Document:

EXHIBIT 10.67
                                                                   -------------

                         WARREN FIVE CENTS SAVINGS BANK

                                 REVOLVING NOTE

                                                        Wakefield, Massachusetts
$1,000,000.00
                                                        November 3, 2000

     FOR VALUE RECEIVED, the undersigned, which term wherever used herein shall
mean all and each of the signers of this Note, jointly and severally if more
than one, promises to pay to WARREN FIVE CENTS SAVINGS BANK, a Massachusetts
banking corporation duly organized by law and having a mailing address of P.O.
Box 6159, Peabody, Massachusetts 01961, (hereinafter called "Bank"), or order,
at said Bank, on demand, the aggregate unpaid principal amount of all advances
hereunder outstanding from time to time, as shown on the books and records of
said Bank, which shall be presumed to be conclusive, together with interest from
the date hereof on the unpaid principal balance from time to time outstanding at
a fluctuating per annum rate equal to the Bank's Base Rate from time to time in
effect plus one (1.00%) percent, such interest to be payable monthly in arrears,
commencing thirty (30) days from the date hereof and on the same day of each
month thereafter. The "Base Rate" is the annual rate of interest defined in the
Loan Agreement (hereinafter defined) and is published from time to time by the
Bank at its principal banking office. The applicable fluctuating rate shall
change as and when the Base Rate changes. Interest shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.

     It is a condition of this Note that the maximum aggregate amount of
advances hereunder at any one time outstanding is not to exceed the lesser of
(i) ONE MILLION AND 00/100 ($1,000,000.00) DOLLARS, or (ii) the Borrowing Base
as defined in the Loan Agreement. In the event that aggregate advances
outstanding shall exceed such amount, the undersigned will forthwith, without
demand or notice, make payment to Bank in such amount as will reduce the total
outstanding to an amount not in excess of such maximum aggregate amount. Amounts
borrowed and repaid hereunder from time to time, may be reborrowed in the
absence of the occurrence of an Event of Default as enumerated in the Loan
Agreement or a demand for payment by the Bank.

     This Note shall evidence advances and other extensions of credit made or to
be made by the Bank to the undersigned from time to time. This Note and the
liabilities, obligations and undertakings hereunder of the undersigned and any
indorsers or guarantors hereof shall not be discharged by any payment which
reduces the unpaid principal balance of such advances and

<PAGE>

other extensions of credit to zero if the Bank shall thereafter make further
advances or other extensions of credit to the undersigned, pursuant to requests
by the undersigned or otherwise.

     In the event that any advance or other extension of credit, or payment of
any obligation outstanding hereunder, shall be effected by telephone or other
oral advice to the Bank from the undersigned, or any person duly authorized by
the undersigned, such advice shall be confirmed in writing by the undersigned to
the Bank by delivery or mailing, postage prepaid, on the date of such telephone
or oral advice, an Authorization Request, a copy of which is annexed hereto as
Exhibit "A." The undersigned agrees that the Bank its officers, employees and
agents, shall not be liable for any damage, cost or loss resulting from any
action taken, upon any telephonic or other oral advice or instructions received
or believed to have been received by the Bank from the undersigned or any person
duly authorized by the undersigned.

     At the option of the Bank, this Note shall become immediately due and
payable without notice or demand upon the occurrence at any time of any one or
more of the Events of Default defined in the Loan and Security Agreement ("Loan
Agreement") of even date by and between the undersigned and the Bank, the terms
of which are incorporated herein by reference and made an integral part hereof.

     The undersigned agrees to pay, upon the occurrence of an Event of Default,
the Bank's costs of collection including reasonable fees of attorneys.

     During any time in which there is an uncured Event of Default under the
terms and provisions hereof, or the unpaid principal and interest and other
charges due the Bank are not paid when due, or during any extension thereof,
then the default rate of interest on the unpaid principal and interest then due
shall be equal to the aggregate of the contract rate of interest in effect from
time to time plus five (5.00%) percent.

     No delay or omission on the part of the Bank in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Bank, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
undersigned waives presentment, demand, protest and notices of every kind and
assents to any one or more extensions or postponements of the time of payment or
any other indulgences to any substitutions, exchanges or releases of collateral
if at any time there is available to the holder collateral for this Note, and to
the addition or release of any other parties or persons primarily or secondarily
liable.

     The undersigned hereby agrees to pay a late charge equal to five (5.00%)
percent of any installment not paid when due.

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<PAGE>

     All rights and obligations hereunder shall be governed by the law of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.

Signed in the presence of:       ANNIE'S HOMEGROWN, INC.

/s/ James F. Sterio              By /s/ PAUL B. NARDONE
--------------------                --------------------------------------------
                                    PAUL B. NARDONE, President

                                 Address:        395 Main Street
                                           -------------------------------------

                                          Wakefield, Massachusetts 01880
                                 -----------------------------------------------

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                                   EXHIBIT "A"

                               LOAN AUTHORIZATION

                                                          --------------, ----

WARREN FIVE CENTS SAVINGS BANK
P.O. Box 6159
Peabody, MA 01961

Ladies/Gentlemen:

       This authorizes you to transfer the sum of $_____________ to the
undersigned's checking account and charge the undersigned's Revolving Loan
account under the undersigned's $1,000,000.00 Revolving Note dated November 3,
2000.

                                            ANNIE'S HOMEGROWN, INC.

                                            By__________________________________EXHIBIT 10.68
                                                                   -------------

                         WARREN FIVE CENTS SAVINGS BANK

                           LOAN AND SECURITY AGREEMENT
                     BETWEEN WARREN FIVE CENTS SAVINGS BANK
                                       AND
                             ANNIE'S HOMEGROWN INC.

                                                             November 3, 2000

                                 P R E A M B L E

         ANNIE'S HOMEGROWN INC. ("Borrower") is a Delaware corporation qualified
to conduct business in the Commonwealth of Massachusetts with a principal place
of business and chief executive office at 395 Main Street, Wakefield,
Massachusetts 01880, and has requested that WARREN FIVE CENTS SAVINGS BANK, a
Massachusetts banking corporation with a mailing address of P.O. Box 6159,
Peabody, Massachusetts 01961 (the "Bank") make certain credit facilities
available to it, including a revolving line of credit, the proceeds of which
shall be available for general business purposes, secured by the personal
property owned by the Borrower.

         1. GRANT OF SECURITY INTEREST.

         The Borrower for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, hereby grants to the Bank a continuing security
interest in the Collateral (as defined in Section 3) and in the products and
proceeds thereof. The security interest granted hereby is to secure payment and
performance of all Obligations (as defined in Section 3) of Borrower to the
Bank, now existing or hereafter arising.

         2. LOANS.

         (A) Revolving Loans. The Bank hereby establishes a revolving line of
credit in the Borrower's favor pursuant to which Bank shall from time to time,
in the absence of a demand for payment or an Event of Default (as defined
herein), and based upon circumstances existing at the time of any request, make
such loans to Borrower as Borrower may request (the "Revolving Loans"). Borrower
agrees that the aggregate principal amount of loans outstanding will not exceed
at any time the lesser of (i) $1,000,000.00 (the "Credit Limit"), or (ii) the
Borrowing Base (as defined in Section 3). The Borrower acknowledges that the
Borrowing Base is designated for monitoring purposes and that the Bank is not
obligated to make any Revolving Loans, and may choose to make Revolving Loans,
in excess thereof. The revolving line of credit established hereby shall be
payable on demand. The revolving line of credit shall be evidenced by a
Revolving Note (the "Revolving Note") in the form annexed as Exhibit 2(a). All
Revolving Loans will bear interest, calculated on the basis of actual days
elapsed and a 360-day year and payable monthly in arrears at a fluctuating per
annum rate equal to the Bank's Base Rate from time to time (as defined in
Section 3) plus one (1.00%) percent. The proceeds of the Revolving Loans shall
be used for short term working capital for the Borrower.
<PAGE>

         (B) Borrower hereby authorizes and directs Bank, in Bank's sole
discretion (provided, however, Bank shall have no obligation to do so), (i) to
pay accrued interest as the same becomes due and payable pursuant to this
Agreement or pursuant to any note or other agreement between Borrower and Bank,
and to treat the same as a loan to Borrower which shall be added to Borrower's
respective loan balances pursuant to this Agreement; or (ii) upon a demand for
payment or an Event of Default, to apply the proceeds of Collateral, including
without limitation, payments on Account Receivables, and other payments from
sales or leases of Equipment or Inventory and any other funds to the payment of
such items or to the payment of any other amounts then due to Bank from
Borrower.

