing signed by
Secured Party and Debtor. Debtor may not sell, assign or transfer this Agreement
or the Related Documents or any portion thereof, including,  without limitation,
Debtor's rights, title,  interest,  revenues,  powers and/or duties hereunder or
thereunder.  Debtor  hereby  consents to Secured  Party's  participation,  sale,
assignment,  transfer or other  disposition at any time or times  hereafter,  of
this  Agreement  or the  Related  Documents  or any  portion  hereof or thereof,
including,  without  limitation,  Secured  Party's  rights,  titles,  interests,
remedies,  powers  and/or  duties  hereunder  or  thereunder.   Subject  to  the
foregoing,  this Agreement and the Related  Documents  shall be binding upon and
inure to the benefit of the successors and assigns of Secured Party and Debtor.

     16. CONTINUING AGREEMENT. This is a continuing Agreement which shall remain
in full force and effect until actual receipt by Secured Party of written notice
of the Agreements  revocation as to future transactions and shall remain in full
force and effect  thereafter until all of the  Indebtedness  incurred before the
receipt of such notice,  and all of the Indebtedness  incurred  thereafter under
commitments  extended by Secured Party before receipt of such notice, shall have
been paid and performed in full.

                                       7
<PAGE>
     17. FURTHER  ASSURANCES.  At Secured Party's request,  Debtor shall execute
and  deliver  to  Secured  Party,  at  any  time  hereafter,   any  Supplemental
Documentation that Secured Party may reasonably  request,  in form and substance
acceptable to Secured Party.

     IN WITNESS WHEREOF,  the parties hereto have executed this Agreement on the
date first above written.

                                  DEBTOR:

                                  GAN YALEDEEM LEARNING CENTER, an
                                  Arizona non-profit corporation

                                  By:
                                     -------------------------------------------
                                  Name:
                                       -----------------------------------------
                                  Its:
                                       -----------------------------------------

                                       8
<PAGE>
                                    EXHIBIT C

                            FIRST AMENDMENT TO LEASE

     THIS   FIRST   AMENDMENT   TO   LEASE   (the   "Amendment")   made   as  of
_______________________,   2001,  by  and  between  GAN  YELADEEM,   an  Arizona
non-profit  corporation  ("Lessor"),  and THE TESSERACT GROUP, INC., a Minnesota
corporation  ("Lessee"),  hereby amends that certain  Amended and Restated Lease
between Educorp  Properties,  Inc.,  ("Original  Lessor") and Lessee dated as of
June 9, 1998 (the "Lease"), with respect to certain real property, together with
all  buildings,  structures,  fixtures  and  improvements  located  thereon,  in
Phoenix,  Maricopa County, Arizona, a legal description of which is contained in
EXHIBIT A attached hereto (the  "Premises").  Any  capitalized  terms not herein
defined shall have the meanings ascribed thereto in the Lease.

                                  WITNESSETH:

     WHEREAS,  Lessor,  has  purchased  fee title to the Premises  from Original
Lessor;

     WHEREAS,  Lessee  has filed a  voluntary  petition  for  Chapter  11 relief
("Chapter  11 Case")  under  Title 11 of the  United  States  Code  ("Bankruptcy
Code"). The Chapter 11 Case is pending before the United States Bankruptcy Court
for the District of Arizona ("Bankruptcy Court");

     WHEREAS,  Lessee has obtained the approval of the  Bankruptcy  Court to (i)
sell  certain  assets  of  Lessee,  defined  in the Lease as  Lessee's  Personal
Property,  on the terms and  conditions  set forth in that certain  Purchase and
Sale Agreement  (Paradise Lane School) dated February _____, 2001 (the "Purchase
Agreement") and (ii) enter into this Amendment;

     WHEREAS,  Lessee,  with the approval from the Bankruptcy Court has rejected
and  terminated the Lease as of the Closing Date (as such term is defined in the
Purchase Agreement). Lessor hereby acknowledges that it shall not be entitled to
and shall not receive any of the contractual  rights provided to Original Lessor
under the Lease,  including  but not limited to any right to assert any "Claims"
(as that term is defined in the Purchase Agreement) that may arise and/or relate
to the Lease,  provided  that the Lessor  shall be entitled  to all  contractual
rights of Lessor  under the terms of this  Amendment  from and after the Closing
Date;

     WHEREAS,  the  Lease is hereby  incorporated  into  this  Amendment  in its
entirety and deemed  effective as a lease of the real property  described on the
attached Exhibit A, enforceable by and between Lessor and Lessee, subject to the
foregoing  limitations  and subject to the amended  provisions set forth herein;
and

     WHEREAS,  Lessor and Lessee desire to amend certain provisions of the Lease
as set forth in this Amendment.