         3. CERTAIN DEFINITIONS. As used herein the following terms have the
meanings set forth below:

         "Accounts Receivable" means all Borrower's accounts, accounts
receivable, contract rights, notes, bills, drafts, acceptances, instruments,
documents, chattel paper and all other debts, obligations and liabilities in
whatever form owing to Borrower from any Person (as defined below) for goods
sold by it or for services rendered by it, or however otherwise established or
created, all guaranties and security therefor, all right, title and interest of
Borrower in the goods or services which gave rise thereto, including rights to
reclamation and stoppage in transit and all rights of an unpaid seller of goods
or services; whether any of the foregoing be now existing or hereafter arising,
now or hereafter received by or owing or belonging to Borrower.

         "Base Rate" [INTENTIONALLY OMITTED].

         "Borrowing Base" means the sum of the following (as shown on Bank's
records at any time):

         (a) eighty (80%) percent of the unpaid face amount of all Eligible
Accounts (as defined below), PLUS

         (b) thirty (30%) percent of Eligible Inventory, but not to exceed
$200,000.00.

         "Cash Flow" means on a trailing four quarters' basis, earnings before
gross interest expense, depreciation, amortization and income taxes, less
unfinanced capital expenditures, , less related company payments, loans and
advances(if applicable), less cash taxes paid for the period.

         "Collateral" means all Accounts Receivable, Inventory, Equipment and
Related Collateral and all other property of the Borrower or another Person (as
defined below), now owned or hereafter acquired, in which Bank is granted a Lien
hereunder, or which is designated as Collateral or in which Bank is granted a
Lien to secure any of the Obligations pursuant to an agreement supplemental
hereto or otherwise (whether or not such agreement makes reference to this
Agreement or Obligations of the Borrower hereunder).

                                       2
<PAGE>

         "Current Assets" means, at any date as of which the amount thereof
shall be determined, all assets that should, in accordance with GAAP, be
classified as current assets on the balance sheet of Borrower, which shall
include cash and cash equivalents net of Accounts Receivable and Inventory.

         "Current Liabilities" means, at any date as of which the amount thereof
shall be determined, all liabilities that should, in accordance with GAAP, be
classified as current liabilities on the balance sheet of Borrower.

         "Current Ratio" shall mean Borrower's Current Assets divided by
Borrower's Current Liabilities.

         "Debt Service Coverage Ratio" shall mean Borrower's Cash Flow divided
by Total Debt Service Requirements.

         "Debt to Worth Ratio" shall mean Borrower's Total Liabilities divided
by Tangible Net Worth, determined in accordance with GAAP.

         "Eligible Account" means an Account Receivable of the Borrower which
initially and at all times until collected in full:

         (A) is not more than ninety (90) days from the date of invoice;
provided that if at any time fifty (50%) percent or more of the aggregate amount
of the Accounts Receivable due from any account debtor are unpaid in whole or in
part more than ninety (90) days from the respective dates of invoice, from and
after such time none of the Accounts Receivable (then existing or thereafter
arising) due from such account debtor shall be deemed to be Eligible Accounts
until such time as less than fifty (50%) percent of Accounts Receivable due from
such account debtor are (as a result of actual payments received thereon) no
more than ninety (90) days from the date of invoice; accounts payable by
Borrower to an account debtor shall be netted against Eligible Accounts due from
such account debtor, and the difference (if positive) shall constitute Eligible
Accounts from such account debtor for purposes of determining the Borrowing Base
(notwithstanding paragraphs (C) and (F) below);

         (B) arose in the ordinary course of business from the domestic
performance of services or the outright sale of goods (excluding conditional
sale or sale and return); such services have been performed or such goods have
been shipped to the account debtor; and in the case of goods, the Borrower has
possession of or has delivered to Bank shipping and delivery receipts evidencing
shipment;

         (C) other than as identified on Schedule 3 hereto, is not owed by an
account debtor who is a supplier, employee or parent, subsidiary or other
affiliate of the Borrower;

         (D) is not evidenced by a promissory note or other instrument, is
subject to a perfected security interest in favor of Bank and is not subject to
any other Lien (as defined below);

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<PAGE>

         (E) is not owed by an account debtor whose principal place of business
is located outside of the United States of America (other than Canada);
provided, however, that such Account may constitute a Eligible Account (i) if
foreign credit insurance (satisfactory to Bank in all respects) is obtained for
such Account Receivable listing the Bank as an additional insured, or (ii) if it
is supported by letter(s) of credit issued to the Borrower by financial
institution(s) acceptable to Bank;

         (F) is a non-contingent obligation that is not subject to set-off,
credit, defense, warranty claim, allowance or adjustment by the account debtor
except normal discount allowed in the ordinary course for prompt payment, and
such account debtor has not complained as to its liability thereon nor returned
any of the subject goods;

         (G) did not arise out of any sale made on an advanced billing, bill and
hold, dating or delayed shipment basis the receivable for which is more than
thirty (30) days past due;

         (H) is owed by an account debtor as to which Borrower has received no
notice and has no knowledge of bankruptcy, insolvency or other facts which make
collection doubtful, and has not been turned over to a collection agency or
attorney;

         (I) the account debtor is not located in the State of New Jersey, or
the State of Minnesota or any other state denying creditors access to its courts
in the absence of such creditor's qualification to conduct business as a foreign
corporation in such state or complying with other filing or reporting
requirements unless Borrower has filed all legally required filings and reports,
obtained any necessary authorities or certificates to do business, and paid any
applicable taxes and/or fees to the applicable state agency in such state;

         (J) if owed by the United States of America, has been properly assigned
to the Bank pursuant to the Federal Assignment of Claims Act, and is not subject
to any right of offset or other claims;

         (K) has not been designated by prior written notice by Bank in its sole
discretion as unacceptable for any reason by notice to the Borrower;

         Characterization of any Account Receivable due from an account debtor
as an Eligible Account shall not be deemed a determination by Bank as to its
actual value nor in any way obligate Bank to accept any Account Receivable
subsequently arising from such account debtor to be, or to continue to deem such
Account Receivable to be, an Eligible Account; it is the Borrower's
responsibility to determine the creditworthiness of account debtors and all
risks concerning the same and collection of Accounts Receivable are with the
Borrower. All Accounts Receivable which are not Eligible Accounts also
constitute Collateral.

         "Eligible Inventory" means Inventory of the Borrower which initially
and at all times until sold is:

                                       4
<PAGE>

         (a) new and unused in first-class condition, merchantable and salable
through normal trade channels;

         (b) at a location which has been identified in writing to Bank;

         (c) subject to a perfected security interest in favor of Bank and owned
by Borrower free and clear of any lien except in favor of Bank;

         (d) not obsolete; not scrap, waste, defective goods and the like;

         (e) has been produced by Borrower in accordance with the Federal Fair
Labor Standards Act of 1938, as amended, and all rules, regulations and order
promulgated thereunder;

         (f) not stored with a bailee, warehouseman, processor or similar party
unless Bank has given its prior written consent thereto and Borrower has caused
each such bailee, warehouseman, processor or similar party to issue and deliver
to Bank warehouse receipts and lien waivers in Bank's name for such inventory,
and in the case of processors, unless such are goods segregated and labeled as
belonging to Borrower or Borrower has perfected its interest therein by
retaining a security interest therein and filing financing statements against
such processor pursuant to ss.9-315 of the Uniform Commercial Code;

         (g) has not been designated by Bank in its reasonable discretion as
unacceptable for any reason by notice to Borrower;

         (h) is and has been since the date of this Agreement valued for
financial reporting purposes on a basis consistent with the basis applied for
prior financial periods and net of all reserves established by Borrower; and

         (i) not held on consignment by a customer unless (i) Borrower has
perfected its interest therein by filing financing statements against such
customer and by prior notification of secured parties of such customer as
required by ss.2-326(3)(c) and 9-114 of the Uniform Commercial Code, (ii) Bank
has consented in writing that such Inventory is eligible, and (iii) such
consignor has acknowledged Bank's first priority claim in such Inventory. The
provisions of this paragraph shall not be deemed a consent by bank to Borrower's
establishment of any consignment relationship.

         "Equipment" means Borrower's machinery, equipment, furnishings,
fixtures and other goods (as defined in Article 9 of the Uniform Commercial
Code) which is not Inventory, whether now owned or thereafter acquired by
Borrower and wherever located, all replacements and substitutions therefor or
accessions thereto and all proceeds thereof, and including, also without
limitation, all proceeds of fire or other insurance covering the aforesaid
property.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended. "Plan" means any employee plan subject to provisions of Title IV of
ERISA maintained for

                                       5
<PAGE>

employees of Borrower, any subsidiary of Borrower or any other trade or business
under common control with Borrower within the meaning of Section 414(c) of the
Internal Revenue Code or the regulations thereunder. "Reportable Event" means
any reportable event as defined in ERISA. "PBGC" means the Pension Benefit
Guaranty Corporation.

         "Financial Statements" means the balance sheet of Borrower as of March
31, 2000, statement of income, and changes in financial position, and notes
thereto, of Borrower for the years or, as appropriate, quarter ended on such
dates, reviewed by independent certified public accountants of recognized
standing to present fairly the financial position and results of operations of
Borrower at such dates and for such periods in accordance with GAAP, together
with all future financial statements whether prepared by management of the
Borrower or certified public accountants on behalf of Borrower.

         "GAAP" means generally accepted accounting principles applies
consistently as was done in the preparation of the Financial Statements, with
such changes or modifications thereto as may be approved in writing by the Bank.

         "Indebtedness" shall mean, with respect to any Person (as defined
below), (i) all indebtedness for borrowed money or for the deferred purchase
price of property or services, and all obligations under leases which are or
should be, under generally accepted accounting principles, recorded as capital
leases, in respect of which such Person is directly or contingently liable as
obligor, guarantor, endorser or otherwise, or in respect of which such Person
otherwise assures a creditor against loss, (ii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by (or
for which the holder has an existing right, contingent or otherwise, to be
secured by) any Lien upon property (including without limitation accounts
receivable and contract rights) owned by such Person, whether or not such Person
has assumed or become liable for the payment thereof, and (iii) all other
liabilities or obligations which would, in accordance with generally accepted
accounting principles, be classified as liabilities of such Person.

         "Inventory" means all inventory of the Borrower of whatever name,
nature, kind or description, all goods held for sale or lease or to be furnished
under contracts of service, finished goods, work in process, raw materials,
materials used or consumed by Borrower, parts, supplies, all wrapping,
packaging, advertising, labelling, and shipping materials, devices, names and
marks, all contracts rights and documents relating to any of the foregoing,
whether any of the foregoing be now existing or hereafter arising, wherever
located, now owned or hereafter acquired by Borrower.

         "Lien" means any mortgage, pledge, assignment, lien, charge,
encumbrance or security interest of any kind whatsoever, or the interest of a
vendor or lessor under a conditional sale, title retention or capital lease
agreement.

         "Obligation(s)" means all loans, advances, debts, liabilities,
obligations (including without limitation for reimbursement in connection with
guaranties and letters of credit), agreements, undertakings, covenants and
duties owing or to be performed or observed by the

                                       6
<PAGE>

Borrower to or in favor of Bank, of every kind and description (whether or not
evidenced by any note or other instrument; for the payment or money; arising out
of this Agreement or any other agreement between Bank and the Borrower or any
other instrument of Borrower in favor of Bank; arising out of or relating or
similar to transactions described herein; or contemplated as of the date
hereof), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising.

         "Person" means any individual, partnership, firm, association, business
enterprise, trust, estate, company, joint venture, governmental authority,
corporation or other entity.

         "Prime Rate" means the annual rate of interest published in the Eastern
Edition of the Wall Street Journal under the heading "Money Rates" representing
the base rate on corporate loans posted by at least seventy-five (75%) percent
of the nation's thirty (30) largest banks. The effective interest rate
applicable to Borrower's Revolving Loans shall change on the date of each change
in the Prime Rate. Principal and interest shall be payable to Bank's office in
Peabody in lawful money of the United States of America without set-off,
deduction or counterclaim. Borrower authorizes Bank to charge any of its deposit
account(s) with Bank for all payments hereunder. Borrower also agrees and
acknowledges that all loans are secured by the Collateral and constitute
Obligations.

         "Related Collateral" means all Borrower's general intangibles; trade
names, marks and secrets; patents, trademarks, copyrights and other intellectual
property; customer lists; goodwill; cash; deposit accounts; tax refunds; claims
under insurance policies (whether or not proceeds of other Collateral); rights
of set off; rights under judgments; tort claims and choses in action; computer
programs and software; books and records including without limitation all
electronically recorded data); contract rights; and all contracts and agreements
to or of which it is a party or beneficiary, whether any of the foregoing be now
existing or hereafter arising, now or hereafter received by or belonging to
Borrower.

         "Tangible Net Worth" shall mean Borrower's Total Assets determined in
accordance with GAAP, consistently applied, subtracting therefrom Total
Liabilities and intangibles, including goodwill ( as determined in accordance
with such principles so applied).

         "Total Assets" means, at any date as of which the amount thereof shall
be determined, all assets that should, in accordance with GAAP, be classified as
all assets on the balance sheet of the Borrower.

         "Total Debt Service Requirements" means on a trailing four quarters'
basis regularly scheduled payments of principal and/or interest and amounts due
under any capitalized leases.

         "Total Liabilities" means at any date as of which the amount thereof
shall be determined, all obligations that shall, in accordance with GAAP, be
classified as liabilities on the balance sheet of the Borrower, including, in
any event, all Indebtedness.

                                       7
<PAGE>

         "Uniform Commercial Code". The following terms which are defined in the
Massachusetts Uniform Commercial Code shall, unless the context otherwise
requires, have the same meanings herein: "account", "account debtor", "chattel
paper", "document", "general intangible", "inventory", "instrument", and
"proceeds".

         Accounting terms used and not otherwise defined in this Agreement have
the meanings determined by, and all calculations with respect to accounting or
financial matters unless otherwise provided herein shall be computed in
accordance with, GAAP.