                                       1
<PAGE>
     NOW,  THEREFORE,  in  consideration  of the mutual covenants and agreements
contained  in this  Amendment,  and other good and valuable  consideration,  the
receipt  and  sufficiency  of which are hereby  acknowledged,  Lessor and Lessee
agree as follows:

     1. The terms and provisions of this Amendment shall be deemed effective and
the terms of the Lease shall be deemed effective and enforceable  against Lessor
and  Lessee on and as of the date set forth in the first  paragraph  above  (the
"Effective Date").

     2. All references in the Lease to the Paradise Valley  Montessori  Property
and to Exhibit A-1 are deleted from the Lease.

     3.  Section  1.1.2 of the Lease is  hereby  modified  to add the  following
subsection (vi):

          "(vi) All of the  personal  property  defined in the Lease as Lessee's
     Personal Property."

     4.  Section  1.1.2 of the Lease is further  amended by  deleting  the first
sentence of the last paragraph of said section which reads:

          "Notwithstanding the foregoing, the Paradise Valley Property shall not
     include any property not acquired by Lessor pursuant to the Paradise Valley
     Purchase Agreement."

     5.  Section  1.2 of the Lease is hereby  amended by deleting  the  existing
Section 1.2 and substituting in lieu thereof the following:

          1.2  TERM.  The term of the Lease  (the  "Term")  shall be the  period
     commencing on the Effective Date and expiring on May 30, 2001.

     6. Section 1.3 of the Lease is hereby deleted in its entirety.

     7.  Article II,  Section 2 of the Lease is hereby  amended by deleting  the
following definitions: "C.P.I.", "Extended Term," "Lease Year," "Paradise Valley
Montessori  Purchase  Agreement,"   "Related  Leases,"  "Security   Agreements,"
"Security Documents," "Unsuitable for Its Primary Intended Use" and "Unavoidable
Delays."

     8. Article II,  Section 2 of the Lease is hereby  amended by modifying  the
definition of Lessor to read as follows:

          "LESSOR." Gan Yeladeem,  an Arizona corporation and its successors and
     assigns.  Unless Lessee is notified by Lessor  otherwise,  Lessor's address
     is: 15030 North 64th Street, Scottsdale, AZ 85254.

     9. Article II,  Section 2 of the Lease is hereby  amended by modifying  the
definition of Term to read as follows:

          "TERM. As defined in Section 1.2."

                                       2
<PAGE>
     10.  Sections  3.1.1.(a),  3.1.1.(b)  and  3.1.2 of the  Lease  are  hereby
modified by deleting  those  sections  and  replacing  those  sections  with the
following:

          3.1.1 (a) INITIAL TERM. The monthly "Minimum Rent" is $16,000.00.  The
     Minimum  Rent  shall be paid by Lessee to Lessor on or before the first day
     of each  calendar  month  during  the Term (each a  "Minimum  Rent  Payment
     Date");  Minimum  Rent  shall  be  prorated  for any  partial  month at the
     beginning  or the  end of the  Term.  Lessor  has  agreed  in the  Purchase
     Agreement,   among  other  things,  to  pay  to  Lessee  four  payments  of
     $25,000.00.  Notwithstanding anything in the Lease to the contrary,  Lessor
     agrees to permit Lessee to offset  Lessee's  monthly  Minimum Rent payments
     against such $25,000 payments due Lessee from Lessor under the Purchase and
     Sale Agreement.

          3.1.1 (b) EXTENDED TERMS. Intentionally deleted.

          3.1.2 PRE-PAYMENT OF MINIMUM RENT. Intentionally deleted.

          3.2 ANNUAL ESCALATION OF MINIMUM RENT. Intentionally deleted.

     11. The last sentence of Section 3.4 of the Lease is hereby  deleted in its
entirety and is replaced with the following:

          "Lessee  agrees to  indemnify  and defend  Lessor  against any and all
     claims or other  amounts  due under this Lease for any period  prior to the
     Term."