         4. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
(and at the time of each loan hereunder shall be deemed to represent and
warrant) to Bank that:

         (A) Borrower is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware and is duly qualified to
do business and is in good standing in every other state in which such
qualification may be necessary by reason of the nature or location of Borrower's
assets or operations;

         (B) The execution, delivery and performance of Borrower's obligations
hereunder are within its powers, have been duly authorized by all necessary
corporate action and other action, require no action by or in respect of, or
filing with, any governmental authority, and do not contravene or constitute a
default under any of the charter, by-laws, or other constituent documents of
Borrower or, to the knowledge of Borrower under any provision of applicable law
or regulation or any judgment, order, decree, injunction or material agreement
or other instrument by which it or any of its properties may be bound, or result
in creation or imposition of any Lien on any of their assets except in favor of
Bank;

         (C) This Agreement has been duly executed and delivered by and
constitutes a valid and binding agreement of the Borrower, enforceable against
Borrower in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency or other similar law affecting creditors' rights
generally;

         (D) Borrower's Financial Statements which have been furnished to Bank
have been prepared in accordance with GAAP applied on a basis consistent with
that of prior financial periods and are true and correct and fairly present its
financial position as at the close of business on the date(s) thereof and the
results of its operations during the period(s) covered thereby (other than
interim periods, which lack notes and other presentation items required by
GAAP). Borrower has no liabilities, contingent or otherwise, involving material
amounts which are not disclosed in said statements or the notes thereto. Since
the date of the most recent of such statements there has occurred no material
adverse change in its financial condition or business;

         (E) It owns all of the assets reflected in the most recent of such
Financial Statements, except assets sold or otherwise disposed of in the
ordinary course of business since the date thereof, and such assets together
with any assets acquired since such date, including without limitation the
Collateral, are subject to no Liens except (i) as reflected in such statement or
the notes thereto or (ii) in favor of Bank;

                                       8
<PAGE>

         (F) Borrower's charter documents have been duly filed and are in proper
order. All its respective books and records are accurate and up-to-date;

         (G) Borrower has made or filed all tax returns, reports and
declarations relating to any material tax liability required by any jurisdiction
to which it is subject (any tax liability which may result in a Lien on any
Collateral being hereby deemed material); has paid all taxes shown or determined
to be due thereon except those being contested in good faith; and has made
adequate provision for the payment of all taxes so contested or in respect of
subsequent periods;

         (H) To Borrower's knowledge, it (i) is subject to no charter, corporate
or other legal restriction, or any judgment, award, decree, order, governmental
rule or regulation or contractual restriction which could have a material
adverse effect on its financial condition, business or prospects, and (ii) is in
compliance with its charter documents, and by-laws, all contractual requirements
by which it or any of its properties may be bound and all applicable laws, rules
and regulations (including without limitation those relating to environmental
protection) other than laws, rules or regulations the validity or applicability
of which it is contesting in good faith or provisions of any of the foregoing
the failure to comply with which cannot reasonably be expected to materially
adversely affect its financial condition, business or prospects or the value of
any Collateral;

         (I) There is no action, suit, proceeding or investigation pending or,
to its knowledge, threatened against or affecting it or any of its assets before
or by any court or other governmental authority which, if determined adversely
to it, would have a material adverse effect on its financial condition, business
or prospects or the value, title or extent of any Collateral;

         (J) It is in compliance with ERISA; no Reportable Event has occurred
and is continuing with respect to any Plan; and it has no unfunded vested
liability under any Plan.

         (K) Its principal executive office and the office where it keeps its
records concerning its Accounts Receivable and other assets is (and has been for
more than four (4) months prior to the date of this Agreement) that shown at the
beginning of this Agreement, and all of its Equipment and other goods are stored
at that location and the locations set forth on Schedule 4(m);

         (L) To the best of its knowledge, Borrower has taken all necessary
action to assess, evaluate and correct all of the hardware, software, embedded
microchips and other processing capabilities it uses in its primary business
operations, to ensure that it will be able to function accurately and without
interruption or ambiguity using date information before, during and after
January 1, 2000.

         5. BORROWER'S REPORTS AND NOTICES. Borrower will deliver to Bank:

         (A) within twenty (20) days after the close of each monthly fiscal
period, a Borrowing Base Certificate for the Borrower in form reasonably
attached hereto as Exhibit 5(A), together with (if required and as frequently as
requested by Bank) copies of invoices, sales journals and

                                       9
<PAGE>

schedules of credit memorandums relating to such Accounts Receivable and an
Inventory valuation report;

         (B) within twenty (20) days after the close of each monthly fiscal
period of Borrower, a monthly Accounts Receivable aging report in form
reasonably satisfactory to Bank showing a total amount due to the Borrower from
each account debtor, breaking down the receivables by days past due as follows:
0-30 days, 31-60 days, 61-90 days and 91 days plus;

         (C) within forty-five (45) days after the close of each quarterly
fiscal period of Borrower, quarterly financial statements including a balance
sheet and statement of profit and loss reflecting the financial condition of the
Borrower at the end of such period and the results of its operations during such
period, such balance sheet and statement of profit and loss to be certified by
Borrower's chief financial officer to fairly present its financial condition at
the end of such period and the results of its operations during such period in
accordance with GAAP (other than with respect to interim periods, which lack
notes and similar presentation items), consistently applied, subject to changes
resulting from year-end audit adjustments;

         (D) annually, as soon as available but in any event within ninety (90)
days after the close of each fiscal year of Borrower, a full and complete signed
copy of a financial statement or statements prepared on an audited basis, by
independent certified public accountants reasonably acceptable to Bank (it being
acknowledged that KPMG LLP is acceptable to the Bank), which shall include a
balance sheet of Borrower and all of its related affiliates and subsidiaries as
at the end of such year, a statement of profit and loss, a statement of cash
flows of Borrower;

         (E) promptly, such other information concerning the Borrower, the
Collateral, the operation of Borrower's business or its financial condition and
copies of such governmental filings and other documentation as Bank may from
time to time reasonably request;

         (F) promptly notice of:

                  (a) any event described in Section 10 or any event which, with
         notice or lapse of time or both, might become such an event;

                  (b) any change of Borrower's officers, directors, and key
         employees, change of location of its principal offices, change of
         Borrower's name, any sale or purchase out of the ordinary course of
         Borrower's business and any other material change in the business or
         financial affairs of Borrower or any change in the legal status of the
         Borrower;

                  (c) the institution or commencement of any action, suit,
         proceeding or investigation against or affecting Borrower or any of its
         assets which, if determined adversely to Borrower, could have a
         material adverse effect on the financial condition, business or
         prospects of Borrower or the value, title or extent of any Collateral;

                  (d)    any judgment, award, decree, order or determination
         relating thereto;

                                       10
<PAGE>

                  (e) the imposition or creation of any Lien, other than taxes
         that are not yet due and payable, against any asset of Borrower except
         in favor of Bank;

                  (f) any Reportable Event, together with a statement of
         Borrower's Secretary as to the details thereof and a copy of its notice
         thereof to the PBGC;

                  (g) any potential or known release or threat of release of
         hazardous or toxic chemicals, materials or oil from any site owned or
         operated by Borrower or the incurrence of any expense or loss in
         connection therewith or upon Borrower's obtaining knowledge of any
         investigation, action or the incurrence of any expense or loss by any
         governmental authority in connection with the containment or removal of
         any hazardous or toxic chemical, material or oil for which expense or
         loss Borrower may be liable or potentially responsible; or

                  (h) any loss or destruction of Collateral or other material
         assets whether or not covered by insurance;

         (G) immediately after receipt or filing, a copy of (i) any notice it
may receive from the PBGC relating to the PBGC's intention to terminate or
appoint a trustee to administer any Plan and (ii) any report or notice relating
to any Reportable Event which Borrower may file under ERISA with the PBGC, the
Internal Revenue Service or the United States Department of Labor; and

         (H) if requested by Bank, within five (5) days after the accrual in
accordance with applicable law of Borrower's obligation to make deposits for
F.I.C.A and withholding taxes, evidence reasonably satisfactory to Bank that
such deposits have been made as required.