     12. The last sentence of Section 4.5 of the Lease is hereby  deleted in its
entirety and is replaced with the following:

          "Lessee  agrees to  indemnify  and defend  Lessor  against any and all
     liabilities  and  obligations  concerning the Facilities  which have arisen
     prior to the Effective Date."

     13. Section 4.6 of the Lease is hereby deleted in its entirety.

     14. Section 6.1 of the Lease is hereby amended to read as follows:

          "6.1 OWNERSHIP OF LEASED PROPERTY. Lessee acknowledges and agrees that
     the Leased  Property  (including  that  property  defined  as the  Lessee's
     Personal  Property)  is the property of Lessor and that Lessee has only the
     right to the exclusive  possession and use of the Leased  Property upon the
     terms and conditions and during the term of this Lease.

     15.  Sections  6.2,  6.3 and 6.4 of the Lease are  hereby  deleted in their
entirety.

     16. Section 7.3 of the Lease is hereby deleted in its entirety.

                                       3
<PAGE>
     17.  Section 8.1 of the Lease is hereby amended to add the following at the
end of said section:

          "Lessor acknowledges that Lessee has not yet obtained a certificate of
     occupancy for the building  commonly referred to as Building #3. Subject to
     the terms and  conditions of the Purchase  Agreement,  Lessee has agreed to
     obtain such certificate of occupancy prior to the end of the Term.

     18. The first  sentence of Section 9.1.3 of the Lease is hereby  deleted in
its entirety and replaced with the following:

          "Lessee shall not make any modifications,  alterations or improvements
     to the Leased  Improvements or any portion thereof,  whether by addition or
     deletion,  without  Lessor's  prior written  consent,  which consent may be
     given  or  withheld  in  Lessor's  sole  and  absolute  discretion.  Lessor
     acknowledges that, subject to Section 7.6 of the Purchase Agreement, Lessee
     may make  modifications to the building commonly referred to as Building #3
     to obtain a  certificate  of  occupancy  and Lessor  consents  to  Lessee's
     modification."

     19.  Section 9.2 of the Lease is hereby amended to add the following at the
end of said section:

          "Notwithstanding  anything  contained  herein to the contrary,  Lessee
     shall not be  required  to expend any  amounts  under this  Section  9.2 in
     excess  of  those  amounts  set  forth  in  Section  7.6  of  the  Purchase
     Agreement."

     20. Section 9.3 of the Lease is hereby deleted in its entirety.

     21. Section 13.1.6 of the Lease is hereby deleted in its entirety.

     22. Section 13.6 of the Lease is hereby deleted in its entirety.

     23.  Section  14.1 of the  Lease is  hereby  deleted  in its  entirety  and
replaced with the following:

          "14.1 INSURANCE PROCEEDS.  All insurance proceeds payable by reason of
     any loss of or damage to the Leased Property, or any portion thereof, which
     is insured  under any policy of  insurance  required by Article XIII of the
     Lease  shall be paid to the Lessor.  In the event  Lessor does not elect to
     repair and restore  the Leased  Premises,  the Minimum  Rent shall abate in
     accordance  with  Section  5.2.  In the  event of any loss or  damage  that
     renders the Leased Property unsuitable for its Primary Intended Use (in the
     reasonable  business  judgment  of Lessor and  Lessee)  the Lease  shall be
     terminated."

     24. Section 14.2 through and including Section 14.6 of the Lease are hereby
deleted in their entirety.

                                       4
<PAGE>
     25.  Sections  15.3 through  15.6 of the Lease are hereby  deleted in their
entirety and replaced with the following:

          "15.3  ALLOCATION OF  CONDEMNATION  AWARDS.  All  Condemnation  Awards
     payable  by  reason  of any loss of,  damage  to or  taking  of the  Leased
     Property or any portion  thereof shall be paid to the Lessor.  In the event
     Lessor  does not elect to use such Award to repair and  restore  the Leased
     Premises,  the Minimum Rent shall abate in accordance  with Section 5.2. In
     the event of any loss of,  damage to or taking of the Leased  Property that
     renders the Leased Property unsuitable for its Primary Intended Use (in the
     reasonable  business  judgment  of Lessor and  Lessee)  the Lease  shall be
     terminated.