         6. BANK'S REPORTS. After the end of each month, Bank will render to
Borrower a statement of Borrower's loan account with Bank hereunder, showing all
applicable credits and debits. Each statement shall be considered correct and to
have been accepted by Borrower and shall be conclusively binding upon Borrower
in respect of all charges, debits and credits of whatsoever nature contained
therein under this Agreement, and the closing balance shown therein, unless
Borrower notifies Bank in writing of any discrepancy within thirty (30) days
from the date of any such statement.

         7.     BORROWER'S AFFIRMATIVE COVENANTS. Borrower agrees that it will:

         (A) maintain property and liability insurance with responsible
insurance companies (and with deductibles) satisfactory to Bank in such amounts
and covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas as Borrower
operates;

         (B) maintain insurance naming Bank as first mortgagee and/or loss payee
with responsible insurance companies (and with deductibles) satisfactory to Bank
covering Borrower's Equipment, Inventory, and other insurable Related
Collateral, in such amounts as is

                                       11
<PAGE>

usually carried by companies engaged in similar businesses and in any event not
less than Bank may from time to time require, and deliver to Bank copies of such
insurance policies (and all renewals thereof) together with lender's loss
payable endorsements naming Bank as secured party, executed by the insurer(s),
such policies to provide that coverage may not be modified or terminated without
thirty (30) days prior notice to the Bank;

         (C) maintain its existence in good standing, and its qualification to
do business in good standing in every state in which such qualification may be
necessary by reason of the nature or location of its assets or operations, and
comply with its operating agreement, charter documents, and by-laws, all
contractual requirements by which it or any of its properties may be bound and
all applicable laws, rules and regulations (including without limitation ERISA
and those relating to environmental protection) other than laws, rules or
regulations the validity or applicability of which the Borrower shall contest in
good faith or provisions of any of the foregoing the failure to comply with
which cannot reasonably be expected to materially adversely affect the financial
condition, business or prospects of Borrower or the value, title or extent of
any Collateral;

         (D) continue to engage primarily in its respective present business and
maintain and preserve all of its properties necessary for the conduct thereof in
good working order and condition, ordinary wear and tear excepted;

         (E) pay and discharge all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or property, or upon this Agreement
or any notes evidencing Obligations, including without limitation taxes,
assessments, charges or levies relating to real and personal property, the
Collateral, franchises, income, unemployment, old age benefits, withholding, or
sales or use, prior to the date on which penalties attach thereto, and all
lawful claims (whether for any of the foregoing or otherwise) which, if unpaid,
might give rise to a Lien upon any property of Borrower, except any of the
foregoing which is being contested in good faith and by appropriate proceedings
and for which Borrower has established adequate reserves; and

         (F) establish and maintain its primary operating accounts with the
Bank.

         8. BORROWER'S NEGATIVE COVENANTS. Without the prior written consent of
Bank:

         (A) Borrower will not permit its Debt To Worth Ratio to be greater than
1.00:1.00 as of each fiscal year end, to be tested at each fiscal year end;

         (B) Borrower will not permit its Tangible Net Worth to be less than
$1,800,000.00 as of each fiscal year end, to be tested at each fiscal year end;

         (C) Borrower will not permit its Current Ratio to be less than
2.00:1.00 as of each fiscal year end, to be tested at each fiscal year end;

                                       12
<PAGE>

         (D) Borrower will achieve and maintain a minimum net profit at each
fiscal year end of $100,000.00;

         (E) Borrower will not sell, assign, exchange or otherwise dispose of
any of the Collateral (other than Collateral consisting of (i) scrap, waste,
defective goods and the like; (ii) obsolete goods; and (iii) finished goods,
including used equipment, sold in the ordinary course of business) or any
interest therein to any other Person;

         (F) Borrower will not create, permit to be created or suffer to exist
any Lien upon any of the Collateral or any other property of Borrower, now owned
or hereafter acquired, except: (i) landlord's carriers', warehousemen's,
mechanics and other similar Liens arising by operation of law in the ordinary
course of Borrower's business; (ii) arising out of pledges or deposits under
workmen's compensation, unemployment insurance, old age pension, social
security, retirement benefits or other similar legislation; (iii) purchase money
Liens arising in the ordinary course of business (so long as the Indebtedness
secured thereby does not exceed $10,000.00 in the aggregate and such Lien
extends to no other property); or (iv) in favor of Bank;

         (G) other than as required by agreements to which the Borrower is a
party as of the date of this Agreement, Borrower will not pay any dividends on
or make any distribution on account of any of Borrower's stock; or redeem,
purchase or otherwise acquire, directly or indirectly, any of such interest;
provided, however, that if the Borrower is in compliance with all the covenants,
terms, and provisions of this Agreement, Borrower may make distributions to its
shareholders during any fiscal year of Borrower to satisfy in whole or in part
the amount necessary to pay federal and state income taxes upon Borrower's
undistributed income for such year (so long as such distribution will not cause
Borrower to be in default of any of the foregoing financial covenants);

         (H) Borrower will not enter into any lease or other transaction with
any director, shareholder, officer or affiliate on terms any less favorable than
those which might be obtained at the time from persons who (or entities which)
are not such a director, shareholder, officer or affiliate;

         (I) Borrower will not make any loans or advances to any Person,
including without limitation Borrower's directors, shareholders, officers, and
employees, except advances to directors, officers, or employees with respect to
expenses incurred by them in the ordinary course of their duties which are
properly reimbursable by Borrower;

         (J) Borrower will not assume, guaranty, endorse or otherwise become
directly or contingently liable in respect of (including without limitation by
way of agreement, contingent or otherwise, to purchase, provide funds to or
otherwise invest in a debtor or otherwise to assure a creditor against loss),
any Indebtedness (except guaranties by endorsement of instruments for deposit or
collection in the ordinary course of business) of any Person;

         (K) Borrower will not merge or consolidate with or into any
corporation, or enter into any joint venture or partnership with any person,
firm or corporation; convey, lease or transfer or

                                       13
<PAGE>

otherwise dispose of any substantial part of its assets or business (whether in
one or more transactions) except for the sale of Inventory in the ordinary
course of its business;

         (L) Borrower will not incur any Indebtedness exceeding $10,000.00 in
the aggregate other than (i) trade debt and ordinary operating expenses incurred
in the ordinary course of Borrower's business, or (ii) Obligations owed to the
Bank.

         9. ADDITIONAL COVENANTS AS TO FURTHER SECURITY AND ASSURANCES.

         (A) Borrower will at all times maintain sufficient Collateral in which
Bank has a perfected first-rank security interest to ensure that loans
outstanding hereunder do not in the aggregate exceed the Borrowing Base from
time to time in effect, and shall immediately make such principal payments as
may at any time to be necessary to eliminate any such excess.

         (B) Borrower will notify Bank, at least thirty (30) days prior to any
such event, of any change in Borrower's exact legal name, any change in its
place(s) of business or locations(s) of Equipment, or other goods as set forth
in Section 4 or its establishment of any new place of business or location of
Inventory or office where its records concerning Accounts Receivable and other
assets are kept.

         (C) At Bank's request, Borrower at its expense (i) will promptly and
duly execute and deliver such documents and assurances and take such actions as
may be necessary or desirable or as Bank may request in order to correct any
defect, error or omission which may at any time be discovered or in order to
more effectively carry out the intent and purpose of this Agreement and to
establish, perfect and protect Bank's security interest, rights and remedies
created or intended to be created hereunder and (ii) without limiting the
generality of the above, will join with Bank in executing financing and
continuation statements pursuant to the Uniform Commercial Code or other notices
appropriate under applicable Federal or state law in form satisfactory to Bank
and filing the same in all public offices and jurisdictions wherever and
whenever requested by Bank (including without limitation upon the occurrence of
any event referred to in paragraph (B) above or (F) below).