     26.  Section 16.1 (b) through and  including  Section 16.1 (f) of the Lease
are hereby deleted in their entirety and replaced with the following:

          "(b) if Lessee  fails to  observe  or perform  any term,  covenant  or
     condition of this Lease other than those described under Paragraphs  1.3.3,
     16.1(a) and 16.1(g) through and including  16.1(n) of this Lease,  and such
     failure  is not cured by Lessee  within a period of thirty  (30) days after
     Notice  thereof from Lessor,  unless such failure cannot with due diligence
     be cured  within a period of thirty (30) days,  in which case such  failure
     shall not be deemed an Event of Default  if Lessee  proceeds  promptly  and
     with due diligence to cure the failure and diligently  completes the curing
     thereof within ninety (90) days; or

          (c) Intentionally deleted.

          (d) Intentionally deleted.

          (e) Intentionally deleted.

          (f) Intentionally deleted."

     27. Article XVIII of the Lease is hereby deleted in its entirety.

     28. The last  sentence of Section 20 of the Lease is hereby  deleted in its
entirety and replaced with the following:

          "Lessor  shall,  however,  remain liable for any damages  arising from
     Lessor's own negligence or willful misconduct."

     29.  Subsection  21(b) of the Lease is hereby  deleted in its  entirety and
replaced with the following:

          "(b) any  third  party  claims  of any  kind  relating  to the  Leased
     Property,  the  Facilities or the operation  thereof,  whether  sounding in
     contract or tort, and whether arising  directly or indirectly from the acts
     or  omissions  of  Lessee,  or any of  Lessee's  teachers,  administrators,
     students, employees, agents, invitees, guests, permittees or trespassers."

                                       5
<PAGE>
     30.  Subsection  21(g) of the Lease is hereby  deleted in its  entirety and
replaced with the following:

          "(g) any Hazardous Materials, as defined in Paragraph 10.2, above that
     now or  hereafter  during the Term may be located in, on or around,  or may
     potentially affect, any part of the Land or Leased Improvements unless such
     exposure to or presence of Hazardous  Materials  has been caused by any act
     or omission of Lessor;"

     31. The sentence  immediately  preceding the last sentence of Section 21 of
the Lease is hereby deleted in its entirety and replaced with the following:

          "Nothing herein shall be construed as indemnifying  Lessor against its
     negligence or willful misconduct."

     32. Section 23 of the Lease is hereby deleted in its entirety.

     33.  Subsection  25.1(h) of the Lease is hereby deleted in its entirety and
replaced with the following:

          "all telephone numbers and facsimile numbers presently in use."

     34. Section 25.3.2 of the Lease is hereby deleted in its entirety.

     35. Section 32 (a) of the Lease is hereby amended to add the following:

               "with a copy to: Robert J. Miller, Esq.
                                Bryan Cave, LLP
                                Two North Central Avenue
                                Suite 2200
                                Phoenix, Arizona 85004

     36.  Section 32 (b) is hereby deleted in its entirety and replaced with the
following:

          "(b) If to Lessor: Gan Yeladeem

                                15030 North 64th Street
                                Scottsdale, Arizona 85254
                                Attention: Susan K. Heller, Ph.D.

                With a copy to: Kutak Rock, LLP
                                8601 North Scottsdale Road
                                Suite 300
                                Scottsdale, Arizona 85253
                                Attention: Timothy A. Smith, Esq.

                                       6
<PAGE>
     37. The following ARTICLE XXXV is hereby added to the Lease:

          "ARTICLE XXXV

          35.1  CONSTRUCTION.  Lessee  agrees that  Lessor  shall be entitled to
     enter onto the Leased Property for purposes of completing any construction,
     maintenance,   replacement   and/or  repair  deemed   desirable  by  Lessor
     (including,  without limitation,  the construction of additional  buildings
     and improvements).  Lessor agrees to provide to Lessee three days notice of
     such  construction,  maintenance,  replacement or repair and agrees to take
     all reasonable  action to (i) minimize  interference  with the operation of
     Lessee's  business,  and (ii) prevent Lessee's  students from access to any
     construction  area.  Lessee agrees to take all  reasonable  measures to (a)
     accommodate  Lessor's  access  to the  Leased  Property,  and  (b)  prevent
     Lessee's  students  from  entering  into any area which  Lessor or Lessor's
     agents,  employees or independent contractors are completing  construction,
     maintenance, replacement or repair.

          35.2 TOURS,  MEETINGS,  STUDENT  ORIENTATION  AND  RECRUITING.  Lessee
     agrees to allow Lessor access to the Leased  Property for purposes  related
     to  recruiting  and  orientation  of students.  Lessor may conduct  student
     "fairs",  orientations,  and  other  recruiting  activities  at the  Leased
     Property upon reasonable notice to Lessee.  Lessor will take all reasonable
     actions  necessary  to  prevent  disruption  to  the  conduct  of  Lessee's
     business.  Lessor and Lessee agree to cooperate  in the  scheduling  of any
     such  events  which may  potentially  result in a  disruption  of  Lessee's
     business operation."

          35.3  INDEMNITY.  Lessor hereby  indemnifies  and agrees to defend and
     hold Lessee harmless from any and all claims, demands, obligations, losses,
     liabilities,  damages,  recoveries and deficiencies which Lessee may suffer
     as the result of Lessor's  access to and activities on the Leased  Property
     pursuant to the terms of this Article XXXV  including,  without  limitation
     reasonable attorneys' fees and costs arising out of or in any way connected
     with any construction,  maintenance,  replacement or repair by Lessor,  its
     agents or contractors.

     38.  Unless  credited or delivered to Lessor at the closing of the purchase
of fee title to the Leased Property, Lessor is not in possession of any escrowed
money, security deposits,  prepaid rent or sums other than the amounts agreed to
be paid to Lessee by Lessor under the Purchase and Sale Agreement dated February
____,  2001. In the event any such escrowed money,  security  deposits,  prepaid
rents or other sums are due and payable to Lessee  which have not been  credited
or paid to Lessor, Lessee agrees to obtain payment from the Original Lessor.

     39. Lessee warrants and represents to Lessor that (i) all necessary actions
have been taken to authorize the execution of this Amendment by Lessee, (ii) the
persons who have executed this Amendment on behalf of Lessee are duly authorized
to do so, and (iii) the Lease,  as modified by this  Amendment,  constitutes the
legal,  valid and binding  obligation of Lessee,  enforceable  against Lessee in
accordance with its terms.

                                       7
<PAGE>
     Lessor  warrants and  represents to Lessee that (i) all  necessary  actions
have been taken to authorize the execution of this Amendment by Lessor, (ii) the
persons who have executed this Amendment on behalf of Lessor are duly authorized
to do so, and (iii) the Lease,  as modified by this  Amendment,  constitutes the
legal,  valid and binding  obligation of Lessor,  enforceable  against Lessor in
accordance with its terms.

     40. This  Amendment  may be executed in one or more  counterparts,  each of
which shall be deemed an original.

     41. In all other  respects  the Lease shall  remain  unchanged  and in full
force and effect. The Lease, as amended by this Amendment,  shall continue to be
binding upon the Lessor and Lessee and their permitted successors and assigns.

     IN WITNESS  WHEREOF,  Lessor and Lessee have executed this  Amendment as of
the date first above written.

                                     LESSOR:

                                     GAN YELADEEM,
                                     an Arizona non-profit corporation

                                     By /s/ Susan Heller
                                        ----------------------------------------
                                        Susan Heller, President

                                     LESSEE:

                                     THE TESSERACT GROUP, INC.,
                                     a Minnesota corporation

                                     By /s/ Lucian Spataro
                                        ----------------------------------------
                                        Lucian Spataro, President

                                       8
<PAGE>
STATE OF ARIZONA         )
                         ) SS.
COUNTY OF MARICOPA       )

         The foregoing  instrument was acknowledged  before me on February ____,
2001,  by Susan  Heller,  as president of Gan  Yeladeem,  an Arizona  non-profit
corporation on behalf of the corporation..

                                         ---------------------------------------
                                         Notary Public

My Commission Expires:

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

STATE OF                 )
                         ) SS.
COUNTY OF                )

     The foregoing instrument was acknowledged before me on February ____, 2001,
by Lucian Spatoro, as president of The Tesseract Group, a Minnesota  corporation
on behalf of the corporation.

                                         ---------------------------------------
                                         Notary Public

My Commission Expires:

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

                                       9
<PAGE>
                                    EXHIBIT A

                                LEGAL DESCRIPTION

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