         (D) Upon an Event of Default under the Revolving Loans and expiration
of applicable grace or cure periods (if any), if the Bank shall so require,
Borrower will, immediately upon receipt of all checks, drafts, cash and other
remittances in payment of any Collateral sold or on account of Borrower's
Accounts Receivable (including without limitation tax refunds, insurance
proceeds and notes), hold the same in trust for Bank and deliver the same to
Bank in the form received together with Borrower's endorsement thereon where
necessary to permit collection thereof. Bank will credit all such payments
(conditional upon final collection) against interest accrued on or principal of
loans outstanding hereunder; PROVIDED THAT for purposes of computing interest,
Borrower shall not be given credit for items subject to collection until three
(3) business days after their receipt by Bank (For purposes of determining the
Borrowing Base, Borrower shall be given immediate credit for the same). The
order and method of application shall be in Bank's sole discretion and proceeds
which in Bank's discretion are not so applied shall

                                       14
<PAGE>

be credited to Borrower's deposit account(s) with Bank. Bank will at all times
have the right to require Borrower (i) to enter into a lockbox arrangement with
Bank for the collection of such remittances and payments or (ii) to maintain its
deposit accounts at Bank or, in the alternative, at another financial
institution which has agreed to accept drafts drawn on it by Bank under a
written depository transfer agreement with Bank, and to block Borrower's account
and waive its own rights as against such account.

         (E) Bank will at any time following the occurrence of any Event of
Default hereunder have the right to take physical possession of the Collateral
and to maintain such possession on Borrower's premises or to remove the
Collateral or any part thereof to such other places as Bank may desire. If Bank
exercises such right, Borrower shall upon Bank's request assemble the same and
make it available to Bank at a place reasonably convenient to Bank. If any
Collateral is in the possession or control of any of Borrower's agents or
processors, Borrower shall at Bank's request (before or after Demand) notify
them of Bank's security interest therein and, at Bank's request, instruct them
to hold the same for Bank's account and subject to Bank's instructions.

         (F) Borrower shall perform any and all further steps requested by Bank
to perfect Bank's security interest in Equipment and Inventory. A physical
listing of all Inventory, Equipment, and other goods, wherever located, shall be
taken by Borrower at least annually and whenever reasonably requested by Bank,
the cost of which shall be borne by the Bank.

         (G) Bank may at any time (i) in its own name or in the name of others
communicate with account debtors in order to verify with them to Bank's
satisfaction the existence, amount and terms of any Accounts Receivable and the
absence of any reductions, discounts, defenses or offsets with respect thereto
or (ii) notify account debtors that Collateral has been assigned to Bank and
that payments by such account debtors shall be made directly to Bank. At Bank's
request Borrower will notify any or all such account debtors of such assignment,
give instructions and/or indicate on billings to such account debtors that their
Accounts Receivable shall be paid to Bank and/or supply such account debtors
with a copy of this Agreement.

         (H) Bank shall have full power, in its own name or that of Borrower, to
collect, endorse, compromise, settle, sell or otherwise deal with any or all of
the Collateral or proceeds thereof. Borrower does hereby make, constitute and
appoint any officer or agent of Bank as Borrower's true and lawful
attorney-in-fact, with power of substitution: (i) to endorse the name of
Borrower or any of its trustees, officers, or agents upon any notes, checks,
drafts, money orders, or other instruments of payment (including under any
policy of insurance on Collateral) or Collateral that may come into possession
of Bank in full or part payment of any amounts owing to Bank; (ii) to sign and
endorse the name of Borrower or any of its members, trustees, officers, or
agents upon any invoice, freight or express bill, bill of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with Accounts Receivable, and any instruments or documents
relating thereto or to Borrower's rights therein; (iii) to give written notice
to such offices and officials of the United States Postal Service to effect such
change or changes of address so that all mail addressed to Borrower may be
delivered directly to Bank; (iv) to take any and all other actions necessary or
appropriate to collect, compromise, settle, sell or otherwise deal with any or
all of the Collateral or proceeds thereof; and (v) to obtain, adjust,

                                       15
<PAGE>

settle and cancel any insurance referred to in this Agreement; hereby granting
to each said attorney-in-fact or his substitute full power to do any and all
things necessary or appropriate to be done in and about the premises as fully
and effectually as Borrower might or could do, and hereby ratifying all that any
said attorney-in-fact or his substitute shall lawfully do or cause to be done by
virtue hereof. Provided, however, that except to the extent reasonably necessary
to Bank's usual and good faith administration of the loans, the foregoing powers
and appointment shall not be exercised until after the occurrence of an event
described in Section 10.

         (I) Borrower hereby assigns to Bank all sums, including without
limitation return of premiums, which may become payable under any policy of
insurance on Collateral and directs each insurance company issuing any such
policy to make payment thereof directly to Bank.

         (J) If any Accounts Receivable arise from contracts with the United
States or any department, agency or instrumentality thereof, Borrower will
immediately notify Bank thereof and execute any instruments and take any steps
requested by Bank in order that all monies due and to become due thereunder
shall be assigned to Bank and notice thereof given to the Federal authorities
under the Federal Assignment of Claims Act.

         (K) In its sole discretion if Borrower has not done so prior to
cancellation or imposition of any penalties (as applicable), Bank may: (i)
discharge taxes and Liens levied or placed on Collateral; (ii) pay for insurance
thereon or the maintenance and preservation thereof; or (iii) if Borrower shall
fail to make deposits in respect of F.I.C.A. and withholding taxes referred to
in Section 5, make such deposits or pay such taxes, in whole or in part, or set
up such reserves as sank shall in its sole discretion deem necessary in respect
of Borrower's liability on any of the foregoing. Any amount so paid, deposited
or reserved for shall constitute a loan for all purposes hereunder. Nothing
herein shall be deemed to obligate Bank to do any of the foregoing and the
making of any one or more such payments, deposits or reserves shall not
constitute an agreement by Bank to take any further or similar action or a
waiver of any right of Bank hereunder.

         (L) Borrower will at all times keep accurate records of the Collateral
and will permit Bank or its agents or representatives at any reasonable time,
(using Bank's usual reasonable examination practices and procedures) and from
time to time to visit Borrower's place(s) of business, without hindrance or
delay, to inspect Inventory and other goods and examine, check, audit and make
copies and abstracts from Borrower's records and books of account (including
without limitation corporate minutes, and records, journals, orders, receipts
and correspondence relating to Collateral, account debtors, transactions
unrelated to Collateral and Borrower's general financial condition, business and
affairs); to remove any of such books and records temporarily for the purpose of
having copies made; and to discuss with any of Borrower's appropriate directors,
officers and employees the Collateral and Borrower's general financial
condition, business and affairs.

         (M) Borrower hereby grants to Bank, for a term commencing on the date
hereof and continuing so long as any of the Obligations remain outstanding, at a
rental of $1.00 for such entire term, the right to the use of all premises or
places of business which Borrower now or hereafter may have and where any
Collateral may be located; PROVIDED THAT Bank agrees

                                       16
<PAGE>

not to exercise such right unless and until after the occurrence of any one or
more of the events described in Section 10 hereof or until Bank determines to
exercise its rights against Collateral hereunder.

         (N) Borrower hereby grants to Bank for a term to commence on the date
of this Agreement and continuing thereafter until all debts and Obligations of
any kind or character owed to Bank are fully paid and discharged, a
non-exclusive, irrevocable, royalty-free license in connection with the Bank's
exercise of its rights hereunder, to use, apply or affix any trademark,
servicemark, tradename, logo or the like and to use any patents, franchises,
licenses, and goodwill in which the Borrower now or hereafter has rights, which
license may be used by Bank upon and after the occurrence of any one or more of
the events described in Section 10 hereof. This license shall be in addition to,
and not in lieu of, the inclusion of all of Borrower's trademarks, servicemarks,
tradenames, logos, goodwill, patents, franchises and licenses in the related
Collateral.

         (O) If any Accounts Receivable are at any time evidenced by promissory
notes, trade acceptances or other instruments for the payment of money, Borrower
will immediately deliver the same to Bank appropriately endorsed to Bank's order
and, regardless of the form of such endorsement, Borrower hereby waives
presentment, demand, notice of dishonor, protest, notice of protest and all
other notices with respect thereto.

         (P) Intentionally Deleted.

         (Q) In the event of the sale, exchange or disposition of any of the
Collateral, other than finished goods in the ordinary course of business, or any
interest therein (and no such sale, exchange or other disposition is hereby
authorized or consented to), Bank's security interest shall nevertheless
continue in such Collateral (including without limitation all proceeds, cash and
non-cash) notwithstanding such sale, exchange or other disposition; all of said
proceeds shall remain Collateral hereunder and shall be transferred and paid
over to Bank immediately, and shall be applied at Bank's option to the payment
of Obligations; and Bank's receipt of any such proceeds shall not be deemed or
construed to be an authorization of or consent to any such sale, exchange or
other disposition.

         (R) Any and all deposits or other sums at anytime credited by or due
from Bank to Borrower shall at all times constitute security for Obligations and
may be set-off against any Obligations at any time whether or not they are then
due or other security held by Bank is considered by Bank to be adequate. Any and
all instruments, documents, policies and certificates of insurance, securities,
goods, accounts, choses in action, general intangibles, chattel paper, cash,
property and the proceeds thereof (whether or not the same are Collateral or
proceeds thereof) owned by Borrower or in which Borrower has an interest, which
now or hereafter are at any time in possession or control of Bank or in transit
by mail or carrier to or from Bank or in the possession of any third party
acting in Bank's behalf, without regard to whether Bank received the same in
pledge, for safekeeping, as agent for collection or transmission or otherwise or
whether Bank had conditionally released the same, shall constitute security for
Obligations and may be applied at any time to Obligations which are then owing,
whether due or not due. Bank

                                       17
<PAGE>

shall be entitled to presume, in the absence of clear and specific written
notice to the contrary hereinafter provided by Borrower to Bank that any and all
deposits maintained by Borrower with Bank are general accounts as to which no
person or entity other than Borrower has any legal or equitable interest
whatsoever.

         (S) All advances by Bank to Borrower under this Agreement and under any
other agreement constitute one general loan, and all indebtedness of Borrower to
Bank under this and under any other agreement constitute one general Obligation.
Each advance to Borrower hereunder or otherwise shall be made upon the security
of all of the Collateral held and to be held by Bank. It is expressly understood
and agreed that all of the rights of Bank contained in this Agreement shall
likewise apply, insofar as applicable, to any modification of or supplement to
this Agreement and to any other agreements between Bank and Borrower. Any
default of this Agreement by Borrower shall constitute, likewise, a default by
Borrower of any other existing agreement with Bank, and any default by Borrower
of any other agreement with Bank shall constitute a default of this Agreement.
The entire Obligation of Borrower to Bank shall become due and payable when
payments become due and payable hereunder upon termination of the Agreement.

         10. EVENTS OF DEFAULT. Although the Bank may demand payment of all sums
due under the Note at any time, the Bank, at its option may also declare the
entire principal balance of the Revolving Loans and all accrued unpaid interest
thereon to be immediately due and payable without demand, notice or protest
(which is hereby waived) upon the occurrence of any more of the following events
("Events of Default").

         (A) failure by Borrower to pay any amount when due under this Agreement
or any note, including, but not limited to, the notes referred to in Section 2
of this Agreement, after the expiration of any applicable grace period;

         (B) failure by Borrower to pay upon demand (or when due, if not payable
on demand) any other Obligation;

         (C) failure by Borrower to perform, discharge, observe or comply with
any Obligation (other than for payment) in accordance with the terms thereof,
provided that the Borrower will have a period of not less than five (5) business
days to cure any such default;

         (D) any representation, warranty or statement of Borrower to Bank
heretofore, now or hereafter made in connection with any Obligation (including
without limitation any made in a document provided by Borrower under Section 5)
is found to have been false or misleading in any material respect as of the time
when made;

         (E) occurrence of any event of default as defined in any other
instrument evidencing or governing Indebtedness of Borrower (other than
Obligations) now or hereafter outstanding, or any event or condition which
entitles any holder or trustee of such Indebtedness to accelerate its maturity;

                                       18
<PAGE>

         (F) Borrower's dissolution, liquidation, termination, dissolution or
ceasing to carry on actively any substantial part of its current business;

         (G) commencement by Borrower of a voluntary proceeding seeking relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law, or seeking appointment of a trustee, receiver, liquidator or other
similar official for it or any substantial part of its assets; or its consent to
any of the foregoing in an involuntary proceeding against it; or Borrower shall
generally not be paying its debts as they become due or admit in writing its
inability to do so; or an assignment for the benefit of, or the offering to or
entering into by Borrower of any composition, extension, reorganization or other
agreement or arrangement with, its creditors;

         (H) commencement of an involuntary proceeding against Borrower seeking
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law, or seeking appointment of a trustee, receiver, liquidator or other
similar official for it or any substantial part of its assets, which proceeding
remains undismissed and unstayed for sixty (60) days; or entry of an order for
relief against Borrower in any such proceeding;

         (I) service upon Bank of a writ naming Bank as trustee for Borrower, or
of any other similar process of attachment;

         (J) entry of any uninsured judgment or judgments against Borrower which
is not dissolved within thirty (30) days of entry;

         (K) attachment of any Lien not permitted hereunder upon property of
Borrower not in favor of Bank without Bank's prior written consent and such lien
is not dissolved or bonded over to the satisfaction of the Bank within thirty
(30) days of its attachment;

         (L) entry of any court order which enjoins, restrains or in any way
prevents Borrower from conducting all or any part of its business;

         (M) [Intentionally Omitted];

         (N) any loss, theft, damage or destruction to or of any material
asset(s) of Borrower not covered by insurance;

         (O) reclamation or repossession of, or any action by a creditor to
reclaim or repossess not dismissed within 30 days, any material asset(s) of
Borrower;

         (P) there shall occur and be continuing any Reportable Event which
constitutes grounds for termination of or for appointment by a United States
district court of a trustee to administer any Plan; the PBGC shall institute
proceedings to terminate or to appoint a trustee to administer any Plan; a
United States district court shall appoint a trustee to administer any Plan; or
any Plan shall be terminated in circumstances giving rise to liabilities having
a material adverse effect on Borrower's financial condition; or

                                       19
<PAGE>

         (Q) termination of, failure to make any payment required under or any
other default under any guaranty of or other instrument or agreement securing
any of the Obligations.

         11. BANK'S RIGHTS AND REMEDIES UPON DEFAULT. Following the occurrence
of any one or more of the events described in Section 10 above:

         (A) (i) If it has not already done so, Bank may decline to make any or
all further loans hereunder; (ii) All Obligations shall become immediately due
and payable at Bank's option without notice to Borrower; (iii) Borrower shall be
obligated to deliver to Bank cash collateral in an amount equal to the aggregate
amounts then undrawn on all letters of credit or outstanding on acceptances
issued by Bank for Borrower's account; (iv) Bank may proceed to enforce payment
of any of the foregoing and shall have and may exercise any and all rights under
the Uniform Commercial Code or which are afforded to Bank herein or otherwise;
and (v) all Obligations (including without limitation principal, interest
accrued to the time of demand, amounts payable under Section 12 or upon entry of
any judgment) shall bear interest payable on demand at the rate per annum five
(5.00%) percent in excess of the contract rate of interest otherwise payable;
and

         (B) Bank may sell, lease or otherwise dispose of and deliver any or all
Collateral at public or private sale, for cash, upon credit or otherwise, at
such prices and upon such terms as Bank deems advisable in its sole discretion.
Any requirement of reasonable notice shall be met if such notice is mailed
postage prepaid to Borrower at its address set forth herein at least ten (10)
days before the time of sale or other disposition. Bank may be the purchaser at
any such sale, if it is public, and in such event Bank shall have all rights of
a good faith, bona fide purchaser for value from a secured party after default.
The proceeds of any sale may be applied (in whatever order and manner Bank
elects in its sole discretion) to all costs and expenses of sale (including
without limitation reasonable attorneys fees and disbursements) and to the
payment of Obligations, and any remaining proceeds shall be applied in
accordance with Article 9, Part 5, of the Uniform Commercial Code. Borrower
shall remain liable to Bank for any deficiency.

         12. ATTORNEYS FEES, INDEMNIFICATION, ETC.

         (A) Borrower shall pay to Bank on demand any and all expenses,
including, but not limited to, a collection charge on all Accounts collected,
all attorneys' fees and expenses, and all other expenses of like or unlike
nature which may be expended by the Bank to obtain or enforce payment of any
Account Receivable either as against the account debtor, Borrower, or any
guarantor or surety of Borrower or in the prosecution or defense of any action
or concerning any matter growing out of or connected with the subject matter of
this Agreement, the Obligations or the Collateral or any of Bank's rights or
interests therein or thereto, including, without limiting the generality of the
foregoing, any counsel fees or expenses incurred in any bankruptcy or insolvency
proceedings, and all costs and expenses incurred or paid by Bank in connection
with the administration, supervision, protection or realization on any security
held by Bank for the debt secured hereby, whether such security was granted by
Borrower or by any other person primarily or secondarily liable (with or without
recourse) with respect to such debt, and all costs

                                       20
<PAGE>

and expenses incurred by Bank in connection with the defense, settlement or
satisfaction of any action, claim or demand asserted against Bank in connection
with the debt secured hereby, all of which amounts shall be considered advances
to protect Bank's security, and shall be secured hereby. At its option, and
without limiting any other rights or remedies, Bank may at any time pay or
discharge any taxes, liens, security interests or other encumbrances at any time
levied against or placed on any of the Collateral, and may procure and pay any
premiums on any insurance required to be carried by Borrower, and provide for
the maintenance and preservation of any of the Collateral, and otherwise take
any action reasonably deemed necessary to Bank to protect its security, and all
amounts expended by Bank in connection with any of the foregoing matters,
including reasonable attorneys' fees, shall be considered Obligations of
Borrower and shall be secured hereby.

         (B) Bank shall be authorized to make loans hereunder upon the oral or
written request in the name of Borrower of (i) the Person executing this
Agreement on Borrower's behalf; (ii) the Person(s) from time to time holding the
office of President or Treasurer of Borrower; and (iii) such other Persons as
Borrower may from time to time designate in appropriate certificates of
resolutions delivered to Bank. All such loans shall be conclusively deemed to
have been authorized by Borrower and to have been made pursuant to duly
authorized requests therefor on its behalf. Bank shall further be entitled to
rely on any communication, instrument or document believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person(s), and
with respect to all legal matters shall be entitled to rely on advice of legal
counsel.

         (C) In the absence of gross negligence or willful misconduct, neither
Bank nor any attorney-in-fact pursuant to Section 9 shall be liable to Borrower
or any other Person for any act or omission, any mistake of fact or any error of
judgment in exercising any right or remedy granted herein.

         (D) Bank shall be entitled to retain Collateral or require substitution
therefor to the extent required to assure Bank of satisfaction of Borrower's
Obligations under this Section 12.

         13. MISCELLANEOUS PROVISIONS.

         (A) Unless otherwise specified herein, all notices hereunder shall be
in writing, if to Borrower, addressed to it at its address recited in the
Preamble of this Agreement, and if to Bank, at P.O. Box 6159, Peabody,
Massachusetts 01961, Attention: Frank P. Romano, Vice President. Written notices
and communications shall be effective and shall be deemed received on the day
when delivered by hand or sent by facsimile transmission; on the next day if by
commercial courier and on the third day after sending if by registered or
certified mail, postage prepaid.

         (B) No failure to exercise and no delay in exercising on the part of
Bank, any right or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right or remedy. Waiver by Bank of any
right or remedy on any one occasion shall not be construed as a bar to or waiver
thereof or of any other right or remedy on any future occasion. Without limiting
the generality of the foregoing, Borrower expressly agrees that no failure by
Bank to detect or to

                                       21
<PAGE>

communicate with Borrower or take action in response to any failure by Borrower
to perform of observe any Obligation shall operate as a waiver of any right or
remedy of Bank; Bank's rights and remedies hereunder, under any agreement or
instrument supplemental hereto or under any other agreement or instrument shall
be cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law.

         (C) This Agreement shall be binding upon and shall inure to the benefit
of Borrower and Bank and their respective successors and assigns; PROVIDED THAT
Borrower may not assign or transfer any rights or Obligation hereunder without
Bank's prior written consent.

         (D) The headings contained herein are for convenience only and shall
not affect the construction hereof. If one or more provisions of this Agreement
(or the application thereof) shall be invalid, illegal or unenforceable in any
respect in any jurisdiction, the same shall not, to the fullest extent permitted
by applicable law, invalidate or render illegal or unenforceable such provision
(or its application) in any other jurisdiction or any other provision of this
Agreement (or its application). This Agreement is the entire agreement of the
parties with respect to the subject matter hereof and supersedes any prior
written or verbal communications or instruments relating thereto.

         (E) This Agreement shall continue in full force and effect so long as
any of the Obligations remains outstanding or has not been fully and finally
paid, performed or satisfied.

         (F) Borrower acknowledges that the transactions contemplated hereby are
commercial transactions and waives, to the fullest extent it may do so under
applicable law, such rights as it may have or hereafter have to notices and/or
hearings under applicable Federal or state laws relating to exercise of any of
Bank's rights, including without limitation the right to deprive Borrower of or
affect its use, possession or enjoyment of property prior to rendition of a
final judgment against Borrower.

                                       22
<PAGE>

         14. GOVERNING LAW; JURISDICTION.

         (A) This Agreement shall take effect as a sealed instrument and shall
be governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts.

         (B) Borrower irrevocably submits to the non-exclusive jurisdiction of
any Federal or state court sitting in Massachusetts over any suit, action or
proceeding arising out of or relating to this Agreement. Borrower irrevocably
waives, to the fullest extent it may effectively do so under applicable law, any
objection it may have or hereafter have to the laying of the venue of any such
suit, action or proceeding brought it may have or hereafter have to the laying
of the venue of any such suit, action or proceeding brought in any such court
and any claim that the same has been brought in an inconvenient forum. Any
Borrower not located in Massachusetts irrevocably appoints the Secretary of
State of the Commonwealth of Massachusetts as its authorized agent to accept and
acknowledge on its behalf any and all process which may be served in any such
suit, action or proceeding, consents to such process being served either (i) by
mailing a copy thereof by registered or certified mail, postage prepaid, return
receipt requested, to Borrower's address in the preamble to this Agreement or
(ii) by serving the same upon such agent and agrees that such service shall in
every respect be deemed effective service upon Borrower, but only if and in the
event the Bank is unable to effect regular service upon Borrower at the address
set forth herein or at such other address as Borrower may subsequently designate
as its principal place of business.

         Executed as an instrument under seal on the date first above written.

Signed in the presence of:              ANNIE'S HOMEGROWN INC.

/s/ James F. Sterio                     By /s/ PAUL B. NARDONE
--------------------                       -------------------------------------
                                           PAUL B. NARDONE, President

                                        WARREN FIVE CENTS SAVINGS BANK

                                        By /s/ FRANK P. ROMANO
                                           -------------------------------------
                                           FRANK P. ROMANO, Vice President

                                       23

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